1st Quarter Results

RNS Number:7830P
Elcom International Inc
11 March 2008

ELCOM INTERNATIONAL, INC. REPORTS
FIRST QUARTER 2007 OPERATING RESULTS

NORWOOD, MA, March 11, 2008 - Elcom International, Inc. (Pink Sheets: ELCO and
AIM: ELC and ELCS), today announces operating results for its first quarter
ended March 31, 2007.

                       Financial Summary Table (Unaudited)
                     (in thousands, except per share amounts)
                                                    Three months ended March 31,
                                                               2007        2006

                                                                  $           $
Net revenues                                                    826         893

Gross profit                                                    560         756

Operating loss                                               (1,686)     (1,113)

Net loss                                                     (1,630)     (1,079)

Basic and diluted net loss per share                             (-)         (-)

Weighted average number of basic and diluted shares         523,699     400,005
outstanding

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 2006 Annual Report on
Form 10-KSB, as well as the Company's Form 10-QSB for the period ended March 31,
2007.

Trading in the Company's shares on AIM remains suspended pending the
announcement of its interim results to 30 June 2007.

Net Revenues. Net revenues for the quarter ended March 31, 2007 decreased from
$893,000 in the same period in 2006 to $826,000, a decrease of $67,000, or 8%.
License, hosting services and other fees increased from $559,000 in the 2006
quarter to $633,000 in the 2007 quarter, an increase of $74,000 or 14%. This
increase is primarily due to an additional four customers joining 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 decreased by $141,000, to $193,000 in
2007 from $334,000 in 2006, reflecting a decrease in implementations, from three
in the first quarter of 2006 to one in the first quarter of 2007.

Gross Profit. Gross profit for the quarter ended March 31, 2007 decreased to
$560,000 from $756,000 in the comparable 2006 quarterly period, a decrease of
$196,000 or 26%. This decrease is the result of a combination of lower
professional services revenues and an increase of $65,000 in one-time costs in
connection with the establishment of a particular piece of software, which is
expected to result in increased revenues over the coming year.

Selling, General and Administrative Expenses. Selling, general and
administrative ("SG&A") expenses for the quarter ended March 31, 2007 were
$2,031,000 compared to $1,539,000 in the 2006 quarter, an increase of $492,000,
or 32%. The primary reasons for the increase in SG&A in the first quarter of
2007 as compared to the first quarter of 2006 are an increase in stock option
expense from $52,000 to $ 301,000 and severance payments following a reduction
in headcount. During 2006, Elcom began to hire additional personnel and also
engaged third party contractors in order to address the increasing level of
planned business activity, primarily in relation to the Zanzibar eMarketplace
contract which was signed in August 2005. Elcom's headcount (full and part-time)
increased from 36 at March 31, 2006 to 46 as December 31, 2006. However,
headcount has subsequently been reduced to 38 at March 31, 2007 as the level of
anticipated revenue from the Zanzibar eMarketplace contract has not
materialized. Further reductions in personnel costs are possible in future
quarters.

Research and Development Expense. Research and development expense for the
quarters ended March 31, 2007 and 2006 were $215,000 and $330,000, respectively,
reflecting a reduction in 2007 of $115,000 from the expense recorded in the
first quarter of 2006. The reduction in expense in 2007 compared to 2006 was due
to Elcom incurring in the 2006 period, initial costs related to work in
connection with the Zanzibar eMarketplace, including approximately $100,000 of
third party consulting expense.

Operating Loss. Elcom reported an operating loss of $1,686,000 for the quarter
ended March 31, 2007 compared to a loss of $1,113,000 reported in the comparable
quarter of 2006, an increase of $573,000 in the loss reported. This increased
operating loss in the first quarter of 2007 compared to the same period in 2006
was primarily due to an increase in SG&A expenses, the majority of which relate
to stock option expenses

Interest and Other Income (Expense), Net. Interest income and other income, net
for the quarter ended March 31, 2007 was income of $64,000 compared to $41,000
in the comparable 2006 quarter. The increase is mainly a result of the
recognition of other income of approximately $53,000 arising from the reversal
of accrued interest expense related to the Capgemini project. The reduction in
interest income from $41,000 for the quarter ended March 31, 20006 to $11,000 in
the comparable quarter in 2007 is a direct result of a reduction in cash
reserves, with the 2006 income relating to interest income earned on the funds
raised in December of 2005.

Interest Expense. Interest expense for the quarter ended March 31, 2007 was
$8,000 compared to $7,000 in the same period of 2006. The 2007 quarterly expense
principally relates to interest on capitalized leases.

Net Loss. Elcom's net loss for the quarter ended March 31, 2007 was $1,630,000,
an increase in the loss of $551,000 from the comparable quarterly loss recorded
in 2006 of $1,079,000, as a result of the factors discussed above.

Liquidity and Capital Resources

Net cash used in operating activities for the three-month period ended March 31,
2007 was $1,319,000, resulting primarily from the net loss generated from
operations of $1,686,000, together with an increase in accounts receivable of
$489,000, which was partially offset by an increase in deferred revenue of
$377,000 and non-cash charges for depreciation expense of $115,000 and
stock-based compensation expense of $352,000.

Net cash used in investing activities for the three-month period ended March 31,
2007 was $27,000 due to the purchase of property, equipment and software.

Net cash provided by financing activities for the three-month period ended March
31, 2007 was $2,432,000. On February 5, 2007, Elcom agreed to issue 73,230,009
shares of its common stock (the "2007 Regulation S Shares") to investors in the
U.K. and listed the shares on the AIM Exchange. As was the case in 2005 and
2006, the shares were issued in reliance on the exemption from registration
under Regulation S promulgated under the Securities Act of 1993, as amended (the
"Securities Act") for offshore placements, and therefore are subject to the same
restrictions as the Regulation S Shares sold previously. Elcom raised a total of
$2.5 million in cash, net of issuance costs of $23,948. The funds derived from
the 2007 issuance of common stock on the AIM Exchange are being used to support
Elcom's working capital requirements.

Elcom's principal commitment consists of a lease on its headquarters office
facility. Elcom will also require ongoing investments in research and
development and property, equipment and software in order to further increase
operating revenues, and meet the requirements of its customers.

Going Concern

The consolidated financial statements as of December 31, 2006 and March 31, 2007
have been prepared under the assumption that the Company will continue as a
going concern. Elcom has incurred net losses every year since 1998, has an
accumulated deficit of $130,945,000 as of March 31, 2007, and expects to incur a
loss in fiscal year 2007. As of March 31, 2007, Elcom had $2.2 million of cash
and cash equivalents and current assets of approximately $3.5 million and had
current liabilities of approximately $4 million. The ultimate success of Elcom
is dependent upon achieving additional revenues by marketing its software
solutions, typically through channel partners, until the Company is operating
profitably. Elcom has incurred significant operating losses and has used cash in
operating activities in each of the last several years, including $6.3 million
of cash used in operating activities in fiscal 2006, and $1.3 million of cash
used in operating activities in the first quarter of 2007. Elcom's ability to
continue as a going concern is primarily dependent upon its ability to grow
revenue and attain further operating efficiencies and, if necessary, to also
attract additional capital. Elcom believes that as a result of its 2007
issuances of common stock, including common stock listed on the Alternative
Investment Market of the London Stock Exchange ("AIM Exchange"), that it has the
funds required to perform under its current contracts. However, Elcom expects to
incur a net loss in 2007, albeit at a significantly reduced level to that in
2006. Elcom's ability to continue as a going concern is dependent upon its
ability to raise additional capital. During October and November 2007, Elcom
received bridge loans from a non-US investor of £750,000 (approximately
$1,500,000). The loans are repayable upon demand and convertible at the option
of the Payee into shares of common stock, at the price of 3.5p per share,
subject to adjustment, downwards only, in the event that Common Stock or any
equity instruments are issued at a price lower than 3.5p at anytime. The loans
are expected to be converted into shares as part of a possible fund raise during
2008. Elcom is currently in discussions with a number of potential funding
sources with a view to finalizing its funding requirements for 2008.

Elcom cannot assure that additional financing will be available on favorable
terms, or at all. If funds are not available when required for working capital
needs or other transactions, Elcom's ability to carry out its business plan
could be adversely affected, and Elcom may be required to further scale back its
operations to reflect the extent of available funding. If Elcom is able to
arrange for additional credit facilities from lenders, the debt instruments are
likely to include limitations on Elcom's ability to incur other indebtedness, to
pay dividends, to create liens, to sell its capital stock, or enter into other
transactions. Such restrictions may adversely affect Elcom's ability to finance
its future operations or capital needs or to grow its business. If Elcom raises
additional funds by issuing equity or convertible debt securities, the
percentage ownership of the Company's existing stockholders will be reduced.
These securities may have rights, preferences or privileges senior to those of
the common stockholders.

If Elcom is unable to consummate any equity financing or receive additional
loaned monies to provide sufficient working capital, Elcom would likely be
forced to curtail operations and/or seek protection under bankruptcy laws. The
consolidated financial statements do not include any adjustments that might
result from the outcome of this uncertainty.

Factors Affecting Future Performance

A significant portion of Elcom'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 Elcom'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 Elcom
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
Elcom to perform under its agreement with Capgemini.

In addition, during July 2007 Elcom committed 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. The
Zanzibar eMarketplace agreements provide for one-time installation fees and
recurring monthly hosting services fees, as well as payments to Elcom for
certain development work. The agreements do not provide PASSL with unfettered
rights to the underlying Elcom technology, and therefore Elcom anticipates that
its realized development fees will be ratably recognized over the applicable
term of the agreement. As of December 2006, four (4) U.K. Public Entities
officially "went live", and as of March 2007, this number had increased to seven
(7). We are currently in a contractual dispute with PA Consulting in respect of
the Zanzibar contract, and also considering initiating an Intellectual Property
claim against the same firm. There can be no assurance that Elcom will be
successful in any potential IP claim against PA Consulting.

If further business fails to develop under the Capgemini agreement or if the
U.S. eMarketplaces do not expand as expected, or if Elcom is unable to perform
under any of these agreements, it would have a material adverse affect on
Elcom's future financial results.

Outlook

Elcom expects that its operating loss will continue through 2007, however
progress has been made in a number of areas and the level of losses will be
significantly lower than 2006. Headcount reductions have been made and a
reduction in operating costs is expected to be realized from the second quarter
forward. Improvements in revenues and operating results from operations in
future periods will not occur without Elcom 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
herein could include forward-looking statements or information. All statements,
other than statements of historical fact, including, without limitation, those
with respect to Elcom'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 Elcom believes that such forward-looking statements are
reasonable, it can give no assurance that Elcom's expectations are, or will be,
correct. These forward-looking statements involve a number of risks and
uncertainties which could cause Elcom's future results to differ materially from
those anticipated, including: (i) the necessity for Elcom to generate
incremental operating revenues and whether this objective can be met given the
overall marketplace and clients' acceptance and usage of eCommerce software
systems, eProcurement and eMarketplace solutions, including: corporate 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 operating expenses; and
revenue growth; (ii) the consequent results of operations given the
aforementioned factors; and (iii) the necessity of Elcom to achieve profitable
operations within the constraints of its existing resources, and if it can not,
the availability of incremental capital funding to Elcom, particularly in light
of the audit opinion from Elcom's independent registered public accounting firm
in Elcom's 2006 Annual Report on Form 10-KSB, and other risks detailed from time
to time in the Quarterly Report on Form 10-QSB for the period ended 31 March
2007 and in Elcom's other SEC reports and statements, including particularly
Elcom's "Risk Factors" contained in the prospectus included as part of Elcom's
Registration Statement on Form S-3 filed on June 21, 2002. We assume no
obligation to update any of the information contained or referenced in the
Company's Quarterly Report on Form 10-QSB.

CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited, in thousands)
                                                March 31,   December 31,
                                                    2007           2006
                                                       $              $
Assets
Current assets:
Cash and cash equivalents                          2,159          1,086
Accounts receivable, net                           1,181            692
Prepaid expenses and other current assets            115            218
                                                 -------        -------
Total current assets                               3,455          1,996
                                                 -------        -------
Property, equipment and software, net                872            959
Other assets                                          14             14
                                                 -------        -------
                                                   4,341          2,969
                                                 =======        =======
Liabilities and stockholders' deficit
Current liabilities:
Current portion of capital lease obligation          116            114
Deferred revenue                                   1,320            942
Related party accrued salary, bonuses and          1,055          1,066
interest
Other current liabilities                          1,554          1,690
Current liabilities of discontinued                   42             42
operations
                                                 -------        -------
Total current liabilities                          4,087          3,854

Capital lease obligation, net of current             134            164
portion
Other long term liabilities                          252            288
                                                 -------        -------
Total liabilities                                  4,473          4,306
                                                 -------        -------

Common stock                                       5,522          4,789
Additional paid-in capital                       130,570        128,455
Accumulated deficit                             (130,945)      (129,315)
Treasury stock                                    (4,712)        (4,712)
Accumulated other comprehensive loss                (567)          (554)
                                                 -------        -------
Total stockholders' deficit                         (132)        (1,337)
                                                 -------        -------
                                                   4,341          2,969
                                                 =======        =======
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited, in thousands, except per share data
                                                   Three months ended March 31,
                                                             2007          2006
                                                                $             $
Net revenues:
License, hosting services and other fees                      633           559
Professional services                                         193           334
                                                         --------      --------
Total net revenues                                            826           893

Cost of revenues                                              266           137
                                                         --------      --------
Gross profit                                                  560           756
                                                         --------      --------

Operating expenses:
Selling, general and administrative                         2,031         1,539
Research and development                                      215           330
                                                         --------      --------
Total operating expenses                                    2,246         1,869
                                                         --------      --------
Operating loss                                             (1,686)       (1,113)

Interest and other income (expense), net                       64            41
Interest expense                                               (8)           (7)
                                                         --------      --------
Net los before income taxes                                (1,630)       (1,079)
Income taxes                                                    -             -
                                                         --------      --------
Net loss                                                   (1,630)       (1,079)

Other comprehensive income, net of tax                        (13)           24
                                                         --------      --------
Comprehensive loss                                         (1,643)       (1,055)
                                                         ========      ========

Basic and diluted net loss per share                           (-)           (-)
                                                         ========      ========

Weighted average number of basic and diluted shares       523,699       400,005
outstanding
                                                         ========      ========


CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, in thousands)
                                                    Three months ended March 31
                                                             2007          2006
CASH FLOWS FROM OPERATING ACTIVITIES:                           $             $
Net loss                                                   (1,630)       (1,079)
Adjustments to reconcile net loss to net cash unused
in operating activities
Depreciation and amortization                                 115            88
Stock based compensation                                      352            79
Changes in current assets and liabilities:
Accounts receivable, net                                     (489)         (129)
Prepaid expenses and other current assets                     102           (97)
Accounts payable                                              (45)           61
Deferred revenue                                              377           527
Accrued expenses and other current liabilities               (101)         (235)
                                                         --------      --------
Net cash used in continuing operating activities           (1,319)         (785)
Net cash (used in) provided by discontinued operations         (-)          (15)
                                                         --------      --------
Net cash used in operating activities                      (1,319)         (800)
                                                         --------      --------

CASHFLOWS FROM INVESTING ACTIVITIES
Additions to property, equipment and software                 (27)         (159)
Change in other assets                                         (-)           (2)
                                                         --------      --------
Net cash used in investing activities                         (27)         (161)
                                                         --------      --------
CASHFLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of common stock, net                 2,496             -
Repayments of loans payable                                     -        (1,299)
Repayments of capital lease obligations                       (28)          (15)
Decrease in other long term liability                         (36)          (33)
                                                         --------      --------
Net cash provided by (used in) financing activities         2,432        (1,347)
                                                         --------      --------

FOREIGN EXCHANGE EFFECT ON CASH                               (13)           24

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS        1,073        (2,284)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD              1,086         6,399
                                                        ---------      --------
CASH AND CASH EQUIVALENTS, END OF PERIOD                    2,159         4,115
                                                        =========      ========

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Interest paid                                                   8            
                                                        =========      ========
Income taxes paid                                               -             -
                                                        =========      ========
Issuance of common stock in satisfaction of deferred            -           250
rent                                                    =========      ========
Acquisition of equipment under capital lease                    -           211
                                                        =========      ========

The financial information contained herein is unaudited and has been extracted
from the Company's Quarterly Report on Form 10-QSB for the period ended March
31, 2007. A summary of the significant accounting policies used by the Company
is set out in the Company's 2006 Annual Report on Form 10-KSB.





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