NORWOOD, Mass., May 15 /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 first quarter ended March 31, 2006.
Financial Summary Table (Unaudited) (in thousands, except per share
amounts) Quarter Ended March 31, 2006 2005 Net revenues $893 $613
Gross profit 756 497 Operating loss (1,113) (1,075) Net loss
(1,079) (1,136) Basic and diluted net loss per share $(--) $(0.02)
Basic and diluted weighted average common shares outstanding
400,005 61,282 The above table, the following description and the
appended condensed consolidated financial statements should be read
in conjunction with the Risk Factors and other information
contained in the Company's 2005 Annual Report on Form 10-KSB, as
amended, as well as the Company's Form 10-QSB for the period ended
March 31, 2006. Net Revenues. Net revenues for the quarter ended
March 31, 2006 increased to $893,000, from $613,000 in the same
period of 2005, an increase of $280,000, or 46%. License, hosting
services and other fees increased from $495,000 in the 2005 quarter
to $559,000 in the 2006 quarter, an increase of $64,000, or 13%.
This increase is primarily due to an increase in the level of
customers in the eProcurement Scotland Program. License, hosting
services and other fees include license fees, hosting service fees,
supplier fees, usage fees, and eMarketplace agent fees.
Professional services fees increased by $216,000, to $334,000 in
2006 from $118,000 in 2005, reflecting an increase in Capgemini
implementations, from one in the first quarter of 2005 to three in
the first quarter of 2006. In addition, certain additional
non-recurring professional services were rendered to Capgemini in
the first quarter of 2006 to enhance the eProcurement Scotland
Program software system. Gross Profit. Gross profit for the quarter
ended March 31, 2006 increased to $756,000 from $497,000 in the
comparable 2005 quarterly period, an increase of $259,000, or 52%.
This increase is primarily a result of the higher level of one-time
professional services revenues recorded in the first quarter of
2006 as described above, versus such revenues recorded in the first
quarter of 2005. The Company records its costs of professional
services as incurred because it can not be assured its efforts will
meet the specific client requirements, and only records the
professional services revenues when the client requirements and all
revenue recognition requirements are met. In the case of certain
professional services revenues recorded in the first quarter of
2006, a portion of the related cost of sales was recorded in the
fourth quarter of 2005. Selling, General and Administrative
Expenses. Selling, general and administrative ("SG&A") expenses
for the quarter ended March 31, 2006 were $1,539,000 compared to
$1,452,000 in the 2005 quarter, an increase of $87,000, or 6%.
Because of the cash constraints experienced by Elcom over the last
several years, Elcom has operated with as few personnel as
possible, and certain of its personnel are compensated at below
market rates. In April 2006, the Company began to hire additional
personnel, and during late 2005 and through the first quarter of
2006, Elcom has also engaged third party contractors in order to
address the increasing level of its business activity. The
Company's headcount (full and part-time) has decreased by two, from
38 at March 31, 2005 to 36 at March 31, 2006, but the Company
expects headcount to increase in the next several quarters, and the
Company also plans to provide raises to certain personnel whose
compensation is below the market rate. Accordingly, Elcom
anticipates that its SG&A will also increase in future
quarters. Nonetheless, due to a change in the mix of personnel, as
well as the increase in the first quarter of 2006 in research and
development expense (which is generally comprised of personnel and
third party contractor costs) over the 2005 quarter, the personnel
expenses in SG&A remained flat from the 2005 first quarter to
the 2006 first quarter. The primary reasons for the increase in
SG&A in the first quarter of 2006 as compared to the first
quarter of 2005 are: an increase in legal and accounting fees,
related to the change in control of the Company, and the initial
implementation of SFAS 123R requiring the expensing of stock based
compensation (stock options), which was not required in the first
quarter of 2005. Increases in travel expenses and management
information systems expenses were generally offset by a reduction
in depreciation and amortization expense, as various Company assets
have been fully depreciated/amortized. Research and Development
Expense. Research and development expense for the quarters ended
March 31, 2006 and 2005 were $330,000 and $120,000, respectively,
reflecting an increase in 2006 of $210,000 over the expense
recorded in the first quarter of 2005. The increase in expense in
2006 compared to 2005 was due primarily to ongoing work associated
with various enhancements to improve the data interchange, and
enhanced inbound interface capabilities of the Company's PECOS
technology. In addition, in late 2005 Elcom also commenced
development of new software for supplier directories, marketplace
portals, client sign on, request for quotation module, as well as
various additional interfaces to other software. Certain of these
items were completed in the first quarter of 2006, and are
primarily related to the Zanzibar eMarketplace, but will also be
included in Elcom's offerings to other customers and potential
customers. In the first quarter of 2006, research and development
expense included approximately $100,000 of third party consulting
expense and $17,000 of stock-based compensation expense, while in
the first quarter of 2005 all expenses were internal and
stock-based compensation expense was not recorded. Operating Loss.
The Company reported an operating loss of $1,113,000 for the
quarter ended March 31, 2006 compared to a loss of $1,075,000
reported in the comparable quarter of 2005, an increase of $38,000
in the loss reported. This increased operating loss in the first
quarter of 2006 compared to the same period in 2005 was primarily
due to an increase in SG&A expenses and research and
development expenses in 2006, net of the increase in recorded
revenues. Interest and Other Income (Expense), Net. Interest income
and other income (expense), net for the quarter ended March 31,
2006 was income of $41,000 versus an expense of $1,000 in the
comparable 2005 quarter. The 2006 income is primarily related to
interest income earned on the funds raised in December of 2005.
Interest Expense. Interest expense for the quarter ended March 31,
2006 was $7,000 compared to $60,000 in the same period of 2005. The
2006 quarterly expense reflects interest primarily related to
capitalized leases while the 2005 quarterly expense primarily
reflects interest on the Company's Convertible Debentures, and
amortization of the related conversion discount. The Debentures
converted into Company common stock in December of 2005. Net Loss.
The Company's net loss for the quarter ended March 31, 2006 was
$1,079,000, a decrease in the loss of $57,000 from the comparable
quarterly loss recorded in 2005 of $1,136,000, as a result of the
factors discussed above. Factors Affecting Future Performance A
significant portion of the Company's revenues are from hosting
services 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 software system 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 software system;
the procurement of additional services from the Company by Public
Entities associated with the Scottish Executive; Capgemini's
relationship with the Scottish Executive; 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
continue 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, stage one
(of three stages) of 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. eMarketplaces 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 2006 have begun to increase as
compared to 2005 as a result of the increased level of its
business. The Company's expects that its expenses will continue to
increase as described in Management's Discussion and Analysis or
Plan of Operation above. Accordingly, 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 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 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; (ii) the consequent
results of operations given the aforementioned factors; and (iii)
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, particularly in light of the audit opinion from the
Company's registered public accounting firm in the Company's 2005
Annual Report on Form 10-KSB, as amended, and other risks detailed
from time to time in the Company's 2005 and 2006 Quarterly Reports
on Form 10-QSB 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 this press release. The following condensed
consolidated financial statements should be read in conjunction
with the Consolidated Financial Statements, Risk Factors and other
information contained in the Company's 2005 Annual Report on Form
10-KSB, as amended, as well as the Company's Form 10-QSB for the
period ended March 31, 2006. ELCOM INTERNATIONAL, INC. AND
SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (in thousands, except
share data) March 31, December 31, 2006 2005 (unaudited) ASSETS
CURRENT ASSETS: Cash and cash equivalents $4,115 $6,399 Accounts
receivable: Trade 679 548 Less-Allowance for doubtful accounts 47
45 Accounts receivable, net 632 503 Prepaid expenses and other
current assets 216 119 Total current assets 4,963 7,021 PROPERTY,
EQUIPMENT AND SOFTWARE, AT COST: Computer hardware and software
21,046 20,675 Furniture, equipment and leasehold improvements 3,088
3,088 24,134 23,763 Less -- Accumulated depreciation and
amortization 23,111 23,020 1,023 743 OTHER ASSETS 12 10 Total
assets $5,998 $7,774 LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT
LIABILITIES: Current portion of capital lease obligations $83 $27
Related party convertible loan payable -- 120 Convertible loans
payable -- 1,179 Accounts payable 608 547 Deferred revenue 1,072
545 Related party accrued salary, bonuses and interest 1,127 1,121
Accrued expenses and other current liabilities 2,032 2,525 Current
liabilities of discontinued operations 47 62 Total current
liabilities 4,969 6,126 CAPITAL LEASE OBLIGATIONS, NET OF CURRENT
PORTION 140 -- OTHER LONG TERM LIABILITY 390 423 Total liabilities
5,499 6,549 COMMITMENTS AND CONTINGENCIES STOCKHOLDERS' EQUITY
(DEFICIT): Preferred stock, $.01 par value; Authorized --
10,000,000 shares -- Issued and outstanding - none -- -- Common
stock, $.01 par value; Authorized -- 500,000,000 shares -- Issued
-- 402,611,152 and 399,152,859 shares 4,026 3,992 Additional
paid-in capital 125,558 125,263 Accumulated deficit (123,562)
(122,483) Treasury stock, at cost -- 530,709 shares (4,712) (4,712)
Accumulated other comprehensive loss (811) (835) Total
stockholders' equity (deficit) 499 1,225 $5,998 $7,774 ELCOM
INTERNATIONAL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF
OPERATIONS AND OTHER COMPREHENSIVE INCOME (in thousands, except per
share data) (unaudited) Three Months Ended March 31, 2006 2005 Net
Revenues: License, hosting services and other fees $559 495
Professional services 334 118 Total net revenues 893 613 Cost of
revenues 137 116 Gross profit 756 497 Operating Expenses: Selling,
general and administrative 1,539 1,452 Research and development 330
120 Total operating expenses 1,869 1,572 Operating loss (1,113)
(1,075) Interest and other income (expense), net 41 (1) Interest
expense (7) (60) Net loss before income taxes (1,079) (1,136)
Income taxes -- -- Net loss (1,079) (1,136) Other comprehensive
income, net of tax 24 8 Comprehensive loss $(1,055) $(1,128) Basic
and diluted net loss per share $ (--) $(0.02) Weighted average
number of basic and diluted shares outstanding 400,005 61,282 ELCOM
INTERNATIONAL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF
CASH FLOWS (in thousands) (unaudited) Three Months Ended March 31,
2006 2005 CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $(1,079)
$(1,136) Adjustments to reconcile net loss to net cash used in
operating activities: Depreciation and amortization 88 136 Stock
based compensation 79 -- Deferred rent expense -- 54 Changes in
current assets and liabilities: Accounts receivable, net (129)
(128) Prepaid expenses and other current assets (97) (82) Accounts
payable 61 160 Deferred Revenue 527 17 Accrued expenses and other
current liabilities (235) 475 Net cash used in continuing operating
activities (785) (504) Net cash (used in) provided by discontinued
operations (15) 10 Net cash used in operating activities (800)
(494) CASH FLOWS FROM INVESTING ACTIVITIES: Additions to property,
equipment and software (159) -- Change in other assets (2) -- Net
cash used in investing activities (161) -- CASH FLOWS FROM
FINANCING ACTIVITIES: Proceeds from loans payable -- 200 Repayments
of loans payable (1,299) -- Repayments of capital lease obligations
(15) (7) Decrease in other long term liability (33) (30) Net cash
provided by (used in) financing activities (1,347) 163 FOREIGN
EXCHANGE EFFECT ON CASH 24 8 NET DECREASE IN CASH AND CASH
EQUIVALENTS (2,284) (323) CASH AND CASH EQUIVALENTS, BEGINNING OF
PERIOD 6,399 390 CASH AND CASH EQUIVALENTS, END OF PERIOD $4,115
$67 SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Interest paid
$20 $1 Income taxes paid $-- $-- Issuance of common stock in
satisfaction of deferred rent $250 $-- Acquisition of equipment
under capital lease $211 $-- AT THE COMPANY: Investor Relations
E-mail: DATASOURCE: Elcom International, Inc. CONTACT: Investor
Relations of Elcom, Web site: http://www.elcom.com/
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