NORWOOD, Mass., April 3 /PRNewswire-FirstCall/ -- Elcom
International, Inc. (OTC:ELCOOTC:andOTC:AIM:OTC:ELCOTC:andOTC:ELCS)
(BULLETIN BOARD: ELCO and AIM: ELC and ELCS) , today announced
operating results for its year ended December 31, 2005. Financial
Summary Table (in thousands, except per share amounts) Year Ended
December 31, 2005 2004 Net sales $2,714 $3,807 Gross profit 1,996
3,347 Operating loss from continuing operations (4,242) (3,005) Net
loss $(5,840) (3,272) Basic and diluted net loss per share $(0.08)
$(0.06) Basic and diluted weighted average common shares
outstanding 72,173 52,504 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 and 2004 Annual
Report on Form 10-K, as amended, as well as the Company's 2005
annual report on Form 10-KSB. Year ended December 31, 2005 compared
to the year ended December 31, 2004 Net Revenues. Net revenues for
the year ended December 31, 2005 decreased to $2,714,000 from
$3,807,000 in 2004, a decrease of $1,093,000, or 29%, primarily due
to decreases in licence, hosting services and professional services
revenues earned during 2005 versus revenues earned in 2004.
Licence, hosting services and other fees decreased in 2005 versus
2004 primarily due to recording the fourth and final lump sum
licence payment from Capgemini UK Plc ("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
licence fee is non-recurring). Licence, hosting services and other
fees include licence fees, hosting service fees, supplier fees,
usage fees, and eMarketplace fees. Professional services fees
decreased by $177,000, from $810,000 in 2004 to $633,000 in 2005,
primarily due to a decrease in customer "go lives" on the
eProcurement Scotland program, where nine customers went live in
2004, while only four customers went live in 2005. Professional
services revenue includes implementation fees, integration fees and
other time and material based professional services fees. The
Company continues to experience less than anticipated demand in the
U.S. and very long sales cycles in the U.K. Based on its existing
licence and hosting agreements the Company currently has a
recurring annual revenue base of approximately $2.1 million,
however, Elcom anticipates increases in revenues will result from
its Zanzibar eMarketplace during 2006. Revenues from Capgemini
associated with the Scottish Executive Department of the Government
of Scotland (the "Scottish Executive"), comprised 53%, and 67%, of
net revenues for the years ended December 31, 2005 and 2004,
respectively. Gross Profit. Gross profit for the year ended
December 31, 2005 decreased to $1,996,000 from $3,347,000 in 2004,
a decrease of $1,351,000, or 40%. This decrease is primarily a
result of the one-time licence revenue recorded in 2004 versus
revenues recorded in 2005. In addition, the Company recorded a
higher level of cost of revenues in 2005 versus those recorded in
2004, primarily as a result of increased personnel time required to
support its increased customer base, to a large degree related to
the larger number of Public Entities participating in the
eProcurement Scotland program. Selling, General and Administrative
Expenses. Selling, general and administrative expenses ("SG&A")
for the year ended December 31, 2005 decreased to $5,413,000 from
$6,032,000 for the year ended December 31, 2004, a reduction of
$619,000 or 10%. 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
remained in place throughout 2004, 2005 and to-date in 2006. 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 $505,000
increase in research and development expense and the $258,000
increase in cost of revenues (which reflect an increase in
allocated personnel costs of $656,000) in 2005 over 2004, the
personnel expenses in SG&A decreased approximately $641,000 in
2005 compared to 2004. SG&A in 2005 also reflects a $265,000
reduction in depreciation and amortization expense versus 2004, as
various Company assets have been fully depreciated/amortized. These
decreases are partially offset by a $170,000 increase in SG&A
related to recording the Company's estimated share of Zanzibar
eMarketplace-related administrative costs, increases in certain
facility related costs, the impact of inflation, as well as the
comparative effect of one-time, non-recurring credits negotiated
and recorded in 2004 with two service providers. The Company
believes that its current level of SG&A, taking into account
the levels of research and development and costs of revenues,
approximates the amounts recorded in 2005. The Company anticipates
that it will add certain additional personnel in 2006, if its
customer base increases. Research and Development Expenses.
Research and development expenses for the year ended December 31,
2005 and 2004 were $825,000 and $320,000, respectively, an increase
of $505,000 in 2005 over 2004. The increase in expense in 2005
compared to 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, many of
which were completed in 2005. In addition, in late 2005 Elcom also
commenced development of new software for supplier directories,
marketplace portals, client sign on, as well as various additional
interfaces to other software. Certain of these items are related to
the Zanzibar eMarketplace, and will also be included in Elcom's
offerings to other customers and potential customers. Operating
Loss. The Company reported a loss from operations of $4,242,000 for
the year ended December 31, 2005 compared to $3,005,000 reported
for the year ended December 31, 2004, an increase in the operating
loss of $1,237,000 or 41%. The higher operating loss from
continuing operations in 2005 was due primarily to the decrease in
revenues recognized in 2005 versus 2004, as discussed above.
Interest Expense. Interest expense for the year ended December 31,
2005 was $1,605,000, an increase of $1,354,000 over the $251,000 of
interest expense recorded for the year ended December 31, 2004. The
increase in interest expense is due primarily to $1,419,000
recorded in 2005 as non-cash amortization of the beneficial
conversion feature ("BCF") on the Company's ten-year 10% Senior
Convertible Debentures due 2013 ("Debentures"). The BCF was
increased by $517,000 in 2005 as a result of the adjustment of the
per share conversion price from $0.1246 to $0.04643. The per share
conversion price of the Debentures was adjusted on a weighted
average basis as a result of the issuance of the 2005 Regulation S
Shares at a price less than the original Debenture per share
conversion price. The incremental $517,000 of BCF and the
unamortized balance of BCF of $902,000 as of December 31, 2004,
were both expensed in 2005 as a result of the automatic conversion
of the Debentures and accumulated accrued interest thereon, into
common stock of the Company as a result of a change in control of
Elcom, as further described in Note (6) Stockholders' Equity, in
the Notes to the Company's December 31, 2005 consolidated financial
statements. The BCF is initially recorded as an offset to the
Debenture liability and a credit to paid-in-capital. Interest
expense, not including the non-cash amortization of BCF amounts
("Non-BCF Interest") was $186,000 in 2005 and $143,000 in 2004. The
increase in the level of Non-BCF Interest expense is due to the
increased level of bridge loans received in 2005 in order for Elcom
to continue operations. Of the $186,000 Non-BCF Interest expense
incurred in 2005, $145,000 was satisfied by the issuance of common
stock in 2005, and the balance was paid in cash in late 2005 or
early 2006. Of the $143,000 Non-BCF Interest expense recorded in
2004, $127,000 represents interest on the Debentures which was
satisfied by issuance of common stock in 2005, and the balance was
paid in cash. Interest and Other Income (Expense), Net. Interest
and other income (expense), net, for the year ended December 31,
2005 was income of $7,000 versus an expense of ($16,000), for the
year ended December 31, 2004. The change from 2004 to 2005 is
largely due to translation gains in 2005, resulting from loans from
non-U.S. investors denominated in sterling, while in 2004, the
Company incurred exchange (losses) associated with loans payable to
Capgemini in 2004 (see Note (3) Loans Payable, in the Notes to
Company's consolidated financial statements). In 2004 sterling
gained value against the dollar, while in 2005, sterling lost value
against the dollar. Net Loss From Discontinued Operations. The
Company did not record income or expense from discontinued
operations in 2005 or 2004, and does not anticipate significant
further income or expense from discontinued operations. The Company
has accrued $62,000 for liabilities related to discontinued
operations at December 31, 2005, and used cash of $241,000 during
2005 in satisfying certain of the liabilities. Net Loss. The
Company generated a net loss for the year ended December 31, 2005
of $5,840,000, versus a net loss of $3,272,000 for the year ended
December 31, 2004, an increase in the loss of $2,568,000, or 78%,
primarily as a result of the decrease in revenues and the increase
in non-cash interest expense, as described above. Basic and diluted
net loss per share for the year ended December 31, 2005 were
($0.08), compared with a basic and diluted net loss from total
operations per share of ($0.06) for the year ended December 31,
2004. The increase in the loss per share reflects the increased net
loss as discussed above, net of the substantial increase in shares
outstanding as a result of the Company's issuances of common stock
in December 2005. Actual shares outstanding increased by 550% as a
result of the offering, from approximately 61 million shares to 399
million shares, while the weighted average shares outstanding
increased by 38% from approximately 53 million shares to 72 million
shares, reflecting the December 2005 timing of the common stock
issuances. Factors Affecting Future Performance A significant
portion of the Company's revenues are from licence 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 Public Entities associated with
the Scottish Executive; renewal by existing Public Entity clients
associated with the Scottish Executive 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 PASSL and PA. 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, including
stage one (of three stages) which was accepted in February 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 if the Zanzibar eMarketplace does not
attract a profitable level of clients, or if the U.S. Initiatives
do not expand as expected, 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. Outlook As
evidenced by the level of SG&A, research and development, and
cost of revenues, the Company's expenditures in 2005 have remained
relatively flat as compared to 2004, and well below the levels in
years prior to 2004. The Company's implementation of cost
containment programs has significantly reduced its expenses and
cash requirements from previous levels. Although the Company has
been able to maintain a reduced level of operating expenses, the
Company expects that its operating loss will continue through 2006.
Improvements in revenues and operating results from operations in
future periods will not occur without the Company being able to
generate incremental operating revenues from existing and new
clients. STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM
ACT Except for the historical information contained herein, the
matters discussed in this Annual Report on Form 10-KSB 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
ability of the Company to retain key executives; (ii) the necessity
for the Company to generate incremental operating revenues and
whether this objective can be met given the overall marketplace and
client's acceptance and usage of eCommerce software systems,
eProcurement and eMarketplace solutions including corporate demand
therefor, the impact of competitive technologies, products and
pricing, particularly given the substantially larger size and scale
of certain competitors and potential competitors, and control of
expenses, revenue growth; (iii) the consequent results of
operations given the aforementioned factors; and (iv) the necessity
of the Company to achieve profitable operations within the
constraints of its existing resources, and if it can not, the
availability of incremental capital funding to the Company and
other risks detailed from time to time in its 2005 Annual Report on
Form 10-KSB and in its other SEC reports and statements, including
particularly the Company's "Risk Factors" contained in the
prospectus included as part of the Company's Registration Statement
on Form S-3 filed on June 21, 2002. The Company assumes no
obligation to update any of the information contained or referenced
in its 2005 Annual Report on Form 10-KSB. 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, as well as the Company's 2005 annual report on Form 10-KSB.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited, in
thousands, except per share data) For the year ended December 31,
2005 2004 Net revenues: Licence hosting services and other fees
$2,081 $2,997 Professional services 633 810 2,714 3,807 Cost of
sales 718 460 Gross profit 1,996 3,347 Operating Expenses: Selling,
general and administrative 5,413 6,032 Research and development 825
320 Total operating expenses 6,238 6,352 Operating loss (4,242)
(3,005) Interest expense (1,605) (251) Interest and other income
(expense), net 7 (16) Income loss before income taxes (5,840)
(3,272) Income taxes -- -- Net loss (5,840) (3,272) Comprehensive
income (loss), net of tax (29) 33 Comprehensive loss $(5,869)
$(3,239) Basic and diluted net loss per share $(0.08) $(0.06)
Weighted average number of basic and diluted shares outstanding
72,173 52,504 CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited, in
thousands) December 31, December 31, 2005 2004 ASSETS CURRENT
ASSETS: Cash and cash equivalents $6,399 $390 Accounts receivable,
net 503 307 Prepaids and other current assets 119 53 Total current
assets 7,021 750 PROPERTY, EQUIPMENT AND SOFTWARE, NET 743 1,019
OTHER ASSETS 10 10 NON-CURRENT ASSETS OF DISCONTINUED OPERATIONS --
48 $7,774 1,827 LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT
LIABILITIES: Loans payable $1,299 -- Other current liabilities
4,765 3,429 Current liabilities of discontinued operations 62 303
Total current liabilities 6,126 3,732 Other long term liabilities
423 573 Convertible debentures, net of discount -- 362 Total
liabilities 6,549 4,667 TOTAL STOCKHOLDERS' EQUITY (DEFICIT) 1,225
(2,840) $7,774 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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