Optelecom-NKF Reports Second Quarter 2007 Results

July 31, 2007

GERMANTOWN, Md., July 31 /PRNewswire-FirstCall/ -- Optelecom-NKF, Inc. (Nasdaq: OPTC), a leading global producer of advanced IP-video solutions, today announced results for its second quarter of 2007.

Revenues for the quarter totaled $9.2 million, an increase of 2% compared to revenues of $9.0 million for the same quarter last year. Gross profit was $5.5 million, or 60% of revenues, for the three months ended June 30, 2007 . This compares to $4.8 million, or 54% of revenues, for the same quarter a year earlier.

The Company reported a loss of $305 thousand before taxes for its second quarter, compared with a loss of $277 thousand before taxes for the same period last year. The net loss was $217 thousand, or $(0.06) per diluted share, compared with a net loss of $176 thousand, or $(0.05) per diluted share, one year earlier. Results for the quarter included share-based compensation expense of $258 thousand, or $(0.07) per share compared to share- based compensation of $268 thousand, or $(0.08) one year earlier.

"In March we implemented a restructuring plan to consolidate, realign, and streamline our management and business organization. These changes have helped us maintain strong gross margins and given us additional flexibility to direct resources, both human and financial, to areas where we believe they will have the greatest impact. As a result, we intensified our sales and marketing efforts, adding sales positions and significantly increasing our trade show presence," said Edmund Ludwig , Optelecom-NKF's President and CEO.

"While I am not satisfied with our results, we did see an upturn, sequentially, in sales from our North American region. This is an indication that our expanded sales force is beginning to have a positive impact."

"During the quarter we demonstrated our ability to innovate new technologies. We announced a patent for an optical position encoder that highlighted our ability to deliver leading edge technology to the defense industry. We also added to our IP-video product portfolio with the introduction of our S-44 (for the Security and Surveillance market) and C-44 (for the Intelligent Transportation market) four-channel MPEG-4 video encoders and decoders."

"The rapid transition to video solutions based on IP network technology continues. We are positioning Optelecom-NKF to benefit from this market shift by offering a strong and growing video IP solutions suite, a comprehensive fiber product line, and by expanding our sales channels. We are taking the steps necessary to reach and maintain sustainable profitability and to successfully grow our business."

Optelecom-NKF President and CEO Edmund Ludwig will lead a conference call to discuss second quarter 2007 results at 10:00 a.m. Eastern Time , Wednesday, August 1, 2007 .

Interested parties are welcome to call 866-831-6272 (International Dial In: 617-213-8859) and request the "Optelecom-NKF earnings conference call" shortly before the designated start time. The telephone conference call will feature a question and answer segment with management. For those parties unable to participate in the live conference call, a replay will be available from noon following the teleconference until August 8, 2007 . Those wishing to listen to the replay should call 888-286-8010 (International Dial In: 617-801- 6888) and enter reservation number 56464477 when prompted.

The call is being web cast and can be accessed at www.earnings.com.

About Optelecom-NKF, Inc.

Optelecom-NKF, Inc., is a global supplier of network video equipment, including video servers, Ethernet switches, fiber optic systems, and video management software. It delivers solutions for traffic management and security in airports, seaports, public transport, public space, industry parks, and buildings.

Founded in 1972, the Company's R&D centers have accumulated extensive knowledge of fiber optic and IP/Ethernet network technologies. Optelecom-NKF supplies top-quality equipment and is committed to providing its customers with expert technical advice and support. All products are developed and tested for LAN and WAN applications.

Optelecom-NKF has offices in the US, the Netherlands , France , Spain , the UK, and Singapore , and expertise centers in the US and Europe .

Investor inquiries should be directed to Mr. Rick Alpert at 301-948-7872.

Forward-Looking Statements

The statements contained in this release, which are not historical facts, are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These statements are subject to risks and uncertainties that could cause actual results to differ materially from those set forth in or implied by forward-looking statements. These risks and uncertainties include, among others: the ability of the Company to realize the anticipated results of the organizational restructuring plan; the ability of the Company to develop and market products and communication solutions for the video surveillance, transportation, and business video markets; lack of reliable vendors, service providers, and outside products; unforeseen changes in competing technologies and products; worldwide economic variances; poor or delayed research and development results; and disparities between forecast and realized sales results. Other important factors that could cause actual results to differ materially are included but are not limited to those listed in Optelecom-NKF's periodic reports and registration statements filed with the Securities and Exchange Commission. Optelecom-NKF does not assume any obligation to update information concerning its expectations.

OPTELECOM-NKF, INC. CONSOLIDATED BALANCE SHEETS AS OF JUNE 30, 2007 and DECEMBER 31, 2006 (Dollars in Thousands) 2007 2006 ASSETS CURRENT ASSETS Cash and cash equivalents $ 4,052 $ 3,571 Accounts and contracts receivable, net 6,758 9,222 Inventories, net 5,977 5,759 Deferred tax asset-current 671 905 Prepaid expenses and other current assets 955 1,047 Total current assets 18,413 20,504 Property and equipment 2,659 2,488 Deferred tax asset-non-current 1,926 1,284 Goodwill 13,960 13,678 Intangible assets, net 7,916 8,124 Other assets 188 196 TOTAL ASSETS $ 45,062 $ 46,274 LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable $ 2,978 $ 3,371 Accrued payroll 1,145 2,105 Bank line of credit 1,767 800 Current portion of notes payable 1,525 1,548 Taxes payable 357 577 Accrued warranty reserve 348 431 Commissions payable 273 220 Current portion of capitalized leases 71 71 Other current liabilities 895 1,375 Total current liabilities 9,359 10,498 Notes payable 14,087 14,650 Deferred tax liability 2,063 2,102 Interest payable 899 788 Capitalized leases 10 45 Other liabilities 253 248 Total liabilities 26,671 28,331 STOCKHOLDERS' EQUITY Common stock 106 105 Additional paid-in capital 14,990 14,497 Accumulated other comprehensive income 998 570 Treasury stock, at cost (1,265) (1,265) Retained earnings 3,562 4,036 Total stockholders' equity 18,391 17,943 TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 45,062 $ 46,274 OPTELECOM-NKF, INC. CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME FOR THE THREE MONTHS ENDED JUNE 30, (Dollars in Thousands, Except Per Share Amounts) 2007 2006 Revenues $ 9,191 $ 8,987 Cost of goods sold 3,643 4,159 Gross profit 5,548 4,828 Operating expenses: Sales and marketing 2,654 2,085 Engineering 1,164 1,198 General and administrative 1,568 1,356 Amortization of intangibles 188 175 Total operating expenses 5,574 4,814 (Loss) income from operations (26) 14 Other expense, net 279 291 Loss before income taxes (305) (277) Benefit for income taxes (88) (101) Net loss $ (217) $ (176) Basic loss per share $ (0.06) $ (0.05) Diluted loss per share $ (0.06) $ (0.05) Weighted average common shares outstanding-basic 3,521 3,446 Weighted average common shares outstanding-diluted 3,521 3,446 Net loss $ (217) $ (176) Foreign currency translation 256 930 Comprehensive income $ 39 $ 754 OPTELECOM-NKF, INC. CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME FOR THE SIX MONTHS ENDED JUNE 30, (Dollars in Thousands, Except Per Share Amounts) 2007 2006 Revenues $ 18,026 $ 18,502 Cost of goods sold 7,565 8,023 Gross profit 10,461 10,479 Operating expenses: Sales and marketing 4,711 3,996 Engineering 2,540 2,352 General and administrative 2,916 2,676 Amortization of intangibles 371 272 Total operating expenses 10,538 9,296 (Loss) income from operations (77) 1,183 Other expense, net 603 597 (Loss) income before income taxes (680) 586 (Benefit) provision for income taxes (206) 198 Net (loss) income $ (474) $ 388 Basic (loss) earnings per share $ (0.14) $ 0.11 Diluted (loss) earnings per share $ (0.14) $ 0.11 Weighted average common shares outstanding-basic 3,495 3,396 Weighted average common shares outstanding-diluted 3,495 3,594 Net (loss) income $ (474) $ 388 Foreign currency translation 428 1,236 Comprehensive (loss) income $ (46) $ 1,624

SOURCE Optelecom-NKF, Inc.

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