Elcom International, Inc. Reports Third Quarter 2003 Operating
Results NORWOOD, Mass., Nov. 13 /PRNewswire-FirstCall/ -- Elcom
International, Inc. today announced operating results for its third
quarter ended September 30, 2003. As a result of the sale of
certain assets and the assignment of the Company's United States
("U.S.") information technology products ("IT Products") and
services business in March 2002, the operating and balance sheet
information and financial summary table contained herein has been
prepared with all historical results of that IT Products and
services business included in discontinued operations. As a result,
net sales, gross profit, operating profit and net loss from
continuing operations reflect the Company's ongoing U.S. and U.K.
ePurchasing and eMarketplace technology licensing and consulting
businesses. Financial Summary Table (Unaudited) (in thousands,
except per share amounts) Quarter Ended Nine Months Ended September
30, September 30, 2003 2002 2003 2002 Net sales $367 $1,155 $1,567
$3,088 Gross profit 331 769 1,202 2,182 Selling, general and
administrative expenses 1,610 3,027 6,417 10,174 Operation loss
from continuing operations (1,346) (2,383) (5,409) (9,116) Net loss
from continuing operations (1,278) (1,523) (4,910) (8,270) Net
income (loss) from discontinued operations (197) 87 110 (1,420)
Gain on disposal of U.S. discontinued operations -- 167 -- 1,079
Basic net loss per share from continuing operations $(0.04) $(0.05)
$(0.16) $(0.27) Basic weighted average common shares outstanding
30,902 30,902 30,902 30,901 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 Annual Report on Form 10-K
for the fiscal year 2002. Net sales for the quarter ended September
30, 2003 were $367,000 compared to $1,155,000 from the same period
of 2002, a decrease of $788,000 or 68%. Professional Services fees
in the U.S. and U.K. decreased by $16,000 and License and
associated fees decreased by $772,000. The reduction in License and
associated fees was due primarily to the Company's receiving
substantially larger license fees in 2002 under its contract with
CGEY in the U.K. and the revenue recognition of the amounts
thereof, and to fewer implementations of PECOS than anticipated for
the quarter ended September 30, 2003, compared to the third quarter
of 2002 ($94,000 and $850,000, respectively). License and
associated fees include license fees, annual fees and joining fees.
Annual fees, joining fees and user fees, if not associated directly
with Professional Services, are recorded ratably over twelve
months. Professional Services fees were $106,000, a decrease of
$16,000 or 13% from the $122,000 in the third quarter of last year,
due primarily to fewer implementations of PECOS than anticipated as
stated above. Selling, general and administrative expenses
("SG&A") for the quarter ended September 30, 2003 was
$1,610,000 compared to $3,027,000 in the 2002 quarter, a decrease
of $1,417,000 or 47%. Throughout 2002 and the first three quarters
of 2003, the Company has continued to implement cost containment
measures designed to align its SG&A expenses, and disbursements
related thereto, with fewer than anticipated revenues. Those
measures included personnel reductions throughout most areas, which
resulted in a decrease in total personnel and associated expenses
in the third quarter of 2003 of $609,000 from the comparable
quarter last year. The Company also received a state income and
franchise tax refund of $284,000, which was an offset to SG&A
for the 2003 quarter. The Company reported an operating loss from
continuing operations of $1,346,000 for the quarter ended September
30, 2003 compared to a loss of $2,383,000 reported for the
comparable quarter of 2002, an improvement of $1,037,000 or 44%.
The lower operating loss from continuing operations in the third
quarter of 2003 compared to the 2002 quarter was due primarily to
reductions in personnel and associated costs and a state income and
franchise tax refund of $284,000, partially offset by a reduction
in gross profit. Reductions in personnel resulted in a decrease in
personnel and associated expenses in the third quarter of 2003 of
$609,000, when compared to the third quarter of 2002. The Company's
net loss from continuing operations for the quarter ended September
30, 2003 was $1,278,000, an improvement of $245,000 or 16% from the
comparable quarterly loss in 2002 of $1,523,000. The improvement
was due primarily to reductions of personnel and associated
expenses, and a state tax refund of $284,000, partially offset by
lower gross profit. Basic and fully diluted net loss from
continuing operations per share for the third quarter of 2003 was
$(0.04), compared with a basic net loss from continuing operations
per share of $(0.05) in the comparable third quarter of 2002. The
net loss from discontinued operations in the quarter ended
September 30, 2003 was $(197,000) compared to net income from
discontinued operations in the quarter ended September 30, 2002 of
$87,000. The third quarter loss is related to a leased facility
that had been subleased. The sub-tenant filed for bankruptcy during
the second quarter and the Company was forced to incur the expense
and payments for the sub-tenant's lease payments. This lease and
associated costs will terminate on December 31, 2003. Net sales
from continuing operations for the nine months ended September 30,
2003 were $1,567,000 compared to $3,088,000 in the nine months of
2002, a decrease of $1,521,000 or 49%. Professional Services fees
in the U.S. and U.K. decreased by $143,000 while License and
associated fees decreased by $1,378,000. The reduction in License
and associated fees was due primarily to the Company's receiving
substantially larger license fees in 2002 under the Company's
contract with CGEY in the U.K. and the revenue recognition of the
amounts thereof, and to fewer implementations of PECOS than
anticipated for the nine months ended September 30, 2003, compared
to the nine months ended September 30, 2002 ($406,000 and
$1,557,000, respectively). Professional Services fees for the nine
months ended September 30, 2003 were $525,000 compared to $668,000
in the comparable nine months last year, a decrease of $143,000 or
21%, due primarily to fewer implementations of PECOS than
anticipated as stated above. Selling, general and administrative
expenses ("SG&A") for the nine month period ended September 30,
2003 decreased to $6,417,000 from $10,174,000 in the 2002 period, a
reduction of $3,757,000 or 37%. Throughout 2003, the Company has
continued to implement cost containment measures designed to align
its SG&A costs with lower than anticipated revenues. Those
measures included personnel reductions throughout most areas.
Reductions in personnel resulted in a decrease in total personnel
and associated expenses for the nine months ended September 30,
2003 of $2,747,000 compared to the same nine month period last
year. Additionally, the Company reversed a tax accrual of $506,000
during the nine months ended September 30, 2003 as payment was no
longer considered probable. During the nine months ended September
30, 2003, depreciation expense was $1,000,000 lower and the Company
received a state income and franchise tax refund of $284,000, which
was an offset to SG&A. The Company reported an operating loss
from continuing operations of $5,409,000 for the nine months ended
September 30, 2003 compared to $9,116,000 reported for the
comparable quarter of 2002, an improvement of $3,707000 or 41%. The
lower operating loss from continuing operations in the third
quarter of 2003 was due primarily to reduction in personnel and
associated costs of $2,747,000, a state income and franchise tax
refund of $284,000 and a reduction in depreciation expense of
approximately $1,000,000, partially offset by a reduction in gross
profit. The Company generated a net loss from continuing operations
for the nine month period ended September 30, 2003 of $4.9 million,
versus a net loss of $8.3 million, an improvement of $3.4 million
or 41% from the comparable period of 2002, as a result of the
factors described herein. Basic net loss from continuing operations
per share for the nine month period of 2003 were ($0.16), compared
with a basic and fully diluted net loss from continuing operations
per share of ($0.27) in the comparable nine month period. Net
income from discontinued operations for the nine month period ended
September 30, 2003 was $110,000 compared to a net loss from
discontinued operations for the nine month period ended September
30, 2002 of $(1,420,000). Cash and cash equivalents as of September
30, 2003 were approximately $123,000. Although the Company recorded
a net loss from total operations of $4,800,000 for the nine month
period ended September 30, 2003, cash and cash equivalents
decreased by only $2,179,000 between December 31, 2002 and
September 30, 2003. The principal differences between the net loss
and the decrease in cash and cash equivalents during the period
included cash generated via the Company's issuance of its Senior
Convertible Debentures in the gross amount of $949,000 (netting
$702,000 in cash proceeds to the Company) and the advance of a
license fee (accounted for as a loan) of $983,000 and the recording
of non-cash expenses of $783,000, offset by a capital expenditure
of $177,000 for software and payment on capital leases of $268,000.
On April 25, 2003, the Company closed a private placement to
accredited investors (the "Private Placement") of ten-year 10%
Senior Convertible Debentures (the "Debentures"), generating gross
proceeds of $949,000 and net cash to the Company of $702,000.
Robert J. Crowell, the Chairman and CEO invested $300,000, John E.
Halnen, the President and COO invested $60,000, William W. Smith,
the Company's Vice Chairman and Director invested $300,000, Andres
Escallon, the Chief Technology Officer invested $50,000,
(collectively, the "Inside Investors"). Robert J. Crowell invested
$300,000 in the Debentures and John E. Halnen invested $60,000 in
the Debentures. Of these amounts, the Company paid Robert J.
Crowell $187,000 and John E. Halnen $60,000 in repayment of a
portion of their salaries which they had voluntarily suspended
during 2002 in order to assist the Company in its efforts to retain
cash. Robert J. Crowell and John E. Halnen immediately reinvested
these proceeds into their purchase of the Debentures. In addition,
Smith & Williamson LLC (U.K.) and other Elcom stockholders in
the U.K. invested $239,000. Inside Investors are considered related
parties and invested a total of $710,000 in the Company via
purchases of Debentures. Subsequent Events Affecting Liquidity On
October 16, 2003, the Company announced that it had effected a
Second Closing of its Private Placement of Debentures (the "Second
Closing") with Robert J. Crowell, William W. Smith, one other
outside investor, and Smith & Williamson LLC (U.K.), investing
$150,000, $50,000, $15,000 and $100,000, respectively. Having
invested a total of $200,000 in this closing, in the aggregate,
Inside Investors have invested $910,000 in the Debentures. On
October 31, 2003, the Company received an unanticipated payment of
466,981 pounds sterling ($793,000) representing license fees in
arrears, due to the termination of a license originally signed in
September 1998, by a U.K.-based licensee. This amount will be
recorded as license revenue in the quarter ending December 31,
2003. The Second Closing, combined with anticipated revenues and
other monies received as described herein, is expected to fund the
Company's operations through the end of the first quarter of 2004.
Prior to that time, the Company intends to raise additional funding
sufficient to support the Company's future operations. The
Company's cash balance as of October 31, 2003 was $1,270,000.
Robert J. Crowell, the Company's Chairman and CEO, stated, "Our
quarterly earnings were in line with our current expectations and
do not reflect the significant increase in current and forecasted
activity under our contract with CGEY relating to the Scottish
Executive (http://www.scotland.gov.uk/). Although there is a lag
between activity and revenues for Elcom, we believe we will see a
flurry of activity and announcements in Q4 2003 and Q1 2004, and
beyond." Mr. Crowell continued, "We are also pleased by the second
closing of the Company's debentures and monies recently received
which has significantly increased our cash reserves. We expect our
working capital to be sufficient to fund operations through the end
of the first quarter during which time we intend to solicit
'permanent' funding for the Company. There are multiple potential
licenses in progress and we believe 2004 will represent, after
approximately two years, the beginning of a growth curve for the
Company which will reflect the acceptance of our PECOS technology
and a steadily recovering economy. We believe, given all these
factors, combined with the Company's cost containment measures
implemented over the last year and a half or so, will combine to
produce profitability in late 2004." About Elcom International,
Inc. Elcom International, Inc. (OTC:ELCO) (BULLETIN BOARD: ELCO) is
a leading international provider of remotely-hosted eProcurement
and private eMarketplace solutions. Elcom's innovative
remotely-hosted technology establishes the next standard of value
and enables enterprises of all sizes to realize the many benefits
of eProcurement without the burden of significant infrastructure
investment and ongoing content and system management. PECOS
Internet Procurement Manager, elcom, inc.'s remotely-hosted
eProcurement and eMarketplace enabling platform was the first
"live" remotely-hosted eProcurement system in the world. Additional
information can be found at http://www.elcominternational.com/.
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," "given," "targets," "intends," "anticipates," "plans,"
"intent", "projects", "forecasts" 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)
availability and terms of appropriate working capital and/or other
financing to keep the Company operating as a going concern, and the
Company's cash position as of its last Form 10-K and its history of
ongoing operating losses; (ii) the overall marketplace and client's
acceptance and usage of eCommerce software systems, including
corporate demand therefore, the impact of competitive technologies,
products and pricing, particularly given the subsequently larger
size and scale of certain competitors and potential competitors,
control of expenses, revenue generation by the acquisition of new
customers, the acceptance of the Company's system by individual
agencies of the Scottish Executive (Government of Scotland), and
corporate demand for ePurchasing and eMarketplace solutions; (iii)
the consequent results of operations given the aforementioned
factors; and (iv) the anticipated requirement of the Company to
raise additional working capital to fund operations by the end of
the first quarter of 2004 and the availability of any such funding
to the Company, or the terms thereof, and other risks detailed from
time to time in the Company's Annual Report on Form 10-K and in its
other SEC reports and statements. 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 2002 Annual Report on Form
10-K. The Company intends to file its form 10-Q for the first
quarter of 2003 within the next two days. CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS (In thousands, except per share data)
Three Months Ended Nine Months Ended September 30, September 30,
2002 2003 2002 2003 Net sales License and associated fees $1,033
$261 $2,420 $1,042 Professional services 122 106 668 525 Total net
sales 1,155 367 3,088 1,567 Cost of sales 386 36 906 365 Gross
profit (loss) 769 331 2,182 1,202 Operating Expenses: Selling,
general and administrative 3,027 1,610 10,174 6,417 Research and
development 125 67 786 194 Asset impairment charges -- -- 338 --
Total operating expenses 3,152 1,677 11,298 6,611 Operating profit
(loss) (2,383) (1,346) (9,116) (5,409) Interest expense (12) (31)
(50) (72) Interest income and other, net 872 99 896 79 Net loss
from continuing operations before tax (1,523) (1,278) (8,270)
(5,402) Income tax benefit -- -- -- 492 Net loss from continuing
operations (1,523) (1,278) (8,270) (4,910) Discontinued operations
Net income (loss) from discontinued operations, net of tax 87 (197)
(1,420) 110 Gain on sale of assets 167 -- 1,079 -- Net income
(loss) (1,269) (1,475) (8,611) (4,800) Foreign currency translation
adjustment, net of tax (9) 3 662 (2) Other comprehensive income
(loss) $(1,278) $(1,472) $(7,949) $(4,802) Basic and diluted net
income (loss) per share data: Continuing operations $(0.05) $(0.04)
$(0.27) $(0.16) Discontinued operations -- (0.01) (0.04) -- Gain on
sale of assets 0.01 -- 0.03 -- Basic and diluted net loss per share
$(0.04) $(0.05) $(0.28) $(0.16) Weighted average number of basic
and diluted shares outstanding 30,902 30,902 30,901 30,902
CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands) (Unaudited)
March 31, December 31, 2003 2002 ASSETS CURRENT ASSETS: Cash and
cash equivalents $123 $2,302 Accounts receivable, net 306 320
Prepaids and other current assets 231 205 Current assets of
discontinued operations 31 238 Total current assets 691 3,065
PROPERTY, EQUIPMENT AND SOFTWARE, NET 926 1,846 OTHER ASSETS, NET
72 113 Non-Current Assets of DiscontinuED Operations -- 106 $1,689
$5,130 LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES:
Loan payable $983 $-- Other current liabilities 2,831 3,491 Current
liabilities of discontinued operations 100 41 Total current
liabilities $3,914 $3,532 LONG TERM LIABILITIES: Debentures net of
discount $263 $-- Total long term, liabilities $263 $-- TOTAL
STOCKHOLDERS' EQUITY (DEFICIT) (2,488) 1,598 $1,689 $5,130 AT THE
COMPANY: Investor Relations E-mail: DATASOURCE: Elcom
International, Inc. CONTACT: Investor Relations, Elcom
International, Inc, Web site: http://www.elcominternational.com/
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