ELCOM INTERNATIONAL INC
10-Q, 1999-11-15
COMPUTER PROGRAMMING SERVICES
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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 September 30, 1999

                                       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
                                 (781) 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  28,025,000   shares  of  common  stock,  $.01  par  value,
outstanding as of November 1, 1999.

<PAGE>

                                      INDEX

                         Part I - FINANCIAL INFORMATION




Item 1. Financial Statements

          Consolidated  Balance Sheets as of December 31, 1998
            and September 30, 1999 (unaudited)................................2

          Consolidated Statements of Operations and Other Comprehensive
            Income (Loss) - Three and Nine Month Periods
            Ended September 30, 1998 and 1999 (unaudited).....................3

          Consolidated  Statements  of Cash  Flows - Nine  Month Periods  Ended
            September 30, 1998 and 1999 (unaudited)...........................4

          Notes to Consolidated Financial Statements (unaudited)..............5

Item 2. Management's Discussion and Analysis of Financial Condition and
        Results of Operations.................................................7

Item 3. Quantitative and Qualitative Disclosures About Market Risk...........15

                           Part II - OTHER INFORMATION

Item 1.           None.

Item 2.           None.

Item 3.           None.

Item 4.           None.

Item 5.           Other Information..........................................16

Item 6.           Index to Exhibits and Reports on Form 8-K..................16

Signature         ...........................................................16




                                       1
<PAGE>



                            ELCOM INTERNATIONAL, INC.
                                AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEETS
                        (in thousands, except share data)
<TABLE>
                                                     December 31,  September 30,
                                                         1998           1999
                                                     -----------    -----------

                   ASSETS                                           (unaudited)
<S>                                                     <C>            <C>
CURRENT ASSETS:
  Cash and cash equivalents.............................$ 14,315       $ 33,472
  Accounts receivable:
     Trade.............................................. 134,753         60,871
     Other..............................................  36,068         15,317
                                                        ---------      ---------
                                                         170,821         76,188
     Less - Allowance for doubtful accounts.............   6,796          4,074
                                                        ---------      ---------
                                                         164,025         72,114
  Inventory.............................................  39,617          5,664
  Prepaids and other current assets.....................   2,458          2,438
                                                        ---------      ---------
         Total current assets........................... 220,415        113,688
                                                        ---------      ---------
PROPERTY, EQUIPMENT AND SOFTWARE, AT COST:
  Computer hardware and software........................  26,556         27,979
  Land, buildings and leasehold improvements............   3,507          3,558
  Furniture, fixtures and equipment.....................   9,228          9,372
                                                        ---------      ---------
                                                          39,291         40,909
  Less - Accumulated depreciation and amortization......  25,034         28,175
                                                        ---------      ---------
                                                          14,257         12,734
                                                        ---------      ---------
GOODWILL AND OTHER ASSETS, NET OF ACCUMULATED
  AMORTIZATION (Note 4).................................  27,179            157
                                                        ---------      ---------
                                                        $261,851       $126,579
                                                        =========      =========

                      LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:

  Lines of credit.......................................$104,772       $ 40,582
  Accounts payable......................................  49,341         17,046
  Accrued expenses and other current liabilities........  20,747         14,579
  Current portion of capital lease obligations..........     991            441
  Current portion of long-term debt.....................      78             --
                                                        ---------      ---------
         Total current liabilities...................... 175,929         72,648
                                                        ---------      ---------
OTHER DEFERRED LIABILITIES..............................     418             --
CAPITAL LEASE OBLIGATIONS, NET OF CURRENT PORTION.......     191              3
LONG-TERM DEBT, NET OF CURRENT PORTION..................     296             --
                                                        ---------      ---------
                                                             905              3
                                                        ---------      ---------

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  - 27,547,061
    and 28,258,687 shares...............................     275            283
  Additional paid-in capital............................ 101,271        102,371
  Retained earnings (deficit)........................... (16,192)       (47,864)
  Treasury stock, at cost - 236,338 and 257,739 shares..  (1,182)        (1,282)
  Cumulative translation adjustment.....................     845            420
                                                        ---------      ---------
         Total stockholders' equity                       85,017         53,928
                                                        ---------      ---------
                                                        $261,851       $126,579
                                                        =========      =========
</TABLE>

       The accompanying notes are an integral part of these consolidated
                             financial statements.

                                       2
<PAGE>



                            ELCOM INTERNATIONAL, INC.
                                AND SUBSIDIARIES

                 CONSOLIDATED STATEMENTS OF OPERATIONS AND OTHER
                           COMPREHENSIVE INCOME (LOSS)
                      (in thousands, except per share data)
                                   (unaudited)
<TABLE>

                                                         Three Months Ended         Nine Months Ended
                                                            September 30,              September 30,
                                                        -----------------------   -----------------------
                                                           1998         1999          1998        1999
                                                        ----------   ----------   ----------   ----------
<S>                                                     <C>          <C>          <C>          <C>
Net sales ...........................................   $ 194,993    $  91,326    $ 576,819    $ 416,226
Cost of sales .......................................     175,530       83,606      512,616      375,138
                                                        ----------   ----------   ----------   ----------
Gross profit ........................................      19,463        7,720       64,203       41,088
Expenses:
  Selling, general and administrative ...............      21,837       14,972       58,702       47,036
  Research and development ..........................         474          357        1,094          932
  Asset  impairment,  restructuring and other related
   charges (Note 4)..................................      12,338           --       12,338       22,552
                                                        ----------   ----------   ----------   ----------
Total expenses ......................................      34,649       15,329       72,134       70,520
                                                        ----------   ----------   ----------   ----------
Operating loss ......................................     (15,186)      (7,609)      (7,931)     (29,432)

Interest expense ....................................      (2,162)        (790)      (6,327)      (2,862)
Interest income and other, net ......................         241          145          637          764
                                                        ----------   ----------   ----------   ----------
Loss before income taxes ............................     (17,107)      (8,254)     (13,621)     (31,530)

Provision for (recovery of) income taxes ............      (2,071)        (769)        (472)         142
                                                        ----------   ----------   ----------   ----------
Net loss ............................................   $ (15,036)   $  (7,485)   $ (13,149)   $ (31,672)
                                                        ==========   ==========   ==========   ==========

Basic net loss per share ............................   $   (0.55)   $   (0.27)   $   (0.48)   $   (1.14)
                                                        ==========   ==========   ==========   ==========
Basic weighted average shares outstanding............      27,356       27,944       27,322       27,690
                                                        ==========   ==========   ==========   ==========

Diluted net loss per share ..........................   $   (0.55)   $   (0.27)   $   (0.48)   $   (1.14)
                                                        ==========   ==========   ==========   ==========
Diluted weighted average shares outstanding..........      27,356       27,944       27,322       27,690
                                                        ==========   ==========   ==========   ==========

Other Comprehensive Income (Loss):
The components of other comprehensive  income (loss),
  net of tax are as follows:
Net loss ............................................   $ (15,036)   $  (7,485)   $ (13,149)    $(31,672)
  Foreign currency translation adjustments...........        (956)         344          889         (425)
                                                        ----------   ----------   ----------   ----------
Comprehensive loss ..................................    $(15,992)   $  (7,141)   $ (12,260)    $(32,097)
                                                        ==========   ==========   ==========   ==========

</TABLE>

       The accompanying notes are an integral part of these consolidated
                             financial statements.

                                       3
<PAGE>



                                        ELCOM INTERNATIONAL, INC.
                                             AND SUBSIDIARIES

                                  CONSOLIDATED STATEMENTS OF CASH FLOWS
                                              (in thousands)
                                               (unaudited)
<TABLE>
                                                                Nine Months Ended
                                                                  September 30,
                                                              ---------------------
                                                                1998         1999
                                                              ---------   ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
  <S>                                                         <C>         <C>
  Net loss ................................................   $(13,149)   $(31,672)
  Adjustments to reconcile net loss to net cash provided by
    Operating activities --
    Depreciation and amortization .........................      6,606       8,395
    Restructuring, impairment and other related charges....     10,137      22,552
    Provision for doubtful accounts .......................      2,728       5,309
    Other deferred liabilities ............................        --         (418)
    Changes in current assets and liabilities --
      Accounts receivable .................................    (10,701)     84,381
      Inventory ...........................................     18,122      33,272
      Prepaids and other current assets ...................     (1,637)       (276)
      Accounts payable ....................................       (852)    (30,232)
      Accrued expenses, other current liabilities and other      4,132      (5,860)
                                                              ---------   ---------
         Net cash provided by operating activities ........     15,386      85,451
                                                              ---------   ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
  Purchase of property, equipment and software ............     (5,902)     (3,134)
  (Increase) decrease in other assets and deferred costs ..     (3,057)        212
                                                              ---------   ---------
        Net cash used in investing activities .............     (8,959)     (2,922)
                                                              ---------   ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
  Net payments under lines of credit ......................    (19,495)    (62,876)
  Repayment of capital lease obligations ..................       (532)     (1,095)
  Proceeds from stock option exercises ....................        547       1,069
  Purchase of treasury stock ..............................       (559)       (100)
                                                              ---------   ---------
        Net cash used in financing activities .............    (20,039)    (63,002)
                                                              ---------   ---------
FOREIGN EXCHANGE EFFECT ON CASH ...........................        429        (370)
                                                              ---------   ---------
NET INCREASE (DECREASE) IN CASH AND
   CASH EQUIVALENTS .......................................    (13,183)     19,157
CASH AND CASH EQUIVALENTS,
  BEGINNING OF PERIOD .....................................     33,165      14,315
                                                              ---------   ---------
CASH AND CASH EQUIVALENTS, END OF PERIOD ..................   $ 19,982    $ 33,472
                                                              =========   =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
  Interest paid ...........................................   $  6,320    $  2,977
                                                              =========   =========
  Income taxes paid .......................................   $    599    $    235
                                                              =========   =========
SUPPLEMENTAL DISCLOSURE OF NONCASH
  INVESTING AND FINANCING ACTIVITIES:
Retirement of fully depreciated/amortized property,
    equipment and software ................................   $    --     $    777
                                                              =========   =========
</TABLE>

        The accompanying notes are an integral part of these consolidated
                             financial statements.


                                       4
<PAGE>

                            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 September 30, 1999,  and the results of operations  for the
three and nine month  periods,  and cash flows for the nine month  periods ended
September 30, 1998 and 1999. 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, 1998.

2.     Net Income Per Share

         Net income per share is based on the weighted  average number of common
and  common  equivalent  shares   outstanding   during  each  period  presented,
calculated  in  accordance  with  Statement  of Financial  Accounting  Standards
("SFAS")  No.  128,  Earnings  Per Share.  Basic EPS  excludes  dilution  and is
computed by dividing  income  (loss)  available  to common  stockholders  by the
weighted average number of common shares outstanding during the period.  Diluted
EPS gives effect to all potential common shares  outstanding  during the period.
In 1998 and 1999,  diluted  EPS is the same as basic EPS because the Company has
reported a net loss, in which case dilutive  securities  are not included in the
determination of per share calculations.

         Basic and  diluted  net loss per share were  calculated  as follows (in
thousands, except per share amounts):
                                     Three Months Ended      Nine Months Ended
                                         September 30,            September 30,
                                     --------------------    -------------------
                                        1998       1999        1998       1999
                                     ----------  --------    ---------  --------
Basic and Diluted
Net loss........................     $(15,036)   $ (7,485)  $(13,149)  $(31,672)
                                     =========   =========  =========  =========
Weighted average shares
  outstanding...................       27,356      27,944     27,322     27,690
                                     =========   =========  =========  =========
Basic and diluted net
  loss per share................     $  (0.55)   $  (0.27)    $(0.48)    $(1.14)
                                     =========   =========  =========  =========

     Diluted  net loss per share in the 1998 and 1999  periods  does not reflect
the dilutive  effect of stock options and  warrants,  as the impact of including
them is antidilutive.  Based on the average market price of the Company's common
shares in the 1998 three and nine month  periods,  a net total of 570,000 shares
and 813,000 shares,  respectively,  covered by options would have been dilutive,
and 7,488,000 shares and 5,778,000 shares, respectively,  covered by options and
warrants with per share exercise  prices ranging from $2.55 to $8.80,  and $4.50
to  $8.80,  respectively,  would not have been  dilutive.  Based on the  average
market  price of the  Company's  common  shares in the 1999 three and nine month
periods,  a net total of 2,113,000  shares and 1,792,000  shares,  respectively,
covered by options would have been dilutive,  and 3,865,000 shares and 4,658,000
shares,  respectively,  covered by options and warrants with per share  exercise
prices ranging from $4.63 to $8.80, and $4.06 to $8.80, respectively,  would not
have been dilutive.

                                       5

<PAGE>




3.    Industry Segment And Geographic Data

         Substantially all of the Company's  material  operations are associated
with the computer and peripherals  remarketer industry, and it therefore reports
as a single industry segment. The Company's  professional  services and software
licensing  activities  are deemed  immaterial  in respect of segment  reporting.
Foreign  operations  are conducted in the United  Kingdom  through the Company's
wholly-owned  indirect  subsidiaries.  Geographic  segments are identified based
upon the origin of shipment.  Information  relating to the Company's  geographic
segment operations is set forth in the following table.

     Net sales and net income (loss)  (adjusted for allocation of U.K.  goodwill
amortization and impairment  charges) for the Company's U.S. and U.K. operations
for the three and nine month  periods  ended  September 30, 1998 and 1999 are as
follows (in thousands):

                               United         United
 Three Months Ended            States         Kingdom     Consolidated
 September 30, 1998
- ------------------------
Net sales...............      $121,481       $ 73,512       $194,993
                              =========      =========      =========
Net income (loss).......      $(14,238)      $   (798)      $(15,036)
                              =========      =========      =========
 Nine Months Ended
 September 30, 1998
- -------------------------
Net sales...............      $344,350       $232,469       $576,819
                              =========      =========      =========
Net income (loss)......       $(11,859)      $ (1,290)      $(13,149)
                              =========      =========      =========
  Three Months Ended
  September 30, 1999
- -------------------------
Net sales................     $ 60,489       $ 30,837       $ 91,326
                              =========      =========      =========
Net income (loss)....         $ (6,486)      $   (999)      $ (7,485)
                              =========      =========      =========
  Nine Months Ended
  September 30, 1999
- -------------------------
Net sales................     $238,008       $178,218       $416,226
                              =========      =========      =========
Net income (loss)........     $ (8,819)      $(22,853)      $(31,672)
                              =========      =========      =========


4.   Asset Impairment, Restructuring and Other Related Charges

         On July 31, 1999,  the Company  completed  the sale of the  substantial
majority of its United  Kingdom  remarketer  group  operations.  Generally,  the
Company sold its United Kingdom  field-based  sales operation,  its professional
services  organization,  its distribution  business, and specified inventory and
fixed assets.  The disposed  businesses  accounted for  approximately 75% of the
Company's United Kingdom revenues and 67% of its United Kingdom operating income
in 1998 and the seven  month  period  ended July 31, 1999  (excluding  the asset
impairment charge described below).  The Company recorded total revenues related
to its United  Kingdom  operations  of $178  million in the first nine months of
1999,  $232  million  in the first  nine  months of 1998,  and $314  million  in
calendar 1998. The Company has retained its United Kingdom  telemarketing group,
which it  intends  to evolve  towards  an  Internet-based  storefront  business,
similar to the business conducted by elcom.com, inc., the Company's wholly-owned
eBusiness  subsidiary  in the United  States.  The Company also plans to use the
retained  business  as the  platform  from which it will market  PECOS  Internet
Procurement Manager,  elcom.com's  Internet-


                                      6
<PAGE>

based and remotely-hosted automated procurement system. The acquirer has assumed
the lease of the  Company's  Langley  facility  and has an option to assume  the
lease  of  the  Company's  Glasgow  facility;   however,  the  Company  retained
substantially  all other  balance sheet assets and  liabilities  of the disposed
businesses.  Accordingly,  the Company is  responsible  for the current costs of
severance  liabilities,  and subleasing excess facilities,  as well as realizing
inventory  and excess  fixed  assets no longer  required to operate the retained
portion of the business.

         Based  on the  sale  price  of  approximately  $12  million  (excluding
inventory  sold of  approximately  $6.8 million) and the Company's  estimates of
incremental  liabilities  associated with the sale transaction,  the Company has
recorded an asset  impairment  charge  against  goodwill of $22.6 million in the
second quarter of 1999 to reduce the carrying value of its United Kingdom assets
to estimated net realizable  value.  Prior to the impairment  charge,  the $25.7
million of goodwill reflected on the Company's balance sheet was associated with
the acquisitions of its United Kingdom  operations and, the remaining balance of
$3.1 million  (after giving effect to the $22.6 million  write-off in the second
quarter) was written off in conjunction  with recording the sale  transaction in
the third quarter of 1999.

         In August and September, 1998, the Company's senior management approved
restructuring  plans related to its Elcom Systems,  Inc.  subsidiary,  its Elcom
Services  Group  Inc.   government   and   educational   sales   operations  and
consolidation of its customer support  personnel in the U.S. This  restructuring
entailed  a  workforce  reduction  of  approximately  35 of the  Company's  U.S.
employees.  A total pre-tax charge of $12.3 million for this  restructuring  was
taken which was  comprised  of $0.9 million in  severance  costs,  $1 million of
estimated  liabilities  related to  acquitting  the  Company's  responsibilities
concerning  certain existing  technology  licenses,  a $10 million write down to
estimated fair market value of certain unrealizable intangible assets related to
prior U.S. acquisitions, and $0.4 million of other charges.


Item 2.  Management's Discussion and Analysis of Financial Condition and
           Results of Operations

OVERVIEW

         The Company was founded in 1992 as a developer of  electronic  commerce
software,  commenced selling computer and business  products,  primarily PCs and
associated peripherals, in December 1993 through a separate subsidiary using its
electronic  commerce  software,  and experienced rapid growth for several years.
The Company  achieved its growth by using its  proprietary  Personal  Electronic
Catalog and  Ordering  System  ("PECOS")  as a value-add  differentiator  and by
offering the use of PECOS through Elcom Services Group,  Inc.  ("Elcom  Services
Group")  to its  customers  and by  various  marketing  efforts,  including  the
expansion of its direct sales force  nationwide,  and by the  acquisition of six
computer  products  remarketers.  To date,  the  Company's  net sales  have been
derived  substantially  from  the sale of  computer  products  by the  Company's
wholly-owned subsidiary, Elcom Services Group and its respective subsidiaries in
the United States and United Kingdom, to business and corporate customers. These
sales  are  accomplished   through  the  Company's  PECOS  electronic   commerce
technology and through  telephone and other  traditional  ordering  methods.  In
addition,  the Company,  through  another  subsidiary of Elcom  Services  Group,
elcom.com,  inc. ("elcom.com"),  licenses its PECOS technologies,  including its
recently  introduced  Internet-based and remotely-hosted  automated  procurement
system,  and provides  implementation and consulting  services.  In March, 1999,
elcom.com  commenced  operating an Internet on-line storefront selling computers
and related products.  Since then,  elcom.com has added auction  capabilities to
its  Internet  site,  launched  an  office  supplies  product  line and plans to
introduce other business-oriented products in the future.

         On July 31, 1999,  the Company  completed  the sale of the  substantial
majority of its United  Kingdom  remarketer  group  operations.  Generally,  the
Company sold its United Kingdom  field-based  sales operation,  its professional
services  organization,  its distribution  business, and specified inventory and
fixed assets.  The disposed  businesses  accounted for  approximately 75% of the
Company's United Kingdom revenues and 67% of its United Kingdom operating income
in 1998 and the first  seven  months  of 1999  (excluding  the asset  impairment
charge). The Company has retained its United Kingdom  telemarketing group, which
it intends to evolve towards an  Internet-based  storefront  business similar to
the business conducted by elcom.com in the United States. The Company also

                                       7
<PAGE>

plans to use the  retained  business as the  platform  from which it will market
PECOS Internet  Procurement  Manager,  its  Internet-based  and  remotely-hosted
automated procurement system.

         On October 1, 1999,  an internal  reorganization  was  accomplished  in
which the whole of the ordinary  share capital of Elcom  International  Limited,
the Company's  United Kingdom  operations,  were transferred from Elcom Services
Group, Inc. to elcom.com.

Elcom Services Group, Inc.

         Elcom Services Group's revenues and resultant gross profit are affected
by price reductions and decreases in various vendor support programs by computer
manufacturers  which have been substantial over the last several years, and most
particularly over the last year.  Manufacturers'  price reductions  require that
Elcom Services  Group  increase its base unit volumes and associated  peripheral
product  sales to overcome the effect of such price  decreases  and increase its
revenue volume if it is to sustain its level of gross profit  dollars.  Further,
the Company  experienced a softening of demand from its customers which began in
September of 1998,  which,  at that time,  the Company  attributed  to the Asian
financial crisis and subsequent  fluctuations  and related  uncertainties in the
worldwide  financial markets,  that impacted some of the Company's customers and
their capital  outlays.  The Company  believes that the relatively  soft demand,
which has continued  throughout 1999, now possibly relates to Year 2000 projects
at certain of its customers, which may have caused delays in procuring computers
and related  products and  professional  services,  as customers  focus on their
management information systems infrastructure. The Company believes that some of
its  customers  will defer  computer  purchases  until after  December  31, 1999
because  of Year 2000  concerns,  which may  adversely  impact  net sales in the
fourth quarter of 1999. In addition,  Elcom  Services Group  continues to review
the profitability of its large accounts and intends to transition those accounts
to its electronic  commerce  technology or  alternatively,  increase  pricing to
those customers or assist those customers to purchase elsewhere.  Elcom Services
Group's gross margins may vary quarter to quarter, depending on the level of key
vendor support programs, including rebates, return policies and price protection
as well as product mix, pricing strategies and other factors.

         At the end of the fourth quarter of 1998,  Elcom Services Group reduced
its work force by 133 positions worldwide and closed six field sales and support
offices in the United States. The workforce reduction was designed to streamline
the Company's sales force and operating infrastructure to better align its costs
with the revenues and margins  expected to be generated by Elcom Services Group.
The Company continues to evaluate the results of this work force reduction,  and
additional steps may be taken in the future.

elcom.com, inc.

         In the third  quarter  of 1998,  the Elcom  Systems  software  division
("Elcom  Systems")  of  elcom.com  was  restructured  to serve as an  electronic
commerce-oriented systems integration arm of Elcom Services Group, the Company's
computer products remarketing and professional services subsidiary. In addition,
beginning in March 1999, elcom.com launched an Internet on-line storefront site,
which can be  accessed  at  www.starbuyer.com  where it  markets  and sells over
62,000  computer  products and over 20,000 office supply  products to businesses
and consumers, and intends to offer other business-oriented products, 24 hours a
day,  seven  days a week.  elcom.com  has  commenced  a branding  and  marketing
campaign in the fourth quarter of 1999 and intends to become a leading  supplier
of multiple  commodity-type  products to businesses through this site. elcom.com
added  auction   capabilities  to  its  site  as  part  of  its   Internet-based
business-to-business  storefront in April 1999. In May 1999, a new generation of
the Company's PECOS technology was launched,  PECOS Internet Procurement Manager
("PECOS.ipm"),  an Internet  and  browser-based  automated  procurement  system.
elcom.com offers PECOS.ipm as an  Internet-based  automated  procurement  system
hosted on  elcom.com's  computer  platform  as a remote  outsourced  service  to
businesses. The Company expects to expand its customer base and encourage repeat
buying through  various  marketing  programs,  including  branding,  promotional
campaigns and strategic  alliances intended to provide access to global markets.
Therefore,  elcom.com plans to increase its sales and marketing  expenditures in
future periods.

         Beginning  in the latter half of 1998,  the  Company  shifted its focus
from marketing its PECOS Commerce Manager  ("PECOS.cm")  technology to investing
in the development of PECOS Procurement Manager


                                       8
<PAGE>

("PECOS.pm"),  its intranet-based  automated  procurement  management system and
more recently, to PECOS.ipm. In 1999, the Company has focused primarily on fully
developing  PECOS.ipm for commercial  launch as it  transitioned  from its older
PECOS.cm technology.  On a standalone basis, for the nine months ended September
30,  1999  and  1998,  elcom.com  reported  revenues  from  licenses,  including
associated  professional  services and maintenance  fees of  approximately  $0.8
million  and $2.1  million,  respectively.  In  addition,  elcom.com's  Internet
storefront  had product sales of  approximately  $28.7 million in the nine month
period  ended  September  30,  1999 (and none in the  comparable  1998  period),
substantially  all of which was from  customers  which  transitioned  from Elcom
Services Group. In total,  elcom.com's  consolidated gross profit increased from
$1.6 million in the nine month period ended  September  30, 1998 to $2.8 million
in the  comparable  1999  period.  Consequently,  because  elcom.com's  expenses
increased approximately $3.3 million from 1998 to 1999, as the Company continued
to staff the entity to support expected growth of its Internet  storefront,  its
operating  loss  increased  $2.5 million,  to $4.8 million during the nine month
period ended September 30, 1999, versus an operating loss of $2.3 million in the
comparable 1998 period.

Engagement of Wit Capital Corporation

         On July 19, 1999, the Company announced that it had engaged Wit Capital
Corporation ("Wit Capital") as its investment bank and strategic advisor for the
purpose of assisting the Company in evaluating strategic options,  primarily for
elcom.com.  Wit Capital,  which is partially owned by Goldman Sachs, will review
strategic  financing  options,   potential  strategic  partners,   and  possible
financing alternatives (including the potential of an initial public offering of
elcom.com).

Year 2000 Readiness Disclosure

         The  Company  has  implemented  an  Oracle-based,  Year 2000  compliant
Information  Technology System ("IT System") in the United States. In the United
Kingdom,  the  Company  has  implemented  a Year 2000  compliant  upgrade to its
Computer Associates  International,  Inc. software system,  which operates on an
IBM AS-400 hardware platform. Due to the extended timeframe of the United States
Oracle-based  system  implementation,  and  related  ongoing  enhancements,  the
Company has deferred  implementation  of the  Oracle-based  system in the United
Kingdom.  The Company's  near-term IT System efforts will continue to be focused
on  additional  enhancements  to its  systems,  including  ensuring  the Company
remains  current in  applying  any  software  "patches"  issued by its  software
vendors to address Year 2000 compliance  issues. The Company's various Year 2000
tests on its IT Systems and non-IT  Systems have not  revealed  any  substantial
Year 2000 issues, and the Company does not anticipate that the cost to remediate
the minor issues  identified  will be material.  The Company has been assured by
its key electronic trading partners' that their information systems applications
either are, or will be, Year 2000 compliant in sufficient time to avoid material
problems,  however, there can be no assurance by the Company that its electronic
trading  partners will not  experience  Year 2000 oriented  problems which could
effect the supply of products to the  Company.  The  Company  believes  that its
PECOS electronic commerce technology applications are Year 2000 compliant.

Results of Operations

Quarter ended  September  30, 1999  compared to the quarter ended  September 30,
1998.

         Net Sales. Net sales for the quarter ended September 30, 1999 decreased
53% to $91.3 million from $195.0  million in the same period of 1998, a decrease
of $103.7  million.  The Company  anticipates  that  revenues of Elcom  Services
Group, its traditional full service computer products  remarketer,  may continue
to decrease as the  Company  evaluates  the  profitability  of certain  customer
accounts,  and continues to transition certain Elcom Services Group customers to
elcom.com.  The Company's  revenues  also will  decrease in future  periods as a
result of the sale of the substantial  majority of its United Kingdom remarketer
operations on July 31,1999.  Professional  services  revenues of Elcom  Services
Group for the quarter decreased 36% from  approximately  $9.6 million in 1998 to
$6.1  million in 1999.  Net sales in the United  States  decreased  50% to $60.5
million in the 1999 quarter,  from $121.5 million in the quarter ended September
30, 1998. Net sales of the Company's United Kingdom based  operations  decreased
58% to $30.8 million in the 1999 quarter from $73.5 million in the third quarter
of 1998.  The Company  believes the


                                       9

<PAGE>

decrease in United States sales reflects the continued soft demand, possibly due
to  certain  of its  customers  focusing  on Year  2000  efforts,  and  possibly
deferring  purchases  of computer  products,  as well as a general  softening of
demand from its larger  customers.  The Company believes that there is potential
for a rebound or partial rebound in United States  computer  product demand once
its customers  have  completed  their Year 2000  efforts.  Results in the United
Kingdom were effected by the disposal of the substantial  majority of its United
Kingdom remarketer operations on July 31, 1999 as well as continued softening in
demand, consistent with a general economic slowdown in 1999 versus 1998.

         Gross  Profit.  Gross profit for the quarter  ended  September 30, 1999
decreased to $7.7 million from $19.5 million in the 1998 quarter,  a decrease of
$11.8 million or 60%. The decrease in gross profit dollars reflects the decrease
in net sales as well as a decrease in the gross  profit  percentage  between the
1998 and 1999 quarters.  Gross profit as a percentage of net sales  decreased to
8.5% in the 1999  quarter  from  10.0% in the 1998  quarter.  The  gross  profit
percentage  was higher in 1998 due to direct  purchasing  programs  with certain
manufacturers  in the United States which have been  curtailed by the Company in
1999 due to changes in certain manufacturers'  product-distribution policies, as
well as a decrease in the  availability of  manufacturer  rebate and incremental
discount  programs.  The Company  anticipates  ongoing  pressure on its computer
products gross  margins,  the impact of which it intends to mitigate with a more
streamlined corporate  infrastructure focused on Internet-based  selling, and by
leveraging   the  Company's   electronic   commerce   experience   and  software
capabilities.

         Selling,  General and  Administrative  Expenses.  Selling,  general and
administrative  ("SG&A")  expenses  for the  quarter  ended  September  30, 1999
decreased  31.4% to $15.0  million  from $21.8  million in the 1998  quarter,  a
decrease  of $6.8  million.  This  decrease  is  primarily  attributable  to the
restructurings  accomplished  by the  Company  in  late  1998,  a  reduction  in
amortization  expense,  net of the cost of the Company's increased investment in
elcom.com's  infrastructure  to support  the  anticipated  future  growth of the
Internet-based   storefront  businesses  and  the  reduction  of  SG&A  expenses
associated with the disposed United Kingdom  operations.  The Company intends to
increase  its  marketing  expenditures  to support  the  branding  and growth of
elcom.com.  As a percentage of sales,  SG&A expenses  increased to 16.4% for the
quarter ended September 30, 1999, from 11.2% in the 1998 quarter, which reflects
a lower  level of net  sales  in the  third  quarter  of  1999,  net of  expense
reductions.

         Research and  Development  Expense.  Research and  development  expense
decreased  24.7%  from  $474,000  in the 1998  quarter to  $357,000  in the 1999
quarter.  This  decrease  reflects a  transition  from product  development  (in
particular,  the newly announced  Internet-based and remotely-hosted  version of
elcom.com's  PECOS  technology,  PECOS.ipm) to marketing  and  deployment of the
product  with  customers,  the cost of which is not  reflected  in research  and
development expense. The Company's research and development expense continues to
focus on developing incremental functionality and features for its PECOS product
line using Java  programming/code  and other tools and  techniques.  The Company
expects to increase its  investments in research and  development as it enhances
PECOS.ipm, its remotely-hosted automated procurement system.

         Interest Expense.  Interest expense for the quarter ended September 30,
1999  decreased to $0.8 million from $2.2 million in the  comparable  quarter of
1998, a decrease of $1.4  million.  Interest  expense in both  periods  reflects
floor  plan line of credit  borrowings  in  support  of the  Company's  accounts
receivable and inventory  balances and for 1999 is reflective of the decrease in
the Company's net sales,  improved collection of receivables,  and substantially
lower inventory balances versus the 1998 period, as well as lower interest rates
in the 1999 quarter versus 1998.

         Interest Income and Other, Net. Interest income and other, net, for the
quarter ended  September 30, 1999 decreased by $96,000 to $145,000 from $241,000
in the 1998 quarter, reflecting a decrease in interest-earning deposits.

         Income  Tax  Provision  (Recovery).  The income  tax  recovery  in 1999
primarily  relates to the  estimated  recovery of income taxes by the  Company's
United Kingdom based  operations,  net of certain estimated current state income
taxes  payable by the  Company.  The  Company  anticipates  that its 1999 income
statement  will not include a provision for United States  federal income taxes,
as it has net operating  losses which were  generated in the second half of 1998
available  to offset any such  provision.  Such net  operating  losses  were not
benefited in the Company's

                                       10
<PAGE>


1998 or 1999 financial statements,  and the 1999 asset impairment charge has not
been benefited in the 1999 financial statements.

     Net Income (Loss).  The Company  generated a net loss for the quarter ended
September 30, 1999 of $7.5 million due to factors described herein.

Nine months ended September  30,1999 compared to the nine months ended September
30, 1998.

         Net Sales.  Net sales for the nine  months  ended  September  30,  1999
decreased to $416.2  million  from $576.8  million in the same period of 1998, a
decrease of $160.6  million,  or 28%. The Company  anticipates  that revenues of
Elcom Services Group, its traditional full service computer products remarketer,
may continue to decrease as the Company  evaluates the  profitability of certain
customer  accounts,  and continues to transition  certain Elcom  Services  Group
customers to  elcom.com.  The  Company's  revenues  also will decrease in future
periods  as a  result  of the sale of the  substantial  majority  of its  United
Kingdom  remarketer  operations on July 31,1999.  The Company  believes that the
decrease in sales also  reflects the  continued  soft demand of its customers in
the United States.  Net sales in the United Kingdom decreased as a result of the
sale of the majority of the United  Kingdom  remarketer  operations  on July 31,
1999 and have also softened,  consistent with a general economic slowdown in the
United  Kingdom in 1999 versus  1998.  Net sales in the United  States were $238
million in the nine months ended  September  30, 1999 versus $344 million in the
nine months ended September 30, 1998, a 31% decrease,  which reflects relatively
soft demand of its customers in the United States in the 1999 period, as well as
the other factors described in the quarterly and overview discussions above. Net
sales of the Company's United Kingdom-based operations decreased to $178 million
in 1999 from $232 million in the 1998 period, a decrease of $54 million or 23%.

         Gross  Profit.  Gross  profit for the 1999  period  decreased  to $41.1
million from $64.2 million in the 1998 period,  a decrease of $23.1 million,  or
36%.  Gross profit,  as a percent of net sales  decreased from 11.1% in the 1998
period to 9.9% in the 1999  period.  The gross profit  percentage  was higher in
1998 primarily due to the Company's direct purchasing arrangements in the United
States and manufacturer discounts,  which were curtailed in 1999 as discussed in
the quarterly comments above.

         Selling,  General and  Administrative  Expenses.  Selling,  general and
administrative  expenses for the 1999 period decreased to $47.0 million compared
to $58.7  million for the 1998 period,  a decrease of $11.7  million,  or 19.9%.
This decrease is attributable primarily to the "restructurings"  accomplished by
the  Company  in  1998  as  described  in  the  overview,  and  a  reduction  in
amortization expense. The Company intends to increase its marketing expenditures
to  support  the  branding  and  growth  of  elcom.com.   Selling,  general  and
administrative  expenses  increased  as a  percentage  of net sales for the 1999
period to 11.3%,  from 10.2% in the  comparable  period of 1998  reflecting  the
lower net sales in 1999 versus 1998 , as well as the  investment in  elcom.com's
infrastructure in 1999.

         Research and  Development  Expense.  Research and  development  expense
decreased 14.8% from $1.1 million in the 1998 period to $0.9 million in the 1999
period.  This decrease reflects a switch from product development (in particular
the newly announced  Internet-based and  remotely-hosted  version of elcom.com's
PECOS  technology,  PECOS.ipm) to deployment of the product with customers,  the
cost of  which  is not  reflected  in  research  and  development  expense.  The
Company's  research and  development  expense  continues to focus on  developing
incremental  functionality  and  features  for  its  PECOS  product  line  using
state-of-the-art  Java  programming/code  and other  tools and  techniques.  The
Company  expects to increase its  investments in research and  development as it
enhances PECOS.ipm, its remotely-hosted automated procurement system.

         Asset  Impairment,  Restructuring  and Other  Related  Charges.  In the
second quarter of 1999, the Company  recorded a charge of $22.6 million  related
to the July 31,  1999 sale of the  substantial  majority  of its United  Kingdom
remarketer  operations,   as  further  described  elsewhere  herein.  The  asset
impairment charge is based on the sale price of the disposed business,  less the
carrying  value  of  related  assets  and  liabilities  retained  as well as the
Company's estimates of incremental  liabilities associated with the transaction.
Accordingly,  although the Company's  estimates are subject to revision based on
actual events,  the asset  impairment  charge is intended to reduce the carrying
value of the Company's  United Kingdom assets to their  estimated net realizable
value.  In the

                                       11
<PAGE>

1998  period,  the  Company  recorded  a charge of $12.3  million  related  to a
restructuring of certain of its U.S.  operations as further described  elsewhere
herein. This restructuring entailed a workforce reduction of approximately 35 of
the Company's U.S.  employees  resulting in severance  costs of $0.9 million,  a
write-down  to estimated  net  realizable  value of $10 million of  unrealizable
intangible  assets  and  $1.4  million  in  other  related  expenses  and  asset
write-downs.

         Interest  Expense.  Interest  expense for the nine month  period  ended
September 30, 1999 decreased to $2.9 million from $6.3 million in the comparable
period of 1998 due primarily to lower average accounts  receivable and inventory
balances,  as well as lower  interest  rates.  Interest  expense  in both  years
relates to floor  plan line of credit  borrowings  in  support of the  Company's
accounts receivable and inventory balances.

         Interest Income and Other, Net. Interest income and other, net, for the
nine month period ended  September 30, 1999  increased to $764,000 from $637,000
in the same period of 1998. Other income in the 1999 period includes proceeds of
$418,000  resulting from the lapsing (without  exercise) of options sold in 1997
to  acquire  the  Company's  interest  in  ShopLink  Incorporated.  The  Company
therefore continues to own approximately 3% of Shoplink Incorporated, which is a
privately-held   on-line   supplier  of  groceries  and  other   consumables  to
homeowners.

         Income Tax  Provision  (Recovery).  The income  tax  provision  in 1999
primarily  relates to the income taxes of the  Company's  United  Kingdom  based
operations,  as well as certain  estimated current state income taxes payable by
the  Company.  The  recovery  in 1998  primarily  related to the  Company's  net
operating loss  generated in the third quarter of 1998. The Company  anticipates
that its 1999 income  statement  will not include a provision  for United States
federal income taxes, as it has net operating losses which were generated in the
1998 period  available to offset any such provision.  Such net operating  losses
were not benefited in the Company's 1998 or 1999 financial  statements,  and the
1999  asset  impairment  charge  has not been  benefited  in the 1999  financial
statements.

         Net Income (Loss).  The Company  reported a net loss for the nine month
period ended September 30, 1999 of $31.7 million  compared to a net loss for the
1998 period of $13.1  million  primarily as a result of the $22.6  million asset
impairment charge, as well as the other factors described herein.

Liquidity and Capital Resources

         Net cash  provided by  operating  activities  for the nine months ended
September 30, 1999 was $85.5  million,  primarily  reflecting  the Company's net
loss,  adjusted  for  $31.0  million  in  depreciation,  amortization  and asset
impairment charges, a $84.4 million decrease in the level of accounts receivable
and a $33.3 million decrease in the Company's  inventory balances in the period,
and was net of a $36.1 million decrease in current liabilities. Net cash used in
investing  activities  was $2.9  million,  consisting  primarily of additions to
property,  equipment and  software.  Net cash used in financing  activities  was
$63.0  million,  consisting  primarily  of  a  $62.9  million  net  decrease  in
borrowings under the Company's lines of credit.

         Net cash  provided by  operating  activities  for the nine months ended
September  30, 1998 was $15.4  million and  reflected a net  increase in current
liabilities of $3.3 million (primarily related to timing of certain payments), a
$18.1 million decrease in inventory,  and was net of a $10.7 million increase in
accounts  receivable.  Net cash used for investing  activities was $9.0 million,
consisting primarily of additions to property,  equipment and software. Net cash
used  in  financing  activities  was  $20.0  million,  consisting  primarily  of
repayments under the Company's lines of credit.

         At September  30, 1999,  the Company's  principal  sources of liquidity
included cash and cash  equivalents  of $33.5 million,  accounts  receivable and
floor  plan  lines  of  credit  from  Deutsche  Financial  Services  Corporation
("DFSC").  During 1998, the United States DFSC facility  provided for borrowings
of up to $120 million, and interest was charged at a rate of prime minus 1%. The
facility  was  amended  in  connection  with its March  1999  renewal to include
elcom.com and to provide for aggregate  borrowings of up to $80 million,  and as
of April 1, 1999,  the interest rate was increased  from the prime rate minus 1%
to prime  (8.75% at  September  30,  1999)  minus 0.5%,  although  approximately
one-half of the Company's  initial United States borrowings do not bear interest
until

                                       12
<PAGE>

after  interest-free  periods of 30 to 60 days have  lapsed.  In  addition,  the
Company has agreed that its interest  rate will  increase  .25% for each quarter
that it  reports  a loss,  as  defined  in the DFSC  agreements.  The  Company's
reported loss in the third quarter of 1999, is expected to result in an interest
rate increase of 0.25% commencing October 1, 1999. Availability of United States
borrowings is based on DFSC's  determination as to eligible accounts  receivable
and inventory.  As of September 30, 1999, the Company's  borrowings from DFSC on
its  United  States  floor  plan  line  of  credit  were  $30.8  million,  which
approximated the Company's  availability  based on eligible accounts  receivable
and  inventory  at that date.  The United  States DFSC line of credit is secured
primarily by the  Company's  United States  inventory  and accounts  receivable,
although  substantially all of the Company's other United States assets also are
pledged as  collateral  on the  facility.  In December  1997,  the Company  also
established a United  Kingdom DFSC credit  facility which provides for aggregate
borrowings of up to (pound)30  million,  or approximately  $49.4 million,  as of
September  30, 1999.  Availability  of United  Kingdom  borrowings is based upon
DFSC's  determination of eligible  accounts  receivable and amounts  outstanding
bear  interest  at the Base  Rate of  National  Westminster  Bank plc  (5.25% at
September  30,  1999) plus  1.25%.  As of  September  30,  1999,  the  Company's
borrowings  under its United Kingdom DFSC facility were (pound)5.7  million,  or
$9.8 million, which approximated the Company's availability thereunder.

         The Company is  dependent  upon the DFSC lines of credit to finance its
eligible accounts  receivable arising from sales of computer products as well as
its United States inventory purchases. The DFSC lines of credit limit borrowings
to defined percentages of eligible inventory (in the United States) and accounts
receivable and contain customary  covenants,  including financial covenants with
respect to the Company's net income,  net worth and  debt-to-equity  ratios,  as
defined  in  the  agreements,   and  customary  default  provisions  related  to
non-payment of principal and interest,  default under other debt  agreements and
bankruptcy.  After  receiving  a waiver  from  DFSC  concerning  the net  income
covenant for 1998, the Company  believes that it is in compliance with all other
covenants of the facility as of September  30, 1999.  There can be no assurance,
however,  that the DFSC lines of credit will continue to be  available,  or that
they can be increased if necessary to support the Company's requirements.

         As of  September  30,  1999,  the  Company had  borrowings  aggregating
approximately  $40.6 million  outstanding  under its DFSC borrowing  facilities,
which approximated its maximum availability thereunder.

         The Company also has a $5 million floor plan  financing  agreement with
IBM Credit Corporation ("IBMCC") to support purchases of IBM products. The IBMCC
borrowing   facility  is  secured  by  the  IBM  products  purchased  under  the
arrangement and relates to domestic  operations only. At September 30, 1999, the
Company  had no  borrowings  outstanding  from  IBMCC on its floor  plan line of
credit.

         The Company is currently  seeking to minimize the level of inventory it
stocks by  leveraging  its  electronic  commerce  capabilities  to  quickly  and
efficiently source product and/or by drop shipping product to customers whenever
possible.  These efforts,  and the disposal of the  substantial  majority of the
Company's United Kingdom remarketer  operations,  have resulted in a decrease in
inventory  of $33 million  (86%) since  December  31,  1998.  As a result of the
Company's policy changes, as well as manufacturer  revisions to their rebate and
incremental  discount  programs,  the Company  received a significantly  reduced
amount of  manufacturer  funding support in 1999 versus the nine month period in
1998, and there can be no assurance that the Company will purchase the levels of
product necessary to continue to receive these reduced levels of funding support
in the  future,  or  that  manufacturers  will  continue  to make  such  support
available. Reductions in manufacturer funding support reduce the Company's gross
profit.  The Company intends to continue to maintain  logistical and traditional
relationships  with  selected  distributors  and/or  aggregators  and is further
investigating  outsourcing of certain activities.  The July 31, 1999 sale of the
substantial majority of the Company's United Kingdom remarketer group,  resulted
in a further  reduction in its  inventory  position  and the Company  intends to
outsource  certain  distribution  activities in the United Kingdom by leveraging
its electronic commerce capabilities.

         In September  1997, the Company sold options to acquire its interest in
ShopLink  Incorporated,  which  now  represents  approximately  a  3%  ownership
position. The Company received $418,000 in payment for the options, which lapsed
without being exercised on March 31, 1999. The Company has included the $418,000
received in payment for the  options in  interest  income and other,  net in the
1999 Consolidated Statement of Operations and Other Comprehensive Income.

                                       13
<PAGE>

         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. In addition, the Company
will require  ongoing  investments  in property,  equipment  and  software,  and
research and development.

         The July 31, 1999 sale of the  substantial  majority  of the  Company's
United Kingdom  remarketer  group,  after provision for incremental  liabilities
associated with the sale, is expected to generate  approximately $5.6 million of
incremental working capital,  which the Company can use to support the marketing
and branding of elcom.com.

         The Company  believes  that its cash,  cash  equivalents,  and accounts
receivable,  together with its existing  sources of liquidity and cash generated
from  operations,  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,  there can be no assurance
the  Company's  lines of credit will  continue to be available to the Company or
that replacement  financing could be arranged if necessary,  or that the Company
will be able to timely collect its accounts receivable.

Seasonality And Impact Of Inflation

         In prior years, the Company has not experienced  observable seasonality
in its business.  Generally,  however, sales in the computer products remarketer
industry  slow in the summer months and, in the United  States,  are stronger in
the fourth calendar  quarter and somewhat weaker in the first calendar  quarter,
while sales are  generally  strong in the first  calendar  quarter in the United
Kingdom.  Due to its  current  size and the  nature of its  customer  base,  the
Company's  sales have reflected  this  seasonality in 1999 and it is likely that
the sales of the  Company  will  continue  to be  impacted  by general  industry
seasonality in the future.

         Inflation has been relatively low in recent years and accordingly,  the
Company has not been significantly impacted by the effects of general inflation.
However,  since the  latter  half of 1996,  the  Company  has been  increasingly
impacted by the low unemployment rate in certain of its markets, particularly in
the  Northeastern  United States and the United  Kingdom,  which has resulted in
significant  increases  in  salaries  for a variety of  personnel  (particularly
technical  personnel)  in order for the  Company  to remain  competitive  in the
employment marketplace.

         The  Company's  revenues are affected by general  price  reductions  by
computer  product  manufacturers,   which  have  been  substantial.  Such  price
reductions  require  that  the  Company  increase  its  base  unit  volumes  and
associated  peripheral product sales to existing and newly acquired customers in
order to overcome  the effect of this price  cutting and increase its net sales.
Consequently,  in order to  increase  revenues,  such unit  volumes of sales are
required to increase  substantially,  which amplifies the impact of any slowdown
in corporate customer demand on the Company's revenues.

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,"   "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:
availability  and terms of appropriate  working  capital and/or other  financing
including, the many factors that could impact the viability of an equity sale by
the Company or a public offering by elcom.com,  customer's  acceptance and usage
of the  Company's  electronic  commerce  systems and  acceptance  of  electronic
commerce  software systems in general,  the impact of competitive  technologies,
products and  pricing,  control of expenses,  levels of gross  margins,  revenue
growth,  overall  business  conditions,  price  decreases of computer  products,
corporate demand for and availability of computer  products,  trends toward

                                       14
<PAGE>

less favorable  manufacturer  policies (such as reduced price  protection,  more
limited  returns  and  other  policies),  the  success  and  timing  of  ongoing
enhancements  to the Company's new management  information  system in the United
States,  risks associated with acquisitions and dispositions of businesses,  the
consequent  results of operations given the  aforementioned  factors,  and other
risks  detailed  from time to time in this  Quarterly  Report on Form 10-Q,  the
Company's  1998  Annual  Report  on Form  10-K and 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.

Item 3.  Quantitative and Qualitative Disclosures About Market Risk

                  The  Company  is  exposed  to  market  risk  from  changes  in
inventory  values,  interest  rates and exchange  rates,  which could affect its
future  results of  operations  and  financial  condition.  The  Company's  risk
associated with inventory values is discussed elsewhere in this Form 10-Q.

    The Company's cash and cash equivalents,  lines of credit and long term debt
are sensitive to interest  rate  fluctuations.  Changes in interest  rates would
result in changes in interest  income and interest  expense  resulting  from the
difference between historical interest rates on these financial  instruments and
the interest  rates that these  variable-rate  instruments  may adjust to in the
future.  Based on September 30, 1999 balances,  the Company  estimates that a 1%
change in interest rates would have an annual effect of  approximately  $100,000
on income before income taxes.

         The  Company's   investment  in  its  United  Kingdom  subsidiaries  is
sensitive to  fluctuations in the exchange rate between the United States dollar
and the  United  Kingdom  pound  sterling.  The effect of such  fluctuations  is
included  in  other  comprehensive  income  in the  Consolidated  Statements  of
Operations and Other Comprehensive Income.


                                       15
<PAGE>



                           Part II - Other Information

Item 5.  Other Information

         On July 31, 1999,  the Company  completed  the sale of the  substantial
majority  of its United  Kingdom  remarketer  operations  as  further  described
elsewhere  herein.  The Company has  retained its United  Kingdom  telemarketing
group, which it intends to evolve towards an Internet-based  storefront business
similar to the business conducted by elcom.com in the United States. The Company
also  plans to use the  retained  business  as the  platform  from which it will
market PECOS Internet Procurement  Manager, its Internet-based,  remotely-hosted
automated  procurement  system.  The Company filed a Current  Report on Form 8-K
concerning this  transaction  dated July 31, 1999, which was filed on August 13,
1999.

         On September 3, 1999, the Audit  Committee of the Board of Directors of
the  Company  commenced  soliciting  proposals  for the  year-end  audit  of its
calendar  1999  consolidated  financial  statements.  The  Company  solicited  a
proposal from four independent  accounting firms,  including Arthur Andersen LLP
who had been  previously  engaged by the Company as its principal  auditor.  The
Audit  Committee  took this action to ensure that the Company would  continue to
receive the best possible audit services at a competitive  price. On October 19,
1999 the Audit  Committee met and voted to not engage Arthur Anderson LLP to act
as the  independent  accountants for calendar 1999. The Audit Committee voted to
offer the engagement to KPMG LLP as its new  independent  accountants on October
19, 1999. The Company filed a current Report on Form 8-K concerning  this matter
dated October 19, 1999.

Item 6.  Exhibits and Reports on Form 8-K.

(a)       Exhibits:

         10.42    Wit Capital Corporation engagement letter.
         27       Financial Data Schedule.

(b)       Report on Form 8-K

         On July 14, 1999 the Company filed a Current  Report on Form 8-K, dated
         July 9, 1999, relating to the letter of intent covering the sale of the
         substantial  majority of the United  Kingdom  remarketer  operation  as
         described elsewhere herein.

         On August 13,  1999,  the Company  filed a Current  Report on Form 8-K,
         dated  July  31,  1999,  relating  to the  completion  of the sale of a
         majority of its United Kingdom remarketer operation.  The Company filed
         with its Current  Report an unaduited  pro forma  consolidated  balance
         sheet  as of  June  30,  1999  and  unaudited  pro  forma  consolidated
         statement of operation for the year ended December 31, 1998 and the six
         month period ended June 30, 1999.

                                    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: November 15, 1999                         By:      /s/  Peter A. Rendall
                                                -------------------------------
                                                Peter A. Rendall
                                                Chief Financial Officer

                                       16




CONFIDENTIAL                                                       Exhibit 10.42

July 8, 1999

Mr. Robert J. Crowell
Chairman and Chief Executive Officer
Elcom International, Inc.
10 Oceana Way
Norwood, MA  02062

Dear Mr. Crowell:

The purpose of this letter  ("Agreement")  is to confirm the  engagement  of Wit
Capital  Corporation  ("Wit  Capital")  to act as its  financial  advisor and as
exclusive  placement  agent  to  Elcom  International,   Inc.  and  subsidiaries
("Company") in connection with a proposed private placement of up to $15 million
or more ("Placement") of the equity or equity-related  securities ("Securities")
of  the   Company   or  the   Company's   wholly-owned   subsidiary,   elcom.com
("Subsidiary").

1.   In connection with its engagement,  as requested by the Company Wit Capital
     shall:

     i.   review  with the Company its  strategic  alternatives  relating to its
          Internet activities, including evaluating selected strategic partners;

     ii.  assist  and  advise  with  respect  to the form and  structure  of any
          transaction;

     iii. review the  business  and  operations  of the Company  and  Subsidiary
          including its historical and projected financial condition;

     iv.  assist the Company in the drafting, preparation and distribution of an
          offering  memorandum  ("Memorandum")  and other related  documentation
          (together with the Memorandum,  "Offering  Materials")  describing the
          Company or the Subsidiary and the terms of the Placement;

     v.   assist  the  Company  in  formulating  a  marketing  strategy  for the
          Securities  and in  developing  the process  thereof;  vi.  assist the
          Company in identifying  and contacting  prospective  purchasers of the
          Securities;  vii. advise the Company as to the strategy and tactics of
          negotiations with such prospective purchasers and, if requested by the
          Company, participate in such negotiations;

     viii.advise the Company as to the timing and structure of the Placement;

     ix.  assist in the drafting of an S-1 when deemed appropriate; and

     x.   provide such other  financial  advisory  services as are customary for
          similar transactions and as may be mutually agreed upon by the Company
          and Wit Capital.

2.   It is expressly  understood and acknowledged that Wit Capital's  engagement
     hereunder does not constitute any  commitment,  express or implied,  on the
     part of Wit  Capital  to  purchase  or place  the  Securities  and that the
     Placement will be made by Wit Capital on a "best efforts" basis.

3.   As compensation for Wit Capital's  services  hereunder,  the Company hereby
     agrees to pay Wit  Capital  a monthly  retainer  fee (the  "Retainer  Fee")
     payable in cash in an amount of $40,000  per month for three (3) months and
     a placement fee ("Placement  Fee").  The first month's  Retainer Fee is due
     and  payable  promptly in cash upon  signing of this letter and  subsequent
     payments are due one and two months  thereafter.  The Retainer Fee shall be
     credited  against any Placement  Fee. The Company  hereby agrees to pay Wit
     Capital a Placement Fee in cash of seven percent (7%) of the gross proceeds
     of all Securities sold in the Placement (whether in a single transaction or
     a series of transactions),  but in no event less than $700,000. The Company
     targets a minimum capital raise of $10 million. Additionally,  upon closing
     of the Placement, Wit Capital shall receive


<PAGE>

     warrants to purchase one percent (1%) of the  Company's  fully-diluted,  as
     calculated by the Treasury  Method,  common stock  ("Equity  Fee") from the
     Company  at the  same  price  at  which  the  Securities  are  sold  in the
     Placement.  The  warrants  will  contain  customary  terms and  conditions,
     including weighted-average  anti-dilution protection. In the event that the
     Placement is in equity  securities  of the  Subsidiary,  Wit Capital  shall
     receive   warrants  to  purchase  one  percent  (1%)  of  the  Subsidiary's
     fully-diluted,  as calculated by the Treasury Method, common stock from the
     Company at the price at which the Securities are sold in the Placement. The
     warrants  shall  contain   customary   terms  and   conditions,   including
     weighted-average   anti-dilution   protection.   The  Company  agrees  that
     provision  for  payment  of  the  Placement  Fee  will  be  included  in  a
     subscription agreement or similar document.

     Notwithstanding the foregoing,  if the Company receives a signed term sheet
     for financing from Softbank Technology Ventures ("Softbank") within 30 days
     from the date hereof,  and such financing is completed  within 45 days from
     the date hereof, then the cash portion of Wit Capital's Placement Fee shall
     be reduced  to  $50,000,  and the  warrant  portion  reduced to 0.8% of the
     Company  or  Subsidiary,  but all other  fees and  expenses,  shall  remain
     unchanged. If the Company receives a signed term sheet from Softbank within
     the aforementioned 30 day period and desires to proceed towards a financing
     from Softbank, Wit Capital shall suspend further financing activities until
     the financing is completed, abandoned or the 45 day period elapses.

     In the event that the Company  determines not to pursue the  Placement,  as
     compensation  for its  strategic  advisory  services  hereunder,  Wit shall
     receive 80% of the Equity Fee with the  exercise  price fixed at the market
     value of the Company at that date.

4.   Wit  Capital  shall have a right of first  refusal  during the term of this
     Agreement  and for a period of twelve (12) months  thereafter to act as the
     Company's   exclusive  placement  agent  in  connection  with  any  private
     placement  of equity  securities,  or a merger or  acquisition  transaction
     (together, "Financing") that may be undertaken by the Company, on terms and
     conditions   customary   for  Wit   Capital   for   similar   transactions.
     Additionally,  during the term of this Agreement and for a period of twelve
     (12) months thereafter,  Wit Capital shall have the right to participate as
     co-manager in any public offering ("Public  Offering") and the Company will
     use its best efforts to ensure that Wit has the right to directly  place at
     least 20% of the Company's  securities  offered and to receive at least 30%
     of the total  underwriter fees for such Public Offering.  Wit Capital shall
     have the exclusive right to electronically  distribute shares in connection
     with such Public  Offering.  Any such Financing or Public Offering shall be
     subject to, among other things, the following conditions:  (i) satisfactory
     completion  of  due  diligence,  (ii)  the  execution  of an  underwriting,
     placement  or similar  agreement  containing  terms and  conditions  in Wit
     Capital's  customary form, (iii) satisfactory  market conditions,  (iv) the
     absence  of  adverse  changes  to  the  Company's   business  or  financial
     condition,  (v) satisfactory  completion of the offering or filing process,
     including   completion   of  offering   materials  in  form  and  substance
     satisfactory  to Wit Capital,  and (vi) approval of Wit Capital's  internal
     commitment committee.

     It is further agreed that if the Company determines not to proceed with the
     Placement  as a result of a sale of the Company or of any of the  Company's
     subsidiaries  (excluding  any UK  subsidiaries),  then  Wit  Capital  shall
     receive a fee at the closing of such sale equal to one percent  (1%) of the
     gross proceeds  (including without limitation,  cash, stock,  assumption of
     debt,  or any other  economic  benefit) of such sale,  but in no event less
     than $700,000. Such fee shall include compensation for any related fairness
     opinion required by the Company. For purposes of this Agreement,  a sale of
     the Company or of any  subsidiary  shall mean a transfer or  disposition of
     50%  or  more  of  the  beneficial   ownership  or  the  sale  of  all,  or
     substantially all of the assets of the Subsidiary thereof.

5.   In addition to any fees that may be payable to Wit Capital  hereunder  (and
     regardless of whether a Placement occurs),  the Company hereby agrees, from
     time to time upon  request,  to  reimburse  Wit  Capital  promptly  for all


                                       2

<PAGE>

     reasonable  travel,  reasonable  legal fees and  expenses  and other normal
     out-of-pocket  expenses  (all  subject  to  pre-approval  by  the  Company)
     incurred in performing its services hereunder.

6.   The term of Wit Capital's  engagement  hereunder shall commence on the date
     hereof and continue until the earlier of the  consummation of the Placement
     or twelve  (12)  months  from the date  hereof,  unless  extended by mutual
     written  consent or earlier  terminated by either party upon 30 days' prior
     written notice;  provided,  however, that no such expiration or termination
     shall  affect  the   indemnification,   contribution  and   confidentiality
     obligations  of the  Company,  the right of Wit Capital to receive any fees
     payable hereunder or fees that have accrued prior to such  termination,  or
     the right of Wit  Capital to receive  reimbursement  for its  out-of-pocket
     expenses as described above.

7.   If within the twelve (12) month period  following the  termination  of this
     Agreement,  securities similar to those described in the Offering Materials
     are sold by the Company  through a private  placement to investors to which
     Wit has  introduced  the  Company  and  with  which  Wit  has had  material
     discussions,  then Wit shall be  entitled  to  receive  the  Placement  Fee
     specified herein.

8.   The  Company  agrees to  indemnify  Wit  Capital  and  related  persons  in
     accordance with the indemnification  provisions attached hereto as Annex A,
     which are incorporated herein in their entirety by reference.

9.   a.   The  Company  recognizes  and  confirms  that Wit  Capital  in  acting
          pursuant  to this  Agreement  will be using  information  provided  by
          others, including,  without limitation,  information provided by or on
          behalf  of  the  Company,   and  that  Wit  Capital  does  not  assume
          responsibility for and may rely, without independent verification,  on
          the accuracy and  completeness  of any such  information.  The Company
          hereby warrants that the Memorandum and the other Offering  Materials,
          and any other  information  relating to the Company or the  Placement,
          will not contain any untrue  statement  of a material  fact or omit to
          state any material  fact  necessary to make the  statements  contained
          therein, in the light of circumstances under which they were made, not
          misleading.  The Company agrees to provide Wit Capital with (i) prompt
          notice  of any  material  development  affecting  the  Company  or the
          occurrence  of any event or other  change  known to the  Company  that
          could  result  in the  Memorandum  or  the  other  Offering  Materials
          containing an untrue statement of a material fact or omitting to state
          any material fact necessary to make the statements  contained therein,
          in the light of the  circumstances  under  which they were  made,  not
          misleading, (ii) copies of any financial reports as soon as reasonably
          practicable and (iii) such other  information  concerning the business
          and financial condition of the Company as Wit Capital may from time to
          time  reasonably  request.  The Company and Wit Capital  will have the
          right to approve the Memorandum  and the other Offering  Materials and
          other written communications  furnished by or on behalf of the Company
          in  connection  with the  Placement,  and the Company will cause to be
          furnished to Wit Capital and the purchasers of the Securities,  on the
          closing date of the Placement,  copies of such opinions of counsel and
          such  other  documents,  letters,  certificates  and  opinions  as Wit
          Capital or the purchasers may reasonably request in form and substance
          reasonably  satisfactory  to  Wit  Capital  and  its  counsel  or  the
          purchasers  and their  counsel.  The  Company  shall have the right to
          approve a list of companies which Wit Capital targets as a prospective
          investor.

     b.   Except  as  contemplated  by  the  terms  hereof  or  as  required  by
          applicable  law,  regulation or legal process,  Wit Capital shall keep
          confidential all material non-public information provided to it by the
          Company,  and shall not disclose such  information  to any third party
          without  the  Company's  written  consent,  other  than to such of its
          employees and advisors as Wit Capital determines have a need to know.

     c.   The Company agrees that any information or advice (whether  written or
          oral)  rendered by Wit Capital or its  representatives  in  connection
          with this Agreement is solely for the  confidential use of the Company
          and,  except as otherwise  required by applicable  law,  regulation or
          legal  process,  the Company  will not,  and will



                                       3

<PAGE>

          not permit any third  party to,  disclose or  otherwise  refer to such
          advice or  information  in any  manner  without  Wit  Capital's  prior
          written consent except for any related  fairness  opinion  rendered by
          Wit Capital,  which may be reproduced only in its entirety without the
          written consent of Wit Capital.

10.  Neither Wit Capital nor the Company has taken,  and neither will take,  any
     action, directly or indirectly,  that may cause the Placement to fail to be
     entitled to exemption from registration  under the U.S. federal  securities
     laws or applicable  state  securities or "blue sky" laws. Wit Capital shall
     not offer the  Securities in any  jurisdiction  without  pre-clearing  such
     offer with the Company. The Company shall be responsible for all filing and
     other fees and expenses related to U.S.  federal  securities laws and "blue
     sky" laws, including its attorneys' fees.

11.  This  Agreement  shall be governed by and construed in accordance  with the
     laws of the State of New York,  regardless of the laws that might otherwise
     govern under applicable principles of conflicts of law thereof. The Company
     hereby expressly and irrevocably agrees and consents that any action,  suit
     or  proceeding  arising  out of or  relating  to  this  Agreement  and  the
     transactions  contemplated hereby may be instituted in any state or federal
     court sitting in the City of New York,  State of New York and, by execution
     of this Agreement,  the Company expressly waives any objection which it may
     have now or hereafter to the venue or jurisdiction of any such action, suit
     or proceeding and irrevocably submits to the jurisdiction of any such court
     in any such action,  suit or proceeding.  The Company and Wit Capital agree
     to waive trial by jury in any action, proceeding or counterclaim brought by
     or on behalf of either party with respect to any matter whatsoever relating
     to or arising out of any actual or proposed Placement, or the engagement of
     or performance by Wit Capital hereunder.

12.  This Agreement (a)  incorporates  the entire  understanding  of the parties
     with  respect to the subject  matter  hereof and  supersedes  all  previous
     agreements  should they exist with respect thereto,  (b) may not be amended
     or modified  except in a writing  executed by the Company and Wit  Capital,
     (c) shall be  binding  upon and inure to the  benefit of the  Company,  Wit
     Capital,  the Indemnified  Parties (as defined in Annex A hereto) and their
     respective  successors  and  assigns and (d) may be executed in two or more
     counterparts,  each of which shall be deemed to be an original,  but all of
     which shall constitute one and the same agreement.

Please confirm that the foregoing is in accordance  with your  understanding  of
our agreement by signing and returning to us a copy of this letter.

Very truly yours,

WIT CAPITAL CORPORATION

By:  /s/ Charles Hall
      Charles Hall
      Managing Director

Accepted and agreed to as of the date set forth above:

ELCOM INTERNATIONAL, INC.

By:  /s/ Robert J. Crowell
     Robert J. Crowell
     Chairman and Chief Executive Officer


                                       4

<PAGE>

                       ANNEX A: Indemnification Provisions

In connection with the engagement of Wit Capital  Corporation ("Wit Capital") by
Elcom International,  Inc. ("Company") pursuant to a letter agreement dated July
8, 1999 between the Company and Wit  Capital,  as it may be amended from time to
time ("Agreement"), the Company hereby agrees as follows:

A)   The Company agrees to indemnify Wit Capital and/or any controlling  person,
     partner, director, officer, employee, agent, affiliate or representative of
     Wit  Capital  (hereinafter  collectively  referred  to as the  "Indemnified
     Parties")  and hold  each of them  harmless  against  any  losses,  claims,
     damages, judgments, assessments, costs and other liabilities (collectively,
     the  "Liabilities")  and will  reimburse  each  Indemnified  Party  for all
     reasonable fees and expenses (including the reasonable fees and expenses of
     their  respective  attorneys)  (collectively,  the  "Expenses") as they are
     incurred in  investigating,  preparing  or defending  any claims,  actions,
     proceedings,  investigations  (formal or  informal),  inquiries  or threats
     thereof to which an Indemnified  Party may become  subject,  arising in any
     manner  out of or in  connection  with the  rendering  of  services  by Wit
     Capital  hereunder  (including,  without  limitation,  services rendered in
     connection with a Placement),  unless it is finally  judicially  determined
     that the  Liabilities  or  Expenses  arose out of the gross  negligence  or
     willful  misconduct of such Indemnified Party, and in case any action shall
     be brought against an Indemnified Party with respect to which indemnity may
     be sought against the Company, such Indemnified Party shall promptly notify
     the Company in writing and the Company  shall  assume the defense  thereof,
     including  the  employment  of  counsel  reasonably  satisfactory  to  such
     Indemnified  Party and  payment  of all fees and  expenses;  provided  that
     failure to so notify the Company  shall not  relieve  the Company  from any
     liability  which the  Company  may have on  account  of this  indemnity  or
     otherwise,  except to the extent  the  Company  shall have been  materially
     prejudiced by such failure.

     The Indemnified  Parties shall have the right to retain  separate  counsel,
     but the fees and  expenses of such  counsel  shall be at the expense of the
     Indemnified  Parties,  unless (i) the  employment  of such counsel has been
     specifically  authorized  in writing by the  Company,  (ii) the Company has
     failed to assume the defense and employ counsel as required above, or (iii)
     the named  parties to any such action  (including  any  impleaded  parties)
     include  both (a) the  Indemnified  Parties  and (b) the  Company,  and the
     Indemnified  Parties  shall have been  advised by counsel that there may be
     one or more legal defenses  available to the Indemnified  Parties which are
     different  from or additional  to those  available to the Company (in which
     case the  Company  shall not have the right to assume  the  defense of such
     action on behalf of the Indemnified Parties); it being understood, however,
     that the  Company  shall not,  in  connection  with any one such  action or
     separate, substantially similar or related actions in the same jurisdiction
     arising out of the same general allegations or circumstances, be liable for
     the  reasonable  fees  and  expenses  of more  than  one  separate  firm of
     attorneys for the  Indemnified  Parties,  which firm shall be designated in
     writing by the Indemnified Parties.

     For actions brought  against the Indemnified  Parties for which the Company
     has assumed the defense,  the Company  agrees that it will not enter into a
     settlement of any such action without the prior written  consent of each of
     the  Indemnified  Parties,  which  shall not be  unreasonably  withheld  or
     delayed.

B)   The  Company  and  Wit  Capital  agree  that  if  any   indemnification  or
     reimbursement  sought  pursuant  to the  preceding  Paragraph  A is finally
     judicially  determined  to be  unavailable  (except  by reason of the gross
     negligence or willful misconduct of the Indemnified  Parties) then, whether
     or  not  Wit  Capital  is  the  person  entitled  to   indemnification   or
     reimbursement,  the  Company  and  Wit  Capital  shall  contribute  to  the
     Liabilities  for  which  such  indemnification  or  reimbursement  is  held
     unavailable  in  such  proportion  as is  appropriate  to  reflect  (a) the
     relative  benefits to the  Company on the one hand,  and Wit Capital on the
     other   hand,   in   connection   with  the   transaction   to  which  such
     indemnification  or  reimbursement  relates,  (b) the relative fault of the
     parties, and (c) other equitable considerations; provided, however, that in
     no event  shall the  amount to be  contributed  by Wit  Capital  exceed the
     amount of fees actually  received by Wit Capital for the Placement,  as the
     case may be.

ELCOM INTERNATIONAL, INC.                              WIT CAPITAL CORPORATION

By:  /s/ Robert J. Crowell                             By:  /s/ Charles Hall
     ---------------------                                  --------------------
     Robert J. Crowell                                      Charles Hall
     Chairman and Chief Executive Officer                   Managing Director


<TABLE> <S> <C>

<ARTICLE>                                                        5
<MULTIPLIER>                                                 1,000
<CURRENCY>                                            U.S. Dollars

<S>                                                            <C>
<PERIOD-TYPE>                                                9-MOS
<FISCAL-YEAR-END>                                      DEC-31-1999
<PERIOD-START>                                         JAN-01-1999
<PERIOD-END>                                           SEP-30-1999
<EXCHANGE-RATE>                                                  1
<CASH>                                                      33,472
<SECURITIES>                                                     0
<RECEIVABLES>                                               76,188
<ALLOWANCES>                                                 4,074
<INVENTORY>                                                  5,664
<CURRENT-ASSETS>                                           113,688
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