NORWOOD, Mass., Nov. 9 /PRNewswire-FirstCall/ -- Elcom
International, Inc. (OTC Bulletin Board: ELCO; AIM: ELC and ELCS),
today announced operating results for its third quarter ended
September 30, 2005. Financial Summary Table (Unaudited) (in
thousands, except per share amounts) Quarter Ended Nine Months
Ended September 30, September 30, 2005 2004 2005 2004 Net revenues
$ 547 $ 667 $ 1,924 $ 2,974 Gross profit 436 607 1,585 2,777
Operating loss (1,050) (1,053) (3,010) (2,143) Net loss $(1,115)
$(1,106) $(3,209) $(2,351) Basic and diluted net loss per share $
(0.02) $ (0.02) $ (0.05) $ (0.05) Basic and diluted weighted
average common shares outstanding 61,282 61,282 61,282 49,557 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, June 30 and
September 30, 2005 (to be filed in the next several days) and 2004
Annual Report on Form 10-K, as amended. Net revenues for the
quarter ended September 30, 2005 decreased to $547,000 from
$667,000 in the same period of 2004, a decrease of $120,000, or
18%. Professional services revenue decreased by $153,000 primarily
due a decrease in customer "go lives" on the eProcurement Scotland
program, where three customers went live in the 2004 period, while
no customers went live in the 2005 quarter. Elcom anticipates that
two or three eProcurement Scotland customers will go live in the
fourth quarter of 2005. License, hosting and other fees increased
primarily as a result of the Company's larger customer base in the
2005 quarter, versus the 2004 period. License, hosting and other
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 September 30, 2005
decreased 28% to $436,000 from $607,000 in the comparable 2004
quarterly period, reflecting the decreased revenues recorded in the
third quarter of 2005, as well as the increased costs of certain
ongoing implementations. Selling, general and administrative
expenses ("S,G&A") for the quarter ended September 30, 2005
were $1,317,000 compared to $1,564,000 in the third quarter 2004, a
decrease of $247,000 or 16%. Throughout 2003, the Company
implemented cost containment measures designed to better align its
S,G&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 two, from 38 at March 31, 2004 to 36
at September 30, 2005. Moreover, due to a change in the mix of
personnel, as well as the $73,000 increase in the third quarter of
2005 in research and development expense and the $51,000 increase
in cost of revenues (both of which are generally comprised of
allocated personnel costs) over the 2004 quarter, the personnel
expenses in S,G&A decreased approximately $248,000 from the
September 2004 quarter to the September 2005 quarter. S,G&A in
the third quarter of 2005 also reflects increases in certain
facility related costs, reflecting the impact of inflation, and a
net reduction in legal and public company expenses, as well as a
reduction in depreciation and amortization expense of $84,000, as
various Company assets have been fully depreciated/amortized.
Research and development expense for the quarters ended September
30, 2005 and 2004 were $169,000 and $96,000, respectively. The
increase in research and development expense in the third quarter
of 2005 compared to the third quarter of 2004 was due primarily to
ongoing work, begun in late 2004, associated with various
enhancements to improve the data interchange, settlement work flow,
user definable fields, porting system capabilities, enhanced
inbound interfaces, and reporting system capabilities of the
Company's PECOS technology. The Company reported an operating loss
of $1,050,000 for the quarter ended September 30, 2005 compared to
a loss of $1,053,000 reported in the comparable quarter of 2004,
which was essentially unchanged, reflecting the net impact of the
decrease in net revenues from the 2004 period, which was offset by
a similar decrease in operating expenses in the 2005 quarter,
versus the 2004 quarter. Net revenues for the nine months ended
September 30, 2005 decreased to $1,924,000 from $2,974,000 in the
same period of 2004, a decrease of $1,050,000, or 35%. License,
hosting and other fees decreased in the first nine months of 2005
versus the same period of 2004 primarily due to recording the
fourth and final lump sum license payment from Capgemini 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, hosting and other
fees include license fees, hosting fees, supplier fees, usage fees,
and maintenance fees. Professional services fees decreased by
$118,000, from $558,000 in 2004 to $440,000 in 2005, primarily due
to a decrease in customer "go lives" on the eProcurement Scotland
program, where seven customers went live in the 2004 period, while
only three customers went live in the 2005 period. Professional
services revenue includes implementation fees, integration fees and
other professional services. Gross profit for the nine months ended
September 30, 2005 decreased to $1,585,000 from $2,777,000 in the
comparable 2004 nine-month period, a decrease of $1,192,000. This
decrease is primarily a result of the much higher level of one-time
license, hosting and other fees revenue recorded in the first nine
months of 2004 versus revenues recorded in the first nine months of
2005. S,G&A for the nine months ended September 30, 2005 was
$4,085,000 compared to $4,702,000 in the first nine months of 2004,
a decrease of $617,000 or 13%. Throughout the first three quarters
of 2003, the Company implemented cost containment measures designed
to better align its S,G&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 $292,000
increase in research and development expense and the $142,000
increase in cost of revenues (both of which are generally comprised
of allocated personnel costs) in the first nine months of 2005 over
the first nine months of 2004, the personnel expenses in S,G&A
decreased approximately $698,000 from the first nine months of 2004
compared to the same period of 2005. S,G&A in the first nine
months of 2005 also reflects a $236,000 reduction in depreciation
and amortization expense versus the first nine months of 2004, as
various Company assets have been fully depreciated/amortized. These
decreases are partially offset by increases in certain facility
related costs, reflecting the impact of inflation, as well as the
comparative effect of one-time, non-recurring credits negotiated
with two service providers totaling $192,000 recorded in the first
nine months of 2004. Research and development expense for the nine
months ended September 30, 2005 and 2004 was $510,000 and $218,000,
respectively. The increase in expense in the first nine months of
2005 compared to the first nine months of 2004 was due primarily to
ongoing work, begun in late 2004, associated with various
enhancements to improve the data interchange, settlement work flow,
user definable fields, porting system capabilities, enhanced
inbound interfaces, and reporting system capabilities of the
Company's PECOS technology. The Company reported an operating loss
of $3,010,000 for the nine months ended September 30, 2005 compared
to a loss of $2,143,000 reported in the comparable nine months of
2004, an increase of $867,000 in the reported loss. This larger
operating loss in the first nine months of 2005 compared to the
first nine months of 2004 was primarily due to the one-time
increase in license, hosting and other fees revenue recorded in the
first quarter of 2004, as described above. Robert J. Crowell, Elcom
International, Inc.'s Chairman and CEO said, "Elcom filed a Form-8K
with the SEC on August 18, 2005 describing Elcom's signing of a
material contract as a subcontractor to PA Shared Services Limited,
a subsidiary of PA Consulting Group UK plc, to implement our PECOS
and associated systems as part of an eMarketplace to be built and
offered to public sector entities in the U.K. Even with quarterly
revenues lower than last year's quarter, this contract, in
conjunction with two major initiatives in the U.S. now in the pilot
stage, combined with our existing customer base, have placed Elcom
in an excellent position to build market awareness and revenues in
the future." Mr. Crowell continued, "As disclosed in our SEC
filings, Elcom has been the recipient of loans from myself and the
Vice Chairman which, combined with much larger amounts periodically
advanced from non-U.S. investor(s), have allowed Elcom to operate
with cash levels to operate and deploy additional resources towards
our new contract in the U.K. and our other initiatives. We expect
some of these loans to be a part of our anticipated strategic
funding, which while overdue for completion, continues to be
expected in the near future. Once accomplished, Elcom will be
unique in its market positioning and most importantly, ready to
take advantage of that positioning. I am more excited by far about
Elcom's future than last year." Additional general information can
be found at the following information address/URL:
'http://europa.eu.int/idabc/en/document/4986/194' The Company does
not endorse or confirm any specific information in these articles
as they have been published by the IDABC European Government
Services of the European Commission. Factors Affecting Future
Performance A significant portion of the Company's revenues are
from license and associated fees received from Capgemini UK plc
("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 public entities associated with
the Scottish Executive; renewal by existing public entity clients
of their rights to use the ePurchasing solution; the procurement of
additional services from the Company by public entities associated
with the Scottish Executive; Capgemini's relationship with 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, the Company intends to commit incremental
resources to provide the eProcurement and eMarketplace components
of the Zanzibar eMarketplace for public sector organizations in the
U.K. under its agreements with PA Consulting Group UK plc and its
wholly-owned subsidiary, PA Shared Services Ltd. ("PASSL"). Future
revenue under this arrangement is contingent primarily on the
timing and rate of adoption by U.K. Public Entities of the Zanzibar
eMarketplace, as well as the timing and level of costs incurred to
develop the required infrastructure to support the architecture of
the Zanzibar eMarketplace (which is not expected to reach stage 1
completion until the first quarter of 2006), and the ability of the
consortium, as a whole, to operate on a profitable basis. If
further business fails to develop under the Capgemini agreement or
the U.S. Initiatives or if the Zanzibar eMarketplace does not
attract a profitable level of clients, or if the Company is unable
to perform under any of these agreements, it would have a material
adverse affect on the Company's future financial results. In
November of 2005, the Company intends to obtain additional capital
via the issuance and sale of common shares solely to non- U.S.
investors in an offshore transaction pursuant to Regulation S and
to list any such shares on the AIM Exchange, which, if consummated
as anticipated, is expected to result in substantial dilution to
its stockholders. The Company expects to raise approximately 3.0
million pounds sterling (approximately $5.3 million) in this
offering at a substantial discount to the current market price of
its common stock on the Over The Counter Bulletin Board. Failure to
consummate this expected AIM Exchange offering or other near-term
financing, such as additional bridge loans or customer advances,
would likely force the Company to curtail operations and/or seek
protection under bankruptcy laws in November of 2005. The foregoing
does not constitute an offer to sell or the solicitation of an
offer to buy shares of the Company's common stock. 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 November of 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 $187,000
balance of cash and cash equivalents at September 30, 2005 and its
history of ongoing operating losses; (ii) the ability of the
Company to perform under its contracts with Capgemini and PASSL,
given its financial position; (iii) the overall marketplace and
client's acceptance and usage of eCommerce software systems,
eProcurement and eMarketplace solutions including demand therefor
by both Scottish and U.K. public entities, 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; (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 expected sale of common stock on the AIM Exchange (in
London), during November 2005, the Company will be forced to
curtail 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, June 30,
and September 30, 2005, which the Company plans to in the next
several days. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited, in thousands, except per share data) Three Months Ended
Nine Months Ended September 30, September 30, 2005 2004 2005 2004
Net Revenues License, hosting and other fees $505 $472 $1,484
$2,416 Professional services 42 195 440 558 Total net revenues 547
667 1,924 2,974 Cost of revenues 111 60 339 197 Gross profit 436
607 1,585 2,777 Operating Expenses: Selling, general and
administrative 1,317 1,564 4,085 4,702 Research and development 169
96 510 218 Total operating expenses 1,486 1,660 4,595 4,920
Operating loss (1,050) (1,053) (3,010) (2,143) Interest and other
income (expense), net 6 7 6 (18) Interest expense (71) (60) (205)
(190) Net loss before taxes (1,115) (1,106) (3,209) (2,351) Income
taxes -- -- -- -- Net loss (1,115) (1,106) (3,209) (2,351) Foreign
currency exchange adjustment, net of tax 14 20 39 25 Comprehensive
loss $(1,101) $(1,086) $(3,170) $(2,326) Basic and diluted net loss
per share $(0.02) $(0.02) $(0.05) $(0.05) Weighted average number
of basic and diluted shares outstanding 61,282 61,282 61,282 49,557
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited, in thousands)
September 30, December 31, 2005 2004 ASSETS CURRENT ASSETS: Cash
and cash equivalents $187 $390 Accounts receivable, net 197 307
Prepaids and other current assets 183 53 Total current assets 567
750 PROPERTY, EQUIPMENT AND SOFTWARE, NET 758 1,019 OTHER ASSETS 31
10 NON-CURRENT ASSETS OF DISCONTINUED OPERATIONS 49 48 $1,405
$1,827 LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES:
Loans payable $936 $-- Other current liabilities 5,266 3,429
Current liabilities of discontinued operations 310 303 Total
current liabilities $6,512 $3,732 Long term liabilities 459 573
Convertible debentures, net of discount 444 362 Total liabilities
7,415 4,667 TOTAL STOCKHOLDERS' DEFICIT (6,010) (2,840) $1,405
$1,827 AT THE COMPANY: Investor Relations E-mail: DATASOURCE: Elcom
International, Inc. CONTACT: Investor Relations, Web site:
http://www.elcom.com/
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