CLIFTON, N.J., Feb. 14, 2007 (PRIME NEWSWIRE) -- Electronic Control Security, Inc. (OTCBB:EKCS) (ECSI), a leading provider of a broad line of electronic security system technologies to the government and private sectors, today announced financial results for three months ended December 31, 2006.
Net revenues for the three months ended December 31, 2006 were $1,051,266 as compared to $2,536,251 for the corresponding three month period in 2005. The decline in revenue during the three months ended December 31, 2006 as compared to the corresponding period in 2005 is attributable to management's previously announced plan to concentrate on smaller, higher margin public sector contracts with a corresponding reduction in the relatively lower margin government contract business. Gross margins for the 2006 period were 50.92% of revenue for the three months ended December 31, 2006 as compared to 24.88% for the corresponding three-month period in 2005. The increase in gross margins is attributable to the company's efforts to focus on higher margin public sector contracts. Selling, general and administrative expenses for the three months ended December 31, 2006 were $418,269 as compared to $574,881 for the corresponding period in 2005. Net loss before deemed dividends was $(24,814) for the three months ended December 31, 2006 as compared to $(70,554) for the corresponding period in 2005. The reduction in net losses was directly attributable to reduction in operating costs and sales of higher gross margin products.
"In the quarter just concluded, we made progress in laying the groundwork for the company's future," stated Arthur Barchenko, President and CEO. "We made a deliberate decision to forego low-margin government contracts and redirect our efforts at maximizing higher margin private sector business. The operating results for the quarter clearly demonstrate the wisdom of that decision. Our gross margins doubled to over 50% and despite the sharp drop in gross revenue, we cut our net loss by over 60% and came very close to breaking even.
"We also achieved some significant milestones in securing an ongoing stream of higher margin public sector business. In December, 2006 we received purchase orders for $1,650,000 for our perimeter security technologies to be installed at the Strategic Petroleum Reserves, Sabine LNG Facilities in Louisiana and an additional order from the Department of Defense. Liquefied natural gas facilities are both a vital part of the nation's energy infrastructure and a significant potential terrorist target that require a high level of security preparedness and represent an important new market for our products."
During the quarter, ECSI also reached a number of agreements with Hyundai Syscomm Corp., a California based company engaged in wireless communication equipment, pursuant to which Hyundai undertook that it, or its subsidiaries, would commencing during the first calendar quarter of 2007, provide to ECSI at least twenty-five million dollars ($25,000,000) of purchase orders for security-worthy assets (including video surveillance systems) on terms beneficial to both parties, with all such business to be provided on or prior to June 30, 2008. The agreements included the issuance to Hyundai of a warrant to purchase shares of ECSI's common stock with the vesting of the right to purchase shares subject to the gross profit generated from the contracts provided by Hyundai to ECSI. The third part of the agreement was the provision by Hyundai to ECSI of a total of $1.2 million in exchange for 4.8 million shares of ECSI's common stock, which have been issued in escrow. These funds are to be used by the Company to repurchase its outstanding senior secured convertible debentures that it issued in January 2006. The agreements with Hyundai originally contemplated that the repurchase funding would be completed in January 2006; however the funding has not been consummated to date. ECSI and Hyundai are currently attempting to coordinate the provision of these funds on or before March 17, 2007. The agreements with Hyundai reserve for ECSI the unilateral right to cancel that portion of the agreement and retire and return to ECSI's treasury the 4.8 million shares if the repurchase funding is ultimately not completed. However, the agreements relating to the $25,000,000 in purchase orders referred to above will remain in full force and effect, even if the funding is not provided and the shares are returned to treasury.
Subsequent Event
On February 13, 2007, ECSI received from a Hyundai affiliate a purchase order in the amount of $6.0 million for immediate delivery. ECSI is in the process of clarifying the details of this purchase order.
About ECSI
ECSI is recognized as a global leader in perimeter security and an effective quality provider for both the Department of Defense and Homeland Security programs. The company designs, manufactures and markets physical electronic security systems for high-profile, high-threat environments. The employment of risk assessment and analysis allows ECSI to determine and address the security needs of government and commercial-industrial installations. The company has teaming agreements with major system integrators in both the United States and overseas to support the installation and after market. ECSI is located at 790 Bloomfield Avenue, Bldg. C-1, Clifton NJ 07012. Tel: 973-574-8555; Fax: 973-574-8562. For more information on ECSI and its customers, please go to http://www.anti-terrorism.com.
ECSI Safe Harbor Statement
This press release contains forward-looking statements that involve substantial uncertainties and risks. These forward-looking statements are based upon our current expectations, estimates and projections about our business and our industry, and that reflect our beliefs and assumptions based upon information available to us at the date of this release. We caution readers that forward-looking statements are predictions based on our current expectations about future events. These forward-looking statements are not guarantees of future performance and are subject to risks, uncertainties and assumptions that are difficult to predict. Our actual results, performance or achievements could differ materially from those expressed or implied by the forward-looking statements as a result of a number of factors, including but not limited to, changes in economic conditions generally and in our industry specifically, changes in security technology, legislative or regulatory changes that affect us, the availability of working capital, changes in costs and the availability of goods and services, the introduction of competing products, changes in our operating strategy or development plans, our ability to attract and retain qualified personnel, and changes in our acquisition and capital expenditure plans, and the risks and uncertainties discussed under the heading "RISK FACTORS" in Item 1 of our Annual Report on Form 10-KSB for the fiscal year ended June 30, 2006, and in our other filings with the Securities and Exchange Commission. We undertake no obligation to revise or update any forward-looking statement for any reason.