RNS Number:9344C
Elcom International Inc
15 May 2006
ELCOM INTERNATIONAL, INC. REPORTS
FIRST QUARTER 2006 OPERATING RESULTS
NORWOOD, MA, May 15, 2006 - Elcom International, Inc. (OTCBB: 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
oustanding 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.
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
-------- --------
Prepaids 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 discountinued 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
STOCKOLDERS' EQUITY (DEFICIT)
Preferred stock $.01 par value; Authorised - - -
10,000,000 shares - issued and outstanding - none
Common stock, $0.01 par value; Authorised -
500,000,000 4,026 3,992
shares - issued 402,611,152 and 399,152,859 shares
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
======== ========
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 los 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
======== ========
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 (15) 10
operations
-------- --------
Net cash used in operating activities (800) (494)
-------- --------
CASHFLOWS FROM INVESTING ACTIVITIES
Additions to property, equipment and software (159) -
Change in other assets (2) -
-------- --------
Net cash used in investing activities (161) -
-------- --------
CASHFLOWS 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 -
==== ====
This information is provided by RNS
The company news service from the London Stock Exchange
END
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