Edgar Filing: ELEC COMMUNICATIONS CORP

form_10-qfeb282007edgar.htm -- Converted by SEC Publisher, created by BCL Technologies Inc., for SEC Filing

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549


FORM 10-Q

(Mark One)
[ X ]	QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE
	SECURITIES EXCHANGE ACT OF 1934.

For the quarterly period ended February 28, 2007.

OR

[ ]	TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE
	SECURITIES EXCHANGE ACT OF 1934.

For the transition period from to .

Commission file number 0-4465

eLEC Communications Corp.
(Exact Name of Registrant as Specified in Its Charter)


	New York	13-2511270
	(State or Other Jurisdiction	(I.R.S. Employer
	of Incorporation or Organization)	Identification No.)


	75 South Broadway, Suite 302, White Plains, New York	10601
	(Address of Principal Executive Offices)	(Zip Code)


Registrant’s Telephone Number, Including Area Code		914-682-0214


	Indicate by check mark whether the registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such filing requirements for the past
90 days. Yes X No .

	Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a
non-accelerated filer. See definition of “accelerated filer and large accelerated filer in Rule 12b-2 of the
Exchange Act. (Check one):

	Large Accelerated Filer Accelerated Filer Non-Accelerated Filer X .

	Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act). Yes No X

	The number of outstanding shares of the Registrant’s Common Stock as of April 16, 2007 was
22,459,282.

PART 1. FINANCIAL INFORMATION

Item 1.	Financial Statements

eLEC Communications Corp. and Subsidiaries
Condensed Consolidated Balance Sheet

		Feb. 28, 2007		Nov. 30, 2006
		(Unaudited)		(See Note 1)
Assets
Current assets:
Cash and cash equivalents		$ 311,353		$1,337,525
Accounts receivable, net		627,143		630,197
Prepaid expenses and other current assets		66,764		154,749
Deferred finance costs, net			864,644		1,012,941
Total current assets		1,869,904		3,135,412

Property, plant and equipment, net		899,478		903,281


Other assets			167,383		149,525
Total assets			$2,936,765		$4,188,218

Liabilities and stockholders’ equity deficiency
Current liabilities:
Current portion of long-term debt and capital lease obligations		$3,353,464		$3,347,707
Warrant liability		2,211,404		1,251,182
Accounts payable and accrued expenses		2,626,043		2,897,495
Taxes payable		548,014		559,617
Deferred Revenue			151,900		166,100
Total current liabilities		8,890,825		8,222,101

Long-term debt and capital lease obligations, less current maturities			202,405		214,907
Total liabilities			9,093,230		8,437,008

Stockholders’ equity deficiency:
Preferred stock $.10 par value, 1,000,000 shares authorized,
none issued and outstanding		-		-
Common stock $.10 par value, 50,000,000 shares authorized,
22,459,282 and 22,434,282 shares issued and outstanding in 2007 and
2006		2,245,928		2,243,428
Capital in excess of par value		27,163,323		27,071,584
Deficit		(35,555,158)		(33,554,700)
Accumulated other comprehensive loss, unrealized loss on securities			(10,558)		(9,102)
Total stockholders’ equity deficiency			(6,156,465)		(4,248,790)
Total liabilities and stockholders’ equity deficiency			$2,936,765		$4,188,218

See notes to the condensed consolidated financial statements.

eLEC Communications Corp. and Subsidiaries
Condensed Consolidated Statements of Operations and Comprehensive Loss
(Unaudited)

	For the Three Months Ended
	Feb. 28, 2007		Feb. 28, 2006


Revenues		$1,741,123		$2,496,854

Costs and expenses:
Costs of services	1,202,749		1,419,837
Selling, general and administrative	1,139,909		1,246,680
Provision for bad debts	49,386		117,676
Depreciation and amortization		173,539		86,625
Total costs and expenses		2,565,583		2,870,818

Loss from operations		(824,460)		(373,964)

Other income (expense):
Interest expense	(226,546)		(281,385)
Change in warrant valuation	(960,222)		(22,257)
Other income		10,770		14,127
Total other income (expense)		(1,175,998)		(289,515)

Net loss	(2,000,458)		(663,479)

Other comprehensive loss - unrealized
loss on marketable securities		(1,456)		(915)

Comprehensive loss		($2,001,914)		($664,394)

Basic loss per share		($0.09)		($0.04)

Weighted average number of common shares outstanding
Basic		22,435,949		16,839,282

See notes to the condensed consolidated financial
statements.

eLEC Communications Corp. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited)


	For the Three Months Ended
	Feb. 28, 2007		Feb. 28, 2006
Net cash used in operating activities:		($963,831)		($836,555)

Cash flows used in investing activities, purchase of property and
equipment		(51,500)		(122,899)

Cash flows from financing activities:
Repayment of short-term debt	-		(328,324)
Repayment of long-term debt	(10,841)		(3,230)
Proceeds from notes		-		1,753,500
Net cash (used in) provided by financing activities		(10,841)		1,421,946

Increase (decrease) in cash and cash equivalents	(1,026,172)		462,492
Cash and cash equivalents at beginning of period		1,337,525		205,998
Cash and cash equivalents at the end of period		$311,353		$668,490




See notes to the condensed consolidated financial statements.

eLEC COMMUNICATIONS CORP.

Notes To Condensed Consolidated Financial Statements (Unaudited)

Note 1-Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in

accordance with generally accepted accounting principles for interim financial information and

in accordance with the rules and regulations of the Securities and Exchange Commission for

Form 10-Q. Accordingly, they do not include all of the information and footnotes required by

generally accepted accounting principles for complete financial statements. In the opinion of

management, all adjustments (consisting of normal recurring accruals) considered necessary for a

fair presentation have been included. Operating results for the three-month period ended

February 28, 2007 are not necessarily indicative of the results that may be expected for the year

ended November 30, 2007. For further information, refer to the consolidated financial

statements and footnotes thereto included in our Annual Report on Form 10-K for the year ended

November 30, 2006.

Note 2-Major Customers

During the three-month periods ended February 28, 2007 and 2006, no one customer accounted

for more than 10% of revenue.

Note 3-Loss Per Common Share

Basic loss per common share is calculated by dividing net loss by the weighted average number

of common shares outstanding during the period.

Approximately 11,033,000 and 13,807,000 shares of common stock issuable upon the exercise of

our outstanding stock options or warrants or, in the three month period ending February 28,

2006, the conversion of our outstanding convertible debt, were excluded from the calculation of

loss per share for the three months ended February 28, 2007 and 2006, respectively, because the

effect would be anti-dilutive.

Note 4-Risks and Uncertainties

We provide our wireline services by leasing a portion of the network owned by other larger

telecommunications carriers, namely Verizon Services Corp. and Qwest Communications

International, Inc., which are commonly referred to as Incumbent Local Exchange Carriers

(“ILECs”). We have multi-state commercial service agreements with the ILECs that are subject

to termination for material breach, including non-payment, upon written notice and our failure to

cure. These agreements allow us to offer wireline telecommunications services to consumers

throughout the ILECs’ territories without us having to incur network equipment expenditures.

Although we continue to build an Internet Protocol (“IP”) telephony network, and our long-term

plans are dependent upon the success of out IP telephony operations, the majority of our

revenues are currently derived from the resale of ILEC services. In light of the foregoing, it is

possible that the loss of our relationship with the ILECs would have a severe near-term impact on

our ability to conduct our business and on our ability to sell our wireline services operation, for

which we have a signed agreement to sell to a third party. Our long-term plans, however, are

dependent upon the success of our IP operations. Future results of operations involve a number
of risks and uncertainties. Factors that could affect future operating results and cash flows and
cause actual results to vary materially from historical results include, but are not limited to:

·		The availability of additional funds to successfully pursue our business plan;
·		The acceptance of IP telephony by mainstream consumers;
·		Our ability to market our services to current and new customers and generate customer
		demand for our products and services in the geographical areas in which we operate;
·		Our ability to comply with provisions of our financing agreements;
·		The impact of changes the Federal Communications Commission or State Public Service
		Commissions may make to existing telecommunication laws and regulations, including
		laws dealing with Internet telephony;
·		The highly competitive nature of our industry;
·		Our ability to retain key personnel;
·		Our ability to maintain adequate customer care and manage our churn rate;
·		The cooperation of incumbent carriers and industry service partners that have signed
		agreements with us;
·		Our ability to maintain, attract and integrate internal management, technical information
		and management information systems;
·		The availability and maintenance of suitable vendor relationships, in a timely manner, at
		reasonable cost;
·		Our ability to manage rapid growth while maintaining adequate controls and procedures;
·		Failure or interruption in our network and information systems;
·		Our inability to adapt to technological change;
·		The perceived infringement of our technology on another entity’s patents;
·		Our inability to manage customer attrition and bad debt expense;
·		Failure or bankruptcy of other telecommunications companies upon whom we rely for
		services and revenues;
·		Our lack of capital or borrowing capacity, and inability to generate cash flow;
·		The decrease in telecommunications prices to consumers; and
·		General economic conditions.


Note 5-Stock-Based Compensation Plans

We issue stock options to our employees and outside directors pursuant to stockholder-approved
and non-approved stock option programs. In December 2004, the Financial Accounting
Standards Board (“FASB”) issued SFAS No. 123R, “Share-Based Payment”. SFAS 123R is a
revision of SFAS 123, and supersedes APB 25. Among other items, SFAS 123R eliminates the
use of APB 25 and the intrinsic value method of accounting, and requires companies to recognize
in their financial statements the cost of employee services received in exchange for awards of
equity instruments, based on the grant date fair value of those awards. SFAS 123R permits
companies to adopt its requirements using either a “modified prospective” method, or a
“modified retrospective” method. Under the “modified prospective” method, compensation cost
is recognized in the financial statements beginning with the effective date, based on the
requirements of SFAS 123R for all share-based payments granted after that date, and based on
the requirements of SFAS 123 for all unvested awards granted prior to the effective date of SFAS
123R. Under the “modified retrospective” method, the requirements are the same as under the

“modified prospective” method, but this method also permits entities to restate financial

statements of previous periods based on proforma disclosures made in accordance with SFAS

123. Beginning in fiscal 2006, we account for stock-based compensation in accordance with the

provisions of SFAS 123R and have elected the “modified prospective” method and have not

restated prior financial statements. For the three months ended February 28, 2007 and 2006, we

recorded approximately $45,000 and $52,000, respectively, in employee stock-based

compensation expense, which is included in our selling, general and administrative expenses. As

of February 28, 2007, there was approximately $183,000 of unrecognized stock-compensation

expense for previously granted unvested options that will be recognized over a three-year period.

Note 6-Accounts Payable and Accrued Expenses

At February 28, 2007, we are disputing payments on invoices from Verizon amounting to

approximately $537,000 because we believe Verizon overcharged us for certain calls made by

our customers. Although we are not currently required to pay the disputed amount, Verizon

initially rejected our claims. We have escalated many of our claims and hired a firm that

specializes in telecom disputes to analyze past call records, resubmit and pursue the claims. This

firm has escalated many of the claims and estimated that at a minimum $125,000 of the various

claims will be honored. Consequently, we have recorded $412,000 of the disputed charges as a

liability and have not recorded the $125,000 amount.

Note 7-Defined Benefit Plan

We sponsor a defined benefit plan covering one active employee and a number of former

employees. Our funding policy with respect to the defined benefit plan is to contribute annually

not less than the minimum required by applicable law and regulation to cover the normal cost

and to fund supplemental costs, if any, from the date each supplemental cost was incurred.

Contributions are intended to provide not only for benefits attributable to service to date, but also

for those expected in the future.

For each of the three-month periods ended February 28, 2007 and 2006, we recorded pension

expense of $24,000. In the first fiscal period of 2007, we contributed $10,000 while in the first

fiscal period 2006 we contributed $52,500 to our defined benefit plan. We expect to contribute

approximately $50,000 to our defined benefit plan in fiscal 2007. The current investment

strategy for the defined benefit plan is to invest in conservative debt and equity securities. The

expected long-term rate of return on plan assets is 8%.

We also sponsor a 401(k) profit sharing plan for the benefit of all eligible employees, as defined.

The plan provides for the employees to make voluntary contributions not to exceed the statutory

limitation provided by the Internal Revenue Code. We may make discretionary contributions.

There were no discretionary contributions made for the three months ended February 28, 2007 or

2006.

Note 8 – Principal Financing Arrangements

We have completed three financings with our principal lender and each financing requires a

certain amount of monthly principal payments. We have negotiated with our principal lender a

principal deferral of nine months until August 1, 2007 for one of our notes and a deferral until

June 1, 2007 on another note that we anticipate paying off if we close on the definitive purchase

agreement we signed on December 14, 2006 to sell our CLEC subsidiaries. In consideration for
the principal deferral, on April 16, 2007 we issued to our lender a seven-year warrant to purchase
1,200,000 shares of our common stock at a price of $0.25. We are in default with our lender for
not filing this Report on a timely basis, and we anticipate that we will not be able to make the
principal payments due on June 1, 2007 unless we are successful in the selling of our CLEC
subsidiaries before then. Because of the default on such debt, the debt can be called
immediately, and we have classified it as a current liability on our balance sheet and the related
debt finance costs are shown as a current asset.

Note 9-Income Taxes

At November 30, 2005, we had net operating loss carryforwards for Federal income tax purposes
of approximately $25,400,000 expiring in the years 2008 through 2026. There is an annual
limitation of approximately $187,000 on the utilization of approximately $2,400,000 of such net
operating loss carryforwards under the provisions of Internal Revenue Code Section 382. We did
not provide for a tax benefit, since it is more likely than not that any such benefit would not be
realized.

Note 10 - Sale of Subsidiaries

On December 14, 2006, we entered into two separate definitive purchase agreements
(“Agreements”) to sell our two wholly-owned subsidiaries that function as competitive local
exchange carriers (“CLECs”) to Cyber Digital, Inc. (“Purchaser”), a publicly-traded shell
company. The planned sales are subject to the receipt of required regulatory approvals, and the
Purchaser has reported that the approvals have been issued and the written orders will be
forthcoming during the first week of May 2007.

In accordance with an amendment to the Agreements, if the closing of the transaction has not
occurred by May 12, 2007, the Purchaser or we may terminate the Agreements with no penalty to
the terminating party, so long as such delay in closing the transaction is not the result of willful
and material breach by the terminating party of any of its obligations under the Agreement.
Since the Purchaser is a shell company with no significant tangible assets that requires financing
in order to complete this purchase, we are precluded from presenting these subsidiaries as
discontinued operations for the quarter ended February 28, 2007. The consummation of this
transaction will require the approval of our principal lender.

Note 11 - Business Segment Information

The Company has two reportable business segments: Wireline Telecommunications Services and
IP Telecommunications Services. The operating results of these business segments are
distinguishable and are regularly reviewed by the Company’s chief operating decision maker.

The Wireline Telecommunication Services business segment resells telephone services that run
on a wireline network provided by Verizon and Qwest. The IP Telecommunications business
segment provides a range of voice telephony service that run over the Internet.

	Wireline	IP
	Telecommunication	Telecommunication
	Services	Services	Corporate	Total
Quarter ended February 28, 2007
Revenues	$1,552,233	$188,890	-	$1,741,123
Operating income (loss)	131,516	(614,831)	(341,145)	(824,460)
Depreciation and amortization	3,120	51,402	119,017	173,539
Other income and (expense)	-	(8,422)	(1,167,576)	(1,175,998)
Total assets at February 28, 2007	838,228	1,077,259	1,021,278	2,936,765

Quarter ended February 28, 2006
Revenues	$2,471,993	$24,861	-	$2,496,854
Operating income (loss)	334,744	(435,096)	(273,612)	(373,964)
Depreciation and amortization	2,011	29,657	54,957	86,625
Other income and (expense)	817	(2,282)	(288,050)	(289,515)
Total assets at February 28, 2006	1,392,624	842,504	843,500	3,078,628




Item 2. Management’s Analysis and Discussion of Financial Condition and Results of
Operations

The statements contained in this Report that are not historical facts are “forward-
looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995
with respect to our financial condition, results of operations and business, which can be
identified by the use of forward-looking terminology, such as “estimates,” “projects,” “plans,”
“believes,” “expects,” “anticipates,” “intends,” or the negative thereof or other variations
thereon, or by discussions of strategy that involve risks and uncertainties. Management wishes
to caution the reader of the forward-looking statements that such statements, which are
contained in this Report, reflect our current beliefs with respect to future events and involve
known and unknown risks, uncertainties and other factors, including, but not limited to,
economic, competitive, regulatory, technological, key employee, and general business factors
affecting our operations, markets, growth, services, products, licenses and other factors
discussed in our other filings with the Securities and Exchange Commission, and that these
statements are only estimates or predictions. No assurances can be given regarding the
achievement of future results, as actual results may differ materially as a result of risks facing
us, and actual events may differ from the assumptions underlying the statements that have been
made regarding anticipated events. Factors that may cause our actual results, performance or
achievements, or industry results, to differ materially from those contemplated by such forward-
looking statements include, without limitation those factors set forth under Note 4 – Risks and
Uncertainties.

These forward-looking statements are subject to numerous assumptions, risks and
uncertainties that may cause our actual results to be materially different from any future results
expressed or implied by us in those statements. These risk factors should be considered in
connection with any subsequent written or oral forward-looking statements that we or persons
acting on our behalf may issue. All written and oral forward looking statements made in
connection with this Report that are attributable to us or persons acting on our behalf are
expressly qualified in their entirety by these cautionary statements. Given these uncertainties,
we caution investors not to unduly rely on our forward-looking statements. We do not undertake
any obligation to review or confirm analysts’ expectations or estimates or to release publicly any
revisions to any forward-looking statements to reflect events or circumstances after the date of
this Report or to reflect the occurrence of unanticipated events. Further, the information about

our intentions contained in this Report is a statement of our intention as of the date of this
Report and is based upon, among other things, the existing regulatory environment, industry
conditions, market conditions and prices, the economy in general and our assumptions as of such
date. We may change our intentions, at any time and without notice, based upon any changes in
such factors, in our assumptions or otherwise.


Overview

We are a provider of local, long distance and international voice telephone services.
We provide these services over wirelines, using leased facilities of other carriers, and over
broadband services, using our own IP telephony product. IP telephony is the real time
transmission of voice communications in the form of digitized “packets” of information over the
Internet or a private network, which is analogous to the way in which e-mail and other data is
transmitted. We use proprietary softswitch technology that runs on Cisco and Dell hardware to
provide broadband telephone services to other service providers, such as cable operators, Internet
service providers, WiFi and fixed wireless broadband providers, data integrators, value-added
resellers and satellite broadband providers. Our technology enables these carriers to quickly and
inexpensively offer premiere broadband telephone services, complete with order flow
management for efficient provisioning, billing and support services and user interfaces that are
easily customized to reflect the carrier’s unique brand.

The worldwide rollout of broadband voice services has allowed consumers and
businesses to communicate at dramatically reduced costs in comparison to traditional telephony
networks. Traditionally, telephone service companies have built networks based on circuit
switching technology, which creates and maintains a dedicated path for individual telephone
calls until the call is terminated. While circuit-switched networks have provided reliable voice
communications services for more than 100 years, transmission capacity is not efficiently utilized
in a circuit-switched system. Under circuit-switching technology, when a person makes a
telephone call, a circuit is created and remains dedicated for the entire duration of that call,
rendering the circuit unavailable for the transmission of any other calls. Because of the high cost
and inefficiencies of a circuit-switched network, we have never owned a circuit-switched
network. Instead, we have leased circuit-switched network elements from other carriers in order
to provide wireline services to customers.

Data networks, such as IP networks, utilize packet switching technology that divides
signals into packets and simultaneously routes them over different channels to a final destination
where they are reassembled into the original order in which they were transmitted. No dedicated
circuits are required and a fixed amount of bandwidth is not needed for the duration of each call.
The more efficient use of network capacity results in the ability to transmit significantly higher
amounts of traffic over a packet-switched network than a circuit-switched network. Packet-
switching technology enables service providers to converge traditional voice and data networks
in an efficient manner by carrying voice, fax, video and data traffic over the same network. IP
networks are therefore less expensive for carriers to operate, and these cost savings can be passed
on to the consumer in the form of lower costs for local, long distance and international long
distance telephone services.

We have created our own Linux-based IP platform and have transitioned into a
facilities-based broadband service provider to take advantage of the network cost savings that are
inherent in an IP network. We have signed a contract to sell our leased lines telephone business

to another company, so that we can focus our resources and our energies on our broadband voice

product. In addition to the cost savings we obtain from the efficient use of network capacity, we

believe our network equipment costs are lower than most other carriers as our network and

technology require significantly less capital expenditures than a traditional Class 5 telecom

switch in a circuit-switched network, and less equipment costs than our broadband voice

competitors that utilize a packet-switched network. Our proprietary softswitch provides more

than 20 of the Class 5 call features, voice mail and enhanced call handling on our own Session

Initiation Protocol (“SIP”) server suite. We control all of the features we offer to broadband

voice customers, because instead of a relying on a software vendor, we write the code for any

new features that we desire to offer our customers. We have no software licensing fees and our

other variable network costs are expected to drop as we increase our network traffic and as we

attract more pure IP telephony users with traffic that does not incur the cost of originating or

terminating on a circuit- switched network.

Our SIP servers are part of a cluster of servers, which we refer to as a server farm, in

which each server performs different network tasks, including back-up and redundant services.

We believe the server farm structure can be easily and cost-effectively scaled as our broadband

voice business grows. In addition, servers within our server farm can be assigned different tasks

as demand on the network dictates. If an individual server ceases to function, our server farm is

designed in a manner that subscribers should not have a call interrupted. We support origination

and termination using both the G.711 and G.729 voice codecs. Codecs are the algorithms that

enable us to carry analog voice traffic over digital lines. There are several codecs that vary in

complexity, bandwidth required and voice quality. We primarily use G.711 and G.729 codecs.

G.711 is a standard to represent 8 bit compressed pulse code modulation samples for signals of

voice frequency. It creates a 64 kilobit per second bitstream, and we find that approximately

90% of the current IP telephony traffic in the United States uses G.711. We frequently process

G.711 traffic because some of our wholesale customers do not have the ability to handle G.729.

We prefer the G.729 codec, which allows us to utilize the Internet in more cost effective ways. It

allows for compressing more calls in limited bandwidth, reducing the call to 8 kilobits per

second. For all of our retail customers and our more sophisticated wholesale accounts, we use

G.729 to save cost and enhance the quality of the call.

Plan of Operation

Our objective is to build a profitable telephone company on a stable and scalable

platform with minimal network costs. We want to be known for our high quality of service,

robust features and ability to deliver any new product to a wholesale customer or a web store

without delay. We believe that to achieve our objective we need to have “cradle to grave”

automation of our back-office web and billing systems. We have written our software for

maximum automation, flexibility and changeability.

We know from experience in provisioning complex telecom orders that back-office

automation is a key factor in keeping overhead costs low. Technology continues to work for 24

hours a day and we believe that the fewer people a company has in the back office, the more

efficiently it can run, which should drive down the cost per order.

Furthermore, our strategy is to grow rapidly by leveraging the capital, customer base and

marketing strength of our wholesale customers. Many of our targeted wholesale customers and

some of our existing wholesale customers have ample capital to market a private-labeled

broadband voice product to their existing customer base or to new customers. We believe our

strength is our technology-based platform. By providing our technology to cable companies,

CLECs, ISPs, WiFi and fixed-wireless broadband providers, data integrators, value-added

resellers, and satellite broadband providers and any other entity that desires to offer a broadband

telephony product, we believe we will require significantly less cash resources than other

providers will require to attract a similar number of subscribers.

By taking a wholesale approach, our goal is to obtain and manage 500 customers that

have an average customer base of 1,000 end-users. We believe we will be more successful and

more profitable taking this approach to reaching 500,000 end-users than we would be if we tried

to attract and manage 500,000 individual end-users by ourselves.

Three Months Ended February 28, 2007 vs. Three Months Ended February 28, 2006

Our revenue for the three-month period ended February 28, 2007 decreased by

approximately $756,000, or approximately 30%, to approximately $1,741,000 as compared to

approximately $2,497,000 reported for the three-month period ended February 28, 2006. The

reduction in revenues was directly related to the decrease in the customer base or number of local

access lines served by our two CLECs, New Rochelle Telephone Corp. and Telecarrier Services

Inc. In lieu of telemarketing new CLEC customers, over the past year we used our financial

resources to further build and enhance our IP telephony operations. Consequently, while our

CLEC sales declined in the first quarter of fiscal 2007 as compared to the comparative quarter of

fiscal 2006, our IP telephony revenue increased by approximately $164,000 period over period.

from $25,000 in the first quarter of fiscal 2006 to $189,000 in the first quarter of fiscal 2007. We

anticipate that our CLECs will be divested to a third-party purchaser during the second quarter of

fiscal 2007 and that future revenues will be derived from IP telephony only.

The roll-out of our broadband voice product has taken significantly longer than we

anticipated. We believe a key reason for the delay was the extensive effort required for us to

become a customized wholesale service provider. Because of the intense competition on the

retail level and the high marketing costs that broadband voice providers have incurred to acquire

a subscriber, we decided that we should not compete in the retail arena. Our goal is to obtain 500

customers that will private label and resell our broadband voice services to their customer base.

We target cable operators that already are providing broadband Internet services, Internet service

providers, WiFi and fixed wireless broadband providers, data integrators, value-added resellers,

and satellite broadband providers. We anticipate that our wholesale customers will be able to

obtain an average of at least 1,000 broadband voice end-users. We believe our approach, in

which we are seeking at least 500 customers that we will manage, and a total of at least 500,000

end users, which our customers will manage, will provide us with the quickest and least

expensive way to leverage our technology. Under our approach, we will avoid the expensive

customer acquisition costs that other broadband voice carriers are experiencing as they try to find

a broadband end-user to try their product. Instead of incurring these costs our self, our customer,

which should be able to incur a reduced marketing expense because it has an imbedded customer

base already buying broadband service, will incur them. We believe we can empower small and

medium-sized broadband providers with the ability to take customers away from the traditional

telephone companies.

Our IP telephony facilities have significant unused capacity and we have begun to attract

other types of customers to utilize our facilities. For example, we are actively pursuing both

buyers and sellers of international cell phone termination minutes. We have sales personnel who

have previously worked in these markets, and by targeting cell phone termination we are able to

realize a higher per minute billing rate and profit, than we would realize on a wireline.

Our gross profit for the three-month period ended February 28, 2007 decreased by

approximately $539,000 to approximately $538,000 from approximately $1,077,000 reported in

the three-month period ended February 28, 2006. During the same fiscal periods, our gross profit

percentage decreased to 30.9% from 43.1%. The decrease in our gross profit resulted primarily

from the decrease in the size of our customer base in first quarter of fiscal 2007 relative to the

first quarter of fiscal 2006. The decrease in our gross profit percentage during the 2007 period

resulted from the higher cost of services that we are now incurring under our wholesale services

agreement with Verizon and the higher IP network costs we are now incurring due to the low

utilization rate of our IP facilities. While it is difficult for us to predict the gross margins we will

achieve on our IP lines because we are offering a variety of wholesale products and our gross

margin will be impacted by the product mix, based on current pricing, we anticipate that when

we have a sufficient quantity of subscribers, mature wholesale accounts will generate a gross

margin of approximately 25% to 40%.

Selling, general and administrative expenses decreased by approximately $107,000, or

approximately 9%, to approximately $1,140,000 for the three-month period ended February 28,

2007 from approximately $1,247,000 reported in the same prior year fiscal period. Our salary

cost decreased by approximately $115,000 in the first quarter of 2007 over the same period last

year.

Our bad debt expense decreased by approximately $69,000, or approximately 58%, to

approximately $49,000 for the three months ended February 28, 2006 from approximately

$118,000 reported in the prior fiscal period. This decrease was related to the reduction in the

number of customers we had during the 2007 period and the fact that the remaining customers

represent a mature base that has consistently paid their bills.

Depreciation and amortization expense increased by approximately $87,000 for the three

months ended February 28, 2007 to approximately $174,000 as compared to approximately

$87,000 for the same period in fiscal 2006. Approximately $66,000 of the increase was for

deferred financing costs related to our financing agreements and approximately $21,000 related

to our VoIP platform.

Interest expense decreased by approximately $55,000 to approximately $227,000 for the

three months ended February 28, 2007 as compared to approximately $281,000 for the three

months period ended February 28, 2006. The decrease is due to lower effective borrowing rates

in the 2007 quarter and the reversal of an accrual for default interest of approximately $42,000

that our lender has notified us that we will not have to pay. The cash payment portion of the

$227,000 in interest expense amounted to approximately $129,000. The remaining balance

represented the accretion of a debt discount using the effective interest method over the term of

the related debt.

Other income decreased by approximately $3,000, to approximately $11,000 for the

three months ended February 28, 2007 as compared to approximately $14,000 for the three

months ended February 28, 2006. The decrease resulted from a reduction in commission income.

Warrant expense for the three months ended February 28, 2007, amounted to

approximately $960,000 due to the significant increase in the market value of our common stock

between the period of November 30, 2006 to February 28, 2007, as compared to the expense of

approximately $22,000 for the same period in fiscal 2006.

Liquidity and Capital Resources

At February 28, 2007, we had cash and cash equivalents of approximately $311,000 and

negative working capital of approximately $7,021,000.

Net cash used in operating activities aggregated approximately $964,000 and $837,000

in the three-month periods ended February 28, 2007 and 2006, respectively. The principal use of

cash in fiscal 2007 was the loss for the period of approximately $2,000,000 which was partially

offset by a non-cash mark to market warrant adjustment of $960,000. The principal use of cash

in fiscal 2006 was the loss for the period of $664,000.

Net cash used in investing activities in the three-month periods ended February 28, 2007

and 2006 aggregated approximately $52,000 and $123,000, respectively, resulting primarily from

expenditures related to our VoIP initiative.

Net cash (used in) provided by financing activities aggregated approximately ($11,000)

and $1,422,000 in the three-month periods ended February 28, 2007 and 2006, respectively. In

fiscal 2007, net cash used in financing activities was the repayment of long-term lease

obligations. In fiscal 2006, net cash provided by financing activities resulted from the proceeds

of long-term notes of approximately $1,753,500, which was partially offset by the repayment of

short-term debt of approximately $328,000.

For the three months ended February 28, 2007, we had approximately $52,000 in capital

expenditures primarily related to our IP telephony business. We expect to make equipment

purchases of approximately $50,000 to $100,000 in the second fiscal quarter of 2007. We expect

that other capital expenditures over the next 12 months will relate primarily to a continued roll-

out of VoIP services and will only be required to support a growing customer base of IP

telephony subscribers.

Subsequent to February 28, 2007, we have negotiated with our primary lender a principal

deferral of nine months for one of our notes and a deferral until June 1, 2007 on another note that

we anticipate paying off if we close on the definitive purchase agreement we signed on

December 14, 2006 to sell our CLEC subsidiaries. In consideration for the principal deferral, on

April 16, 2007 we issued to our lender a seven-year warrant to purchase 1,200,000 shares of our

common stock at a price of $0.25. We are in default with our lender for not filing this Report on

a timely basis, and we anticipate that we will not be able to make the principal payments due on

June 1, 2007 unless we are successful in selling of our CLEC subsidiaries before then. Because

of the default on such debt, the debt can be called immediately, and we have classified it as a

current liability on our balance sheet and the related debt finance costs are shown as a current

asset. If our lender accelerates such debt, we will not be able to satisfy such indebtedness in full,

which inability would adversely affect our ability to continue operating as a going concern.

The report of our independent registered public accounting firm on our 2006 financial

statements indicates there is substantial doubt about our ability to continue as a going concern.

Our operating losses have been funded through the sale of non-operating assets, the issuance of

equity securities and borrowings. We believe our current cash resources will not be sufficient to

finance our operations. Accordingly, we have engaged a placement agent to raise us up to $1.5

million in equity to support our operating losses. There can be no assurance that such financing

will be sufficient to get us to a break-even level, or that the agent will be able to raise the full

amount. Our failure to generate sufficient revenues and raise additional capital will have an

adverse impact on our ability to achieve our longer-term business objectives, and would

adversely affect our ability to continue operating as a going concern.

Item 3. Quantitative and Qualitative Disclosure About Market Risk

Our outstanding debt is primarily under three borrowing arrangements with one lender

and such borrowings are at the rate of 2% over the prime rate. We currently do not use interest

rate derivative instruments to manage our exposure to interest rate changes. As a result of

conversion features, warrant issuances and lender discounts, the effective rate of interest has

been calculated at rates of approximately 38% on our February 2005 financing, 47% on our

November 2005 financing, and 185% on the $650,000 portion of our May 2006 financing.

Item 4. Controls and Procedures

(a) Disclosure Controls and Procedures. Our management, with the participation of our

chief executive officer/chief financial officer, has evaluated the effectiveness of our disclosure

controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the

Securities Exchange Act of 1934, as amended (the "Exchange Act")) as of the end of the period

covered by this Report. Based on such evaluation, our chief executive officer/chief financial

officer has concluded that, as of the end of such period, for the reasons set forth below, our

disclosure controls and procedures were not effective. We are presently taking the necessary

steps to improve the effectiveness of such disclosure controls and procedures.

(b) Internal Control Over Financial Reporting. There have not been any changes in our

internal controls over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-

15(f) under the Exchange Act) during the first quarter of 2007 that have materially affected, or

are reasonably likely to materially affect, our internal control over financial reporting. In

connection with our year-end November 30, 2006 audit, our management became aware of an

inadequately designed accounting system as it pertains to our VoX subsidiary. As reported in

fiscal 2006 and 2005, we also have a lack of staffing within our accounting department, both in

terms of the small number of employees performing our financial and accounting functions and

their lack of experience to account for complex financial transactions. Management believes the

lack of qualified personnel, in the aggregate, and the inadequately designed accounting system,

are both a material weakness in our internal control over financial reporting. We have updated

and enhanced our internal reporting at VoX and we will continue to evaluate the number of

accounting employees we utilize, the need to engage outside consultants with technical and

accounting-related expertise to assist us in accounting for complex financial transactions and the

hiring of additional accounting staff with complex financing experience.

We also are evaluating our internal controls systems so that when we are required to do

so, our management will be able to report on, and our independent auditors to attest to, our

internal controls, as required by Section 404 of the Sarbanes-Oxley Act of 2002. We will be

performing the system and process evaluation and testing (and any necessary remediation)

required in an effort to comply with the management certification and auditor attestation

requirements of Section 404 of the Sarbanes-Oxley Act. In connection with our year-end

November 30, 2006 and 2005 audits, we identified the following control deficiencies and issues

with our internal controls over financial reporting that we believe amount in the aggregate to a

significant deficiency in our internal controls over financial reporting:

Due to the voluminous nature of state and local telecom

taxes and the small quantity of taxes payable to certain

municipalities, we do not remit all our telecom taxes in a timely

manner. Certain taxes that we should be remitting on a monthly

basis, we remit quarterly or semi-annually because many of the

checks and returns that we are processing are for insignificant

amounts. We are aware of other telephone companies that follow

this process. We continue to monitor the responses, if any, we

receive from the tax authorities regarding late filings and we

intend to remit such taxes in a timely manner in the future.

Due to the complex nature and changing regulations

regarding telecom taxes, we do not always calculate and remit the

appropriate amount of taxes due. We are challenging taxes that

one state claims are owed to it. At least some of the taxes are due

because of the improper calculation of taxes that should have

been billed to and collected from our wireline telephone

customers in one particular state.

eLEC COMMUNICATIONS CORP.
PART II-OTHER INFORMATION


Item 6.	Exhibits

	Exhibit
	Number	Description
	31.1	Certification of our Chief Executive Officer and Chief Financial
		Officer, Paul H. Riss, Pursuant to 18 U.S.C. 1350 (Section 302 of
		the Sarbanes-Oxley Act of 2002)

	32.1	Certification of our Chief Executive Officer and Chief Financial
		Officer, Paul H. Riss, Pursuant to 18 U.S.C. 1350 (Section 906 of
		the Sarbanes-Oxley Act of 2002)

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has
duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

		eLEC Communications Corp.



Date: April 20, 2007		By: /s/ Paul H. Riss
		Paul H. Riss
		Chief Executive Officer
		(Principal Financial and
		Accounting Officer)

		EXHIBIT INDEX

Exhibit
Number		Description
31.1		Certification of our Chief Executive Officer and Chief Financial
		Officer, Paul H. Riss, Pursuant to 18 U.S.C. 1350 (Section 302 of
		the Sarbanes-Oxley Act of 2002)

32.1		Certification of our Chief Executive Officer and Chief Financial
		Officer, Paul H. Riss, Pursuant to 18 U.S.C. 1350 (Section 906 of
		the Sarbanes-Oxley Act of 2002)

		EXHIBIT 31.1

CERTIFICATION

Pursuant to 18 U.S.C. 1350
(Section 302 of the Sarbanes-Oxley Act of 2002)

I, Paul H. Riss, Chief Executive Officer and Chief Financial Officer of eLEC Communications
Corp., certify that:

1.	I have reviewed this quarterly report on Form 10-Q of eLEC Communications Corp.;

2.	Based on my knowledge, this report does not contain any untrue statement of a material
fact or omit to state a material fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not misleading with respect to the period
covered by this report;

3.	Based on my knowledge, the financial statements, and other financial information
included in this report, fairly present in all material respects the financial condition, results of
operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.	I am responsible for establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and I have:

	(a)	Designed such disclosure controls and procedures, or caused such disclosure
	controls and procedures to be designed under my supervision, to ensure that material
	information relating to the registrant, including its consolidated subsidiaries, is made
	known to me by others within those entities, particularly during the period in which this
	report is being prepared;

	(b)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures
	and presented in this report our conclusions about the effectiveness of the disclosure
	controls and procedures, as of the end of the period covered by this report based on such
	evaluation; and

	(c)	Disclosed in this report any change in the registrant’s internal control over
	financial reporting that occurred during the registrant’s most recent fiscal quarter that has
	materially affected, or is reasonably likely to materially affect, the registrant’s internal
	control over financial reporting; and

5.	I have disclosed, based on my most recent evaluation of internal control over financial
reporting, to the registrant’s auditors and the audit committee of the registrant’s board of
directors (or persons performing the equivalent functions):

	(a)	All significant deficiencies and material weaknesses in the design or operation of
	internal control over financial reporting which are reasonably likely to adversely affect
	the registrant’s ability to record, process, summarize and report financial information;
	and

	(b)	Any fraud, whether or not material, that involves management or other
	employees who have a significant role in the registrant’s internal control over financial
	reporting.


Date:	April 20, 2007

		/s/ Paul H. Riss
		Paul H. Riss
		Chief Executive Officer and Chief
		Financial Officer

		EXHIBIT 32.1

CERTIFICATION
Pursuant to 18 U.S.C. 1350
(Section 906 of the Sarbanes-Oxley Act of 2002)

In connection with the Quarterly Report on Form 10-Q of eLEC Communications Corp.
(the "Company") for the quarter ended February 28, 2007, as filed with the Securities and
Exchange Commission on the date hereof (the "Report"), Paul H. Riss, as Chief Executive
Officer and Chief Financial Officer of the Company, hereby certifies, pursuant to 18 U.S.C.
§1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of
the Securities Exchange Act of 1934, as amended; and

(2) The information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the Registrant.



Date: April 20, 2007	By:	/s/ Paul H. Riss
		Paul H. Riss
		Chief Executive Officer and
		Chief Financial Officer




This certification accompanies each Report pursuant to § 906 of the Sarbanes-Oxley Act
of 2002 and shall not, except to the extent required by the Sarbanes-Oxley Act of 2002, be
deemed filed by the Company for purposes of §18 of the Securities Exchange Act of 1934, as
amended.

A signed original of this written statement required by Section 906 has been provided to
the Company and will be retained by the Company and furnished to the Securities and Exchange
Commission or its staff upon request.