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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31, 1997
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number: 000-27376
---------------
ELCOM INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 04-3175156
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
10 OCEANA WAY
NORWOOD, MASSACHUSETTS 02062
(617) 440-3333
(Address, including zip code, and telephone number,
including area code, of registrant's principal
executive offices)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes..X.. No....
The registrant had 26,841,827 shares of common stock, $.01 par value,
outstanding as of May 2, 1997.
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INDEX
Part I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets at December 31, 1996
and March 31, 1997 (unaudited)...............................2
Consolidated Statements of Operations - Three Months
Ended March 31, 1996 and 1997 (unaudited)....................3
Consolidated Statements of Cash Flows - Three Months
Ended March 31, 1996 and 1997 (unaudited)....................4
Notes to Consolidated Financial Statements (unaudited).........5
Management's Discussion and Analysis of Financial Condition
and Results of Operations...........................................6
Part II - OTHER INFORMATION
Item 1. Legal Proceedings..................................................11
Item 2. None.
Item 3. None.
Item 4. None.
Item 5. None.
Item 6. Exhibits and Reports on Form 8-K...................................11
Signatures ...........................................................11
EXHIBITS
Exhibit 4.16 Form of Lantec Warrant Agreement, dated June 22, 1995,
with attached First Amended List of Holders of Warrants to
Purchase Common Shares of the Company .
Exhibit 11 Statement Re: Computation of Income Per Common Share
Exhibit 27 Financial Data Schedule
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ELCOM INTERNATIONAL, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
December 31, March 31,
1996 1997
-------- --------
(unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents ........................... $ 23,259 $ 21,051
Accounts receivable, net of allowance for doubtful
accounts of $4,312 and $4,309 .................... 151,344 153,497
Inventory ........................................... 34,718 34,306
Prepaids and other current assets ................... 864 1,660
--------- ---------
Total current assets ......................... 210,185 210,514
--------- ---------
PROPERTY, EQUIPMENT AND SOFTWARE, AT COST:
Computer hardware and software .................... 17,577 19,382
Land, buildings and leasehold improvements ........ 3,415 3,485
Furniture, fixtures and equipment ................. 6,202 8,050
--------- ---------
27,194 30,917
Less -- Accumulated depreciation and amortization . 13,308 14,873
--------- ---------
13,886 16,044
--------- ---------
GOODWILL AND OTHER ASSETS, NET OF ACCUMULATED
AMORTIZATION ........................................ 36,698 38,501
--------- ---------
$ 260,769 $ 265,059
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Lines of credit ..................................... $ 89,469 $ 86,025
Accounts payable .................................... 36,987 52,547
Accrued expenses and other current liabilities ...... 34,405 23,849
Current portion of capital lease obligations ........ 252 633
Current portion of long-term debt ................... 45 45
--------- ---------
Total current liabilities .................... 161,158 163,099
--------- ---------
OTHER DEFERRED LIABILITIES .......................... 32 33
CAPITAL LEASE OBLIGATIONS, NET OF CURRENT PORTION ... 556 1,311
LONG-TERM DEBT, NET OF CURRENT PORTION .............. 420 409
--------- ---------
1,008 1,753
--------- ---------
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value;
Authorized -- 10,000,000 shares --
Issued and outstanding -- None .................. -- --
Common stock, $.01 par value
Authorized -- 50,000,000 shares --
Issued and outstanding 26,663,512 and
26,778,527 shares ................................. 267 268
Additional paid-in capital .......................... 98,483 98,789
Retained earnings (accumulated deficit) ............. (919) 1,044
Treasury stock, at cost 37,546 shares ............... (366) (366)
Cumulative translation adjustment ................... 1,138 472
--------- ---------
Total stockholders'equity ........................... 98,603 100,207
========= =========
$ 260,769 $ 265,059
========= =========
The accompanying notes are an integral part of these consolidated
financial statements.
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ELCOM INTERNATIONAL, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(unaudited)
Three Months Ended March 31,
------------------------------
1996 1997
------------- -------------
Net sales ...................................... $ 141,416 $ 176,280
Cost of sales .................................. 125,071 156,078
--------- ---------
Gross profit ................................... 16,345 20,202
Expenses:
Selling, general and administrative .......... 13,820 16,368
Research and development ..................... 285 275
--------- ---------
Total expenses ................................. 14,105 16,643
--------- ---------
Operating profit ............................... 2,240 3,559
Interest expense ............................... (807) (1,144)
Interest income and other, net ................. 565 575
--------- ---------
Income before income taxes ..................... 1,998 2,990
Provision for income taxes ..................... 874 1,027
--------- ---------
Net income ..................................... $ 1,124 $ 1,963
========= =========
Net income per common share .................... $ 0.04 $ 0.07
========= =========
Weighted average common shares outstanding ..... 29,142 29,471
========= =========
The accompanying notes are an integral part of these consolidated financial
statements.
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ELCOM INTERNATIONAL, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
Three Months Ended March 31,
----------------------------
1996 1997
-------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income .......................................... $ 1,124 $ 1,963
Adjustments to reconcile net income to net cash
provided by (used in)operating activities --
Depreciation and amortization ..................... 1,302 2,243
Provision for doubtful accounts ................... 107 300
Other deferred liabilities ........................ (20) 1
Changes in current assets and liabilities, net
of acquisitions --
Accounts receivable ............................... (32,403) (39)
Inventory ......................................... (2,034) 122
Prepaids and other current assets ................. 457 (497)
Accounts payable .................................. 2,142 15,045
Accrued expenses, other current liabilities
and other ....................................... 487 (11,955)
-------- --------
Net cash provided by (used in) operating
activities ................................. (28,838) 7,183
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, equipment and software......... (1,413) (1,866)
Increase in other assets and deferred costs ......... (585) (178)
Purchase of Prophet Group ........................... -- (391)
Purchase of Data Supplies, net of cash acquired ..... -- (2,575)
-------- --------
Net cash used in investing activities ......... (1,998) (5,010)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings (payments) under lines of credit ..... 11,946 (4,141)
Sale of common stock ................................ 6,240 --
Repayment of capital lease obligations and
long-term debt..................................... (53) (214)
Exercise of common stock options .................... 95 307
-------- --------
Net cash provided by (used in) financing
activities .................................. 18,228 (4,048)
-------- --------
FOREIGN EXCHANGE EFFECT ON CASH ....................... (44) (333)
-------- --------
NET DECREASE IN CASH AND CASH
EQUIVALENTS............................................ (12,652) (2,208)
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD ................................. 44,977 23,259
-------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD .............. $ 32,325 $ 21,051
======== ========
SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION:
Interest paid ....................................... $ 814 $ 1,172
======== ========
Income taxes paid ................................... $ 53 $ 656
======== ========
SUPPLEMENTAL DISCLOSURE OF NONCASH
INVESTING AND FINANCING ACTIVITIES:
Increase in capital lease obligations ............... $ -- $ 1,339
======== ========
The accompanying notes are an integral part of these consolidated
financial statements.
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ELCOM INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. Basis of Presentation
The consolidated financial statements include the accounts of Elcom
International, Inc. and its wholly-owned subsidiaries (collectively, the
"Company"). All significant intercompany accounts and transactions have been
eliminated. In the opinion of management, the accompanying unaudited
consolidated financial statements contain all adjustments, consisting only of
normal recurring adjustments, necessary to present fairly the financial position
of the Company as of March 31, 1997, and the results of operations and cash
flows for the periods ended March 31, 1996 and 1997. The results of operations
for these periods are not necessarily comparable to, or indicative of, results
of any other interim period or for the year as a whole. Certain financial
information that is normally included in financial statements prepared in
accordance with generally accepted accounting principles, but which is not
required for interim reporting purposes, has been omitted. For further
information, reference should be made to the consolidated financial statements
and accompanying notes included in the Company's Annual Report on Form 10-K for
the year ended December 31, 1996 and the Company's current reports on Form 8-K
concerning the Final Agreement of Settlement and Mutual Release of All Claims
and Demands with the former owners of Computerware Business Trust
("Computerware"), dated March 26, 1997; the acquisition of Prophet Group Limited
dated December 6, 1996 and later amended on Form 8-K/A-1 filed on February 13,
1997; and the acquisition of Data Supplies Limited dated February 21, 1997 and
later amended on Form 8-K/A-1 filed on April 7, 1997.
2. Acquisition
On February 21, 1997, the Company acquired the entire share capital of Data
Supplies Limited, a corporation organized under the laws of the United Kingdom
("Data Supplies"). Data Supplies is a remarketer of personal computer products
with revenues for its fiscal year ended December 31, 1996 of approximately $21
million and is headquartered in Slough, Berkshire, United Kingdom. As
consideration for the acquisition of the entire share capital of Data Supplies,
the Company paid 1,000,000 British Pounds (approximately $1.6 million) and a
note in the amount of $752,000 to the Data Supplies shareholder. The note bears
interest at a rate of 5%. The operating results of Data Supplies have been
included in the Company's operating results since the date of acquisition.
3. Net Income Per Share
Net income per share during 1996 and 1997 is based on the weighted average
number of common and common equivalent shares outstanding during each period
presented, calculated in accordance with the treasury stock method. In February
1997, the Financial Accounting Standards Board adopted Statement of Financial
Accounting Standards No. 128, Earnings Per Share ("SFAS No. 128") effective for
all periods ending after December 15, 1997. This statement establishes revised
standards for computing earnings per share ("EPS") by replacing the presentation
of primary earnings per share with a presentation of Basic EPS and by replacing
fully diluted EPS with Diluted EPS. Basic EPS excludes the dilutive impact of
stock options and is computed by dividing income available to common
stockholders by the weighted average number of common shares outstanding for the
period. SFAS No. 128 also requires dual presentation of Basic EPS and Diluted
EPS on the face of the income statement. The calculation of Diluted EPS would
not differ from the calculation of EPS as shown in the
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accompanying Consolidated Statements of Operations for the periods ended
March 31, 1996 and 1997. Basic EPS, presented below on a pro forma basis is
calculated based on fewer shares outstanding (excludes the dilutive impact of
stock options), but yields the same result as Diluted EPS due to roundings.
March 31,
1996 1997
-----------------
Pro Forma Basic Net Income Per Share ..................... $ 0.04 $ 0.07
====== ======
Weighted Average Common Shares Outstanding Under Basic EPS 26,022 26,740
====== ======
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
OVERVIEW
To date, substantially all of the Company's net sales have been derived
from the sale of PC products by its wholly-owned subsidiary, Catalink Direct,
Inc. ("Catalink"), and its subsidiaries, to corporate customers. In addition,
the Company, through its wholly-owned subsidiary, Elcom Systems, Inc. ("Elcom
Systems"), generates revenues from licensing its PECOS electronic commerce
technology and providing related services to other companies. On a stand-alone
presentation basis, for the quarters ended March 31, 1996 and March 31, 1997,
revenues generated from Elcom Systems' licenses, including associated
professional services and maintenance fees, were approximately $663,000 and $1.2
million, respectively.
The Company was founded in 1992, commenced operations in December 1993,
and has experienced rapid growth by offering its PECOS technology to its
Catalink customers, by their subsequent use of PECOS, and by various marketing
efforts, including the expansion of its direct sales force nationwide and by the
acquisition of six PC products remarketers. The Company's remarketer acquisition
strategy includes utilizing an acquired company's sales force to offer PECOS to
prospective customers in those new markets and, over a period of time, to
transition the acquired company's customers to the PECOS system.
In October 1994, the Company completed the acquisition of CDCI, a
Connecticut-based PC products remarketer, which was accounted for on a
pooling-of-interests basis. Accordingly, the results of this entity (which was
merged into Catalink in December 1995) have been included with the Company's
results since the date of the Company's organization. In February 1995, the
Company acquired Catalink Direct (Pennsylvania), Inc., formerly known as
Computerware Business Trust ("Computerware"), a Bristol, Pennsylvania-based PC
products remarketer. In June 1995, the Company acquired all of the equity of a
PC products remarketer in the United Kingdom operating as Lantec. The
Computerware and Lantec acquisitions have been accounted for as purchase
transactions.
In February 1996, the Company completed the acquisition of AMA (UK)
Limited ("AMA"), a remarketer of PC products in the United Kingdom, which has
been accounted for on a pooling-of-interests basis. Accordingly, AMA's results
have been included with the Company's results since the date of the Company's
organization. In December 1996, the Company acquired Prophet Group Limited, a PC
products remarketer and in February 1997, the Company acquired Data Supplies
Limited, a PC products remarketer, both of which are located in the United
Kingdom. The Prophet Group and Data Supplies acquisitions have been accounted
for as purchase transactions.
On April 4, 1997, Elcom Systems acquired an existing electronic
procurement software technology which will be integrated with its existing PECOS
family of products to augment its "full circle" electronic commerce solution.
Assuming the satisfaction of certain post closing contingencies, the total
purchase price is approximately $1.1 million. The procurement technology
provides an infrastructure based on client/server technology that integrates
desktop ordering of various product lines from multi-vendor, multi-commodity
electronic catalogs with Electronic Data Interchange (EDI), work flow processes
such as routing and approval processing and automated settlement processes,
thereby minimizing the need for human intervention in the generation of purchase
orders and payments. The Company believes that the current marketplace for a
business-to-business electronic commerce procurement solution is substantial.
The Company is actively marketing and intends to further invest in the continued
development of the electronic procurement technology. The Company intends to
enhance the acquired
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technology with additional features and utilities available
in PECOS in order to deliver robust electronic commerce solutions for both "sell
side" and "buy side" licensees.
The Company intends to acquire additional companies either to expand
its customer base and the use of PECOS or to complement its Elcom Systems' PECOS
technology, although there can be no assurances as to the success or timing of
any such acquisitions.
Catalink's revenues have always been affected by general price
reductions by PC manufacturers, which have been substantial over the last
several years. Manufacturers' price reductions require that Catalink increase
its base unit volumes, and associated peripheral product sales to existing and
newly acquired customers, to overcome the effect of such cost cutting and to
increase its revenue volume in order to sustain its level of gross profit.
Consequently, the impact of any lessening of corporate customer demand on
Catalink's revenues is amplified in this environment.
In addition to general price reductions by PC manufacturers, the
Company's first quarter revenues were impacted by a general decrease in demand
in the United Stated for PC products, which was exacerbated by a customer's
delay in the roll-out of a major contract from the first quarter to the second
quarter. The decrease in demand in the United States was generally offset by
increased sales of products and services at the Company's United Kingdom
subsidiaries. The Company believes that the first quarter decrease in domestic
demand is the result of a temporary deferral of purchases by customers, and
anticipates that demand will strengthen over the balance of the year, although
there can be no assurances thereof.
Results of Operations
Quarter ended March 31, 1997 compared to the quarter ended March 31, 1996.
Net Sales. Net sales for the quarter ended March 31, 1997 increased to
$176.3 million from $141.4 million in the same period of 1996, an increase of
$34.9 million or 25%. This increase is primarily attributable to sales growth in
the United Kingdom, including $11.8 million of sales generated by recent
acquisitions (Prophet Group Limited and Data Supplies Limited). In addition, the
Company increased sales through continued expansion of the use of its PECOS
technology by existing and new customers via incremental penetration of the
marketplace through expansion of its direct sales force. Net sales in the United
States increased to $103.3 million in the 1997 quarter, from $95.8 million in
the quarter ended March 31, 1996, an 8% increase. Net sales of the Company's
United Kingdom based operations increased from $45.6 million in the 1996 quarter
to $73.0 million in the first quarter of 1997, a 60% increase. As noted above,
the Company believes that the sluggish increase in United States sales is
attributable primarily to a temporary deferral of purchases by customers in the
United States during the first quarter, and anticipates that demand in the
United States will strengthen over the balance of the year, although there can
be no assurances thereof.
Gross Profit. Gross profit for the quarter ended March 31, 1997
increased to $20.2 million from $16.3 million in the 1996 quarter, an increase
of $3.9 million or 24%. The increase in gross profit dollars generated resulted
from the overall growth in net sales, including sales generated by recent
acquisitions. Gross profit as a percent of net sales declined slightly from
11.6% in the 1996 quarter to 11.5% in the 1997 quarter due to a proportional
increase in net sales to large volume corporate accounts which typically
generate lower gross margins than other customers. The gross profit percentage
in the 1997 quarter was higher than the 11.0% gross profit percentage reported
in the third and fourth quarters of 1996 due to an increase in the proportion of
revenues generated by the Company's United Kingdom operations, and from
services, both of which generate higher gross profit margins than the large
customer accounts in the United States where demand was slightly less than
anticipated for the 1997 quarter. The Company anticipates that its overall gross
profit percentage will decline in future quarters because Catalink's business
strategy includes generating substantial incremental revenue from both new and
existing large volume corporate accounts which typically generate lower gross
margins than other customers.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses for the quarter ended March 31, 1997 increased to $16.4
million from $13.8 million in the 1996 quarter, an increase of $2.6
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million or 19%. This increase is attributable primarily to the expenses of
acquired companies and an increase in the Company's work force to support
increased sales volume. Other selling, general and administrative expenses also
increased as the Company continued to invest in administrative infrastructure to
support its future growth, including the ongoing development and implementation
of its augmented management information system. Until such system is fully
operational, the Company will be required to maintain additional personnel and
manual support processes to facilitate its anticipated growth in volume.
Nonetheless, selling, general and administrative expenses decreased as a
percentage of net sales for the quarter ended March 31, 1997 to 9%, from 10% in
the comparable 1996 quarter, reflecting the impact of slower overall expense
growth relative to the increase in net sales.
Research and Development Expense. Research and development expense has
remained relatively constant between 1996 and 1997. The Company's research and
development expense is focused on developing incremental functionality and
features for its PECOS technology, including modifications to allow
communication using the Internet and the continued development of a
browser-compliant version of its PECOS technology for license to other
companies. With the recent acquisition of an existing electronic procurement
software technology allowing for greater flexibility and augmentation of its
"full circle" electronic commerce technology, the Company expects to continue
investing significant amounts in research and development.
Interest Expense. Interest expense for the quarter ended March 31, 1997
increased to $1,144,000 from $807,000 in the comparable period of 1996 an
increase of $337,000 or 42%. Interest expense in both years reflects floor plan
line of credit borrowings in support of the Company's accounts receivable and
inventory and for 1997 is reflective of the substantial increase in the
Company's net sales and inventory balances over the 1996 period.
Interest Income and Other, Net. Interest income and other, net, for the
quarter ended March 31, 1997 increased to $575,000 from $565,000 in the 1996
quarter. Other income also includes proceeds of $389,000 resulting from the sale
of the Bristol, PA. rental division in March 1997, net of certain redundant
operating and severance expenses of the Pennsylvania group which continue to be
phased-out and consolidated into the Company's headquarters and the new East
Coast configuration and distribution facility which was opened in Canton, MA in
the first quarter of 1997.
Income Tax Provision. The income tax provision in 1997 and 1996
primarily relates to the income taxes of the Company's United Kingdom based
operations, as well as certain current state income taxes payable by the
Company.
Net Income. The Company generated net income for the quarter ended
March 31, 1997 as a consequence of the results of the factors described herein.
The March 31, 1997 quarter is the sixth consecutive quarter in which the Company
has reported net income since its initial public offering on December 19, 1995,
after reporting net losses in all previous quarters from its inception in 1992.
Liquidity and Capital Resources
Net cash provided by operating activities for the quarter ended March
31, 1997 was $7.2 million, reflecting the Company's net income adjusted for $2.2
million in depreciation and amortization, a net increase of $3.1 million in
accounts payable and accrued expenses and stable levels of accounts receivable
and inventory in the period. Net cash used in investing activities was $5.0
million, consisting primarily of $1.9 million in additions to property, plant
equipment and software and $3.0 million of cash paid for acquisitions. Net cash
used in financing activities was $4.0 million, consisting primarily of a $4.1
million decrease in net borrowings under the Company's lines of credit.
Net cash used in operating activities for the quarter ended March 31, 1996
was $28.8 million, including $32.4 million relating to increases in accounts
receivable, reflecting the Company's increase in net sales over the fourth
quarter of 1995. Net cash used for investing activities was $2.0 million,
consisting of $1.4 million in additions to property, equipment and software and
an increase of $.6 million in other assets and deferred costs. Net cash provided
by financing activities was $18.2 million, including $6.2 million in net
proceeds from the Company's
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sale of common stock to the underwriters upon exercise of their
over-allotment option and an $11.9 million net increase in borrowings under
floor plan lines of credit.
At March 31, 1997, the Company's principal sources of liquidity
included cash and cash equivalents of $21.1 million and floor plan lines of
credit from Deutsche Financial Services Corporation ("DFSC"). The DFSC facility
provides for aggregate borrowings of up to $100 million, with interest payable
at prime less 1% (7.5% at March 31, 1997). Approximately one-half of the
Company's initial borrowings are eligible to be interest free until after 30
days have lapsed. Through February 28, 1997, interest was payable monthly at the
prime rate before being reduced to prime less 1%. Availability of borrowings is
based on DFSC's determination as to eligible accounts receivable and inventory.
At March 31, 1997, the Company's borrowings from DFSC on its floor plan line of
credit were $67.8 million, which approximated the Company's availability based
on eligible accounts receivable and inventory at that date. The DFSC line of
credit is secured primarily by the Company's inventory and accounts receivable,
although substantially all of the Company's other United States assets also are
pledged in support of the facility. The Company is dependent upon the DFSC line
of credit to finance increases in its eligible accounts receivable arising from
sales of PC products as well as its inventory purchases and hence, the Company
expects that its borrowings under such facility will need to continue to
increase substantially in order to support the Company's anticipated growth.
There can be no assurance, however, that the DFSC line of credit will continue
to be available, or be increased to support the Company's requirements. The DFSC
line of credit limits borrowings to defined percentages of eligible inventory
and accounts receivable and contains customary covenants, including financial
covenants with respect to the Company's net worth and debt-to-equity ratios, and
customary default provisions related to non-payment of principal and interest,
default under other debt agreements and bankruptcy. The Company also has a $9.5
million floor plan financing agreement with IBM Credit Corporation ("IBMCC") to
support purchases of IBM products. The DFSC and IBMCC borrowing facilities
relate to domestic operations only. At March 31, 1997, the Company's borrowings
from IBMCC on its floor plan line of credit were $4.3 million.
Lantec maintains a financing facility with Kellock Limited, an
affiliate of NatWest Bank, PLC, which provides for borrowings of up to
approximately $14.8 million. Borrowings bear interest at the Bank of Scotland
base rate ( 6% at March 31, 1997) plus 1.2% and are primarily secured by
accounts receivable.
AMA maintains a factoring agreement with International Factors Limited
(IFL), under which IFL acts as AMA's factor for a portion of its accounts
receivable. The factoring charges amount to the Lloyds Bank base rate (6% at
March 31, 1997) plus 1.75% of the accounts receivable assigned, in addition to
certain administration charges, as defined.
Prophet Group maintains a financing arrangement with Confidential
Invoice Discounting Limited, a financing company, which provides for borrowings
up to the lesser of the security value of accounts receivable, as defined, or
$6.6 million. Borrowings bear interest at the Lloyds Bank base rate (6% at March
31, 1997) plus 1.25%.
Data Supplies Limited maintains a financing arrangement with Alex
Lawrie Factors Limited, a financing company, which provides for borrowings up to
the lesser of the security value of accounts receivable, as defined, or $2.9
million. Borrowings bear interest at the Lloyds Bank base rate (6% at March 31,
1997) plus 1.75%.
As of March 31, 1997, the Company had borrowings aggregating
approximately $86.0 million outstanding under the aforementioned facilities,
which approximated its availability thereunder.
Based upon ongoing analyses, and the implementation of a direct
purchasing relationship with a major PC manufacturer to support fulfillment
requirements under a major contract, the Company has begun purchasing products
directly from selected manufacturers. The Company believes that it can
substantially mitigate the risks associated with additional inventory positions
by limiting the range of models it stocks to those in demand and by carefully
monitoring items on hand relative to demand, while continuing to maintain
electronic links, logistical and traditional relationships with selected
distributors and/or aggregators. The Company believes that by having certain
inventory on hand, it should improve its delivery time to many customers and the
quality control of configured systems and, over time, may increase the
profitability of the Company.
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Although the Company is continuing to evaluate a possible public
offering of common stock of Elcom Systems, its wholly-owned technology
subsidiary which developed and licenses its PECOS electronic commerce enabling
software technology, the timing thereof has been deferred indefinitely due to
what the Company believes are unfavorable market conditions. The offering would
only be made pursuant to a prospectus included in a registration statement which
would be filed with the Securities and Exchange Commission. There can be no
assurances as to the likelihood, the success, the valuation, the timing or the
size of any such possible capital offering. As noted herein, the Company is
continuing to invest in research and development of the PECOS System, and has
expanded its software product lines with the recent acquisition of an electronic
procurement technology.
The Board of Directors of the Company has authorized the purchase of up
to 600,000 shares of common stock to be held as treasury stock specifically for
reissuance in connection with acquisitions. The Company anticipates that it may
acquire shares in the open market under this authorization from time to time.
The Company's principal commitments consist of leases on its office
facilities, obligations under lines of credit, which are demand facilities and
are treated as current liabilities, and capital leases. Future growth of the
Company will require ongoing investment in property, equipment and software.
The Company believes that its cash and cash equivalents, together with
its existing sources of liquidity, will be sufficient to meet its working
capital and capital expenditure requirements for the next year, so long as its
financing sources continue to make lines of credit available. However, as the
Company's business strategy includes growth through acquisitions, additional
sources of financing may be required to accomplish the Company's growth plans.
STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT
Except for the historical information contained herein, the matters
discussed in this Quarterly Report on Form 10-Q could include forward-looking
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," "anticipates," 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 correct. These forward-looking statements involve a
number of risks and uncertainties which could cause the Company's future results
of operations to differ materially from those anticipated, including: the
continued acceptance of the Company's PECOS technology, the impact of
competitive products and pricing, the success and timing of implementing the
Company's new management information system, risks associated with acquisitions
of companies, business conditions and growth in the PC industry, availability of
appropriate financing and the other risks detailed in the Company's 1996 Annual
Report on Form 10-K and from time to time in the Company's other SEC reports,
including the Company's prospectus included as part of the S-1 Registration
Statement declared effective on December 19, 1995 under the Securities Act of
1933.
10
<PAGE>
Part II - Other Information
Item 1. Legal Proceedings
On March 26, 1997, the Company and certain of its subsidiaries entered
into a Final Agreement of Settlement and Mutual Release of All Claims and
Demands with the former owners of Computerware, which the Company acquired in
February 1995, including the dismissal of all litigation pending against the
principal former owners of Computerware (and related counterclaims against the
Company). The essence of the settlement, a complete copy of which was filed in a
Current Report on Form 8-K, dated March 26, 1997, filed on April 8, 1997,
includes a confirmation of the merger transaction and affirmation that the
1,326,417 shares of the Company's stock issued in 1995 is the appropriate and
final amount of the stock due and payable in connection with the transaction. In
addition, the principal former owners of Computerware have agreed to certain
volume and manner of sale limitations on their ability to sell their shares of
the Company's common stock. The settlement of these disputes and related
litigation did not have a material impact on the Company's results of
operations.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits:
4.16 Form of Lantec Warrant Agreement, dated June 22, 1995 (1), with
attached First Amended List of Holders of Warrants to Purchase
Common Shares of the Company. (x)
(11) Statement Re: Computation of Income Per Common Share. (x)
(27) Financial Data Schedule. (x)
- ---------------------------------
(1) Previously filed as an exhibit to Registration Statement
No. 33-98866 on Form S-1 and incorporated herein
by reference.
(x) Filed herewith.
(b) Reports on Form 8-K.
During the three month period ended March 31, 1997, the Company filed
Current Reports on Form 8-K with respect to the Final Agreement of Settlement
and Mutual Release of All Claims and Demands with the former owners of
Computerware, dated March 26, 1997; the acquisition of Prophet Group Limited
dated December 6, 1996 and later amended on Form 8-K/A-1 filed on February 13,
1997; and the acquisition of Data Supplies Limited dated February 21, 1997 and
later amended on Form 8-K/A-1 filed on April 7, 1997.
SIGNATURE
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Elcom International, Inc.
(Registrant)
Date: May 7, 1997 By: /s/ Laurence F. Mulhern
------------------------------
Laurence F. Mulhern
Chief Financial Officer and Treasurer
11
EXHIBIT 4.16
FIRST AMENDED
LIST OF HOLDERS OF WARRANTS TO PURCHASE
COMMON SHARES OF THE COMPANY
HOLDER NUMBER OF WARRANTS
--------------------------------------------- ------------------------
1. James Rousou 400,500
2. Control Investments Limited 133,500
3. Best Investments Limited 133,500
4. Champion Investments Limited 82,500
EXHIBIT 11
ELCOM INTERNATIONAL, INC. AND SUBSIDIARIES
COMPUTATION OF INCOME PER COMMON SHARE
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(unaudited)
Three Months Ended
March 31,
------------------------
1996 1997
----------- ---------
Net Income $ 1,124 $1,963
=========== =========
Weighted Average Common Stock Outstanding
During the Period 26,022 26,740
Dilutive Effect of Common Equivalent Shares (1) 3,120 2,731
----------- ---------
Weighted Average Common Shares Outstanding 29,142 29,471
=========== =========
Net Income Per Share $ 0.04 $0.07
=========== =========
(1)The dilutive effect of common equivalent shares was computed in accordance
with the treasury stock method in each of the periods presented.
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