OMB
APPROVAL
|
|
OMB
Number:
|
3235-0063
|
Expires:
|
January
31, 2008
|
Estimated
average burden
|
|
hours
per response
|
2,196.00
|
AROTECH
CORPORATION
|
||
(Exact
name of registrant as specified in its charter)
|
Delaware
|
95-4302784
|
||
(State
or other jurisdiction of incorporation or organization)
|
(I.R.S.
Employer Identification No.)
|
||
1229
Oak Valley Drive, Ann Arbor, Michigan
|
48108
|
||
(Address
of principal executive offices)
|
(Zip
Code)
|
(800)
281-0356
|
||
(Registrant’s
telephone number, including area code)
|
||
Title
of each class
|
Name
of each exchange on which registered
|
|
None
|
Not
applicable
|
|
Large
accelerated filer: ¨
|
Accelerated filer: ý | Non-accelerated filer: ¨ |
Potential
persons who are to respond to the collection of
information
contained in this form are not required to respond
unless
the form displays a currently valid OMB control
number.
|
Ø |
We
develop, manufacture and market advanced high-tech multimedia and
interactive digital solutions for use-of-force training and driving
training of military, law enforcement, security and other personnel
through our Simulation
and Training Division:
|
· |
We
provide simulators, systems engineering and software products to
the
United States military, government and private industry through our
subsidiary FAAC Incorporated, located in Ann Arbor, Michigan (“FAAC”);
and
|
· |
We
provide specialized “use of force” training for police, security personnel
and the military through our subsidiary IES Interactive Training,
Inc.,
currently being relocated from Littleton, Colorado to Ann Arbor,
Michigan
(“IES”).
|
Ø |
We
utilize sophisticated lightweight materials and advanced engineering
processes to manufacture aviation armor and to armor vehicles through
our
Armor
Division:
|
· |
We
manufacturer ballistic and fragmentation armor kits for rotary and
fixed
wing aircraft and marine armor through our subsidiary Armour of America,
currently being relocated from Los Angeles, California, to Auburn,
Alabama
(“AoA”); and
|
· |
We
use state-of-the-art lightweight armoring materials, special ballistic
glass and advanced engineering processes to fully armor military
and
civilian SUV’s, buses and vans, through
our subsidiaries MDT Protective Industries, Ltd., located in Lod,
Israel
(“MDT”), of which we own 75.5%, and MDT
Armor Corporation, located in Auburn, Alabama (“MDT Armor”),
of which we own 88%.
|
Ø |
We
manufacture and sell lithium and Zinc-Air batteries for defense and
security products and other military applications and we pioneer
advancements in Zinc-Air technology for electric vehicles through
our
Battery
and Power Systems
Division
|
· |
We
develop and sell rechargeable and primary lithium batteries and smart
chargers to the military and to private defense industry in the Middle
East, Europe and Asia through our subsidiary Epsilor Electronic
Industries, Ltd., located in Dimona, Israel (in Israel’s Negev desert
area) (“Epsilor”);
|
· |
We
manufacture and sell Zinc-Air batteries and battery electronics for
the
military, focusing on applications that demand high energy and light
weight, through our subsidiary Electric Fuel Battery Corporation,
located
in Auburn, Alabama (“EFB”); and
|
· |
We
produce water-activated lifejacket lights for commercial aviation
and
marine applications, and we conduct our Electric Vehicle effort,
through
our subsidiary Electric Fuel (E.F.L.) Ltd., located in Beit Shemesh,
Israel (“EFL”).
|
Ø |
Off-road
driving on severe slopes, including muddy or swampy terrain;
|
Ø |
Driving
in night vision goggle and blackout conditions;
|
Ø |
Convoy
training; and
|
Ø |
The
use of the Central Tire Inflation System in response to changing
terrain.
|
Ø |
Leading
Technology − We
believe that we offer better-developed, more dynamic software than
our
competitors. Additionally, we incorporate leading graphics and
motion-cueing technologies in our systems to provide customers with
the
most realistic simulation experience on the market.
|
Ø |
Long
History in the Simulation Software Business − As
a market leader in the simulation software business for more than
thirty
years, FAAC’s professionals understand customer requirements and operating
environments. Thus, we build our software to meet and exceed demanding
customers’ expectations.
|
Ø |
Low-Cost
Research and Development Capabilities for New Products − Our
customers benefit from government and commercial funding of research
and
development and the low cost of subsequent adaptation. As such, internally
funded new product development costs have been less than $100,000
per year
since 1999.
|
Ø |
Service
Reputation − We
are known for providing strong customer service, a characteristic
that
drives new business within our chosen markets.
|
Ø |
Standardized
Development Processes − We
generally deliver our products to market quickly and at high quality
due
to our standardized development processes.
|
Ø |
Range
3000
-
providing use-of-force simulation for military and law enforcement.
We
believe that the Range 3000 is the most technologically advanced
judgment
training simulator in the world.
|
Ø |
A2Z
Classroom Trainer
-
a state-of-the-art computer based training (CBT) system that allows
students to interact with realistic interactive scenarios projected
life-size in the classroom.
|
Ø |
Range
FDU (Firearms Diagnostic Unit)
-
a unique combination of training and interactive technologies that
give
instructors a first-person perspective of what trainees are seeing
and
doing when firing a weapon.
|
Ø |
Milo
(Multiple Interactive Learning/training Objectives)
-
a simulator designed with “plug in” modules to customize the training
system to meet end user needs.
|
Ø |
Summit
Training International
-
providing relevant, cost-effective professional training services
and
interactive courseware for law enforcement, corrections and corporate
clients.
|
Ø |
IES
Studio Productions
-
providing cutting edge multimedia video services for law enforcement,
military and security agencies, utilizing the newest equipment to
create
the training services required by the most demanding authorities.
|
Ø |
Officer’s
Presence and Demeanor
-
Picture-on-picture digital recordings of the trainee’s actions allows
visual review of the trainee’s reaction, body language and weapons
handling during the course of the scenario, which then can be played
back
for debriefing of the trainee’s actions.
|
Ø |
Verbalization
-
Correct phrases, timing, manner and sequence of an officer’s dialogue is
integrated within the platform of the system, allowing the situation
to
escalate or de-escalate through the officer’s own words in the context of
the scenario and in conjunction with the trainer.
|
Ø |
Less-Than-Lethal
Training
-
Training in the use of non-lethal devices such as TASER,
OC (pepper spray), batons and other devices can be used with the
video
training scenarios with appropriate reactions of each. We produce
an
interactive system especially for TASER
products called the TASER™ Judgmental Trainer, which delivers advance
simulated training for law enforcement and government agencies deploying
TASER non-lethal devices.
|
Ø |
Soft
Hand Tactics
-
Low level physical control tactics with the use of additional equipment
such as take-down dummies can be used.
|
Ø |
Firearms
Training and Basic Marksmanship
-
Either utilizing laser based training weapons or in conjunction with
a
live-fire screen, the use of “Live Ammunition” training can be employed on
the system.
|
Ø |
Provides
repeatable training to a standard based on established
policy
|
Ø |
Quick
dissemination and reinforcement of correct behavior and
policies
|
Ø |
Helps
reduce liability
|
Ø |
More
efficient than “traditional and redundant” role-playing
methods
|
Ø |
Realistic
scenarios instead of outdated “play-acting”
|
Ø |
Interactive
training of up to 250 students simultaneously with wireless
keypads
|
Ø |
Easy
Self-Authoring of interactive training
content
|
Ø |
PC-Pentium
platform facilitates low cost of
ownership
|
Ø |
Easy
to use Windows XP-based software
|
Ø |
Easy
to deploy in any classroom
|
Ø |
Fall
of shot feedback
|
Ø |
Trigger
pressure analysis
|
Ø |
Recoil
control, grip and stance assessment
|
Ø |
Sight
alignment
|
Ø |
Sight
picture analysis and target
reacquisition
|
Ø |
Recruiting
and Retention of Law Enforcement and Corrections
Personnel
|
Ø |
Ethics
and Integrity
|
Ø |
Issues
of Hate Crimes
|
Ø |
Traffic
Stops and Use of Force
|
Ø |
Community
and Corporate Partnerships for Public
Safety
|
Ø |
Creating
a Safe School Environment
|
Ø |
Bristlecone
Products
|
Ø |
Fox
Valley Technical College
|
Ø |
TASER
International, Inc.
|
Ø |
Force
Science Research Center
|
Ø |
H&K
Training Centers
|
Ø |
The
David, an Ultra Light Armored Vehicle based on a Land Rover or Mercedes
platform;
|
Ø |
Command
vehicles (such as the Land Rover Defender 110);
and
|
Ø |
Pickup
trucks such as the Defender 130.
|
Ø |
Sports
utility vehicles (such as the GM Suburban, the Toyota Land Cruiser
and the
Land Rover Defender);
|
Ø |
Trucks,
such as the Ford F550;
|
Ø |
Passenger
vans (such as the Chevrolet Express, the General Motors Savana and
the
Ford Econoline); and
|
Ø |
Small
buses (based on vehicles in the Mercedes-Benz Vario and Sprinter
lines).
|
Ø |
Primary
batteries;
|
Ø |
Rechargeable
batteries;
|
Ø |
Smart
chargers;
|
Ø |
State
of charge indicators; and
|
Ø |
Control
and monitoring battery circuits
|
Ø |
Armed
forces in the Middle East and Asia;
|
Ø |
Military
original equipment manufacturers (OEMs);
and
|
Ø |
Various
battery manufacturers.
|
Ø |
Tactical
radios
|
Ø |
SIGINT
systems
|
Ø |
Training
systems
|
Ø |
SATCOM
radios
|
Ø |
Nightscope
power
|
Ø |
Guidance
systems
|
Ø |
Surveillance
systems
|
Ø |
Sensors
|
Ø |
an
in-vehicle, Zinc-Air fuel cell unit consisting of a series of Zinc-Air
cells and refuelable zinc-fuel anode cassettes using
commercially-available zinc;
|
Ø |
a
battery exchange unit for fast vehicle turn-around that is equivalent
to
the time needed to refuel a diesel bus;
|
Ø |
an
automated battery refueling system for mechanically replacing depleted
zinc-fuel cassettes with charged cassettes;
and
|
Ø |
a
regeneration system for electrochemical recycling and mechanical
repacking
of the discharged fuel cassettes.
|
Division
|
2005
|
2004
|
|||||
Simulation
and Training Division
|
$
|
9,379,000
|
$
|
12,691,000
|
|||
Battery
and Power Systems Division
|
4,523,000
|
8,325,000
|
|||||
Armor
Division
|
4,440,000
|
4,002,000
|
|||||
TOTAL:
|
$
|
18,342,000
|
$
|
25,018,000
|
· |
we
must dedicate a portion of our cash flows from operations to pay
principal
and interest and, as a result, we may have less funds available for
operations and other purposes;
|
· |
it
may be more difficult and expensive to obtain additional funds through
financings, if available at all;
|
· |
we
are more vulnerable to economic downturns and fluctuations in interest
rates, less able to withstand competitive pressures and less flexible
in
reacting to changes in our industry and general economic conditions;
and
|
· |
if
we default under any of our existing debt instruments, including
paying
the outstanding principal when due, and if our creditors demand payment
of
a portion or all of our indebtedness, we may not have sufficient
funds to
make such payments.
|
· |
our
financial condition at the time;
|
· |
restrictions
in the agreements governing our other indebtedness;
and
|
· |
other
factors, including the condition of the financial markets and our
industry.
|
· |
the
U.S. Federal Acquisition Regulations, which regulate the formation,
administration and performance of government contracts;
|
· |
the
U.S. Truth in Negotiations Act, which requires certification and
disclosure of all cost and pricing data in connection with contract
negotiations; and
|
· |
the
U.S. Cost Accounting Standards, which impose accounting requirements
that
govern our right to reimbursement under certain cost-based government
contracts.
|
· |
announcements
by us, our competitors or our
customers;
|
· |
the
introduction of new or enhanced products and services by us or our
competitors;
|
· |
changes
in the perceived ability to commercialize our technology compared
to that
of our competitors;
|
· |
rumors
relating to our competitors or us;
|
· |
actual
or anticipated fluctuations in our operating results;
|
· |
the
issuance of our securities, including warrants, in connection with
financings and acquisitions; and
|
· |
general
market or economic conditions.
|
· |
divide
our board of directors into three classes serving staggered three-year
terms;
|
· |
only
permit removal of directors by stockholders “for cause,” and require the
affirmative vote of at least 85% of the outstanding common stock
to so
remove; and
|
· |
allow
us to issue preferred stock without any vote or further action by
the
stockholders.
|
1. Permitting,
for purposes of NASD Marketplace Rule 4350(i)(1)(D)(ii), payments
of
principal on the Company’s Senior Secured Convertible Notes in
stock:
|
||||
Votes
For
|
Votes
Against
|
Abstentions
|
Shares
Not Voting
|
|
19,804,747
|
3,845,135
|
270,052
|
49,912,774
|
2. Permitting,
for purposes of NASD Marketplace Rule 4350(i)(1)(D)(ii), adjustment
of the
exercise prices of certain of the Company’s outstanding
warrants:
|
||||
Votes
For
|
Votes
Against
|
Abstentions
|
Shares
Not Voting
|
|
16,952,408
|
6,599,686
|
367,841
|
49,912,773
|
3. Ratifying
the appointment of Kost, Forer, Gabbay & Kasierer as the Company’s
independent accountants for the fiscal year ending December 31,
2005:
|
||||
Votes
For
|
Votes
Against
|
Abstentions
|
Shares
Not Voting
|
|
70,233,322
|
3,237,427
|
361,959
|
0
|
Year
Ended December 31, 2005
|
High
|
Low
|
|||||
Fourth
Quarter
|
$
|
0.76
|
$
|
0.36
|
|||
Third
Quarter
|
$
|
1.19
|
$
|
0.70
|
|||
Second
Quarter
|
$
|
1.46
|
$
|
1.00
|
|||
First
Quarter
|
$
|
1.78
|
$
|
1.26
|
|||
Year
Ended December 31, 2004
|
High
|
Low
|
|||||
Fourth
Quarter
|
$
|
2.16
|
$
|
1.50
|
|||
Third
Quarter
|
$
|
2.14
|
$
|
1.18
|
|||
Second
Quarter
|
$
|
4.34
|
$
|
1.90
|
|||
First
Quarter
|
$
|
2.53
|
$
|
1.65
|
Year
Ended December 31,
|
||||||||||||||||
2001
|
2002
|
2003**
|
2004
|
2005
|
||||||||||||
(dollars
in thousands, except per share data)
|
||||||||||||||||
Statement
of Operations Data:
|
||||||||||||||||
Revenues
|
$
|
2,094
|
$
|
6,407
|
$
|
17,326
|
$
|
49,954
|
$
|
49,045
|
||||||
Research
and development expenses and costs of revenues
|
2,448
|
5,108
|
12,141
|
35,742
|
35,684
|
|||||||||||
Selling,
general and administrative expenses and their impairment and amortization
of intangible assets
|
3,934
|
5,982
|
10,255
|
18,394
|
34,662
|
|||||||||||
Operating
loss
|
(4,288
|
)
|
(4,683
|
)
|
(5,070
|
)
|
(4,182
|
)
|
(21,301
|
)
|
||||||
Other
income
|
—
|
—
|
—
|
—
|
339
|
|||||||||||
Financial
income (expenses), net
|
263
|
100
|
4,039
|
4,229
|
(2,706
|
)
|
||||||||||
Loss
before minority interest in (loss) earnings of subsidiary and tax
expenses
|
(4,026
|
)
|
(4,583
|
)
|
(9,109
|
)
|
(8,411
|
)
|
(23,668
|
)
|
||||||
Taxes
on income
|
—
|
—
|
(396
|
)
|
(586
|
)
|
(237
|
)
|
||||||||
Loss
from affiliated company
|
—
|
—
|
—
|
—
|
(75
|
)
|
||||||||||
Minority
interest in (loss) earnings of subsidiary
|
—
|
(355
|
)
|
157
|
(45
|
)
|
57
|
|||||||||
Loss
from continuing operations
|
(4,026
|
)
|
(4,938
|
)
|
(9,348
|
)
|
(9,042
|
)
|
(23,923
|
)
|
||||||
Income
(loss) from discontinued operations
|
(13,261
|
)
|
(13,566
|
)
|
110
|
—
|
(120
|
)
|
||||||||
Net
loss for the period
|
(17,287
|
)
|
(18,504
|
)
|
(9,238
|
)
|
(9,042
|
)
|
(24,043
|
)
|
||||||
Deemed
dividend to certain stockholders of common stock
|
(1,197
|
)
|
—
|
(350
|
)
|
(3,329
|
)
|
—
|
||||||||
Net
loss attributable to stockholders of common stock
|
$
|
(18,483
|
)
|
$
|
(18,504
|
)
|
$
|
(9,588
|
)
|
$
|
(12,371
|
)
|
$
|
(24,043
|
)
|
|
Basic
and diluted net loss per share from continuing operations
|
$
|
(0.21
|
)
|
$
|
(0.15
|
)
|
$
|
(0.24
|
)
|
$
|
(0.13
|
)
|
$
|
(0.29
|
)
|
|
Loss
per share for combined operations
|
$
|
(0.76
|
)
|
$
|
(0.57
|
)
|
$
|
(0.25
|
)
|
$
|
(0.18
|
)
|
$
|
(0.29
|
)
|
|
Weighted
average number of common shares used in computing basic and diluted
net
loss per share (in thousands)
|
24,200
|
32,382
|
38,890
|
69,933
|
82,209
|
|||||||||||
|
As
At December 31,
|
|||||||||||||||
2001
|
2002
|
|
|
2003**
|
|
|
2004
|
|
|
2005
|
||||||
|
(dollars
in thousands)
|
|||||||||||||||
Balance
Sheet Data:
|
||||||||||||||||
Cash,
cash equivalents, investments in marketable debt securities and
restricted
collateral deposits
|
$
|
12,672
|
$
|
2,091
|
$
|
14,391
|
$
|
13,832
|
$
|
10,864
|
||||||
Receivables
and other assets*
|
11,515
|
7,895
|
8,898
|
25,746
|
29,166
|
|||||||||||
Property
and equipment, net of depreciation
|
2,221
|
2,555
|
2,293
|
4,601
|
4,253
|
|||||||||||
Goodwill
and other intangible assets, net
|
—
|
7,522
|
7,440
|
54,113
|
40,586
|
|||||||||||
Total
assets
|
$
|
26,408
|
$
|
20,063
|
$
|
33,022
|
$
|
98,292
|
$
|
84,869
|
||||||
Current
liabilities*
|
$
|
3,874
|
$
|
7,272
|
$
|
6,710
|
$
|
26,381
|
$
|
26,317
|
||||||
Long-term
liabilities***
|
3,126
|
3,753
|
4,686
|
6,438
|
12,287
|
|||||||||||
Stockholders’
equity
|
19,408
|
9,038
|
21,626
|
65,473
|
46,265
|
|||||||||||
Total
liabilities and stockholders equity*
|
$
|
26,408
|
$
|
20,063
|
$
|
33,022
|
$
|
98,292
|
$
|
84,869
|
*
|
Includes
assets and liabilities, as applicable, from discontinued
operations.
|
|
**
|
Restated.
|
|
***
|
Includes
minority interest.
|
Ø |
we
develop, manufacture and market advanced high-tech multimedia and
interactive digital solutions for use-of-force and driving training
of
military, law enforcement, security and other personnel (our Simulation
and Training Division);
|
Ø |
we
manufacture aviation armor and we utilize sophisticated lightweight
materials and advanced engineering processes to armor vehicles (our
Armoring
Division);
and
|
Ø |
we
manufacture and sell Zinc-Air and lithium batteries for defense and
security products and other military applications and we pioneer
advancements in Zinc-Air battery technology for electric vehicles
(our
Battery
and Power Systems Division).
|
Ø |
Our
Simulation
and Training Division,
consisting of:
|
· |
FAAC
Incorporated, located in Ann Arbor, Michigan, which provides simulators,
systems engineering and software products to the United States military,
government and private industry (“FAAC”);
and
|
· |
IES
Interactive Training, Inc., located in Littleton, Colorado, which
provides
specialized “use of force” training for police, security personnel and the
military (“IES”).
|
Ø |
Our
Armor
Division,
consisting of:
|
· |
Armour
of America, located in Los Angeles, California, which manufacturers
ballistic and fragmentation armor kits for rotary and fixed wing
aircraft,
marine armor, personnel armor, military vehicles and architectural
applications, including both the LEGUARD Tactical Leg Armor and the
Armourfloat Ballistic Floatation Device, which is a unique vest that
is
certified by the U.S. Coast Guard (“AoA”);
|
· |
MDT
Protective Industries, Ltd., located in Lod, Israel, which specializes
in using state-of-the-art lightweight ceramic materials, special
ballistic
glass and advanced engineering processes to fully armor vans and
SUVs, and
is a leading supplier to the Israeli military, Israeli special forces
and
special services (“MDT”) (75.5% owned);
and
|
· |
MDT
Armor Corporation, located in Auburn, Alabama, which conducts MDT’s United
States activities (“MDT Armor”)
(88% owned).
|
Ø |
Our
Battery
and Power Systems Division,
consisting of:
|
· |
Epsilor
Electronic Industries, Ltd., located in Dimona, Israel (in Israel’s Negev
desert area), which develops and sells rechargeable and primary lithium
batteries and smart chargers to the military and to private industry
in
the Middle East, Europe and Asia (“Epsilor”);
|
· |
Electric
Fuel Battery Corporation, located in Auburn, Alabama, which manufactures
and sells Zinc-Air fuel sells, batteries and chargers for the military,
focusing on applications that demand high energy and light weight
(“EFB”);
and
|
· |
Electric
Fuel (E.F.L.) Ltd., located in Beit Shemesh, Israel, which produces
water-activated lifejacket lights for commercial aviation and marine
applications, and which conducts our Electric Vehicle effort, focusing
on
obtaining and implementing demonstration projects in the U.S. and
Europe,
and on building broad industry partnerships that can lead to eventual
commercialization of our Zinc-Air energy system for electric vehicles
(“EFL”).
|
Year
Ended December 31,
|
|||||||
2005
|
2004
|
||||||
Revenues:
|
|||||||
Simulation
and Training Division
|
$
|
26,805,772
|
$
|
21,464,406
|
|||
Armor
Division
|
12,322,678
|
17,988,687
|
|||||
Battery
and Power Systems Division
|
9,916,145
|
10,500,753
|
|||||
$
|
49,044,595
|
$
|
49,953,846
|
||||
Cost
of revenues:
|
|||||||
Simulation
and Training Division
|
$
|
15,835,735
|
$
|
11,739,690
|
|||
Armor
Division
|
11,206,442
|
15,449,084
|
|||||
Battery
and Power Systems Division
|
7,341,559
|
6,822,320
|
|||||
$
|
34,383,736
|
$
|
34,011,094
|
||||
Research
and development expenses:
|
|||||||
Simulation
and Training Division
|
$
|
209,554
|
$
|
395,636
|
|||
Armor
Division
|
139,514
|
17,065
|
|||||
Battery
and Power Systems Division
|
951,361
|
1,318,678
|
|||||
$
|
1,300,429
|
$
|
1,731,379
|
||||
Sales
and marketing expenses:
|
|||||||
Simulation
and Training Division
|
$
|
2,704,880
|
$
|
3,185,001
|
|||
Armor
Division
|
834,090
|
565,981
|
|||||
Battery
and Power Systems Division
|
853,378
|
1,171,235
|
|||||
All
Other
|
79,242
|
—
|
|||||
$
|
4,471,590
|
$
|
4,922,217
|
||||
General
and administrative expenses:
|
|||||||
Simulation
and Training Division
|
$
|
3,849,881
|
$
|
2,852,969
|
|||
Armor
Division
|
2,181,355
|
1,323,982
|
|||||
Battery
and Power Systems Division
|
974,704
|
965,058
|
|||||
All
Other
|
7,856,495
|
5,514,857
|
|||||
$
|
14,862,435
|
$
|
10,656,866
|
||||
Other
income:
|
|||||||
Simulation
and Training Division
|
$
|
338,900
|
$
|
—
|
|||
Armor
Division
|
—
|
—
|
|||||
Battery
and Power Systems Division
|
—
|
—
|
|||||
All
Other
|
—
|
—
|
|||||
$
|
338,900
|
$
|
—
|
||||
Financial
expense (income):
|
|||||||
Simulation
and Training Division
|
$
|
22,294
|
$
|
27,842
|
|||
Armor
Division
|
(2,463
|
)
|
13,503
|
||||
Battery
and Power Systems Division
|
122,236
|
54,511
|
|||||
All
Other
|
2,563,622
|
4,133,109
|
|||||
$
|
2,705,689
|
$
|
4,228,965
|
||||
Tax
expenses:
|
|||||||
Simulation
and Training Division
|
$
|
63,976
|
$
|
77,811
|
|||
Armor
Division
|
94,671
|
134,949
|
|||||
Battery
and Power Systems Division
|
32,846
|
320,878
|
|||||
All
Other
|
46,179
|
52,471
|
|||||
$
|
237,672
|
$
|
586,109
|
Year
Ended December 31,
|
|||||||
2005
|
2004
|
||||||
Amortization
of intangible assets:
|
|||||||
Simulation
and Training Division
|
$
|
1,213,261
|
$
|
1,323,403
|
|||
Armor
Division
|
1,348,248
|
661,914
|
|||||
Battery
and Power Systems Division
|
509,239
|
509,239
|
|||||
$
|
3,070,748
|
$
|
2,494,556
|
||||
Impairment
of goodwill and other intangible assets:
|
|||||||
Simulation
and Training Division
|
$
|
—
|
$
|
320,279
|
|||
Armor
Division
|
12,256,756
|
—
|
|||||
Battery
and Power Systems Division
|
—
|
—
|
|||||
$
|
12,256,756
|
$
|
320,279
|
||||
Loss
from affiliated company:
|
|||||||
Simulation
and Training Division
|
$
|
(75,000
|
)
|
$
|
—
|
||
Armor
Division
|
—
|
—
|
|||||
Battery
and Power Systems Division
|
—
|
—
|
|||||
$
|
(75,000
|
)
|
$
|
—
|
|||
Minority
interest in loss (profit) of subsidiaries:
|
|||||||
Simulation
and Training Division
|
$
|
—
|
$
|
—
|
|||
Armor
Division
|
57,149
|
(44,694
|
)
|
||||
Battery
and Power Systems Division
|
—
|
—
|
|||||
$
|
57,149
|
$
|
(44,694
|
)
|
|||
Income
(loss) from continuing operations:
|
|||||||
Simulation
and Training Division
|
$
|
3,170,091
|
$
|
1,541,775
|
|||
Armor
Division
|
(15,678,786
|
)
|
(222,485
|
)
|
|||
Battery
and Power Systems Division
|
(869,178
|
)
|
(661,166
|
)
|
|||
All
Other
|
(10,545,538
|
)
|
(9,700,437
|
)
|
|||
$
|
(23,923,411
|
)
|
$
|
(9,042,313
|
)
|
||
Loss
from discontinued operations:
|
|||||||
Simulation
and Training Division
|
$
|
—
|
$
|
—
|
|||
Armor
Division
|
—
|
—
|
|||||
Battery
and Power Systems Division
|
(120,000
|
)
|
—
|
||||
$
|
(120,000
|
)
|
$
|
—
|
|||
Net
income (loss):
|
|||||||
Simulation
and Training Division
|
$
|
3,170,091
|
$
|
1,541,775
|
|||
Armor
Division
|
(15,678,786
|
)
|
(222,485
|
)
|
|||
Battery
and Power Systems Division
|
(989,178
|
)
|
(661,166
|
)
|
|||
All
Other
|
(10,545,538
|
)
|
(9,700,437
|
)
|
|||
$
|
(24,043,411
|
)
|
$
|
(9,042,313
|
)
|
Ø |
IES
and FAAC recognized revenues from the sale of interactive use-of-force
and
driver operator training systems and from the provision of maintenance
services in connection with such systems;
|
Ø |
MDT,
MDT Armor and AoA recognized revenues from payments under vehicle
armoring
contracts, for service and repair of armored vehicles, and on sale
of
armoring products;
|
Ø |
EFB
and Epsilor recognized revenues from the sale of batteries, chargers
and
adapters to the military, and under certain development contracts
with the
U.S. Army; and
|
Ø |
EFL
recognized revenues from the sale of lifejacket lights and from
subcontracting fees received in connection with Phase IV of the United
States Department of Transportation (DOT) electric bus
program.
|
Ø |
$26.8
million for the Simulation and Training Division, compared to $21.5
million in 2004, an
increase of $5.3 million, or 25%, due
primarily to the increased revenues of FAAC (approximately $4.5 million).
|
Ø |
$12.3
million for the Armor Division, compared to $18.0 million in
2004, a
decrease of $5.7 million, or 32%, due
primarily to the decreased revenues from MDT Armor (approximately
$8.3
million) as a result of a slowdown in armoring orders related to
the Iraq
War. This decrease was partially offset by higher revenues recorded
by us
in 2005 from AoA in comparison to 2004, due to the fact that
AoA’s revenues were included for all of 2005 but only for the last five
months of 2004. On a pro forma basis, AoA’s revenues decreased in 2005
versus 2004, due to decisions by customers to utilize methods of
armor not
produced by AoA (hard armor instead of soft armor), the change in
U.S.
military priorities from acquiring new armor to funding the ground
forces
in Iraq and Afghanistan, and, following Hurricane Katrina, the fact
that
substantial funds earmarked for defense were delayed to provide funds
for
hurricane relief.
|
Ø |
$9.9
million for the Battery and Power Systems Division, compared to $10.5
million in 2004, a
decrease of $585,000, or 6%, due primarily to decreased sales of
lithium
batteries and chargers by our Epsilor subsidiary as a result of reduced
equipment purchases by one of its customers, offset to some extent
by
increased revenues from our Zinc-Air military batteries.
|
Ø |
The
inclusion of the general and administrative expenses of AoA in our
results
for all of 2005 but only five months of 2004 ($836,000);
|
Ø |
Increases
in general and administrative expenses in our FAAC subsidiary due
to legal
expenses, employee relocation, accounting, incentive pay accruals,
and
similar expenses ($809,000);
|
Ø |
Increase
in other corporate general and administrative expenses such as auditing,
legal and travel expenses ($800,000);
and
|
Ø |
Increase
in costs related to abandoned acquisition activities ($1.1
million).
|
Ø |
From
the sale of interactive training systems and from the provision of
warranty services in connection with such systems (FAAC and
IES);
|
Ø |
From
payments under armor contracts and for service and repair of armored
vehicles (AoA and MDT);
|
Ø |
From
the sale of batteries, chargers and adapters to the military, and
under
certain development contracts with the U.S. Army (EFB and Epsilor);
|
Ø |
From
the sale of lifejacket lights (EFL);
and
|
Ø |
From
subcontracting fees received in connection with Phase III of the
United
States Department of Transportation (DOT) electric bus program, which
began in October 2003 and was completed in March 2004. Phase IV of
the DOT
program, which began in October 2004, did not result in any revenues
during 2004 (EFL).
|
Ø |
Increased
revenues from vehicle armoring; and
|
Ø |
Revenues
generated by FAAC, Epsilor and AoA in 2004 that were not present
in
2003.
|
Ø |
The
inclusion of the general and administrative expenses of FAAC, Epsilor
and
AoA in our results for 2004 ($2.4
million);
|
Ø |
Expenses
in 2004 in connection with grant of options and shares to employees
that
were not present in 2003 ($830,000);
|
Ø |
Costs
associated with our compliance with Section 404 of the Sarbanes-Oxley
Act
of 2002 that were not present in 2003 ($150,000);
and
|
Ø |
Increases
in other general and administrative expenses, such as employee salaries
and bonuses, travel expenses, audit fees, director fees, legal fees,
and
expenses related to due diligence performed in connection with certain
potential acquisitions, which were not present in
2003.
|
Ø |
Expenses
in 2003 in connection with a litigation settlement agreement that
were not
present in 2004 ($700,000); and
|
Ø |
Amortization
of legal and consulting expenses in 2003 in connection with our
convertible debentures that were lower (by $260,000) than in
2004.
|
Payment
Due by Period
|
||||||||||||||||
Contractual
Obligations
|
Total
|
Less
Than 1
Year
|
1-3
Years
|
3-5
Years
|
More
than 5
Years
|
|||||||||||
Long-term
debt*
|
$
|
8,750,000
|
$
|
—
|
$
|
8,750,000
|
$
|
—
|
$
|
—
|
||||||
Short-term
debt**
|
$
|
15,474,448
|
$
|
15,474,448
|
$
|
—
|
$
|
—
|
$
|
—
|
||||||
Operating
lease obligations***
|
$
|
1,926,383
|
$
|
826,367
|
$
|
1,003,176
|
$
|
96,840
|
$
|
—
|
||||||
Severance
obligations***
|
$
|
1,732,955
|
$
|
137,685
|
$
|
1,595,269
|
$
|
—
|
$
|
—
|
* | Includes convertible debentures in the gross amount of $8,750,000. Unamortized financial expenses related to the beneficial conversion feature of these convertible debentures amounted to $160,000 at year end. |
**
|
Includes
sums owed in respect of an earn-out provision related to
our acquisition
of FAAC, in the amount of $604,000. Also includes $12.8 million
short-term
convertible note and $2.0 million in short-term bank
debt
|
***
|
Includes
operating lease obligations related to
rent.
|
**** |
Includes
obligations related to special severance pay arrangements
in addition to
the severance amounts due to certain employees pursuant
to Israeli
severance pay law (the amount shown in the table above
with payment due
during the next 1-3 years might not be paid in the period
stated in the
event the employment agreements to which such severance
obligations relate
are
extended).
|
Page
|
|
Consolidated
Financial Statements
|
|
Reports
of Independent Registered Public Accounting Firms
|
F-1
|
Consolidated
Balance Sheets
|
F-8
|
Consolidated
Statements of Operations
|
F-10
|
Statements
of Changes in Shareholders’ Equity
|
F-11
|
Consolidated
Statements of Cash Flows
|
F-14
|
Notes
to Consolidated Financial Statements
|
F-17
|
Supplementary
Financial Data
|
|
Quarterly
Financial Data (unaudited) for the two years ended December 31,
2005
|
F-63
|
Financial
Statement Schedule
|
|
Schedule
II - Valuation and Qualifying Accounts
|
F-64
|
Ø |
Revenue
recognition.
We did not maintain effective controls over the monitoring, review
and
approval of revenue recognition calculations at FAAC. Specifically,
these
calculations were not being reviewed by appropriate accounting personnel
to determine that revenue is recognized in accordance with company
policy
and generally accepted accounting principles. This material weakness
affects the revenue and unbilled receivables
accounts.
|
Ø |
Revenue
recognition.
We will institute procedures at FAAC to determine that revenue recognition
calculations are reviewed by an appropriate accounting
person.
|
Name
|
Age
|
Position
|
||
Robert
S. Ehrlich
|
67
|
Chairman
of the Board and Chief Executive Officer
|
||
Steven
Esses
|
42
|
President,
Chief Operating Officer and Director
|
||
Thomas
J. Paup
|
57
|
Vice
President - Finance and Chief Financial Officer
|
||
Dr.
Jay M. Eastman
|
57
|
Director
|
||
Jack
E. Rosenfeld
|
67
|
Director
|
||
Lawrence
M. Miller
|
59
|
Director
|
||
Edward
J. Borey
|
55
|
Director
|
||
Seymour
Jones
|
74
|
Director
|
Name
|
Age
|
Position
|
||
Jonathan
Whartman
|
51
|
Senior
Vice President
|
||
Yaakov
Har-Oz
|
48
|
Senior
Vice President, General Counsel and Secretary
|
||
Dr.
Neal Naimer
|
47
|
President,
Battery Division
|
||
William
Graham
|
47
|
Vice
President of Government Affairs
|
||
Kim
Kelly
|
41
|
Vice
President - Corporate Communications
|
||
Danny
Waldner
|
34
|
Controller
|
||
Dean
Krutty
|
40
|
President,
Simulation Division
|
||
Yosef
Bar
|
63
|
General
Manager, MDT Protective Industries
|
||
Ronen
Badichi
|
40
|
General
Manager, Epsilor Electronics Industries, Ltd.
|
||
Graydon
Hansen
|
47
|
President,
Electric Fuel Battery Corporation
|
(i) |
Mr.
Ehrlich was required to file a Form 4 on or prior to December 31,
2004 in
connection with (i) the repricing of 600,000 of his existing stock
options
and the accelerated vesting of 33,333 of those options, (ii) his
abandonment of 227,000 of his existing stock options, and (iii) his
receipt of 1,500,000 new stock options. He reported these transactions
in
a Form 5 filed on February 14,
2006.
|
(ii) |
Mr.
Esses was required to file a Form 4 on or prior to December 31, 2004
in
connection with (i) the repricing of 885,140 of his existing stock
options
and the accelerated vesting of 50,000 of those options, and (ii)
his
receipt of 114,860 new stock options. He reported these transactions
in a
Form 5 filed on February 14, 2006.
|
(iii) |
Prof.
Jones was required to file a Form 3 on or prior to July 21, 2005
in
connection with his becoming a director. He filed this Form 3 on
February
15, 2006. Additionally, as a result of technical problems with his
EDGAR
filing codes, his Form 5 that was supposed to be filed on or prior
to
February 14, 2006 was filed on February 15,
2006.
|
(iv) |
Mr.
Shen was required to file a Form 5 on or prior to February 14, 2006.
He
filed this Form 5 on February 17,
2006.
|
Ø |
cash
salary;
|
Ø |
bonus,
some of which was paid in cash in the year in which it was earned
and some
of which was accrued in the year in which it was earned but paid
in cash
in a subsequent year;
|
Ø |
cash
reimbursement for taxes paid by the Named Executive Officer and reimbursed
by us in accordance with Israeli tax
regulations;
|
Ø |
accruals
(but not cash payments) in respect of contractual termination compensation
in excess of the Israeli statutory
minimum;
|
Ø |
accruals
(but not cash payments) in respect of pension plans, which consist
of a
savings plan, life insurance and statutory severance pay benefits,
and a
continuing education fund (as is customary in
Israel);
|
Ø |
stock
options;
|
Ø |
grants
of restricted stock, where the sale of such stock is prohibited for
a
period of two years and such stock is forfeit to us should the Named
Executive Officer’s employment be terminated for cause, as defined in such
Executive’s employment agreement (e.g.,
fraud, reckless or willful misconduct, etc.);
and
|
Ø |
other
benefits, primarily consisting of annual statutory holiday pay and
redemption of unused vacation days and sick
days.
|
Annual
Compensation
|
Long
Term Compensation
|
All
Other Compensation
|
||||||||||||||||||||||||||
Name
and Principal Position
|
Year
|
Salary
|
|
Bonus
|
|
Tax
Reimbursement
|
|
Securities
Underlying
Options
|
|
Restricted
Stock
Award(2)
|
|
Changes
in
Accruals
for
Sick
Days,
Vacation
Days,
and
Termination
Compensation
|
|
Payment
to
Pension
and
Education
Funds
|
|
Others
|
||||||||||||
Robert
S. Ehrlich
|
2005
|
$
|
275,362
|
$
|
49,875
|
$
|
26,340
|
0
|
(3)
|
$
|
0
|
$
|
(51,363)
|
(4)
|
$
|
45,362
|
$
|
112,413
|
(5)
|
|||||||||
Chairman
of the Board, Chief Executive Officer
|
2004
|
$
|
275,907
|
$
|
175,000
|
$
|
29,103
|
50,000
|
$
|
626,350
|
$
|
133,898
|
(6)
|
$
|
548,477
|
(7)
|
$
|
19,893
|
||||||||||
and
director*
|
2003
|
$
|
259,989
|
$
|
180,000
|
(8)
|
$
|
27,211
|
2,035,000
|
$
|
0
|
$
|
80,713
|
(9)
|
$
|
48,228
|
$
|
678
|
||||||||||
Steven
Esses
|
2005
|
$
|
56,722
|
(10)
|
$
|
112,000
|
(11)
|
$
|
22,666
|
114,860
|
(12)
|
$
|
0
|
$
|
228,403
|
(13)
|
$
|
12,446
|
$
|
13,607
|
||||||||
President,
Chief Operating Officer and director**
|
2004
|
$
|
65,506
|
(14)
|
$
|
106,000
|
(15)
|
$
|
25,273
|
0
|
$
|
221,100
|
$
|
3,759
|
(16)
|
$
|
12,116
|
$
|
12,940
|
|||||||||
|
2003
|
$
|
0
|
$
|
0
|
$
|
0
|
1,035,000
|
$
|
0
|
$
|
0
|
$
|
0
|
$
|
0
|
||||||||||||
Avihai
Shen
|
2005
|
$
|
157,013
|
$
|
0
|
$
|
7,889
|
0
|
$
|
0
|
$
|
70,479
|
(17)
|
$
|
23,121
|
$
|
39,476
|
(18)
|
||||||||||
Vice
President - Finance and
|
2004
|
$
|
155,845
|
$
|
97,000
|
$
|
6,407
|
18,750
|
$
|
54,900
|
$
|
34,972
|
(19)
|
$
|
26,889
|
$
|
476
|
|||||||||||
Chief
Financial Officer***
|
2003
|
$
|
123,988
|
$
|
0
|
$
|
8,653
|
608,750
|
$
|
0
|
$
|
6,471
|
(20)
|
$
|
23,133
|
$
|
463
|
*
|
Mr.
Ehrlich ceased to hold the title of President in December
2005.
|
|
**
|
Mr.
Esses became an executive officer in January 2003. His compensation
as an
officer during 2003 consisted solely of stock options. In December
2005,
Mr. Esses became our President; prior thereto, he held the title
of
Executive Vice President.
|
|
***
|
Mr.
Shen ceased to act as our Chief Financial Officer in February 2006,
and
his employment with us terminated on March 31, 2006.
|
|
(1)
|
We
paid the amounts reported for each named executive officer in U.S.
dollars
and/or New Israeli Shekels (NIS). We have translated amounts paid
in NIS
into U.S. dollars at the exchange rate of NIS into U.S. dollars at
the
time of payment or accrual.
|
|
(2)
|
Based
on the closing market price of our stock on the Nasdaq Stock Exchange
the
date of grant multiplied by the number of shares awarded. As of December
31, 2004, our Named Executive Officers held 635,000 restricted shares.
Of
these shares, the restrictions on 530,000 shares are scheduled to
expire
on August 4, 2006, and the restrictions on 105,000 are scheduled
to expire
on December 8, 2006. The value of the restricted shares held by our
Named
Executive Officers on December 31, 2004, based on the closing price
of our
stock on the Nasdaq Stock Exchange on that date. was
$902,350.
|
|
(3)
|
During
2005, no new options were granted to Mr. Ehrlich; however, 600,000
of Mr.
Ehrlich’s options were repriced in 2005 from an average exercise price of
$1.19 to a new exercise price of $0.39. See “Report on Repricing of
Options,” below. Additionally, 784,167 of Mr. Ehrlich’s options expired or
were cancelled during 2005.
|
(4)
|
Of
this amount, $67,024 represents our accrual for severance pay that
will be
payable to Mr. Ehrlich upon his leaving our employ other than if
he is
terminated for cause, such as a breach of trust; $(51,928) represents
the
decrease of the accrual for vacation days redeemable by Mr. Ehrlich;
$(40,483) represents the decrease of the accrual for sick days redeemable
by Mr. Ehrlich; and $(25,976) represents the decrease of our accrual
for
severance pay that would be payable to Mr. Ehrlich under the laws
of the
State of Israel if we were to terminate his employment.
|
|
(5)
|
Of
this amount, $61,195 represents payment for redemption of accrued
but
unused vacation days, and $33,394 represents payment for redemption
of
accrued but unused sick days.
|
|
(6)
|
Of
this amount, $76,766 represents our accrual for severance pay that
would
be payable to Mr. Ehrlich upon a “change of control” or upon the
occurrence of certain other events; $28,603 represents the increase
of the
accrual for vacation days redeemable by Mr. Ehrlich; and $28,529
represents the increase of our accrual for severance pay that would
be
payable to Mr. Ehrlich under the laws of the State of Israel if we
were to
terminate his employment.
|
|
(7)
|
Of
this amount, $500,000 was deposited
by us in a Rabbi Trust for Mr. Ehrlich’s benefit. Pursuant to the terms of
the Rabbi Trust, funds in the Rabbi Trust continue to be owned by
us, and
benefit from all gains and bear the risk of all losses resulting
from
investments of Rabbi Trust funds. See “Employment Contracts - Robert S.
Ehrlich,” below.
|
|
(8)
|
We
paid Mr. Ehrlich $180,000 during 2004 in satisfaction of his bonus
from
2003 to which he was entitled according to his contract. Of this
amount,
we accrued $99,750 for Mr. Ehrlich in satisfaction of the 2003 bonus
to
which he was entitled according to his contract; the remainder was
the
result of the approval in 2004 by the Compensation Committee of a
higher
bonus for 2003 than Mr. Ehrlich’s contractual minimum.
|
|
(9)
|
Of
this amount, $92,075 represents our accrual for severance pay that
would
be payable to Mr. Ehrlich upon a “change of control” or upon the
occurrence of certain other events; $3,451 represents the increase
of the
accrual for sick leave and vacation days redeemable by Mr. Ehrlich;
and
$(14,813) represents the decrease of our accrual for severance pay
that
would be payable to Mr. Ehrlich under the laws of the State of Israel
if
we were to terminate his employment.
|
|
(10)
|
Does
not include $178,176 that we paid in consulting fees to Sampen
Corporation, a
New York corporation owned by members of Steven Esses’s immediate family,
from which Mr. Esses receives a salary. See “Item 13. Certain
Relationships and Related Transactions - Consulting Agreement with
Sampen
Corporation,” below.
|
|
(11)
|
Includes
a $100,000 signing bonus that was paid to Mr. Esses in 2005 and the
$12,000 minimum bonus to which Mr. Esses is entitled pursuant to
the terms
of his employment contract. Does not include
$30,720 that we paid as a bonus to Sampen Corporation, a
New York corporation owned by members of Steven Esses’s immediate family,
from which Mr. Esses receives a salary. See “Item 13. Certain
Relationships and Related Transactions - Consulting Agreement with
Sampen
Corporation,” below..
|
|
(12)
|
In
addition to the grant of 114,860 new options during 2005, 885,140
of Mr.
Esses’s options were repriced in 2005 from an average exercise price of
$0.80 to a new exercise price of $0.39. See “Report on Repricing of
Options,” below.
|
|
(13)
|
Of
this amount, $186,707 represents the increase of our accrual for
severance
pay that would be payable to Mr. Esses if we were to terminate his
employment; and $41,369 represents the increase of the accrual for
sick
leave and vacation days redeemable by Mr. Esses.
|
|
(14)
|
Does
not include $208,100 that we paid in consulting fees to Sampen
Corporation, a
New York corporation owned by members of Steven Esses’s immediate family,
from which Mr. Esses receives a salary. See “Item 13. Certain
Relationships and Related Transactions - Consulting Agreement with
Sampen
Corporation,” below.
|
|
(15)
|
Does
not include $110,000 that we paid as a bonus to Sampen Corporation,
a
New York corporation owned by members of Steven Esses’s immediate family,
from which Mr. Esses receives a salary. See “Item 13. Certain
Relationships and Related Transactions - Consulting Agreement with
Sampen
Corporation,” below.
|
|
(16)
|
Represents
the increase of the accrual for vacation days redeemable by Mr.
Esses.
|
|
(17)
|
Of
this amount, $104,602 represents the increase of our accrual for
severance
pay that would be payable to Mr. Shen if we were to terminate his
employment; $(28,597) represents the decrease of the accrual for
sick
leave and vacation days redeemable by Mr. Shen; and $(5,526) represents
the decrease in our accrual for severance pay that would be payable
to Mr.
Shen under the laws of the State of Israel if we were to terminate
his
employment.
Mr. Shen left our employ effective March 31, 2006, and these amounts
were
accordingly paid to him.
|
|
(18)
|
Of
this amount, $35,131 represents payment to Mr. Shen for redemption
of
accrued but unused vacation days.
|
|
(19)
|
Of
this amount, $21,568 represents the increase in our accrual for vacation
days redeemable by Mr. Shen; and $13,404 represents the increase
of our
accrual for severance pay that would be payable to Mr. Shen under
the laws
of the State of Israel if we were to terminate his
employment.
|
|
(20)
|
Of
this amount, $8,369 represents the increase of the accrual for vacation
days redeemable by Mr. Shen; and $(1,628) represents the decrease
of our
accrual for severance pay that would be payable to Mr. Shen under
the laws
of the State of Israel if we were to terminate his
employment.
|
Name
of Borrower
|
Date
of Loan
|
Original
Principal
Amount
of Loan
|
Amount
Outstanding
as
of 12/31/05
|
Terms
of Loan
|
|||||||||
Robert
S. Ehrlich
|
12/28/99
|
$
|
167,975
|
$
|
201,570
|
Ten-year
non-recourse loan to purchase our stock, secured by the shares of
stock
purchased.
|
|||||||
Robert
S. Ehrlich
|
02/09/00
|
$
|
789,991
|
$
|
692,102
|
Twenty-five-year
non-recourse loan to purchase our stock, secured by the shares of
stock
purchased.
|
|||||||
Robert
S. Ehrlich
|
06/10/02
|
$
|
36,500
|
$
|
40,343
|
Twenty-five-year
non-recourse loan to purchase our stock, secured by the shares of
stock
purchased.
|
Individual
Grants
|
Potential
Realizable Value
of
Assumed Annual Rates
of
Stock Price Appreciation
for
Option Term(1)
|
|||||||||||||||
Name
|
Number
of
Securities
Underlying
Options
Granted
|
%
of Total Options
granted
to Employees
in
Fiscal Year
|
Exercise
or Base
Price
($/Sh)
|
Expiration
Date
|
5%
($)
|
10%
($)
|
||||||||||
Steven
Esses
|
|
114,860
|
|
6.8
|
%
|
|
$
|
0.39
|
|
12/29/10
|
|
$
|
12,376
|
|
$
|
27,348
|
(1)
|
The
potential realizable value illustrates value that might be realized
upon
exercise of the options immediately prior to the expiration of their
terms, assuming the specified compounded rates of appreciation of
the
market price per share from the date of grant to the end of the option
term. Actual gains, if any, on stock option exercise are dependent
upon a
number of factors, including the future performance of the common
stock
and the timing of option exercises, as well as the executive officer’s
continued employment through the vesting period. The gains shown
are net
of the option exercise price, but do not include deductions for taxes
and
other expenses payable upon the exercise of the option or for sale
of
underlying shares of common stock. The 5% and 10% rates of appreciation
are mandated by the rules of the Securities and Exchange Commission
and do
not represent our estimate or projection of future increases in the
price
of our stock. There can be no assurance that the amounts reflected
in this
table will be achieved, and unless the market price
of
our common stock
appreciates over the option term, no value
will be realized from the option grants made to the executive
officers.
|
Number
of Securities
Underlying
Unexercised
Options
at Fiscal Year End
|
Value
of Unexercised
In-the-Money
Options
at
Fiscal-Year-End(1)
|
||||||||||||||||||
Name
|
Shares
Acquired
on
Exercise
|
Value
Realized
|
Exercisable
|
Unexercisable
|
Exercisable
|
Unexercisable
|
|||||||||||||
Robert
S. Ehrlich
|
—
|
$
|
—
|
2,100,000
|
0
|
$
|
0
|
$
|
0
|
||||||||||
Steven
Esses
|
—
|
$
|
—
|
1,035,000
|
0
|
$
|
0
|
$
|
0
|
||||||||||
Avihai
Shen
|
—
|
$
|
—
|
619,653
|
0
|
$
|
0
|
$
|
0
|
(1)
|
Options
that are “in-the-money” are options for which the fair market value of the
underlying securities on December 31, 2005 ($0.37) exceeds the exercise
or
base price of the option.
|
Name and Principle Position |
Date
|
Number
of
Securities
Underlying
Options
Repriced
or
Amended
|
Market
Price
of
Stock
at
Time
of
Repricing
or
Amendment
($)
|
Exercise
Price
at
Time
of
Repricing
or
Amendment
($)
|
New
Exercise
Price
($)
|
Length
of
Original
Option
Term
Remaining
at
Date of
Repricing
or
Amendment
(Years)
|
|||||||||||||
Robert
S. Ehrlich
|
12/29/05
|
28,500
|
$
|
0.39
|
$
|
1.375
|
$
|
0.39
|
3.84
|
||||||||||
Chairman,
Chief Executive Officer and director
|
12/29/05
|
48,000
|
$
|
0.39
|
$
|
1.430
|
$
|
0.39
|
5.81
|
||||||||||
12/29/05
|
166,000
|
$
|
0.39
|
$
|
1.430
|
$
|
0.39
|
5.65
|
|||||||||||
12/29/05
|
72,500
|
$
|
0.39
|
$
|
1.300
|
$
|
0.39
|
5.83
|
|||||||||||
12/29/05
|
65,625
|
$
|
0.39
|
$
|
1.420
|
$
|
0.39
|
2.00
|
|||||||||||
12/29/05
|
15,625
|
$
|
0.39
|
$
|
0.730
|
$
|
0.39
|
2.00
|
|||||||||||
12/29/05
|
65,625
|
$
|
0.39
|
$
|
0.850
|
$
|
0.39
|
2.00
|
|||||||||||
12/29/05
|
88,125
|
$
|
0.39
|
$
|
0.610
|
$
|
0.39
|
2.00
|
|||||||||||
12/29/05
|
50,000
|
$
|
0.39
|
$
|
1.200
|
$
|
0.39
|
3.61
|
|||||||||||
Steven
Esses
|
12/29/05
|
450,140
|
$
|
0.39
|
$
|
0.430
|
$
|
0.39
|
2.07
|
||||||||||
President,
Chief Operating Officer and director
|
12/29/05
|
100,000
|
$
|
0.39
|
$
|
0.850
|
$
|
0.39
|
7.53
|
||||||||||
12/29/05
|
300,000
|
$
|
0.39
|
$
|
1.280
|
$
|
0.39
|
7.79
|
|||||||||||
|
12/29/05
|
35,000
|
$
|
0.39
|
$
|
1.280
|
$
|
0.39
|
7.79
|
Name
and Address of Beneficial Owner(1)
|
Shares
Beneficially Owned(2)(3)
|
Percentage
of Total Shares
Outstanding(3)
|
|||||
Robert
S. Ehrlich
|
2,932,546
|
(4)
|
3.0
|
%
|
|||
Steven
Esses
|
1,200,000
|
(5)
|
1.2
|
%
|
|||
Avihai
Shen**
|
630,153
|
(6)
|
*
|
||||
Thomas
J. Paup
|
50,000
|
(7)
|
*
|
||||
Dr.
Jay M. Eastman
|
98,334
|
(8)
|
*
|
||||
Jack
E. Rosenfeld
|
100,334
|
(9)
|
*
|
||||
Lawrence
M. Miller
|
496,813
|
(10)
|
*
|
||||
Edward
J. Borey
|
51,000
|
(11)
|
*
|
||||
Prof.
Seymour Jones
|
0
|
*
|
|||||
All
of our directors and executive officers as a group (9
persons)
|
5,559,180
|
(12)
|
5.6
|
%
|
*
|
Less
than one percent.
|
|
**
|
Mr.
Shen ceased to act as our Chief Financial Officer in February 2006,
and
his employment with us terminated on March 31, 2006.
|
|
(1)
|
The
address of each named beneficial owner is in care of Arotech Corporation,
354 Industry Drive, Auburn, Alabama 36832.
|
|
(2)
|
Unless
otherwise indicated in these footnotes, each of the persons or entities
named in the table has sole voting and sole investment power with
respect
to all shares shown as beneficially owned by that person, subject
to
applicable community property laws.
|
(3)
|
Based
on 95,490,846
shares of common stock outstanding as of March 15, 2006. For purposes
of
determining beneficial ownership of our common stock, owners of options
exercisable within sixty days are considered to be the beneficial
owners
of the shares of common stock for which such securities are exercisable.
The percentage ownership of the outstanding common stock reported
herein
is based on the assumption (expressly required by the applicable
rules of
the Securities and Exchange Commission) that only the person whose
ownership is being reported has converted his options into shares
of
common stock.
|
|
(4)
|
Consists
of 618,165 shares held directly by Mr. Ehrlich, 50,000 shares held
by Mr.
Ehrlich’s wife (in which shares Mr. Ehrlich disclaims beneficial
ownership), 161,381 shares held in Mr. Ehrlich’s pension plan, 3,000
shares held by children sharing the same household (in which shares
Mr.
Ehrlich disclaims beneficial ownership), and 2,100,000 shares issuable
upon exercise of options exercisable within 60 days of March 15,
2006.
|
|
(5)
|
Consists
of 165,000 shares held directly by Mr. Esses and 1,035,000 shares
issuable
upon exercise of options exercisable within 60 days of March 15,
2006.
|
|
(6)
|
Consists
of 40,500 shares owned directly by Mr. Shen and 584,403 shares issuable
upon exercise of options exercisable within 60 days of March 15,
2006.
|
|
(7)
|
Consists
of 50,000 shares issuable upon exercise of options exercisable within
60
days of March 15, 2006.
|
|
(8)
|
Consists
of 98,334 shares issuable upon exercise of options exercisable within
60
days of March 15, 2006.
|
|
(9)
|
Consists
of 2,000 shares owned directly by Mr. Rosenfeld and 98,334 shares
issuable
upon exercise of options exercisable within 60 days of March 15,
2006.
|
|
(10)
|
Consists
of 11,914 shares held directly by Mr. Miller, 376,565 shares held
by Leon
S. Gross and Lawrence M. Miller as co-trustees of the Rose Gross
Charitable Foundation, and 108,334 shares issuable upon exercise
of
options exercisable within 60 days of March 15, 2006.
|
|
(11)
|
Consists
of 16,000 shares owned directly by Mr. Borey and 43,334 shares issuable
upon exercise of options exercisable within 60 days of March 15,
2006.
|
|
(12)
|
Includes
4,117,739 shares issuable upon exercise of options exercisable within
60
days of March 15, 2006.
|
Plan
Category
|
Number
of securities to be
issued
upon exercise
of
outstanding options,
warrants
and rights
(a)
|
Weighted-average
exercise price
of
outstanding
options,
warrants
and rights
(b)
|
Number
of securities remaining available for future issuance under equity
compensation plans (excluding securities reflected in column
(a))
(c)
|
|||
Equity
compensation plans approved by security holders(1)
|
8,651,235
|
$0.79
|
5,285,344
|
(1)
|
For
a description of the material features of grants of options and warrants
other than options granted under our employee stock option plans,
please
see Note 13.f. and 13.g. of the Notes to the Consolidated Financial
Statements.
|
Ø |
Audit
Fees. Audit
fees billed or expected to be billed to us by Kost, Forer, Gabbay
&
Kasierer for the audit of the financial statements included in our
Annual
Report on Form 10-K, and reviews of the financial statements included
in
our Quarterly Reports on Form 10-Q, for the years ended December
31, 2005
and 2004 totaled approximately $530,000 and $594,924, respectively.
|
Ø |
Audit-Related
Fees.
Kost, Forer, Gabbay & Kasierer billed us $40,764 and $214,659 for the
fiscal years ended December 31, 2005 and 2004, respectively, for
assurance
and related services that are reasonably related to the performance
of the
audit or review of our financial statements and are not reported
under the
caption “Audit Fees,” above.
|
Ø |
Tax
Fees.
Kost, Forer, Gabbay & Kasierer billed us an aggregate of $10,000 and
$9,491 for the fiscal years ended December 31, 2005 and 2004,
respectively, for tax services, principally advice regarding the
preparation of income tax returns.
|
Ø |
All
Other Fees. The
Audit Committee of the Board of Directors has considered whether
the
provision of the Audit-Related Fees, Tax Fees and all other fees
are
compatible with maintaining the independence of our principal accountant.
|
(1)
|
Financial
Statements - See Index to Financial Statements on page above.
|
(2)
|
Financial
Statements Schedules - Schedule II - Valuation and Qualifying Accounts.
All schedules other than those listed above are omitted because of
the
absence of conditions under which they are required or because the
required information is presented in the financial statements or
related
notes thereto.
|
(3)
|
Exhibits
- The following Exhibits are either filed herewith or have previously
been
filed with the Securities and Exchange Commission and are referred
to and
incorporated herein by reference to such
filings:
|
Exhibit
No.
|
Description
|
|||
(1)
|
3.1
|
Amended
and Restated Certificate of Incorporation
|
||
(4)
|
3.1.1
|
Amendment
to our Amended and Restated Certificate of
Incorporation
|
||
(13)
|
3.1.2
|
Amendment
to our Amended and Restated Certificate of
Incorporation
|
||
(14)
|
3.1.3
|
Amendment
to our Amended and Restated Certificate of
Incorporation
|
||
(2)
|
3.2
|
Amended
and Restated By-Laws
|
||
(14)
|
4.1
|
Specimen
Certificate for shares of common stock, $.01 par value
|
||
†
(1)
|
10.1.1
|
Form
of Management Employment Agreements
|
||
†
* (1)
|
10.1.2
|
General
Employee Agreements
|
||
*
(1)
|
10.2
|
Office
of Chief Scientist documents
|
||
(2)
|
10.2.1
|
Letter
from the Office of Chief Scientist to us dated January 4,
1995
|
||
***
|
10.3
|
Promissory
Note dated December 3, 1999, from Robert S. Ehrlich to
us
|
||
***
|
10.4
|
Promissory
Note dated February 9, 2000, from Robert S. Ehrlich to
us
|
||
***
|
10.5
|
Promissory
Note dated January 12, 2001, from Robert S. Ehrlich to
us
|
||
(3)
|
10.6
|
Form
of Common Stock Purchase Warrant dated May 8, 2001
|
||
(4)
|
10.7
|
Securities
Purchase Agreement dated December 31, 2002 between us and the
Investors
|
||
(4)
|
10.8
|
Form
of 9% Secured Convertible Debenture due June 30, 2005
|
||
(4)
|
10.9
|
Form
of Warrant dated December 31, 2002
|
||
(4)
|
10.10
|
Form
of Security Agreement dated December 31, 2002
|
||
(4)
|
10.11
|
Form
of Intellectual Property Security Agreement dated December 31,
2002
|
||
†(5)
|
10.12
|
Settlement
Agreement and Release between us and Yehuda Harats dated December
31,
2002
|
||
(5)
|
10.13
|
Commercial
lease agreement between Commerce Square Associates L.L.C. and I.E.S.
Electronics Industries U.S.A., Inc. dated September 24,
1997
|
||
(5)
|
10.14
|
Amendment
to Commercial lease agreement between Commerce Square Associates
L.L.C.
and I.E.S. Electronics Industries U.S.A., Inc. dated as of May 1,
2000
|
Exhibit
No.
|
Description
|
|||
(5)
|
10.15
|
Agreement
of Lease dated December 6, 2000 between Janet Nissim et
al.
and M.D.T. Protection (2000) Ltd. [English summary of Hebrew
original
|
||
(5)
|
10.16
|
Agreement
of Lease dated August 22, 2001 between Aviod Building and Earthworks
Company Ltd. et
al.
and M.D.T. Protective Industries Ltd. [English summary of Hebrew
original]
|
||
(6)
|
10.17
|
Securities
Purchase Agreement dated September 30, 2003 between us and the Investors
named therein
|
||
(19)
|
10.17.1
|
Amendment
Agreement dated February 15, 2006 between us and Smithfield Fiduciary
LLC
|
(6)
|
10.18
|
Form
of 8% Secured Convertible Debenture due September 30,
2006
|
||
(6)
|
10.19
|
Form
of Warrant dated September 30, 2003
|
||
(6)
|
10.20
|
Form
of Security Agreement dated September 30, 2003
|
||
(6)
|
10.21
|
Form
of Intellectual Property Security Agreement dated September 30,
2003
|
||
(7)
|
10.22
|
Form
of Amendment and Exercise Agreement dated December 10,
2003
|
||
(7)
|
10.23
|
Form
of Supplemental Warrant dated December 18, 2003
|
||
(8)
|
10.24
|
Stock
Purchase and Sale Agreement dated January 7, 2004 between us and
the
shareholders of FAAC Incorporated
|
||
(8)
|
10.25
|
Securities
Purchase Agreement dated January 7, 2004 between us and the Investors
named therein
|
||
(8)
|
10.26
|
Registration
Rights Agreement dated January 7, 2004 between us and the Investors
named
therein
|
||
(8)
|
10.27
|
Form
of Warrant dated January __, 2004
|
||
(9)
|
10.28
|
Share
Purchase Agreement dated January __, 2004 between us and the shareholders
of Epsilor Electronics Industries, Ltd.
|
||
(9)
|
10.29
|
Management
Agreement dated January __, 2004 among us, Office Line Ltd. and Hezy
Aspis
|
||
*(10)
|
10.30
|
Settlement
Agreement between us and I.E.S. Electronics Industries, Ltd. dated
February 4, 2004
|
||
†(11)
|
10.31
|
Consulting
agreement dated January 1, 2004 between us and Edward J.
Borey
|
||
(11)
|
10.32
|
Promissory
Note dated July 1, 2002 from Robert S. Ehrlich to us
|
||
(11)
|
10.33
|
Lease
dated April 8, 1997, between AMR Holdings, L.L.C. and FAAC
Incorporated
|
||
(11)
|
10.34
|
Lease
dated as of March 22, 2004 between us and Fisk Building Associates
L.L.C.
|
||
(12)
|
10.35
|
Stock
Purchase Agreement dated as of July 15, 2004 between us and Armour
of
America, Incorporated and its sole shareholder
|
||
(13)
|
10.36
|
Securities
Purchase Agreement dated as of July 15, 2004, by and among us and
various
investors
|
||
†(14)
|
10.37
|
Consulting
Agreement, effective as of January 1, 2005, between us and Sampen
Corporation
|
||
†(15)
|
10.38
|
Third
Amended and Restated Employment Agreement, effective as of January
1, 2005
between us, EFL and Robert S.
Ehrlich
|
Exhibit
No.
|
Description
|
|||
†(15)
|
10.39
|
Employment
Agreement, effective as of January 1, 2005 between EFL and Steven
Esses
|
||
(16)
|
10.40
|
Stock
Purchase Agreement dated as of May 17, 2005, by and among us and
various
purchasers
|
||
(17)
|
10.41
|
Securities
Purchase Agreement dated September 29, 2005 between us and the Investors
named therein
|
||
(17)
|
10.42
|
Form
of Senior Secured Convertible Note due March 31, 2008
|
||
(17)
|
10.43
|
Form
of Warrant dated September 29, 2005
|
||
(17)
|
10.44
|
Form
of Security Agreement dated September 29, 2005
|
||
(17)
|
10.45
|
Form
of Intellectual Property Security Agreement dated September 29,
2005
|
||
†
(18)
|
10.46
|
Employment
Agreement between the Company and Thomas J. Paup dated December 30,
2005
|
||
†
(18)
|
10.47
|
Separation
Agreement and Release of Claims among the Company, EFL and Avihai
Shen
dated January 5, 2006
|
||
(19)
|
10.48
|
Form
of Warrant dated February 15, 2006
|
||
**
|
10.49
|
Lease
dated February 10, 2006 between Arbor Development Company LLC and
FAAC
Incorporated
|
||
(11)
|
14.1
|
Code
of Ethics
|
||
(14)
|
21.1
|
List
of Subsidiaries of the Registrant
|
||
**
|
23.1
|
Consent
of Kost, Forer, Gabbay & Kasierer, a member of Ernst & Young
Global
|
||
**
|
23.2
|
Consent
of Stark Winter Schenkein & Co., LLP
|
||
**
|
31.1
|
Certification
of Principal Executive Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
|
||
**
|
31.2
|
Certification
of Principal Financial Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
|
||
**
|
32.1
|
Certification
of Principal Executive Officer pursuant to 18 U.S.C. Section 1350,
as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002
|
||
**
|
32.2
|
Certification
of Principal Financial Officer pursuant to 18 U.S.C. Section 1350,
as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002
|
*
|
English
translation or summary from original Hebrew
|
|
**
|
Filed
herewith
|
|
***
|
Re-filed
herewith, as required by Item 10(d) of Regulation S-K.
|
|
†
|
Includes
management contracts and compensation plans and
arrangements
|
|
(1)
|
Incorporated
by reference to our Registration Statement on Form S-1 (Registration
No.
33-73256), which became effective on February 23, 1994
|
|
(2)
|
Incorporated
by reference to our Registration Statement on Form S-1 (Registration
No.
33-97944), which became effective on February 5, 1996
|
|
(3)
|
Incorporated
by reference to our Current Report on Form 8-K filed May 7, 2001
(EDGAR
Film No. 1623989)
|
|
(4)
|
Incorporated
by reference to our Current Report on Form 8-K filed January 6,
2003
|
|
(5)
|
Incorporated
by reference to our Annual Report on Form 10-K for the year ended
December
31, 2002
|
|
(6)
|
Incorporated
by reference to our Current Report on Form 8-K filed October 3,
2003
|
|
(7)
|
Incorporated
by reference to our Current Report on Form 8-K filed December 23,
2003
|
|
(8)
|
Incorporated
by reference to our Current Report on Form 8-K filed January 9,
2004
|
|
(9)
|
Incorporated
by reference to our Current Report on Form 8-K filed February 4,
2004
|
|
(10)
|
Incorporated
by reference to our Current Report on Form 8-K filed February 5,
2004
|
(11)
|
Incorporated
by reference to our Annual Report on Form 10-K for the year ended
December
31, 2003
|
|
(12)
|
Incorporated
by reference to our Quarterly Report on Form 10-Q for the quarter
ended
June 30, 2004
|
|
(13)
|
Incorporated
by reference to our Current Report on Form 8-K filed July 15,
2004
|
|
(14)
|
Incorporated
by reference to our Annual Report on Form 10-K for the year ended
December
31, 2004
|
|
(15)
|
Incorporated
by reference to our Quarterly Report on Form 10-Q for the quarter
ended
June 30, 2004
|
|
(16)
|
Incorporated
by reference to our Current Report on Form 8-K filed May 17,
2005
|
|
(17)
|
Incorporated
by reference to our Current Report on Form 8-K filed September 30,
2005
|
|
(18)
|
Incorporated
by reference to our Current Report on Form 8-K filed January 5,
2006
|
|
(19)
|
Incorporated
by reference to our Current Report on Form 8-K filed February 16,
2006
|
|
n
|
Kost
Forer Gabbay & Kasierer
3
Aminadav St.
Tel-Aviv
67067, Israel
|
n |
Phone:
972-3-6232525
Fax:
972-3-5622555
|
Tel
Aviv, Israel
|
KOST,
FORER, GABBAY & KASIERER
|
March
30, 2006
|
A
Member of Ernst & Young Global
|
|
n
|
Kost
Forer Gabbay & Kasierer
3
Aminadav St.
Tel-Aviv
67067, Israel
|
n |
Phone:
972-3-6232525
Fax:
972-3-5622555
|
|
Ø |
Revenue
recognition.
The Company did not maintain effective controls over the monitoring,
review and approval of revenue recognition calculations at FAAC.
Specifically, these calculations were not being reviewed by appropriate
accounting personnel to determine that revenue is recognized in accordance
with company policy and generally accepted accounting principles.
This
material weakness affects the revenue and unbilled receivable
accounts.
|
Tel
Aviv, Israel
|
KOST,
FORER, GABBAY & KASIERER
|
March
30, 2006
|
A
Member of Ernst & Young Global
|
|
|
December
31,
|
|||||||
2005
|
2004
|
||||||
ASSETS
|
|||||||
CURRENT
ASSETS:
|
|||||||
Cash
and cash equivalents
|
$
|
6,150,652
|
$
|
6,734,512
|
|||
Restricted
collateral deposits and restricted held-to-maturity
securities
|
3,897,113
|
6,962,110
|
|||||
Available
for sale marketable securities
|
35,984
|
135,568
|
|||||
Trade
receivables (net of allowance for doubtful accounts in the amounts
of
$176,180 and $55,394
as
of December
31, 2005 and 2004, respectively)
|
11,747,876
|
8,266,880
|
|||||
Unbilled
receivables
|
5,228,504
|
2,881,468
|
|||||
Other
accounts receivable and prepaid expenses
|
2,264,331
|
1,339,393
|
|||||
Inventories
|
7,815,806
|
7,277,301
|
|||||
Total
current assets
|
37,140,266
|
33,597,232
|
|||||
SEVERANCE
PAY FUND
|
2,072,034
|
1,980,047
|
|||||
RESTRICTED
DEPOSITS
|
779,286
|
4,000,000
|
|||||
PROPERTY
AND EQUIPMENT, NET
|
4,252,931
|
4,600,691
|
|||||
INVESTMENT
IN AFFILIATED COMPANY
|
37,500
|
—
|
|||||
OTHER
INTANGIBLE ASSETS, NET
|
11,027,499
|
14,368,701
|
|||||
GOODWILL
|
29,559,157
|
39,745,516
|
|||||
$
|
84,868,673
|
$
|
98,292,187
|
December
31,
|
|||||||
2005
|
2004
|
||||||
LIABILITIES
AND STOCKHOLDERS’ EQUITY
|
|||||||
CURRENT
LIABILITIES:
|
|||||||
Trade
payables
|
$
|
5,830,820
|
$
|
6,177,546
|
|||
Other
accounts payable and accrued expenses
|
5,630,108
|
5,818,188
|
|||||
Current
portion of promissory notes due to purchase of subsidiaries
|
603,764
|
13,585,325
|
|||||
Short
term bank credit and current portion of long term loans
|
2,036,977
|
181,352
|
|||||
Deferred
revenues
|
603,022
|
618,229
|
|||||
Convertible
debenture
|
11,492,238
|
—
|
|||||
Liabilities
of discontinued operations
|
120,000
|
—
|
|||||
Total
current liabilities
|
26,316,929
|
26,380,640
|
|||||
LONG
TERM LIABILITIES
|
|||||||
Accrued
severance pay
|
3,657,328
|
3,422,951
|
|||||
Convertible
debenture
|
8,590,233
|
1,754,803
|
|||||
Deferred
revenues
|
—
|
163,781
|
|||||
Long
term loan
|
—
|
20,891
|
|||||
Long-term
portion of promissory note due to purchase of subsidiaries
|
—
|
980,296
|
|||||
Total
long-term liabilities
|
12,247,561
|
6,342,722
|
|||||
COMMITMENTS
AND CONTINGENT LIABILITIES (Note 11)
|
|||||||
MINORITY
INTEREST
|
38,927
|
95,842
|
|||||
STOCKHOLDERS’
EQUITY:
|
|||||||
Share
capital -
|
|||||||
Common
stock - $0.01 par value each;
|
|||||||
Authorized:
250,000,000 shares as of December 31, 2004 and 2003; Issued: 87,096,711
shares and 80,637,001 shares as of December 31, 2005 and 2004,
respectively; Outstanding - 86,541,378 shares and 80,081,668 shares
as of
December 31, 2005 and 2004, respectively
|
870,969
|
806,370
|
|||||
Preferred
shares - $0.01 par value each;
|
|||||||
Authorized:
1,000,000 shares as of December 31, 2005 and 2004; No shares issued
and
outstanding as of December 31, 2005 and 2004
|
—
|
—
|
|||||
Additional
paid-in capital
|
193,949,882
|
189,266,103
|
|||||
Accumulated
deficit
|
(142,996,964
|
)
|
(118,953,553
|
)
|
|||
Deferred
stock compensation
|
(389,303
|
)
|
(1,258,295
|
)
|
|||
Treasury
stock, at cost (common stock - 555,333 shares as of December 31,
2005 and
2004)
|
(3,537,106
|
)
|
(3,537,106
|
)
|
|||
Notes
receivable from stockholders
|
(1,256,777
|
)
|
(1,222,871
|
)
|
|||
Accumulated
other comprehensive income
|
(375,445
|
)
|
372,335
|
||||
Total
stockholders’ equity
|
46,265,256
|
65,472,983
|
|||||
$
|
84,868,673
|
$
|
98,292,187
|
Year
ended December 31,
|
||||||||||
2005
|
2004
|
2003
|
||||||||
Revenues
|
$
|
49,044,595
|
$
|
49,953,846
|
$
|
17,326,641
|
||||
Cost
of revenues
|
34,383,736
|
34,011,094
|
11,087,840
|
|||||||
Gross
profit
|
14,660,859
|
15,942,752
|
6,238,801
|
|||||||
Operating
expenses:
|
||||||||||
Research
and development, net
|
1,300,429
|
1,731,379
|
1,053,408
|
|||||||
Selling
and marketing expenses
|
4,471,590
|
4,922,217
|
3,532,636
|
|||||||
General
and administrative expenses
|
14,862,435
|
10,656,866
|
5,857,876
|
|||||||
Amortization
of intangible assets
|
3,070,748
|
2,494,556
|
864,910
|
|||||||
Impairment
of goodwill and other intangible assets
|
12,256,756
|
320,279
|
—
|
|||||||
Total
operating costs and expenses
|
35,961,958
|
20,125,297
|
11,308,830
|
|||||||
Operating
loss
|
(21,301,099
|
)
|
(4,182,545
|
)
|
(5,070,029
|
)
|
||||
Other
income
|
338,900
|
—
|
—
|
|||||||
Financial
income (expenses), net
|
(2,705,689
|
)
|
(4,228,965
|
)
|
(4,038,709
|
)
|
||||
Loss
before minorities interests in loss (earnings) of a subsidiaries
and tax
expenses
|
(23,667,888
|
)
|
(8,411,510
|
)
|
(9,108,738
|
)
|
||||
Income
taxes
|
(237,672
|
)
|
(586,109
|
)
|
(396,193
|
)
|
||||
Loss
from affiliated company
|
(75,000
|
)
|
—
|
—
|
||||||
Minorities
interests in loss (earnings) of a subsidiaries
|
57,149
|
(44,694
|
)
|
156,900
|
||||||
Loss
from continuing operations
|
(23,923,411
|
)
|
(9,042,313
|
)
|
(9,348,031
|
)
|
||||
Income
(loss) from discontinued operations
|
(120,000
|
)
|
—
|
110,410
|
||||||
Net
loss
|
$
|
(24,043,411
|
)
|
$
|
(9,042,313
|
)
|
$
|
(9,237,621
|
)
|
|
Deemed
dividend to certain stockholders
|
$
|
—
|
$
|
(3,328,952
|
)
|
$
|
(350,000
|
)
|
||
Net
loss attributable to common stockholders
|
$
|
(24,043,411
|
)
|
$
|
(12,371,265
|
)
|
$
|
(9,587,621
|
)
|
|
Basic
and diluted net loss per share from continuing operations
|
$
|
(0.29
|
)
|
$
|
(0.13
|
)
|
$
|
(0.24
|
)
|
|
Basic
and diluted net loss per share from discontinued
operations
|
$
|
(0.00
|
)
|
$
|
0.00
|
$
|
0.00
|
|||
Basic
and diluted net loss per share
|
$
|
(0.29
|
)
|
$
|
(0.18
|
)
|
$
|
(0.25
|
)
|
|
Weighted
average number of shares used in computing basic and diluted net
loss per
share
|
82,209,300
|
69,933,057
|
38,890,174
|
|||||||
Common
stock
|
|
||||||||||||||||||||||||||||||
|
|
Shares
|
Amount
|
Additional
paid-in
capital
|
Accumulated
deficit
|
Deferred
stock
compensation
|
Treasury
stock
|
Notes
receivable
from
stockholders
|
Accumulated
other
comprehensive
loss
|
Total
comprehensive income (loss)
|
Total
stockholders’
equity
|
||||||||||||||||||||
Balance
as of January 1, 2003
|
35,701,594
|
$
|
357,017
|
$
|
114,082,584
|
$
|
(100,673,619
|
)
|
$
|
(12,000
|
)
|
$
|
(3,537,106
|
)
|
$
|
(1,177,589
|
)
|
$
|
(1,786
|
)
|
$
|
9,037,501
|
|||||||||
Compensation
related to warrants issued to the holders of convertible
debentures
|
5,157,500
|
5,157,500
|
|||||||||||||||||||||||||||||
Compensation
related to beneficial conversion feature of convertible
debentures
|
5,695,543
|
5,695,543
|
|||||||||||||||||||||||||||||
Issuance
of shares on conversion of convertible debentures
|
6,969,605
|
69,696
|
6,064,981
|
(9,677
|
)
|
6,125,000
|
|||||||||||||||||||||||||
Issuance
of shares on exercise of warrants
|
3,682,997
|
36,831
|
3,259,422
|
3,296,253
|
|||||||||||||||||||||||||||
Issuance
of shares to consultants
|
223,600
|
2,236
|
159,711
|
161,947
|
|||||||||||||||||||||||||||
Compensation
related to grant and reprcing of warrants and options issued
to
consultants
|
229,259
|
229,259
|
|||||||||||||||||||||||||||||
Compensation
related to non-recourse loan granted to shareholder
|
38,500
|
38,500
|
|||||||||||||||||||||||||||||
Deferred
stock com-pensation
|
4,750
|
(4,750
|
)
|
—
|
|||||||||||||||||||||||||||
Amortization
of deferred stock com-pensation
|
8,286
|
8,286
|
|||||||||||||||||||||||||||||
Exercise
of options by employees
|
689,640
|
6,896
|
426,668
|
433,564
|
|||||||||||||||||||||||||||
Exercise
of options by consultants
|
15,000
|
150
|
7,200
|
7,350
|
|||||||||||||||||||||||||||
Conversion
of convertible promissory note
|
563,971
|
5,640
|
438,720
|
444,360
|
|||||||||||||||||||||||||||
Increase
in investment in subsidiary against common stock issuance
|
126,000
|
1,260
|
120,960
|
122,220
|
|||||||||||||||||||||||||||
Accrued
interest on notes re-ceivable from stockholders
|
16,615
|
(16,615
|
)
|
—
|
|||||||||||||||||||||||||||
Other
comprehensive income - foreign currency translation
adjustment
|
106,215
|
$
|
106,215
|
106,215
|
|||||||||||||||||||||||||||
Net
loss
|
(9,237,621
|
)
|
(9,237,621
|
)
|
(9,237,621
|
)
|
|||||||||||||||||||||||||
$
|
(9,131,406
|
)
|
|||||||||||||||||||||||||||||
Balance
as of December 31, 2003
|
47,972,407
|
$
|
479,726
|
$
|
135,702,413
|
$
|
(109,911,240
|
)
|
$
|
(8,464
|
)
|
$
|
(3,537,106
|
)
|
$
|
(1,203,881
|
)
|
$
|
104,429
|
$
|
21,625,877
|
||||||||||
Common
stock
|
|||||||||||||||||||||||||||||||
Shares
|
Amount
|
Additional
paid-in
capital
|
Accumulated
deficit
|
Deferred
stock
compensation
|
Treasury
stock
|
Notes
receivable
from
stockholders
|
Accumulated
other
comprehensive
loss
|
Total
comprehensive
income
|
Total
stockholders’
equity
|
||||||||||||||||||||||
Balance
as of January 1, 2004
|
47,972,407
|
$
|
479,726
|
$
|
135,702,413
|
$
|
(109,911,240
|
)
|
$
|
(8,464
|
)
|
$
|
(3,537,106
|
)
|
$
|
(1,203,881
|
)
|
$
|
104,429
|
$
|
21,625,877
|
||||||||||
Issuance
of shares, net
|
14,138,491
|
141,384
|
24,252,939
|
24,394,323
|
|||||||||||||||||||||||||||
Issuance
of shares and warrants due to settlement of litigation
|
450,000
|
4,500
|
1,244,328
|
1,248,828
|
|||||||||||||||||||||||||||
Issuance
of shares to employees
|
40,000
|
400
|
92,800
|
93,200
|
|||||||||||||||||||||||||||
Conversion
of convertible debentures
|
3,843,728
|
38,437
|
3,754,279
|
3,792,716
|
|||||||||||||||||||||||||||
Exercise
of warrants by investors and others
|
11,363,342
|
113,633
|
19,119,638
|
19,233,271
|
|||||||||||||||||||||||||||
Issuance
of shares to consultants
|
90,215
|
902
|
198,489
|
199,391
|
|||||||||||||||||||||||||||
Reclassification
to liability in connection with warrants granted
|
(10,841,020
|
)
|
(10,841,020
|
)
|
|||||||||||||||||||||||||||
Reclassification
of liability to equity related to the fair value of
warrants
|
10,514,181
|
10,514,181
|
|||||||||||||||||||||||||||||
Compensation
related to non-recourse loan granted to shareholder
|
(10,000
|
)
|
(10,000
|
)
|
|||||||||||||||||||||||||||
Deferred
stock com-pensation related to options and restricted
stock
|
740,000
|
7,400
|
2,074,057
|
(2,081,457
|
)
|
—
|
|||||||||||||||||||||||||
Amortization
of deferred stock com-pensation
|
831,626
|
831,626
|
|||||||||||||||||||||||||||||
Exercise
of options by employees
|
897,248
|
8,972
|
1,101,172
|
1,110,144
|
|||||||||||||||||||||||||||
Exercise
of options by consultants
|
37,615
|
376
|
50,799
|
51,175
|
|||||||||||||||||||||||||||
Issuance
of shares in respect of FAAC acquisition
|
1,003,856
|
10,039
|
1,993,639
|
2,003,678
|
|||||||||||||||||||||||||||
Accrued
interest on notes re-ceivable from stockholders
|
18,990
|
(18,990
|
)
|
—
|
|||||||||||||||||||||||||||
Other
comprehensive income - foreign currency translation
adjustment
|
263,404
|
$
|
263,404
|
263,404
|
|||||||||||||||||||||||||||
Other
comprehensive income - realized gain on available for sale marketable
securities
|
4,502
|
4,502
|
4,502
|
||||||||||||||||||||||||||||
Net
loss
|
(9,042,313
|
)
|
(9,042,313
|
)
|
(9,042,313
|
)
|
|||||||||||||||||||||||||
$
|
(8,774,407
|
)
|
|||||||||||||||||||||||||||||
Balance
as of December 31, 2004
|
80,576,902
|
$
|
805,769
|
$
|
189,266,704
|
$
|
(118,953,553
|
)
|
$
|
(1,258,295
|
)
|
$
|
(3,537,106
|
)
|
$
|
(1,222,871
|
)
|
$
|
372,335
|
$
|
65,472,983
|
Common
stock
|
|||||||||||||||||||||||||||||||
Shares
|
Amount | Additional
paid-in
capital
|
Accumulated
deficit
|
Deferred
stock
compensation
|
Treasury
stock
|
Notes
receivable
from
stockholders
|
Accumulated
other
comprehensive
income
(loss)
|
Total
comprehensive
income
(loss)
|
Total
stockholders’
equity
|
||||||||||||||||||||||
Balance
as of January 1, 2005
|
80,637,001
|
$
|
806,370
|
$
|
189,266,103
|
$
|
(118,953,553
|
)
|
$
|
(1,258,295
|
)
|
$
|
(3,537,106
|
)
|
$
|
(1,222,871
|
)
|
$
|
372,335
|
$ |
$
|
65,472,983
|
|||||||||
Issuance
of shares, net
|
4,754,964
|
47,551
|
3,898,185
|
3,945,736
|
|||||||||||||||||||||||||||
Shares
issued to convertible debenture holders
|
1,161,668
|
11,617
|
441,434
|
453,051
|
|||||||||||||||||||||||||||
Shares
issued to consultant
|
507,253
|
5,073
|
516,200
|
521,273
|
|||||||||||||||||||||||||||
Compensation
related to non-recourse loan granted to shareholder
|
(28,500
|
)
|
(28,500
|
)
|
|||||||||||||||||||||||||||
Employee
options exercise
|
15,825
|
158
|
17,034
|
17,192
|
|||||||||||||||||||||||||||
Shares
issued to employees
|
10,000
|
100
|
(100
|
)
|
—
|
||||||||||||||||||||||||||
Deferred
stock compensation related to options and restricted stock
|
50,000
|
500
|
50,500
|
(51,000
|
)
|
—
|
|||||||||||||||||||||||||
Amortization
of deferred stock compensation
|
674,712
|
674,712
|
|||||||||||||||||||||||||||||
Cancellation
of deferred stock compensation as a result of forfeitures
|
(40,000
|
)
|
(400
|
)
|
(244,880
|
)
|
245,280
|
—
|
|||||||||||||||||||||||
Interest
accrued on notes receivable from shareholders
|
33,906
|
(33,906
|
)
|
—
|
|||||||||||||||||||||||||||
Other
comprehensive loss - foreign currency translation
adjustment
|
|
(746,016
|
)
|
(746,016
|
)
|
(746,016
|
)
|
||||||||||||||||||||||||
Other
comprehensive loss - unrealized gain on available for sale marketable
securities
|
(1,764
|
)
|
(1,764
|
)
|
(1,764
|
)
|
|||||||||||||||||||||||||
Net
loss
|
(24,043,411
|
)
|
(24,043,411
|
)
|
(24,043,411
|
)
|
|||||||||||||||||||||||||
Total
comprehensive loss
|
$
|
(24,791,191
|
)
|
||||||||||||||||||||||||||||
Balance
as of December 31, 2005
|
87,096,711
|
$
|
870,969
|
$
|
193,949,882
|
$
|
(142,996,964
|
)
|
$
|
(389,303
|
)
|
$
|
(3,537,106
|
)
|
$
|
(1,256,777
|
)
|
$
|
(375,445
|
)
|
$
|
46,265,256
|
|
Year
ended December 31,
|
|||||||||
2005
|
2004
|
2003
|
||||||||
Cash
flows from operating activities:
|
||||||||||
Net
loss
|
$
|
(24,043,411
|
)
|
$
|
(9,042,313
|
)
|
$
|
(9,237,621
|
)
|
|
Less
loss (profit) for the period from discontinued operations
|
120,000
|
—
|
(110,410
|
)
|
||||||
Adjustments
required to reconcile net loss to net cash used in operating
activities:
|
||||||||||
Minorities
interests in earnings (loss) of subsidiary
|
(57,149
|
)
|
44,694
|
(156,900
|
)
|
|||||
Loss
from affiliated company
|
75,000
|
—
|
—
|
|||||||
Depreciation
|
1,373,580
|
1,199,465
|
730,159
|
|||||||
Amortization
of intangible assets, capitalized software costs and impairment of
intangible assets
|
15,453,584
|
2,888,226
|
879,311
|
|||||||
Remeasurement
of liability in connection to warrants granted
|
(377,803
|
)
|
(326,839
|
)
|
—
|
|||||
Accrued
severance pay, net
|
68,839
|
(441,610
|
)
|
3,693
|
||||||
Amortization
of deferred stock compensation and compensation related to shares
issued
to employees
|
674,713
|
884,826
|
8,286
|
|||||||
Mark
up of loans to stockholders
|
—
|
(32,397
|
)
|
(12,519
|
)
|
|||||
Write-off
of inventories
|
1,062,336
|
121,322
|
96,350
|
|||||||
Impairment
of property and equipment
|
34,243
|
—
|
68,945
|
|||||||
Amortization
of compensation related to warrants issued to the holders of convertible
debentures and beneficial conversion feature
|
1,702,753
|
4,142,109
|
3,928,237
|
|||||||
Amortization
of deferred charges related to convertible debentures
issuance
|
329,152
|
222,732
|
483,713
|
|||||||
Amortization
of prepaid financial expenses
|
—
|
—
|
236,250
|
|||||||
Stock-based
compensation related to grant of new warrants and repricing of warrants
granted to consultants
|
—
|
—
|
229,259
|
|||||||
Stock-based
compensation related to shares issued and to be issued to consultants
and
shares granted as a donation
|
538,058
|
89,078
|
161,947
|
|||||||
Stock-based
compensation related to non-recourse note granted to
stockholder
|
(28,500
|
)
|
(10,000
|
)
|
38,500
|
|||||
Interest
accrued or paid on promissory notes due to acquisition
|
19,704
|
39,311
|
(66,793
|
)
|
||||||
Interest
accrued on restricted collateral deposits
|
—
|
(267,179
|
)
|
—
|
||||||
Capital
loss (gain) from sale of marketable securities
|
2,695
|
(4,247
|
)
|
—
|
||||||
Amortization
of premium related to restricted held to maturity
securities
|
42,234
|
202,467
|
—
|
|||||||
Capital
loss (gain) from sale of property and equipment
|
3,172
|
(16,479
|
)
|
(11,504
|
)
|
|||||
Decrease
(increase) in trade receivables
|
(3,608,950
|
)
|
732,828
|
(820,137
|
)
|
|||||
Decrease
(increase) in other accounts receivable and prepaid
expenses
|
(75,982
|
)
|
(49,513
|
)
|
40,520
|
|||||
Decrease
(increase) in deferred tax assets
|
65,376
|
(89,823
|
)
|
—
|
||||||
Increase
in inventories
|
(1,710,528
|
)
|
(2,040,854
|
)
|
(193,222
|
)
|
||||
Increase
in unbilled revenues
|
(2,347,036
|
)
|
(1,581,080
|
)
|
—
|
|||||
Decrease
in deferred revenues
|
(178,988
|
)
|
(91,271
|
)
|
—
|
|||||
Increase
(decrease) in trade payables
|
(224,987
|
)
|
2,913,623
|
(986,022
|
)
|
|||||
Increase
(decrease) in other accounts payable and accrued expenses
|
32,269
|
(125,231
|
)
|
1,677,668
|
||||||
Net
cash used in operating activities from continuing operations
|
(11,055,626
|
)
|
(638,155
|
)
|
(3,012,290
|
)
|
||||
Net
cash used in operating activities from discontinued
operations
|
—
|
(214,041
|
)
|
(313,454
|
)
|
|||||
Net
cash used in operating activities
|
$
|
(11,055,626
|
)
|
$
|
(852,196
|
)
|
$
|
(3,325,744
|
)
|
|
Year
ended December 31,
|
||||||||||
2005
|
2004
|
2003
|
||||||||
Cash
flows from investing activities:
|
||||||||||
Purchase
of property and equipment
|
(1,224,752
|
)
|
(1,659,688
|
)
|
(580,949
|
)
|
||||
Increase
in capitalized software costs
|
(651,611
|
)
|
(365,350
|
)
|
(209,616
|
)
|
||||
Loans
granted to stockholders
|
—
|
(1,036
|
)
|
(13,737
|
)
|
|||||
Repayment
of loans granted to stockholders
|
—
|
32,397
|
9,280
|
|||||||
Proceeds
from sale of property and equipment
|
104,175
|
114,275
|
16,753
|
|||||||
Proceeds
from sale of marketable securities
|
91,936
|
90,016
|
—
|
|||||||
Investment
in marketable securities
|
—
|
(89,204
|
)
|
—
|
||||||
Investment
in affiliated company
|
(112,500
|
)
|
—
|
—
|
||||||
Payment
of transaction expenses in relation to previous year investment
in
subsidiary
|
(12,945
|
)
|
—
|
—
|
||||||
Acquisition
of Epsilor (1)
|
—
|
(7,190,777
|
)
|
—
|
||||||
Acquisition
of FAAC (2)
|
—
|
(12,129,103
|
)
|
—
|
||||||
Acquisition
of AoA (3)
|
—
|
(17,339,522
|
)
|
—
|
||||||
Repayment
of promissory notes related to acquisition of subsidiaries
(1)(2)
|
(14,588,298
|
)
|
(2,000,000
|
)
|
(750,000
|
)
|
||||
Purchase
of certain tangible and intangible assets
|
(150,000
|
)
|
(150,000
|
)
|
(196,331
|
)
|
||||
Increase
in restricted cash and held to maturity securities
|
4,748,178
|
(9,809,091
|
)
|
(72,840
|
)
|
|||||
Net
cash used in investing activities
|
(11,795,817
|
)
|
(50,497,083
|
)
|
(1,797,440
|
)
|
||||
Cash
flows from financing activities:
|
||||||||||
Proceeds
from issuance of shares, net
|
3,945,736
|
24,361,750
|
(6,900
|
)
|
||||||
Proceeds
from exercise of options to employees and consultants
|
17,192
|
1,148,819
|
440,914
|
|||||||
Proceeds
from exercise of warrants
|
—
|
19,233,271
|
3,296,254
|
|||||||
Proceeds
from issuance of convertible debentures, net of issuance
expenses
|
16,430,767
|
—
|
13,708,662
|
|||||||
Long
term loan received
|
—
|
69,638
|
—
|
|||||||
Repayment
of long term loan
|
(71,238
|
)
|
(65,674
|
)
|
—
|
|||||
Increase
(decrease) in short term bank credit
|
1,914,892
|
(376,783
|
)
|
(74,158
|
)
|
|||||
Payment
on capital lease obligation
|
—
|
(4,145
|
)
|
(4,427
|
)
|
|||||
Net
cash provided by financing activities
|
22,237,349
|
44,366,876
|
17,360,345
|
|||||||
Increase
(decrease) in cash and cash equivalents
|
(614,094
|
)
|
(6,982,403
|
)
|
12,237,161
|
|||||
Cash
erosion due to exchange rate differences
|
30,234
|
31,790
|
(9,562
|
)
|
||||||
Cash
and cash equivalents at the beginning of the year
|
6,734,512
|
13,685,125
|
1,457,526
|
|||||||
Cash
and cash equivalents at the end of the year
|
$
|
6,150,652
|
$
|
6,734,512
|
$
|
13,685,125
|
||||
Supplementary
information on non-cash transactions:
|
||||||||||
Issuance
of shares and warrants against accrued expenses and restricted
deposit
|
$
|
56,577
|
$
|
1,310,394
|
$
|
—
|
||||
Purchase
of intangible assets against note receivable
|
$
|
—
|
$
|
—
|
$
|
300,000
|
||||
Increase
of investment in subsidiary against issuance of shares of
common
stock
|
$
|
—
|
$
|
—
|
$
|
123,480
|
||||
Conversion
of promissory note to shares of common stock
|
$
|
—
|
$
|
—
|
$
|
450,000
|
||||
Payment
of principle installment of convertible debenture in
shares
|
$
|
453,051
|
$
|
—
|
$
|
—
|
||||
Liability
in connection to warrants granted
|
$
|
44,231
|
$
|
—
|
$
|
—
|
||||
Conversion
of convertible debenture to shares of common stock
|
$
|
—
|
$
|
3,837,500
|
$
|
6,125,000
|
||||
Benefit
due to convertible debentures and warrants
|
$
|
—
|
$
|
—
|
$
|
10,853,043
|
||||
Accrual
for earn out in regard to subsidiary acquisition
|
$
|
603,764
|
$
|
13,435,325
|
$
|
—
|
||||
Supplemental
disclosure of cash flows activities:
|
||||||||||
Cash
paid during the year for:
|
||||||||||
Interest
|
$
|
1,401,681
|
$
|
532,750
|
$
|
39,412
|
||||
Taxes
on income
|
$
|
737,080
|
$
|
969,009
|
$
|
527,053
|
(1)
|
In
January 2004, the Company acquired substantially all of the outstanding
ordinary shares of Epsilor Electronic Industries, Ltd. (“Epsilor”). The
net fair value of the assets acquired and the liabilities assumed,
at the
date of acquisition, was as
follows:
|
Working
capital, excluding cash and cash equivalents
|
$
|
(849,992
|
)
|
|
Property
and equipment
|
709,847
|
|||
Intangible
assets and goodwill
|
10,284,407
|
|||
10,144,262
|
||||
Issuance
of shares in respect to transaction costs
|
(12,500
|
)
|
||
Issuance
of promissory note *)
|
(2,940,985
|
)
|
||
$
|
7,190,777
|
(2)
|
In
January 2004, the Company acquired all of the outstanding common
stock of
FAAC Incorporated (“FAAC”). The net fair value of the assets acquired and
the liabilities assumed at the date of acquisition was as
follows:
|
Working
capital, excluding cash and cash equivalents
|
$
|
1,796,791
|
||
Property
and equipment
|
263,669
|
|||
Intangible
assets and goodwill
|
12,072,321
|
|||
14,132,781
|
||||
Issuance
of shares, net
|
(2,003,678
|
)
|
||
$
|
12,129,103
|
(3)
|
In
August 2004, the Company acquired all of the outstanding common stock
of
Armour of America, Incorporated (“AoA”). The net fair value of the assets
acquired and the liabilities assumed at the date of acquisition was
as
follows:
|
Working
capital, excluding cash and cash equivalents
|
$
|
3,219,728
|
||
Property
and equipment
|
997,148
|
|||
Intangible
assets and goodwill
|
13,122,646
|
|||
$
|
17,339,522
|
Tangible
assets acquired
|
$
|
2,239,848
|
||
Intangible
assets
|
||||
Customer
list
|
5,092,395
|
|||
Goodwill
|
5,192,012
|
|||
Liabilities
assumed
|
(2,379,993
|
)
|
||
Total
consideration
|
$
|
10,144,262
|
1. |
To
determine the estimated market value of Epsilor’s net current assets,
property and equipment, and net liabilities, the “Cost Approach” was used.
According to the valuation made, the book values for the current
assets
and liabilities were reasonable proxies for their market
values.
|
2. |
The
customer list is the asset that generates most of the Company’s sales.
Hence, the “Income Approach” was used to estimate its value, resulting in
a value of $5,092,395.
|
Tangible
assets acquired
|
$
|
4,833,553
|
||
Intangible
assets
|
||||
Technology
|
4,610,000
|
|||
Backlog
|
636,000
|
|||
Customer
list
|
1,125,000
|
|||
Trademarks
|
374,000
|
|||
Goodwill
|
19,522,343
|
|||
Liabilities
assumed
|
(2,770,843
|
)
|
||
Total
consideration
|
$
|
28,330,053
|
1. |
To
determine the estimated fair value of FAAC’s net current assets, property
and equipment, and net liabilities, the “Cost Approach” was used.
According to the valuation made, the book values for the current
assets
and liabilities were reasonable proxies for their market
values.
|
2. |
The
amount of the cost attributable to technology of the software,
documentation and know-how that drives the vehicle simulators and
the
high-speed missile fly-out simulators is $4,610,000 and was determined
using the “Income Approach.”
|
3. |
FAAC’s
sales are all made on a contractual basis, most of which are over
a
relatively long period of time. At the date of the purchase FAAC
had
several signed contracts at various stages of completion. The value
of the
existing contracts was determined using the Income approach and resulting
in a value of $636,000.
|
4. |
FAAC’s
customer list includes various branches of the U.S. military, major
defense contractors, various city and country governments and others.
Since customer relationship represent one of the most important revenue
generating assets for FAAC, its value was estimated using the Income
Approach, resulting in a value of
$1,125,000.
|
5. |
FAAC’s
trade name value represents the name recognition value of the FAAC
brand
name as a result of advertising spending by the company. The Cost
Approach
was used to determine the value of FAAC’s trade name in the amount of
$374,000.
|
Tangible
assets acquired
|
6,346,316
|
|||
Intangible
assets
|
||||
Certifications
|
246,969
|
|||
Backlog
|
1,512,000
|
|||
Customer
relationships
|
490,000
|
|||
Tradename
/Trademark
|
70,000
|
|||
Covenants
not to compete
|
260,000
|
|||
Goodwill
|
11,757,812
|
|||
Liabilities
assumed
|
(347,770
|
)
|
||
Total
consideration
|
$
|
20,335,327
|
Year
Ended December 31,
|
||||||||||
2004
|
2003
|
|||||||||
(Unaudited)
|
||||||||||
Total
revenues
|
$
|
61,086,697
|
$
|
39,680,394
|
||||||
Gross
profit
|
22,528,254
|
17,214,249
|
||||||||
Net
loss
|
(5,810,114
|
)
|
(6,959,174
|
)
|
||||||
Deemed
dividend of common stock attributable to certain
stockholders
|
(3,328,952
|
)
|
(350,000
|
)
|
||||||
Net
loss attributable to stockholders of common stock
|
$
|
(9,139,066
|
)
|
$
|
(7,309,174
|
)
|
||||
Basic
and diluted net loss per share
|
$
|
(0.13
|
)
|
$
|
(0.14
|
)
|
||||
Weighted
average number of shares used in computing basic net loss per
share
|
69,933,057
|
52,966,330
|
%
|
||
Computers
and related equipment
|
33
|
|
Motor
vehicles
|
15
|
|
Office
furniture and equipment
|
6
-
10
|
|
Machinery
and equipment
|
10
- 25 (mainly 10)
|
|
Leasehold
improvements
|
By
the shorter of the term of the lease
and
the life of the asset
|
Year
ended December 31,
|
|||||||||||||
2005
|
2004
|
2003
|
|||||||||||
Net
loss as reported
|
$
|
(24,043,411
|
)
|
$
|
(9,042,313
|
)
|
$
|
(9,237,621
|
)
|
||||
Add:
Stock-based compensation expenses included in reported net
loss
|
674,712
|
831,626
|
8,286
|
||||||||||
Deduct:
Stock-based compensation expenses determined under fair value method
for
all awards
|
(2,461,787
|
)
|
(2,741,463
|
)
|
(1,237,558
|
)
|
|||||||
$
|
(25,830,486
|
)
|
$
|
(10,952,150
|
)
|
$
|
(10,466,893
|
)
|
|||||
Loss
per share:
|
|||||||||||||
Basic
and diluted, as reported
|
$
|
(0.29
|
)
|
$
|
(0.18
|
)
|
$
|
(0.25
|
)
|
||||
Diluted,
pro forma
|
$
|
(0.31
|
)
|
$
|
(0.16
|
)
|
$
|
(0.27
|
)
|
||||
December
31,
|
|||||||
2005
|
2004
|
||||||
Short-term:
|
|||||||
Restricted,
held to maturity, bonds in connection with FAAC earn out (Note
1.c.)(1)
|
$
|
—
|
$
|
5,969,413
|
|||
AoA
earnout (Note 1.d.)
|
1,795,850
|
—
|
|||||
Deposits
in connection with FAAC projects
|
548,973
|
650,989
|
|||||
Restricted
cash in connection with interest payment to convertible debenture
holders.
|
1,395,079
|
—
|
|||||
Other
|
157,211
|
341,708
|
|||||
Total
short-term
|
3,897,113
|
6,962,110
|
|||||
Long-term:
|
|||||||
Restricted
cash in connection with interest payment to convertible debenture
holders.
|
779,286
|
—
|
|||||
Restricted
cash in connection with AoA earn out (Note 1.d.)
|
—
|
3,000,000
|
|||||
Restricted
deposit in connection with Epsilor acquisition (Note 1.b.)
|
—
|
1,000,000
|
|||||
Total
long-term
|
779,286
|
4,000,000
|
|||||
$
|
4,676,399
|
$
|
10,962,110
|
Amortized
cost
|
Unrealized
losses
|
Estimated
fair value
|
|||||||||||||||||
2005
|
2004
|
2005
|
2004
|
2005
|
2004
|
||||||||||||||
Obligations
of States and political subdivisions
|
$
|
—
|
$
|
1,012,787
|
$
|
—
|
$
|
(1,870
|
)
|
$
|
—
|
$
|
1,010,917
|
||||||
Corporate
obligations
|
—
|
4,956,626
|
—
|
(11,966
|
)
|
—
|
4,944,660
|
||||||||||||
|
$ | — |
$
|
5,969,413
|
$
|
—
|
$
|
(13,836
|
)
|
$
|
—
|
$
|
5,955,577
|
Cost
|
Unrealized
gains
|
Estimated
fair value
|
|||||||||||||||||
2005
|
2004
|
2005
|
2004
|
2005
|
2004
|
||||||||||||||
Available
for sale marketable securities
|
$
|
32,558
|
$
|
130,061
|
$
|
3,426
|
$
|
5,507
|
$
|
35,984
|
$
|
135,568
|
December
31,
|
|||||||
2005
|
2004
|
||||||
Government
authorities
|
$
|
460,265
|
$
|
433,427
|
|||
Employees
|
65,735
|
217,948
|
|||||
Prepaid
expenses
|
1,360,589
|
490,357
|
|||||
Deferred
taxes
|
64,820
|
135,482
|
|||||
Other
|
312,922
|
62,179
|
|||||
2,397,875
|
|||||||
$
|
2,264,331
|
$
|
1,339,393
|
December
31,
|
|||||||
2005
|
2004
|
||||||
Raw
and packaging materials
|
$
|
3,296,453
|
$
|
3,969,400
|
|||
Work
in progress
|
3,697,361
|
1,996,139
|
|||||
Finished
products
|
821,992
|
1,311,762
|
|||||
$
|
7,815,806
|
$
|
7,277,301
|
December
31,
|
|||||||
2005
|
2004
|
||||||
Computers
and related equipment
|
$
|
3,081,029
|
$
|
2,788,398
|
|||
Motor
vehicles
|
704,718
|
620,001
|
|||||
Office
furniture and equipment
|
786,958
|
830,621
|
|||||
Machinery,
equipment and installations
|
7,716,598
|
7,464,470
|
|||||
Leasehold
improvements
|
1,399,683
|
1,321,025
|
|||||
Demo
inventory
|
369,995
|
141,961
|
|||||
$
|
14,058,981
|
$
|
13,166,476
|
December
31,
|
|||||||
2005
|
2004
|
||||||
Accumulated
depreciation:
|
|||||||
Computers
and related equipment
|
2,328,549
|
1,995,392
|
|||||
Motor
vehicles
|
233,745
|
163,817
|
|||||
Office
furniture and equipment
|
474,127
|
451,998
|
|||||
Machinery,
equipment and installations
|
5,729,563
|
5,143,186
|
|||||
Leasehold
improvements
|
974,666
|
811,392
|
|||||
Demo
inventory
|
65,400
|
-
|
|||||
9,806,050
|
8,565,785
|
||||||
Depreciated
cost
|
$
|
4,252,931
|
$
|
4,600,691
|
|||
|
Year
ended December 31,
|
|||||||
2005
|
2004
|
||||||
Cost:
|
|||||||
Technology
|
$
|
6,841,746
|
$
|
6,841,746
|
|||
Capitalized
software costs
|
1,226,579
|
574,967
|
|||||
Backlog
|
2,194,000
|
2,194,000
|
|||||
Covenants
not to compete
|
359,000
|
359,000
|
|||||
Customer
list
|
7,548,645
|
7,548,645
|
|||||
Certification
|
246,969
|
246,969
|
|||||
18,416,939
|
17,765,327
|
||||||
Exchange
differences
|
(171,587
|
)
|
125,455
|
||||
Less
- accumulated amortization
|
(7,267,630
|
)
|
(4,070,802
|
)
|
|||
Less
- impairment
|
(819,223
|
)
|
(320,279
|
)
|
|||
Amortized
cost
|
10,158,499
|
13,499,701
|
|||||
Trademarks
|
869,000
|
869,000
|
|||||
$
|
11,027,499
|
$
|
14,368,701
|
Year
ended December 31,
|
||||
2006
|
$
|
1,825,331
|
||
2007
|
1,381,883
|
|||
2008
|
1,276,075
|
|||
2009
|
1,235,632
|
|||
2010
and forward
|
3,467,873
|
|||
$
|
9,186,794
|
December
31,
|
|||||||
2005
|
2004
|
||||||
Employees
and payroll accruals
|
$
|
1,443,154
|
$
|
1,534,295
|
|||
Accrual
for expected loss
|
485,877
|
-
|
|||||
Accrued
vacation pay
|
504,342
|
469,527
|
|||||
Accrued
expenses
|
1,788,558
|
1,770,348
|
|||||
Minority
balance
|
172,871
|
243,116
|
|||||
Government
authorities
|
439,975
|
1,036,669
|
|||||
Advances
from customers
|
795,331
|
746,819
|
|||||
Other
|
-
|
17,414
|
|||||
$
|
5,630,108
|
$
|
5,818,188
|
Year
ended December 31
|
||||
2006
|
$
|
826,367
|
||
2007
|
$
|
685,552
|
||
2008
|
$
|
213,909
|
||
2009
|
$
|
103,715
|
||
2010
|
$
|
96,840
|
2005
|
2004
|
2003
|
|||||||||||||||||
Amount
|
Weighted
average
exercise
price
|
Amount
|
Weighted
average
exercise
price
|
Amount
|
Weighted
average
exercise
price
|
||||||||||||||
$
|
$
|
$
|
|||||||||||||||||
Options
outstanding at beginning of year
|
9,854,761
|
$
|
1.19
|
9,018,311
|
$
|
1.37
|
5,260,366
|
$
|
2.26
|
||||||||||
Changes
during year:
|
|||||||||||||||||||
Granted
(1) (2) (3)
|
1,695,350
|
$
|
0.55
|
2,248,490
|
$
|
1.06
|
5,264,260
|
$
|
0.71
|
||||||||||
Exercised
|
(15,825
|
)
|
$
|
1.09
|
(897,248
|
)
|
$
|
1.24
|
(689,640
|
)
|
$
|
0.64
|
|||||||
Forfeited
(3)
|
(2,289,337
|
)
|
$
|
1.89
|
(514,793
|
)
|
$
|
3.77
|
(816,675
|
)
|
$
|
3.51
|
|||||||
Repriced
(3)
|
|||||||||||||||||||
Old
exercise price
|
(2,911,715
|
)
|
$
|
1.1
|
-
|
-
|
-
|
-
|
|||||||||||
New
exercise price
|
2,911,715
|
$
|
0.39
|
-
|
-
|
-
|
-
|
||||||||||||
Options
outstanding at end of year
|
9,244,949
|
$
|
0.67
|
9,854,760
|
$
|
1.19
|
9,018,311
|
$
|
1.37
|
||||||||||
Options
exercisable at end of year
|
8,162,985
|
$
|
0.70
|
6,465,316
|
$
|
1.32
|
5,826,539
|
$
|
1.70
|
Total
options outstanding
|
Exercisable
options outstanding(1)
|
|||||||||||||||
Range
of
exercise
prices
|
Amount
outstanding
at
December
31,
2005
|
Weighted
average
remaining
contractual
life
|
Weighted
average
exercise
price
|
Amount
exercisable
at
December
31, 2005
|
Weighted
average
exercise
price
|
|||||||||||
$
|
Years
|
$
|
$
|
|||||||||||||
0.01-2.00
|
8,833,349
|
5.10
|
0.53
|
7,868,050
|
0.57
|
|||||||||||
2.01-4.00
|
226,600
|
3.43
|
2.45
|
109,935
|
2.50
|
|||||||||||
4.01-6.00
|
170,000
|
4.05
|
4.93
|
170,000
|
4.93
|
|||||||||||
6.01-8.00
|
5,000
|
1.86
|
6.50
|
5,000
|
6.50
|
|||||||||||
8.01
|
10,000
|
1.75
|
9.06
|
10,000
|
9.06
|
|||||||||||
9,244,949
|
5.04
|
0.67
|
8,162,985
|
0.70
|
Equals
market price
|
Less
than market price
|
||||||||||||||||||
Year
ended December 31,
|
Year
ended December 31,
|
||||||||||||||||||
2005
|
2004
|
2003
|
2005
|
2004
|
2003
|
||||||||||||||
Weighted
average exercise prices
|
$
|
0.50
|
$
|
1.494
|
$
|
0.950
|
$
|
-
|
$
|
1.672
|
$
|
-
|
|||||||
Weighted
average fair value on grant date
|
$
|
0.26
|
$
|
1.002
|
$
|
0.730
|
$
|
-
|
$
|
1.729
|
$
|
-
|
2005
|
2004
|
2003
|
|||||||||||||||||
Amount
|
Weighted
average exercise price
|
Amount
|
Weighted
average exercise price
|
Amount
|
Weighted
average exercise price
|
||||||||||||||
|
|
|
|
$
|
$
|
$
|
|||||||||||||
Options
outstanding at beginning of year
|
166,286
|
$
|
3.80
|
313,901
|
$
|
4.59
|
245,786
|
$
|
5.55
|
||||||||||
Changes
during year:
|
|||||||||||||||||||
Granted
|
-
|
$
|
-
|
10,000
|
$
|
-
|
83,115
|
$
|
0.99
|
||||||||||
Exercised
|
-
|
$
|
-
|
(37,615
|
)
|
$
|
1.03
|
(15,000
|
)
|
$
|
0.49
|
||||||||
Forfeited
or cancelled
|
-
|
$
|
-
|
(120,000
|
)
|
$
|
6.40
|
-
|
$
|
-
|
|||||||||
Options
outstanding at end of year
|
166,286
|
$
|
3.80
|
166,286
|
$
|
3.80
|
313,901
|
$
|
4.59
|
||||||||||
Options
exercisable at end of year
|
166,286
|
$
|
3.80
|
166,286
|
$
|
3.80
|
193,901
|
$
|
3.46
|
2005
|
2004
|
2003
|
||||||||
Dividend
yield
|
-
|
0
|
%
|
0
|
%
|
|||||
Expected
volatility
|
-
|
81
|
%
|
78
|
%
|
|||||
Risk-free
interest
|
-
|
3.4
|
%
|
2.3
|
%
|
|||||
Contractual
life of up to
|
-
|
5
years
|
10
years
|
December
31,
|
|||||||
2005
|
2004
|
||||||
Operating
loss carryforward (1)
|
$
|
32,326,283
|
$
|
32,532,998
|
|||
Reserve
and allowance
|
2,222,333
|
1,328,479
|
|||||
Net
deferred tax asset before valuation allowance
|
34,548,616
|
33,861,477
|
|||||
Valuation
allowance
|
(34,483,796
|
)
|
(33,725,995
|
)
|
|||
Total
deferred tax asset
|
$
|
64,820
|
$
|
135,482
|
|||
Deferred
tax liability
|
$
|
-
|
$
|
51,366
|
(1) |
December
31,
|
||||||
2005
|
2004
|
||||||
Domestic
|
$
|
8,981,133
|
$
|
7,703,459
|
|||
Foreign
|
23,345,150
|
24,829,539
|
|||||
$
|
32,326,283
|
$
|
32,532,998
|
Year
ended December 31
|
|||||||||||||
2005
|
2004
|
2003
|
|||||||||||
Domestic
|
$
|
21,473,366
|
$
|
8,006,205
|
$
|
7,411,121
|
|||||||
Foreign
|
2,269,522
|
405,305
|
1,697,617
|
||||||||||
$
|
23,742,888
|
$
|
8,411,510
|
$
|
9,108,738
|
||||||||
Year
ended December 31
|
||||||||||
2005
|
2004
|
2003
|
||||||||
Current
state and local taxes
|
$
|
83,365
|
$
|
539,674
|
$
|
44,102
|
||||
Deferred
taxes
|
14,345
|
(37,857
|
)
|
-
|
||||||
Taxes
in respect of prior years
|
139,962
|
84,292
|
352,091
|
|||||||
$
|
237,672
|
$
|
586,109
|
$
|
396,193
|
|||||
Domestic
|
$
|
153,950
|
$
|
163,087
|
$
|
33,020
|
||||
Foreign
|
83,722
|
423,022
|
363,173
|
|||||||
$
|
237,672
|
$
|
586,109
|
$
|
396,193
|
Year
ended December 31,
|
||||||||||
2005
|
2004
|
2003
|
||||||||
Loss
from continuing operations before taxes, as reported in the consolidated
statements of income
|
$
|
(23,742,888
|
)
|
$
|
(8,411,510
|
)
|
$
|
(9,108,738
|
)
|
|
Statutory
tax rate
|
34
|
%
|
34
|
%
|
34
|
%
|
||||
Theoretical
income tax on the above amount at the U.S. statutory tax
rate
|
$
|
(8,072,582
|
)
|
$
|
(2,859,914
|
)
|
$
|
(3,096,971
|
)
|
|
Deferred
taxes on losses for which valuation allowance was provided
|
1,611,971
|
556,692
|
1,146,754
|
|||||||
Non-deductible
expenses
|
5,669,144
|
1,629,874
|
1,873,129
|
|||||||
State
taxes
|
67,470
|
168,081
|
33,020
|
|||||||
Accrual
for deferred taxes on undistributed earnings
|
(49,328
|
)
|
49,416
|
-
|
||||||
Foreign
income in tax rates other then U.S rate
|
897,617
|
919,895
|
86,954
|
|||||||
Taxes
in respect of prior years
|
139,963
|
84,292
|
352,091
|
|||||||
Others
|
(26,583
|
)
|
37,773
|
1,216
|
||||||
Actual
tax expense
|
$
|
237,672
|
$
|
586,109
|
$
|
396,193
|
||||
Year
ended December 31,
|
||||||||||
2005
|
2004
|
2003
|
||||||||
Financial
expenses:
|
||||||||||
Interest,
bank charges and fees
|
$
|
(1,473,799
|
)
|
$
|
(622,638
|
)
|
$
|
(355,111
|
)
|
|
Amortization
of compensation related to warrants issued to the holders of convertible
debentures and beneficial conversion feature
|
(1,702,753
|
)
|
(4,142,109
|
)
|
(3,928,237
|
)
|
||||
Bonds
premium amortization
|
(47,734
|
)
|
(202,467
|
)
|
-
|
|||||
Foreign
currency translation differences
|
(54,840
|
)
|
(71,891
|
)
|
115,538
|
|||||
(3,279,126
|
)
|
(5,039,105
|
)
|
(4,167,810
|
)
|
|||||
Financial
income:
|
||||||||||
Interest
|
192,771
|
443,182
|
129,101
|
|||||||
Realized
gain from marketable securities sale
|
2,863
|
40,119
|
-
|
|||||||
Financial
income in connection with warrants granted (Note 12.d. and
13.f.3.)
|
377,803
|
326,839
|
-
|
|||||||
Total
|
$
|
(2,705,689
|
)
|
$
|
(4,228,965
|
)
|
$
|
(4,038,709
|
)
|
|
Simulation
and Training
|
Armor
|
Battery
and
Power
Systems
|
All
Others(4)
|
Total
|
||||||||||||
2005
|
||||||||||||||||
Revenues
from outside customers
|
$
|
26,805,772
|
$
|
12,322,678
|
$
|
9,916,145
|
$
|
-
|
$
|
49,044,595
|
||||||
Depreciation
, amortization and impairment expenses (1)
|
(1,645,057
|
)
|
(14,043,019
|
)
|
(909,463
|
)
|
(229,626
|
)
|
(16,827,165
|
)
|
||||||
Direct
expenses (2)
|
(21,967,755
|
)
|
(13,955,199
|
)
|
(9,757,402
|
)
|
(7,752,865
|
)
|
(53,433,221
|
)
|
||||||
Segment
net income (loss)
|
$
|
3,192,960
|
$
|
(15,675,540
|
)
|
$
|
(750,720
|
)
|
$
|
(7,982,491
|
)
|
(21,215,791
|
)
|
|||
Financial
expenses (after deduction of minority interest)
|
(2,707,620
|
)
|
||||||||||||||
Net
loss from continuing operations
|
$
|
(23,923,411
|
)
|
|||||||||||||
Segment
assets (3)
(4)
|
$
|
32,741,946
|
$
|
7,185,010
|
$
|
12,040,415
|
$
|
688,023
|
$
|
52,655,394
|
||||||
2004
|
||||||||||||||||
Revenues
from outside customers
|
$
|
21,464,406
|
$
|
17,988,687
|
$
|
10,500,753
|
$
|
-
|
$
|
49,953,846
|
||||||
Depreciation
, amortization and impairment expenses (1)
|
(1,983,822
|
)
|
(1,755,847
|
)
|
(1,132,953
|
)
|
(135,613
|
)
|
(5,008,235
|
)
|
||||||
Direct
expenses (2)
|
(17,910,967
|
)
|
(16,444,476
|
)
|
(9,974,544
|
)
|
(5,431,627
|
)
|
(49,761,614
|
)
|
||||||
Segment
net income (loss)
|
$
|
1,569,617
|
$
|
(211,636
|
)
|
$
|
(606,744
|
)
|
$
|
(5,567,240
|
)
|
(4,816,003
|
)
|
|||
Financial
expenses (after deduction of minority interest)
|
(4,226,310
|
)
|
||||||||||||||
Net
loss from continuing operations
|
$
|
(9,042,313
|
)
|
|||||||||||||
Segment
assets (3)
|
$
|
1,872,943
|
$
|
5,819,266
|
$
|
3,455,188
|
$
|
730,595
|
$
|
11,877,992
|
||||||
2003
|
||||||||||||||||
Revenues
from outside customers
|
$
|
8,022,026
|
$
|
3,435,716
|
$
|
5,868,899
|
$
|
-
|
$
|
17,326,641
|
||||||
Depreciation
expenses and amortization
|
(757,997
|
)
|
(169,668
|
)
|
(527,775
|
)
|
(139,630
|
)
|
(1,595,070
|
)
|
||||||
Direct
expenses (2)
|
(7,308,649
|
)
|
(3,584,284
|
)
|
(5,945,948
|
)
|
(4,200,770
|
)
|
(21,039,651
|
)
|
||||||
Segment
net income (loss)
|
$
|
(44,620
|
)
|
$
|
(318,236
|
)
|
$
|
(604,824
|
)
|
$
|
(4,340,400
|
)
|
(5,308,080
|
)
|
||
Financial
expenses (after deduction of minority interest)
|
(4,039,951
|
)
|
||||||||||||||
Net
loss from continuing operations
|
$
|
(9,348,031
|
)
|
|||||||||||||
Segment
assets (3)
|
$
|
898,271
|
$
|
730,291
|
$
|
2,128,062
|
$
|
450,864
|
$
|
4,207,488
|
||||||
2005
|
2004
|
2003
|
|||||||||||||||||
Total
revenues
|
Long-lived
assets
|
Total
revenues
|
Long-lived
assets
|
Total
revenues
|
Long-lived
assets
|
||||||||||||||
U.S.
dollars
|
|||||||||||||||||||
U.S.A.
|
$
|
38,953,462
|
$
|
32,840,172
|
$
|
40,656,729
|
$
|
45,154,086
|
$
|
10,099,652
|
$
|
6,778,050
|
|||||||
Germany
|
188,635
|
-
|
319,110
|
-
|
2,836,725
|
-
|
|||||||||||||
England
|
931,008
|
-
|
344,261
|
-
|
29,095
|
-
|
|||||||||||||
Thailand
|
-
|
-
|
-
|
-
|
95,434
|
-
|
|||||||||||||
India
|
1,723,031
|
-
|
3,061,705
|
-
|
-
|
-
|
|||||||||||||
Israel
|
5,700,267
|
11,999,415
|
4,212,408
|
13,560,822
|
3,576,139
|
2,954,441
|
|||||||||||||
Other
|
1,548,192
|
-
|
1,359,633
|
-
|
689,596
|
-
|
|||||||||||||
$
|
49,044,595
|
$
|
44,839,587
|
$
|
49,953,846
|
$
|
58,714,908
|
$
|
17,326,641
|
$
|
9,732,491
|
Year
ended December 31,
|
||||||||||
2005
|
2004
|
2003
|
||||||||
%
|
||||||||||
Batteries
and power systems:
|
||||||||||
Customer
A
|
7
|
%
|
8
|
%
|
27
|
%
|
||||
Armor:
|
||||||||||
Customer
B
|
5
|
%
|
4
|
%
|
17
|
%
|
||||
Customer
C
|
9
|
%
|
24
|
%
|
-
|
|||||
Simulation
and Training:
|
||||||||||
Customer
D
|
24
|
%
|
13
|
%
|
-
|
|||||
Customer
E
|
-
|
1
|
%
|
16
|
%
|
Year
ended December 31,
|
||||||||||
2005
|
2004
|
2003
|
||||||||
Electric
vehicle
|
$
|
205,485
|
$
|
232,394
|
$
|
408,161
|
||||
Water
activated batteries
|
1,181,114
|
921,533
|
703,084
|
|||||||
Military
batteries
|
8,515,329
|
9,324,247
|
4,757,116
|
|||||||
Car
and aircraft armoring
|
12,322,679
|
17,988,686
|
3,435,715
|
|||||||
Simulators
|
26,785,772
|
21,414,968
|
7,961,302
|
|||||||
Other
|
34,216
|
72,018
|
61,263
|
|||||||
Total
|
$
|
49,044,595
|
$
|
49,953,846
|
$
|
17,326,641
|
Quarter
Ended*
|
||||||||||||||||
2005
|
March
31
|
June
30
|
September
30
|
December
31
|
||||||||||||
Net
revenue
|
$
|
10,387,445
|
$
|
12,236,910
|
$
|
11,189,675
|
$
|
15,230,565
|
||||||||
Gross
profit
|
$
|
4,015,570
|
$
|
3,627,634
|
$
|
2,756,392
|
$
|
4,261,263
|
||||||||
Net
profit (loss) from continuing operations
|
$
|
(2,456,500
|
)
|
$
|
(5,422,514
|
)
|
$
|
(12,708,932
|
)
|
$
|
(3,335,465
|
)
|
||||
Net
profit (loss) from discontinued operations
|
$
|
-
|
$
|
(200,000
|
)
|
$
|
-
|
$
|
80,000
|
|||||||
Net
profit (loss) for the period
|
$
|
(2,456,500
|
)
|
$
|
(5,622,514
|
)
|
$
|
(12,708,932
|
)
|
$
|
(3,255,465
|
)
|
||||
Deemed
dividend to certain stockholders of common stock
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
||||||||
Net
loss attributable to common stockholders
|
$
|
(2,456,500
|
)
|
$
|
(5,622,514
|
)
|
$
|
(12,708,932
|
)
|
$
|
(3,255,465
|
)
|
||||
Net
profit (loss) per share - basic and diluted
|
$
|
(0.03
|
)
|
$
|
(0.07
|
)
|
$
|
(0.15
|
)
|
$
|
(0.04
|
)
|
||||
Shares
used in per share calculation
|
80,102,089
|
80,780,149
|
82,475,778
|
85,446,876
|
||||||||||||
|
Quarter
Ended
|
|||||||||||||||
2004
|
March
31
|
June
30
|
September
30
|
December
31
|
||||||||||||
Net
revenue
|
$
|
7,182,254
|
$
|
9,928,248
|
$
|
16,272,521
|
$
|
16,570,823
|
||||||||
Gross
profit
|
$
|
2,625,034
|
$
|
3,353,501
|
$
|
4,723,573
|
$
|
5,240,644
|
||||||||
Net
profit (loss) from continuing operations
|
$
|
(2,517,889
|
)
|
$
|
(4,396,123
|
)
|
$
|
1,126,845
|
$
|
(3,255,146
|
)
|
|||||
Net
loss from discontinued operations
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
||||||||
Net
profit (loss) for the period
|
$
|
(2,517,889
|
)
|
$
|
(4,396,123
|
)
|
$
|
1,126,845
|
$
|
(3,255,146
|
)
|
|||||
Deemed
dividend to certain stockholders of common stock
|
$
|
(1,163,000
|
)
|
$
|
-
|
$
|
(2,165,952
|
)
|
$
|
-
|
||||||
Net
loss attributable to common stockholders
|
$
|
(3,680,889
|
)
|
$
|
(4,396,123
|
)
|
$
|
(1,039,107
|
)
|
$
|
(3,255,146
|
)
|
||||
Net
profit (loss) per share - basic and diluted
|
$
|
(0.06
|
)
|
$
|
(0.07
|
)
|
$
|
(0.01
|
)
|
$
|
(0.04
|
)
|
||||
Shares
used in per share calculation
|
59,406,466
|
64,499,090
|
76,744,251
|
79,075,181
|
Description
|
Balance
at
beginning
of
period
|
Additions
charged
to
costs
and
expenses
|
Balance
at
end
of
period
|
|||||||
Year
ended December 31, 2005
|
||||||||||
Allowance
for doubtful accounts
|
$
|
55,394
|
$
|
120,786
|
$
|
176,180
|
||||
Allowance
for slow moving inventory
|
217,672
|
1,062,336
|
1,280,008
|
|||||||
Valuation
allowance for deferred taxes
|
33,725,995
|
757,801
|
34,483,796
|
|||||||
Totals
|
$
|
33,999,061
|
$
|
1,940,923
|
$
|
35,939,984
|
||||
Year
ended December 31, 2004
|
||||||||||
Allowance
for doubtful accounts
|
$
|
61,282
|
$
|
(5,888
|
)
|
$
|
55,394
|
|||
Allowance
for slow moving inventory
|
96,350
|
121,322
|
217,672
|
|||||||
Valuation
allowance for deferred taxes
|
34,801,887
|
(1,075,892
|
)
|
33,725,995
|
||||||
Totals
|
$
|
34,959,519
|
$
|
(960,458
|
)
|
$
|
33,999,061
|
|||
Year
ended December 31, 2003
|
||||||||||
Allowance
for doubtful accounts
|
$
|
40,636
|
$
|
20,646
|
$
|
61,282
|
||||
Allowance
for slow moving inventory
|
-
|
96,350
|
96,350
|
|||||||
Valuation
allowance for deferred taxes
|
29,560,322
|
5,241,565
|
34,801,887
|
|||||||
Totals
|
$
|
29,600,958
|
$
|
5,358,561
|
$
|
34,959,519
|
AROTECH CORPORATION | ||
|
|
|
By: | /s/ Robert S. Ehrlich | |
Name: Robert
S.
Ehrlich
Title:
Chairman
and Chief Executive
Officer
|
Signature
|
Title
|
Date
|
||
/s/
Robert S. Ehrlich
|
Chairman
Chief Executive Officer and Director
(Principal
Executive Officer)
|
March
31, 2006
|
||
Robert
S. Ehrlich
|
||||
/s/
Thomas J. Paup
|
Vice
President - Finance
(Principal
Financial Officer)
|
March
31, 2006
|
||
Thomas
J. Paup
|
||||
/s/
Danny Waldner
|
Controller
(Principal
Accounting Officer)
|
March
31, 2006
|
||
Danny
Waldner
|
||||
/s/
Steven Esses
|
President,
Chief Operating Officer
and
Director
|
March
31, 2006
|
||
Steven
Esses
|
||||
/s/
Jay M. Eastman
|
Director
|
March
31, 2006
|
||
Dr.
Jay M. Eastman
|
||||
/s/
Lawrence M. Miller
|
Director
|
March
31, 2006
|
||
Lawrence
M. Miller
|
||||
/s/
Jack E. Rosenfeld
|
Director
|
March
31, 2006
|
||
Jack
E. Rosenfeld
|
||||
/s/
Edward J. Borey
|
Director
|
March
31, 2006
|
||
Edward
J. Borey
|
||||
/s/
Seymour Jones
|
Director
|
March
31, 2006
|
||
Seymour
Jones
|