SecProbe.io

CORRESP
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September 30, 2005

United States Securities
and Exchange Commission450
Fifth Street, N.W.

Washington, D.C. 20549

Attention: Mr. Stephen
Krikorian, Accounting Branch Chief

Via EDGAR Correspondence

RE: Elcom International,
Inc. (“Elcom” or the “Company”)

Form 10-KSB for the fiscal year ended December 31, 2004 (“Form 10-KSB”) File No.
000-27376

Ladies and Gentlemen:

        This
correspondence responds in detail to the Commission’s comment letter on the
Company’s Form 10-KSB, which were issued by letter dated August 30, 2005. We very
much appreciate your patience in allowing Elcom additional time to prepare our response.

        We
understand and acknowledge that the Company is responsible for the adequacy and accuracy
of the disclosure in the Form 10-KSB; that the staff comments or changes to disclosure in
response to staff comments do not foreclose the Commission from taking any action with
respect to the filing; and the Company may not assert staff comments as a defense in any
proceeding initiated by the Commission or any person under the federal securities laws of
the U.S.

        This
correspondence first provides, a general description of the Company’s revenue
recognition policies, and then provides specific responses to the Commission’s
comments. For your convenience, we have repeated your comments in italics, followed
by our responses.

Revenue recognition
– general comment:

        As
further detailed in our responses to the Commission’s comments, the Company’s
revenue recognition disclosure continues to evolve as Elcom’s business has progressed
from licensing legacy-type software operated by its clients (“Legacy Software”)
to a business where Elcom hosts the clients’ software system using the internet as
the communication link (“Hosted Software”). This evolution has occurred over the
last three to four years. The Company’s agreements provide limited rights to Hosted
Software clients to take possession of, and operate the software on their own, however
Elcom believes that most of its customers would incur significant costs and effort to
operate the software on their own or to engage a third party to do so. Accordingly, the
Company generally recognizes revenues of its Hosted Software agreements in accordance with
SAB topic 13. The one exception to this is the Company’s arrangement with Capgemini
UK Plc (“Capgemini”, formerly, Cap Gemini Ernst & Young Plc), relative to
its contract with the Scottish Executive, which are accounted for under SOP 97-2/98-9, as
further discussed below. Over the past year, Elcom’s U.S. business model is further
evolving to a new format where Elcom hosts an eMarketplace and earns servicing fees from
the client’s vendors based on transactions that are processed through the system
(“eMarketplace”). Therefore, as this new business model goes forward the Company
will be recognizing revenues based on the volume of transactions passing through the
eMarketplace system, once Elcom is assured the revenue is collectible. Elcom acknowledges
this opportunity to clarify its disclosures in this area, and attached hereto as Appendix
A, is a draft of the Company’s revised revenue recognition footnote.

Form 10-KSB for the fiscal year ended December 31, 2004;  Note (2) Summary of Significant  Accounting  Policies:  (h) Revenue

Recognition.

SEC Comment #1:

We
note that your revenue consists principally of implementation, consulting and training
fees for new licenses  and ongoing fees for hosting, licensing and maintenance of
software. Your disclosure further indicates that you  recognize revenue using the
residual method in accordance with SOP 98-9. Clarify the arrangements for which you
apply the residual method and how you have evaluated the appropriateness of applying
the residual method to these  arrangements pursuant to paragraph 5 of SOP 98-9. As
part of your response, identify the delivered and  undelivered elements in your
arrangements and identify the elements where you believe you have established
vendor-specific objective evidence (VSOE) of fair value and those that you have not.
For elements where VSOE of  fair value exists, explain and justify the manner in
which VSOE was established. Refer to paragraph 10 of SOP  97-2; and

SEC Comment #5:

We
note from your disclosure on page 10 and F-16 that you recognized the fourth and final
lump sum license payment  from Capgemini UK Plc of $1,142,000 as revenue, which was
earned upon signing the thirteenth customer of the  eProcurement Scotland program
in the first quarter 2004. Provide us a summary of your agreement with Capgemini,
including a summary of the scope of work, total contract value, contract period,
elements of the arrangement and  acceptance provisions. Further, clarify the
revenue recognition literature that you applied to this agreement and  why you
considered it appropriate to recognize as revenue the fourth payment in this arrangement
upon signing the  thirteenth customer to this program. Tell us whether you were
required to provide any additional services or had  any additional obligations to
Capgemini or the end customer after recognizing this revenue. Tell us when you
recognized revenue for the first three license payments in this arrangement and how you
determined that revenue  was earned. Further, clarify how your revenue recognition
disclosure addresses your policy for recognizing  revenue in this arrangement.
Separately address your revenue recognition policies for the implementation fees,
monthly hosting and maintenance fees you receive for each entity that joins the
eProcurement Scotland Program.

Response:

        In
prior years the Company had Legacy Software licenses that included the provision of
software, as well as software upgrades (unspecified) and support (maintenance). Generally,
the Legacy Software licenses provided for separate payments of license and maintenance
fees, and any other custom services were also separately stated and priced. These
agreements also provided for maintenance (and in certain cases license) fees for
subsequent years. The Company believes that the number of Legacy Software licenses, and
renewals thereof it has accomplished, and the consistency among them, allowed it to
establish vendor-specific objective evidence (“VSOE”) of the fair value of
separate maintenance and license fees in accordance with paragraph 10 of SOP 97-2 and
Example 4 in paragraph 6 of SOP 98-9. Generally, maintenance charges approximated twenty
percent (20%) of the license fee. Although the percentage was subject to limited
negotiation, Elcom was fairly consistent in achieving the twenty percent (20%). Therefore,
Elcom’s former independent accountants agreed with the VSOE of the maintenance and
license revenues. Accordingly, license revenues were generally recognized upon client
acceptance of the software, as there were no further specified deliverables, other than
ongoing maintenance, which was paid for separately. Certain of these arrangements extended
into 2003, and at this time all current clients have been converted to Hosted Software or
eMarketplace arrangements, which are further discussed below.

        The
Company did not sign any new customers in 2004, however certain additional public entities
were added to the Capgemini/Scottish Executive agreement. In the case of the Scottish
Executive contract, the Company licenses its Hosted Software to Capgemini, who is the
prime contractor with the Scottish Executive (this is a group of public entities in
Scotland, such as the ambulance service, the prisons service, certain hospitals, etc.),
and because Capgemini can take possession of the software at their option, Elcom treated
revenues under this contract as licenses under SOP 97-2/98-9. The Company believed that
because of the expertise that Capgemini possessed, it would be able to host the software
and maintain the hosted service on its own, which addressed the “delivery” issue
considered in EITF 00-3. The original contract was entered into in November of 2001, had
an original term of seven years, and generally provided for the following types of
payments to Elcom:

o        Milestone license payments
o        Implementation fees
o        Annual hosting (maintenance) fees
o        Test system fees (separate instance)
o        Other professional services on a time and material basis

        In
summary, the Capgemini Hosted Software agreement required that the Company develop and
host an operational software suite for use by the Scottish Executive. Much of the required
software was developed over prior years by Elcom and modified to support the contract
specifications before initial delivery to the client. Although certain additional
modifications were required, they were completed within the first contract year, and there
were no contract provisions that related any of the contract payments to the software
modifications, nor are there any additional Elcom obligations beyond the ongoing
maintenance/hosting for which Elcom has an established VSOE. Elcom does have a
responsibility to provide training or other specified services, but these are provided at
normal per diem rates. In recognition of the development effort incurred by Elcom to
develop the required system, the Capgemini Hosted Software agreement provided substantial
payments to Elcom upon the signing of the first, fifth, eighth and thirteenth customers.
The contract also separately provided specified payments for installing/bringing an
entity’s system operational (“live”), as well as annual payments for
hosting the clients’ use of the software. The Company priced this transaction
anticipating a total of 25 to 30 public entities would be served, although it hoped that
40 would actually sign up. If 27.5 (simple average of 25 and 30) public entities were to
sign up, Elcom would have recurring (first and second year) maintenance revenues of
£522,500, or approximately 21% of the total license fee of £2.5 million.
Because the Company had delivered the software and had VSOE of the fair value of the
separate fees for all its other responsibilities, it recognized license revenue upon
achievement of each milestone agreed with Capgemini. In terms of its implementation
(professional services) fees on this contract Elcom is entitled to specified fees upon
installation/bringing an entity live. This “go-live” fee is earned upon, and is
only billed at the time that all agree the end user entity is live and can use the system.
Elcom bills this fee and the first year hosting fee upon completion of the go-live process
and agreement of all concerned. All such fees were billed and collected in the normal
course. The go-live professional services for the Capgemini agreement are recognized by
the Company upon billing (billing does not occur until fees are earned), and the hosting
fees are recognized ratably over the ensuing year.

        A
summary of the major payments under the Capgemini agreement are as follows:

o Four milestone license payments of
£625,000 (the fourth of these translates to the $1,142K) o Payment upon client go
live/implementation £25,000 (subject to inflation adjustment) o Annual
maintenance/hosting fee £19,000 (years 1 & 2 — subject to inflation
adjustment) o Annual maintenance/hosting fee £17,000 (years 3, 4 & 5 —
subject to inflation adjustment) o Annual maintenance/hosting fee £14,558 (years 6
& 7 — subject to inflation adjustment)

        The
go live and maintenance/hosting payments are subject to escalation (based on increased
costs). Elcom recognized three of the milestone license fees in 2002, and the final one in
2004. Currently there are 21 public entities signed to use the Hosted Software under this
contract, however only 17 had gone live as of the end of 2004, with 8 of those going live
in 2004. The Company’s hosting fee revenues in 2004 were approximately $443,000, or
9% of the license fee. In 2005 these fee revenues are projected to be approximately
$700,000, or 15% of the license fee. At this time all but one of the 21 public entities
under agreement has gone live. It should be noted that if a public entity does not renew,
Elcom can take their hosted instance off-line and not allow them access to the system.
To-date all public entities have renewed their agreements.

SEC Comment #2:

Your
disclosure on page 14 indicates that you have established VSOE of fair value of
maintenance based on renewal  rates. Explain how you have considered the guidance
in AICPA Technical Practice Aid, Section 5100.53 and 54 when  establishing fair
value of maintenance in short-term based licenses and long-term time based licenses,
respectively.

Response:

        Virtually
all Legacy Software and Hosted Software agreements require(d) annual payments of
maintenance/hosting fees. If these fees are not paid, the Company has the right to cancel
the agreement without further liability to the client. In prior years the Legacy Software
agreements generally provided for annual maintenance approximating twenty percent (20%) of
the license fee. The Company believes that the treatment of the Capgemini and historical
Legacy Software licenses is consistent with paragraph .54 of the AICPA Technical Practice
Aid, Section 5100, as the renewal rate and term are substantive, as historically
demonstrated. Elcom has a high rate of client renewal, and realizes its list
hosting/maintenance price (20%) in virtually all renewals. Current market trends and more
recently proposed Hosted Software agreements do not provide for an up-front license fee,
but may charge annual/monthly amounts for hosting/maintenance, user based fees, and/or
supplier maintenance fees – the fees charged vary by contract. The Company recognizes
these fees over the related contract period.

SEC Comment #3:

We
note that professional services, including implementation and training, are generally
recognized at the time  the services are performed, which appear to precede the
license, hosting and maintenance period. Clarify how you  recognize revenue for
these professional services in arrangements that contain elements for term license,
hosting  and maintenance services. Tell us how you consider the guidance of
paragraphs 12, 66 and 67 of SOP 97-2 when  determining the appropriate timing to
recognize your professional service revenue.

Response:

        Professional
services revenues are recognized when earned, and the Company is assured of collection of
the fees. Elcom has two basic types of professional services: those provided on a time and
material basis and those provided under specific contractual provisions. In all cases the
Company works from an established pricing schedule, which considers the qualifications of
various personnel and nature of the agreed work. Time and material professional services
are recognized as rendered so long as the Company is comfortable that the client will be
satisfied and remit the billed amount. Elcom only has a few customers that request time
and material professional services work, which amounted to approximately $300,000 in 2004.

        In
virtually all of Elcom’s current arrangements, the Company must provide a functioning
instance of its Hosted Software to meet the specifications of the customer in order to
fulfill its obligations. Although the degree of effort may vary from customer to customer,
the Company’s license or hosting revenue recognition does not commence until the
required software has been supplied, and accepted by the client. Any professional services
“hard-priced” in an agreement would typically be limited to training or a table
of current hourly rates for time and material work. These items are priced fairly
consistently, with a high gross margin. Accordingly, the Company does not typically have
post-delivery professional services that are included in a software agreement, as
anticipated by paragraphs 12, 66 and 67 of SOP 97-2.

        It
should be noted that in the case of the Capgemini agr