Final Results

RNS Number:8266A
Elcom International Inc
03 April 2006



Elcom International, Inc.

("Elcom" or "the Company")



2005 OPERATING RESULTS


NORWOOD, MA, April 3, 2006 - Elcom International, Inc. (OTCBB: 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                 (4,242)             (3,005)
operations

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) 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. 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 clients'
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:
License hosting services and other fees         2,081            2,997
Professional services                             633              810
                                              -------          -------
Cost of sales                                   2,714            3,807
Gross profit                                      718              460
                                              -------          -------
                                                1,996            3,347
Operating expenses:
Selling, general and adminstrative              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
                                                 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 and discontinued                 -         48
operations
                                              -------    -------
                                                7,774      1,827
                                              =======    =======
Liabilities and stockholders' equivalents
Current liabilites:
Loans payable                                   1,299          -
Other current liabilities                       4,765      3,429
Current liabilities of discountinued               62        303
operations
                                              -------    -------
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
                                              =======    =======









                      This information is provided by RNS
            The company news service from the London Stock Exchange

END
FR AKDKBFBKDBNN