OMB
APPROVAL
|
|
OMB
Number:
|
3235-0063
|
Expires:
|
April
30, 2009
|
Estimated
average burden
|
|
hours
per response
|
2,196.00
|
Commission
File Number: 0-23336
|
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
|
|
Common
Stock, $0.01 par value
|
The
Nasdaq Stock Market LLC
|
Securities registered pursuant to Section 12(g) of the Act: |
Common
Stock, $0.01 par
value
|
Documents incorporated by reference: |
None
|
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.,
located in Ann Arbor, Michigan
(“IES”).
|
Ø |
We
utilize sophisticated lightweight materials and advanced engineering
processes to armor vehicles and to manufacture aviation armor through
our
Armor
Division:
|
· |
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%;
and
|
· |
We
provide ballistic armor kits for rotary and fixed wing aircraft and
marine
armor through our subsidiary Armour of America, located in Auburn,
Alabama
(“AoA”).
|
Ø |
We
manufacture and sell lithium and Zinc-Air batteries for defense and
security products and other military applications 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
develop, manufacture and market primary Zinc-Air batteries, rechargeable
batteries and battery chargers 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 through our subsidiary Electric Fuel (E.F.L.)
Ltd.,
located in Beit Shemesh, Israel
(“EFL”).
|
Ø |
Our
Vehicle
Simulation
group provides high fidelity vehicle simulators for use in operator
training and is marketed under our FAAC
nameplate;
|
Ø |
Our
Military
Operations
group provides weapon simulations used to train military pilots in
the
effective use of air launched weapons and is also marketed under
our FAAC
nameplate; and
|
Ø |
Our
Use
of Force
group provides training products focused on the proper employment
of hand
carried weapons and is marketed under our IES Interactive Training
nameplate.
|
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 |
MILO
(Multiple Interactive Learning/training Objectives)
-
provides use-of-force simulation for military and law enforcement.
This
simulator designed with “plug in” modules to customize the training system
to meet end user needs. We believe that the MILO 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 |
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 allow
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 are
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 to 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.
|
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
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 |
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 |
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 |
The
David, a combat patrol, command and reconnaissance armored vehicle
that is
specifically designed for urban
combat;
|
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 |
Pick-up
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
|
Division
|
2006
|
2005
|
2004
|
|||||||
Simulation
and Training Division
|
$
|
11,518,000
|
$
|
9,379,000
|
$
|
12,691,000
|
||||
Battery
and Power Systems Division
|
9,213,000
|
4,523,000
|
8,325,000
|
|||||||
Armor
Division
|
20,582,000
|
4,440,000
|
4,002,000
|
|||||||
TOTAL:
|
$
|
41,313,000
|
$
|
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.
|
ITEM
5.
|
MARKET
FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
PURCHASES OF EQUITY
SECURITIES
|
Year
Ended December 31, 2006
|
High
|
Low
|
|||||
Fourth
Quarter
|
$
|
3.69
|
$
|
1.43
|
|||
Third
Quarter
|
$
|
3.92
|
$
|
1.88
|
|||
Second
Quarter
|
$
|
8.12
|
$
|
2.25
|
|||
First
Quarter
|
$
|
8.96
|
$
|
5.18
|
Year
Ended December 31, 2005
|
High
|
Low
|
|||||
Fourth
Quarter
|
$
|
10.64
|
$
|
5.04
|
|||
Third
Quarter
|
$
|
16.66
|
$
|
9.80
|
|||
Second
Quarter
|
$
|
20.44
|
$
|
14.00
|
|||
First
Quarter
|
$
|
24.92
|
$
|
17.64
|
Year
Ended December 31,
|
||||||||||||||||
2002
|
2003**
|
|
2004
|
2005
|
2006
|
|||||||||||
(dollars
in thousands, except per share data)
|
||||||||||||||||
Statement
of Operations Data:
|
||||||||||||||||
Revenues
|
$
|
6,407
|
$
|
17,326
|
$
|
49,954
|
$
|
49,045
|
$
|
43,120
|
||||||
Research
and development expenses and costs of revenues, exclusive of amortization
of intangibles
|
5,108
|
12,141
|
35,742
|
35,684
|
34,095
|
|||||||||||
Selling,
general and administrative expenses and their impairment and amortization
of intangible assets
|
5,982
|
10,255
|
18,394
|
34,662
|
17,577
|
|||||||||||
Operating
loss
|
(4,683
|
)
|
(5,070
|
)
|
(4,182
|
)
|
(21,301
|
)
|
(8,551
|
)
|
||||||
Other
income
|
-
|
-
|
-
|
339
|
361
|
|||||||||||
Financial
income (expenses), net
|
100
|
4,039
|
4,229
|
(2,706
|
)
|
(7,520
|
)
|
|||||||||
Loss
before minority interest in (loss) earnings of subsidiary and tax
expenses
|
(4,583
|
)
|
(9,109
|
)
|
(8,411
|
)
|
(23,668
|
)
|
(15,709
|
)
|
||||||
Taxes
on income
|
-
|
(396
|
)
|
(586
|
)
|
(237
|
)
|
(232
|
)
|
|||||||
Gain
(loss) from affiliated company
|
-
|
-
|
-
|
(75
|
)
|
355
|
||||||||||
Minority
interest in (loss) earnings of subsidiary
|
(355
|
)
|
157
|
(45
|
)
|
57
|
17
|
|||||||||
Loss
from continuing operations
|
(4,938
|
)
|
(9,348
|
)
|
(9,042
|
)
|
(23,923
|
)
|
(15,569
|
)
|
||||||
Income
(loss) from discontinued operations
|
(13,566
|
)
|
110
|
-
|
(120
|
)
|
-
|
|||||||||
Net
loss for the period
|
(18,504
|
)
|
(9,238
|
)
|
(9,042
|
)
|
(24,043
|
)
|
(15,569
|
)
|
||||||
Deemed
dividend to certain stockholders of common stock
|
-
|
(350
|
)
|
(3,329
|
)
|
-
|
(434
|
)
|
||||||||
Net
loss attributable to stockholders of common stock
|
$
|
(18,504
|
)
|
$
|
(9,588
|
)
|
$
|
(12,371
|
)
|
$
|
(24,043
|
)
|
$
|
(16,003
|
)
|
|
Basic
and diluted net loss per share from continuing operations
|
$
|
(2.13
|
)
|
$
|
(3.41
|
)
|
$
|
(2.48
|
)
|
$
|
(4.07
|
)
|
$
|
(1.87
|
)
|
|
Loss
per share for combined operations
|
$
|
(8.00
|
)
|
$
|
(3.45
|
)
|
$
|
(2.48
|
)
|
$
|
(4.09
|
)
|
$
|
(1.87
|
)
|
|
Weighted
average number of common shares used in computing basic and diluted
net
loss per share (in thousands)
|
2,313
|
2,778
|
4,995
|
5,872
|
8,569
|
As
At December 31,
|
||||||||||||||||
2002
|
2003**
|
2004
|
2005
|
2006
|
||||||||||||
(dollars
in thousands)
|
||||||||||||||||
Balance
Sheet Data:
|
||||||||||||||||
Cash,
cash equivalents, investments in marketable debt securities and restricted
collateral deposits
|
$
|
2,091
|
$
|
14,391
|
$
|
13,832
|
$
|
10,864
|
$
|
3,059
|
||||||
Receivables
and other assets*
|
7,895
|
8,898
|
25,746
|
29,166
|
28,051
|
|||||||||||
Property
and equipment, net of depreciation
|
2,555
|
2,293
|
4,601
|
4,253
|
3,741
|
|||||||||||
Goodwill
and other intangible assets, net
|
7,522
|
7,440
|
54,113
|
40,586
|
40,217
|
|||||||||||
Total
assets
|
$
|
20,063
|
$
|
33,022
|
$
|
98,292
|
$
|
84,869
|
$
|
75,068
|
||||||
Current
liabilities*
|
$
|
7,272
|
$
|
6,710
|
$
|
26,381
|
$
|
26,317
|
$
|
15,738
|
||||||
Long-term
liabilities***
|
3,753
|
4,686
|
6,438
|
12,287
|
4,370
|
|||||||||||
Stockholders’
equity
|
9,038
|
21,626
|
65,473
|
46,265
|
54,960
|
|||||||||||
Total
liabilities and stockholders equity*
|
$
|
20,063
|
$
|
33,022
|
$
|
98,292
|
$
|
84,869
|
$
|
75,068
|
*
|
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
provide aviation armor kits and we utilize sophisticated lightweight
materials and advanced engineering processes to armor vehicles (our
Armoring
Division);
and
|
Ø |
we
develop, manufacture and market primary Zinc-Air batteries, rechargeable
batteries and battery chargers for defense and security products
and other
military applications (our Battery
and Power Systems Division).
|
Ø |
Our
Simulation
and Training Division,
located in Ann Arbor, Michigan, consisting
of:
|
· |
FAAC
Incorporated, which provides simulators, systems engineering and
software
products to the United States military, government and private industry
(“FAAC”); and
|
· |
IES
Interactive Training, Inc., which provides specialized “use of force”
training for police, security personnel and the military
(“IES”).
|
Ø |
Our
Armor
Division,
consisting of:
|
· |
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);
|
· |
MDT
Armor Corporation, located in Auburn, Alabama, which conducts MDT’s United
States activities (“MDT Armor”)
(88% owned);
and
|
· |
Armour
of America, located in Auburn, Alabama, which provides ballistic
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”).
|
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 batteries and battery 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, focusing on obtaining and implementing demonstration
projects in the U.S. and Europe
(“EFL”).
|
Year
Ended December 31,
|
||||||||||
2006
|
2005
|
2004
|
||||||||
Revenues:
|
||||||||||
Simulation
and Training Division
|
$
|
21,951,337
|
$
|
26,805,772
|
$
|
21,464,406
|
||||
Armor
Division
|
12,571,779
|
12,322,678
|
17,988,687
|
|||||||
Battery
and Power Systems Division
|
8,597,623
|
9,916,145
|
10,500,753
|
|||||||
$
|
43,120,739
|
$
|
49,044,595
|
$
|
49,953,846
|
|||||
Cost
of revenues:
|
||||||||||
Simulation
and Training Division
|
$
|
14,196,298
|
$
|
15,835,735
|
$
|
11,739,690
|
||||
Armor
Division
|
12,299,756
|
11,206,442
|
15,449,084
|
|||||||
Battery
and Power Systems Division
|
5,997,592
|
7,341,559
|
6,822,320
|
|||||||
$
|
32,493,646
|
$
|
34,383,736
|
$
|
34,011,094
|
|||||
Research
and development expenses:
|
||||||||||
Simulation
and Training Division
|
$
|
308,738
|
$
|
209,554
|
$
|
395,636
|
||||
Armor
Division
|
20,546
|
139,514
|
17,065
|
|||||||
Battery
and Power Systems Division
|
1,272,170
|
951,361
|
1,318,678
|
|||||||
$
|
1,601,454
|
$
|
1,300,429
|
$
|
1,731,379
|
|||||
Sales
and marketing expenses:
|
||||||||||
Simulation
and Training Division
|
$
|
2,514,981
|
$
|
2,704,880
|
$
|
3,185,001
|
||||
Armor
Division
|
366,923
|
834,090
|
565,981
|
|||||||
Battery
and Power Systems Division
|
656,604
|
853,378
|
1,171,235
|
|||||||
All
Other
|
175,814
|
79,242
|
-
|
|||||||
$
|
3,714,322
|
$
|
4,471,590
|
$
|
4,922,217
|
|||||
General
and administrative expenses:
|
||||||||||
Simulation
and Training Division
|
$
|
2,562,868
|
$
|
3,849,881
|
$
|
2,852,969
|
||||
Armor
Division
|
1,031,333
|
2,181,355
|
1,323,982
|
|||||||
Battery
and Power Systems Division
|
994,136
|
974,704
|
965,058
|
|||||||
All
Other
|
7,104,479
|
7,856,495
|
5,514,857
|
|||||||
$
|
11,692,816
|
$
|
14,862,435
|
$
|
10,656,866
|
|||||
Other
income:
|
||||||||||
Simulation
and Training Division
|
$
|
361,560
|
$
|
338,900
|
$
|
-
|
||||
Armor
Division
|
-
|
-
|
-
|
|||||||
Battery
and Power Systems Division
|
-
|
-
|
-
|
|||||||
All
Other
|
-
|
-
|
-
|
|||||||
$
|
361,560
|
$
|
338,900
|
$
|
-
|
|||||
Financial
expense (income):
|
||||||||||
Simulation
and Training Division
|
$
|
(129,908
|
)
|
$
|
22,294
|
$
|
27,842
|
|||
Armor
Division
|
54,476
|
(2,463
|
)
|
13,503
|
||||||
Battery
and Power Systems Division
|
(50,590
|
)
|
122,236
|
54,511
|
||||||
All
Other
|
7,645,922
|
2,563,622
|
4,133,109
|
|||||||
$
|
7,519,900
|
$
|
2,705,689
|
$
|
4,228,965
|
|||||
Tax
expenses:
|
||||||||||
Simulation
and Training Division
|
$
|
49,383
|
$
|
63,976
|
$
|
77,811
|
||||
Armor
Division
|
-
|
94,671
|
134,949
|
|||||||
Battery
and Power Systems Division
|
182,776
|
32,846
|
320,878
|
|||||||
All
Other
|
-
|
46,179
|
52,471
|
|||||||
$
|
232,159
|
$
|
237,672
|
$
|
586,109
|
|||||
Amortization
of intangible assets:
|
||||||||||
Simulation
and Training Division
|
$
|
1,049,136
|
$
|
1,213,261
|
$
|
1,323,403
|
||||
Armor
Division
|
295,067
|
1,348,248
|
661,914
|
|||||||
Battery
and Power Systems Division
|
509,239
|
509,239
|
509,239
|
|||||||
$
|
1,853,442
|
$
|
3,070,748
|
$
|
2,494,556
|
|||||
Impairment
of goodwill and other intangible assets:
|
||||||||||
Simulation
and Training Division
|
$
|
-
|
$
|
-
|
$
|
320,279
|
||||
Armor
Division
|
316,024
|
12,256,756
|
-
|
|||||||
Battery
and Power Systems Division
|
-
|
-
|
-
|
|||||||
$
|
316,024
|
$
|
12,256,756
|
$
|
320,279
|
|||||
Gain
(loss) from affiliated company:
|
||||||||||
Simulation
and Training Division
|
$
|
354,898
|
$
|
(75,000
|
)
|
$
|
-
|
|||
Armor
Division
|
-
|
-
|
-
|
|||||||
Battery
and Power Systems Division
|
-
|
-
|
-
|
|||||||
$
|
354,898
|
$
|
(75,000
|
)
|
$
|
-
|
||||
Minority
interest in loss (profit) of subsidiaries:
|
||||||||||
Simulation
and Training Division
|
$
|
-
|
$
|
-
|
$
|
-
|
||||
Armor
Division
|
17,407
|
57,149
|
(44,694
|
)
|
||||||
Battery
and Power Systems Division
|
-
|
-
|
-
|
|||||||
$
|
17,407
|
$
|
57,149
|
$
|
(44,694
|
)
|
||||
Income
(loss) from continuing operations:
|
||||||||||
Simulation
and Training Division
|
$
|
2,116,299
|
$
|
3,170,091
|
$
|
1,541,775
|
||||
Armor
Division
|
(1,812,346
|
)
|
(15,678,786
|
)
|
(222,485
|
)
|
||||
Battery
and Power Systems Division
|
(964,304
|
)
|
(869,178
|
)
|
(661,166
|
)
|
||||
All
Other
|
(14,908,808
|
)
|
(10,545,538
|
)
|
(9,700,437
|
)
|
||||
$
|
(15,569,159
|
)
|
$
|
(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
|
$
|
2,116,299
|
$
|
3,170,091
|
$
|
1,541,775
|
||||
Armor
Division
|
(1,812,346
|
)
|
(15,678,786
|
)
|
(222,485
|
)
|
||||
Battery
and Power Systems Division
|
(964,304
|
)
|
(989,178
|
)
|
(661,166
|
)
|
||||
All
Other
|
(14,908,808
|
)
|
(10,545,538
|
)
|
(9,700,437
|
)
|
||||
$
|
(15,569,159
|
)
|
$
|
(24,043,411
|
)
|
$
|
(9,042,313
|
)
|
Ø |
IES
and FAAC recognized revenues from the sale of interactive use-of-force
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.
|
Ø |
EFL
recognized revenues from the sale of water-activated battery (WAB)
lifejacket lights.
|
Ø |
Decreased
revenues from our Simulation and Training Division ($4.9 million
less in
2006 versus 2005).
|
Ø |
Decreased
revenues from our Battery and Power Systems Division, particularly
Epsilor
($1.3 million less in 2006 versus
2005).
|
Ø |
Decreases
in certain general and administrative expenses in comparison to 2005,
such
as auditing, legal expenses and travel expenses, as a result of
cost-cutting programs implemented by management, which resulted in
a
decrease of $1.3 million over general and administrative expenses
in
2005.
|
Ø |
Decrease
in general and administrative expenses related to FAAC, primarily
payroll,
legal and other expenses, which resulted in a decrease of $493,000
over
general and administrative expenses in
2005.
|
Ø |
Decrease
in general and administrative expenses related to IES as a result
of the
consolidation of IES and FAAC operations, which resulted in a decrease
of
$398,000 over general and administrative expenses in
2005.
|
Ø |
Decrease
in general and administrative expenses related to AoA due to decrease
in
operations, employees and the relocation of AoA to Alabama, which
resulted
in a decrease of $970,000 over general and administrative expenses
in
2005.
|
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).
|
Payment
Due by Period
|
||||||||||||||||||||
Contractual Obligations |
Total
|
Less
Than 1 Year
|
1-3
Years
|
3-5
Years
|
More
than 5 Years
|
|||||||||||||||
Long-term
debt
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
||||||||||
Short-term
debt*
|
$
|
6,079,637
|
$
|
6,079,637
|
$
|
-
|
$
|
-
|
$
|
-
|
||||||||||
Promissory
note due to purchase of subsidiaries
|
$
|
454,350
|
$
|
302,900
|
$
|
151,450
|
$
|
-
|
$
|
-
|
||||||||||
Operating
lease obligations**
|
$
|
793,422
|
$
|
621,678
|
$
|
166,282
|
$
|
5,462
|
$
|
-
|
||||||||||
Capital
lease obligations
|
$
|
269,756
|
$
|
79,623
|
$
|
138,811
|
$
|
51,322
|
$
|
-
|
||||||||||
Severance
obligations***
|
$
|
4,039,049
|
$
|
-
|
$
|
4,039,049
|
$
|
-
|
$
|
-
|
* Includes
convertible securities in the gross amount of $2,583,629. Also
includes $3,496,008 in short-term bank debt.
|
|||||||||||||||||||||||||||||||||||
** Includes
operating lease obligations related to rent.
|
|||||||||||||||||||||||||||||||||||
*** Includes
obligations related to special severance pay arrangements in addition
to
the severance amounts due to certain employees pursuant to Israeli
severance pay law (the amount shown in the table above with payment
due
during the next 1-3 years might not be paid in the period stated
in the
event the employment agreements to which such severance obligations
relate
are extended).
|
ITEM
8.
|
FINANCIAL
STATEMENTS AND SUPPLEMENTARY
DATA
|
Page
|
||
Consolidated
Financial Statements
|
||
Report
of Independent Registered Public Accounting Firm
|
F-1
|
|
Consolidated
Balance Sheets
|
F-7
|
|
Consolidated
Statements of Operations
|
F-9
|
|
Statements
of Changes in Stockholders’ Equity
|
F-10
|
|
Consolidated
Statements of Cash Flows
|
F-13
|
|
Notes
to Consolidated Financial Statements
|
F-16
|
|
Supplementary
Financial Data
|
|
|
Quarterly
Financial Data (unaudited) for the two years ended December 31,
2006
|
F-64
|
|
Financial
Statement Schedule
|
|
|
Schedule
II - Valuation and Qualifying Accounts
|
F-65
|
ITEM
9.
|
CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
|
ITEM
9A.
|
CONTROLS
AND PROCEDURES
|
ITEM
9B.
|
OTHER
INFORMATION
|
ITEM
10.
|
DIRECTORS
AND EXECUTIVE OFFICERS OF THE
REGISTRANT
|
Name
|
Age
|
Position
|
||
Robert
S. Ehrlich
|
68
|
Chairman
of the Board and Chief Executive Officer
|
||
Steven
Esses
|
43
|
President,
Chief Operating Officer and Director
|
||
Thomas
J. Paup
|
58
|
Vice
President - Finance and Chief Financial Officer
|
||
Dr.
Jay M. Eastman
|
58
|
Director
|
||
Jack
E. Rosenfeld
|
68
|
Director
|
||
Lawrence
M. Miller
|
60
|
Director
|
||
Edward
J. Borey
|
56
|
Director
|
||
Seymour
Jones
|
75
|
Director
|
Name
|
Fees
Earned or Paid in Cash
($)
|
Option
Awards(1)
($)
|
Total
($)
|
|||||||
Dr.
Jay M. Eastman
|
$
|
27,375
|
$
|
30,157
|
(2)
|
$
|
57,532
|
|||
Jack
E. Rosenfeld
|
$
|
42,000
|
$
|
30,157
|
(3)
|
$
|
72,157
|
|||
Lawrence
M. Miller
|
$
|
40,500
|
$
|
30,157
|
(4)
|
$
|
70,657
|
|||
Edward
J. Borey
|
$
|
33,375
|
$
|
20,074
|
(5)
|
$
|
53,449
|
|||
Seymour
Jones
|
$
|
25,125
|
$
|
1,705
|
(6)
|
$
|
26,830
|
(1)
|
This
column reflects the compensation cost for the year ended December 31,
2006 of each director’s options, calculated in accordance with SFAS 123R
and using a Black-Scholes valuation model. See Note 2.r. of the Notes
to Consolidated Financial Statements for a discussion of the assumptions
we made in determining the grant date fair value and compensation
costs of
our equity awards.
|
|||||||
(2)
|
As
of December 31, 2006, Dr. Eastman held options to purchase an
aggregate of 13,570 shares of our common stock, 8,570 shares of
which were vested as of that same
date.
|
(3)
|
As
of December 31, 2006, Mr. Rosenfeld held options to purchase an
aggregate of 13,570 shares of our common stock, 8,570 shares of
which were vested as of that same date.
|
|||||||
(4)
|
As
of December 31, 2006, Mr. Miller held options to purchase an
aggregate of 13,570 shares of our common stock, 8,570 shares of
which were vested as of that same date.
|
|||||||
(5)
|
As
of December 31, 2006, Mr. Borey held options to purchase an
aggregate of 10,000 shares of our common stock, 5,000 shares of
which were vested as of that same date.
|
|||||||
(6)
|
As
of December 31, 2006, Prof. Jones held options to purchase an
aggregate of 2,500 shares of our common stock, none of which was
vested as of that same date.
|
Name
|
Age
|
Position
|
||
Jonathan
Whartman
|
52
|
Senior
Vice President
|
||
Yaakov
Har-Oz
|
49
|
Senior
Vice President, General Counsel and Secretary
|
||
William
Graham
|
47
|
Vice
President of Government Affairs
|
||
Norman
Johnson
|
54
|
Controller
|
||
Dean
Krutty
|
41
|
President,
Simulation Division
|
||
Yosef
Bar
|
64
|
General
Manager, MDT Protective Industries
|
||
Ronen
Badichi
|
41
|
General
Manager, Epsilor Electronics Industries, Ltd.
|
||
Graydon
Hansen
|
48
|
President,
Electric Fuel Battery Corporation
|
Ø |
Robert
S. Ehrlich, our Chairman and Chief Executive
Officer;
|
Ø |
Steven
Esses, our President and Chief Operating Officer;
|
Ø |
Thomas
J. Paup, our Vice President - Finance and Chief Financial Officer;
and
|
Ø |
Avihai
Shen, our former Vice President - Finance and Chief Financial Officer,
who
ceased to act as our Chief Financial Officer in February 2006, and
whose
employment with us terminated on March 31,
2006.
|
Ø |
cash
salary;
|
Ø |
bonus,
some of which is paid in cash in the year in which it is earned and
some
of which is accrued in the year in which it is earned but is paid
in cash
in a subsequent year;
|
Ø |
stock
options; and
|
Ø |
grants
of restricted stock, where (i) the stock vests over a period of time
or
pursuant to the attainment of set goals, (ii) sale of such stock
is
prohibited for a period of time, and (iii) with respect to certain
grants
of restricted stock, unvested stock is forfeited to us should the
executive officer’s employment be terminated under certain
circumstances.
|
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;
|
Ø |
accruals
(but not cash payments) in respect of contractual termination compensation
in excess of the Israeli statutory
minimum;
|
Ø |
the
use of an automobile and cash reimbursement for certain Israeli taxes
on
the use of that automobile that are paid by our Israeli executive
officers
and reimbursed by us in accordance with Israeli tax
regulations;
|
Ø |
annual
statutory holiday pay; and
|
Ø |
redemption
of all unused vacation days and up to a maximum of 30 unused sick
days.
|
Name
of Executive Officer
|
Title
|
Minimum
Bonus
|
Maximum
Bonus
|
|||
Robert
S. Ehrlich
|
Chairman
and Chief Executive Officer
|
35%
of annual base salary
|
75%
of annual base salary
|
|||
Steven
Esses
|
President
and Chief Operating Officer
|
20%
of annual base salary
|
75%
of annual base salary
|
|||
Thomas
J. Paup
|
Vice
President - Finance and Chief Financial Officer
|
None
|
50%
of annual base salary
|
|||
Avihai
Shen
|
Former
Vice President - Finance and Chief Financial Officer
|
None
|
None
|
Name
and Principal Position
|
Year
|
Salary
($)
|
Bonus
($)
|
Stock
Awards(2)
($)
|
Option
Awards(3)
($)
|
Non-Equity
Incentive
Plan
Compensation
($)
|
All
Other
Compensation
($)
|
Total
($)
|
|||||||||||||||||
Robert
S. Ehrlich
|
2006
|
$
|
312,173
|
$
|
105,000
|
$
|
205,507
|
$
|
-
|
$
|
-
|
$
|
483,331(4
|
)
|
$
|
1,106,011
|
|||||||||
Chairman,
Chief Executive
|
2005
|
$
|
275,362
|
$
|
49,875
|
$
|
309,425
|
$
|
-
|
$
|
-
|
$
|
132,753(5
|
)
|
$
|
767,415
|
|||||||||
Officer
and a director
|
2004
|
$
|
275,907
|
$
|
99,750
|
$
|
103,918
|
$
|
-
|
$
|
75,250
|
$
|
731,372(6
|
)
|
$
|
1,286,197
|
|||||||||
Thomas
J. Paup
|
2006
|
$
|
135,000
|
$
|
20,000
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
2,596(7
|
)
|
$
|
157,956
|
|||||||||
Vice
President - Finance and
|
2005
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
||||||||||
Chief
Financial Officer
|
2004
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
||||||||||
Steven
Esses
|
2006
|
$
|
62,211(8
|
)
|
$
|
116,000(9
|
)
|
$
|
65,421
|
$
|
-
|
$
|
-
|
$
|
252,929(10
|
)
|
$
|
496,561
|
|||||||
President,
Chief Operating
|
2005
|
$
|
56,722(11
|
)
|
$
|
112,000(12
|
)
|
$
|
110,550
|
$
|
-
|
$
|
-
|
$
|
277,123(13
|
)
|
$
|
556,395
|
|||||||
Officer
and a director
|
2004
|
$
|
65,506(14
|
)
|
$
|
106,000(15
|
)
|
$
|
45,129
|
$
|
-
|
$
|
-
|
$
|
54,088(16
|
)
|
$
|
270,723
|
|||||||
Avihai
Shen*
|
2006
|
$
|
41,601
|
$
|
0
|
$
|
(27,585(17
|
)
|
$
|
-
|
$
|
-
|
$
|
15,567(18
|
)
|
$
|
29,583
|
||||||||
Former
Vice President - Finance
|
2005
|
$
|
157,013
|
$
|
0
|
$
|
25,950
|
$
|
-
|
$
|
-
|
$
|
140,965(19
|
)
|
$
|
327,928
|
|||||||||
and
Chief Financial Officer
|
2004
|
$
|
155,845
|
$
|
97,000
|
$
|
1,635
|
$
|
-
|
$
|
-
|
$
|
68,743(20
|
)
|
$
|
323,223
|
*
|
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)
|
Reflects
the value of restricted stock awards granted to our executive officers
based on the compensation cost of the award computed in accordance
with
Financial Accounting Standards Board Statement of Financial Accounting
Standards No. 123 (revised 2004), Share-Based Payment, which we refer
to as SFAS 123R, but excluding any impact of assumed forfeiture rates.
See
Note 2.r. of the Notes to Consolidated Financial Statements. The
number of shares of restricted stock received by our executive officers
pursuant to such awards in 2006, vesting in equal amounts over three
years, was as follows: Mr. Ehrlich, 320,000; Mr. Paup, 85,000;
Mr. Esses, 160,000. The number of shares of restricted stock received
by our executive officers pursuant to such awards in 2004, vesting
in
equal amounts over three years, was as follows: Mr. Ehrlich, 24,285;
Mr. Esses, 11,785; Mr. Shen, 2,142. There were no such awards in
2005.
|
(3)
|
No
options were issued in 2006. Amounts for 2005 and 2004 do not reflect
compensation cost calculated in accordance with SFAS 123R since SFAS
123R
had not been adopted as at such date. See Note 2.r. of the Notes to
Consolidated Financial Statements for a discussion of the assumptions
we
made in determining the grant date fair value and compensation costs
of
our equity awards.
|
(4)
|
Of
this amount, $151,760
represents payments to Israeli pension and education funds; $218,907
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; $26,689 represents the increase
of the
accrual for vacation days redeemable by Mr. Ehrlich; and $21,217
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.
|
(5)
|
Of
this amount, $45,362
represents payments to Israeli pension and education funds; $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;
$(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; $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, $548,477
represents payments to Israeli pension and education funds, $500,000
of
which 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);
$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)
|
Represents
the increase in our accrual for Mr. Paup for accrued but unused vacation
days.
|
(8)
|
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.
|
(9)
|
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.
|
(10)
|
Of
this amount, $112,627
represents payments to Israeli pension and education funds; and $86,707
represents the increase of our accrual for severance pay that would
be
payable to Mr. Esses if we were to terminate his
employment.
|
(11)
|
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.
|
(12)
|
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.
|
(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)
|
Of
this amount,
$12,116
represents payments
to Israeli pension and education funds; and $3,759
represents
the increase of the accrual for vacation days redeemable by Mr.
Esses.
|
(17)
|
Represents
recapture of expenses in respect of restricted stock that was returned
to
us upon termination of Mr. Shen’s employment.
|
(18)
|
Of
this amount, $3,369 represents payment to Mr. Shen for redemption
of
accrued but unused vacation days.
|
(19)
|
Of
this amount, $26,889
represents payments
to Israeli pension and education funds; $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;
$(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; and $35,131 represents payment to Mr. Shen
for
redemption of accrued but unused vacation days.
Mr. Shen left our employ effective March 31, 2006, and these amounts
were
accordingly paid to him.
|
(20)
|
Of
this amount, $26,889
represents payments
to Israeli pension and education funds; $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.
|
Name
of Borrower
|
Date
of Loan
|
Original
Principal
Amount
of Loan
|
Amount
Outstanding
as
of 12/31/06
|
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
|
$
|
766,027
|
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
|
$
|
42,818
|
Twenty-five-year
non-recourse loan to purchase our stock, secured by the shares of
stock
purchased.
|
Performance
Period
|
Estimate
Future Payouts Under
Equity
Incentive Plan Awards(1)
|
All
Other
Stock
Awards:
Number
of
Shares
of
|
||||||||||||||||||||
Name
|
Grant
Date
|
Determining
Release
of
Restrictions
|
Threshold
(#)
|
Target
1
(#)
|
Target
2
(#)
|
Maximum
(#)
|
Stock(2) (#) |
|||||||||||||||
Robert
S. Ehrlich
|
12/19/06
|
(2)
|
|
-
|
-
|
-
|
-
|
80,000
|
||||||||||||||
12/19/06
|
01/01/07
to 12/31/07
|
40,000
|
32,000
|
8,000
|
80,000
|
-
|
||||||||||||||||
12/19/06
|
01/01/08
to 12/31/08
|
(3
|
)
|
(3
|
)
|
(3
|
)
|
80,000
|
-
|
|||||||||||||
12/19/06
|
01/01/09
to 12/31/09
|
(3
|
)
|
(3
|
)
|
(3
|
)
|
80,000
|
-
|
|||||||||||||
Thomas
J. Paup
|
12/19/06
|
(2)
|
|
-
|
-
|
-
|
-
|
21,250
|
||||||||||||||
12/19/06
|
01/01/07
to 12/31/07
|
10,625
|
8,500
|
2,125
|
21,250
|
-
|
||||||||||||||||
12/19/06
|
01/01/08
to 12/31/08
|
(3
|
)
|
(3
|
)
|
(3
|
)
|
21,250
|
-
|
|||||||||||||
12/19/06
|
01/01/09
to 12/31/09
|
(3
|
)
|
(3
|
)
|
(3
|
)
|
21,250
|
-
|
|||||||||||||
Steven
Esses
|
12/19/06
|
(2)
|
|
-
|
-
|
-
|
-
|
40,000
|
||||||||||||||
12/19/06
|
01/01/07
to 12/31/07
|
20,000
|
16,000
|
4,000
|
40,000
|
-
|
||||||||||||||||
12/19/06
|
01/01/08
to 12/31/08
|
(3
|
)
|
(3
|
)
|
(3
|
)
|
40,000
|
-
|
|||||||||||||
12/19/06
|
01/01/09
to 12/31/09
|
(3
|
)
|
(3
|
)
|
(3
|
)
|
40,000
|
-
|
(1)
|
The
threshold number of restricted shares vests based solely based
on
continued employment during the performance period. If 90% of the
EBITDA
performance goal is met for the applicable performance period,
the first
target number of shares of restricted stock will be freed of their
restrictions. If 90% of the revenue performance goal is met for
the
applicable performance period, the second target number of shares
of
restricted stock will be freed of their restrictions. If 90% of
both the
EBITDA and the revenue performance goals are met for the applicable
performance period, the maximum number of shares of restricted
stock will
be freed of their restrictions. Performance-based shares that do
not vest
in one year roll over to the following year and become part of
the
following year’s performance-based pool.
|
(2)
|
Removal
of the restrictions on these shares was made contingent on the
executive
officer renouncing certain of his outstanding stock options. This
occurred
in February 2007.
|
(3)
|
Performance
criteria for these shares have not yet been set; hence, there are
no
threshold or target levels
listed.
|
Name
|
Number
of Shares
Acquired
on Vesting
(#)
|
Value
Realized
on
Vesting(1)
($)
|
|||||
Robert
S. Ehrlich
|
31,428
|
$
|
95,855
|
||||
Steven
Esses
|
11,785
|
$
|
35,944
|
(1)
|
Reflects
the aggregate market value of the shares of restricted stock determined
based on a per share price of $3.05, the closing price of our common
stock
on the Nasdaq Global Market on December 29, 2006, which was the last
trading day of 2006.
|
Option
Awards
|
Stock
Awards
|
||||||||||||||||||||||||
|
Equity
Incentive
Plan
Awards
|
||||||||||||||||||||||||
Number
of
Securities
Underlying
Unexercised
Options(1)
(#)
|
Option
Exercise
Price
|
Option
Expiration
|
Number
of
Shares
that
Have
Not
Vested
|
Market
Value
of
Shares that
Have
Not
Vested(2)
|
Number
of
Unearned
Shares
that
Have
Not
Vested
|
Market
Value
of
Unearned
Shares
that
Have
Not
Vested(2)
|
|||||||||||||||||||
Name
|
Exercisable
|
Unexercisable
|
($)
|
Date
|
(#)
|
($)
|
(#)
|
($)
|
|||||||||||||||||
Robert
S. Ehrlich
|
3,571(3
|
)
|
0
|
$
|
5.46
|
08/09/09
|
80,000
|
$
|
244,000
|
240,000
|
$
|
732,000
|
|||||||||||||
2,036(3
|
)
|
0
|
$
|
5.46
|
10/31/09
|
-
|
-
|
-
|
-
|
||||||||||||||||
107,143
|
0
|
$
|
6.44
|
12/29/10
|
-
|
-
|
-
|
-
|
|||||||||||||||||
11,857(3
|
)
|
0
|
$
|
5.46
|
08/24/11
|
-
|
-
|
-
|
-
|
||||||||||||||||
3,428(3
|
)
|
0
|
$
|
5.46
|
10/23/11
|
-
|
-
|
-
|
-
|
||||||||||||||||
5,179(3
|
)
|
0
|
$
|
5.46
|
12/31/11
|
-
|
-
|
-
|
-
|
||||||||||||||||
4,687(3
|
)
|
0
|
$
|
5.46
|
04/01/12
|
-
|
-
|
-
|
-
|
||||||||||||||||
1,116(3
|
)
|
0
|
$
|
5.46
|
07/01/12
|
-
|
-
|
-
|
-
|
||||||||||||||||
4,688(3
|
)
|
0
|
$
|
5.46
|
10/01/12
|
-
|
-
|
-
|
-
|
||||||||||||||||
6,295(3
|
)
|
0
|
$
|
5.46
|
01/01/13
|
-
|
-
|
-
|
-
|
||||||||||||||||
Thomas
J. Paup
|
3,571(3
|
)
|
0
|
$
|
5.18
|
12/31/10
|
21,250
|
$
|
64,813
|
63,750
|
$
|
194,438
|
|||||||||||||
Steven
Esses
|
32,153(3
|
)
|
0
|
$
|
5.46
|
02/24/08
|
40,000
|
$
|
122,000
|
120,000
|
$
|
366,000
|
|||||||||||||
21,428(3
|
)
|
0
|
$
|
5.46
|
12/31/08
|
-
|
-
|
-
|
-
|
||||||||||||||||
8,204(3
|
)
|
0
|
$
|
5.46
|
12/29/10
|
-
|
-
|
-
|
-
|
||||||||||||||||
714
|
0
|
$
|
8.54
|
07/22/12
|
-
|
-
|
-
|
-
|
|||||||||||||||||
1,786
|
0
|
$
|
11.62
|
07/22/12
|
-
|
-
|
-
|
-
|
|||||||||||||||||
2,500(3
|
)
|
0
|
$
|
5.46
|
01/31/13
|
-
|
-
|
-
|
-
|
||||||||||||||||
7,143(3
|
)
|
0
|
$
|
5.46
|
07/09/13
|
-
|
-
|
-
|
-
|
||||||||||||||||
Avihai
Shen*
|
891
|
0
|
$
|
8.54
|
03/31/08
|
-
|
-
|
-
|
-
|
||||||||||||||||
582
|
0
|
$
|
10.22
|
10/15/14
|
-
|
-
|
-
|
-
|
|||||||||||||||||
582
|
0
|
$
|
11.90
|
10/15/14
|
-
|
-
|
-
|
-
|
|||||||||||||||||
194
|
0
|
$
|
18.20
|
10/15/14
|
-
|
-
|
-
|
-
|
|||||||||||||||||
582
|
0
|
$
|
19.88
|
10/15/14
|
-
|
-
|
-
|
-
|
*
|
Mr.
Shen ceased to act as our Chief Financial Officer in February 2006,
and
his employment with us terminated on March 31, 2006.
|
||||||||||||||||
(1)
|
All
options in the table are vested.
|
||||||||||||||||
(2)
|
Reflects
the aggregate market value of the shares of restricted stock determined
based on a per share price of $3.05, the closing price of our common
stock
on the Nasdaq Global Market on December 29, 2006, which was the last
trading day of 2006.
|
||||||||||||||||
(3)
|
These
options were renounced and abandoned by the named executive officer
in
February 2007.
|
Ø |
$81,884,
representing statutory severance under the Israeli
law;
|
Ø |
$111,568,
representing additional severance in the amount of (1) $98,733, which
was
7.9 months’ salary at the annual salary rate of $150,000 per year, and (2)
$12,835, which is the value of 7.9 months’ of agreed benefits applicable
to an annual salary rate of $150,000 per year;
and
|
Ø |
Payment
in respect of accrued but unused vacation through the date of
termination.
|
Payments
and Benefits
|
Non-
Renewal(1)
|
Death
or
Disability(2)
|
Cause(3)
|
Good
Reason(4)
|
Change
of
Control(5)
|
Retirement(6)
|
Termination
at
Will(7)
|
Other
Employee
Termination(8)
|
|||||||||||||||||
Accrued
but unpaid:
|
|||||||||||||||||||||||||
Base
salary
|
$
|
25,000
|
$
|
25,000
|
$
|
25,000
|
$
|
25,000
|
$
|
25,000
|
$
|
25,000
|
$
|
25,000
|
$
|
25,000
|
|||||||||
Bonus
|
6,960
|
6,960
|
6,960
|
6,960
|
6,960
|
6,960
|
6,960
|
6,960
|
|||||||||||||||||
Vacation
|
32,352
|
32,352
|
32,352
|
32,352
|
32,352
|
32,352
|
32,352
|
32,352
|
|||||||||||||||||
Recuperation
pay(9)
|
314
|
314
|
314
|
314
|
314
|
314
|
314
|
314
|
|||||||||||||||||
Benefits:
|
|||||||||||||||||||||||||
Manager’s
insurance(10)
|
3,958
|
3,958
|
3,958
|
3,958
|
3,958
|
3,958
|
3,958
|
3,958
|
|||||||||||||||||
Continuing
education fund(11)
|
1,875
|
1,875
|
1,875
|
1,875
|
1,875
|
1,875
|
1,875
|
1,875
|
|||||||||||||||||
Tax
gross-up on automobile
|
1,777
|
1,777
|
-
|
1,777
|
1,777
|
1,777
|
1,777
|
-
|
|||||||||||||||||
Contractual
severance
|
1,218,750
|
1,625,400
|
-
|
1,625,400
|
3,250,800
|
1,625,400
|
1,218,750
|
-
|
|||||||||||||||||
Statutory
severance(12)
|
407,163
|
407,163
|
-
|
407,163
|
407,163
|
407,163
|
407,163
|
-
|
|||||||||||||||||
Benefits:
|
|||||||||||||||||||||||||
Manager’s
insurance(10)
|
142,470
|
142,470
|
-
|
142,470
|
142,470
|
142,470
|
142,470
|
-
|
|||||||||||||||||
Vacation
|
81,818
|
81,818
|
-
|
81,818
|
81,818
|
81,818
|
81,818
|
-
|
|||||||||||||||||
Continuing
education fund(12)
|
67,500
|
67,500
|
-
|
67,500
|
67,500
|
67,500
|
67,500
|
-
|
|||||||||||||||||
Automobile(13)
|
42,857
|
42,857
|
-
|
42,857
|
42,857
|
42,857
|
42,857
|
-
|
|||||||||||||||||
Tax
gross-up(13)
|
57,858
|
57,858
|
-
|
57,858
|
57,858
|
57,858
|
57,858
|
-
|
|||||||||||||||||
TOTAL:
|
$
|
2,090,652
|
$
|
2,497,302
|
$
|
70,459
|
$
|
2,497,302
|
$
|
4,122,702
|
$
|
2,497,302
|
$
|
2,090,652
|
$
|
70,459
|
(1)
|
“Non-renewal”
is defined in Mr. Ehrlich’s employment agreement as a decision, made with
written notice of at least 120 days in advance of the effective date
of
such decision, by either us or Mr. Ehrlich not to renew Mr. Ehrlich’s
employment for an additional one-year term. Pursuant to the terms
of Mr.
Ehrlich’s employment agreement, in the absence of such notice, Mr.
Ehrlich’s employment agreement automatically
renews.
|
(2)
|
“Disability”
is defined in Mr. Ehrlich’s employment agreement as a physical or mental
infirmity which impairs the Mr. Ehrlich’s ability to substantially perform
his duties and which continues for a period of at least 180 consecutive
days.
|
(3)
|
“Cause”
is defined in Mr. Ehrlich’s employment agreement as (i) conviction
for fraud, crimes of moral turpitude or other conduct which reflects
on us
in a material and adverse manner; (ii) a willful failure to carry
out a
material directive of our Board of Directors, provided
that such directive concerned matters within the scope of Mr. Ehrlich’s
duties, would not give Mr. Ehrlich “Good Reason” to terminate his
agreement (see footnote 4 below) and was capable of being reasonably
and
lawfully performed; (iii) conviction in a court of competent jurisdiction
for embezzlement of our funds; and (iv) reckless or willful misconduct
that is materially harmful to us.
|
(4)
|
“Good
Reason” is defined in Mr. Ehrlich’s employment agreement as (i) a change
in Mr. Ehrlich’s status, title, position or responsibilities which, in Mr.
Ehrlich’s reasonable judgment, represents a reduction or demotion in his
status, title, position or responsibilities as in effect immediately
prior
thereto; (ii) a reduction in Mr. Ehrlich’s base salary; (iii) the failure
by us to continue in effect any material compensation or benefit
plan in
which Mr. Ehrlich is participating; (iv) the insolvency or the filing
(by
any party, including us) of a petition for the winding-up of us;
(v) any
material breach by us of any provision of Mr. Ehrlich’s employment
agreement; (vi) any purported termination of Mr. Ehrlich’s employment for
cause by us which does not comply with the terms of Mr. Ehrlich’s
employment agreement; and (vii) any movement of the location where
Mr.
Ehrlich is generally to render his services to us from the Jerusalem/Tel
Aviv area of Israel.
|
(5)
|
“Change
of Control” is defined in Mr. Ehrlich’s employment agreement as (i) the
acquisition (other than from us in any public offering or private
placement of equity securities) by any person or entity of beneficial
ownership of 20% or more of the combined voting power of our
then-outstanding voting securities; or (ii) individuals who, as of
January
1, 2000, were members of our Board of Directors (the “Original Board”),
together with individuals approved by a vote of at least ⅔ of the
individuals who were members of the Original Board and are then still
members of our Board, cease for any reason to constitute at least
⅓ of our
Board of us; or (iii) approval by our shareholders of a complete
winding-up or an agreement for the sale or other disposition of all
or
substantially all of our assets.
|
(6)
|
“Retirement”
is not defined in Mr. Ehrlich’s employment agreement; in view of Mr.
Ehrlich’s age at the time the employment agreement was negotiated and
entered into, the concept of retirement was subsumed into Termination
at
Will.
|
(7)
|
“Termination
at Will” is defined in Mr. Ehrlich’s employment agreement as Mr. Ehrlich
terminating his employment with us on written notice of at least
120 days
in advance of the effective date of such termination.
|
(8)
|
“Other
Employee Termination” means a termination by Mr. Ehrlich of his employment
without giving us the advance notice of 120 days needed to make such
a
termination qualify as a “Termination at Will.”
|
(9)
|
Pursuant
to Israeli law and our customary practice, we pay Mr. Ehrlich in
July of
each year the equivalent of ten days’ “recuperation pay” at the statutory
rate of NIS 318 (approximately $75) per day.
|
(10)
|
Payments
to managers’ insurance, a benefit customarily given to senior executives
in Israel, come to a total of 15.83% of base salary, consisting of
8.33%
for payments to a fund to secure payment of statutory severance
obligations, 5% for pension and 2.5% for disability. The managers’
insurance funds reflected in the table do not include the 8.33% payments
to a fund to secure payment of statutory severance obligations with
respect to amounts paid prior to December 29, 2006, which funds are
reflected in the table under the “Statutory severance”
heading.
|
(11)
|
Pursuant
to Israeli law, we must contribute an amount equal to 7.5% of Mr.
Ehrlich’s base salary to a continuing education fund, up to the
permissible tax-exempt salary ceiling according to the income tax
regulations in effect from time to time. At December 29, 2006, the
ceiling
then in effect was NIS 15,712 (approximately $3,720). In Mr. Ehrlich’s
case, we have customarily contributed to his continuing education
fund in
excess of the tax-exempt ceiling, and then reimbursed Mr. Ehrlich
for the
tax. The sums in the table reflect this additional contribution and
the
resultant tax reimbursement.
|
(12)
|
Under
Israeli law, employees terminated other than for cause receive severance
in the amount of one month’s base salary for each year of work, at their
salary rate at the date of termination.
|
(13)
|
Under
the terms of Mr. Ehrlich’s employment agreement, we must under certain
circumstances provide him with the use of the company car that he
was
driving at the time of termination for a period of time after termination
and pay the tax on the benefit thereon. The taxable value of this
use is
reflected in the table.
|
Payments
and Benefits
|
Non-
Renewal(1)
|
Death
or
Disability(2)
|
Cause(3)
|
Good
Reason(4)
|
Change
of
Control(5)
|
Change
of
Location(6)
|
Retirement(7)
|
Early
Retirement(8)
|
Other
Employee
Termination(9)
|
|||||||||||||||||||
Accrued
but unpaid(10)
|
||||||||||||||||||||||||||||
Base
salary
|
$
|
5,000
|
$
|
5,000
|
$
|
5,000
|
$
|
5,000
|
$
|
5,000
|
$
|
5,000
|
$
|
5,000
|
$
|
5,000
|
$
|
5,000
|
||||||||||
Vacation
|
39,068
|
39,068
|
39,068
|
39,068
|
39,068
|
39,068
|
39,068
|
39,068
|
39,068
|
|||||||||||||||||||
Sick
leave(11)
|
17,455
|
17,455
|
-
|
17,455
|
17,455
|
17,455
|
17,455
|
17,455
|
-
|
|||||||||||||||||||
Recuperation
pay(12)
|
188
|
188
|
188
|
188
|
188
|
188
|
188
|
188
|
188
|
|||||||||||||||||||
Benefits:
|
||||||||||||||||||||||||||||
Manager’s
insurance(13)
|
792
|
792
|
792
|
792
|
792
|
792
|
792
|
792
|
792
|
|||||||||||||||||||
Continuing
education fund(14)
|
1,335
|
1,335
|
1,335
|
1,335
|
1,335
|
1,335
|
1,335
|
1,335
|
1,335
|
|||||||||||||||||||
Tax
gross-up on automobile
|
1,912
|
1,912
|
-
|
1,912
|
1,912
|
1,912
|
1,912
|
1,912
|
-
|
|||||||||||||||||||
Contractual
severance
|
330,000
|
330,000
|
-
|
330,000
|
660,000
|
330,000
|
330,000
|
330,000
|
-
|
|||||||||||||||||||
Statutory
severance(15)
|
16,198
|
16,198
|
-
|
16,198
|
16,198
|
16,198
|
16,198
|
16,198
|
-
|
|||||||||||||||||||
Benefits:
|
||||||||||||||||||||||||||||
Manager’s
insurance(13)
|
9,498
|
9,498
|
-
|
9,498
|
9,498
|
9,498
|
9,498
|
9,498
|
-
|
|||||||||||||||||||
Vacation
|
5,455
|
5,455
|
-
|
5,455
|
5,455
|
5,455
|
5,455
|
5,455
|
-
|
|||||||||||||||||||
Continuing
education fund(14)
|
16,020
|
16,020
|
-
|
16,020
|
16,020
|
16,020
|
16,020
|
16,020
|
-
|
|||||||||||||||||||
Automobile(16)
|
10,128
|
10,128
|
-
|
10,128
|
10,128
|
10,128
|
10,128
|
10,128
|
-
|
|||||||||||||||||||
Tax
gross-up(16)
|
12,440
|
12,440
|
-
|
12,440
|
12,440
|
12,440
|
12,440
|
12,440
|
-
|
|||||||||||||||||||
TOTAL:
|
$
|
465,489
|
$
|
465,489
|
$
|
46,383
|
$
|
465,489
|
$
|
795,489
|
$
|
465,489
|
$
|
465,489
|
$
|
465,489
|
$
|
46,383
|
(1)
|
“Non-renewal”
is defined in Mr. Esses’s employment agreement as a decision, made with
written notice of at least 90 days in advance of the effective date
of
such decision, by either us or Mr. Esses not to renew Mr. Esses’s
employment for an additional two-year term. Pursuant to the terms
of Mr.
Esses’s employment agreement, in the absence of such notice, Mr. Esses’s
employment agreement automatically
renews.
|
(2)
|
“Disability”
is defined in Mr. Esses’s employment agreement as a physical or mental
infirmity which impairs the Mr. Esses’s ability to substantially perform
his duties and which continues for a period of at least 180 consecutive
days.
|
|
(3)
|
“Cause”
is defined in Mr. Esses’s employment agreement as (i) conviction for
fraud, crimes of moral turpitude or other conduct which reflects
on us in
a material and adverse manner; (ii) a willful failure to carry out
a
material directive of our Chief Executive Officer, provided
that such directive concerned matters within the scope of Mr. Esses’s
duties, would not give Mr. Esses “Good Reason” to terminate his agreement
(see footnote 4 below) and was capable of being reasonably and lawfully
performed; (iii) conviction in a court of competent jurisdiction
for
embezzlement of our funds; and (iv) reckless or willful misconduct
that is
materially harmful to us.
|
|
(4)
|
“Good
Reason” is defined in Mr. Esses’s employment agreement as (i) a change in
(a) Mr. Esses’s status, title, position or responsibilities which, in Mr.
Esses’s reasonable judgment, represents a reduction or demotion in his
status, title, position or responsibilities as in effect immediately
prior
thereto, or (b) in the primary location from which Mr. Esses shall
have
conducted his business activities during the 60 days prior to such
change;
or (ii) a reduction in Mr. Esses’s base salary; (iii) the failure by us to
continue in effect any material compensation or benefit plan in which
Mr.
Esses is participating; (iv) the insolvency or the filing (by any
party,
including us) of a petition for the winding-up of us; (v) any material
breach by us of any provision of Mr. Esses’s employment agreement; and
(vi) any purported termination of Mr. Esses’s employment for cause by us
which does not comply with the terms of Mr. Esses’s employment
agreement.
|
|
(5)
|
“Change
of Control” is defined in Mr. Esses’s employment agreement as (i) the
acquisition (other than from us in any public offering or private
placement of equity securities) by any person or entity of beneficial
ownership of 30% or more of the combined voting power of our
then-outstanding voting securities; or (ii) individuals who, as of
January
1, 2000, were members of our Board of Directors (the “Original Board”),
together with individuals approved by a vote of at least ⅔ of the
individuals who were members of the Original Board and are then still
members of our Board, cease for any reason to constitute at least
⅓ of our
Board of us; or (iii) approval by our shareholders of a complete
winding-up or an agreement for the sale or other disposition of all
or
substantially all of our assets.
|
|
(6)
|
“Change
of location” is defined in Mr. Esses’s employment agreement as a change in
the primary location from which Mr. Esses shall have conducted his
business activities during the 60 days prior to such
change.
|
|
(7)
|
“Retirement”
is defined as Mr. Esses terminating his employment with us at age
65 or
older on at least 150 days’ prior notice.
|
|
(8)
|
“Early
Retirement” is defined as Mr. Esses terminating his employment with us at
age 55 or older (up to age 65) on at least 150 days’ prior
notice.
|
|
(9)
|
Any
termination by Mr. Esses of his employment with us that does not
fit into
any of the prior categories, including but not limited to Mr. Esses
terminating his employment with us, with or without notice, other
than at
the end of an employment term or renewal thereof, in circumstances
that do
not fit into any of the prior categories.
|
|
(10)
|
Does
not include a total of $12,800 in accrued but unpaid consulting fees
due
at December 29, 2006 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)
|
Limited
to an aggregate of 30 days.
|
|
(12)
|
Pursuant
to Israeli law and our customary practice, we pay Mr. Esses in July
of
each year the equivalent of six days’ “recuperation pay” at the statutory
rate of NIS 318 (approximately $75) per day.
|
|
(13)
|
Payments
to managers’ insurance, a benefit customarily given to senior executives
in Israel, come to a total of 15.83% of base salary, consisting of
8.33%
for payments to a fund to secure payment of statutory severance
obligations, 5% for pension and 2.5% for disability. The managers’
insurance funds reflected in the table do not include the 8.33% payments
to a fund to secure payment of statutory severance obligations with
respect to amounts paid prior to December 29, 2006, which funds are
reflected in the table under the “Statutory severance”
heading.
|
|
(14)
|
Pursuant
to Israeli law, we must contribute an amount equal to 7.5% of Mr.
Esses’s
base salary to a continuing education fund, up to the permissible
tax-exempt salary ceiling according to the income tax regulations
in
effect from time to time. At December 29, 2006, the ceiling then
in effect
was NIS 15,712 (approximately $3,720). In Mr. Esses’s case, we have
customarily contributed to his continuing education fund in excess
of the
tax-exempt ceiling, and then reimbursed Mr. Esses for the tax. The
sums in
the table reflect this additional contribution and the resultant
tax
reimbursement.
|
|
(15)
|
Under
Israeli law, employees terminated other than for cause receive severance
in the amount of one month’s base salary for each year of work, at their
salary rate at the date of termination.
|
|
(16)
|
Under
the terms of Mr. Esses’s employment agreement, we must under certain
circumstances provide him with the use of the company car that he
was
driving at the time of termination for a period of time after termination
and pay the tax on the benefit thereon. The taxable value of this
use is
reflected in the table.
|
ITEM
12.
|
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS
|
Name
and Address of Beneficial Owner(1)
|
Shares
Beneficially Owned(2)(3)
|
Percentage
of Total Shares
Outstanding(3)
|
|||||
Robert
S. Ehrlich
|
529,466(4
|
)
|
4.4
|
%
|
|||
Steven
Esses
|
245,713(5
|
)
|
2.0
|
%
|
|||
Thomas
J. Paup
|
88,571(6
|
)
|
*
|
||||
Dr.
Jay M. Eastman
|
8,571(7
|
)
|
*
|
||||
Jack
E. Rosenfeld
|
8,713(8
|
)
|
*
|
||||
Lawrence
M. Miller
|
32,693(9
|
)
|
*
|
||||
Edward
J. Borey
|
6,142(10
|
)
|
*
|
||||
Prof.
Seymour Jones
|
1,190(11
|
)
|
*
|
||||
All
of our directors and executive officers as a group (8
persons)
|
921,060(12
|
)
|
7.5
|
%
|
*
|
Less
than one percent.
|
|
(1)
|
The
address of each named beneficial owner is in care of Arotech Corporation,
1229 Oak Valley Drive, Ann Arbor, Michigan 48108.
|
|
(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 11,983,576 shares of common stock outstanding as of February 28,
2007.
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 exercised his options
for
shares of common stock.
|
|
(4)
|
Consists
of 44,154 shares held directly by Mr. Ehrlich, 320,000 shares of
unvested
restricted stock (in which shares Mr. Ehrlich disclaims beneficial
ownership), 3,571 shares held by Mr. Ehrlich’s wife (in which shares Mr.
Ehrlich disclaims beneficial ownership), 11,527 shares held in Mr.
Ehrlich’s pension plan, 214 shares held by children sharing the same
household (in which shares Mr. Ehrlich disclaims beneficial ownership),
and 150,000 shares issuable upon exercise of options exercisable
within 60
days of February 28, 2007.
|
|
(5)
|
Consists
of 11,785 shares held directly by Mr. Esses,
160,000 shares of unvested restricted stock (in which shares Mr.
Esses
disclaims beneficial ownership),
and 73,928 shares issuable upon exercise of options exercisable within
60
days of February 28, 2007.
|
|
(6)
|
Consists
of 85,000
shares of unvested restricted stock (in which shares Mr. Paup disclaims
beneficial ownership) and 3,571
shares issuable upon exercise of options exercisable within 60 days
of
February 28, 2007.
|
|
(7)
|
Consists
of 8,571 shares issuable upon exercise of options exercisable within
60
days of February 28, 2007.
|
|
(8)
|
Consists
of 142 shares owned directly by Mr. Rosenfeld and 8,571 shares issuable
upon exercise of options exercisable within 60 days of February 28,
2007.
|
(9)
|
Consists
of 23,271 shares held by Mr. Miller as trustee of the Rose Gross
Charitable Foundation, in which shares Mr. Miller disclaims beneficial
ownership, 851 shares held directly by Mr. Miller, and 8,571 shares
issuable upon exercise of options exercisable within 60 days of February
28, 2007.
|
|
(10)
|
Consists
of 1,142 shares owned directly by Mr. Borey and 5,000 shares issuable
upon
exercise of options exercisable within 60 days of February 28,
2007.
|
|
(11)
|
Consists
of 1,190 shares issuable upon exercise of options exercisable within
60
days of February 28, 2007.
|
|
(12)
|
Includes
259,402 shares issuable upon exercise of options exercisable within
60
days of February 28, 2007.
|
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)
|
1,535,829
|
$
|
3.33
|
310,174
|
(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.d. and 13.e. of the Notes to the Consolidated Financial
Statements.
|
ITEM
13.
|
CERTAIN
RELATIONSHIPS AND RELATED
TRANSACTIONS
|
ITEM
14.
|
PRINCIPAL
ACCOUNTING FEES AND
SERVICES
|
Ø |
Audit
Fees. Audit
fees billed or expected to be billed to us by BDO 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, 2006 and 2005 totaled
approximately $456,000 and $0, respectively.
|
Ø |
Audit-Related
Fees.
BDO billed us $15,000 and $0 for the fiscal years ended December
31, 2006
and 2005, respectively, for assurance and related services that are
reasonably related to the performance of the audit or review of our
financial statements.
|
Ø |
Tax
Fees.
BDO billed us $9,000 and $0 for the fiscal years ended December 31,
2006
and 2005, respectively, for tax services.
|
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.
|
ITEM
15.
|
EXHIBITS,
FINANCIAL STATEMENT
SCHEDULES
|
(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
|
||
(24)
|
3.1.4
|
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
|
||
(20)
|
10.3
|
Promissory
Note dated December 3, 1999, from Robert S. Ehrlich to
us
|
||
(20)
|
10.4
|
Promissory
Note dated February 9, 2000, from Robert S. Ehrlich to
us
|
||
(20)
|
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
|
Exhibit
No.
|
Description
|
(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
|
||
(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
stockholders 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 stockholders
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 stockholder
|
||
(13)
|
10.36
|
Securities
Purchase Agreement dated as of July 15, 2004, by and among us and
various
investors
|
Exhibit
No.
|
Description
|
†(14)
|
10.37
|
Consulting
Agreement, effective as of January 1, 2005, between us and Sampen
Corporation
|
||
†
**
|
10.38
|
Fourth
Amended and Restated Employment Agreement, dated April 16, 2007,
between
us, EFL and Robert S. Ehrlich
|
||
†(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
|
||
(22)
|
10.41.1
|
Conversion
Agreement dated April 7, 2006 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
|
||
(20)
|
10.49
|
Lease
dated February 10, 2006 between Arbor Development Company LLC and
FAAC
Incorporated
|
||
(21)
|
10.50
|
Form
of Warrant dated March 27, 2006
|
||
(23)
|
10.51
|
Form
of Warrant dated April 11, 2006
|
||
(14)
|
21.1
|
List
of Subsidiaries of the Registrant
|
||
**
|
23.1
|
Consent
of BDO Seidman, LLP
|
||
**
|
23.2
|
Consent
of Kost, Forer, Gabbay & Kasierer, a member of Ernst & Young
Global
|
||
**
|
23.3
|
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
|
||
†
|
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
|
||
(20)
|
Incorporated
by reference to our Annual Report on Form 10-K for the year ended
December
31, 2005
|
||
(21)
|
Incorporated
by reference to our Current Report on Form 8-K filed March 30,
2006
|
||
(22)
|
Incorporated
by reference to our Current Report on Form 8-K filed April 7,
2006
|
||
(23)
|
Incorporated
by reference to our Current Report on Form 8-K filed April 12,
2006
|
||
(24)
|
Incorporated
by reference to our Quarterly Report on Form 10-Q for the quarter
ended
June 30, 2006
|
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
|
April
16, 2007
|
||
Robert
S. Ehrlich
|
(Principal
Executive Officer
|
|||
/s/
Thomas J. Paup
|
Vice
President - Finance
|
April
16, 2007
|
||
Thomas
J. Paup
|
(Principal
Financial Officer)
|
|||
/s/
Norman Johnson
|
Controller
|
April
16, 2007
|
||
Norman
Johnson
|
(Principal
Accounting Officer)
|
|||
/s/
Steven Esses
|
President,
Chief Operating Officer
|
April
16, 2007
|
||
Steven
Esses
|
and
Director
|
|||
|
||||
/s/
Jay M. Eastman
|
Director
|
April
16, 2007
|
||
Dr.
Jay M. Eastman
|
||||
/s/
Lawrence M. Miller
|
Director
|
April
16, 2007
|
||
Lawrence
M. Miller
|
||||
/s/
Jack E. Rosenfeld
|
Director
|
April
16, 2007
|
||
Jack
E. Rosenfeld
|
||||
/s/
Edward J. Borey
|
Director
|
April
16, 2007
|
||
Edward
J. Borey
|
||||
/s/
Seymour Jones
|
Director
|
April
16, 2007
|
||
Seymour
Jones
|
BDO
Seidman, LLP
Accountants
and Consultants
|
99
Monroe Ave. NW, Suite 800
Grand
Rapids, MI 49503-2698
|
|
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
|
December
31,
|
|||||||
2006
|
2005
|
||||||
ASSETS
|
|||||||
CURRENT
ASSETS:
|
|||||||
Cash
and cash equivalents
|
$
|
2,368,872
|
$
|
6,150,652
|
|||
Restricted
collateral deposits and restricted held-to-maturity
securities
|
648,975
|
3,897,113
|
|||||
Escrow
receivable
|
1,479,826
|
-
|
|||||
Available
for sale marketable securities
|
41,166
|
35,984
|
|||||
Trade
receivables (net of allowance for doubtful accounts in the amounts
of
$159,000 and $176,000 as of December 31, 2006 and 2005, respectively)
|
7,780,965
|
11,747,876
|
|||||
Unbilled
receivables
|
6,902,533
|
5,228,504
|
|||||
Other
accounts receivable and prepaid expenses
|
1,134,622
|
2,264,331
|
|||||
Inventories
|
7,851,820
|
7,815,806
|
|||||
Total
current assets
|
28,208,779
|
37,140,266
|
|||||
SEVERANCE
PAY FUND
|
2,246,457
|
2,072,034
|
|||||
OTHER
LONG TERM RECEIVABLES
|
262,608
|
-
|
|||||
RESTRICTED
DEPOSITS
|
-
|
779,286
|
|||||
PROPERTY
AND EQUIPMENT, NET
|
3,740,593
|
4,252,931
|
|||||
INVESTMENT
IN AFFILIATED COMPANY
|
392,398
|
37,500
|
|||||
OTHER
INTANGIBLE ASSETS, NET
|
9,502,214
|
11,027,499
|
|||||
GOODWILL
|
30,715,225
|
29,559,157
|
|||||
$
|
75,068,274
|
$
|
84,868,673
|
December
31,
|
|||||||
2006
|
2005
|
||||||
LIABILITIES
AND STOCKHOLDERS’ EQUITY
|
|||||||
CURRENT
LIABILITIES:
|
|||||||
Trade
payables
|
$
|
2,808,131
|
$
|
5,830,820
|
|||
Other
accounts payable and accrued expenses
|
5,171,055
|
5,630,108
|
|||||
Current
portion of capitalized leases
|
55,263
|
-
|
|||||
Current
portion of promissory notes due to purchase of subsidiaries
|
302,900
|
603,764
|
|||||
Short
term bank credit and current portion of long term loans
|
3,496,008
|
2,036,977
|
|||||
Deferred
revenues
|
1,321,311
|
603,022
|
|||||
Convertible
debenture
|
2,583,629
|
11,492,238
|
|||||
Liabilities
of discontinued operations
|
-
|
120,000
|
|||||
Total
current liabilities
|
15,738,297
|
26,316,929
|
|||||
LONG
TERM LIABILITIES
|
|||||||
Accrued
severance pay
|
4,039,049
|
3,657,328
|
|||||
Long
term portion of promissory notes due to purchase of
subsidiaries
|
151,450
|
-
|
|||||
Long
term portion of capitalized leases
|
158,120
|
-
|
|||||
Convertible
debenture
|
-
|
8,590,233
|
|||||
Total
long-term liabilities
|
4,348,619
|
12,247,561
|
|||||
COMMITMENTS
AND CONTINGENT LIABILITIES (Note 11)
|
|||||||
MINORITY
INTEREST
|
21,520
|
38,927
|
|||||
STOCKHOLDERS’
EQUITY:
|
|||||||
Share
capital -
|
|||||||
Common
stock - $0.01 par value each;
|
|||||||
Authorized:
250,000,000 shares as of December 31, 2006 and 2005; Issued: 12,023,242
shares and 6,221,194 shares as of December 31, 2006 and 2005,
respectively; Outstanding - 11,983,576 shares and 6,181,527 shares
as of
December 31, 2006 and 2005, respectively
|
120,232
|
870,969
|
|||||
Preferred
shares - $0.01 par value each;
|
|||||||
Authorized:
1,000,000 shares as of December 31, 2006 and 2005; No shares issued
and
outstanding as of December 31, 2006 and 2005
|
-
|
-
|
|||||
Additional
paid-in capital
|
217,735,860
|
193,560,579
|
|||||
Accumulated
deficit
|
(158,566,123
|
)
|
(142,996,964
|
)
|
|||
Treasury
stock, at cost (common stock - 39,666 shares as of December 31, 2006
and
2005)
|
(3,537,106
|
)
|
(3,537,106
|
)
|
|||
Notes
receivable from stockholders
|
(1,304,179
|
)
|
(1,256,777
|
)
|
|||
Accumulated
other comprehensive income (loss)
|
511,154
|
(375,445
|
)
|
||||
Total
stockholders’ equity
|
54,959,838
|
46,265,256
|
|||||
$
|
75,068,274
|
$
|
84,868,673
|
Year
ended December 31,
|
||||||||||
2006
|
2005
|
2004
|
||||||||
Revenues
|
$
|
43,120,739
|
$
|
49,044,595
|
$
|
49,953,846
|
||||
Cost
of revenues
|
32,493,646
|
34,383,736
|
34,011,094
|
|||||||
Operating
expenses:
|
||||||||||
Research
and development, net
|
1,601,454
|
1,300,429
|
1,731,379
|
|||||||
Selling
and marketing expenses
|
3,714,322
|
4,471,590
|
4,922,217
|
|||||||
General
and administrative expenses
|
11,692,816
|
14,862,435
|
10,656,866
|
|||||||
Amortization
of intangible assets
|
1,853,442
|
3,070,748
|
2,494,556
|
|||||||
Impairment
of goodwill and other intangible assets
|
316,024
|
12,256,756
|
320,279
|
|||||||
Total
operating costs and expenses
|
19,178,058
|
35,961,958
|
20,125,297
|
|||||||
Operating
loss
|
(8,550,965
|
)
|
(21,301,099
|
)
|
(4,182,545
|
)
|
||||
Other
income
|
361,560
|
338,900
|
-
|
|||||||
Financial
expenses, net
|
(7,519,900
|
)
|
(2,705,689
|
)
|
(4,228,965
|
)
|
||||
Loss
before minorities interests in earnings of a subsidiaries and tax
expenses
|
(15,709,305
|
)
|
(23,667,888
|
)
|
(8,411,510
|
)
|
||||
Income
taxes
|
(232,159
|
)
|
(237,672
|
)
|
(586,109
|
)
|
||||
Gain
(loss) from affiliated company
|
354,898
|
(75,000
|
)
|
-
|
||||||
Minorities
interests in loss (earnings) of a subsidiaries
|
17,407
|
57,149
|
(44,694
|
)
|
||||||
Loss
from continuing operations
|
(15,569,159
|
)
|
(23,923,411
|
)
|
(9,042,313
|
)
|
||||
Loss
from discontinued operations
|
-
|
(120,000
|
)
|
-
|
||||||
Net
loss
|
$
|
(15,569,159
|
)
|
$
|
(24,043,411
|
)
|
$
|
(9,042,313
|
)
|
|
Deemed
dividend to certain stockholders
|
$
|
(434,185
|
)
|
$
|
-
|
$
|
(3,328,952
|
)
|
||
Net
loss attributable to common stockholders
|
$
|
(16,003,344
|
)
|
$
|
(24,043,411
|
)
|
$
|
(12,371,265
|
)
|
|
Basic
and diluted net loss per share from continuing operations
|
$
|
(1.87
|
)
|
$
|
(4.07
|
)
|
$
|
(2.48
|
)
|
|
Basic
and diluted net profit (loss) per share from discontinued
operations
|
$
|
0.00
|
$
|
(0.02
|
)
|
$
|
0.00
|
|||
Basic
and diluted net loss per share
|
$
|
(1.87
|
)
|
$
|
(4.09
|
)
|
$
|
(2.48
|
)
|
|
Weighted
average number of shares used in computing basic and diluted net
loss per
share
|
8,569,191
|
5,872,093
|
4,995,218
|
Common
stock
|
|
Additional
paid-in
|
Accumulated
|
Deferred
stock
|
Treasury
|
Notes
receivable
from
|
Accumulated
other
comprehensive
|
Total
comprehensive
|
Total
stockholders’
|
||||||||||||||||||||||
Shares
|
Amount
|
capital
|
deficit
|
compensation
|
stock
|
stockholders
|
loss
|
income
|
equity
|
||||||||||||||||||||||
Balance
as of January 1, 2004
|
3,426,601
|
$
|
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
|
1,009,892
|
141,384
|
24,252,939
|
-
|
-
|
-
|
-
|
-
|
24,394,323
|
||||||||||||||||||||||
Issuance
of shares and warrants due to settlement of litigation
|
32,143
|
4,500
|
1,244,328
|
-
|
-
|
-
|
-
|
-
|
1,248,828
|
||||||||||||||||||||||
Issuance
of shares to employees
|
2,857
|
400
|
92,800
|
-
|
-
|
-
|
-
|
-
|
93,200
|
||||||||||||||||||||||
Conversion
of convertible debentures
|
274,552
|
38,437
|
3,754,279
|
-
|
-
|
-
|
-
|
-
|
3,792,716
|
||||||||||||||||||||||
Exercise
of warrants by investors and others
|
811,667
|
113,633
|
19,119,638
|
-
|
-
|
-
|
-
|
-
|
19,233,271
|
||||||||||||||||||||||
Issuance
of shares to consultants
|
6,444
|
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
|
52,857
|
7,400
|
2,074,057
|
-
|
(2,081,457
|
)
|
-
|
-
|
-
|
-
|
|||||||||||||||||||||
Amortization
of deferred stock com-pensation
|
-
|
831,626
|
-
|
-
|
-
|
831,626
|
|||||||||||||||||||||||||
Exercise
of options by employees
|
64,089
|
8,972
|
1,101,172
|
-
|
-
|
-
|
-
|
-
|
1,110,144
|
||||||||||||||||||||||
Exercise
of options by consultants
|
2,687
|
376
|
50,799
|
-
|
-
|
-
|
-
|
-
|
51,175
|
||||||||||||||||||||||
Issuance
of shares in respect of FAAC acquisition
|
71,704
|
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
|
5,755,493
|
$
|
805,769
|
$
|
189,266,704
|
$
|
(118,953,553
|
)
|
$
|
(1,258,295
|
)
|
$
|
(3,537,106
|
)
|
$
|
(1,222,871
|
)
|
$
|
372,335
|
$
|
65,472,983
|
Common
stock
|
|
Additional
paid-in
|
Accumulated |
Deferred
stock
|
Treasury |
Notes
receivable
from
|
Accumulated
other
comprehensive
income
|
Total
comprehensive
income
|
Total
stockholders'
|
||||||||||||||||||||||
Shares
|
Amount
|
capital
|
deficit
|
compensation
|
stock
|
stockholders
|
(loss)
|
(loss)
|
equity
|
||||||||||||||||||||||
Balance
as of January 1, 2005
|
5,759,786
|
$
|
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
|
339,640
|
47,551
|
3,898,185
|
-
|
-
|
-
|
-
|
-
|
-
|
3,945,736
|
|||||||||||||||||||||
Shares
issued to convertible debenture holders
|
82,976
|
11,617
|
441,434
|
-
|
-
|
-
|
-
|
-
|
-
|
453,051
|
|||||||||||||||||||||
Shares
issued to consultant
|
36,232
|
5,073
|
516,200
|
-
|
-
|
-
|
-
|
-
|
-
|
521,273
|
|||||||||||||||||||||
Compensation
related to non-recourse loan granted to shareholder
|
-
|
-
|
(28,500
|
)
|
-
|
-
|
-
|
-
|
-
|
-
|
(28,500
|
)
|
|||||||||||||||||||
Employee
options exercise
|
1,132
|
158
|
17,034
|
-
|
-
|
-
|
-
|
-
|
-
|
17,192
|
|||||||||||||||||||||
Shares
issued to employees
|
714
|
100
|
(100
|
)
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
||||||||||||||||||||
Deferred
stock compensation related to options and restricted stock
|
3,571
|
500
|
50,500
|
-
|
(51,000
|
)
|
-
|
-
|
-
|
-
|
-
|
||||||||||||||||||||
Amortization
of deferred stock compensation
|
-
|
-
|
-
|
-
|
674,712
|
-
|
-
|
-
|
-
|
674,712
|
|||||||||||||||||||||
Cancellation
of deferred stock compensation as a result of forfeitures
|
(2,857
|
)
|
(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
|
6,221,194
|
$
|
870,969
|
$
|
193,949,882
|
$
|
(142,996,964
|
)
|
$
|
(389,303
|
)
|
$
|
(3,537,106
|
)
|
$
|
(1,256,777
|
)
|
$
|
(375,445
|
)
|
$
|
46,265,256
|
Common
stock
|
Additional
paid-in
|
Accumulated
|
Deferred
stock
|
Treasury |
Notes
receivable
from
|
Accumulated
other
comprehensive
income
|
Total
comprehensive
income
|
Total
stockholders’
|
|||||||||||||||||||||||
Shares
|
Amount
|
capital
|
deficit
|
compensation
|
stock
|
stockholders
|
(loss)
|
(loss)
|
equity
|
||||||||||||||||||||||
Balance
as of January 1, 2006
|
6,221,194
|
$
|
870,969
|
$
|
193,949,882
|
$
|
(142,996,964
|
)
|
$
|
(389,303
|
)
|
$
|
(3,537,106
|
)
|
$
|
(1,256,777
|
)
|
$
|
(375,445
|
)
|
$
|
-
|
$
|
46,265,256
|
|||||||
Reclassification
of common stock due to reverse stock split
|
(142 | ) | (808,757 | ) | 808,757 |
-
|
-
|
-
|
-
|
-
|
-
|
-
|
|||||||||||||||||||
FAS
123R reclassification
|
-
|
-
|
(389,303
|
)
|
-
|
389,303
|
-
|
-
|
-
|
-
|
-
|
||||||||||||||||||||
Principal
installment of convertible debenture payment in shares
|
4,184,855
|
41,848
|
18,477,301
|
-
|
-
|
-
|
-
|
-
|
-
|
18,519,149
|
|||||||||||||||||||||
Warrants
exercise
|
745,549
|
7,455
|
4,343,180
|
-
|
-
|
-
|
-
|
-
|
-
|
4,350,635
|
|||||||||||||||||||||
Amortization
of deferred stock compensation
|
-
|
-
|
500,545
|
-
|
-
|
-
|
-
|
-
|
-
|
500,545
|
|||||||||||||||||||||
Stock
options and restricted stock
|
871,786
|
8,717
|
(1,904
|
) |
-
|
-
|
-
|
-
|
-
|
-
|
6,813
|
||||||||||||||||||||
Interest
accrued on notes receivable from shareholders
|
-
|
-
|
47,402
|
-
|
-
|
(47,402
|
)
|
-
|
-
|
-
|
|||||||||||||||||||||
Other
comprehensive loss - foreign currency translation
adjustment
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
885,733
|
885,733
|
885,733
|
|||||||||||||||||||||
Other
comprehensive loss - unrealized gain on available for sale marketable
securities
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
866
|
866
|
866
|
|||||||||||||||||||||
Net
loss
|
-
|
-
|
-
|
(15,569,159
|
)
|
-
|
-
|
-
|
-
|
(15,569,159
|
)
|
(15,569,159)
|
)
|
||||||||||||||||||
Total
comprehensive loss
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
(14,682,560
|
)
|
-
|
||||||||||||||||||||
Balance
as of December 31, 2006
|
12,023,242
|
$
|
120,232
|
$
|
217,735,860
|
$
|
(158,566,123
|
)
|
$
|
-
|
$
|
(3,537,106
|
)
|
$
|
(1,304,179
|
)
|
$
|
511,154
|
|
$
|
54,959,838
|
Year
ended December 31,
|
||||||||||
2006
|
2005
|
2004
|
||||||||
Cash
flows from operating activities:
|
||||||||||
Net
loss
|
$
|
(15,569,159
|
)
|
$
|
(24,043,411
|
)
|
$
|
(9,042,313
|
)
|
|
Less
loss for the period from discontinued operations
|
-
|
120,000
|
-
|
|||||||
Adjustments
required to reconcile net loss to net cash used in operating
activities:
|
||||||||||
Minorities
interests in earnings (loss) of subsidiary
|
(17,407
|
)
|
(57,149
|
)
|
44,694
|
|||||
Loss
(gain) from affiliated company
|
(354,898
|
)
|
75,000
|
-
|
||||||
Depreciation
|
1,966,748
|
1,373,580
|
1,199,465
|
|||||||
Amortization
of intangible assets, capitalized software costs and impairment of
intangible assets
|
2,857,891
|
15,453,584
|
2,888,226
|
|||||||
Remeasurement
of liability in connection to warrants granted
|
(700,113
|
)
|
(377,803
|
)
|
(326,839
|
)
|
||||
Accrued
severance pay, net
|
194,810
|
68,839
|
(441,610
|
)
|
||||||
Compensation
related to shares issued to employees and directors
|
500,545
|
674,713
|
884,826
|
|||||||
Mark
up of loans to stockholders
|
-
|
-
|
(32,397
|
)
|
||||||
Write-off
of inventories
|
292,864
|
1,062,336
|
121,322
|
|||||||
Impairment
of property and equipment
|
32,485
|
34,243
|
-
|
|||||||
Financial
expenses in connection with convertible debenture principle
repayment
|
5,395,338
|
-
|
-
|
|||||||
Amortization
related to warrants issued to the holders of convertible debentures
and
beneficial conversion feature
|
1,485,015
|
1,702,753
|
4,142,109
|
|||||||
Amortization
deferred charges related to convertible debentures
issuance
|
780,719
|
329,152
|
222,732
|
|||||||
Stock-based
compensation related to shares issued and to be issued to consultants
and
shares granted as a donation
|
6,536
|
538,058
|
89,078
|
|||||||
Stock-based
compensation related to non-recourse note granted to
stockholder
|
-
|
(28,500
|
)
|
(10,000
|
)
|
|||||
Interest
accrued or paid on promissory notes due to acquisition
|
-
|
19,704
|
39,311
|
|||||||
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
|
(1,842
|
)
|
3,172
|
(16,479
|
)
|
|||||
Decrease
(increase) in trade receivables
|
3,631,978
|
(3,608,950
|
)
|
732,828
|
||||||
Decrease
(increase) in other accounts receivable and prepaid
expenses
|
605,610
|
(75,982
|
)
|
(49,513
|
)
|
|||||
Decrease
(increase) in deferred tax assets
|
6,788
|
65,376
|
(89,823
|
)
|
||||||
Increase
in inventories
|
(208,938
|
)
|
(1,710,528
|
)
|
(2,040,854
|
)
|
||||
Increase
in unbilled revenues
|
(1,674,029
|
)
|
(2,347,036
|
)
|
(1,581,080
|
)
|
||||
Decrease
(increase) in deferred revenues
|
718,290
|
(178,988
|
)
|
(91,271
|
)
|
|||||
Increase
(decrease) in trade payables
|
(3,156,665
|
)
|
(224,987
|
)
|
2,913,623
|
|||||
Increase
(decrease) in other accounts payable and accrued expenses
|
(296,866
|
)
|
32,269
|
(125,231
|
)
|
|||||
Net
cash used in operating activities from continuing operations
|
(3,504,300
|
)
|
(11,055,626
|
)
|
(638,155
|
)
|
||||
Net
cash used in operating activities from discontinued
operations
|
(120,000
|
)
|
-
|
(214,041
|
)
|
|||||
Net
cash used in operating activities
|
$
|
(3,624,300
|
)
|
$
|
(11,055,626
|
)
|
$
|
(852,196
|
)
|
Year
ended December 31,
|
||||||||||
2006
|
2005
|
2004
|
||||||||
Cash
flows from investing activities:
|
||||||||||
Purchase
of property and equipment
|
(1,412,383
|
)
|
(1,224,752
|
)
|
(1,659,688
|
)
|
||||
Increase
in capitalized software costs
|
(688,443
|
)
|
(651,611
|
)
|
(365,350
|
)
|
||||
Loans
granted to stockholders
|
-
|
-
|
(1,036
|
)
|
||||||
Repayment
of loans granted to stockholders
|
-
|
-
|
32,397
|
|||||||
Proceeds
from sale of property and equipment
|
-
|
104,175
|
114,275
|
|||||||
Proceeds
from sale of marketable securities
|
-
|
91,936
|
90,016
|
|||||||
Investment
in marketable securities
|
-
|
-
|
(89,204
|
)
|
||||||
Investment
in affiliated company
|
-
|
(112,500
|
)
|
-
|
||||||
Payment
of additional required payout for FAAC acquisition
|
(630,350
|
)
|
(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
|
)
|
|||||
Purchase
of certain tangible and intangible assets
|
-
|
(150,000
|
)
|
(150,000
|
)
|
|||||
(Increase)
decrease in restricted cash and held to maturity
securities
|
2,243,785
|
4,748,178
|
(9,809,091
|
)
|
||||||
Net
cash used in investing activities
|
(487,391
|
)
|
(11,795,817
|
)
|
(50,497,083
|
)
|
||||
Cash
flows from financing activities:
|
||||||||||
Proceeds
from issuance of shares, net
|
-
|
3,945,736
|
24,361,750
|
|||||||
Proceeds
from exercise of options to employees and consultants
|
250
|
17,192
|
1,148,819
|
|||||||
Proceeds
from exercise of warrants
|
4,350,635
|
-
|
19,233,271
|
|||||||
Repayment
of convertible debentures
|
(5,204,167
|
)
|
-
|
-
|
||||||
Proceeds
from issuance of convertible debentures, net of issuance
expenses
|
-
|
16,430,767
|
-
|
|||||||
Long
term loan received
|
-
|
-
|
69,638
|
|||||||
Repayment
of long term loan
|
(149,414
|
)
|
(71,238
|
)
|
(65,674
|
)
|
||||
Increase
(decrease) in short term bank credit
|
1,455,309
|
1,914,892
|
(376,783
|
)
|
||||||
Payment
on capital lease obligation
|
-
|
-
|
(4,145
|
)
|
||||||
Net
cash provided by financing activities
|
452,613
|
22,237,349
|
44,366,876
|
|||||||
Decrease
in cash and cash equivalents
|
(3,659,078
|
)
|
(614,094
|
)
|
(6,982,403
|
)
|
||||
Cash
accretion (erosion) due to exchange rate differences
|
(122,702
|
)
|
30,234
|
31,790
|
||||||
Cash
and cash equivalents at the beginning of the year
|
6,150,652
|
6,734,512
|
13,685,125
|
|||||||
Cash
and cash equivalents at the end of the year
|
$
|
2,368,872
|
$
|
6,150,652
|
$
|
6,734,512
|
||||
Supplementary
information on non-cash transactions:
|
||||||||||
Issuance
of shares and warrants against accrued expenses and restricted
deposit
|
$
|
-
|
$
|
56,577
|
$
|
1,310,394
|
||||
Payment
of principle installment of convertible debenture in
shares
|
$
|
18,519,149
|
$
|
453,051
|
$
|
-
|
||||
Liability
in connection to warrants granted
|
$
|
-
|
|
$
|
44,231
|
$
|
-
|
|||
Conversion
of convertible debenture to shares of common stock
|
$
|
-
|
$
|
-
|
$
|
3,837,500
|
||||
Accrual
for earn out in regard to subsidiary acquisition
|
$
|
454,350
|
$
|
603,764
|
$
|
13,435,325
|
||||
Supplemental
disclosure of cash flows activities:
|
||||||||||
Cash
paid during the year for:
|
||||||||||
Interest
|
$
|
2,018,061
|
$
|
1,401,681
|
$
|
532,750
|
||||
Taxes
on income
|
$
|
232,159
|
$
|
737,080
|
$
|
969,009
|
(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
|
20,152,693
|
|||
Liabilities
assumed
|
(2,770,843
|
)
|
||
Total
consideration
|
$
|
28,960,403
|
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 relationships 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
|
2004
(Unaudited)
|
||||
Total
revenues
|
$
|
61,086,697
|
||
Gross
profit
|
22,528,254
|
|||
Net
loss
|
(5,810,114
|
)
|
||
Deemed
dividend of common stock attributable to certain
stockholders
|
(3,328,952
|
)
|
||
Net
loss attributable to stockholders of common stock
|
$
|
(9,139,066
|
)
|
|
Basic
and diluted net loss per share
|
$
|
(1.83
|
)
|
|
Weighted
average number of shares used in computing basic net loss per
share
|
4,995,218
|
%
|
||
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 or the life of the
asset
|
December
31,
|
|||||||
2005
|
2004
|
||||||
Net
loss as reported
|
$
|
(24,043,411
|
)
|
$
|
(9,042,313
|
)
|
|
Add:
Stock-based compensation expenses included in reported net
loss
|
674,712
|
831,626
|
|||||
Deduct:
Stock-based compensation expenses determined under fair value method
for
all awards
|
(2,461,787
|
)
|
(2,741,463
|
)
|
|||
$
|
(25,830,486
|
)
|
$
|
(10,952,150
|
)
|
||
Loss
per share:
|
|||||||
Basic
and diluted, as reported
|
$
|
(4.09
|
)
|
$
|
(2.48
|
)
|
|
Diluted,
pro forma
|
$
|
(4.40
|
)
|
$
|
(2.19
|
)
|
NOTE
3:-
|
RESTRICTED
COLLATERAL DEPOSITS
|
December
31,
|
|||||||
2006
|
2005
|
||||||
Short-term:
|
|||||||
AoA
earnout (Note 1.d.)
|
$
|
-
|
$
|
1,795,850
|
|||
Deposits
in connection with FAAC projects
|
535,151
|
548,973
|
|||||
Restricted
cash in connection with interest payment to convertible debenture
holders.
|
113,824
|
1,395,079
|
|||||
Other
|
-
|
157,211
|
|||||
Total
short-term
|
648,975
|
3,897,113
|
|||||
Long-term:
|
|||||||
Restricted
cash in connection with interest payment to convertible debenture
holders.
|
-
|
779,286
|
|||||
Total
long-term
|
-
|
779,286
|
|||||
$
|
648,975
|
$
|
4,676,399
|
Cost
|
Unrealized
gains
|
Estimated
fair value
|
|||||||||||||||||
2006
|
2005
|
2006
|
2005
|
2006
|
2005
|
||||||||||||||
Available
for sale marketable securities
|
$
|
36,708
|
$
|
32,558
|
$
|
4,458
|
$
|
3,426
|
$
|
41,166
|
$
|
35,984
|
December
31,
|
|||||||
2006
|
2005
|
||||||
Government
authorities
|
$
|
213,362
|
$
|
460,265
|
|||
Employees
|
77,836
|
65,735
|
|||||
Prepaid
expenses
|
292,496
|
1,360,589
|
|||||
Deferred
taxes
|
58,032
|
64,820
|
|||||
Long
term receivables
|
262,608
|
-
|
|||||
Other
|
492,896
|
312,922
|
|||||
$
|
1,397,230
|
$
|
2,264,331
|
December
31,
|
|||||||
2006
|
2005
|
||||||
Raw
and packaging materials
|
$
|
4,556,250
|
$
|
3,296,453
|
|||
Work
in progress
|
3,186,843
|
3,697,361
|
|||||
Finished
products
|
108,727
|
821,992
|
|||||
$
|
7,851,820
|
$
|
7,815,806
|
|
December
31,
|
||||||
|
2006
|
2005
|
|||||
Cost:
|
|
|
|||||
Computers
and related equipment
|
$
|
2,080,462
|
$
|
3,081,029
|
|||
Motor
vehicles
|
674,737
|
704,718
|
|||||
Office
furniture and equipment
|
1,015,054
|
786,958
|
|||||
Machinery,
equipment and installations
|
4,108,763
|
7,716,598
|
|||||
Leasehold
improvements
|
887,311
|
1,399,683
|
|||||
Demo
inventory
|
643,458
|
369,995
|
|||||
|
|||||||
|
$
|
9,409,785
|
$
|
14,058,981
|
|||
Accumulated
depreciation:
|
|||||||
Computers
and related equipment
|
1,626,066
|
2,328,549
|
|||||
Motor
vehicles
|
234,023
|
233,745
|
|||||
Office
furniture and equipment
|
585,069
|
474,127
|
|||||
Machinery,
equipment and installations
|
2,466,598
|
5,729,563
|
|||||
Leasehold
improvements
|
385,196
|
974,666
|
|||||
Demo
inventory
|
372,240
|
65,400
|
|||||
|
|||||||
|
5,669,192
|
9,806,050
|
|||||
|
|||||||
Depreciated
cost
|
$
|
3,740,593
|
$
|
4,252,931
|
12/31/05
|
Additions
|
Adjustments
(currency)
|
12/31/06
|
||||||||||
Simulation
|
$
|
23,605,069
|
$
|
630,350
|
$
|
-
|
$
|
24,235,419
|
|||||
Battery
|
4,968,676
|
-
|
444,534
|
5,413,210
|
|||||||||
Armor
|
985,412
|
-
|
81,184
|
1,066,596
|
|||||||||
Total
|
$
|
29,559,157
|
$
|
630,350
|
$
|
525,718
|
$
|
30,715,225
|
Year
ended December 31,
|
|||||||
2006
|
2005
|
||||||
Cost:
|
|||||||
Technology
|
$
|
6,405,000
|
$
|
6,841,746
|
|||
Capitalized
software costs
|
1,701,150
|
1,226,579
|
|||||
Backlog
|
682,000
|
2,194,000
|
|||||
Covenants
not to compete
|
99,000
|
359,000
|
|||||
Customer
list
|
7,548,645
|
7,548,645
|
|||||
Certification
|
246,969
|
246,969
|
|||||
16,682,764
|
18,416,939
|
||||||
Exchange
differences
|
175,958
|
(171,587
|
)
|
||||
Less
- accumulated amortization
|
(8,155,508
|
)
|
(7,267,630
|
)
|
|||
Less
- impairment
|
-
|
(819,223
|
)
|
||||
Amortized
cost
|
8,703,214
|
10,158,499
|
|||||
Trademarks
|
799,000
|
869,000
|
|||||
$
|
9,502,214
|
$
|
11,027,499
|
Year
ended December 31,
|
||||
2007
|
$
|
1,277,522
|
||
2008
|
1,277,522
|
|||
2009
|
1,274,722
|
|||
2010
|
1,107,723
|
|||
2011
|
1,085,490
|
|||
2012
and forward
|
1,018,478
|
|||
$
|
7,041,457
|
December
31,
|
|||||||
2006
|
2005
|
||||||
Employees
and payroll accruals
|
$
|
1,288,601
|
$
|
1,443,154
|
|||
Accrual
for expected loss
|
829,973
|
485,877
|
|||||
Accrued
vacation pay
|
442,068
|
504,342
|
|||||
Accrued
expenses
|
1,380,150
|
1,788,558
|
|||||
Minority
balance
|
-
|
172,871
|
|||||
Government
authorities
|
815,374
|
439,975
|
|||||
Advances
from customers
|
414,889
|
795,331
|
|||||
$
|
5,171,055
|
$
|
5,630,108
|
Year
ended December 31
|
||||
2007
|
$
|
621,678
|
||
2008
|
$
|
68,750
|
||
2009
|
$
|
82,500
|
Leased
Assets
|
12/31/2006
|
|||
Equipment
|
$
|
249,532
|
||
Less:
Accumulated Depreciation
|
20,130
|
|||
Net
book value
|
$
|
229,402
|
Liabilities
|
||||
Obligations
under capital leases
|
12/31/2006
|
|||
Current
|
$
|
55,263
|
||
Noncurrent
|
158,120
|
|||
Total
|
$
|
213,383
|
Future
Minimum Lease Payments
|
Year
ended December 31
|
|||
2007
|
$
|
79,623
|
||
2008
|
83,710
|
|||
2009
|
55,101
|
|||
2010
|
34,667
|
|||
2011
|
16,655
|
|||
Total
minimum lease payments
|
269,756
|
|||
Less:
Amount representing interest
|
56,373
|
|||
Present
value of minimum lease payments
|
$
|
213,383
|
2006
|
2005
|
2004
|
|||||||||||||||||
Amount
|
Weighted
average
exercise
price $
|
Amount
|
Weighted
average
exercise
price
$
|
Amount
|
Weighted
average
exercise
price
$
|
||||||||||||||
Options
outstanding at beginning of year
|
606,068
|
$
|
10.23
|
651,055
|
$
|
17.95
|
644,166
|
$
|
19.18
|
||||||||||
Changes
during year:
|
|||||||||||||||||||
Granted
(1) (2) (3)
|
124,000
|
$
|
2.86
|
116,811
|
$
|
7.95
|
107,749
|
$
|
22.13
|
||||||||||
Exercised
|
(1,786
|
)
|
$
|
0.14
|
(1,130
|
)
|
$
|
15.26
|
(64,089
|
)
|
$
|
17.36
|
|||||||
Forfeited
(3)
|
(104,596
|
)
|
$
|
13.75
|
(160,668
|
)
|
$
|
26.90
|
(36,771
|
)
|
$
|
52.78
|
|||||||
Repriced
|
|||||||||||||||||||
Old
exercise price
|
-
|
-
|
(207,980
|
)
|
$
|
15.40
|
-
|
-
|
|||||||||||
New
exercise price
|
-
|
-
|
207,980
|
$
|
5.46
|
-
|
-
|
||||||||||||
Options
outstanding at end of year
|
623,686
|
$
|
8.20
|
606,068
|
$
|
10.23
|
651,055
|
$
|
17.95
|
||||||||||
Options
vested at end of year
|
486,526
|
$
|
9.22
|
592,362
|
$
|
9.98
|
639,959
|
$
|
19.24
|
|
Vested
|
Unvested
|
|||||
2006
|
$
|
1,039
|
$
|
31,220
|
|||
2005
|
$
|
10,801
|
$
|
-
|
|||
2004
|
$
|
5,427,478
|
$
|
101,396
|
2006
|
2005
|
2004
|
|||||||||||||||||
Shares
|
Weighted
average fair value at grant date
|
Shares
|
Weighted
average fair value at grant date
|
Shares
|
Weighted
average fair value at grant date
|
||||||||||||||
Nonvested
at the beginning of the year
|
54,286
|
$
|
1.41
|
52,857
|
$
|
1.45
|
-
|
- | |||||||||||
Changes
during year:
|
|||||||||||||||||||
Granted
|
860,000
|
$
|
2.58
|
4,286
|
$
|
1.12
|
52,857
|
$
|
1.45
|
||||||||||
Vested
|
(48,571
|
)
|
$
|
1.42
|
-
|
- |
-
|
- | |||||||||||
Forfeited
|
(2,143
|
)
|
$
|
1.73
|
(2,857
|
)
|
$
|
1.73
|
-
|
- | |||||||||
Nonvested
at the end of the year
|
863,572
|
$
|
2.51
|
54,286
|
$
|
1.41
|
52,857
|
$
|
1.45
|
||||||||||
Restricted
shares vested at end of year
|
48,571
|
$
|
1.42
|
-
|
- |
-
|
- |
Total
options outstanding
|
Vested
options outstanding
|
|||||||||||||||
Range
of
exercise
prices
|
Amount
outstanding
at
December
31,
2006
|
Weighted
average
remaining
contractual
life
|
Weighted
average
exercise
price
|
Amount
exercisable
at
December
31, 2006
|
Weighted
average
exercise
price
|
|||||||||||
$
|
Years
|
$
|
$
|
|||||||||||||
0.00-28.00
|
596,075
|
3.93
|
6.29
|
463,085
|
7.03
|
|||||||||||
28.01-56.00
|
16,183
|
2.43
|
34.29
|
12,018
|
34.53
|
|||||||||||
56.01-84.00
|
10,356
|
3.61
|
66.62
|
10,356
|
66.62
|
|||||||||||
84.01-112.00
|
353
|
0.87
|
90.76
|
353
|
90.76
|
|||||||||||
112.01
|
719
|
0.75
|
126.88
|
714
|
126.88
|
|||||||||||
623,686
|
3.88
|
8.20
|
486,526
|
9.22
|
Equals
market price
|
Less
than market price
|
||||||||||||||||||
Year
ended December 31,
|
Year
ended December 31,
|
||||||||||||||||||
2006
|
2005
|
2004
|
2006
|
2005
|
2004
|
||||||||||||||
Weighted
average exercise prices
|
$
|
2.86
|
$
|
7.00
|
$
|
20.92
|
$
|
-
|
$
|
-
|
$
|
23.41
|
|||||||
Weighted
average fair value on grant date
|
$
|
2.11
|
$
|
3.64
|
$
|
14.03
|
$
|
-
|
$
|
-
|
$
|
24.21
|
2006
|
2005
|
2004
|
|||||||||||||||||
Amount
|
Weighted
average exercise price
|
Amount
|
Weighted
average exercise price
|
Amount
|
Weighted
average exercise price
|
||||||||||||||
$
|
$
|
$
|
|||||||||||||||||
Options
outstanding at beginning of year
|
11,878
|
$
|
53.20
|
11,878
|
$
|
53.20
|
22,422
|
$
|
64.26
|
||||||||||
Changes
during year:
|
|||||||||||||||||||
Granted
|
10,000
|
$
|
1.90
|
-
|
$
|
-
|
714
|
$
|
-
|
||||||||||
Exercised
|
10,000
|
$
|
1.90
|
-
|
$
|
-
|
(2,687
|
)
|
$
|
14.42
|
|||||||||
Forfeited
or cancelled
|
-
|
$
|
-
|
-
|
$
|
-
|
(8,571
|
)
|
$
|
89.60
|
|||||||||
Options
outstanding at end of year
|
11,878
|
$
|
29.75
|
11,878
|
$
|
53.20
|
11,878
|
$
|
53.20
|
||||||||||
Options
vested at end of year
|
11,878
|
$
|
29.75
|
11,878
|
$
|
53.20
|
11,878
|
$
|
53.20
|
2006
|
2005
|
2004
|
||||||||
Dividend
yield
|
0%
|
|
-
|
0%
|
|
|||||
Expected
volatility
|
84.8%
|
|
-
|
81%
|
|
|||||
Risk-free
interest
|
4.58%
|
|
-
|
3.4%
|
|
|||||
Contractual
life of up to
|
1
year
|
-
|
5
years
|
December
31,
|
|||||||
2006
|
2005
|
||||||
Operating
loss carryforward (1)
|
$
|
33,222,692
|
$
|
32,326,283
|
|||
Other
temporary differences
|
6,292,079
|
2,222,333
|
|||||
Net
deferred tax asset before valuation allowance
|
39,514,771
|
34,548,616
|
|||||
Valuation
allowance
|
(39,456,739
|
)
|
(34,483,796
|
)
|
|||
Total
deferred tax asset
|
$
|
58,032
|
$
|
64,820
|
|||
Deferred
tax liability
|
$
|
-
|
$
|
-
|
December
31,
|
|||||||
2006
|
2005
|
||||||
Domestic
|
$
|
11,627,401
|
$
|
8,981,133
|
|||
Foreign
|
21,595,291
|
23,345,150
|
|||||
$
|
33,222,692
|
$
|
32,326,283
|
Year
ended December 31
|
||||||||||
2006
|
2005
|
2004
|
||||||||
Domestic
|
$
|
13,014,325
|
$
|
21,473,366
|
$
|
8,006,205
|
||||
Foreign
|
2,340,082
|
2,269,522
|
405,305
|
|||||||
$
|
15,354,407
|
$
|
23,742,888
|
$
|
8,411,510
|
Year
ended December 31
|
||||||||||
2006
|
2005
|
2004
|
||||||||
Current
state and local taxes
|
$
|
225,371
|
$
|
83,365
|
$
|
539,674
|
||||
Deferred
taxes
|
6,788
|
14,345
|
(37,857
|
)
|
||||||
Taxes
in respect of prior years
|
-
|
139,962
|
84,292
|
|||||||
$
|
232,159
|
$
|
237,672
|
$
|
586,109
|
|||||
Domestic
|
$
|
49,383
|
$
|
153,950
|
$
|
163,087
|
||||
Foreign
|
182,776
|
83,722
|
423,022
|
|||||||
$
|
232,159
|
$
|
237,672
|
$
|
586,109
|
Year
ended December 31,
|
||||||||||
2006
|
2005
|
2004
|
||||||||
Loss
from continuing operations before taxes, as reported in the consolidated
statements of income
|
$
|
(15,354,407
|
)
|
$
|
(23,742,888
|
)
|
$
|
(8,411,510
|
)
|
|
Statutory
tax rate
|
34
|
%
|
34
|
%
|
34
|
%
|
||||
Theoretical
income tax on the above amount at the U.S. statutory tax
rate
|
$
|
(5,220,498
|
)
|
$
|
(8,072,582
|
)
|
$
|
(2,859,914
|
)
|
|
Deferred
taxes on losses for which valuation allowance was provided
|
2,745,964
|
1,611,971
|
556,692
|
|||||||
Non-deductible
expenses
|
2,793,214
|
5,669,144
|
1,629,874
|
|||||||
State
taxes
|
49,383
|
67,470
|
168,081
|
|||||||
Accrual
for deferred taxes on undistributed earnings
|
-
|
(49,328
|
)
|
49,416
|
||||||
Foreign
income in tax rates other then U.S rate
|
(141,822
|
)
|
897,617
|
919,895
|
||||||
Taxes
in respect of prior years
|
-
|
139,963
|
84,292
|
|||||||
Others
|
5,918
|
(26,583
|
)
|
37,773
|
||||||
Actual
tax expense
|
$
|
232,159
|
$
|
237,672
|
$
|
586,109
|
Year
ended December 31,
|
||||||||||
2006
|
2005
|
2004
|
||||||||
Financial
expenses:
|
||||||||||
Interest,
bank charges and fees
|
$
|
(2,018,061
|
)
|
$
|
(1,473,799
|
)
|
$
|
(622,638
|
)
|
|
Amortization
related to warrants issued to the holders of convertible debentures
and
beneficial conversion feature
|
(1,485,015
|
)
|
(1,702,753
|
)
|
(4,142,109
|
)
|
||||
Expenses
in connection with convertible debenture principle repayment and
inducement
|
(5,395,338
|
)
|
-
|
-
|
||||||
Bonds
premium amortization
|
-
|
(47,734
|
)
|
(202,467
|
)
|
|||||
Other
|
(35,332
|
)
|
-
|
-
|
||||||
Foreign
currency translation differences
|
-
|
(54,840
|
)
|
(71,891
|
)
|
|||||
(8,933,746
|
)
|
(3,279,126
|
)
|
(5,039,105
|
)
|
|||||
Financial
income:
|
||||||||||
Interest
|
646,583
|
192,771
|
443,182
|
|||||||
Foreign
currency translation differences
|
67,150
|
-
|
-
|
|||||||
Realized
gain from marketable securities sale
|
-
|
2,863
|
40,119
|
|||||||
Financial
income in connection with warrants granted (Note 12.d. and
13.d.3.)
|
700,113
|
377,803
|
326,839
|
|||||||
Total
|
$
|
(7,519,900
|
)
|
$
|
(2,705,689
|
)
|
$
|
(4,228,965
|
)
|
Simulation
and Training
|
Armor
|
Battery
and
Power
Systems
|
All
Others
|
Total
|
||||||||||||
2006
|
||||||||||||||||
Revenues
from outside customers
|
$
|
21,951,337
|
$
|
12,571,779
|
$
|
8,597,623
|
$
|
-
|
$
|
43,120,739
|
||||||
Depreciation
, amortization and impairment expenses (1)
|
(1,708,012
|
)
|
(1,077,416
|
)
|
(844,431
|
)
|
(350,308
|
)
|
(3,980,167
|
)
|
||||||
Direct
expenses (2)
|
(18,256,933
|
)
|
(13,252,233
|
)
|
(8,768,088
|
)
|
(6,912,577
|
)
|
(47,189,831
|
)
|
||||||
Segment
net income (loss)
|
$
|
1,986,392
|
$
|
(1,757,870
|
)
|
$
|
(1,014,896
|
)
|
$
|
(7,262,885
|
)
|
(8,049,259
|
)
|
|||
Financial
expenses (after deduction of minority interest)
|
(7,519,900
|
)
|
||||||||||||||
Net
loss from continuing operations
|
$
|
(15,569,159
|
)
|
|||||||||||||
Segment
assets (3)
(4)
|
$
|
43,753,369
|
$
|
9,523,126
|
$
|
18,184,133
|
$
|
3,607,645
|
$
|
75,068,274
|
||||||
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)
|
$
|
47,302,499
|
$
|
10,163,782
|
$
|
16,738,648
|
$
|
10,663,744
|
$
|
84,868,673
|
||||||
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)
|
$
|
42,416,974
|
$
|
23,822,000
|
$
|
17,918,566
|
$
|
14,134,647
|
$
|
98,292,187
|
(1) |
Includes
depreciation of property and equipment, amortization expenses of
intangible assets and impairment of goodwill and other intangible
assets.
|
(2) |
Including,
inter
alia,
sales and marketing, general and administrative and tax
expenses.
|
(3) |
Consisting
of all assets.
|
(4) |
Out
of those amounts, goodwill in the Company’s Simulation and Training,
Battery and Power Systems and Armor Divisions stood at $24,235,419,
$5,413,210 and $1,066,596 as of December 31, 2006, $23,605,069, $4,968,676
and $985,412 as of December 31, 2005, respectively, and $22,845,372,
$5,308,917 and $11,591,227 as of December 31, 2004, respectively.
|
2006
|
2005
|
2004
|
|||||||||||||||||
Total
revenues
|
Long-lived
assets
|
Total
revenues
|
Long-lived
assets
|
Total
revenues
|
Long-lived
assets
|
||||||||||||||
U.S.
dollars
|
|||||||||||||||||||
U.S.A.
|
$
|
32,945,951
|
$
|
31,860,632
|
$
|
38,953,462
|
$
|
32,840,172
|
$
|
40,656,729
|
$
|
45,154,086
|
|||||||
Germany
|
387,612
|
-
|
188,635
|
-
|
319,110
|
-
|
|||||||||||||
England
|
240,712
|
-
|
931,008
|
-
|
344,261
|
-
|
|||||||||||||
Thailand
|
-
|
-
|
-
|
-
|
-
|
-
|
|||||||||||||
India
|
1,388,401
|
-
|
1,723,031
|
-
|
3,061,705
|
-
|
|||||||||||||
Israel
|
5,658,986
|
12,123,400
|
5,700,267
|
11,999,415
|
4,212,408
|
13,560,822
|
|||||||||||||
Other
|
2,499,077
|
-
|
1,548,192
|
-
|
1,359,633
|
-
|
|||||||||||||
$
|
43,120,739
|
$
|
43,958,032
|
$
|
49,044,595
|
$
|
44,839,587
|
$
|
49,953,846
|
$
|
58,714,908
|
Year
ended December 31,
|
||||||||||
2006
|
2005
|
2004
|
||||||||
Batteries
and power systems:
|
||||||||||
Customer
A
|
6%
|
|
7%
|
|
8%
|
|
||||
Armor:
|
||||||||||
Customer
B
|
5%
|
|
5%
|
|
4%
|
|
||||
Customer
C
|
18%
|
|
9%
|
|
24%
|
|
||||
Simulation
and Training:
|
|
|||||||||
Customer
D
|
34%
|
|
24%
|
|
13%
|
|
||||
Customer
E
|
-
|
-
|
1%
|
|
Year
ended December 31,
|
||||||||||
2006
|
2005
|
2004
|
||||||||
Electric
vehicle
|
$
|
-
|
$
|
205,485
|
$
|
232,394
|
||||
Water
activated batteries
|
1,660,521
|
1,181,114
|
921,533
|
|||||||
Military
batteries
|
6,937,101
|
8,515,329
|
9,324,247
|
|||||||
Car
and aircraft armoring
|
12,571,779
|
12,322,679
|
17,988,686
|
|||||||
Simulators
|
21,951,338
|
26,785,772
|
21,414,968
|
|||||||
Other
|
-
|
34,216
|
72,018
|
|||||||
Total
|
$
|
43,120,739
|
$
|
49,044,595
|
$
|
49,953,846
|
Quarter
Ended
|
|||||||||||||
2006
|
March
31
|
June
30
|
September
30
|
December
31
|
|||||||||
Net
revenue
|
$
|
8,896,412
|
$
|
7,414,335
|
$
|
12,722,686
|
$
|
14,087,306
|
|||||
Net
loss from continuing operations
|
$
|
(4,213,448
|
)
|
$
|
(8,215,335
|
)
|
$
|
(1,065,223
|
)
|
$
|
(2,075,153
|
)
|
|
Net
loss for the period
|
$
|
(4,213,448
|
)
|
$
|
(8,215,335
|
)
|
$
|
(1,065,223
|
)
|
$
|
(2,075,153
|
)
|
|
Deemed
dividend to certain stockholders of common stock
|
$
|
(317,207
|
)
|
$
|
(116,978
|
)
|
$
|
-
|
$
|
-
|
|||
Net
loss attributable to common stockholders
|
$
|
(4,530,655
|
)
|
$
|
(8,332,313
|
)
|
$
|
(1,065,223
|
)
|
$
|
(2,075,153
|
)
|
|
Net
loss per share - basic and diluted
|
$
|
(0.62
|
)
|
$
|
(0.97
|
)
|
$
|
(0.09
|
)
|
$
|
(0.19
|
)
|
|
Shares
used in per share calculation
|
7,267,899
|
8,469,099
|
10,585,488
|
10,787,695
|
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
|
|||||
Net
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
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
loss per share - basic and diluted
|
$
|
(0.43
|
)
|
$
|
(0.97
|
)
|
$
|
(2.16
|
)
|
$
|
(0.53
|
)
|
|
Shares
used in per share calculation
|
5,721,578
|
5,770,011
|
5,891,127
|
6,103,348
|
Description
|
Balance
at
beginning
of
period
|
Additions
charged
to
costs
and
expenses*
|
Balance
at
end
of
period
|
|||||||
Year
ended December 31, 2006
|
||||||||||
Allowance
for doubtful accounts
|
$
|
176,000
|
$
|
(17,000
|
)
|
$
|
159,000
|
|||
Allowance
for slow moving inventory
|
1,280,000
|
293,000
|
1,573,000
|
|||||||
Valuation
allowance for deferred taxes
|
34,484,000
|
4,973,000
|
39,457,000
|
|||||||
Totals
|
$
|
35,940,000
|
$
|
5,224,000
|
$
|
41,189,000
|
||||
Year
ended December 31, 2005
|
||||||||||
Allowance
for doubtful accounts
|
$
|
55,000
|
$
|
121,000
|
$
|
176,000
|
||||
Allowance
for slow moving inventory
|
218,000
|
1,062,000
|
1,280,000
|
|||||||
Valuation
allowance for deferred taxes
|
33,726,000
|
758,000
|
34,484,000
|
|||||||
Totals
|
$
|
33,999,000
|
$
|
1,941,000
|
$
|
35,940,000
|
||||
Year
ended December 31, 2004
|
||||||||||
Allowance
for doubtful accounts
|
$
|
61,000
|
$
|
(6,000
|
)
|
$
|
55,000
|
|||
Allowance
for slow moving inventory
|
96,000
|
122,000
|
218,000
|
|||||||
Valuation
allowance for deferred taxes
|
34,802,000
|
(1,076,000
|
)
|
33,726,000
|
||||||
Totals
|
$
|
34,959,000
|
$
|
(960,000
|
)
|
$
|
33,999,000
|