Optelecom-nkf (OPTC) 8-K Optelecom-NKF, Inc., Reports Third Quarter 2006 Financial Results

Exhibit 99.1

FOR IMMEDIATE RELEASE

Optelecom-NKF, Inc., Reports Third Quarter 2006 Financial Results

GERMANTOWN, MD/November 3, 2006/PRNewswire-FirstCall — Optelecom-NKF, Inc. (NASDAQ: OPTC), a leading global provider of advanced IP-video network solutions, today announced its financial results for the third quarter ended September 30, 2006.

Revenues for the quarter totaled $10.1 million, an increase of 8% compared to the same quarter last year, and a sequential increase of 13% over the quarter ended June 30, 2006. Consolidated gross profit improved to $6.1 million, or 60% of revenues, for the three months ended September 30, 2006. This compares to $5.5 million, or 59% of revenues, for the same quarter last year.

The Company returned to profitability reporting net income of $396,000, or $0.11 per diluted share, for the third quarter of 2006. This compared with net income of $774,000, or $0.23 per diluted share, for the third quarter of 2005. Operating income in the third quarter of 2006 declined to $1.0 million compared to $1.4 million in the same quarter last year.

Operating expenses were $5.1 million for the quarter ended September 30, 2006, compared to $4.1 million in the third quarter of 2005, an increase of $1.0 million or 26%. The increase comes from several areas including additional personnel, costs in the sales and engineering functions, and stock and incentive compensation costs.

Edmund Ludwig, Optelecom-NKF’s President and CEO, commented, “I am pleased to report our return to profitability in the third quarter. Revenues increased as our sales team showed improved effectiveness during the quarter including a project with one of the world’s largest transit authorities in Beijing, China. Our gross margins moved back to the levels we have more characteristically reported since 2001.”

“We are seeing a solid trend toward market acceptance of Siqura™, our cornerstone technology platform for building integrated IP networked surveillance systems. We expect IP video solutions sales to be a key driver of our future growth. Building on these trends, we continue to upgrade our engineering capabilities and sales channels.”

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 complete 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.

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 Optelecom-NKF to successfully operate the former NKF Electronics; 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.

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

OPTELECOM-NKF, INC.
CONSOLIDATED BALANCE SHEETS
AS OF SEPTEMBER 30, 2006 and DECEMBER 31, 2005

	2006			2005
	(unaudited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents	$	2,471,069		$	3,046,353
Accounts and contracts receivable, net of allowance for doubtful accounts of $793,786 and $603,035		8,566,991			6,731,373
Inventories, net		5,079,369			4,212,652
Deferred tax asset—current		571,702			820,830
Prepaid expenses and other current assets		787,715			640,050
Total current assets		17,476,846			15,451,258
Property and equipment, at cost less accumulated depreciation of$6,075,055 and $5,338,966		2,436,228			2,677,865
Deferred tax asset—non-current		1,116,744			589,010
Intangible assets, net of accumulated amortization of $1,060,814 and $623,705		7,984,461			7,719,737
Goodwill		13,144,309			12,430,037
Other Assets		192,515			—
TOTAL ASSETS	$	42,351,103		$	38,867,907
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES Accounts payable	$	2,836,493		$	2,235,665
Accrued payroll		1,367,399			1,616,988
Commissions payable		298,499			539,352
Current portion of capitalized leases		72,021			72,021
Current portion of notes payable		1,947,978			1,592,978
Accrued warranty reserve		419,129			308,570
Taxes Payable		372,585			568,147
Other current liabilities		991,087			1,393,945
Total current liabilities		8,305,191			8,327,666
Notes payable		14,665,073			15,794,050
Deferred tax liability		2,405,107			2,353,500
Interest Payable		646,533			235,399
Capitalized leases		60,667			115,880
Other liabilities		242,087			287,719
Total liabilities		26,324,658			27,114,214
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS’ EQUITY
Common stock, $.03 par value—shares authorized, 15,000,000; issued and outstanding, 3,524,498 and 3,301,414 shares as of September 30, 2006 and December 31, 2005, respectively		105,735			99,042
Additional paid-in capital		14,262,371			12,255,978
Accumulated other comprehensive loss		(342,518	)		(1,818,350	)
Treasury stock,162,672 shares, at cost		(1,265,047	)		(1,265,047	)
Retained earnings		3,265,904			2,482,070
Total stockholders’ equity		16,026,445			11,753,693
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	42,351,103		$	38,867,907

OPTELECOM-NKF, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
FOR THE THREE MONTHS ENDED SEPTEMBER 30
(Unaudited)

	2006			2005
Revenues	$	10,146,107		$	9,358,530
Cost of goods sold		4,059,404			3,833,714
Gross profit		6,086,703			5,524,816
Operating expenses:
Engineering		1,222,000			935,087
Selling and marketing		2,020,727			1,781,845
General and administrative		1,703,052			1,187,116
Amortization of intangible		177,929			171,553
Total operating expenses		5,123,708			4,075,601
Income from operations		962,995			1,449,215
Other (expense) income:		(295,914	)		(374,290	)
Income before income taxes		667,081			1,074,925
Provision for income taxes		271,430			300,741
Net income	$	395,651		$	774,184
Basic earnings per share	$	0.11		$	0.24
Diluted earnings per share	$	0.11		$	0.23
Weighted average common shares outstanding—basic		3,503,925			3,265,820
Weighted average common shares outstanding—diluted		3,530,908			3,405,244
Net income	$	395,651		$	774,184
Foreign currency translation		240,163			3,325
Comprehensive income (loss)	$	635,814		$	777,509

OPTELECOM-NKF, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
FOR THE NINE MONTHS ENDED SEPTEMBER 30,
(Unaudited)

	2006			2005
Revenues	$	28,648,362		$	23,863,598
Cost of goods sold		12,083,051			9,862,878
Gross profit		16,565,311			14,000,720
Operating expenses:
Engineering		3,574,165			2,526,882
Selling and marketing		6,017,073			4,783,979
General and administrative		4,378,590			3,453,056
Amortization of intangible assets		449,707			452,717
Total operating expenses		14,419,535			11,216,634
Income from operations		2,145,776			2,784,086
Other (expense)		(892,353	)		(791,412	)
Income before income taxes		1,253,423			1,992,674
Provision for income taxes		469,588			579,844
Net income	$	783,835		$	1,412,830
Basic earnings per share	$	0.23		$	0.44
Diluted earnings per share	$	0.22		$	0.42
Weighted average common shares outstanding—basic		3,422,554			3,234,333
Weighted average common shares outstanding—diluted		3,565,621			3,348,113
Net income	$	783,835		$	1,412,830
Foreign currency translation		1,475,832			(1,273,825	)
Comprehensive income (loss)	$	2,259,667		$	139,005