UNITED
        STATES
 SECURITIES
        AND EXCHANGE COMMISSION
 WASHINGTON,
        D.C. 20549
  
 FORM
        10-KSB
 
 x
        ANNUAL REPORT UNDER
        SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
  For
        the
        Fiscal Year Ended December 31, 2006
  or
  o
        TRANSITION REPORT UNDER
        SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
 For
        the
        transition period from ___________ to ___________
 
 Commission
        File Number: 000-2737
  
 **ELCOM
        INTERNATIONAL, INC.**
 (Name
        of
        small business issuer in its charter)
  DELAWARE
              
              04-3175156(State
                  or other jurisdiction of
              
              (I.R.S.
                  EmployerIncorporation
                  or organization)
              
              Identification
                  No.)
  10
        OCEANA
        WAY, NORWOOD, MASSACHUSETTS 02062
 (Address
        of principal executive offices) (Zip Code)
 
 Issuer’s
        telephone number (781) 501-4000
 
 Securities
        registered under Section 12(b) of the Exchange Act:
 None
 Securities
        registered under Section 12(g) of the Exchange Act:
 
 Common
        Stock, $.01 par value
 (Title
        of
        class)
 
 Check
        whether the issuer is not required to file reports pursuant to Section 13
        or
        15(d) of the Exchange Act o
 
 Check
        whether the issuer (1) filed all reports required to be filed by Section
        13 or
        15(d) of the Exchange Act during the past 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 o    No
x
 
 Check
        if
        there is no disclosure of delinquent filers in response to 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
 
 Indicate
        by check mark whether the registrant is a shell company (as defined in Rule
        12b-2 of the Exchange Act)
 Yes o  No x
  The
        issuer’s revenues for the year ended December 31, 2006 were
        $3,218,000
 
 The
        aggregate market value of voting and non-voting common equity held by
        non-affiliates of the registrant computed by reference to the closing sale
        price
        of such common equity on the Pink Sheets Electronic OTC Markets on December
        20,
        2007 was $750,000. For purposes of this disclosure only, the issuer has assumed
        that its directors, executive officers, and beneficial owners of 10% or more
        of
        the issuer’s Common Stock are affiliates of the issuer.
 
 The
        registrant had 552,177,450  shares
        of
        Common Stock, $.01 par value, outstanding as of December 20,
        2007.
 
 Transitional
        Small Business Disclosure Format Yes o No x
  
  **TABLE
        OF CONTENTS**
 
 PART
                  IItem
                  1. Description of Business
              
              
              2Item
                  2. Description of Property
              
              
              6Item
                  3. Legal Proceedings
              
              
              7Item
                  4. Submission of Matters to a Vote of Security Holders
              
              
              7PART
                  IIItem
                  5. Market for Common Equity and Related Stockholder Matters and
                  Small
                  Business Issuer Purchases
                  of Equity Securities
              
              
              8Item
                  6. Management’s Discussion and Analysis or Plan of
                  Operation
              
              
              9Item
                  7. Financial Statements
              
              
              15Item
                  8. Changes In and Disagreements With Accountants on Accounting
                  and Financial
                  Disclosure
              
              
              15Item
                  8A. Controls and Procedures
              
              
              15Item
                  8B. Other Information
              
              
              16PART
                  IIIItem
                  9. Directors, Executive Officers, Promoters, Control Persons, and
                  Corporate Governance; Compliance
                  With Section 16(a) of the Exchange Act
              
              
              17Item
                  10. Executive Compensation
              
              
              18Item
                  11. Security Ownership of Certain Beneficial Owners and Management
and
                  Related Stockholder Matters
              
              
              21Item
                  12. Certain Relationships and Related Transactions, and Director
                  Independence
              
              
              21Item
                  13. Exhibits
              
              
              22Item
                  14. Principal Accountant Fees and Services
              
              
              23SIGNATURES
              
              
              24REPORT
                  OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
              
              
              F-2ELCOM
                  INTERNATIONAL, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE
                  SHEETS
              
              
              F-4ELCOM
                  INTERNATIONAL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF
OPERATIONS
                  AND OTHER COMPREHENSIVE INCOME (LOSS)
              
              
              F-5ELCOM
                  INTERNATIONAL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF
STOCKHOLDERS’
                  EQUITY (DEFICIT)
              
              
              F-6ELCOM
                  INTERNATIONAL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF
                  CASH FLOWS
              
              
              F-7ELCOM
                  INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
              
              
              F-8EX-23.1
                  Consent of Vitale, Caturano & Company, Ltd.EX
                  23.2 - Consent of Malone Bailey, PC.EX-31.1
                  Section 302 Certification of Principal Executive OfficerEX-32.2
                  Section 302 Certification of Principal Financial and Accounting
                  OfficerEX-32.1
                  Section 906 Certification of Principal Executive OfficerEX-32.2
                  Section 906 Certification of Principal Financial and Accounting
                  Officer
  
  **PART
        I**
  **Item
        1.** ***Description
        of Business***
 
 **Introduction**
 
 Elcom
        International, Inc. (“Elcom”), a corporation formed in Delaware in December
        1992, is a leading provider of Internet-based remotely-hosted, integrated
        eProcurement and eMarketplace solutions and services (“ePurchasing”). Our PECOSTM
Professional Electronic Commerce Online System ePurchasing solution is typically
        remotely-hosted by Elcom, providing rapid deployment and single point
        responsibility for clients. In total, over 100 organizations are currently
        using
        or accessing Elcom’s solution under these arrangements. From January 16, 2003 to
        May 17, 2007, our Common Stock was quoted on the Over-the-Counter Bulletin
        Board
        (the “OTCBB”) under the symbol ELCO (ELCOE since April 2007 to indicate that
        this Annual Report on Form 10-KSB had not yet been filed with the SEC by
        the
        appropriate extended deadline), but on May 18, 2007 our stock was suspended
        from
        the OTCBB due to a delay in our filing this annual report for the year ended
        December 31, 2006 with the SEC and since then our stock has been listed in
        the
        Pink Sheets under the symbol ELCO. In addition, since April 16, 2004, our
        common
        stock has traded on the AIM Exchange (as defined below) under the symbols
        ELC
        and ELCS (designating the Regulation S Shares); however, the stock is currently
        suspended from trading on the AIM exchange, pending the filing of the financial
        statements for the year ended December 31, 2006 and suspended from the OTCBB
        pending the filing of this Annual Report on Form 10-KSB plus the quarterly
        reports for the first three quarters of 2007. We operate in the U.S. and
        U.K.
 
 **Overview**
 
 Prior
        to
        the divestiture of our information technology (“IT”) products and services
        business in the U.K. and U.S., we had previously marketed over 130,000 IT
        products to commercial, educational and governmental accounts via several
        electronic methodologies. During 2001, we carefully reviewed our business
        operations, and in order to reduce operational and financial risks and properly
        align our operations with the slowing demand for IT products and the overall
        economic environment, we decided to divest our IT products and services business
        to reduce costs and allow us to focus exclusively on our core Internet-based,
        ePurchasing software technology. On December 31, 2001, we divested ourselves
        of
        our U.K. IT products business and on March 29, 2002, we divested ourselves
        of
        our U.S. IT products and services business. Commencing during the second
        quarter
        of 2002, our sole source of revenue has been the implementation of ePurchasing
        solutions and associated professional services and monthly hosting services,
        usage and data maintenance fees.
 
 In
        the
        U.K., we have a substantial contract with Capgemini UK Plc (“Capgemini”)
        associated with the Scottish Executive’s eProcurement Scotl@nd Programme, where Elcom provides an ePurchasing system to agencies, councils,
        and
        National Health Service of Scotland (hospitals) Trusts (“Public Entities”) in
        Scotland. We signed agreements with five Public Entities in 2005 and one
        in
        2006, bringing the total number of Public Entities in the eProcurement Scotland
        program to 26. There are approximately 47 Public Entities potentially available
        to join the eProcurement Scotland program, and possibly more, depending upon
        the
        Scottish Executive’s definition of eligibility. We earn implementation fees and
        monthly hosting services fees for each Public Entity that joins the eProcurement
        Scotland program. Capgemini is the prime contractor in the Scottish Executive
        Agreement. Elcom subcontracts under this agreement as the technology service
        provider. During 2006, this contract accounted for over 61% of our revenues
        and
        we continue to remain dependent on it.
 
 In
        addition, we are a member of a consortium led by PA Consulting Group UK Plc
        (“PA”), a world-wide consulting firm, which has been awarded a contract, and has
        executed agreements, including a Framework Agreement between Proc-Serve Shared
        Services Ltd. (“PSSL”), a wholly-owned subsidiary of PA, and a U.K. government
        agency, for the creation and deployment of an eMarketplace for U.K. Public
        Entities (the “Zanzibar eMarketplace”). The Zanzibar eMarketplace agreements
        were signed on August 12, 2005 and have a primary term of five years. PSSL
        is
        the primary contractor and Elcom, as a subcontractor to PSSL, will provide
        the
        eProcurement and eMarketplace components of the Zanzibar eMarketplace system.
        Generally, the costs of administrating the Zanzibar eMarketplace contract
        will
        be shared by the consortium members, based upon each member’s share of revenues.
        Accordingly, we will only realize a portion of our earned revenues, after
        costs
        of the PSSL entity are accounted for. The Zanzibar eMarketplace agreements
        provide for one-time installation fees and recurring monthly hosting services
        fees, as well as payments for certain development work. The agreements do
        not
        provide PSSL with unfettered rights to the underlying Elcom technology, and
        therefore we anticipate that our realized development fees will be ratably
        recognized over the applicable term of the agreement. As of December 2006,
        four
        (4) U.K. Public Entities have officially “gone live”. We are currently in a
        contractual dispute with PA Consulting in respect of the Zanzibar contract,
        and
        are also considering initiating an Intellectual Property claim against the
        same firm.
 
 2
 
 **Common
        Stock Issued under Regulation S in the U.K. - Change in Control of
        Elcom**
 
 On
        December 20, 2005, we agreed to issue an aggregate of 298,582,044 shares
        of our
        common stock (the “2005 Regulation S Shares”) to investors in the U.K., and
        listed the 2005 Regulation S Shares on the Alternative Investment Market
        of the
        London Stock Exchange (“AIM Exchange”). The 2005 Regulation S Shares were issued
        in reliance on the exemption from registration under Regulation S promulgated
        under the Securities Act of 1933, as amended for offshore placements, and
        therefore are subject to restrictions. Under Regulation S, the holders of
        the
        Regulation S Shares are prohibited from selling their Regulation S Shares
        in the
        United States, to a “U.S. person” (as defined in the Securities Act) or for the
        benefit or account of a U.S. person, for a one-year period from the date
        of
        issuance (which period has expired for the 2005 Regulation S Shares). During
        this one-year period, the holders of the Regulation S Shares may otherwise
        trade
        their Regulation S Shares in the U.K. and outside the U.S., pursuant to
        Regulation S and other securities laws applicable in the jurisdiction in
        which
        the Regulation S Shares are traded. Upon the expiration of this one-year
        period,
        the Regulation S Shares will be “restricted securities” as the term is defined
        in Rule 144 under the Securities Act, and may be sold in the United States,
        to a
        U.S. person or for the benefit or account of a U.S. person in accordance
        with
        Rule 144. The Regulation S Shares trade on the AIM Exchange and will not
        commingle with the stock quoted on the OTCBB until and unless we register
        the
        Regulation S Shares with the SEC or an exemption from registration exists
        with
        respect to the Regulation S Shares. The Regulation S Shares have not been
        registered under the Securities Act and may not be offered or sold in the
        United
        States (or to a U.S. person) absent registration or an applicable exemption
        from
        the registration requirements. We raised a total of approximately $7.2 million
        in cash, net of issuance costs, and converted $547,000 of non-U.S. Loans
        and
        related accrued interest (see Note 3 to Consolidated Financial Statements)
        via
        issuance of the 2005 Regulation S Shares in the U.K. The 2005 Regulation
        S
        Shares were sold at a price of £0.015 (approximately $0.0266) per share. The
        holders of the 2005 Regulation S Shares also have certain registration rights.
        The funds derived from the sale of the 2005 Regulation S Shares were used
        to
        support our working capital requirements.
 
 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 and that the Board of Directors call a special meeting
        of
        our stockholders for the purposes of amending certain 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.
  3
 
 Subsequent
        to year-end, 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
        74%.
 
 **Product
        Overview**
 
 Since
        our
        inception in 1992, we have developed our PECOSTM (Professional Electronic
        Commerce Online System) system, which automates many supply chain and financial
        settlement functions associated with procurement. We intend to augment our
        core
        ePurchasing 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 PECOSTM 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.
 
 Our
        ePurchasing 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 $1.7 billion in 2002 to $2.8 billion in 2007. AMR Research also estimated
        that the professional services market for procurement and the sourcing
        consulting services was approximately $3 billion in 2002. During August 2006,
        we
        together with three other competitors sponsored Aberdeen Group’s e-Procurement
        Benchmark Report. The report was the fourth in a series of Aberdeen benchmarks
        of eProcurement performance of nearly 170 enterprises. Aberdeen Group, Inc.
        was
        founded in 1988 and has over 100,000 research members in over 36 countries
        around the world that participate in technology driven value chain research.
 
 **Professional
        Services**
 
 Our
        professional service offerings include ** various
        consulting and supplier services to our 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.
        Company Management receives data from its chartered accountants in the U.K.
        to
        manage and monitor our 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.
  4
 
 **Sales
        and Marketing**
 
 As
        of
        December 31, 2006, 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
        ePurchasing 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 ePurchasing 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 electronic commerce (“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 believes that factors such
        as
        the technological and creative skills of our 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 PECOSTM 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 applicable to businesses generally, 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.
  5
 
 **Personnel**
 
 As
        of
        December 31, 2006, we had a total of 35 full time personnel in the U.S. and
        11
        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 its 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 provide
        incentive’s for our personnel. As of December 20, 2007, we employed 28 full time
        and 1 part time personnel in the U.S. and 10 full 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, 2006, we leased the property set forth below. The facility lease
        expires on December 31, 2007. The property is in good condition; however,
        the
        size exceeds our current requirements and therefore we have renewed the lease
        for a further 12 months, to December 31, 2008, while we review our options
        regarding a possible relocation. (See Note 7 in the Notes to Consolidated
        Financial Statements, included elsewhere in this Form 10-KSB).
 
 ****
              **APPROXIMATE
                  SQUARE****LOCATION**
              
              **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.
  6
  **Item
        3.** ***Legal
        Proceedings***
 
 During
        the fourth quarter of 2006, a cash deposit made by Elcom International, Inc.
        with a sales agent, Mr. Arshad A. Khan, of €1,000,000 (approximately $1,200,000)
        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 us on or before the May 15, 2007. As of the date of this filing,
        the
        funds have not been returned. In light of this, we have written off the entire
        balance as a bad debt (SG&A expense) as of December 31, 2006. On June 5,
        2007, we initiated legal proceedings, (Elcom International, Inc. versus Mr.
        Arshad A. Khan) against Mr. Khan personally in the United States District
        Court
        for the District of Massachusetts to recover this amount. There can be no
        assurances that we will be successful in our actions against Mr.
        Khan.
  **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.
  7
  **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**
 
 From
        January 16, 2003 to May 17, 2007, our Common Stock was quoted on the
        Over-the-Counter Bulletin Board (the “OTCBB”) under the symbol ELCO but on May
        18, 2007 our stock was suspended from the OTCBB due to a delay in our filing
        this annual report for the year ended December 31, 2006 with the SEC and
        since
        then our stock has been listed in the Pink Sheets under the symbol ELCO.
        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
        December 20, 2007, there were approximately 424 stockholders of record of
        our
        Common Stock. The high and low closing sales prices reported by the OTCBB
        for
        each of the quarters in the two year period ended December 31, 2006 are set
        forth in the table below. For the period from January 1, 2007 to May 17,
        2007,
        such the high and low closing sales prices reported on the OTCBB were $0.069
        and
        $0.07, respectively. For the period from May 18, 2007 to December 17, 2007,
        the
        high and low closing bid prices listed in the Pink Sheets were $0.07 and
        $0.006,
        respectively. The OTCBB market closing sales prices and Pink Sheet closing
        bid
        prices reflect inter-dealer prices, without retail mark-up, mark-downs, or
        commissions and may not represent actual transactions.
 
 ****
              **2006**
              
              **2005**
              ******Quarter
                  Ended**
              ****
              **High**
              
              **Low**
              
              **High**
              
              **Low**March
                  31
              
              $
              0.170
              
              $
              0.075
              
              $
              0.280
              
              $
              0.075June
                  30
              
              $
              0.180
              
              $
              0.100
              
              $
              0.150
              
              $
              0.060September
                  30
              
              $
              0.130
              
              $
              0.100
              
              $
              0.150
              
              $
              0.070December
                  31
              
              $
              0.140
              
              $
              0.070
              
              $
              0.120
              
              $
              0.066
 
 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, 2006:
  **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
                
                
                471,845Equity
                    compensation plans not approved by security holders
                
                
                N/A
                
                
                N/A
                
                
                N/ATotal
                
                
                30,934,713
                
                $
                0.34
                
                
                471,845
 
 **Recent
        Sales of Unregistered Securities**
 
 During
        the period covered by this report on Form 10-KSB, we did not sell or issue
        any
        securities not registered under the Securities Act of 1933 that were not
        previously reported in a periodic report on Form 10-QSB or on a current report
        on Form 8-K.
 
 **Recent
        Repurchases of Equity Securities**
 
 During
        the fourth quarter of fiscal 2006, we did not repurchase any equity
        securities.
  8
 
 **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, 2006 (in thousands):
  **2006**
              
              **2005**Net
                  revenues
              
              $
              3,218
              
              $
              2,714Gross
                  profit
              
              
              2,546
              
              
              1,996Selling,
                  general and administrative expenses
              
              
              8,156
              
              
              5,413Research
                  and development expenses
              
              
              1,231
              
              
              825Operating
                  loss
              
              
              (6,841
              )
              
              (4,242
              )Interest
                  expense
              
              
              (69
              )
              
              (1,605
              )Interest
                  and other income net
              
              
              78
              
              
              7Net
                  loss
              
              $
              (6,832
              )
              $
              (5,840
              )
 
 **Year
        ended December 31, 2006 compared to the year ended December 31,
        2005**
 
 *Net
        Revenues.* Net
        revenues for the year ended December 31, 2006 increased to $3,218,000 from
        $2,714,000 in 2005, an increase of $504,000, or 19%. License, hosting services
        and other fees for 2006 increased to $2,710,000 from $2,081,000 in 2005,
        an
        increase of $629,000 or 30%. This increase is primarily due to higher hosting
        services revenue related to the Scottish Executive’s eProcurement Scotl@nd Programme related fees. License, hosting services and other fees include
        license
        fees, hosting services fees, test system fees, supplier fees, usage fees
        and
        eMarketplace agent and affiliate fees. Professional services fees for 2006
        decreased to $508,000, from $633,000 in 2005. Deferred revenue includes $90,000
        related to Zanzibar eMarketplace, the bulk of which relates to implementation
        services that are ongoing as of December 31, 2006. We began accreting
        professional services revenue to the Zanzibar eMarketplace in May 2007.
 
 Revenues
        from Capgemini associated with the Scottish Executive Department of the
        Government of Scotland (the “Scottish Executive”), comprised 61% and 53% of net
        revenues for the years ended December 31, 2006 and 2005, respectively.
 
 *Gross
        Profit* .
        Gross
        profit for the year ended December 31, 2006 increased to $2,546,000 from
        $1,996,000 in 2005, an increase of $550,000, or 28%. This increase is primarily
        the result of an increase in license, hosting services and other fees recognized
        in 2006 over that in 2005. In addition, we recorded a lower level of cost
        of
        revenues in 2006, primarily as a result of decreased personnel time required
        to
        support the established customer base.
 
 *Selling,
        General and Administrative Expenses* .
        Selling, general and administrative expenses (“SG&A”) for the year ended
        December 31, 2006 were $8,156,000 compared to $5,413,000 in 2005, an increase
        of
        $2,743,000, or 50%. The main increase relates to a bad debt write off of
        the
        Khan deposit of $1,200,000 - see Item 3 Legal Proceedings. In addition, because
        of the cash constraints experienced over the last several years, we have
        operated with as few personnel as possible. In order to address staffing
        requirements related to the increasing level of business activity, we engaged
        third party contractors during late 2005 and through the beginning of the
        second
        quarter of 2006, and began to hire additional personnel in April 2006. Personnel
        expenses recorded in 2006 include $462,000 of stock option expense related
        to
        the adoption of SFAS 123R, which requires the expensing of stock-based
        compensation (stock options) (see Note 2 - Critical Accounting Policies -
        (ii)
        Stock-Based Compensation). In addition to the increase in personnel expenses,
        the primary reasons for the increase in SG&A expenses as compared to 2005
        relate to additional software licensing, computer supplies and other computer
        infrastructure expenses of $113,000 related to our growing business, as well
        as
        an increase in legal expenses of $128,000 related to the change in control.
        Increases in travel and marketing expenses in 2006 were offset by a reduction
        in
        facilities expenses in 2006, as we renegotiated our headquarters lease in
        the
        first quarter of 2006.
  9
 
 *Research
        and Development Expenses.* Research
        and development expenses for the years ended December 31, 2006 and 2005 were
        $1,231,000 and $825,000 respectively, an increase of $406,000, or 49%, in
        2006
        over 2005. The increase in expense in 2006 primarily relates to ongoing work
        associated with improving the data interchange inbound interface capabilities
        of
        our PECOS technology. Additionally, the increase in research and development
        expense is due to an increased level of development activity as noted above,
        as
        well as stock-based compensation expense of $139,000.
 
 *Operating
        Loss.* We
        reported a loss from operations of $6,841,000 for the year ended December
        31,
        2006 compared to a loss of $4,242,000 for the year ended December 31, 2005,
        an
        increase in the operating loss of $2,599,000 or 61%. This increased operating
        loss in 2006 compared to 2005 was primarily due to the increase in SG&A
        expenses and research and development expenses in 2006.
 
 *Interest
        Expense* .
        Interest expense for the year ended December 31, 2006 was $69,000, a decrease
        of
        $1,536,000 over the $1,605,000 of interest expense recorded for the year
        ended
        December 31, 2005. The decrease in interest expense was due primarily to
        $1,419,000 recorded in 2005 as non-cash amortization of the beneficial
        conversion feature on the ten-year 10% Senior Convertible Debentures due
        2013
        issued by us. The Debentures converted into common stock in December 2005.
        (See
        Note 3 to Consolidated Financial Statements - Common Stock Issuances, and
        Note 2
        to Consolidated Financial Statements - Critical Accounting Policies - (iii)
        Accounting for Convertible Debentures and Other Equity Matters).
 
 *Interest
        and Other Income, Net.* Interest
        and other income, net for the year ended December 31, 2006 was $78,000 versus
        $7,000, for the year ended December 31, 2005. The change from 2005 to 2006
        is
        largely due to the interest income related to funds raised during
        2006.
 
 *Net
        Loss.* We
        generated a net loss for the year ended December 31, 2006 of $6,832,000,
        versus
        a net loss of $5,840,000 for the year ended December 31, 2005, an increase
        in
        the loss of $992,000, or 17%.
 
 **Liquidity
        and Capital Resources**
 
 Net
        cash
        used in operating activities from continuing operations for the year ended
        December 31, 2006 was $6.3 million, resulting primarily from a net loss from
        continuing operations of $6.8 million. This cash outflow included the $1.2
        million of the performance bond that was deposited with an individual, Mr.
        Arshad A. Khan. See Item 3 Legal Proceedings. The funds advanced as a
        performance bond to Mr. Khan were due to be returned to us on or before the
        May
        15, 2007. As of the date of this filing, the funds have not been returned.
        In
        light of this, we have written off the entire balance as a bad debt (SG&A
        expense) as of December 31, 2006. We have initiated legal proceedings against
        Mr. Khan personally to recover this amount. This transaction has had a material
        effect on our cash position and will require the raising of additional capital.
        There can be no assurances that we will be successful in its actions against
        Mr.
        Khan.
 .
 As
        previously discussed, on October 23, 2006, we agreed to issue an aggregate
        of
        76,336,289 shares to investors in the U.K., and listed the Shares on the
        AIM
        Exchange. We raised a total of $2.5 million in cash, net of issuance costs.
        The
        Regulation S Shares were sold at a price of £0.0175 (approximately $0.03297) per
        share. The funds derived from the 2006 issuance of common stock are being
        used
        to support our working capital requirements.
 
 Subsequent
        to year-end, on February 5, 2007, we agreed to issue 73,230,009 shares to
        investors in the U.K. and listed the shares on the AIM Exchange. As was the
        case
        in 2005 and 2006, the shares were issued in reliance on the exemption from
        registration under Regulation S promulgated under the Securities Act of 1933,
        as
        amended for offshore placements, and therefore are subject to the same
        restrictions as the 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 issuance of common stock on the AIM Exchange are being used to support
        our working capital requirements.
 
 At
        December 31, 2006, our principal sources of liquidity were cash and cash
        equivalents of $1,086,000 and net accounts receivable of $692,000.
  10
 
 Our
        principal commitment consists of a lease on our headquarter office facility.
        We
        will also require ongoing investments in research and development and property,
        equipment and software in order to further increase operating revenues and
        meet
        the requirements of its customers.
  **Risk
        Factors Relating to Liquidity**
 
 Our
        consolidated financial statements as of December 31, 2006 have been prepared
        under the assumption that we will continue as a going concern for 2007. Our
        independent registered public accounting firm, Malone & Bailey, P.C., have
        issued a report dated December 17, 2007 that included an explanatory paragraph
        referring to the significant operating losses and substantial doubt in its
        ability to continue as a going concern without generating incremental operating
        revenues or, if required, additional capital becoming available. Our
        ability to continue as a going concern is dependent upon our ability to raise
        additional capital. We are currently in discussions with a number of financing
        sources with a view to securing additional capital. It is anticipated that
        the
        outcome of these discussions will be finalized in the first quarter of 2008.
 
 We
        cannot
        assure you that additional financing will be available on favorable terms,
        or at
        all. If funds are not available when required for working capital needs or
        other
        transactions, our ability to carry out our business plan could be adversely
        affected, and we may be required to scale back our operations to reflect
        the
        extent of available funding. If we are able to arrange for additional credit
        facilities from lenders, the debt instruments are likely to include limitations
        on our ability to incur other indebtedness, to pay dividends, to create liens,
        to sell our capital stock, or enter into other transactions. Such restrictions
        may adversely affect our ability to finance our future operations or capital
        needs or to grow our business. If we raise additional funds by issuing equity
        or
        convertible debt securities, the percentage ownership of our stockholders
        will
        be reduced. These securities may have rights, preferences or privileges senior
        to those of the common stockholders.
 
 If
        we are
        unable to consummate any equity financing or receive additional loaned monies
        to
        provide sufficient working capital, we would likely be forced to curtail
        operations and/or seek protection under bankruptcy laws. The consolidated
        financial statements do not include any adjustments that might result from
        the
        outcome of this uncertainty.
 
 Our
        lease
        commitment on our headquarters office facility is payable as follows (in
        thousands):
  **Payments
                  Due by Period**Total
              
              Less
                  than 1 year
              
              1-3
                  years
              
              4-5
                  years
              
              After
                  5 yearsOperating
                  lease
              
              $
              278
              
              $
              278
              
              $
              —
              
              $
              —
              
              $
              —
  **Critical
        Accounting Policies and Estimates**
 
 The
        preparation of consolidated financial statements requires us 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, we evaluate our estimates, including those related to income
        taxes, impairment of long-lived assets, and revenue recognition. We base
        our
        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.
 
 In
        August
        2005 we received a comment letter from the SEC concerning our revenue
        recognition and convertible debenture accounting policies. We responded to
        the
        SEC August 2005 comment letter in September 2005, and in January 2006, the
        SEC
        requested clarification of our September response and made further inquiries
        concerning our revenue recognition and convertible debenture accounting
        policies. We responded to the SEC’s January 2006 comment letter in April 2006.
        In June 2006, the SEC sent an additional comment letter requesting further
        clarification of our previous responses, and made further inquiries concerning
        our revenue recognition, convertible debenture, and convertible debt accounting
        policies. We responded to the SEC’s June 2006 comment letter on June 30, 2006
        and as of July 28, 2006, Elcom was informed by the SEC that the SEC had no
        further comments on our accounting policies.
 
 We
        believe that the following critical accounting policies affect our more
        significant judgments and estimates used in the preparation of our consolidated
        financial statements:
 
 11
 
 *(i)*
              *Revenue
                  Recognition*
 
 We
        market
        both an enterprise and non-enterprise (hosted) model of PECOS software. Revenue
        consists principally of fees for licenses, and hosting services, and we also
        earn fees from certain clients by providing a separate, test instance of
        our
        hosted software system for specified periods of time, for the client’s use in
        evaluating various operational aspects of the system. In addition, we earn
        usage
        and volume related fees derived from “eMarketplace” activities, as well as fees
        from certain suppliers for maintaining their data in the ePurchasing system
        for
        mutual customers. We earn professional services fees for implementation and
        related professional services. As part of the revenue recognition process,
        significant management judgments and estimates must be made and used to
        determine the revenue recognized in any accounting period. Material differences
        may result in the amount and timing of our revenue for any period if different
        judgments or estimates were made.
 
 All
        but
        one of Elcom’s hosted services clients do not have an unfettered right to take
        possession of the hosted PECOS software. The hosting services agreements
        typically require Elcom to establish a functional instance of our software
        solution specific to the client before the hosting term begins. Hosting services
        agreements also generally call for us to provide technical support and software
        updates and upgrades to customers during the term of the agreement. We recognize
        these hosting services revenues over the hosting term, which is typically
        one
        year, in accordance with Emerging Issues Task Force (“EITF”) 00-3, *Application
        of AICPA Statement of Position 97-2, Software Revenue Recognition, Arrangements
        That Include the Right to Use Software Stored on Another Entity’s Hardware
        (“EITF 00-3”),* and ** SEC
        Staff
        Accounting Bulleting Topic 13, *Revenue Recognition (“SAB 13”)* .
        We
        recognize revenue on this basis because our customers do not have (except
        as
        noted below) the contractual right to take possession of the software at
        any
        time during the hosting period. Certain of these agreements provide for an
        initial implementation fee for creating and bringing a client’s PECOS system
        live and then provide for time-based hosting services fees thereafter. If
        a
        hosting services agreement accounted for under EITF 00-3 and SAB 13 provides
        for
        the payment of fees that are required in order for the customer to use the
        software system, beyond those for hosting services, including implementation
        fees, these additional fees are typically recognized ratably over the first
        year
        of the arrangement, if the related hosting services agreement is subject
        to
        annual renewal by the customer. Otherwise, such fees are typically recognized
        over the term of the related agreement. We entered into a large hosting services
        contract that will be accounted for under EITF 00-3 and SAB 13, as the client(s)
        do not have an unfettered right to take possession of the hosted PECOS software
        system. The initial hosted software system has been accepted by the client,
        and
        the first customer began using the system in late June 2006. In this particular
        contract, Elcom will be paid certain development fees for providing each
        of
        three phases of the specified software system, implementation fees for each
        customer that contracts to use the software system, and ongoing hosting service
        fees. Because the development and implementation fees are for Elcom professional
        services that are required in order for the customer(s) to use the hosted
        software system, once such professional services are complete, Elcom will
        recognize the associated fee in revenue over the remaining contract life
        (initially five years) as clients in this certain arrangement do not have
        annual
        opportunities to cancel the arrangement. As of December 31, 2006, due to
        the
        limited level of use of the software system, no revenue has been recognized
        under this contract, and deferred revenue totals $90,000 in respect of this
        contract as of December 31, 2006.
 
 One
        of
        our customers, Capgemini, has an unfettered contractual right to take possession
        of the eProcurement software at any time, and we and Capgemini jointly maintain
        a “hot back-up site” to support certain customer requirements. We have concluded
        that, due to Capgemini’s technological expertise, and the jointly maintained
        back-up site, it is feasible for this customer to run the software on its
        own
        without significant penalty. Accordingly, we account for this contract in
        accordance with Statement of Position (“SOP”) 97-2, *Software
        Revenue Recognition* ,
        as
        amended by SOP 98-9, *Modification
        of SOP 97-2* , *Software
        Revenue Recognition with Respect to Certain Transactions* (“SOP
        97-2, as amended”) using the residual method. In this case the contract calls
        for a license fee, specific fees for initial professional services as locations
        are brought live (implementation fees) and ongoing hosting services for each
        location. Under the residual method, the total contract fee for this contract
        was first allocated to the fair value of the undelivered elements (i.e.,
        implementation services and hosting fees) based on their vendor specific
        objective evidence (“VSOE”) and the remaining portion of the total contract fee
        was allocated to the software license. We determined the VSOE of fair value
        for
        the implementation services based upon its current and historical pricing
        for
        those services when sold separately and VSOE of fair value for hosting services
        based upon substantive renewal rates. Per the terms of this contract, the
        timing
        of the payment of the license fee for this contract was based upon the number
        of
        Public Entities signing agreements. Accordingly, the license fee revenue
        was
        recognized as the milestones were met and the license payments became due.
        The
        final milestone was achieved in 2004. Implementation fees for this contract
        are
        recognized as revenue upon completion of the professional services, in
        accordance with the client specifications and hosting services fees are
        recognized over the hosting services term, generally one year.
  12
 
 Deferred
        revenue includes amounts received from customers for which revenue has not
        been
        recognized and generally result from advance customer payments for hosting
        services fees for services not yet rendered and deferred until all requirements
        under EITF 00-3, SAB 13 or SOP 97-2, as applicable, are met. Deferred revenue
        is
        recognized upon delivery of our product, as services are rendered, or as
        other
        requirements requiring deferral are satisfied.
 
 *(ii)
        Accounting for Convertible Debentures*
 
 During
        2003, Elcom raised funds via private placements to accredited investors of
        10%
        Senior Convertible Debentures due 2013 (the “Debentures”). We accounted for
        these debentures as a conventional convertible debt instrument and have
        accounted for the debentures in accordance with Accounting Principles Board
        Opinion Number 14, *Accounting
        for Convertible Debt and Debt Issued with Stock Purchase
        Warrants* ,
        EITF
        98-5, *Accounting
        for Convertible Securities with Beneficial Conversion Features or Contingently
        Adjustable Conversion Ratios* ,
        and
        EITF 00-27, *Application
        of Issue No. 98-5 to Certain Convertible Instruments.* In
        accordance with these pronouncements, over a three year period, through December
        2005, we recorded non-cash interest expense and offsetting credits to equity
        (additional paid-in capital) totaling $1,587,000 over these three years.
        These
        amounts reflect, as interest expense, the Beneficial Conversion Feature (“BCF”)
        of the difference between the per share conversion price of the Debentures
        and
        the then current trading price of our common stock when the Debentures were
        issued or amended. In accordance with the pronouncements, the BCF recorded
        was
        limited to the face amount of the Debentures and related interest that is
        paid-in-kind. The Debentures also provided for adjustment of the per share
        conversion price in the event that equity was raised after the issuance of
        the
        Debentures, at a price less than the original per share Debenture conversion
        price. Accordingly, an adjustment to the Debenture conversion price (from
        $0.125
        per share to $0.046 per share) was made in conjunction with common stock
        issuances by Elcom in December 2005. The Debentures provided that adjustments
        to
        the per share conversion price would be made on a weighted average basis.
        Upon
        the change in control, as defined in the debenture agreements, adjustments
        to
        the per share conversion price would be made on a weighted average basis.
        Upon
        the change in control of, as defined in the debenture agreements, in December
        2005 (see Note 3 to the consolidated financial statements) the debentures
        converted to common stock at an adjusted per share price of $0.04643 when
        we
        closed on the sale of our common stock with third parties at a price of $0.0266
        per share.
 
 *(iii)
        Shared-Based Payment SFAS No.123R*
 
 As
        of
        January 2006, we adopted SFAS No. 123R, *Share-Based
        Payment* ,
        using
        (1) the modified prospective method, which requires measurement of compensation
        cost for all stock awards at fair value on the date of grant and recognition
        of
        compensation expense over the service periods for awards expected to vest
        and
        (2) the short-cut method to determine the pool of windfall tax benefits.
        During
        2006, we recorded $666,000 of compensation expense under SFAS No. 123R
        attributable to stock options. The adoption of SFAS No. 123R had a material
        impact on our consolidated financial statements. The fair value of our stock
        option grants is determined using the Black-Scholes valuation model, which
        is
        consistent with our valuation techniques previously utilized for options
        in
        footnote disclosures required under SFAS No. 123, *Accounting
        for Stock-Based Compensation.* Such
        value is recognized as expense over the service period, net of estimated
        forfeitures.
 
 **Off-Balance
        Sheet Financings**
 
 We
        do not
        have any off-balance sheet financings. We have no majority-owned subsidiaries
        that are not included in the consolidated financial statements.
  13
 
 **Factors
        Affecting Future Performance**
 
 A
        significant portion of our revenues are from license and associated fees
        received from Capgemini under a back-to-back contract between Elcom and
        Capgemini which essentially mirrors the primary agreement between Capgemini
        and
        the Scottish Executive, executed in November 2001. Future revenue under this
        arrangement is contingent on the following significant factors: the rate
        of
        adoption of our ePurchasing solution by Public Entities associated with the
        Scottish Executive; renewal by existing Public Entity clients associated
        with
        the Scottish Executive of their rights to use the ePurchasing solution; the
        procurement of additional services from us by Public Entities associated
        with
        the Scottish Executive; Capgemini’s relationship with the Scottish Executive;
        and their compliance with the terms and conditions of their agreement with
        the
        Scottish Executive and our ability to perform under our agreement with
        Capgemini.
 
 In
        addition, during July 2007 we committed incremental resources to provide
        the
        eProcurement and eMarketplace components of the Zanzibar eMarketplace for
        public
        sector organizations in the U.K. under our agreements with PASSL and PA.
        Future
        revenue under this arrangement is contingent primarily on the timing and
        rate of
        adoption by U.K. Public Entities of the Zanzibar eMarketplace. The Zanzibar
        eMarketplace agreements provide for one-time installation fees and recurring
        monthly hosting services fees, as well as payments to us for certain development
        work. The agreements do not provide PASSL with unfettered rights to the
        underlying Elcom technology, and therefore we anticipate that our realized
        development fees will be ratably recognized over the applicable term of the
        agreement. As of December 2006, four (4) U.K. Public Entities officially
“went
        live”, and as of December 2007, this number had increased to nine (9). We are
        currently in a contractual dispute with PA Consulting in respect of the Zanzibar
        contract; we are also considering initiating an intellectual property claim
        against the same firm. There can be no assurance that we will be successful
        in
        any potential intellectual property claim against PA
        Consulting.
 
 If
        further business fails to develop under the Capgemini agreement or if the
        Zanzibar eMarketplace does not attract a profitable level of clients, or
        if the
        U.S. initiatives do not expand as expected, or if we are unable to perform
        under
        any of these agreements, it would have a material adverse effect on our future
        financial results.
 
 **Outlook**
 
 As
        evidenced by the level of SG&A and research and development, our
        expenditures in 2006 have increased as compared to 2005 and years prior to
        2005.
        Because of cash constraints experienced over the last several years, we had
        to
        address staffing requirements related to our increasing level of business
        activity. The number of our employees increased by eleven in 2006, although
        it
        has subsequently decreased by eight. SG&A and research and development
        expenses included $666,000 of combined stock option expense related to the
        initial implementation of SFAS 123R, which requires the expensing of stock-based
        compensation (stock options). In addition to personnel increases and stock-based
        compensation, increases in expenditures related to additional software
        licensing, computer supplies and other computer infrastructure expenses related
        to our growing business were experienced. Improvements in revenues and operating
        results from operations in future periods will not occur without our being
        able
        to generate incremental operating revenues from existing and new
        clients.
 
 **STATEMENT
        UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT**
 
 Except
        for the historical information contained herein, the matters discussed in
        this
        Annual Report on Form 10-KSB could include forward-looking statements or
        information. All statements, other than statements of historical fact,
        including, without limitation, those with respect to our 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 we believe that such
        forward-looking statements are reasonable, we can give no assurance that
        our
        expectations are, or will be, correct. These forward-looking statements involve
        a number of risks and uncertainties which could cause our future results
        to
        differ materially from those anticipated, including: (i) the necessity for
        us to
        generate incremental operating revenues and whether this objective can be
        met
        given the overall marketplace and client's acceptance and usage of eCommerce
        software systems, eProcurement and eMarketplace solutions including corporate
        demand therefore, the impact of competitive technologies, products and pricing,
        particularly given the substantially larger size and scale of certain
        competitors and potential competitors, and control of expenses and revenue
        growth; (ii) the consequent results of operations given the aforementioned
        factors; (iii) the necessity to achieve profitable operations within the
        constraints of its existing resources and, if we can not, the availability
        of
        incremental capital funding; and (iv) other risks detailed from time to time
        in
        this Annual Report on Form 10-KSB and in our other SEC reports and statements.
        We assume no obligation to update any of the information contained or referenced
        in this Annual Report on Form 10-KSB.
  14
 
 **Item
        7.** ***Financial
        Statements***
 
 See
        the
        Consolidated Financial Statements beginning on page F-1. Supplemental earnings
        (loss) per share information is included in Note 2 (m), of the Notes to
        Consolidated Financial Statements.
 
 **Item
        8.** ***Changes
        In and Disagreements With Accountants on Accounting and Financial
        Disclosure***
 
 On
        September 20, 2007, we dismissed Vitale Caturano & Company, Ltd (“VCC”) as
        our principal independent accountants. The decision to dismiss VCC was approved
        by our audit committee and board of directors.
  The
        report of VCC for our 2005 financial statements did not contain any adverse
        opinion or disclaimer of opinion and was not qualified or modified as to
        audit
        scope or accounting principles, except that the report contained an explanatory
        paragraph relating to the Company’s ability to continue as a going
        concern.
  During
        the fiscal year ended December 31, 2005 , there were no disagreements between
        the Company and VCC on any matter of accounting principles or practices,
        financial statement disclosure, or auditing scope or procedure, which
        disagreements, if not resolved to VCC’s satisfaction would have caused VCC to
        make reference to the subject matter of the disagreement in connection with
        its
        report.
 
 In
        preparing the audit for the fiscal year ended December 31, 2006, management
        and
        VCC discovered that, during the fourth quarter of 2006, a cash deposit made
        by
        the Company with a sales agent of €1,000,000 (approximately
        $1,200,000)  in  connection
        with a potential bid for government contracts outside the United States was
        completed without approval of our board. As a result of this discovery, we
        investigated the transaction and further reviewed our internal controls.
        During
        this review, we and VCC identified certain material weaknesses in our internal
        controls relating to approval of transactions and cash management. Since
        such
        review, we have strengthened our internal controls by adopting additional
        internal controls policies and procedures relating to cash, cash management
        and
        corporate governance. VCC performed no work subsequent to the commencement
        of
        the Company’s additional review and investigation.
 
 On
        August
        30, 2007, we engaged Malone & Bailey PC (“MB”) as our new principal
        independent accountant to audit our financial statements for, 2006 and 2007.
        During the two most recent fiscal years and the interim period preceding
        the
        engagement of MB, we did not consult with MB regarding either (i) the
        application of accounting principles to a specific transaction, either completed
        or proposed, or the type of audit opinion that might be rendered on our
        financial statements, and MB did not provide a written report or oral advice
        to
        us that was an important factor considered by us in reaching a decision as
        to
        the accounting, auditing or financial reporting issue, or (ii) any matter
        that
        was either the subject of a disagreement or an event identified in Item
        304(a)(1)(iv) of Regulation S-B.
  In
        deciding to select MB, our Audit Committee considered MB's experience and
        expertise related to public companies, as well as reviewed auditor independence
        issues and existing commercial relationships with MB. The Audit Committee
        concluded that MB has no commercial or other relationship that would impair
        its
        independence and has the appropriate expertise that we required regarding
        our
        current operations.
 
 **Item
        8A.** ***Controls
        and Procedures.***
  In
        preparing for the audit for 2006, the new management and our previous
        independent registered public accounting firm, Vitale Caturano & Company,
        Ltd. (“VCC”), discovered that, during the fourth quarter of 2006, a cash deposit
        made by us with a sales agent of €1,000,000 (approximately $1,200,000)
        in  connection
        with s potential bid for government contracts outside the United States was
        completed without approval of our Board of Directors.
 
 As
        a
        result of these discoveries, we further reviewed our internal controls. During
        this review, we identified certain material weaknesses in our internal controls
        relating to approval of transactions and cash management. Since such review,
        we
        have strengthened our internal controls by adopting additional internal controls
        policies and procedures relating to cash, cash management and corporate
        governance, including the introduction formal set of corporate governance
        procedures which includes Board Of Director responsibilities and stringent
        approval limits of certain items of expenditure. VCC performed no work
        subsequent to the commencement of our additional review and
        investigation.
  15
 
 **Evaluation
        of Disclosure Controls and Procedures**
  Management,
        including the Chief Executive Officer and Executive Vice President of Finance,
        have evaluated the effectiveness of our disclosure controls and procedures
        (as
        defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act
        of 1934) as of the end of the period covered by this Annual Report on Form
        10-KSB. Based upon that evaluation, the Chief Executive Officer and Executive
        Vice President of Finance have concluded that the disclosure controls and
        procedures were not effective at the reasonable assurance level because of
        material weaknesses.
  *Material
        Weaknesses*
  The
        Public Company Accounting Oversight Board has defined a material weakness
        as a
“significant deficiency or combination of significant deficiencies that results
        in more than a remote likelihood that a material misstatement of the annual
        or
        interim financial statements will not be prevented or detected.” In relation to
        the audit for the year ended December 31, 2006, management and our
        independent registered public accounting firm identified the following material
        weaknesses in our internal controls:
 
 A
        contract in which a cash performance bond of €1,000,000 (approximately
        $1,200,000) was posted was entered into in the 4 th quarter
        of 2006 without proper Board approval.
 
 Following
        the identification of this material weakness, the Board consulted with the
        independent registered public accounting firm and engaged outside counsel
        to
        provide advice to the Board as to the remedial action to be adopted in these
        circumstances.
 
 Based
        on
        outside counsel’s advice, the Board appointed two Directors who had no
        involvement or visibility in connection with this transaction to undertake
        an
        investigation of the transaction in the first instance, followed by a full
        evaluation of corporate governance.
 
 We
        delayed the submission of its Form 10-KSB in order to conclude the
        investigation.
 
 The
        investigation concluded that the corporate governance procedures were inadequate
        during the period in question and that these deficiencies constituted a material
        weakness in the corporate governance and the disclosure controls and procedures.
  **Changes
        in Internal Controls over Financial Reporting**
  There
        was
        no change in the Company’s internal controls over financial reporting that
        occurred during the fourth quarter of 2006 that has materially affected,
        or is
        reasonably likely to materially affect, the Company’s internal control over
        financial reporting. During February 2007 our former Executive Vice President
        Finance, Paul Bogonis, resigned and was replaced by David Elliott, and
        subsequent to this, during June 2007 our former Chief Executive Officer,
        John
        Halnen, who was terminated without cause during June 2007, was replaced by
        Gregory King.
 
 **Item
        8B.** ***Other
        Information***
 
 None.
  16
 
 **PART
        III**
 
 **Item
        9.** ***Directors,
        Executive Officers, Promoters, Control Persons and Corporate Governance;
        Compliance With Section 16(a) of the Exchange Act***
 
 The
        name,
        age and position of Executive Officers and Directors are as
        follows:
 
 **NAME**
              ****
              **AGE**
              ****
              **POSITION**David
                  Elliott
              
              33
              
              Class
                  I Director, Executive Vice President of FinanceGregory
                  D. King
              
              54
              
              Class
                  III Director, Chief Executive OfficerWilliam
                  Lock
              
              50
              
              Class
                  III Director, Executive Vice PresidentJustin
                  Dignam (1) (2) (3)
              
              46
              
              Class
                  I DirectorElliott
                  Bance (1) (2) (3)
              
              34
              
              Class
                  III Director
  Member
        of
        the Compensation Committee.
 (2)  Member
        of
        the Audit Committee.
 (3)  Member
        of
        the Nominating Committee.
 
 A
        brief
        biography for each of our Executive Officers and Directors is set forth
        below.
  *Gregory
        D. King*  was
        appointed as a Class III Director on April 21, 2006 .
        On the
        same date, Mr. King was appointed Executive Vice President of Business
        Development. Mr. King, who is 54, originally joined elcom, inc. technology
        subsidiary in April of 1997 as Vice President of Product Marketing, in
        conjunction with the acquisition of a procurement software application by
        elcom,
        inc. Mr. King was a part owner of rights to the acquired technology.
        Mr. King was promoted from Vice President of Sales and Marketing, to Chief
        Executive Officer on June 20, 2007. Mr. King
        is a citizen of the United States.
 
 *David
        Elliott* was
        appointed as a Class I Director on April 18, 2007. Mr. Elliott was appointed
        Executive Vice President of Finance and Secretary on February 16, 2007 and
        serves as principal financial and accounting officer. Mr. Elliott joined
        on
        November 14, 2006 and has been responsible for implementing a new financial
        system in the U.K. operations and improving the financial controls and
        reporting. Mr. Elliott was previously employed by Volkswagen Group for over
        five
        years and was employed in a number of financial roles, having most recently
        been
        responsible for Volkswagen Group’s Development Ventures Fund. Mr. Elliott is a
        citizen of the United Kingdom.
 
 *William
        Lock*  was
        appointed as a Class III Director on
        September 7, 2006. Mr. Lock was appointed Executive Vice President on July
        28,
        2006. Mr. Lock, who is 50, has been engaged in consultancy practice for more
        than the last five years. For the last four years, Mr. Lock has owned and
        operated, a U.K. based consultancy practice specializing in mergers,
        acquisitions and turnaround situations. Mr. Lock is a citizen of the United
        Kingdom. Mr. Lock was a Director of Kitchen Central Limited from September
        of
        2003 until his resignation in December of 2004. Kitchen Central Limited went
        into a creditor’s liquidation on October 26, 2005.
 
 *Justin
        Dignam* was
        appointed as a Class I Director on April 21, 2006 at the request of
        the SWIM Entities, as described elsewhere herein. Since October 2003
        Mr. Dignam has been a Director and the Chief Executive Officer of Big Fish
        Payroll Services LLC, a provider of payroll and tax depositing and filing
        services for small and mid-market employers. Prior thereto, Mr. Dignam was
        a Sales Executive at Kronos Incorporated, leading their Major Markets sales
        organization in Southern California. Beginning in August 1983 he joined
        Automatic Data Processing Inc. (“ADP”). Mr. Dignam held a variety of
        positions, most recently for more than 5 years as a National Accounts Sales
        Executive leading sales in ADP’s Southern California market area. His last
        position with ADP before his resignation in 2002 was that of Global Sales
        Manager engaging with Fortune 100 multinational companies. Mr. Dignam is a
        citizen of the United States.
 
 *Elliott
        Bance* was
        appointed as a Class III Director on April 21, 2006. Mr. Bance
        is, and has been for the last five years, employed in the field of real estate
        sales and development. Since March 2006, Mr. Bance has been employed with
        Asprey Homes Limited and prior thereto, for at least the last five years,
        with
        Hampton’s Estates Limited. Mr. Bance is a citizen of the United
        Kingdom.
  17
  **Audit
        Committee**
 
 The
        Board
        of Directors has a standing Audit Committee which is directly responsible
        for,
        among other things, the appointment, compensation, retention and oversight
        of
        the independent registered public accounting firm, with whom the Audit Committee
        reviews the scope of audit and non-audit assignments and related fees, the
        accounting principles used by us in financial reporting, internal financial
        control procedures and the adequacy of such internal control procedures.
        The
        Audit Committee is also responsible for pre-approving all audit and non-audit
        services performed by our independent registered public accounting firm.
        Messrs.
        Dignam and Bance serve as the members of the Audit Committee. Each of the
        members of the Audit Committee is an “independent director”, as defined under
        NASDAQ listing standards. The Board of Directors has determined that Mr.
        Dignam
        is an “audit committee financial expert” as defined in Item 407(d) (5) (ii) of
        Regulation S-B.
 
 **Code
        of Ethics**
 
 On
        March
        31, 2004, we adopted a Code of Ethics for Senior Executives and Financial
        Officers (the “Code of Ethics”) which applies to the Chief Executive Officer,
        President, Chief Operating Officer, Chief Financial Officer, controller,
        or
        treasurer or persons performing similar functions. Upon written request to
        our
        headquarters at 10 Oceana Way, Norwood, Massachusetts 02062, we will provide
        to
        any person, without charge, a copy of the Code of Ethics.
  **Section
        16(a) Beneficial Ownership Reporting Compliance**
  
 Section
        16(a) of the Securities Exchange Act of 1934 requires Officers and Directors
        and
        certain persons who beneficially own more than ten percent of a registered
        class
        of equity securities (i.e., the Common Stock), to file reports of ownership
        and
        changes in ownership of such securities with the Commission. Officers, Directors
        and greater-than-ten-percent beneficial owners who file these reports are
        required by applicable regulations to furnish us with copies of all Section
        16(a) forms they file.
 
 Based
        solely upon a review of the copies of the forms furnished to us during or
        with
        respect to 2006, and written representations from certain reporting persons,
        we
        believe that no Officer, Director or greater-than-ten-percent beneficial
        owner
        failed to file on a timely basis during the year ended December 31, 2006
        any
        report required by Section 16(a) of the Securities Exchange Act of 1934.
 
 **Item
        10.** ***Executive
        Compensation***
 
 The
        table
        below sets forth information concerning 2006 annual and long-term compensation
        for services in all capacities with respect to those persons (collectively,
        the
        "Named Executive Officers") who were (i) the Chief Executive Officer and
        (ii)
        the other executive officers at the end of the fiscal year, as well as the
        other
        individuals that were executive officers during the year ended December 31,
        2006.
  18
 
 **SUMMARY
        COMPENSATION TABLE**
 **Name
                    and Principal Position**
                
                **Year**
                
                **Salary**
                  **($)**
                
                **Bonus**
                  **($)**
                
                **Option**
                  **Awards**
                  **($)
                    (3)**
                
                **All
                    Other**
                  **Compensation**
                  **($)**
                
                **Total**
                  **($)**Sean
                    P. Lewis - Former Chairman of the Board of Directors (1)
                
                
                2006
                
                
                249,750
                
                
                0
                
                
                0
                
                
                0
                
                
                249,750John
                    E. Halnen - Former President and Chief Executive Officer
                    (2)
                
                
                2006
                
                
                247,163
                
                
                0
                
                
                104,200
                
                
                26,750
                
                
                378,113William
                    Lock - Chairman of the Board of Directors
                
                
                2006
                
                
                249,750
                
                
                0
                
                
                70,980
                
                
                0
                
                
                320,730Robert
                    Crowell - Former Chairman of the Board of Directors (3)
                
                
                2006
                
                
                52,400
                
                
                0
                
                
                0
                
                
                72,000
                
                
                124,400
  (1)
              Mr.
                  Lewis served as Chairman of the Board of Directors until August
                  15, 2007,
                  when he resigned his position.
 
 (2)
              Mr.
                  Halnen served as President and Chief Executive Officer until June
                  20,
                  2007, when he was terminated without cause and received a severance
                  payment of $300,000 which is being paid in equal installments over
                  12
                  months. Mr. Halnen also received a one-time payment of $26,750
                  during 2006
                  relating to previous salary reductions that were accrued
                  for.
 
 (3)
              Mr.
                  Crowell served as Chairman of the Board of Directors until April
                  21, 2006,
                  when he resigned his position and received a severance payment
                  of
                  $72,000.
 
 (4)
              The
                  fair value of each stock award was estimated on the grant date
                  using the
                  Black-Scholes option-pricing model. See Note 2 to the consolidated
                  financial statements for a description of the assumptions used
                  in
                  estimating the fair value of stock
                  options.
 
 **OUTSTANDING
        EQUITY AWARDS AT FISCAL YEAR-END**
 
 The
        following table sets forth certain information regarding stock options held
        as
        of December 31, 2006 by the executive officers named in the summary compensation
        table:
  19
  OUTSTANDING
        EQUITY AWARDS AT FISCAL
        YEAR-END
 Option
                  Awards
                
                Stock
                  AwardsName
                
                Number
                    of
                  securities
                  underlying
                  unexercised
                  options
                    (#)exercisable
                
                Number
                    of
                  securities
                  underlying
                  unexercised
                  options
                  (#)
                  unexercisable
                
                Equity
                    incentive plan awards:
                  Number
                  of
                    securities underlying unexercised unearned options (#)
                
                Option
                    Exercise price
                
                Option
                    expiration
                  date
                
                Number
                  of
                    shares or units
                  of
                    stock
                  that
                    have
                  not
                    Vested (#)
                
                Market
                  value
                    of
                  shares
                  or
                    units of
                  stock
                  that
                    have
                  not
                    vested ($)
                
                Equity
                    incentive
                  plan
                  awards:
                  number
                    of unearned
                  shares,
                    units or
                  other
                  rights
                    that
                  have
                  not
                    vested(#)
                
                Equity
                  incentive
                  plan
                    awards:
                  market
                    or
                  payout
                  value
                    of unearned
                  shares,units
                    or
                  other
                  rights
                  that
                  have
                  not
                  Vested($)Sean
                    P.Lewis
                
                
                0
                
                
                0
                
                
                0
                
                
                0
                
                
                0
                
                
                0
                
                
                0
                
                
                0
                
                
                0John
                    E.Halnen(1)
                
                
                17,000
                  21,250
                  22,500
                  35,600
                  
                  4,112
                  400,000
                  
                  100,000
                  150,000
                  100,000
                  39,500
                  12,250
                  3,500
                  55,400
                  110,500
                  24,999
                  22,750
                  75,000
                  100,000
                  100,000
                  150,000
                  150,000
                  100,000
                  105,000
                  120,888
                
                
                400,000
                  
                  
                  800,000
                
                
                0
                
                $
                  $
                  $
                  $
                  $
                  $
                  $
                  $
                  $
                  $
                  $
                  $
                  $
                  $
                  $
                  $
                  $
                  $
                  $
                  $
                  $
                  $
                  $
                  $
                  $
                  $
                4.8125
                  1.6875
                  1.8438
                  1.6407
                  0.1150
                  0.2700
                  0.0950
                  0.0900
                  0.2150
                  0.2700
                  0.2150
                  3.8125
                  4.6407
                  1.8438
                  1.6407
                  3.8125
                  4.1563
                  4.6407
                  1.1719
                  1.6800
                  0.8500
                  0.4450
                  0.4450
                  0.4450
                  0.2000
                  0.2700
                
                
                5/15/2008
                  10/30/2008
                  12/15/2008
                  2/16/2009
                  8/03/2016
                  5/21/2013
                  11/7/2014
                  1/12/2016
                  1/27/2014
                  5/21/2013
                  1/27/2014
                  8/31/2009
                  4/17/2010
                  12/15/2008
                  2/16/2009
                  8/31/2009
                  11/1/2009
                  4/17/2010
                  12/21/2010
                  6/25/2011
                  9/7/2011
                  4/12/2012
                  4/12/2012
                  4/12/2012
                  7/26/2012
                  5/21/2013
                
                
                0
                
                
                0
                
                
                0
                
                
                0WilliamLock(2)
                
                
                0
                
                
                700,000
                
                
                0
                
                $
                0.1150
                
                
                8/30/2016
                
                
                0
                
                
                0
                
                
                0
                
                
                0RobertCrowell
                
                
                0
                
                
                0
                
                
                0
                
                
                0
                
                
                0
                
                
                0
                
                
                0
                
                
                0
                
                
                0
 (1)
              On
                  January 12, 2006, Mr. Halnen, the former Chief Executive Officer,
                  who was
                  terminated without cause on June 20, 2007, was granted an option
                  to
                  acquire 800,000 shares of the common stock at a price of $0.09
                  per share,
                  which became exercisable with respect to 400,000 shares on the
                  first
                  anniversary of the date of grant and the remaining portion vesting
                  on the
                  second anniversary of the date of grant. On August 30, 2006 Mr.
                  Halnen was
                  granted an option to acquire 400,000 shares of the common stock
                  at a price
                  of $0.1150
                  per share, which becomes exercisable with respect to 200,000 shares
                  on the
                  first anniversary of the date of grant and the remaining portion
                  vests on
                  the second anniversary of the date of
                  grant.
 (2)
              On
                  August 30, 2006, Mr. Lock was granted an option to acquire 700,000
                  shares
                  of our common stock at a price of $0.1150 per share, which becomes
                  exercisable with respect to 350,000 shares on the first anniversary
                  of the
                  date of grant and the remaining portion vests on the second anniversary
                  of
                  the date of grant.
 
 20
 
 **DIRECTOR
        COMPENSATION**
 
 The
        following table sets forth certain information about the compensation paid
        with
        respect to directors who served during the year ended December 31,
        2006:
 **Name**
                
                **Fees**
                  **Earned
                    or Paid in Cash($)**
                
                **Option**
                  **Awards($)
                    (3)**
                
                **Total($)
                    (4)**Gregory
                    D. King
                
                
                0
                
                
                0
                
                
                0Justin
                    Dignam (1)
                
                
                0
                
                $
                32,955
                
                $
                32,955Elliott
                    Bance (2)
                
                
                0
                
                $
                32,955
                
                $
                32,955William
                    W. Smith
                
                
                0
                
                
                0
                
                
                0John
                    Ortiz
                
                
                0
                
                
                0
                
                
                0Richard
                    Harries, Jr.
                
                
                0
                
                
                0
                
                
                0
 
 (1)
              Mr.
                  Dignam was granted an option to acquire 325,000 shares at $0.115
                  per
                  share, of which 162,500 shares become exercisable on August 30,
                  2007 and
                  the remaining 162,500 shares become exercisable on August 30, 2008.
                  Mr.
                  Dignam has no other outstanding options as at December 20,
                  2007.
 (2)
              Mr.
                  Bance was granted an option to acquire 325,000 shares at $0.115
                  per share,
                  of which 162,500 shares become exercisable on August 30, 2007 and
                  the
                  remaining 162,500 shares become exercisable on August 30, 2008.
                  Mr. Bance
                  has no other outstanding options as at December 20,
                  2007.
 (3)
              The
                  fair value of each stock award was estimated on the grant date
                  using the
                  Black-Scholes option-pricing model. See Note 2 to the consolidated
                  financial statements for a description of the assumptions used
                  in
                  estimating the fair value of stock
                  options
 (4)
              The
                  aggregate number of option awards outstanding as at December 31,
                  2006 for
                  Mr. Dignam totaled 325,000 shares, and for Mr. Bance totaled 325,000
                  shares.
 
 **Item
        11.** ***Security
        Ownership of Certain Beneficial Owners and Management and Related Stockholder
        Matters***
  **PRINCIPAL
        STOCKHOLDERS AND MANAGEMENT OWNERSHIP**
 
 The
        following table sets forth the beneficial ownership of Common Stock as of
        December 20, 2007 by (i) each Director, (ii) any executive officer who was
        (a)
        the Chief Executive Officer and (b) an executive officer at the end of the
        fiscal year, as well as the individuals that were executive officers during
        the
        year ended December 31, 2006, (iii) all Directors and executive officers
        as a
        group, and (iv) each person or group known to own beneficially more than
        5% of
        its outstanding shares of Common Stock. All information with respect to
        beneficial ownership has been furnished by the respective Director or executive
        officer, or by reference to a public filing, as the case may be. Unless
        otherwise indicated below, each stockholder named below has sole voting and
        investment power with respect to the number of shares set forth opposite
        his or
        its respective name. As of December 31, 2006 and December 20, 2007 there
        were
        478,947,441 and 552,177,450, respectively, shares of Common Stock were
        outstanding.
 
 ****
              **Number
                  of**
                **Shares**
                **Beneficially**
              
              **Percentage****Name
                  and Title of Beneficial Owner (2)**
              
              **Owned
                  (1)**
              
              **Common
                  Stock (1)**Gregory
                  D. King (3)
              
              
              876,750
              
              
              *Justin
                  Dignam
              
              
              162,500
              
              
              *Elliott
                  Bance
              
              
              162,500
              
              
              *William
                  Lock
              
              
              350,000
              
              
              *David
                  Elliott
              
              
              0
              
              
              -Sean
                  Lewis (4)
              
              
              26,666,666
              
              
              6
              %**All
                  Directors And Executive Officers as a Group (5)**
              
              
              28,128,416
              
              
              6
              %**Smith
                  & Williamson Investment Management Limited and Smith & Williamson
                  Nominees Limited (6)**
              
              
              406,897,781
              
              
              74
              %


*
            Less
                than 1%.





(1)
            In
                accordance with Securities and Exchange Commission rules, each beneficial
                owner’s holdings have been calculated assuming full exercise of all
                outstanding options and warrants to acquire Common Stock, regardless
                of
                the option price, which are exercisable by such owner within 60 days
                after
                December 20, 2007, while assuming no exercise of outstanding options
                and
                warrants covering Common Stock held by any other
                person.





(2)
            For
                purposes hereof, the address of Directors and Executive Officers
                is the
                same as that of our headquarters: 10 Oceana Way, Norwood, Massachusetts
                02062.





(3)
              Mr.
                  King was appointed as a Director on April 21, 2006. Mr. King’s Common
                  Stock ownership is comprised of 33,750 shares owned following exercising
                  share options under the 1996 and 1997 share option plans and 843,000
                  shares which he has the right to acquire through the exercise of
                  stock
                  options.





(4)
            During
                2006, Sean Lewis, Chairman until August 15, 2007 acquired common
                stock
                ownership of 26,666,666 shares, which is comprised of 13,333,333
                shares
                held in the name of Smith & Williamson Nominees Limited for his
                benefit and 13,333,333 shares held in the name of Smith & Williamson
                Nominees Limited for the benefit of his wife. In both cases, Smith
&
                Williamson Nominees Limited has a revocable right to vote and dispose
                of
                these shares - See Item 12 Certain Relationships and Related
                Transactions.





(5)
            Includes
                1,551,750 shares of Common Stock which the Directors and Executive
                Officers have the right to acquire within 60 days of December 20,
                2007,
                through the exercise of stock
                options.





(6)
            Smith
                & Williamson Investment Management Limited and Smith & Williamson
                Nominees Limited filed a Schedule 13D on March 6, 2006, which was
                amended
                on April 5, 2006. The Common Stock ownership presented above is based
                on
                such Schedule 13Ds and our records, and includes 7,420,991 shares
                related
                to the conversion of Company
                debentures.





**Item
      12.** ***Certain
      Relationships and Related Transactions and Director
      Independence***





**Related
      Transactions**




During
      the first and third quarters of 2005, we received bridge loan funds, pursuant
      to
      secured promissory notes, as amended, each in the amount of $120,000 (the “2005
      Notes”), from each of Robert J. Crowell, Chairman until April 21, 2006, and
      William W. Smith, Vice Chairman and a Director until April 21, 2006 (each a
      “Holder” and, together, the “Holders”), for a total of $240,000. A total of
      $200,000 ($100,000 from each Holder) was received in the first quarter of 2005,
      and an additional $40,000 ($20,000 from each Holder) was received in August
      2005. The Holders’ advances provided a portion of the funds required for us to
      continue operating until the December 2005 Regulation S Share issuance (see
      Note
      3). Interest upon the outstanding principal amount of the 2005 Notes accrued
      at
      a rate of 8%. The Crowell and Smith 2005 Notes had different maturity
      provisions. Mr. Crowell’s 2005 Note provided that the principal amount and
      interest accrued thereon was due and payable within five (5) business days
      after
      we notified the payee that we had adequate funds to repay the 2005 Notes, while
      Mr. Smith’s 2005 Note provided that his note was payable in full after we
      reported two sequential quarters of positive cash flow from operations. The
      2005
      Notes, at the option of the Holder, were convertible into our common stock,
      issuable in reliance upon an exemption from registration pursuant to Regulation
      D promulgated under the Securities Exchange Act of 1933, as amended (the
“Restricted Shares”). The 2005 Notes also provided the Holders certain
“piggy-back” registration rights, in the event they elected to convert their
      loan into Restricted Shares.





On
      December 21, 2005, Mr. Smith converted his $120,000 loan, plus approximately
      $7,000 in accrued interest thereon, into 4,593,287 Restricted Shares of our
      common stock; in accordance with the 2005 Notes’ conversion terms (see Note
      3).




21




Mr.
      Crowell’s $120,000 loan was repaid in cash in January 2006, and a total of
      approximately $7,600 of interest was paid thereon. As of December 31, 2005,
      Mr.
      Crowell’s loan is recorded as a related party convertible loan payable in the
      accompanying consolidated balance sheet.





The
      2005
      Notes were secured by an Amended and Restated Collateral Agency and Security
      Agreement, William W. Smith, as Collateral Agent, and the Holders, as secured
      parties (the “Security Agreement”). Pursuant to the Security Agreement, we
      granted a first priority senior security interest in the all of the personal
      property and intellectual property, wherever located, owned or thereafter
      acquired, to the Collateral Agent, for the benefit of the Holders, to secure
      the
      payment or performance of our obligations under the 2005 Notes. As a result
      of
      financing received from the issuance of the 2005 Regulation S Shares, and the
      consequent loan repayments and conversions to common stock, as described above,
      the Security Agreement is no longer in effect.




On
      October 23, 2006, we sold 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. As was the case in 2005 and 2004, the shares were issued
      in
      reliance on the exemption from registration under Regulation S promulgated
      under
      the Securities Act of 1933, as amended for offshore placements, and therefore
      are subject to the same restrictions as the Regulation S Shares that were sold
      in 2005 and 2004. 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 were used
      to
      support our working capital requirements.





Subsequent
      to year-end, on February 5, 2007, we sold 73,230,009 shares of our common stock
      (the “2007 Regulation S Shares”) to investors in the UK and listed the shares on
      the AIM Exchange. As was the case in 2006, the shares were issued in reliance
      on
      the exemption from registration under Regulation S promulgated under the
      Securities Act of 1993, as amended for offshore placements, and therefore are
      subject to the same restrictions as the 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 issuance of common stock on the AIM Exchange
      are
      being used to support our working capital requirements until we achieve positive
      cash flow.





During
      2006, Gregory King, Chief Executive Officer, as of June 20, 2007, was granted
      an
      option to acquire 700,000 shares at $0.115 per share, of which 350,000 shares
      become exercisable on August 30, 2007 and the remaining 350,000 shares become
      exercisable on August 30, 2008. In addition, Mr. King has 2,036,750 options
      outstanding, of which 526,750 shares are vested with 1,510,000 shares remaining
      unvested.





During
      2006, Sean Lewis, Chairman until August 15, 2007 acquired common Stock ownership
      of 26,666,666, which is comprised of 13,333,333 shares held in the name of
      Smith
& Williamson Nominees Limited for his benefit and 13,333,333 shares held in
      the name of Smith & Williamson Nominees Limited for the benefit of his wife.
      In both cases, Smith & Williamson Nominees Limited has a revocable right to
      vote and dispose of these shares.





Smith
      & Williamson Corporate Finance Limited (“SWCF”) is our nominated adviser
      (“Nomad”) in respect of our AIM Exchange Listing in the U.K. SWCF and the SWIM
      Entities are related parties. During calendar 2006, we ratably accrued fees
      for
      Nomad services rendered by SWCF aggregating £20,000 (approximately $36,000).
      There are no amounts due to SWCF as of December 31, 2006.





Director
      Independence





The
      OTC
      Bulletin Board (from which we are currently delisted) does not have a
      requirement that a majority of the Board of Directors be independent.
      However, with respect to the definition of independence utilized by
      NASDAQ, Justin Dignam and Elliott Bance would be deemed to be
      independent while Gregory D. King, William Lock, and David
      Elliott would not. Former directors, John W. Ortiz and Richard J.
      Harries, Jr., who both resigned in 2006, would also have been deemed independent
      under NASDAQ’s definition, while former directors Robert J. Crowell and William
      W. Smith, who both resigned in 2006, would not.





**Item
      13** ***.
      Exhibits***





The
      following documents are filed as part of this Annual Report on Form
      10-KSB:





(1)  Consolidated
      Financial Statements:




22





See
      Index
      to Consolidated Financial Statements on page F-1.





(2)  Index
      to
      Exhibits:




The
      exhibits filed as part of this Form 10-KSB are listed on the Index to Exhibits
      beginning on page E-1, which Index to Exhibits is incorporated herein by
      reference.





**Item
      14** ***.
      Principal Accountant Fees and Services***





Our
      audit
      committee oversees our financial reporting process on behalf of the Board of
      Directors. The Audit Committee is directly responsible for, among other things,
      the appointment, compensation, retention and oversight of our independent
      registered public accounting firm. In addition, the audit committee must
      pre-approve all audit and non-audit services performed by our independent
      registered public accounting firm. The audit committee’s activities are governed
      by a written charter adopted by the board of directors.





Fees
      for
      services rendered by Vitale, Caturano & Company Ltd. (“VCC”), our
      independent registered public accounting firm for the last two fiscal years
      (until September 20, 2007) were:





**2006**
            
            **2005**Audit
                fees
            
            $
            77,000
            
            $
            82,000Audit
                related fees
            
            
            11,500
            
            
            11,000Tax
                services fees
            
            
            5,500
            
            
            6,000All
                other Fees
            
            
            900
            
            
            2,000Total
                fees
            
            $
            94,900
            
            $
            101,000





**Audit
      Fees**





VCC
      has
      billed $77,000 for professional services rendered for the audit of our annual
      financial statements for, 2006; the reviews of interim financial statements
      are
      included in our Forms 10-QSB filed during the year ended December 31, 2006,
      and
      for consultation relating to accounting matters.





VCC
      has
      billed $82,000 for professional services rendered for the audit of our annual
      financial statements for 2005, the reviews of interim financial statements
      included in our Forms 10-QSB filed during 2005 and for consultation relating
      to
      accounting matters.





Through
      December 20, 2007, Malone Bailey has billed $75,000 for professional services
      rendered for the audit of our annual financial statements for the year ended
      December 31, 2006 and interim reviews through September 30, 2007.





**Audit
      Related Fees**





During
      2006 and 2005, VCC has billed $11,500 and $11,000 respectively in audit related
      fees for the audit of our benefit plan.





**Tax
      Fees**





During
      2006 and 2005, VCC has billed approximately $5,500 and $6,000, respectively,
      in
      tax services fees for assistance with various state tax compliance
      matters.





**All
      Other Fees**





Other
      fees for 2006 and 2005, totaled $900 and $2,000, respectively, which were paid
      to VCC for various matters including attendance at the annual shareholders
      meeting and assistance in drafting responses to the SEC staff comment letters.





23




**SIGNATURES**





In
      accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused
      this report to be signed on its behalf by the undersigned, thereunto duly
      authorized.




Elcom
                International, Inc.
              (Registrant)Date: December 20, 2007
            By:
            /s/ David
              Elliott**David
              Elliott**
              Executive
                Vice President of Finance
              Principal
                Financial and Accounting Officer




In
      accordance with the Exchange Act, this report has been signed below by the
      following persons on behalf of the registrant and in the capacities and on
      the
      dates indicated.





Signatures
            
            Title
            
            Date/s/
                William Lock
            
            Chairman
                of the
            
            December
                20, 2007William
                Lock
            
            Board
                of Directors/s/
                Gregory King
            
            Chief
                Executive
            
            December
                20, 2007Gregory
                King
            
            Officer
                and Director (Principal Executive Officer)/s/
                David Elliott
            
            Executive
                Vice President
            
            December
                20, 2007David
                Elliott
            
            of
                Finance (Principal Financialand Accounting Officer) and Director/s/
                Elliott Bance
            
            Director
            
            December
                20, 2007Elliott
                Bance/s/
                Justin Dignam
            
            Director
            
            December
                20, 2007Justin
                Dignam




24




**CONSOLIDATED
          FINANCIAL STATEMENTS**


**ELCOM
        INTERNATIONAL, INC.**
 **INDEX
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 
 **DECEMBER
        31, 2006 and 2005**
 
 The
        following consolidated financial statements of Elcom International, Inc.
        are
        included in response to Item 7:
 
 **Page**Reports
                  of Independent Registered Public Accounting Firms
              
              
              F-2
                  to F-3Consolidated
                  Balance Sheets as of December 31, 2006 and 2005
              
              
              F-4Consolidated
                  Statements of Operations and Other Comprehensive Income (Loss)for
                  the
                  years ended December 31, 2006 and 2005
              
              
              F-5Consolidated
                  Statements of Stockholders’ Equity (Deficit) for the years ended December
                  31, 2006 and 2005
              
              
              F-6Consolidated
                  Statements of Cash Flows for the years ended December 31, 2006
                  and
                  2005
              
              
              F-7Notes
                  to Consolidated Financial Statements
              
              
              F-8
                  to F-23
  F-1
  REPORT
          OF
          INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
 To
          the
          Board of Directors and Stockholders of
 Elcom
          International, Inc.
 Boston,
          Massachusetts
 
 We
          have
          audited the accompanying consolidated balance sheets of Elcom International,
          Inc. and subsidiaries as of December 31, 2006, and the related consolidated
          statements of operations and other comprehensive income (loss), stockholder’s
          equity (deficit) and cash flows for the year then ended. These consolidated
          financial statements are the responsibility of Elcom’s management. Our
          responsibility is to express an opinion on these consolidated financial
          statements based on our audits.
 
 We
          conducted our audits in accordance with the standards of the Public Company
          Accounting Oversight Board (United States). Those standards require that
          we plan
          and perform the audits to obtain reasonable assurance about whether the
          financial statements are free of material misstatement. An audit includes
          examining, on a test basis, evidence supporting the amounts and disclosures
          in
          the consolidated financial statements. An audit also includes assessing
          the
          accounting principles used and significant estimates made by management,
          as well
          as evaluating the overall financial statement presentation. We believe
          that our
          audits provide a reasonable basis for our opinion.
 
 In
          our
          opinion, the consolidated financial statements referred to above present
          fairly,
          in all material respects, the financial position of Elcom International,
          Inc.
          and subsidiaries as of December 31, 2006 and the consolidated results of
          its
          operations and its cash flows for the year then ended in conformity with
          accounting principles generally accepted in the United States of
          America.
 
 The
          accompanying consolidated financial statements have been prepared assuming
          that
          Elcom will continue as a going concern. As discussed in Note 1 to the
          consolidated financial statements, Elcom has suffered recurring losses
          from
          operations and has an accumulated deficit that raises substantial doubt
          about
          its ability to continue as a going concern. Management’s plan in regards to
          these matters is also discussed in Note 1. The consolidated financial statements
          do not include any adjustments that might result from the outcome of this
          uncertainty.
  
 MALONE
          BAILEY,PC
 www.malone-bailey.com
 December
          17, 2007
 Houston,
          Texas
  F-2
 REPORT
            OF
            INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
 To
            the
            Board of Directors and Stockholders of Elcom International, Inc.:
 
 We
            have
            audited the accompanying consolidated balance sheet of Elcom International,
            Inc.
            and subsidiaries as of December 31, 2005, and the related consolidated
            statements of operations and other comprehensive income (loss), stockholder’s
            equity (deficit) and cash flows for the year then ended. These consolidated
            financial statements are the responsibility of the Company. Our responsibility
            is to express an opinion on these consolidated financial statements based
            on our
            audit.
 
 We
            conducted our audit in accordance with the standards of the Public Company
            Accounting Oversight Board (United States). Those standards require that
            we plan
            and perform the audit to obtain reasonable assurance about whether the
            financial
            statements are free of material misstatement. The Company is not required
            to
            have, nor were we engaged to perform an audit of its internal control
            over
            financial reporting. Our audit includes consideration of internal control
            over
            financial reporting as a basis for designing audit procedures that are
            appropriate in the circumstances, but not for purposes of expressing
            an opinion
            on the effectiveness of the Company’s internal control over financial reporting.
            Accordingly, we express no such opinion. An audit includes examining,
            on a test
            basis, evidence supporting the amounts and disclosures in the consolidated
            financial statements. An audit also includes assessing the accounting
            principles
            used and significant estimates made by management, as well as evaluating
            the
            overall financial statement presentation. We believe that our audit provides
            a
            reasonable basis for our opinion.
 
 In
            our
            opinion, the consolidated financial statements referred to above present
            fairly,
            in all material respects, the financial position of Elcom International,
            Inc.
            and subsidiaries as of December 31, 2005 and the consolidated results of
            its operations and its cash flows for the year then ended in conformity
            with
            accounting principles generally accepted in the United States of America.
 
 The
            accompanying consolidated financial statements have been prepared assuming
            that
            the Company will continue as a going concern. As discussed in Note 1 to the
            consolidated financial statements, the Company has suffered recurring
            losses
            from operations and has an accumulated deficit that raises substantial
            doubt
            about the entity’s ability to continue as a going concern. Management’s plans in
            regard to these matters are also described in Note 1. The consolidated
            financial statements do not include any adjustments that might result
            from the
            outcome of this uncertainty.
  
 /s/  Vitale,
            Caturano & Company, Ltd.
 
  March 6,
            2006
 Boston,
            Massachusetts
  F-3
 E **LCOM
            INTERNATIONAL, INC.**
 **CONSOLIDATED
            BALANCE SHEETS**
 **(in
            thousands, except share and per share data)**
 
 **December
                      31,**
                  ********
                  ****
                  **2006**
                  
                  **2005****ASSETS**CURRENT
                      ASSETS:Cash
                      and cash equivalents
                  
                  $
                  1,086
                  
                  $
                  6,399Accounts
                      receivable:Trade
                  
                  
                  702
                  
                  
                  548Less-allowance
                      for doubtful accounts
                  
                  
                  (10
                  )
                  
                  (45
                  )Accounts
                      receivable, net
                  
                  
                  692
                  
                  
                  503Prepaids
                      and other current assets
                  
                  
                  218
                  
                  
                  119Total
                      current assets
                  
                  
                  1,996
                  
                  
                  7,021PROPERTY,
                      EQUIPMENT AND SOFTWARE, AT COST:Computer
                      hardware and software
                  
                  
                  21,316
                  
                  
                  20,675Furniture,
                      equipment and leasehold improvements
                  
                  
                  3,088
                  
                  
                  3,08824,404
                  
                  
                  23,763Less
                      accumulated depreciation and amortization
                  
                  
                  (23,445
                  )
                  
                  (23,020
                  )959
                  
                  
                  743OTHER
                      ASSETS
                  
                  
                  14
                  
                  
                  10$
                  2,969
                  
                  $
                  7,774**LIABILITIES
                      AND STOCKHOLDERS' EQUITY (DEFICIT)**CURRENT
                      LIABILITIES:Current
                      portion of capital lease obligation
                  
                  $
                  114
                  
                  $
                  27Related
                      party convertible loan payable
                  
                  
                  —
                  
                  
                  120Convertible
                      loans payable
                  
                  
                  —
                  
                  
                  1,179Accounts
                      payable
                  
                  
                  647
                  
                  
                  547Deferred
                      revenue
                  
                  
                  942
                  
                  
                  545Related
                      party accrued salary, bonuses and interest
                  
                  
                  1,066
                  
                  
                  1,163Accrued
                      expenses and other current liabilities
                  
                  
                  1,043
                  
                  
                  2,483Current
                      liabilities of discontinued operations
                  
                  
                  42
                  
                  
                  62Total
                      current liabilities
                  
                  
                  3,854
                  
                  
                  6,126CAPITAL
                      LEASE OBLIGATION, NET OF CURRENT PORTION
                  
                  
                  164
                  
                  
                  —OTHER
                      LONG TERM LIABILITY
                  
                  
                  288
                  
                  
                  423Total
                      liabilities
                  
                  
                  4,306
                  
                  
                  6,549COMMITMENTS
                      AND CONTINGENCIES (Note 7)STOCKHOLDERS'
                      (DEFICIT) EQUITYPreferred
                      stock, $.01 par value; Authorized — 10,000,000 shares — Issued and
                      outstanding
                  
                  
                  —
                  
                  
                  —Common
                      stock, $.01 par value; Authorized - 700,000,000 shares Issued
                      -
                      478,947,441 and 399,152,859 shares at December 31, 2006 and
                      2005,
                      respectively
                  
                  
                  4,789
                  
                  
                  3,992Additional
                      paid-in capital
                  
                  
                  128,455
                  
                  
                  125,263Accumulated
                      deficit
                  
                  
                  (129,315
                  )
                  
                  (122,483
                  )Treasury
                      stock, at cost — 530,709 shares
                  
                  
                  (4,712
                  )
                  
                  (4,712
                  )Accumulated
                      other comprehensive loss
                  
                  
                  (554
                  )
                  
                  (835
                  )Total
                      stockholders' (deficit) equity
                  
                  
                  (1,337
                  )
                  
                  1,225$
                  2,969
                  
                  $
                  7,774
 
 *The
            accompanying notes are an integral part of these consolidated financial
            statements.*
  F-4
  **ELCOM
            INTERNATIONAL, INC.**
 **CONSOLIDATED
            STATEMENTS OF OPERATIONS**
 **AND
            OTHER COMPREHENSIVE INCOME (LOSS)**
 **(in
            thousands, except per share data)**
  **For
                      the years ended**
                    **December
                      31,**
                  ********
                  ****
                  **2006**
                  
                  **2005**Revenues:License,
                      hosting services and other fees
                  
                  $
                  2,710
                  
                  $
                  2,081Professional
                      services
                  
                  
                  508
                  
                  
                  6333,218
                  
                  
                  2,714Cost
                      of revenues
                  
                  
                  672
                  
                  
                  718Gross
                      profit
                  
                  
                  2,546
                  
                  
                  1,996Operating
                      Expenses:Selling,
                      general and administrative
                  
                  
                  8,156
                  
                  
                  5,413Research
                      and development
                  
                  
                  1,231
                  
                  
                  825Total
                      operating expenses
                  
                  
                  9,387
                  
                  
                  6,238Operating
                      loss
                  
                  
                  (6,841
                  )
                  
                  (4,242
                  )Interest
                      expense
                  
                  
                  (69
                  )
                  
                  (1,605
                  )Interest
                      and other income, net
                  
                  
                  78
                  
                  
                  7Loss
                      before income taxes
                  
                  
                  (6,832
                  )
                  
                  (5,840
                  )Income
                      taxes
                  
                  
                  —
                  
                  
                  —Net
                      loss
                  
                  
                  (6,832
                  )
                  
                  (5,840
                  )Comprehensive
                      income (loss), net of tax
                  
                  
                  281
                  
                  
                  (29
                  )Comprehensive
                      loss
                  
                  $
                  (6,551
                  )
                  $
                  (5,869
                  )Basic
                      and diluted net loss per share
                  
                  $
                  (0.01
                  )
                  $
                  (0.08
                  )Weighted
                      average number of basic and diluted shares outstanding
                  
                  
                  416,209
                  
                  
                  72,173
  *The
            accompanying notes are an integral part of these consolidated financial
            statements.*
 
 F-5
  **ELCOM
            INTERNATIONAL, INC.**
 
 **CONSOLIDATED
            STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)**
 **(in
            thousands, except number of shares)**
 
 **Common
                      Stock******
                  
                  **Additional**
                  
                  
                  
                  **Treasury**
                  
                  **Accumulated
                      Other**
                  
                  **Total
                      Stockholders’******
                  
                  **Number
                      of Shares**
                  
                  **$.01
                      Par Value**
                  
                  **Paid-in
                      Capital**
                  
                  **Accumulated
                      Deficit**
                  
                  **Stock,
                      At Cost**
                  
                  **Comprehensive
                      Income (Loss)**
                  
                  **Equity
                      (Deficit)**BALANCE,
                      JANUARY 1, 2005
                  
                  
                  61,812,569
                  
                  $
                  618
                  
                  $
                  118,703
                  
                  $
                  (116,643
                  )
                  $
                  (4,712
                  )
                  $
                  (806
                  )
                  $
                  (2,840
                  )Sale
                      of common stock, net of offering costs
                  
                  
                  278,018,333
                  
                  
                  2,780
                  
                  
                  4,375
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  7,155Common
                      stock issued upon conversion of loans payable and related accrued
                      interest
                  
                  
                  25,156,998
                  
                  
                  252
                  
                  
                  422
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  674Stock
                      option granted to non-employee
                  
                  
                  —
                  
                  
                  —
                  
                  
                  1
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  1Additional
                      beneficial conversion feature of convertible debentures due
                      to reduction
                      in per share conversion price
                  
                  
                  —
                  
                  
                  —
                  
                  
                  517
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  517Common
                      stock issued upon conversion of convertible debentures and
                      related accrued
                      interest
                  
                  
                  34,164,959
                  
                  
                  342
                  
                  
                  1,245
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  1,587Net
                      loss
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  (5,840
                  )
                  
                  —
                  
                  
                  —
                  
                  
                  (5,840
                  )Cumulative
                      translation adjustment
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  (29
                  )
                  
                  (29
                  )BALANCE,
                      DECEMBER 31, 2005
                  
                  
                  399,152,859
                  
                  
                  3,992
                  
                  
                  125,263
                  
                  
                  (122,483
                  )
                  
                  (4,712
                  )
                  
                  (835
                  )
                  
                  1,225Common
                      stock issued for deferred rent
                  
                  
                  3,458,293
                  
                  
                  34
                  
                  
                  216
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  250Stock
                      based compensation
                  
                  
                  —
                  
                  
                  —
                  
                  
                  666
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  666Sale
                      of common stock
                  
                  
                  76,336,289
                  
                  
                  763
                  
                  
                  1,730
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  2,493Reversal
                      of cost of capital (Note 4)
                  
                  
                  —
                  
                  
                  —
                  
                  
                  580
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  580Net
                      loss
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  (6,832
                  )
                  
                  —
                  
                  
                  —
                  
                  
                  (6,832
                  )Cumulative
                      translation adjustment
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  281
                  
                  
                  281BALANCE,
                      DECEMBER 31, 2006
                  
                  
                  478,947,441
                  
                  $
                  4,789
                  
                  $
                  128,455
                  
                  $
                  (129,315
                  )
                  $
                  (4,712
                  )
                  $
                  (554
                  )
                  $
                  (1,337
                  )
  *The
            accompanying notes are an integral part of these consolidated financial
            statements.*
 
 F-6
  **ELCOM
            INTERNATIONAL, INC.**
 
 **CONSOLIDATED
            STATEMENTS OF CASH FLOWS**
 **(in
            thousands)**
 
 **For
                      the years ended**
                    **December
                      31,****2006**
                  
                  **2005**CASH
                      FLOWS FROM OPERATING ACTIVITIES:Net
                      loss from continuing operations
                  
                  $
                  (6,832
                  )
                  $
                  (5,840
                  )Adjustments
                      to reconcile net loss to net cash used in operating
                      activities:Depreciation
                      and amortization of property, equipment and software
                  
                  
                  399
                  
                  
                  333Amortization
                      of convertible debenture beneficial conversion feature
                  
                  
                  —
                  
                  
                  1,419Non-cash
                      interest expense
                  
                  
                  —
                  
                  
                  145Stock-based
                      compensation
                  
                  
                  666
                  
                  
                  1Deferred
                      rent expense
                  
                  
                  —
                  
                  
                  312Provisions
                      for (reversal of) allowance for doubtful accounts
                  
                  
                  (35
                  )
                  
                  2Changes
                      in current assets and liabilitiesAccounts
                      receivable
                  
                  
                  (154
                  )
                  
                  (198
                  )Prepaids
                      and other current assets
                  
                  
                  (103
                  )
                  
                  (66
                  )Accounts
                      payable
                  
                  
                  100
                  
                  
                  79Deferred
                      revenue
                  
                  
                  398
                  
                  
                  35Accrued
                      expenses and other current liabilities
                  
                  
                  (706
                  )
                  
                  1,113Net
                      cash used in continuing operations
                  
                  
                  (6,267
                  )
                  
                  (2,665
                  )Net
                      cash used in discontinued operations
                  
                  
                  (20
                  )
                  
                  (241
                  )CASH
                      FLOWS FROM INVESTING ACTIVITIES:Purchase
                      of property, equipment and software
                  
                  
                  (301
                  )
                  
                  (57
                  )Net
                      cash used in investing activities
                  
                  
                  (301
                  )
                  
                  (57
                  )Net
                      cash provided by investing activities of discontinued
                      operations
                  
                  
                  —
                  
                  
                  48CASH
                      FLOWS FROM FINANCING ACTIVITIES:Repayment
                      of capital lease obligations
                  
                  
                  (65
                  )
                  
                  (30
                  )Proceeds
                      from loans payable
                  
                  
                  —
                  
                  
                  2,269Repayment
                      of related party notes
                  
                  
                  (120
                  )
                  
                  0Repayment
                      of convertible loans
                  
                  
                  (1,179
                  )
                  
                  (318
                  )Decrease
                      in other long term liability
                  
                  
                  (135
                  )
                  
                  (123
                  )Proceeds
                      from issuance of common stock, net
                  
                  
                  2,493
                  
                  
                  7,155Net
                      cash provided by financing activities
                  
                  
                  994
                  
                  
                  8,953FOREIGN
                      EXCHANGE EFFECT ON CASH
                  
                  
                  281
                  
                  
                  (29
                  )NET
                      INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
                  
                  
                  (5,313
                  )
                  
                  6,009CASH
                      AND CASH EQUIVALENTS, BEGINNING OF PERIOD
                  
                  
                  6,399
                  
                  
                  390CASH
                      AND CASH EQUIVALENTS, END OF PERIOD
                  
                  $
                  1,086
                  
                  $
                  6,399SUPPLEMENTAL
                      DISCLOSURE OF CASH FLOW INFORMATION:Interest
                      paid
                  
                  $
                  68
                  
                  $
                  26Income
                      taxes paid
                  
                  $
                  —
                  
                  $
                  —SUPPLEMENTAL
                      DISCLOSURE OF NONCASHINVESTING
                      AND FINANCING ACTIVITIES:Discount
                      on convertible debentures and accrued interest related to reduction
                      in per
                      share conversion price
                  
                  $
                  —
                  
                  $
                  517Conversion
                      of convertible debentures and accrued interest to equity
                  
                  $
                  —
                  
                  $
                  1,587Conversion
                      of loans payable and accrued interest to equity
                  
                  $
                  —
                  
                  $
                  674Issuance
                      of common stock in satisfaction of deferred rent
                  
                  $
                  250
                  
                  $
                  —Cost
                      of capital reduction
                  
                  $
                  580
                  
                  $
                  —
  *The
            accompanying notes are an integral part of these consolidated financial
            statements.*
  F-7
  **ELCOM
          INTERNATIONAL, INC.**
 
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 
 **(1)
        NATURE OF OPERATIONS**
 
 Since
        early 2002, Elcom International, Inc. has operated solely as a leading provider
        of remotely-hosted, electronic procurement and electronic marketplace
        Internet-based software solutions (collectively, “ePurchasing”). Elcom’s
        ePurchasing solutions combine robust integrated eProcurement and eMarketplace
        capabilities and are remotely-hosted in our data center. Management believes
        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.
 
 Since
        its
        inception in 1992, Elcom has developed its PECOSTM (Professional Electronic
        Commerce Online System) software, which automates many supply chain and
        financial settlement functions associated with procurement. Elcom intends
        to
        augment its core ePurchasing solutions with other supply chain and
        supplier-oriented systems to enable the conduct of interactive procurement,
        supplier relationship management, and financial settlement. Elcom has licensed
        a
        dynamic trading system platform to provide auction, reverse auction, and
        other
        electronic negotiation, or eNegotiation, functions from a third party, which
        module is offered as optional functionality to clients. Our PECOSTM 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. *Going
        Concern*
 
 As
        of
        December 31, 2006, Elcom had approximately $1,086,000 of cash and cash
        equivalents and current assets of approximately $1,996,000. Current liabilities
        amounted to approximately $3,854,000. Elcom has incurred significant losses
        and
        has used cash in operating activities in each of the last several years,
        including $6,832,000 in 2006, which raises substantial doubt about Elcom’s
        ability to continue as a going concern. The accompanying consolidated financial
        statements have been prepared on a going concern basis which contemplates
        the
        realization of assets and the satisfaction of liabilities in the normal course
        of business. The consolidated financial statements do not include any
        adjustments relating to the recoverability of assets and satisfaction of
        liabilities that might be necessary should Elcom be unable to continue as
        a
        going concern.  Elcom’s
        ability to continue as a going concern is primarily dependent upon its ability
        to grow revenue and attain further operating efficiencies and, if necessary,
        to
        also attract additional capital. Elcom believes that as a result of its recent
        issuances of common stock (see Notes 6 and 11), including common stock listed
        on
        the Alternative Investment Market of the London Stock Exchange (“AIM Exchange”),
        that it has the funds required to perform under its current contracts; however
        it expects to incur a net loss in 2007. In order to achieve profitable
        operations Elcom is dependent upon generating significant new revenues from
        existing and future contracts. There can be no assurance that such incremental
        revenues can be realized by Elcom. If
        Elcom
        is unable to generate incremental operating revenues over the course of the
        next
        year, it will likely require additional capital investment. Elcom
        cannot assure you that additional financing will be available on favorable
        terms, or at all. If
        Elcom
        is unable to consummate any equity financing or receive additional loaned
        monies
        to provide sufficient working capital, Elcom would likely be forced to curtail
        operations and/or seek protection under bankruptcy laws. The consolidated
        financial statements do not include any adjustments that might result from
        the
        outcome of this uncertainty.
 
 **(2)
        SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES**
 
 *(a)
        Basis of Consolidation*
 
 The
        accompanying consolidated financial statements include the accounts Elcom
        and
        its wholly-owned subsidiaries. All material intercompany accounts and
        transactions have been eliminated in consolidation. Elcom has no material
        interests in variable interest entities and therefore, none which require
        consolidation.
 
 F-8
  *(b)*  *Use
        of Estimates*
 
 The
        preparation of financial statements in conformity with accounting principles
        generally accepted in the United States of America requires management to
        make
        estimates and assumptions that affect the amounts of assets and liabilities
        and
        disclosure of contingent assets and liabilities at the date of the financial
        statements and revenue and expenses during the period reported in the
        consolidated financial statements and accompanying notes. Actual results
        may
        differ from such estimates.
 
 *(c)
        Cash and Cash Equivalents*
 
 Cash
        and
        cash equivalents at December 31, 2006 and 2005 consisted of $1,086,000 and
        $6,399,000 respectively, of deposits with banks and financial institutions,
        which were unrestricted as to withdrawal or use and had original maturities
        of
        less than three months. Cash and cash equivalents are stated at cost, which
        approximates market value.
 
 *(d)
        Accounts Receivable*
 
 Accounts
        receivable are stated at the amount management expects to collect from
        outstanding balances. An allowance for doubtful accounts is provided for
        those
        accounts receivable considered to be uncollectible based upon historical
        experience and management’s evaluation of outstanding accounts receivable at the
        end of the year. Bad debts are written off against the allowance when
        identified. At December 31, 2006 and 2005, the allowance for doubtful accounts
        was $10,000 and $45,000, respectively.
 
 *(e)
        Property, Equipment and Software*
 
 Property,
        equipment and software are stated at cost. Additions and improvements are
        capitalized and ordinary repairs and maintenance are expensed as incurred.
        Equipment and software are depreciated and amortized on a straight-line basis
        over the estimated useful lives of the assets or lease term, which are three
        to
        five years. The capitalized cost of leased equipment and leasehold improvements
        are amortized over the shorter of the estimated useful life of the related
        assets, or related life of the lease.
 
 During
        2006 and 2005 Elcom did not capitalize any software development costs under
        SOP
        98-1. There were no previously capitalized software development costs written
        off in 2006 or 2005.
 
 *(f)
        Impairment of Long-Lived Assets*
 
 In
        accordance with Statement of Financial Accounting Standards No. 144, *Accounting
        for the Impairment or Disposal of Long-Lived Assets,* Elcom
        evaluates for impairment its long-lived assets to be held and used or to
        be
        disposed of other than by sale whenever events or changes in circumstances
        indicate that the carrying amount of such assets may not be recoverable.
        Recoverability of assets to be held and used is measured by a comparison
        of the
        carrying amount of any asset to future undiscounted net cash flows expected
        to
        be generated by the asset. Elcom 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. If such
        assets are considered to be impaired, the impairment to be recognized is
        measured by the amount by which the carrying amounts of the assets exceed
        the
        fair value of the assets. Elcom’s estimates of fair value represent the best
        estimate based on industry trends and market rates and transactions. Assets
        to
        be disposed of by sale are reported at the lower of the carrying amount or
        fair
        value, less costs to sell, and depreciation of such assets ceases. As of
        December 31, 2006 and 2005, we believe no impairment of long-lived assets
        exists.
  *(g)
        Revenue Recognition*
 
 Elcom
        markets both an enterprise and non-enterprise (hosted) version of its PECOS
        software system. Revenue consists principally of fees for licenses, and hosting
        services and Elcom also earns fees from certain clients by providing a separate,
        test instance of its hosted software system for specified periods of time,
        for
        the client’s use in evaluating various operational aspects of the system. Test
        system fees are recognized in revenue over the term the test system is
        maintained for a client. In addition, Elcom earns usage and volume related
        fees
        derived from “eMarketplace” activities, which are recognized in revenue when
        earned. Elcom also earns fees from certain suppliers for maintaining their
        data
        in the ePurchasing software system for mutual customers, which are recognized
        in
        revenue over the term that the data is maintained. Elcom earns professional
        service fees for implementation and other technical professional services.
        As
        part of the revenue recognition process, complex accounting pronouncements
        must
        be interpreted and significant management judgments and estimates must be
        made
        and applied to determine the revenue recognized in any accounting period.
        Material differences may result in the amount and timing of revenue recognized
        for any period if different judgments or estimates were made.
  F-9
 
 All
        but
        one of Elcom’s hosted services clients do not have an unfettered right to take
        possession of the hosted PECOS software. The hosting services agreements
        typically require Elcom to establish a functional instance of its software
        system specific to the client before the hosting term begins. Hosting services
        agreements also generally call for Elcom to provide technical support and
        software updates and upgrades to customers during the term of the agreement.
        Elcom recognizes these hosting services revenues over the hosting term, which
        is
        typically one year, consistent with Emerging Issues Task Force 00-3, *Application
        of AICPA Statement of Position 97-2, Software Revenue Recognition, Arrangements
        That Include the Right to Use Software Stored on Another Entity’s Hardware,* and ** SEC
        Staff
        Accounting Bulleting Topic 13, *Revenue Recognition* .
        Elcom
        recognizes revenue on this basis because its customers do not have (except
        as
        noted below) the contractual right to take possession of the software at
        any
        time during the hosting period. Certain of these agreements provide for an
        initial implementation fee for creating and bringing a client’s PECOS system
        live and then provided for time-based hosting services fees thereafter. If
        a
        hosting services agreement accounted for under EITF 00-3 and SAB 13 provides
        for
        the payment of fees that are required in order for the customer to use the
        software system, beyond those for hosting services, including implementation
        fees, these additional fees are typically recognized ratably over the first
        year
        of the arrangement, if the related hosting services agreement is subject
        to
        annual renewal by customer. Otherwise, such fees are typically recognized
        over
        the term of the related agreement. Elcom entered into a large hosting services
        contract that will be accounted for under EITF 00-3 and SAB 13, as the client(s)
        do not have an unfettered right to take possession of the hosted PECOS software
        system. The initial hosted software system has been accepted by the client,
        and
        the first customer began using the system in late June of 2006. In this
        particular contract, Elcom will be paid certain development fees for providing
        each of three phases of the specified software system, implementation fees
        for
        each customer that contracts to use the software system, and ongoing hosting
        service fees. Because the development and implementation fees are for Elcom
        professional services that are required in order for the customer(s) to use
        the
        hosted software system, once such professional services are complete, Elcom
        will
        recognize the associated fees in revenue over the remaining contract life
        (initially five years) as clients in this certain arrangement do not have
        annual
        opportunities to cancel the arrangement. As of December 31, 2006, due to
        the
        limited level of use of the software system, no revenue has been recognized
        under this contract.
 
 One
        of
        Elcom’s customers, Capgemini UK Plc (“Capgemini”), has an unfettered contractual
        right to take possession of a certain version of the eProcurement software
        at
        any time, and Elcom and Capgemini jointly maintain a “hot back-up site” to
        support certain customer requirements. Elcom has concluded that, due to
        Capgemini’s technological expertise, and the jointly maintained back-up site, it
        is feasible for this customer to run the software on its own without significant
        penalty. Accordingly, Elcom accounts for this contract in accordance with
        SOP
        97-2, *Software
        Revenue Recognition* ,
        as
        amended by SOP 98-9, *Modification
        of SOP 97-2* , *Software
        Revenue Recognition with Respect to Certain Transactions* **(** “SOP
        97-2, as amended”) using the residual method. In this case the contract calls
        for a license fee, specific fees for initial professional services as locations
        are brought live (implementation fees) and ongoing hosting services for each
        location. Under the residual method, the total contract fee for this contract
        was first allocated to the fair value of the undelivered elements (i.e.,
        implementation services and hosting fees) based on their vendor specific
        objective evidence (“VSOE”) and the remaining portion of the total contract fee
        was allocated to the software license. Elcom determined the VSOE of fair
        value
        for the implementation services based upon its current and historical pricing
        for those services when sold separately and VSOE of fair value for hosting
        services based upon substantive renewals by clients at contractually agreed
        rates. Per the terms of this contract, the timing of the payment of the license
        fee for this contract was based upon the number of public entities signing
        agreements. Accordingly, the license fee revenue was recognized as the
        milestones were met and the license payments became due. The final milestone
        was
        achieved in 2004. Implementation fees for this contract are recognized as
        revenue upon completion of the professional services, in accordance with
        the
        client specifications and hosting services fees are recognized over the hosting
        services term, generally one year.
 
 Deferred
        revenue includes amounts received from customers for which revenue has not
        been
        recognized and generally results from advance customer payments for hosting
        services fees not yet rendered and, in 2006 includes amounts related to
        development and implementation services, which are being deferred until all
        requirements under EIFT 00-3 and SAB 13 or SOP 97-2, as amended, as applicable,
        are met. Deferred revenue is recognized upon delivery of the product, over
        contract periods as services are rendered, or as other accounting requirements
        underlying deferral are satisfied.
  F-10
 
 *(h)
        Advertising and Marketing*
 
 Elcom
        expenses advertising and marketing costs as incurred. Advertising expenses,
        which relate to Elcom’s ePurchasing technology product, were approximately
        $140,000 and $26,000 for the years ended December 31, 2006 and 2005,
        respectively.
 
 (i) *Research
        and Development*
 
 Expenditures
        for the research and development of Elcom’s products to be marketed are expensed
        as incurred, except for certain software development costs. There were no
        software development costs capitalized during 2006 and 2005. All software
        costs
        are amortized as a cost of software distribution either on a straight-line
        basis, or on the basis of each product’s projected revenues, whichever results
        in greater amortization, over the remaining estimated economic life of the
        product, which is generally estimated to be eighteen months. Elcom assesses
        the
        recoverability of capitalized software costs by comparing the cost capitalized
        for each product, to the net of estimated future gross revenues less the
        estimated future cost of completing, maintaining, supporting and disposing
        of
        the product.
 
 *(j)
        Foreign Currency Translation*
 
 The
        accounts of Elcom’s foreign subsidiary are translated in accordance with SFAS
        No. 52, *Foreign
        Currency Translation* .
        Accordingly, assets and liabilities of these foreign subsidiaries are translated
        into U.S. dollars using the exchange rate at each balance sheet date. Income
        and
        expense accounts are translated using an average rate of exchange during
        the
        period. Foreign currency translation adjustments are accumulated as a separate
        component of stockholders' equity and reported as part of other comprehensive
        income (loss) in the statement of operations and other comprehensive income
        (loss).
 
 *(k)
        Income Taxes*
 
 Elcom
        provides for income taxes in accordance with SFAS No. 109, *Accounting
        for Income Taxes* .
        Under
        the asset and liability method specified by SFAS No. 109, a deferred tax
        asset
        or liability is determined, net of valuation allowances, based on the difference
        between the financial statement carrying amounts of existing assets and
        liabilities and their respective tax bases. Deferred tax assets and liabilities
        are measured using the enacted tax rates in effect when these differences
        are
        expected to be secured or settled. The effect on the deferred tax assets
        and
        liabilities of a change in tax rates is recognized in income in the period
        that
        includes the enactment date.
 
 *(l)
        Stock-Based Compensation*
 
 Elcom’s
        Board of Directors has adopted nine stock option plans and stockholders have
        approved the adoption of all such stock option plans. As of December 31,
        2006,
        the Option Plans provided that up to an aggregate of 31,406,558 incentive
        stock
        options (ISOs) and nonqualified options may be granted to key personnel,
        directors and consultants of Elcom, as determined by the compensation committee
        of the board of directors. Under the terms of the option plans, ISOs are
        granted
        at not less than the estimated fair market value of Elcom's common stock
        on the
        date of grant and at 110% for shareholders who own more than 10% of the
        outstanding shares. The option plans also provide that the options are
        exercisable on varying dates, as determined by the compensation committee
        for
        each plan, and have terms not to exceed 10 years. In addition, three of Elcom’s
        Option Plans allow for the exercise of vested options for a 180-day period
        commencing on the date of employee termination, provided that such termination
        is without “cause”. Under all other stock option plans, upon an optionee’s
        termination without cause, unless an option agreement contains differing
        terms
        with respect to vesting and exercisability which supersedes the provisions
        of
        the applicable plan, all unexercisable portions of the optionee’s options lapse
        and the optionee may exercise his or her vested options for up to 90 days
        following the date of termination.
 
 One
        of
        the option plans, the 1995 Non-employee Director Stock Option Plan (the “1995
        Non-employee Director Plan”) provided for up to 250,000 nonqualified stock
        options to acquire Elcom’s common stock to be reserved for grant to outside
        directors of Elcom. In April 2006, all of Elcom’s then Non-Employee Directors
        resigned and all outstanding options under the 1995 Non-employee Director
        Plan
        have lapsed. No further options may be granted under this plan, which expired
        in
        2005. The 1995 Non-employee Director Plan provided that upon joining the
        Board
        of Directors, any new non-employee director was automatically granted 5,000
        nonqualified stock options, and also provided that non-employee directors
        be
        granted up to an additional 15,000 nonqualified stock options annually
        thereafter, while remaining on the Board of Directors. The 1995 Non-employee
        Director Plan provided that options be granted at fair market value on the
        date
        of grant, vest ratably over three years, and have terms not to exceed 10
        years.
  F-11
 
 Elcom
        issues stock options to its employees and outside directors pursuant to
        stockholder approved stock option plans. Effective January 1, 2006, Elcom
        adopted the provisions of SFAS No. 123 (Revised 2004), *Share-Based
        Payments* using
        the statement’s modified prospective transition method, in accordance with SAB
        Topic 14: *Share-Based Payments* . Prior
        to January 1, 2006, Elcom followed SFAS No. 123, *Accounting
        for Stock-Based Compensation* (“SFAS
        123”), as amended by SFAS No. 148, *Accounting
        for Stock Based Compensation Transition and Disclosure, an amendment to FASB
        Statement No. 123* which
        required entities to recognize as expense over the vesting period the fair
        value
        of stock-based awards on the date of grant or measurement date. For employee
        stock-based awards, however, SFAS Nos. 123 and 148 allowed entities to continue
        to apply the intrinsic value method under the provisions of Accounting
        Principles Board Opinion No. 25, *Accounting
        for Stock Issued to Employees,* and
        provide pro forma net earnings disclosures as if the fair-value-based method
        defined in SFAS No. 123 had been applied. Elcom elected to apply the provisions
        of APB Opinion No. 25 and provide the pro forma disclosures in accordance
        with
        SFAS Nos. 123 and 148 for periods prior to January 1, 2006.
 
 The
        adoption of SFAS 123R on January 1, 2006 had the following impact on fiscal
        2006 results: net loss was higher by $666,000, with no change to diluted
        net
        loss per share, than if Elcom had continued to account for stock-based
        compensation under APB 25.
 
 Under
        the
        provisions of SFAS 123R, Elcom recognizes the estimated fair value of
        stock-based compensation in the consolidated statement of operations over
        the
        requisite service period of each option granted, which service period is
        represented by each option’s vesting provisions, all of which are time-based.
        All of Elcom’s stock-based compensation is accounted for as equity instruments
        and there have been no liability awards granted. Under the modified prospective
        transition method of SFAS 123R, Elcom applies the provisions of SFAS 123R
        to all
        awards granted or modified after January 1, 2006. The unrecognized expense
        of
        awards not yet vested as of January 1, 2006 is being recognized in the
        consolidated statement of operations using the same valuation method
        (Black-Scholes option pricing model) and assumptions determined under the
        original provisions of SFAS 123, as disclosed in Elcom’s previous consolidated
        financial statements. For the year ended December 31, 2006, Elcom recorded
        stock-based compensation expense in the consolidated statement of operations
        as
        follows:
  Cost
                  of revenues
              
              $
              65,000Selling,
                  general and administrative
              
              
              462,000Research
                  and development
              
              
              139,000$
              666,000
 
 No
        stock-based compensation expense for employees has been recorded for the
        year
        ended December 31, 2005, as all awards granted through that date had an exercise
        price equal to the market value of the underlying stock at the date of award.
        Prior period results have not been restated. SFAS 123R requires the presentation
        of pro forma information for comparative periods presented which are prior
        to
        the adoption of SFAS 123R. Had compensation cost for awards under the Option
        Plans (including shares from the elcom, inc *.* plan)
        been determined based on the fair value method set forth in SFAS No. 123,
        the
        effect on Elcom’s 2005 net loss and per share amounts would have been as
        follows:
  ***2005***(in
                  thousands, except per share data)Net
                  loss:As
                  reported
              
              $
              (5,840
              )Plus
                  - stock-based compensation under APB Opinion No. 25
              
              
              1Less
                  - stock-based compensation under SFAS 123
              
              
              (317
              )Pro
                  forma
              
              $
              (6,156
              )Net
                  loss per share:As
                  reported - basic and diluted
              
              $
              (0.08
              )Pro
                  forma - basic and diluted
              
              $
              (0.09
              )
  F-12
  The
        adoption of SFAS 123R had no impact on Elcom’s cash flows for 2006. Elcom used
        the Black-Scholes valuation model to estimate the fair value of stock-based
        compensation awarded after January 1, 2006. Stock option awards were made
        in
        both 2006 and 2005. The weighted-average gross fair value of awards under
        Elcom’s stock option plans in 2006 was $0.09 per share.
 
 The
        following table summarizes assumptions used for options granted to employees
        and
        directors in the periods indicated:
  **2006**
              ****
              **2005**Volatility
                  range
              
              154.35
                  to 161.4%
              
              163.1%Risk-free
                  interest rate range
              
              4.59
                  to 4.82%
              
              4.33%Expected
                  life of options
              
              5.75
                  to 6 years
              
              5
                  yearsExpected
                  dividend yield
              
              0%
              
              0%
 
 Elcom
        has
        generally relied upon its historical information as the most reasonable basis
        to
        determine its valuation assumptions with respect to share-based payments,
        because it has no reason to believe that its future experience will differ
        from
        its historical experience. The volatility figure is based on the daily actual
        historical volatility of Elcom’s common stock over the five-year period
        (consistent with the expected life of the options) to the end of the applicable
        quarter. The volatility calculation is based on the reported trading of Elcom’s
        common stock on the Over-the-Counter Bulletin Board and NASDAQ Capital Market,
        as applicable. The risk-free interest rate is based on the U.S. Government
        five-year Treasury Constant Maturity rate, with a five-year term, as of the
        end
        of the applicable quarter. The expected life of options is generally the
        simplified method allowed under Staff Accounting Bulletin 107. The expected
        dividend yield is zero based on the fact that Elcom has never paid a dividend
        and does not presently have an intention to pay cash dividends.
 
 Based
        on
        Elcom’s historical turnover rates, an overall annualized estimated forfeiture
        factor of 16% has been utilized. Under the provisions of SFAS 123R, additional
        expense will be recorded in future periods if the actual forfeiture rate
        is
        lower than estimated, and a recovery of prior expense will be recorded if
        the
        actual forfeiture rate is higher than estimated.
 
 As
        of
        December 31, 2006, Elcom had unamortized stock-based compensation, net of
        expected forfeitures, aggregating $1,724,269, which will be amortized to
        expense
        over the requisite service periods, currently through January of 2009. The
        unamortized stock-based compensation will be recognized over a weighted-average
        period of approximately 24 months. The weighted average grant date fair value
        of
        vested and unvested options outstanding at December 31, 2006 was $22.50 and
        $0.0750, respectively. The fair value of options that vested during 2006
        and
        2005 was approximately $.9894 and $1.407.
  F-13
 
 Information
        relating to Elcom’s option plans (including convertible shares from the elcom,
        inc. option plan) during each of, 2006 and 2005 is as follows:
 
 **Number
                  Of Shares**
              
              **Option
                  Price Per Share**
              
              **Weighted
                  Average Exercise Price**Outstanding,
                  January 1, 2005
              
              
              17,094,502
              
              $
              0.08
                  - 22.50
              
              $
              1.24Granted
              
              
              100,000
              
              
              0.08
              
              
              0.08Terminated
              
              
              (1,691,165
              )
              
              0.08
                  - 22.50
              
              
              2.05Exercised
              
              
              —
              
              
              —
              
              
              —Outstanding,
                  December 31, 2005
              
              
              15,503,337
              
              $
              0.08
                  - 22.50
              
              
              1.14Granted
              
              
              23,055,000
              
              
              0.09
                  - 0.12
              
              
              0.10Terminated
              
              
              (7,623,624
              )
              
              0.08
                  - 8.00
              
              
              1.25Exercised
              
              
              —
              
              
              —
              
              
              —Outstanding,
                  December 31, 2006
              
              
              30,934,713
              
              $
              0.08
                  - 22.50
              
              $
              0.34Exercisable,
                  December 31, 2005
              
              
              11,739,586
              
              $
              0.08
                  - 22.50
              
              $
              1.46Exercisable,
                  December 31, 2006
              
              
              8,188,464
              
              $
              0.08
                  - 22.50
              
              $
              0.99
  The
        following table summarizes information about stock options (including
        convertible options) outstanding as of December 31, 2006:
 
 **Options
                  Outstanding**
              
              **Options
                  Exercisable****Range
                  of Exercise Prices**
              
              **Number
                  Outstanding**
              
              **Weighted
                  Average Remaining Contractual Life**
              
              **Weighted
                  Average Exercise Price**
              
              **Number
                  Exercisable**
              
              **Weighted
                  Average Exercise Price**$0.08
                  - 0.10
              
              
              15,090,000
              
              
              8.75
              
              $
              0.09
              
              
              1,820,000
              
              $
              0.080.12 - 0.14
              
              
              9,617,500
              
              
              9.21
              
              
              0.12
              
              
              618,750
              
              
              0.140.16 - 0.20
              
              
              2,025,000
              
              
              6.77
              
              
              0.20
              
              
              1,633,251
              
              
              0.200.22 - 0.45
              
              
              1,940,500
              
              
              5.89
              
              
              0.36
              
              
              1,854,750
              
              
              0.370.60 - 0.85
              
              
              274,000
              
              
              4.77
              
              
              0.82
              
              
              274,000
              
              
              0.821.17 - 1.69
              
              
              860,913
              
              
              3.69
              
              
              1.48
              
              
              860,913
              
              
              1.481.77 - 3.81
              
              
              403,313
              
              
              2.75
              
              
              3.61
              
              
              403,313
              
              
              3.614.06 - 4.81
              
              
              395,249
              
              
              3.04
              
              
              4.47
              
              
              395,249
              
              
              4.475.03 - 6.03
              
              
              286,238
              
              
              2.23
              
              
              5.47
              
              
              286,238
              
              
              5.4712.63 - 22.50
              
              
              42,000
              
              
              3.00
              
              
              13.80
              
              
              42,000
              
              
              13.8030,934,713
              
              
              
              
              
              
              
              
              8,188,464
 As
        of
        December 31, 2006, the weighted-average remaining contractual term for options
        outstanding was 8.19 years, for options exercisable was 5.65 years, and for
        options vested and expected to vest was 8.08 years. As of December 29, 2006
        (the
        last day of trading in December 2006), based on the closing price of Elcom’s
        common stock on the OTCBB of $0.08 per share, the aggregate estimated intrinsic
        value for options outstanding, exercisable, and for options vested and expected
        to vest was nil.
  Elcom’s
        wholly-owned technology subsidiary, elcom, inc., also maintains a stock option
        plan pursuant to which two million shares of its common stock are reserved
        for
        issuance. This plan has provisions similar to the option plans discussed
        above.
        During 2006 and 2005, 20,000 and 7,500 stock options were terminated,
        respectively, leaving a balance of 299,750 and 319,750 outstanding at December
        31, 2006 and 2005, respectively. All stock options under this plan were issued
        at an exercise price of $3.82 and 299,750 were exercisable as of December
        31,
        2006. In addition, for each elcom, inc. option granted, the optionee received
        0.65 of an option to purchase Elcom’s common stock, all of which were included
        in Elcom’s SFAS 123 pro forma disclosures. In the event the optionee exercises
        this Company stock option, the elcom, inc. stock options automatically
        terminate.
  F-14
 
 Elcom
        accounts for non-employee stock-based awards in which goods or services are
        the
        consideration received for the equity instruments issued based on the fair
        value
        of the consideration received or the grant date fair value of the equity
        instruments issued, whichever is more reliably measurable. In 2005 Elcom
        issued
        a former employee a nonqualified stock option to purchase 100,000 shares
        of
        Elcom’s common stock at $0.08 per share, the fair market value on the date of
        grant. Elcom recorded an expense of $2,000 in 2006, and $1,000 in 2005, to
        reflect the expensing of a portion of the total estimated fair market value
        of
        the option, based on the contractual vesting term, at the date of the grant,
        calculated as $0.07 per share, based on the Black-Scholes option pricing
        model,
        using a volatility factor of 142%, a risk free interest rate of 4.38%, an
        expected dividend yield of 0%, and a contractual life of ten years. At December
        31, 2006, all of these options were outstanding, and 30,000 were exercisable.
 
 In
        accordance with SFAS No 123R, Elcom utilized the shortcut method to determine
        the tax windfall pool associated with stock options at December 31,
        2006.
 
 *(m)
        Net Loss Per Share*
 
 Net
        loss
        per share is based on the weighted average number of common and common
        equivalent shares outstanding during each period presented, calculated in
        accordance with SFAS No. 128, *Earnings
        Per Share.* Basic
        earnings per share (EPS) is computed by dividing income (loss) available
        to
        common stockholders by the weighted average number of common shares outstanding
        during the periods. Diluted EPS gives effect to all potential common shares
        outstanding during the period. As Elcom was in a net loss position for all
        periods presented, diluted EPS is the same as basic EPS because the effect
        of
        any potential common stock equivalents would be anti-dilutive.
 
 The
        following potentially dilutive securities have been excluded from the
        computation of diluted net loss per share since their inclusion would be
        antidilutive:
  **Year
                  Ended**
                **December
                  31,****2006**
              
              **2005**Stock
                  options
              
              
              30,934,713
              
              
              15,503,337Warrants
              
              
              300,000
              
              
              450,000
  *(n)
        Fair Value of Financial Instruments*
 
 Elcom’s
        financial instruments consist mainly of cash and cash equivalents, accounts
        receivable and accounts payable. The carrying amounts of Elcom’s cash and cash
        equivalents, accounts receivable and accounts payable approximate fair value
        due
        to the short-term nature of these instruments.
 
 *(o)
        Comprehensive Income (Loss)*
 
 Elcom
        follows SFAS No. 130, *Reporting
        Comprehensive Income* ,
        which
        requires presentation of the components of comprehensive earnings. The
        difference between the reported comprehensive loss and the reported net loss
        represents the foreign currency translation adjustment for the
        period.
 
 *(p)
        Segment Reporting*
 
 Elcom
        applies SFAS No. 131 *,
        Disclosures about Segments of an Enterprise and Related
        Information* ,
        which
        establishes standards for the reporting of information about operating segments
        in annual and interim financial statements. Operating segments are defined
        as
        components of an enterprise for which separate financial information is
        available that is evaluated regularly by the chief operating decision maker(s)
        in deciding how to allocate resources and in assessing performance. SFAS
        No. 131
        also requires disclosures about products and services, geographic areas and
        major clients. Elcom has determined that for all periods presented, there
        is one
        operating segment (software products) and there are two geographical areas
        (the
        U.S. and U.K.).
 
 *(q)
        Concentration of Credit Risk and Significant Customers*
 
 SFAS
        No.
        105, *Disclosure
        of Information about Financial Instruments with Off-Balance-Sheet Risk and
        Financial Instruments with Concentrations of Credit Risk* ,
        requires disclosure of any significant off-balance-sheet and credit risk
        concentrations. Elcom has no significant off-balance-sheet concentrations
        such
        as foreign exchange contracts, option contracts or other foreign hedging
        arrangements. Elcom maintains the majority of its cash and cash equivalent
        balances, which may exceed federally insured limits, with one financial
        institution in the U.S and one financial institution in the U.K., both of
        which
        Elcom believes are stable and well-capitalized financial institutions. Elcom’s
        excess cash is invested on an overnight or short-term basis in interest-bearing
        accounts with these financial institutions.
  F-15
 
 The
        principal financial instrument that potentially subjects Elcom to concentrations
        of credit risk is accounts receivable. The majority of Elcom’s revenues are from
        municipalities or relatively large companies who are not required to provide
        collateral for amounts owed to Elcom. Elcom’s customers are dispersed over a
        wide-geographic area and are subject to periodic review under Elcom’s credit
        policies. Elcom does not believe that it is subject to any unusual credit
        risks,
        other than the normal level of risk attendant to operating its
        business.
 
 Concentration
        of credit risk with respect to accounts receivable is limited to certain
        customers to whom Elcom makes substantial sales. To reduce its credit risk,
        Elcom routinely assesses the financial strength of its customers. Elcom
        maintains an allowance for potential credit losses, but historically has
        not
        experienced any losses in excess of the loss allowance related to individual
        customers or groups of customers in any particular industry or geographic
        area.
  One
        customer represented 61% of net revenues in 2006, and 65% in 2005, respectively.
        As of December 31, 2006 and 2005, one customer individually accounted for
        56%
        and 50% of trade accounts receivable, respectively.
 
 *(r)
        Recent Pronouncements*
 
 In
        June
        2006, the Financial Accounting Standards Board (“FASB”) issued FASB
        Interpretation No. 48 (“FIN 48”), *Accounting
        for Uncertainty in Income Taxes - an interpretation of SFAS Statement No.
        109,* which
        establishes that the financial statement effects of a tax position taken
        or
        expected to be taken in a tax return are to be recognized in the financial
        statements when it is more likely than not, based on the technical merits,
        that
        the position will be sustained upon examination. FIN 48 is effective for
        fiscal
        years beginning after December 15, 2006. Elcom is currently evaluating the
        possible impact of FIN 48, but does not expect any material impact to the
        consolidated financial statements.
 
 In
        September 2006, the FASB issued SFAS No. 157, *Fair
        Value Measurements (“SFAS 157”),* which
        provides guidance on how to measure assets and liabilities that use fair
        value.
        SFAS 157 will apply whenever another United States GAAP standard requires
        (or
        permits) assets or liabilities to be measured at fair value but does not
        expand
        the use of fair value to any new circumstances. This standard also will require
        additional disclosures in both annual and quarterly reports. SFAS 157 will
        be
        effective for financial statements issued for fiscal years beginning after
        December 20, 2007, and will be adopted by Elcom beginning in the first quarter
        of 2008. Elcom is currently evaluating the potential impact this standard
        may
        have on its financial position and results of operations, but does not believe
        the impact of the adoption will be material.
 
 **(3)
        NOTES PAYABLE**
  Mr.
        Crowell’s $120,000 loan was repaid in cash in January 2006, and a total of
        approximately $7,600 of interest was paid thereon. As of December 31, 2005,
        Mr.
        Crowell’s loan is recorded as a related party convertible loan payable in the
        accompanying consolidated balance sheet
  During
        the first and third quarters of 2005, Elcom borrowed bridge loan funds, pursuant
        to secured promissory notes, as amended, each in the amount of $120,000 (the
        “2005 Notes”), from each of Robert J. Crowell, former Chairman and CEO of Elcom
        and William W. Smith, former Vice Chairman of Elcom (each a “Holder” and,
        together, the “Holders”), for a total of $240,000. The Holders’ advances
        provided a portion of the funds required for Elcom to continue operating
        until
        Elcom’s 2005 AIM Exchange common stock issuance (see Note 6). Interest upon the
        outstanding principal amount of the 2005 Notes accrued at a rate of 8%. The
        Crowell and Smith 2005 Notes had different maturity provisions. Mr. Crowell’s
        2005 Note provided that the principal amount and interest accrued thereon
        was
        due and payable within five (5) business days after Elcom notified the payee
        that it has adequate funds to repay the 2005 Notes, while Mr. Smith’s 2005 Note
        provided that his note is payable in full after Elcom reports two sequential
        quarters of positive cash flow from operations. The 2005 Notes, at the option
        of
        the Holder, were convertible into Elcom’s common stock, issuable in reliance
        upon an exemption from registration pursuant to Regulation D promulgated
        under
        the Securities Exchange Act of 1933, as amended (the “Restricted Shares”). The
        2005 Notes also provided the Holders certain “piggy-back” registration rights,
        in the event they opted to convert their loan into Restricted Shares.
  F-16
  On
        December 21, 2005, Mr. Smith converted his $120,000 loan, plus approximately
        $7,000 in accrued interest thereon, into 4,593,287 Restricted Shares of Elcom’s
        common stock; in accordance with the 2005 Notes’ conversion terms (see Note
        6).
  Beginning
        in early July 2005 and through December 2005, Elcom borrowed £1,165,000
        (approximately $2,029,000) (the “Non-U.S. Loans”). The loan advances provided a
        portion of the funds required for Elcom to continue operating until Elcom’s 2005
        AIM Exchange common stock issuance. The Non-U.S. Loans bore interest at a
        rate
        of 8% per annum and matured upon the closing of Elcom’s 2005 AIM Exchange common
        stock issuance. The Non-U.S. Loans also provided that the amounts advanced
        and
        related accrued interest were convertible into common stock in the 2005 AIM
        Exchange common stock issuance, at the issuance price. In conjunction with
        the
        2005 AIM Exchange common stock issuance, Non-U.S. Loans aggregating £300,000,
        plus accrued interest thereon of approximately £9,000 (totaling approximately
        $547,000), were converted into 20,563,711 shares of common stock issued in
        the
        2005 AIM Exchange common stock issuance (see Note 6). In addition, Non-U.S.
        Loans totaling £180,000 (approximately $318,000) plus interest were paid off in
        2005, and the remaining £685,000 (approximately $1,179,000) balance of the
        Non-U.S. Loans and related accrued interest were paid off in early January
        2006.
  F-17
  **(4)
        ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES**
 
 Accrued
        expenses and other current liabilities consist of the following (in
        thousands):
 
 **December
                  31,****2006**
              
              **2005**Salary,
                  wages and benefits
              
              $
              448
              
              $
              654Taxes,
                  including U.K. Value Added Tax
              
              
              113
              
              
              123Financial
                  consulting
              
              
              -
              
              
              580Legal
                  and audit fees
              
              
              137
              
              
              216Deferred
                  rent
              
              
              -
              
              
              603Interest
              
              
              53
              
              
              60Other
                  accruals
              
              
              293
              
              
              247$
              1,043
              
              $
              2,483
 
 During
        2006, Elcom determined that a portion of the cost of capital recorded during
        December 2002 for Cripple Creek Securities, LLC was not payable. Therefore,
        $580,000 previously accrued as financial consulting was restored to paid
        in
        capital, and the related accrual account was reduced.
 
 The
        other
        long term liability recorded on the consolidated balance sheet relates to
        a
        portion of a long term software license payable over five years, beginning
        in
        the fourth quarter of 2004. This long term software license requires payments
        of
        $135,000, $153,000 and $135,000, in 2007, 2008, and 2009,
        respectively.
 
 **(5)
        EMPLOYEE BENEFITS**
 
 Elcom
        maintains two defined contribution benefit plans, one for eligible employees
        in
        the U.S. and one for eligible employees in the U.K. The plans contain provisions
        allowing for discretionary company contributions to the U.K. defined
        contribution plan, in which participating employees are 100% vested, for
        the
        years ended December 31, 2006 and 2005 were $93,000 and $27,000, respectively.
        No discretionary Company contributions were made to the U.S. defined
        contribution plan for any of the periods presented. Elcom has no material
        obligations for post retirement benefits.
  **(6)
        STOCKHOLDERS' EQUITY**
 
 *(a)
        Common Stock*
 
 On
        July
        31, 2006, the number of authorized shares of Elcom’s common stock, par value
        $0.01 per share, was increased from 500,000,000 to 700,000,000.
 
 *(b)
        Preferred Stock*
 
 Elcom
        has
        authorized 10,000,000 shares of $.01 par value preferred stock, with the
        Board
        of Directors authorized to fix the rights, privileges, preferences and
        restrictions of any series thereof as it may designate. As of December 31,
        2006
        and 2005, no shares were outstanding.
 
 *(c)
        Issuances of Common Stock Under Regulation S*
 
 On
        December 20, 2005, Elcom sold an aggregate of 298,582,044 common shares to
        investors in the U.K., and listed the 2005 Regulation S Shares on the AIM
        Exchange. Elcom raised a total of approximately $7.2 million in cash, net
        of
        issuance costs and converted $547,000 of Non-U.S. Loans and related accrued
        interest (see Note 3 to Consolidated Financial Statements) via issuance of
        the
        2005 Regulation S Shares in the U.K. The 2005 Regulation S Shares were sold
        at a
        price of £0.015 (approximately $0.0266) per share. The holders of the 2005
        Regulation S Shares also have certain registration rights. The funds derived
        from the sale of the 2005 Regulation S Shares were used to support Elcom’s
        working capital requirements.
 
 On
        October 23, 2006, Elcom sold a total of 76,336,289 common shares to investors
        in
        the UK and listed the shares on the AIM Exchange. As was the case in 2005,
        the
        shares were issued in reliance on the exemption from registration under
        Regulation S promulgated under the Securities Act of 1933, as amended (the
        “Securities Act”) for offshore placements, and therefore are subject to the same
        restrictions as the Regulation S Shares that were sold in 2005. 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 were used to support Elcom’s working capital
        requirements.
 
 F-18
 
 *(d)*
              *Issuances
                  of Common Stock Under Regulation
                  D*
 
 On
        February 24, 2006, Elcom issued 3,458,293 shares of common stock to its landlord
        in satisfaction of deferred rent totaling $250,000. The stock was issued
        at a
        per share price of $0.0723, which represents the mean of the average closing
        bid
        and ask prices of Elcom’s common stock on the AIM Exchange on June 20, 2005 and
        January 31, 2006, as agreed between the landlord and Elcom. These shares
        are not
        registered under the Securities Act, and were issued in reliance upon an
        exemption from registration pursuant to Regulation D promulgated under the
        Securities Act.
 
 On
        December 21, 2005, Mr. Smith converted his 2005 Note principal of $120,000,
        plus
        approximately $7,000 in accrued interest thereon (see Note 3), into 4,593,287
        shares of Elcom’s common stock, issued in reliance on an exemption from
        registration pursuant to Regulation D promulgated under the Securities Act,
        issued at a per share price of approximately $0.0276. The per share conversion
        price was based upon a weighted average of the 2005 AIM Exchange common stock
        issuance and a fifty (50) day average of the closing bid and ask prices of
        Elcom’s 2004 Regulation S shares on the AIM Exchange, in accordance with the
        terms of the 2005 Notes. Mr. Smith has certain “piggy-back” registration rights,
        also in accordance with the terms of the 2005 Notes.
 
 On
        December 22, 2005, Elcom’s 10% Senior Convertible Debentures (the “Debentures”)
        and all interest accrued thereon, automatically converted into Elcom common
        stock as a result of the acquisition of a majority interest in Elcom by Smith
        & Williamson Investment Management Limited (“SWIM”) and Smith &
Williamson Nominees Limited (“SWIM Nominees,” and collectively with SWIM, the
“SWIM Entities”). Elcom was informed of this change in control on March 6, 2006
        when the SWIM Entities filed a Form 13D with the SEC. The bulk of the SWIM
        Entities’ shares are 2005 Regulation S Shares. Based on the SWIM Entities’
Schedule 13D, and Elcom’s records, including the shares issued upon conversion
        of the SWIM Nominees’ Debentures, the SWIM Entities owned approximately 64.1% of
        Elcom’s 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.
        As
        further described in the Note (6) (f) below, the Debentures converted at
        an
        amended per share price of approximately $0.04643. Robert J. Crowell, former
        Chairman of Elcom, William W. Smith, former Vice Chairman of Elcom, and John
        E.
        Halnen, former President, Chief Executive Officer and a Director of Elcom,
        each
        held Debentures and, as a result of the conversion of the Debentures, 12,121,413
        Debenture Shares were issued to Mr. Crowell, 9,496,995 Debenture Shares were
        issued to Mr. Smith and 1,636,957 Debenture Shares were issued to Mr. Halnen.
        The Debenture Shares are not registered under the Securities Act, and were
        issued in reliance upon an exemption from registration pursuant to Regulation
        D
        promulgated under the Securities Act. The holders of the Debenture Shares
        have
        certain registration rights.
 
 As
        stated
        above, these common shares were issued in reliance upon an exemption from
        registration provided by Regulation D of the Securities Act. As such, the
        shares
        so issued may not be offered or sold in the U. S. absent registration or
        an
        applicable exemption from registration requirements, such as pursuant to
        Rule
        144 (as described above) under the Securities Act.
 
 *(e)
        Warrants*
 
 **Twelve
                  Months Ended**
                **December
                  31,****2006**
              
              **2005**Warrants
              
              
              300,000
              
              
              450,000
 
 On
        December 30, 1999, the Company signed a Structured Equity Line Flexible
        Financing Agreement (the “Equity Line”) with Cripple Creek Securities. In
        September 2000, the Company sold 60,952 shares to Cripple Creek under the
        Equity
        Line for $320,000. The Company terminated the Equity Line on November 29,
        2001.
        On December 3, 2001, the Company issued warrants to purchase 145,200 and
        4,800
        shares of common stock to Cripple Creek. The warrants were exercisable, had
        an
        exercise price of $1.81 and $6.30, respectively, and expired on December
        2,
        2006. The fair market value of the warrants at the date of the grant was
        $1.21
        and $1.01 per share, respectively, based on the Black-Scholes option pricing
        model, using a volatility factor of 119%, a risk free interest rate of 4.5%,
        an
        expected dividend yield of 0%, and a contractual life of five years.
  F-19
 
 On
        March
        29, 2002, Elcom issued warrants to purchase 300,000 shares of Elcom’s common
        stock to the company that acquired Elcom’s U.S. IT products business (see Note
        8). The warrants have an exercise price of $1.03 per share and expire on
        March
        29, 2009. The fair market value of the warrants at the date of the grant
        was
        $0.91 per share, based on the Black-Scholes option pricing model, using a
        volatility factor of 119%, a risk free interest rate of 3%, an expected dividend
        yield of 0%, and a contractual life of seven years. At December 31, 2006,
        all of
        these warrants were outstanding and exercisable .
 
 **(7)
        COMMITMENTS AND CONTINGENCIES**
 
 *(a)
        Leases*
 
 Elcom
        has
        entered into capital leases for various software, furniture, computer, telephone
        and other equipment. The lease terms range from two to four years and, upon
        expiration, all leases provide purchase options at a nominal price. Property,
        equipment and software includes assets acquired under capital leases totaling
        $1,938,000 and $1,623,000 at December 31, 2006 and 2005, respectively. Related
        accumulated amortization was $1,686,000 and $1,589,000 as of December 31,
        2006
        and 2005, respectively. Amortization of leased assets is included in
        depreciation and amortization expense.
 
 Elcom
        entered into a non-cancelable operating lease for its headquarters office
        space
        in 1993. In early 2006, the period covered by the lease was extended from
        July
        31, 2006 to December 31, 2007. During 2004 and 2005 the lease was amended
        to
        allow Elcom to defer a portion of the lease payments to future periods. Such
        deferrals amounted to $603,000 as of December 31, 2005. In early 2006, Elcom
        paid $353,000 of the deferred amount in cash and issued 3,458,293 shares
        of its
        common stock in satisfaction of the $250,000 balance. The shares were issued
        at
        a per share price of $0.0723, which represents the median of the average
        of the
        closing bid and ask prices of Elcom’s Regulation S shares on the AIM Exchange on
        June 20, 2005 and January 31, 2006, in accordance with the terms of Elcom’s
        lease agreement, as amended on June 20, 2005. These shares of Elcom’s common
        stock were issued in reliance on an exemption from registration pursuant
        to
        Regulation D promulgated under the Securities Act.
 
 The
        office lease requires current payment by Elcom of base rent and all related
        operating expenses of the building, including real estate taxes and
        utilities.
 
 Future
        minimum rental payments under non-cancelable leases as of December 31, 2006
        are
        as follows:
 
 **Year
                  Ending December 31 (in thousands)**
              ****
              **Capital
                  Lease**
              
              **Operating
                  Lease**2007
              
              $
              136
              
              $
              2842008
              
              
              134
              
              
              —2009
              
              
              41
              
              
              —Total
                  minimum lease payments
              
              
              311
              
              $
              284Less
                  amounts representing interest
              
              
              (33
              )Present
                  value of minimum lease payments
              
              
              278Current
                  portion
              
              
              114Long
                  term portion
              
              $
              164
 
 Rent
        expense for operating leases amounted to approximately $284,000 and $430,000,
        for the years ended December 31, 2006 and 2005, respectively.
 
 *(b)
        Employment Contracts and Personnel Expenses*
 
 None
        of
        the key executives have employment contracts, which provide for annual salary,
        incentive payments, and severance arrangements. We are currently in the process
        of formulating employment contracts for key executives.
  F-20
 
 In
        prior
        periods, certain employees elected to receive lower salaries while Elcom
        implemented its cost containment programs. The amounts due to executive officers
        under these arrangements are included in related party accrued salary, bonuses
        and interest, and the balance due other employees is included in accrued
        expenses and other current liabilities. Upon the achievement of positive
        operating cash flow for two sequential quarterly periods, Elcom will begin
        to
        repay the amounts owed to these employees. As of December 31, 2006, the
        total deferred salary amount was $1,186,000, with approximately $714,000
        of such
        balance due to Robert J. Crowell, Chairman of Elcom until April 21, 2006;
        approximately $42,000 of such amount is due to Gregory King, Elcom’s Executive
        Vice President of Business Development, who was appointed a Director of Elcom
        in
        August 2006; and approximately $237,000 of such amount was due to John E.
        Halnen, President and Chief Executive Officer and a Director of Elcom until
        June
        20, 2007. As of December 20, 2007, the total deferred salary amount was
        $856,000, with approximately $714,000 of such balance due to Robert J. Crowell,
        approximately $42,000 of such amount is due to Mr. King. As of
        December 21, 2005, Elcom and Mr. Crowell entered into an Accrued
        Salary Payment Agreement, pursuant to which Elcom shall pay the accrued salary
        amount in installments less applicable withholdings. Elcom shall only begin
        to
        pay the accrued salary amount upon Elcom achieving 2 sequential quarterly
        periods of positive operating cash flow (excluding cash-inflows from financing)
        and the Board in its sole discretion, shall determine the specific amount
        of any
        such payment. Elcom has evaluated these liabilities under SFAS 5 and has
        determined at this time that the likelihood of incurring additional amounts
        than
        what has been recorded is remote.
 
 *(c)
        Contingencies*
 
 Elcom’s
        customer contracts typically contain customary provisions that indemnify
        customers for losses that they may incur in the unlikely event that there
        is an
        intellectual property infringement claim made against the customer relating
        to
        use of Elcom’s PECOS products. Elcom believes that the financial risk relating
        to these provisions is insignificant.
 
 Elcom
        entered into a framework agreement with Mr. Arshad A. Khan, in which Mr.
        Khan either directly in conjunction with another company or through his
        company(s) has granted Elcom exclusive rights to serve as electronic procurement
        platform provider (as a subcontractor) to bid on both private and public
        sector
        contracts generally, but mainly in the Middle East, subject
        to negotiation, execution and delivery of formal legally binding agreements
        with
        him, his company(s) or associated companies customers.  Under the
        terms of the agreement, Elcom deposited €1,000,000
        (approximately $1,200,000)
        with Mr. Khan as a performance bond. The funds were held to Elcom’s order but
        have not as yet been returned by Mr. Khan notwithstanding Elcom's request
        for their return.  Elcom has initiated legal action against Mr. Khan
        in order to recover the $1.2 million performance bond. The litigation is
        in its
        initial stages and it is too early to predict the outcome of such claims.
 
 Elcom
        is
        in a contractual dispute with PA Consulting in respect of the Zanzibar contract,
        Elcom is also considering initiating an intellectual property claim against
        the
        same firm. There can be no assurance that Elcom will be successful in any
        potential intellectual property claim against PA
        Consulting.
 
 From
        time
        to time Elcom is party to various litigation related to contractual issues,
        employment matters and other issues arising out of the normal conduct of
        its
        business. Elcom believes that, based on discussions with its counsel, the
        estimable range of loss, if any, related to litigation is not material in
        relation to the consolidated financial statements.
 
 **(8)
        DISCONTINUED OPERATIONS**
 
 On
        December 31, 2001, Elcom sold substantially all of the assets and liabilities
        of
        Elcom's United Kingdom information technology remarketer business .The results
        of discontinued operations were zero for the years ended December 31, 2006
        and
        2005.
 
 Assets
        and liabilities of discontinued operations consisted of accrued expenses
        and
        other current liabilities of $42,000 at December 31, 2006 and $62,000 at
        December 31, 2005
 
 **(9)
        BUSINESS SEGMENT INFORMATION**
 
 Elcom’s
        continuing operations are classified as a single business segment, specifically
        the development and hosting of purchasing Internet-based software solutions
        which automate many supply chain and financial settlement functions associated
        with procurement. The basic approach used in respect of corporate allocations
        recognizes that in almost all respects the U.K. operates as a sales and limited
        service branch of the US parent. Elcom operates both in the U.S. and U.K.
        and
        geographic financial information for the years ended December 31, 2006 and
        2005,
        were as follows (in thousands):
  F-21
 
 **For
                  Years ended December 31,****2006**
              
              **2005**Net
                  revenuesU.S.
              
              $
              824
              
              $
              718U.K.
              
              
              2,394
              
              
              1,987Net
                  revenues
              
              $
              3,218
              
              $
              2,705Gross
                  profitU.S.
              
              $
              459
              
              $
              505U.K.
              
              
              2,087
              
              
              1,491Gross
                  profit
              
              $
              2,546
              
              $
              1,996
  Identifiable
        assets as of December 31, 2006 and 2005 are as follows:
 
 **2006**
              
              **2005**Identifiable
                  assets from continuing operationsU.S.
              
              $
              1,352
              
              $
              4,522U.K
              
              
              1,617
              
              
              3,2522,969
              
              
              7,774Identifiable
                  assets from discontinued operations
              
              
              -
              
              
              -$
              2,806
              
              $
              7,774
 **(10)
        INCOME TAXES**
 
 Loss
        before income taxes consisted of:
 
 ***2006***
              
              ***2005***U.S.
              
              $
              (3,235
              )
              $
              (3,348
              )Foreign
              
              
              (3,597
              )
              
              (2,492
              )$
              (6,832
              )
              $
              (5,840
              )
 
 Due
        to
        its ongoing operating losses, Elcom does not record an expense or benefit
        for
        income taxes as any benefit recognized would be fully reserved as discussed
        below.
 
 The
        following table summarizes the significant differences between the United
        States
        federal statutory tax rate and Elcom’s effective tax rate for financial
        statement purposes:
 
 ***2006***
              
              ***2005***Statutory
                  tax rate
              
              
              34.0
              %
              
              34.0
              %Non
                  deductible debenture costs and other
              
              
              (291.9
              )
              
              8.3Valuation
                  reserve provided against utilization of net operating loss
                  carryforwards
              
              
              257.9
              
              
              (42.3
              )—
              
              
              —
 
 Deferred
        tax assets (liabilities) consisted of the following as of December 31 (in
        thousands):
 
 ***2006***
              
              ***2005***Deferred
                  tax assets:Nondeductible
                  reserves
              
              $
              29
              
              $
              294Accrued
                  expenses
              
              
              539
              
              
              865Depreciation
              
              
              2,643
              
              
              6,414Foreign
                  net operating loss carryforwards
              
              
              3,369
              
              
              6,946FAS
                  123 R
              
              
              268
              
              
              0Net
                  federal and state operating loss carryforwards
              
              
              43,407
              
              
              52,20650,255
              
              
              66,725Valuation
                  allowance
              
              
              (50,255
              )
              
              (64,193
              )Net
                  deferred tax assets
              
              
              —
              
              
              2,532Deferred
                  tax liabilities:Other
                  intangible assets
              
              
              —
              
              
              (2,532
              )—
              
              
              (2,532
              )Net
                  deferred taxes
              
              $
              —
              
              $
              —
 
 F-22
 
 Elcom
        records a valuation allowance to reduce its deferred tax assets to the amount
        that is more likely than not to be realized. Based on Elcom’s recent losses and
        belief that losses will continue in 2007, Elcom has recorded a valuation
        allowance equal to 100% of its net deferred tax assets. In the event Elcom
        were
        to determine that it would be able to realize its deferred tax assets in
        the
        future, a reduction to the valuation allowance would increase income in the
        period such determination was made.
 
 At
        December 31, 2006, Elcom had U.S. federal net operating loss carry forwards
        of
        approximately $124.8 million, which are available to offset future Federal
        taxable income. These losses expire during the years 2012 through
        2023.
 
 Section
        382 of the Internal Revenue Code of 1986 and the Treasury Regulations
        promulgated thereunder subjects the prospective utilization of the net operating
        losses and certain other tax attributes, such as tax credits, to an annual
        limitation in the event of an ownership change. An ownership change under
        Section 382 generally occurs when the ownership percentage of 5-percent
        stockholders, or stockholders in the aggregate, change by more than 50
        percentage points over a three-year period. As a result of equity offerings,
        most of Elcom's net operating losses and tax credits are subject to these
        limitations. The losses and tax credits subject to these limitations under
        Section 382 would generally be available to Elcom, over time, if Elcom is
        in a
        position to utilize them.
  Elcom's
        ability to utilize its net operating loss and general business tax credit
        carryforwards may be further limited in the future if Elcom experiences
        additional ownership changes as a result of future transactions.
 
 At
        December 31, 2006, Elcom had state net operating loss carryforwards of
        approximately $22.4 million, which are available to offset future state taxable
        income. These losses expire during the years 2003 through 2026.
 
 At
        December 31, 2006, Elcom had foreign net operating loss carryforwards of
        approximately $10.0 million, which are available to offset future foreign
        taxable income. Generally, these losses may be carried forward
        indefinitely.
 
 Elcom
        believes that it is more likely than not that the deferred tax assets at
        December 31, 2006 will not be fully realized in the future. The valuation
        allowance as of December 31, 2006 includes a tax effect of approximately
        $12.4
        million attributable to Federal deductions associated with employee stock
        option
        plans, the benefit of which will be recorded as an increase to paid in capital
        when realized or recognized.
 
 **(11)
        SUBSEQUENT EVENTS**
 
 On
        February 5, 2007, Elcom sold 73,230,009 common shares to investors in the
        U.K.
        and listed the shares on the AIM Exchange. Elcom raised a total of $2.5 million
        in cash, net of issuance costs of $23,948. The funds derived from the 2007
        issuance of common stock on the AIM Exchange are being used to support Elcom’s
        working capital requirements until Elcom achieves positive cash flow.
 
 On
        April
        26, 2007, the Company received notice from the NASD that it was in violation
        of
        NASD Rule 6530 as a result of its failure to file this Annual Report on Form
        10-KSB with the Securities and Exchange Commission within the prescribed
        time
        period, and if such delinquency was not cured by 5:30 p.m. Eastern Daylight
        Saving Time on May 18, 2007, the Company’s stock would not be eligible for
        quotation on the OTC Bulletin Board (the “OTCBB”) and would thereafter be
        removed from the OTCBB. On May 18, 2007, our stock was suspended from the
        OTCBB
        due to a delay in our filing this annual report for the year ended December
        31,
        2006 with the SEC and since then our stock has been listed in the Pink
        Sheets.
  F-23
 **EXHIBIT
              INDEX**
 
 Exhibit
                        No.
                    
                    Description
                        of Document2.1
                    
                    Agreement
                        for the sale and purchase of shares in the capital of Prophet
                        Group
                        Limited dated December 6, 1996, by and among Lantec (Management)
                        Limited
                        (a subsidiary of the Registrant) and the Vendors (as defined
                        therein).
                    
                    (2)2.2
                    
                    Agreement
                        for the sale and purchase of shares in the capital of Data
                        Supplies
                        Limited dated February 21, 1997, by and among Elcom Group
                        Limited (a
                        subsidiary of the Registrant), the Vendor (as defined therein)
                        and Mr.
                        Savage.
                    
                    (3)2.3
                    
                    Offer
                        for the Sale of Business and Certain Assets of Elcom Holdings
                        Limited and
                        Elcom Information Technology Limited.
                    
                    (21)2.4.1
                    
                    Domain
                        Name Transfer Documents.
                    
                    (21)2.4.2
                    
                    Lloyds
                        TSB Novation Agreement.
                    
                    (21)2.4.3
                    
                    Property
                        Document.
                    
                    (21)2.4.4
                    
                    Elcom
                        Logo License.
                    
                    (21)2.4.5
                    
                    Starbuyer
                        Trademark License.
                    
                    (21)2.5
                    
                    Asset
                        Purchase and Sale Agreement dated March 25, 2002 by and among
                        Elcom
                        Services Group, Inc., elcom, inc. and Elcom International,
                        Inc. and ePlus
                        Technology, Inc.
                    
                    (25)2.6.1
                    
                    Amendment
                        to Asset Purchase Agreement.
                    
                    (25)2.6.2
                    
                    Managed
                        Services Agreement, dated March 29, 2002 by and among Elcom
                        Services
                        Group, Inc., elcom, inc. and Elcom International, Inc. and
                        ePlus
                        Technology, Inc.
                    
                    (25)2.6.3
                    
                    Registration
                        Rights Agreement dated March 29, 2002 by and between Registrant
                        and Elcom
                        International, Inc. and ePlus Technology, Inc.
                    
                    (25)3.3
                    
                    Second
                        Restated Certificate of Incorporation of the Registrant,
                        as
                        amended.
                    
                    (4)(29)
                        (30)3.4
                    
                    By-Laws
                        of the Registrant, amended as of November 6, 1995, and December
                        21,
                        2005.
                    
                    (1)(31)4.1
                    
                    Form
                        of 8% Convertible Promissory Note.
                    
                    (28)4.2
                    
                    Form
                        of 8% Replacement Convertible Promissory Note.
                    
                    (31)4.3
                    
                    Form
                        of 8% Convertible Promissory Note.
                    
                    (31)4.4
                    
                    Specimen
                        certificate of the Registrant’s Common Stock.
                    
                    (1)4.5
                    
                    Form
                        of 8% Series A Cumulative Convertible Preferred (“Series A”) Stock
                        Purchase Agreement, with attached list of purchasers and
                        number of shares
                        purchased, as of December 10, 1993.
                    
                    (1)4.6
                    
                    Form
                        of Series B Preferred Stock Purchase Agreement for Closings
                        held on April
                        15, June 21 and August 11, 1994, with attached list of purchasers
                        and
                        number of shares purchased.
                    
                    (1)4.7
                    
                    Form
                        of Series B Preferred Stock Purchase Agreement for Closings
                        held on
                        December 30, 1994 and February 6, 1995, with attached list
                        of purchasers
                        and number of shares purchased.
                    
                    (1)4.8
                    
                    Form
                        of Series C Preferred Stock Purchase Agreement for Closings
                        held on June
                        22 and June 30, 1995, with attached list of purchasers and
                        number of
                        shares purchased.
                    
                    (1)4.9
                    
                    Securities
                        Agreement, dated September 1, 1993, as amended February 1,
                        1994, by and
                        among the Registrant, Robert J. Crowell, and 19 other listed
                        purchasers,
                        as of June 2, 1995, and list of other assignees of certain
                        registration
                        rights thereunder.
                    
                    (1)(11)
  
  Exhibit
                        No.
                    
                    Description
                        of Document
 4.10
                    
                    Securities
                        Agreement, dated October 28, 1994, by and among the former
                        stockholders of
                        CSI and the Registrant.
                    
                    (1)4.11
                    
                    Computerware
                        Stockholders’ Agreement, dated February 6, 1995, by and among the
                        Registrant, Robert J. Crowell and the former shareholders
                        of
                        Computerware.
                    
                    (1)4.12
                    
                    Amended
                        and Restated Lantec Stockholders’ Agreement, dated April 6, 1996, by and
                        among the Registrant, Robert J. Crowell and the former shareholders
                        of
                        Lantec and Renouncement of related Board Observer Right effective
                        December
                        16, 1999.
                    
                    (5)(16)4.13
                    
                    Form
                        of Lantec Warrant Agreement, dated January 7, 2000, with
                        attached Second
                        Amended List of Holders of Warrants to Purchase Common Shares
                        of the
                        Registrant.
                    
                    (16)4.14
                    
                    AMA
                        Securities Agreement, dated February 29, 1996, by and among
                        the Registrant
                        and the former stockholders of AMA (UK) Limited.
                    
                    (7)4.15
                    
                    Final
                        Agreement of Settlement and Mutual Release of All Claims
                        and Demands,
                        dated March 26, 1997, by and among the Registrant and certain
                        of its
                        subsidiaries, and the Former Shareholders of Computerware
                        Business
                        Trust.
                    
                    (10)4.16
                    
                    Warrant
                        by and between Registrant and ePlus Technology, Inc., dated
                        March 29,
                        2002.
                    
                    (25)4.17
                    
                    Form
                        of Amended 10% Convertible Senior Debenture due April 23,
                        2013.
                    
                    (34)4.18
                    
                    Warrant
                        Agreement, dated December 3, 2001, by and between Elcom and
                        Cripple Creek
                        Securities, LLC.
                    
                    (24)10.1
                    
                    Form
                        of Indemnity Agreement for Executive Officers and/or Directors
                        of the
                        Registrant, with attached list of Director and/or Executive
                        Officer
                        Indemnitees.
                    
                    (1)(13)
                        (*)10.2
                    
                    Stock
                        Option Plan of the Registrant dated February 23, 1993, as
                        amended June 3,
                        1994 and November 6, 1995.
                    
                    (1)(*)10.3
                    
                    1995
                        (Computerware) Stock Option Plan of the Registrant, dated
                        February 6,
                        1995, as amended by Amendment No. 1 dated August 19, 1996.
                    
                    (1)(7)
                        (*)10.4
                    
                    Lease
                        Agreement for the Registrant’s Headquarters, dated July 5, 1993, by and
                        between Oceana Way Associates and the Registrant, and Agreement
                        of
                        Amendment thereto, dated October 20, 1997, December 31, 2000
                        and February
                        24, 2006.
                    
                    (1)(11)
                        (19)(33)10.5
                    
                    Lease
                        Agreements for Lantec Headquarters, among Allied Dunbar Assurance
                        PLC to
                        Businessland (UK) Limited and Businessland Inc., dated November
                        23, 1988,
                        with Licenses to Assign to Lantec Information Services Ltd.,
                        and
                        Supplemental Deed dated November 4, 1993.
                    
                    (1)10.6
                    
                    Structured
                        Equity Line Flexible Financing Agreement, dated December
                        30, 1999, between
                        the Registrant and Cripple Creek Securities, LLC, Amended
                        and Restated
                        Structured Equity Line Flexible Financing Agreement, dated
                        April 7, 2000,
                        Amendment No. 1, and Amendment No. 2.
                    
                    (15)(17)10.7
                    
                    Registration
                        Rights Agreement, dated December 30, 1999, between the Registrant
                        and
                        Cripple Creek Securities, LLC., and Amended and Restated
                        Registration
                        Rights Agreement, dated April 7, 2000.
                    
                    (16)(15)10.8
                    
                    Form
                        of Warrant and Minimum Commitment Warrant of the Registrant
                        issuable to
                        Cripple Creek Securities, LLC.
                    
                    (15)10.9
                    
                    1995
                        Non-Employee Director Stock Option Plan of the Registrant,
                        dated October
                        9, 1995, and Amendment No. 1 thereto.
                    
                    (1)(8)
                        (*)10.10
                    
                    The
                        1996 Stock Option Plan of Elcom International, Inc.
                    
                    (6)(*)
  
  Exhibit
                        No.
                    
                    Description
                        of Document
 10.11
                    
                    The
                        1997 Stock Option Plan of Elcom International, Inc., and
                        Amendments One
                        and Two thereto.
                    
                    (11)(12)
                        (*)10.12
                    
                    The
                        2000 Stock Option Plan of the Registrant.
                    
                    (18)
                        (*)10.13
                    
                    The
                        2001 Stock Option Plan of the Registrant, as amended and
                        restated.
                    
                    (20)
                        (*)10.14
                    
                    The
                        2002 Stock Option Plan of the Registrant.
                    
                    (22)
                        (*)10.15
                    
                    The
                        2004 Stock Option Plan of the Registrant.
                    
                    (29)
                        (*)10.16
                    
                    The
                        2005 Stock Option Plan of the Registrant.
                    
                    (30)
                        (*)10.17
                    
                    Elcom
                        International, Inc. Executive Profit Performance Bonus Plan
                        for Executive
                        Officers dated September 4, 1997.
                    
                    (9)(*)10.18
                    
                    Elcom
                        International, Inc. Key Personnel Profit Performance Bonus
                        Plan dated,
                        September 4, 1997.
                    
                    (9)(*)10.19
                    
                    Employment
                        Agreement dated December 21, 2005, between Elcom International,
                        Inc. and
                        Robert J. Crowell.
                    
                    (31)(*)10.20
                    
                    Employment
                        Agreement dated December 21, 2005, between Elcom International,
                        Inc. and
                        John E. Halnen.
                    
                    (31)(*)10.21
                    
                    Form
                        of Registration Agreement, dated April 23, 2003, among Elcom
                        International, Inc. and the Investors party thereto.
                    
                    (26)10.22
                    
                    Form
                        of Collateral Agency and Security Agreement, dated April
                        23, 2003, among
                        Elcom International, Inc. and the Investors party thereto.
                    
                    (26)10.23
                    
                    Form
                        of Investment Agreement between Elcom, Smith & Williamson Corporate
                        Finance Limited, several investors and the Directors of Elcom
                        named
                        therein.
                    
                    (27)10.24
                    
                    Accrued
                        Salary Payment Agreement dated December 21, 2005 by and between
                        Elcom
                        International, Inc. and Robert J. Crowell.
                    
                    (31)(*)10.25
                    
                    Amended
                        and restated Collateral Agency and Security Agreement, dated
                        as of August
                        9, 2005, among Elcom, William W. Smith, as Collateral Agent
                        and the
                        secured parties.
                    
                    (28)10.26
                    
                    Form
                        of Subscription Agreement, dated November 30, 2005, as amended,
                        and
                        accepted by the Registrant on December 20, 2005, by and between
                        the
                        Registrant and members of the Investor Group.
                    
                    (31)10.27
                    
                    Sub-Framework
                        Agreement, dated August 12, 2005, between PA Shared Services
                        Limited and
                        Elcom Systems Limited.
                    
                    (32)10.28
                    
                    Revenue
                        Share Agreement, dated August 12, 2005, between Elcom Systems
                        Limited,
                        IMPAQ Business Solutions Limited, PA Consulting Services
                        Limited, @UK plc
                        and PA Shared Services Limited.
                    
                    (32)10.29
                    
                    Parent
                        Company Guarantee, dated August 12, 2005, by Elcom International,
                        Inc. and
                        elcom, inc., in favor of PA Shares Services Limited.
                    
                    (32)10.30
                    
                    Agreement,
                        dated as of March 23, 2006, by and among Elcom International,
                        Inc., Smith
                        & Williamson Investment Management Limited and Smith & Williamson
                        Nominees Limited, and the directors named therein.
                    
                    (35)10.31
                    
                    Form
                        of Indemnity Agreement for Executive Officers and/or Directors
                        of the
                        Registrant executed by and between Elcom International, Inc.
                        and Sean
                        Lewis, dated March 30, 2006.
                    
                    (36)10.32
                    
                    Release
                        Agreement, dated April 21, 2006, by and between Elcom International,
                        Inc. and Robert J. Crowell.
                    
                    (37)
  
  Exhibit
                        No.
                    
                    Description
                        of Document
 10.33
                    
                    Form
                        of Indemnification Agreement for Internal Revenue Code Section 409A,
                        one executed by and between Elcom International, Inc. and
                        John E. Halnen
                        and one executed by and between Elcom International, Inc.
                        and Robert J.
                        Crowell.
                    
                    (37)10.34
                    
                    Consulting
                        Agreement, dated as of July 21, 2006, by and between Elcom
                        International,
                        Inc. and Laurence F. Mulhern.
                    
                    (38)10.35
                    
                    First
                        Amendment to Employment Agreement, dated as of August 1, 2006, by and
                        between Elcom International, Inc. and John E. Halnen.
                    
                    (39)10.36
                    
                    Form
                        of Subscription Agreement dated October 18, 2006 by and among
                        the
                        Registrant and members of the Investor Group.
                    
                    (40)10.37
                    
                    Agreement,
                        dated as of February 2, 2007, by and among Elcom International,
                        Inc.,
                        Smith & Williamson Investment Management Limited and Smith &
                        Williamson Nominees Limited, and the directors named therein.
                    
                    (41)10.38
                    
                    Separation
                        Agreement and Release, effective and enforceable on February
                        15, 2007, by
                        and among Elcom International, Inc. and Paul C. Bogonis.
                    
                    (42)10.39
                    
                    Severance
                        and Release Agreement, by Elcom International, Inc. and John
                        E. Halnen
                        effective June 20, 2007.
                    
                    (43)21.1
                    
                    List
                        of the Registrant’s Subsidiaries.
                    
                    (16)23.1
                    
                    Consent
                        of Vitale, Caturano & Company, Ltd.
                    
                    (x)23.2
                    
                    Consent
                        of Malone Bailey, P.C.
                    
                    (x)31.1
                    
                    Rule
                        13a-15(e) Certification of Principal Executive Officer.
                    
                    (x)31.2
                    
                    Rule
                        13a-15(e) Certification of Principal Financial and Accounting
                        Officer.
                    
                    (x)32.1
                    
                    Section
                        1350 Certification of Principal Executive Officer.
                    
                    (x)32.2
                    
                    Section
                        1350 Certification of Principal Financial and Accounting
                        Officer.
                    
                    (x)
 
 (x)
                    Filed
                        herewith.
 
 (*)
                    Management
                        contract or compensatory plan or
                        arrangement.
 
 (1)
                    Previously
                        filed as an exhibit to Registration Statement No. 33-98866
                        on Form S-1 and
                        incorporated herein by reference.
 
 (2)
                    Previously
                        filed as an exhibit to Current Report on Form 8-K filed December
                        19, 1996,
                        and incorporated herein by
                        reference.
 
 (3)
                    Previously
                        filed as an exhibit to Current Report on Form 8-K filed March
                        6, 1997, and
                        incorporated herein by reference.
 
 (4)
                    Previously
                        filed as an exhibit to Registrant’s Annual Report on Form 10-K for the
                        year ended December 31, 2002 and incorporated herein by
                        reference.
 
 (5)
                    Previously
                        filed as an exhibit to Registrant’s Quarterly Report on Form 10-Q for the
                        quarter ended March 31, 1996 and incorporated herein by
                        reference.
 
 (6)
                    Previously
                        filed as an exhibit to Registrant’s Quarterly Report on Form 10-Q for the
                        quarter ended September 30, 1996 and incorporated herein
                        by
                        reference.
 
 (7)
                    Previously
                        filed as an exhibit to Registrant’s Annual Report on Form 10-K for the
                        year ended December 31, 1996 and incorporated herein by
                        reference.
  
  (8)
                    Previously
                        filed as an exhibit to Registrant’s Quarterly Report on Form 10-Q for the
                        quarter ended June 30, 1997 and incorporated herein by
                        reference.
 
 (9)
                    Previously
                        filed as an exhibit to Registrant’s Quarterly Report on Form 10-Q for the
                        quarter ended September 30, 1997 and incorporated herein
                        by
                        reference.
 
 (10)
                    Previously
                        filed as an exhibit to Registrant’s Current Report on Form 8-K dated March
                        26, 1997 filed April 8, 1997, and incorporated herein by
                        reference.
 
 (11)
                    Previously
                        filed as an exhibit to Registrant’s Annual Report on Form 10-K for the
                        year ended December 31, 1997, and incorporated herein by
                        reference.
 
 (12)
                    Previously
                        filed as an exhibit to Registrant’s Annual Report on Form 10-K for the
                        year ended December 31, 1998 and incorporated herein by
                        reference.
 
 (13)
                    Previously
                        filed as an exhibit to Registrant’s Quarterly Report on Form 10-Q for the
                        quarter ended June 30, 1999 and incorporated herein by
                        reference.
 
 (14)
                    Previously
                        filed as an exhibit to Registrant’s Quarterly Report on Form 10-Q for the
                        quarter ended September 30, 1999 and incorporated herein
                        by
                        reference.
 
 (15)
                    Previously
                        filed as an exhibit to Registration Statement No. 333-94743
                        on Form S-3
                        and incorporated herein by
                        reference.
 
 (16)
                    Previously
                        filed as an exhibit to Registrant’s Annual Report on Form 10-K for the
                        year ended December 31, 1999 and incorporated herein by
                        reference.
 
 (17)
                    Previously
                        filed as an exhibit to Registrant’s Quarterly Report on Form 10-Q for the
                        quarter ended June 30, 2000 and incorporated herein by
                        reference.
 
 (18)
                    Previously
                        filed as an exhibit to Registration Statement No. 333-54852
                        on Form S-8
                        and incorporated herein by
                        reference.
 
 (19)
                    Previously
                        filed as an exhibit to Registrant’s Annual Report on Form 10-K for the
                        year ended December 31, 2000 and incorporated herein by
                        reference.
 
 (20)
                    Previously
                        filed as an exhibit to Registration Statement No. 333-61316
                        on Form S-8
                        and incorporated herein by
                        reference.
 
 (21)
                    Previously
                        filed as an exhibit to Registrant’s Current Report on Form 8-K, filed on
                        January 11, 2002, and incorporated herein by
                        reference.
 
 (22)
                    Previously
                        filed as an exhibit to Registration Statement No. 333-91488
                        on Form S-8
                        and incorporated herein by
                        reference.
 
 (23)
                    Previously
                        filed as an exhibit to Registrant’s Quarterly Report on Form 10-Q for the
                        quarter ended June 30, 2002 and incorporated herein by
                        reference.
 
 (24)
                    Previously
                        filed as an exhibit to Registrant’s Annual Report on Form 10-K for the
                        year ended December 31, 2001 and incorporated herein by
                        reference.
 
 (25)
                    Previously
                        filed as an exhibit to Current Report on Form 8-K filed April
                        10, 2002 and
                        incorporated herein by reference.
  
  (26)
                    Previously
                        filed as an exhibit to Registrant’s Annual Report on Form 10-K, as
                        amended, for the year ended December 31, 2003 and incorporated herein
                        by reference.
 
 (27)
                    Previously
                        filed as an exhibit to Registrant’s Quarterly Report on Form 10-QSB for
                        the quarter ended June 30, 2004 and incorporated herein by
                        reference.
 
 (28)
                    Previously
                        filed as an exhibit to Current Report on Form 8-K filed August
                        10, 2005,
                        and incorporated herein by
                        reference.
 
 (29)
                    Previously
                        filed as an Appendix to Registrant’s Definitive Proxy Statement filed May
                        21, 2004, and incorporated herein by
                        reference.
 
 (30)
                    Previously
                        filed as an Appendix to Registrant’s Definitive Proxy Statement filed May
                        23, 2005, and incorporated herein by
                        reference.
 
 (31)
                    Previously
                        filed as an exhibit to Current Report on Form 8-K filed December
                        23, 2005,
                        and incorporated herein by
                        reference.
 
 (32)
                    Previously
                        filed as an exhibit to Current Report on Form 8-K filed August
                        18, 2005,
                        and incorporated herein by
                        reference.
 
 (33)
                    Previously
                        filed as an exhibit to Current Report on Form 8-K filed March
                        2, 2006, and
                        incorporated herein by reference.
 
 (34)
                    Previously
                        filed as an exhibit to Current Report on Form 8-K filed March
                        10, 2006,
                        and incorporated herein by
                        reference.
 
 (35)
                    Previously
                        filed as an exhibit to Current Report on Form 8-K dated March
                        23, 2006
                        filed March 24, 2006), and incorporated herein by
                        reference.
 
 (36)
                    Previously
                        filed as an exhibit to Current Report on Form 8-K filed April
                        10, 2006 and
                        incorporated herein by reference.
 
 (37)
                    Previously
                        filed as an exhibit to Current Report on Form 8-K filed April
                        27, 2006 and
                        incorporated herein by reference.
 
 (38)
                    Previously
                        filed as an exhibit to Current Report on Form 8-K filed July
                        27, 2006 and
                        incorporated herein by reference.
 
 (39)
                    Previously
                        filed as an exhibit to Current Report on Form 8-K filed August
                        3, 2006 and
                        incorporated herein by reference.
 
 (40)
                    Previously
                        filed as an exhibit to Current Report on Form 8-K filed October
                        24, 2006
                        and incorporated herein by
                        reference
 
 (41)
                    Previously
                        filed as an exhibit to Current Report on Form 8-K dated February
                        2, 2007
                        (filed February 7, 2007), and incorporated herein by
                        reference.
 
 (42)
                    Previously
                        filed as an exhibit to Current Report on Form 8-K dated February
                        15, 2007
                        (filed February 20, 2007), and incorporated herein by
                        reference.
 
 (43)
                    Previously
                        filed as an exhibit to Current Report on Form 8-K/A dated
                        June 20, 2007
                        (filed July 24, 2007), and incorporated herein by
                        reference.