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, 2002
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
-------- --------
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2of the Exchange Act).
Yes No X
-------- --------
The registrant had approximately 30,902,000 shares of common stock, $.01
par value, outstanding as of November 1, 2002.
INDEX
Part I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of December 31, 2001 (audited)
and September 30, 2002 (unaudited)............................2
Consolidated Statements of Operations and Other Comprehensive
Income (Loss) - Three and Nine Month Periods
Ended September 30, 2001 and 2002 (unaudited) ................3
Consolidated Statements of Cash Flows - Nine Month Periods
Ended September 30, 2001 and 2002 (unaudited).................4
Notes to Consolidated Financial Statements (unaudited)........5
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations ............................................8
Item 3. Quantitative and Qualitative Disclosures about Market Risk ......14
Item 4. Controls and Procedures .........................................14
Part II - OTHER INFORMATION
Item 1. None.
Item 2. None.
Item 3. None.
Item 4. None.
Item 5. None.
Item 6. Exhibits and Reports on Form 8-K.................................15
Signature .................................................................16
Certifications ..............................................................17
1
ELCOM INTERNATIONAL, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
December 31, September 30,
2001 2002
------------ -------------
ASSETS (audited) (unaudited)
CURRENT ASSETS:
Cash and cash equivalents (including restricted
cash of $125 at December 31, 2001 and $0 at
September 30, 2002) $ 10,813 $ 3,852
------------ -------------
Accounts receivable:
Trade 440 1,527
Other 60 --
------------ -------------
500 1,527
Less-Allowance for doubtful accounts 10 28
------------ -------------
Accounts receivable, net 490 1,499
Prepaids and other current assets 303 591
Current assets of discontinued operations 3,509 213
------------ -------------
Total current assets 15,115 6,155
------------ -------------
PROPERTY, EQUIPMENT AND SOFTWARE, AT COST:
Computer hardware and software 23,671 17,730
Land, buildings and leasehold improvements 1,425 1,333
Furniture, fixtures and equipment 3,784 3,543
------------ -------------
28,880 22,606
Less -- Accumulated depreciation and amortization 23,129 20,248
------------ -------------
5,751 2,358
OTHER ASSETS 88 81
NON-CURRENT ASSETS OF DISCONTINUED OPERATIONS 598 117
------------ -------------
$ 21,552 $ 8,711
============ =============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 1,483 $ 366
Deferred revenue 203 1,743
Accrued expenses and other current liabilities 4,375 1,645
Current portion of capital lease obligations 451 365
Current liabilities of discontinued operations 3,495 998
------------ -------------
Total current liabilities 10,007 5,117
CAPITAL LEASE OBLIGATIONS, NET OF CURRENT PORTION 274 6
NON-CURRENT LIABILITIES OF DISCONTINUED OPERATIONS 37 --
------------ -------------
Total liabilities 10,318 5,123
------------ -------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value; Authorized --
10,000,000 shares -- Issued and outstanding -
none -- --
Common stock, $.01 par value; Authorized --
100,000,000 shares -- issued -- 31,406,796
and 31,432,546 shares 314 314
Additional paid-in capital 114,514 114,817
Accumulated earnings (deficit) (98,363) (106,974)
Treasury stock, at cost -- 530,709 shares (4,712) (4,712)
Accumulated other comprehensive income (loss) (519) 143
------------ -------------
Total stockholders' equity 11,234 3,588
------------ -------------
$ 21,552 $ 8,711
============ =============
The accompanying notes are an integral part of these
consolidated financial statements.
2
ELCOM INTERNATIONAL, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
AND OTHER COMPREHENSIVE INCOME (LOSS)
(in thousands, except per share data)
(unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
----------------------- ----------------------
2001 2002 2001 2002
----------- ---------- ---------- ----------
Net sales $ 444 $ 1,155 $ 959 $ 3,088
Cost of sales 355 386 972 906
----------- ---------- ---------- ----------
Gross profit (loss) 89 769 (13) 2,182
Operating Expenses:
Selling, general and administrative 5,819 3,027 19,877 10,174
Research and development 348 125 668 786
Asset impairment charge 962 -- 1,626 338
----------- ---------- ---------- ----------
Total operating expenses 7,129 3,152 22,171 11,298
----------- ---------- ---------- ----------
Operating profit (loss) (7,040) (2,383) (22,184) (9,116)
Interest income and other income
(expense), net (38) 872 198 896
Interest expense (1) (12) (201) (50)
----------- ---------- ---------- ----------
Net income (loss) from continuing
operations (7,079) (1,523) (22,187) (8,270)
----------- ---------- ---------- ----------
Discontinued operations:
Net income from discontinued
operations, net of tax, U.K. 462 -- 2,038 --
Net income (loss) from discontinued
operations net of tax, U.S. (129) 87 643 (1,420)
Gain on sale of assets -- 167 -- 1,079
----------- ---------- ---------- ----------
Net income (loss) (6,746) (1,269) (19,506) (8,611)
Foreign currency translation adjustment,
net of tax: (145) (9) 46 662
----------- ---------- ---------- ----------
Other comprehensive income (loss) $ (6,891) $ (1,278) $ (19,460) $ (7,949)
=========== ========== ========== ==========
Basic and diluted net income (loss)
per share data:
Continuing operations $ (0.23) $ (0.05) $ (0.72) $ (0.27)
Discontinued operations, U.K. 0.02 -- 0.07 --
Discontinued operations, U.S. (0.01) -- 0.02 (0.04)
Gain on sale of assets of discontinued
operations -- 0.01 -- 0.03
----------- ---------- ---------- ----------
Basic and diluted net loss per
share $ (0.22) $ (0.04) $ (0.63) $ (0.28)
=========== ========== ========== ==========
Weighted average number of basic and
diluted shares outstanding 30,967 30,902 30,925 30,901
=========== ========== ========== ==========
The accompanying notes are an integral part of these
consolidated financial statements.
3
ELCOM INTERNATIONAL, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
Nine Months Ended
September 30,
---------------------------
2001 2002
------------ -------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss from continuing operations $ (22,187) $ (8,270)
Adjustments to reconcile net loss to net
cash provided by (used in) operating
activities --
Depreciation and amortization 3,590 2,369
Asset impairment charge 1,624 338
Gain on sale of assets -- 45
Changes in current assets and liabilities:
Accounts receivable (38) (946)
Prepaids and other current assets 337 (301)
Accounts payable (319) (1,080)
Deferred revenue 106 1,542
Accrued expenses and other current liabilities 278 (2,800)
------------ -------------
Net cash used in operating activities from
continuing operations (16,609) (9,103)
Net cash provided by discontinued operations,
U.K. 2,404 --
Net cash provided by (used in) discontinued
operations, U.S. 24,957 (270)
------------ -------------
Net cash provided by (used in) operating
activities 10,752 (9,373)
------------ -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, equipment and software (582) (12)
Change in other assets 8 19
Proceeds from sale of assets -- 5
------------ -------------
Net cash provided by (used in) investing
activities from continuing operations (574) 12
Net cash provided by discontinued operations,
U.K. 281 --
Net cash provided by (used in) discontinued
operations, U.S. (400) 2,117
------------ -------------
Net cash provided by (used in) investing
activities (693) 2,129
------------ -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of capital lease obligations and debt (1,013) (383)
Exercise of common stock options 290 --
------------ -------------
Net cash used in financing activities from
continuing operations (723) (383)
Net cash used in discontinued operations, U.K. (534) --
Net cash used in discontinued operations, U.S. (22,410) --
------------ -------------
Net cash used in financing activities (23,667) (383)
------------ -------------
FOREIGN EXCHANGE EFFECT ON CASH (128) 666
------------ -------------
NET DECREASE IN CASH AND CASH EQUIVALENTS (13,736) (6,961)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 32,313 10,813
------------ -------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 18,577 $ 3,852
============ =============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid $ 545 $ 50
============ =============
Income taxes paid $ 82 $ 15
============ =============
The accompanying notes are an integral part of these
consolidated financial statements.
4
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"). As discussed further in Note 4, on December 31, 2001, the Company
sold substantially all of the assets and liabilities of its United Kingdom
("U.K.") information technology remarketer business. In addition, on March 29,
2002, the Company sold certain assets and liabilities of its United States
("U.S.") information technology remarketer business. The results of operations
for those businesses have been presented under the financial reporting
requirements for discontinued operations for all periods presented.
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, 2002, and the results of operations for the three
and nine-month periods ended September 30, 2001 and 2002, and cash flows for the
nine-month periods ended September 30, 2001 and 2002. All significant
intercompany accounts and transactions have been eliminated. 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 accounting principles generally accepted in the U.S., 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 as of and for the year ended December 31, 2001.
2. Net Loss Per Share
Net loss per share is based on the weighted average number of shares of
common and common equivalent stock outstanding during each period presented,
calculated in accordance with Statement of Financial Accounting Standards
("SFAS") No. 128, Earnings Per Share ("EPS"). Basic EPS excludes dilution and is
computed by dividing income (loss) available to common stockholders by the
weighted average number of shares of common stock outstanding during the period.
Diluted EPS gives effect to all potential shares of common stock outstanding
during the period. In 2001 and 2002, diluted EPS is the same as basic EPS
because the Company reported a net loss, in which case the impact of including
potential common stock is anti-dilutive and, thus, such potential additional
shares are not included in the determination of per share calculations.
Basic and diluted net loss per share from continuing operations were
calculated as follows (in thousands, except per share amounts):
Three Months Ended Nine Months Ended
Basic and Diluted September 30, September 30,
- ---------------------------- ---------------------- ----------------------
2001 2002 2001 2002
---------- ---------- ---------- ----------
Net loss from continuing
operations $ (7,079) $ (1,523) $ (22,187) $ (8,270)
========== ========== ========== ==========
Weighted average shares
outstanding 30,967 30,902 30,925 30,901
========== ========== ========== ==========
Basic and diluted net loss
per share from
continuing operations $ (0.23) $ (0.05) $ (0.72) $ (0.27)
========== ========== ========== ==========
Based on the average market price of the Company's shares of common stock
in the three-month period ended September 30, 2001, a net total of 401,441
shares covered by options would have been dilutive, and 10,137,489 shares
covered by options and warrants with per share exercise prices ranging from
$1.31 to $28.71 would have been anti-dilutive. Based on the average market price
of the Company's shares of common stock in the quarter ended September 30, 2002,
a net total of 1,128,016 shares covered by options would have been dilutive, and
12,916,056 shares covered by options and warrants with per share exercise prices
ranging from $0.445 to $28.71 would have been anti-dilutive.
Based on the average market price of the Company's shares of common stock
in the nine-month period ended September 30, 2001, a net total of 1,335,531
shares covered by options would have been dilutive, and
5
7,680,171 shares covered by options and warrants with per share exercise prices
ranging from $2.20 to $28.71 would have been anti-dilutive. Based on the average
market price of the Company's shares of common stock in the nine-month period
ended September 30, 2002, a net total of 2,621,243 shares covered by options
would have been dilutive, and 10,455,338 shares covered by options and warrants
with per share exercise prices ranging from $0.74 to $28.71 would have been
anti-dilutive.
3. Business Segment Information
The Company's continuing operation is classified as a single business
segment, specifically the development and sale of automated procurement
("eProcurement") and electronic marketplace ("eMarketplace") Internet-based
software solutions which automate many supply chain and financial settlement
functions associated with procurement. Prior to the divestiture of the U.K.
computer-oriented information technology products ("IT Products") business and
the U.S. IT Products and services business, the Company separately disclosed
that business segment in its business segment footnote. Discontinued operations
represent all of the IT Products and services business for all periods
presented. The Company operates both in the U.S. and U.K. and geographic
financial information for the three month and nine month periods ended September
30, 2001 and 2002, were as follows (in thousands):
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------- ----------------------
2001 2002 2001 2002
---------- ---------- ---------- ----------
Net sales from continuing
operations
U.S. $ 444 $ 275 $ 927 $ 842
U.K. -- 880 32 2,246
---------- ---------- ---------- ----------
444 1,155 959 3,088
Net sales from discontinued
operations
U.S. 5,035 (2) 52,815 4,880
U.K. 23,517 -- 74,695 --
---------- ---------- ---------- ----------
28,552 (2) 127,510 4,880
---------- ---------- ---------- ----------
Net sales $ 28,996 $ 1,153 $ 128,469 $ 7,968
========== ========== ========== ==========
Operating profit (loss) from
continuing operations
U.S. $ (6,639) $ (1,782) $ (20,308) $ (8,326)
U.K. (401) (601) (1,876) (790)
---------- ---------- ---------- ----------
(7,040) (2,383) (22,184) (9,116)
Operating profit (loss) from
discontinued operations
U.S. (157) 76 672 (1,368)
U.K. 460 -- 2,129 --
---------- ---------- ---------- ----------
303 76 2,801 (1,368)
---------- ---------- ---------- ----------
Operating loss $ (6,737) $ (2,307) $ (19,383) $ (10,484)
========== ========== ========== ==========
December 31, September 30,
2001 2002
------------ -------------
Identifiable assets from
continuing operations
U.S. $ 17,173 $ 6,555
U.K. 272 1,826
------------ -------------
$ 17,445 $ 8,381
============ =============
Identifiable assets from
discontinued operations
U.S. $ 4,107 $ 330
============ =============
4. Discontinued Operations
On December 31, 2001, the Company sold substantially all of the assets and
liabilities of its U.K. IT Products remarketer business conducted by its
subsidiary, Elcom Holdings Limited to AJJP Limited, a company that was created
by certain members of the former management team of Elcom Holdings Limited.
Immediately upon completion of the sale, AJJP Limited changed its name to Elcom
Information Technology Limited ("EIT"). The assets acquired by EIT included
current assets, fixed assets, rights under certain real property leases (which
were assumed by EIT) and certain contractual rights related to the resale of IT
Products. EIT also assumed certain related liabilities of Elcom Holdings
Limited, including a bank loan, accounts payable, accrued liabilities,
liabilities related to employee compensation and liabilities under assigned
contracts. In addition, EIT employed substantially all of
6
the former employees of Elcom Holdings Limited. The sale price for the
transaction consisted of the assumption of net liabilities of Elcom Holdings
Limited by EIT which, as of December 31, 2001, was approximately $2.7 million,
plus a nominal payment to the Company, as a result of which the Company recorded
a pre-tax gain of $2.7 million in its fiscal 2001 consolidated financial
statements.
On March 29, 2002, the Company sold certain of the assets and liabilities
of its U.S. IT Products and associated services business conducted by its
subsidiary, Elcom Services Group, Inc. ("Elcom Services Group"), to ePlus
Technology, Inc., ("ePlus"). The assets acquired by ePlus included the Company's
customer lists and certain contractual rights related to the resale of IT
Products and services, certain fixed assets and rights under the Company's real
property lease in California. ePlus also assumed certain related liabilities of
the Company, including liabilities related to employee compensation and
liabilities under assigned contracts. In addition, ePlus acquired certain of the
Company's software and a perpetual license for certain of the Company's other
software, all of which had been used in the IT Products and services business.
Under the terms of the sale, ePlus employed the majority of the former employees
of Elcom Services Group. The sale price for the transaction consisted of cash
consideration of $2.15 million, of which approximately $0.7 million was held in
escrow. At September 30, 2002, $36,606 of the sale proceeds remained in escrow.
As part of the sale transaction, the Company also issued warrants to purchase
300,000 shares of the Company's common stock to ePlus. The warrants became
exercisable on September 29, 2002, have an exercise price of $1.03 and expire on
March 29, 2009.
In accordance with SFAS No. 144, "Accounting for the Impairment or Disposal
of Long-Lived Assets," the results of operations and balance sheet information
have been prepared under the financial reporting requirements for discontinued
operations, pursuant to which all historical results of the IT Products and
services business are included in the results of discontinued operations rather
than the results of continuing operations for all periods presented. The results
of discontinued operations for the nine-month periods ended September 30, 2001
and 2002 were as follows (in thousands):
For the Nine Months ended
September 30,
-------------------------
2001 2002
----------- -----------
Net sales from discontinued operations
U.S. $ 52,815 $ 4,880
U.K. 74,695 --
----------- -----------
$ 127,510 $ 4,880
=========== ===========
Gross profit from discontinued operations
U.S. $ 10,216 $ 1,815
U.K. 8,766 --
----------- -----------
$ 18,982 $ 1,815
=========== ===========
Net income (loss) from discontinued operations
U.S. $ 643 $ (1,420)
U.K. 2,038 --
----------- -----------
$ 2,681 $ (1,420)
=========== ===========
Gain on disposal of U.S. discontinued
operations $ -- $ 1,079
=========== ===========
As of September 30, 2002 and December 31, 2001, the majority of assets and
liabilities identified as those related to the U.S. IT Products and services
business were recorded as current assets of discontinued operations, non-current
assets of discontinued operations, and current liabilities of discontinued
operations; the cash flows of this business were reported as net cash provided
by (used in) discontinued operations; and the results of operations of this
business were reported as income (loss) from discontinued operations, net of
tax. There were no assets or liabilities related to the discontinued operations
of the U.K. IT Products business since this disposition had occurred on December
31, 2001.
7
Current assets of U.S. discontinued operations at December 31, 2001 and
September 30, 2002 were comprised of the following (in thousands):
December 31, September 30,
2001 2002
------------ -------------
Accounts receivable $ 3,350 $ 119
Inventory 3 --
Prepaids and other current assets 156 94
------------ -------------
$ 3,509 $ 213
============ =============
Non-current assets of U.S. discontinued operations consisted of the
following (in thousands):
December 31, September 30,
2001 2002
------------ -------------
Property, plant and equipment $ 477 $ --
Other non-current assets 121 117
------------ -------------
$ 598 $ 117
============ =============
Current liabilities of U.S. discontinued operations consisted of the
following (in thousands):
December 31, September 30,
2001 2002
------------ -------------
Accounts payable $ 1,890 $ 29
Accrued expenses and other current
liabilities 1,605 969
------------ -------------
$ 3,495 $ 998
============ =============
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
OVERVIEW
As discussed further herein, on December 31, 2001, the Company divested
itself of its U.K. IT Products business and on March 29, 2002, the Company
divested itself of its U.S. IT Products and services business. The divestiture
of these businesses has allowed the Company to complete its transition to being
a provider of remotely- hosted, eProcurement and eMarketplace Internet- and
intranet-based software solutions, which automate many supply chain and
financial settlement functions associated with procurement (collectively the
"Service Provider Business"). As a result of these divestitures, commencing in
the second quarter of 2002, the Company does not record any revenues arising
from the sale of IT Products and associated services. From the second quarter of
2002, the Company's sole source of revenue has been the licensing of
eProcurement and eMarketplace solutions and associated professional services.
See "Risk Factors Related to Liquidity." As provided by applicable accounting
conventions, the U.S. IT Products and services business and the U.K. IT Products
business are presented as discontinued operations.
As it relates to the Company's Service Provider Business, the Company
intends to augment its core eProcurement Marketplace solutions with other
licensed supply chain-oriented systems to enable the conduct of interactive
procurement and financial settlement supply chain solutions for businesses. The
Company has already licensed a dynamic trading system platform to provide
auction, reverse auction, and other electronic negotiation, or ("eNegotiation")
functions and represents and also markets an asset management system from a
third party company. Since its inception in 1992, elcom, inc., the Company's
eBusiness solutions subsidiary, has developed its PECOS(TM) (Professional
Electronic Commerce Online System) system, which automates many supply chain and
financial settlement functions associated with procurement. The Company's
PECOS(TM) 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.
The eProcurement and eMarketplace systems the Company offers for licensing
include:
PECOS Internet Procurement Manager ("PECOS.ipm") is based on ten years of
eCommerce technology development and, as an Internet-based system, has been in
development for approximately five years. PECOS.ipm is a robust and feature-rich
Internet-based, remotely-hosted, automated procurement system. As a
remotely-hosted system, PECOS.ipm allows the Company's clients to use their
Internet/intranet to access the system to identify and select products, check
pricing, automate the internal approval process and facilitate invoicing and
payment to suppliers. Since it is remotely-hosted, PECOS.ipm is rapidly
deployable and has a minimal impact on a client's
8
computer system and personnel resources. elcom, inc. acts as its own application
service provider and hosts PECOS.ipm on its own hardware platform, giving
clients a single point of contact and responsibility. In addition, PECOS.ipm is
configurable by a client and does not require scripting or consultants to modify
administrative items or approval workflows. Because it has invoicing and
receiving functionality and has automated financial settlement functions
(including robust support for procurement card technology), PECOS.ipm can
operate as a standalone system without an expensive back-end enterprise resource
planning system in place, thereby enabling rapid deployment and easier
implementation for clients. Clients may integrate PECOS.ipm into their ERP
system using data feeds with PECOS.ipm already operating. Further, the Company
facilitates supplier catalog loads and manages catalog content for the client
when the system is remotely-hosted. Since October 2001, the Company has been
marketing version 8.0 of its PECOS(TM) technology, which is designed to offer a
single solution for robust eProcurement functionality, including "buy-side",
which is the capability of a client to order products from its supplier,
ePurchasing functionality, including "sell-side", which is the capability of a
client to have its customers make purchases electronically, and private
eMarketplace functionality, including "eMarketplace", which is the capability
for a client to offer an eMarketplace to both buy and sell products in a
"community" of users which may include both suppliers and customers. In
addition, version 8.0 offers enhanced multi-organizational, multi-lingual and
multi-currency capabilities as well as dynamic documents, eForms and improved
organizational data security. The multi-organizational capabilities are key for
large organizations which require each sub-entity of an organization to have its
own approval rules, catalog access, report generation, and inability to view
other entity's data. This same capability could allow large eMarketplaces to be
formed. Version 8.5 was announced in May 2002 and includes robust support for
procurement card technology and automated financial settlement.
PECOS Internet Commerce Manager ("PECOS.icm") is the Company's
eDistribution configuration version of PECOS(TM) that automates the online
selling process from product information through financial settlement. PECOS.icm
supports the sales of virtually any type of product or service, includes
functionality such as electronic catalogs, shopping cart and shopping cart
transfer, real time price and availability access, product configuration and
credit card processing. PECOS.icm also supports a virtual sourcing engine that
enables the online purchase and/or sale of commodity products, such as IT
Products, without the need to maintain inventory.
The Company also offers an optional dynamic trading system licensed from a
third party, which includes request for proposal, private reverse auctioning and
other features. In addition, the Company offers an asset management system and
is in discussions with several other software firms to offer their systems.
These additions would allow the Company to offer a suite of supply chain modules
to augment its core eProcurement and eMarketplace functionality. Further, in
conjunction with the Commonwealth British Council (U.K.), the Company is in the
process of developing eMarketplace World Network(TM), a global eMarketplace hub,
which is being designed to interconnect with world-wide eMarketplaces comprised
of vertical and geographic trading communities within an industry, allowing
eMarketplaces to connect their trading communities so that buyers can easily
review participating eMarketplaces and trade with the suppliers participating in
those eMarketplaces.
Divested IT Products and Services Business
Prior to the divestiture of the IT Products business in the U.K. on
December 31, 2001 and the IT Products and services business in the U.S. on March
29, 2002, the Company had historically marketed 130,000 IT Products to
commercial, educational and government accounts via several electronic
methodologies. Throughout 2001, the overall decline in economic activity, as
well as capital and discretionary spending by the Company's customer base,
significantly decreased sales and resultant profitability from this business
line. Demand for IT Products was further impacted by the events of September
11th and their aftermath. Even though the demand for IT Products was weak
throughout 2001, the Company demonstrated success in acquiring incremental
customers beginning in the middle of 2001 by offering PECOS.icm to new customers
at no charge in return for a portion of their IT Products spending, which
generated transaction-oriented fees for the Company as a sales agent of Tech
Data. However, the decline in demand from existing IT Products customers and the
uncertainty surrounding the overall economy caused the Company to carefully
review its business operations in order to reduce operational and financial
risks and properly align the Company's operations with the economic environment.
The Company decided to exit the IT Products and services business to reduce
costs and allow the Company to focus exclusively on its core eProcurement
Marketplace technology.
Critical Accounting Policies and Estimates
The preparation of consolidated financial statements requires the Company
to make estimates and judgments that affect the reported amounts of assets,
liabilities, revenue and expenses, and related disclosure of contingent assets
and liabilities. On an on-going basis, the Company evaluates its estimates,
including those related
9
to bad debts, income taxes, impairment of long-lived assets, and revenue
recognition. The Company bases its estimates on historical experience and on
various other assumptions that are believed to be reasonable under the
circumstances, the results of which form the basis for making judgments about
the carrying values of assets and liabilities that are not readily apparent from
other sources. Actual results may differ from these estimates under different
assumptions or conditions.
The Company believes that the following critical accounting policies affect
its more significant judgments and estimates used in the preparation of its
consolidated financial statements:
(i) The Company records a valuation allowance to reduce its deferred tax
assets to the amount that is more likely than not to be realized. Based
on the Company's recent losses and belief that 2002 will result in an
overall loss, the Company has recorded a valuation allowance to reduce
its deferred tax assets to $0. In the event the Company were to
determine that it would be able to realize its deferred tax assets in
the future in excess of its net recorded amount, an adjustment to the
deferred tax asset valuation allowance would increase income in the
period such determination was made.
(ii) The Company records impairment losses on long-lived assets to be held
and used or to be disposed of other than by sale when events and
circumstances indicate that the assets might be impaired and the
undiscounted cash flows estimated to be generated by those assets are
less than the carrying amount of those items. The Company's cash flow
estimates are made for the remaining useful life of the assets and are
based on historical results adjusted to reflect the best estimate of
future market and operating conditions. The net carrying value of assets
not recoverable is reduced to fair value. The Company's estimates of
fair value represent a good faith estimate based on industry trends and
reference to market rates and transactions.
(iii) Revenues from sales of software are recognized in accordance with AICPA
Statement of Position 97-2, Software Revenue Recognition, as amended and
interpreted. The Company recognizes revenue from the sale of software
products when persuasive evidence of an arrangement exists, the product
has been delivered, the fee is fixed and determinable, and collection of
the resulting receivable is reasonably assured. Material differences may
result in the amount and timing of revenue for any period if the
Company's management made different judgments or utilized different
estimates.
Results of Operations
Quarter ended September 30, 2002 compared to the quarter ended September 30,
2001.
The results of operations for the divested U.K. IT Products remarketing
business and the U.S. IT Products and services business have been presented as
discontinued operations for all periods presented.
Net Sales. Net sales for the quarter ended September 30, 2002, which
represented eProcurement and eMarketplace service provider license and related
fees, were $1.2 million compared to $0.4 million in the comparable quarter of
2001, an increase of $0.7 million or 160%. Net sales in the 2002 quarter
included $0.9 million in license and professional service fees related to the
Company's government of Scotland PECOS Internet Procurement Manager system
("Scottish Government License"). The Scottish Government License agreement was
signed in November 2001 and, hence, did not impact the comparable 2001 quarter's
financial results. At September 30, 2002, the Company had recorded $1.6 million
of deferred revenue related to the Scottish Government License, compared to $1.3
million as of June 30, 2002. As the Company expects to recognize the majority of
this deferred revenue in its fiscal fourth quarter of 2002, it anticipates
recording higher sequential quarterly revenues for that period.
Gross Profit (Loss). The Company recorded a gross profit of $0.8 million in
the quarter ended September 30, 2002, compared to a gross profit of $0.1 million
in the quarter ended September 30, 2001, an increase of $0.7 million. Cost of
sales in the 2002 quarterly period included $216,000 of amortized software costs
and maintenance- related expenses together with $121,500 of salary-related
expenses, which were incurred in various PECOS implementations. In the
comparable 2001 quarterly period, amortized software costs and
maintenance-related expenses amounted to $313,000 with no significant
implementation-related costs. In the third quarter of 2002, net sales
significantly increased, for the factors noted above, which, when combined with
a comparatively lower cost of sales, resulted in a higher gross profit when
compared to the same quarterly period in 2001.
10
Selling, General and Administrative Expenses. Selling, general and
administrative expenses ("SG&A") for the quarter ended September 30, 2002
decreased to $3.0 million from $5.8 million in the 2001 quarter, a decrease of
$2.8 million, or 48%. Since the middle of 2001 and into 2002, the Company has
implemented cost containment measures designed to align its SG&A costs with
lower than anticipated license revenues resulting from the weak economy. The
principal reductions in SG&A expenses in the third quarter of 2002 compared to
the third quarter of 2001 were comprised of reductions in personnel and
depreciation expenses of $1.8 million.
Research and Development Expense. Research and development expense for the
quarters ended September 30, 2002 and 2001 were $125,000 and $348,000,
respectively. The expenditures incurred in the 2002 quarter for research and
development primarily related to developing significant new functionality for
the next generation of PECOS product, version 9.0, which is expected to be
released in the first quarter of 2003. The reduction in research and development
expenditures in the 2002 quarterly period compared to the 2001 quarterly period
primarily relates to a reduction in the number of personnel performing research
and development activities.
Interest Expense. Interest expense for the quarter ended September 30, 2002
was $12,000 compared to $1,000 for the quarter ended September 30, 2001.
Interest expense specifically relates to interest paid on capital leases since
the Company had no other borrowings.
Interest Income and Other, Net. Interest income and other, net, for the
quarter ended September 30, 2002 increased to $872,000 from an expense of
$38,000 in the comparable 2001 quarter primarily as a result of the receipt of a
$650,000 settlement from a claim the Company had made against one of its
software vendors.
Net Income (Loss) From Discontinued Operations. The net income from
discontinued operations in the three-month period ended September 30, 2002 was
$0.1 million compared to a net income from discontinued operation in the
three-month period ended September 30, 2001 of $0.3 million. The net income from
discontinued operations in the 2001 quarterly period primarily related to the
Company's divested U.K. IT Products business, which recorded $0.5 million of net
income, offset by a $0.1 million loss related to the Company's divested U.S. IT
Products and services business. In the 2002 quarterly period, all of the net
income was derived from U.S. discontinued operations.
Net Gain From Disposal of Discontinued Operations. The net gain from
disposal of discontinued operations for the quarter ended September 30, 2002 of
$167,000, primarily related to the receipt by the Company of certain amounts
related to the sale of the Company's U.S. IT Products and services business that
were previously held in escrow.
Nine-month period ended September 30, 2002 compared to the nine-month period
ended September 30, 2001.
The results of operations for the divested U.K. IT Products remarketing
business and the U.S. IT Products and services business have been presented as
discontinued operations for all periods presented.
Net Sales. Net sales for the nine-month period ended September 30, 2002
increased to $3.1 million from $1.0 million in the same period of 2001, an
increase of $2.1 million, or 222%. Included in the net sales in the 2002 period
were $2.1 million in license and professional service fees related to the
Scottish Government License.
Gross Profit (Loss). The Company recorded a gross profit of $2.2 million in
the nine-month period ended September 30, 2002, compared to a gross loss of $0.1
million in the nine-month period ended September 30, 2001, an increase of $2.3
million. The increase in gross profit in the nine-month period ended September
30, 2002 compared to the comparable 2001 period was due to a combination of
increased net sales in the 2002 period, for the reasons described elsewhere
herein without a proportional increase in cost of sales. Cost of sales primarily
includes amortized software costs, maintenance-related costs and implementation
costs associated with the Company's PECOS implementation. The allocation of the
Company's PECOS software development group expenses between cost of sales
(maintenance-related expenses and amortization of capitalized software
development costs), research and development and capitalized software reflects
the various stages of development that the PECOS product is in during each
respective period. In the nine months ended September 30, 2002, the amortization
of capitalized software and maintenance-related costs amounted to $546,000,
compared to $890,000 in the comparable quarterly period in 2001, a decrease of
$344,000.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses ("SG&A") for the nine-month period ended September 30,
2002 decreased to $10.2 million from $19.9 million in the 2001 quarter, a
decrease of $9.7 million, or 49%. Throughout 2002, the Company has continued to
implement cost containment
11
measures designed to align its SG&A costs with lower than anticipated license
revenues resulting from the weak economy. Those measures included personnel
reductions throughout most functional and corporate areas.
Research and Development Expense. Research and development expense for the
nine-month periods ended September 30, 2002 and 2001 were $786,000 and $668,000,
respectively. For the 2002 period, the increase in research and development
expense related to the development of two new versions of the Company's PECOS
product.
Asset Impairment Charge. For the nine-month periods ended September 30,
2002 and 2001, the Company recorded asset impairment charges of $338,000 and
$1,626,000, respectively. The asset impairment charges relate to software
initially purchased to augment the Company's PECOS technology.
Interest Income and Other, Net. Interest income and other, net, for the
nine month period ended September 30, 2002 increased to $896,000 from $198,000
in the comparable 2001 quarter, this increase is due primarily to the receipt of
a $650,000 settlement from a claim the Company had made against one of its
software vendors in the fiscal 2002 third quarter.
Interest Expense. Interest expense for the nine-month period ended
September 30, 2002 was $50,000 compared to $201,000 for the comparable 2001
period. The 2002 and 2001 period interest expense is primarily related to
capital leases.
Net Income (Loss) From Discontinued Operations. The net loss from
discontinued operations for the nine month period ended September 30, 2002 was
$1.4 million compared to a net income from discontinued operation in the nine
month period ended September 30, 2001 of $2.7 million. Since the Company
divested its U.K. IT Products business on December 31, 2001, no discontinued
operations were recorded for that business in the 2002 period and all of the
2002 period loss related to the Company's previously divested U.S. IT Products
and services business. The net income from discontinued operations for the
Company's U.S. IT Products and services business was $0.6 million in the nine
month period ended September 30, 2001 compared to a net loss from U.S.
discontinued operations of $1.4 million in the comparable 2002 nine month
period. In the nine month period ended September 30, 2001, the net income from
discontinued operations for the Company's U.K. IT Products business was $2.0
million.
Net Gain From Disposal of Discontinued Operations. The net gain for the
nine-month period ended September 30, 2002 from the disposal of the Company's
U.S. IT Products and services business to ePlus on March 29, 2002 was
$1,079,000.
Liquidity and Capital Resources
Net cash used in operating activities from continuing operations for the
nine month period ended September 30, 2002 was $9.1 million, resulting primarily
from a net loss from continuing operations of $8.3 million, together with a
decrease in accounts payable and accrued liabilities of $3.9 million, an
increase in accounts receivables and other current assets of $1.2 million, an
increase in deferred revenue of $1.5 million, offset by depreciation and
impairment charges of $2.7 million. Net cash used in operations may not be
indicative of future results due to the sale of certain operations and the
Company's transition to an eProcurement and eMarketplace centric supply chain
and financial settlement services provider business. Cash provided by investing
activities was primarily comprised of the cash proceeds received from the sale
of the U.S. IT Products and services business of $1.1 million. Other than
finance leases incurred in the normal course of business, the Company did not
have any debt as of September 30, 2002.
At September 30, 2002, the Company's principal sources of liquidity were
cash and cash equivalents of $3.9 million (See "Risk Factors Related to
Liquidity", below).
The Company's principal commitments consist of leases on its office
facilities and capital leases.
Off-Balance Sheet Financings
The Company does not have any off-balance sheet financings. The Company has
no majority-owned subsidiaries that are not included in the financial
statements, nor does it have any interests in or relationships with any special
purpose entities.
12
Risk Factors Related to Liquidity
As of September 30, 2002, the Company had $3.9 million of cash and cash
equivalents and, other than finance leases incurred in the normal course of
business, did not have any outstanding debt. The Company has incurred $82.2
million of cumulative net losses for the three-year period ended December 31,
2001 and has incurred a further net loss from total operations in the nine-month
period ended September 30, 2002 of $8.6 million and anticipates recording a loss
for the full year ending December 31, 2002. In conjunction with the cost
containment measures the Company has taken in 2001 and 2002, and assuming normal
collections of accounts receivables due, the Company believes it has sufficient
liquidity to fund operations into February 2003 without raising additional
capital.
The Company's consolidated financial statements as of December 31, 2001
were prepared under the assumption that the Company will continue as a going
concern for the year ending December 31, 2002. The Company's independent
accountants, KPMG LLP, issued an audit report dated March 29, 2002 that included
an explanatory paragraph expressing substantial doubt regarding the Company's
ability to continue as a going concern through December 31, 2002 without
additional capital becoming available. The Company's ability to continue as a
going concern is dependent upon its ability to generate revenue, attain further
operating efficiencies and attract new sources of capital. The Company is in the
process of seeking additional capital. Alternatively, the Company may seek to
sell certain assets and/or rights to its technology in certain specific vertical
markets and/or geographic markets. There can be no assurance that the Company
will be able to raise capital or sell certain assets and/or rights to its
technology, or if so, on what terms or what the timing thereof might be. The
consolidated financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
On August 1, 2002, the Company submitted an application to transfer its
common stock from the Nasdaq National Market to the Nasdaq SmallCap Market. On
August 7, 2002, the Company's transfer was approved, effective on August 9,
2002. The Company's continued listing on the Nasdaq SmallCap Market is subject
to satisfying all of the appropriate listing requirements, including a
requirement to maintain a $1.00 minimum bid price for ten consecutive trading
days prior to November 11, 2002. As of the date of this filing, the Company had
not complied with this minimum bid price requirement and the Company received a
notice from Nasdaq on November 12, 2002 stating that the Company's common stock
is subject to delisting. The Company has the right to, and intends to, request a
hearing before a Nasdaq Listing Qualifications Panel, during which time the
Company's common stock will continue to trade on the Nasdaq SmallCap Market
pending the outcome of the hearing. Nasdaq has informally stated that the
appeals process is averaging thirty to forty-five days. If the Company's common
stock is ultimately delisted, the Company believes that its common stock will be
eligible to begin trading on the Over-the-Counter Bulletin Board ("OTCBB"). The
OTCBB is a regulated quotation service that displays real-time quotes, last
sales prices and volume information in over-the-counter equity securities.
Factors Affecting Future Performance
A significant portion of the Company's revenues from continuing operations
are from license fees related to the Scottish Government License. This license
is expected to generate more than $14 million in total revenues for the Company
over seven years. At September 30, 2002, the Company had recorded $1.6 million
of deferred revenue related to the Scottish Government License. As the Company
expects to recognize the majority of this $1.6 million of deferred revenue in
its fiscal fourth quarter of 2002, it anticipates recording higher sequential
quarterly revenues for that period. If the Company is unable to perform under
this license, it would have a significant affect on the Company's future
financial results.
Outlook
As evidenced by the continued reduction in SG&A expenditures in the third
quarter of 2002, the Company's implementation of cost containment programs has
significantly reduced its expenses and cash requirements from previous levels.
As a result of the cost containment programs and the expected recognition of
deferred revenue in the fourth quarter of 2002, the Company anticipates that its
operating loss from continuing operations will decrease in the 2002 fourth
quarter compared to the 2002 third quarter. Continuing improvements in
sequential revenues and operating results from continuing operations in future
periods will not occur without generating sufficient incremental sales.
Specifically, see "Risk Factors Relating to Liquidity" above.
13
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
statements or information. All statements, other than statements of historical
fact, including, without limitation, those with respect to the Company's
objectives, plans and strategies set forth herein and those preceded by or that
include the words "believes," "expects," "targets," "intends," "anticipates,"
"plans," or similar expressions, are forward-looking statements. Although the
Company believes that such forward- looking statements are reasonable, it can
give no assurance that the Company's expectations are, or will be, correct.
These forward-looking statements involve a number of risks and uncertainties
which could cause the Company's future results to differ materially from those
anticipated, including: availability and terms of appropriate working capital
and/or other financing, particularly in light of (a) the audit opinion from the
Company's independent accountants in the Company's Form 10-K as to the Company's
necessity to raise capital to continue as a going concern through December 31,
2002, and (b) the Company's $3.9 million in cash and cash equivalents at
September 30, 2002 and its history of ongoing operating losses, the overall
marketplace and client's acceptance and usage of eCommerce software systems,
including corporate demand therefore, the impact of competitive technologies,
products and pricing, particularly given the subsequently larger size and scale
of certain competitors and potential competitors, and control of expenses,
revenue growth, corporate demand for eProcurement and eMarketplace solutions;
the consequent results of operations given the aforementioned factors; as well
as the likelihood of the Company's stock being delisted from the Nasdaq SmallCap
Market since the Company has been unable to comply with the $1.00 minimum bid
requirement for ten consecutive trading days by November 11, 2002, subject to
the appeals process with Nasdaq; and other risks detailed from time to time in
the Company's 2001 Annual Report on Form 10-K and in the Company's other SEC
reports and statements, including particularly the Company's "Risk Factors"
contained in the prospectus included as part of the Company's Registration
Statement on Form S-3 filed on June 21, 2002. The Company assumes no obligation
to update any of the information contained or referenced in this Quarterly
Report on Form 10-Q.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The Company is exposed to market risk from exchange rates, which could
affect its future results of operations and financial condition.
The Company's investment in its U.K. subsidiaries is sensitive to
fluctuations in the exchange rate between the U.S. dollar and the U.K. pound
sterling. The effect of such fluctuations is included in accumulated other
comprehensive income in the Consolidated Statements of Stockholders' Equity. To
date, such fluctuations have amounted to an accumulated amount of $143,000. This
amount could become more material in the future due to revenues generated in
pounds under the Scottish Government License.
Item 4. Controls and Procedures
(a) Evaluation of Disclosure Controls and Processes
Within the 90-day period prior to the filing of this quarterly report (the
"Evaluation Date"), an evaluation was performed under the supervision and with
the participation of the Company's management, including the Chief Executive
Officer and Chief Financial Officer, of the effectiveness of the design and
operation of the Company's disclosure controls and procedures pursuant to
Exchange Act Rule 13a-14. Based on that evaluation, the Chief Executive Officer
and Chief Financial Officer concluded that, as of the Evaluation Date, the
design and operation of these disclosure controls and procedures were effective
in ensuring that information required to be disclosed by the Company in reports
it files or submits under the Exchange Act is recorded, processed, summarized
and reported, within the time periods specified in the Commission's rules and
forms.
(b) Change in Internal Controls
There have been no significant changes in the Company's internal controls
or in other factors that could significantly affect these controls subsequent to
the Evaluation Date.
14
Part II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits:
None.
(b) Reports on Form 8-K
The Company filed no reports on Form 8-K for the quarter ended September
30, 2002.
- ---------------------------------
15
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 14, 2002 By: /s/ Peter A. Rendall
----------------------------------
Peter A. Rendall
Chief Financial Officer
(Authorized Officer and Principal
Financial Officer)
16
CERTIFICATIONS
I, Robert J. Crowell, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Elcom
International, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this quarterly report is being
prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: November 14, 2002
/s/ Robert J. Crowell
- -----------------------------------
Robert J. Crowell
Chief Executive Officer
17
I, Peter A. Rendall, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Elcom
International, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this quarterly report is being
prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: November 14, 2002
/s/ Peter A. Rendall
- ----------------------------------
Peter A. Rendall
Chief Financial Officer
18