Item 405 of Regulation S-B contained in this form, and no disclosure will be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB. x

 

PART I
Item 1. Description of Business
Item 2. Description of Property
Item 3. Legal Proceedings
Item 4. Submission of Matters to a Vote of Security Holders
PART II
Item 5. Market for Common Equity and Related Stockholder Matters and Small Business Issuer Purchases of Equity Securities
Item 6. Management’s Discussion and Analysis or Plan of Operation
Item 7. Financial Statements
Item 8. Changes In and Disagreements With Accountants on Accounting and Financial Disclosure
Item 8A. Controls and Procedures
Item 8B. Other Information
PART III
Item 9. Directors, Executive Officers, Promoters, Control Persons, and Corporate Governance; Compliance With Section 16(a) of the Exchange Act
Item 10. Executive Compensation
Item 11. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Item 12. Certain Relationships and Related Transactions, and Director Independence
Item 13. Exhibits
Item 14. Principal Accountant Fees and Services
SIGNATURES
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM	F-2
ELCOM INTERNATIONAL, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS	F-3
ELCOM INTERNATIONAL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS AND OTHER COMPREHENSIVE INCOME (LOSS)	F-4
ELCOM INTERNATIONAL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT	F-5
ELCOM INTERNATIONAL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS	F-6
ELCOM INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS	F-7
EX-31.1 Section 302 Certification of Principal Executive Officer
EX-32.2 Section 302 Certification of Principal Financial and Accounting Officer
EX-32.1 Section 906 Certification of Principal Executive Officer
EX-32.2 Section 906 Certification of Principal Financial and Accounting Officer

On October 23, 2006, we agreed to issue a total of 76,336,289 shares of our common stock (the “2006 Regulation S Shares”) to investors in the U.K. and listed the shares on the AIM Exchange. The 2006 Regulation S Shares were issued in reliance on the exemption from registration under Regulation S promulgated under the (“Securities Act”) for offshore placements, and therefore are subject to the same restrictions as the 2005 Regulation S Shares. Elcom raised a total of $2.5 million in cash in connection with the 2006 Regulation S Shares, net of issuance costs of $24,000. The funds derived from the 2006 issuance of common stock on the AIM Exchange are being used to support our working capital requirements.

In early March 2006, we learned that, as a result of the December 2005 issuance of common stock on the AIM Exchange, Smith & Williamson Investment Management Limited (“SWIM”) and Smith & Williamson Nominees Limited (“SWIM Nominees,” and collectively with SWIM, the “SWIM Entities”) had acquired beneficial ownership of more than 50% of our outstanding common stock. Elcom was informed of this change in control on March 6, 2006 when the SWIM Entities filed a Schedule 13D with the Securities and Exchange Commission (the “SEC”), reflecting such beneficial ownership as of December 20, 2005. Therefore, on December 22, 2005, our 10% Senior Convertible Debentures due 2013 (the “Debentures”) which were held by SWIM Nominees and all interest accrued thereon, automatically converted into Elcom common stock as a result of the acquisition of beneficial ownership of a majority interest in Elcom by the SWIM Entities. The bulk of the SWIM Entities’ shares were acquired in the issuance of the 2005 Regulation S Shares. Based on the SWIM Entities’ Schedule 13D, and our records, including the conversion of SWIM Nominees’ Debentures, the SWIM Entities owned approximately 64.1% of our outstanding common stock as of December 31, 2005. An aggregate of 34,164,959 shares of Elcom common stock (the “Debenture Shares”) were issued upon the automatic conversion of Debenture principal of approximately $1,264,000 and cumulative interest accrued (since issuance) of approximately $323,000.

In connection with the March 6, 2006 Schedule 13D, the SWIM Entities also informed us of their request that the Board of Directors call a special meeting of our stockholders for the purposes of amending certain provisions of our by-laws and replacing three directors with candidates nominated by the SWIM Entities (the “SWIM Candidates”). Elcom and its current Board of Directors at that time entered into an agreement with the SWIM Entities to effect an orderly transition of the Board of Directors to the control of the SWIM Candidates, and avoid the incremental costs of holding a special meeting of stockholders. Mr. Sean Lewis, Former Chairman, and John E. Halnen, Former President and Chief Executive Officer, served as Directors until April 21, 2006 when Justin Dignam, Elliott Bance and Gregory King were appointed as Directors. On September 7, 2006, William Lock was also appointed a Director. As of December 31, 2006 the SWIM Entities owned approximately 69% of our outstanding stock.

On February 5, 2007, we sold 73,230,009 shares of our common stock (the “2007 Regulation S Shares”) to investors in the U.K. and listed the shares on the AIM Exchange. The 2007 Regulation S Shares were issued in reliance on the exemption from registration under Regulation S promulgated under the Securities Act for offshore placements, and therefore are subject to the same restrictions as the 2005 Regulation S Shares and the 2006 Regulation S Shares sold previously. Elcom raised a total of $2.5 million in cash, net of issuance costs of $23,948. The funds derived from the 2007 Regulation S Shares are being used to support our working capital requirements until we achieve positive cash flow. As a result of the February 2007 issuance of common stock on the AIM Exchange, the SWIM Entities increased their ownership of our outstanding stock to 73%.

Product Overview

Since our inception in 1992, we have developed our PECOS system, which automates many supply chain and financial settlement functions associated with procurement. We intend to augment our core Commerce Process Management solutions with other supply chain and supplier-oriented systems to enable the conduct of interactive procurement, supplier relationship management, and financial settlement. We have licensed a third-party dynamic trading system platform to provide auction, reverse auction, and other electronic negotiation (or eNegotiation) functions, which module is offered as optional functionality to clients. Our PECOS solution can support large numbers of end-user clients, products, suppliers and transactions and its transaction server middleware provides a scalable foundation for robust system performance and high transaction capacity.

Elcom’s Commerce Process Management solution combines robust integrated eProcurement and eMarketplace capabilities and is typically remotely-hosted via our data center. Management believes that the combination of eProcurement and eMarketplace functionality capabilities in a single code base gives Elcom a strong low-cost offering and importantly, can be offered to potential clients from either functional viewpoint.

Procurement and Sourcing Overview

AMR Research estimates that the worldwide procurement and sourcing market will grow from $2.7 billion in 2007 to $3.3 billion in 2010.

Professional Services 

Our professional service offerings include various consulting and supplier services to its clients. These services range from implementation of PECOS and initial training and consulting, to interfacing data from PECOS into back-end computer systems, including Enterprise Resource Planning (“ERP”) systems such as Oracle, SAP, Lawson, and others. Suppliers are also offered services associated with catalog content and categorization, loading procedures and automated data update methodologies.

 

Management Information Systems

In the U.S., we license and utilize software from Oracle Corporation and other software firms for our Management Information System (“MIS”). Our MIS incorporates modules supporting general ledger, accounts payable and accounts receivable. Management receives data from its chartered accountants in the U.K. to manage and monitor its U.K. operations.

Our operations are dependent in part upon our ability to protect our MIS network infrastructure in our Norwood, MA facility against damage from physical/“cyber” break-ins, natural disasters, operational disruptions and other events. To protect our data and provide service to our customers if the data center were to become inoperative, we have a disaster-recovery system in place.

Sales and Marketing

As of December 31, 2007, our sales, marketing and related support personnel in the U.S. and U.K. were comprised of four marketing and/or relationship management personnel, and nine customer support personnel. We market and sell our Commerce Process Management solutions primarily through our channel partners.

Customer Service and Support

We believe that customer satisfaction is essential for our long-term success and offer comprehensive customer assistance programs. Our technical support provides response to and resolution of customer technical inquiries and is available to clients by telephone, over the web or by electronic mail. We use a customer service automation system to track each customer inquiry until it is resolved.

Competition

The market for Commerce Process Management solutions is competitive and evolving rapidly. We expect competition in this market to continue to intensify in the future. Among other factors, before investing in an eBusiness system, we believe potential clients consider the cost of the system compared to the level of features and functions available in eCommerce applications and the cost to acquire, implement and maintain the system, as well as the length of time to implement a system and, as applicable, integrate it with a company’s existing computer system. We compete with vendors of prepackaged eCommerce software, vendors of software tools for developing eCommerce applications and systems integrators. Our competitors include Ariba, Inc., Perfect Commerce (based on the Commerce One platform), Ketera (based on Ariba, hosted) and Epsilon (Ariba). We also see competition from other emerging and established companies, including Oracle, SAP, and other ERP systems, many of which have products or alliances to offer Internet-based eCommerce, including eProcurement modules which function as part of their ERP system(s). Our potential competitors also include systems integrators such as Electronic Data Systems (EDS). Most of our competitors are much larger than us and have substantially greater resources, both financial and otherwise.

Intellectual Property

Our success and ability to compete are dependent, in part, upon our proprietary technology. While we rely to a certain extent on trademark, trade secret, patent and copyright law to protect our technology, we believe that factors such as the technological and creative skills of its personnel, new product developments, frequent product enhancements, name recognition and reliable product availability and distribution are of equal importance for establishing and maintaining a competitive position. Although we have received a patent on certain, specific aspects of our PECOS technology, there can be no assurance that other entities will not develop, or have not developed, technologies that are similar or superior to our technology. The source code for our proprietary software is also protected both as a trade secret and as an unregistered copyrighted work. Despite these precautions, it may be possible for a third party to copy or otherwise obtain and use some portions of our products or technology without authorization, or to develop similar technology independently.

Government Regulation

We are not currently subject to direct regulation by any government agency, other than regulations generally applicable to businesses, and there are currently few laws or regulations directly applicable to commerce on the Internet. However, due to the increasing popularity and use of the Internet, it is possible that additional laws and regulations may be adopted with respect thereto, covering issues such as greater user privacy, pricing and characteristics, taxation of Internet sales and quality of products and services. The adoption of any such laws or regulations may decrease the growth of eCommerce and/or the Internet, which could in turn decrease the demand for our products and increase our cost of doing business or otherwise have an adverse effect on our business, operating results or financial condition. Moreover, the applicability to the Internet of existing laws governing issues such as property ownership, libel and personal privacy is evolving.

Environmental Matters

Based on our experience to date, the cost of compliance with environmental matters has been immaterial and we believe that it is in material compliance with applicable environmental laws and regulations.

Personnel

As of December 31, 2007, we had a total of 29 full time personnel in the U.S. and 10 full time personnel in the U.K. Our personnel are not represented by any labor union and we believe that our personnel relations are good. Our future success depends, in significant part, upon the continued service of our key technical and senior management personnel and our continuing ability to attract and retain highly qualified technical and managerial personnel. Competition for highly qualified personnel is intense and there can be no assurance that we can retain our key managerial and technical personnel or that we will be able to attract or retain additional highly qualified technical and managerial personnel in the future. We relied heavily on stock option grants to motivate and incentivize our personnel. As of September 08, 2008, we employed 25 full time personnel in the U.S. and 8 full time and 1 part time personnel in the U.K.

Company Trade Names and Trademarks

Elcom and PECOS are trade names and/or trademarks. We have referred to a variety of other entities and products in this Form 10-KSB, certain of which are trade names or trademarks. Such trade names or trademarks are the property of the respective companies owning such trade names and trademarks.

Item 2. Description of Property

As of December 31, 2007, we leased the property set forth below. The facility lease expires on December 31, 2008. The property is in good condition; however, the size exceeds our current requirements and Elcom is in the process of reviewing its options regarding relocation. (See Note 7 in the Notes to Consolidated Financial Statements, included elsewhere in this Form 10-KSB).

 

 

LOCATION		APPROXIMATE  SQUARE  FOOTAGE			USE
Norwood, Massachusetts			36,000			Corporate Headquarters

Our U.K. personnel work either at customer sites or from home offices which are equipped with the necessary office infrastructure to conduct business, including high-speed Internet access.

Item 3. Legal Proceedings

During the fourth quarter of 2006, a cash deposit made by Elcom International Inc. with a sales agent of €1,000,000 (approximately $1,200,000 based on the exchange rate at the time) in connection with a potential bid for government contracts outside the United States was completed without approval of the Board of Directors. The funds were due to be returned to Elcom on or before the May 15, 2007. The Board of Directors commenced legal proceedings against the sales agent in June 2007, however, in March 2008 the Board chose to have the proceedings dismissed due to a number of concerns, including the collectability of funds even if a positive outcome was secured via legal proceedings (for which there could have been no assurances regarding the outcome), and the ongoing legal fees associated with the proceedings.

Item 4. Submission of Matters to a Vote of Security Holders

No matters were submitted to a vote of security holders during the fourth quarter of the fiscal year covered by this report.

 

PART II

 

Item 5. Market for Common Equity and Related Stockholder Matters and Small Business Issuer Purchases of Equity Securities

Price Range of Common Stock

Since January 16, 2003, our Common Stock has been quoted on the Over-the-Counter Bulletin Board (the “OTCBB”) under the symbol ELCO (ELCOE since April 2007 to indicate that the Annual Report on Form 10-KSB for the year ended December 31, 2006 had not been filed with the SEC by the appropriate extended deadline). In addition, since April 16, 2004, our Common Stock has traded on the AIM Exchange under the symbols ELC and ELCS (designating the Regulation S Shares). As of September 08, 2008, there were approximately 424 stockholders of record. The high and low closing sales prices reported by the OTCBB for each of the quarters in the two year period ended December 31, 2007 are set forth in the table below. For the period from January 1, 2007, to May 17, 2007 to December 31, 2007, such high and low closing sales prices were $0.069, $0.07 and $0.003, respectively. The OTCBB market closing sales prices reflect inter-dealer prices, without retail mark-up, mark-downs, or commissions and may not represent actual transactions.

		2007						2006
Quarter Ended		High			Low			High			Low
March 31		$	0.100		$	0.065		$	0.170		$	0.075
June 30		$	0.080		$	0.050		$	0.180		$	0.100
September 30		$	0.050		$	0.015		$	0.130		$	0.100
December 31		$	0.025		$	0.003		$	0.140		$	0.070

We have never declared or paid cash dividends on our Common Stock. We currently do not anticipate paying any dividends in the foreseeable future. Any payment of future dividends will be at the discretion of the Board of Directors and will depend upon, among other things, our earnings, financial condition, capital requirements, level of indebtedness, contractual restrictions with respect to the payment of dividends and other factors that our Board of Directors deems relevant.

The following table sets forth, for the equity compensation plan categories listed below, information as of December 31, 2007:

Equity Compensation Plan Information

Plan Category		(a)  Number of securities to  be issued upon exercise  of outstanding options,  warrants and rights			(b)  Weighted-average  exercise price of  outstanding options, warrants and rights			(c)  Number of securities  remaining available for  future issuance under  equity compensation plans  (excluding securities reflected in column (a))
Equity compensation plans approved by security holders			30,934,713		$	0.34			471,845
Equity compensation plans not approved by security holders			N/A			N/A			N/A
Total			30,934,713		$	0.34			471,845

Recent Sales of Unregistered Securities

During October and November 2007, and March, May and June 2008 we received bridge loans from a non-US investor of £1,250,000 (approximately $2,500,000). The loans are repayable upon demand and convertible at the option of the Payee into shares of common stock, at the price of 3.5p per share, subject to adjustment, downwards only, in the event that Common Stock or any equity instruments are issued at a price lower than 3.5p at any time. The convertible notes that were issued in connection with these bridge loans were issued in reliance on the exemption from registration under Regulation S promulgated under the Securities Act of 1993, as amended.

Recent Repurchases of Equity Securities

During the fourth quarter of fiscal 2007, we did not repurchase any equity securities.

Item 6. Management’s Discussion and Analysis or Plan of Operation

Introduction

This introduction is intended to provide context and better understanding of Management’s Discussion and Analysis or Plan of Operation (“MD&A”) which follows. Under the Interpretive Release promulgated in December 23, 2003 by the SEC, Elcom intends to endeavor, as much as possible, to explain to its stockholders its comparative financial data contained in the MD&A section in such a way as to make the information more understandable to the reader. We intend to emphasize important historical and current events or other information that it believes are appropriate or necessary to an understanding of our financial comparisons.

RESULTS OF OPERATIONS

The following table sets forth various items of operating results for each of the years in the two-year period ended December 31, 2007 (in thousands):

		2007			2006
Net revenues		$	5,377		$	3,218
Gross profit			4,179			2,546
Selling, general and administrative expenses			7,480			8,156
Research and development expenses						1,231
Operating loss			(4,067	)		(6,841	)