x
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ANNUAL REPORT PURSUANT TO
SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL
YEAR ENDED DECEMBER 31,
2008 .
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r
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TRANSITION REPORT PURSUANT TO
SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE
TRANSITION PERIOD FROM ______ TO
______.
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Delaware
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95-4302784
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(State
or other jurisdiction of incorporation or organization)
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(I.R.S.
Employer Identification No.)
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1229
Oak Valley Drive, Ann Arbor, Michigan
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48108
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(Address
of principal executive offices)
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(Zip
Code)
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Title
of each class
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Name
of each exchange on which registered
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Common
Stock, $0.01 par value
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The
Nasdaq Stock Market LLC
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PART
I
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Page
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ITEM
1.
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1
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ITEM
1A.
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7
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ITEM
1B.
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16
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ITEM
2.
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16
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ITEM
3.
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16
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ITEM
4.
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16
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PART
II
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ITEM
5.
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17
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ITEM
6.
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17
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ITEM
7.
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17
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ITEM
8.
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28
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ITEM
9.
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28
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ITEM
9A.
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28
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ITEM
9B.
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28
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PART
III
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ITEM
10.
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29
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ITEM
11.
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33
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ITEM
12.
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41
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ITEM
13.
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42
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ITEM
14.
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43
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PART
IV
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ITEM
15.
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43
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SIGNATURES |
45
|
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 Training
and Simulation 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, located
in Ann Arbor, Michigan, which we merged into our FAAC subsidiary in
October of 2007 (“IES”).
|
Ø
|
We
utilize sophisticated lightweight materials and advanced engineering
processes to armor vehicles and to manufacture personal and 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 vehicles
and civilian SUV’s, buses and vans, through our subsidiaries MDT
Protective Industries, Ltd., located in Lod, Israel (“MDT”), and MDT Armor
Corporation, located in Auburn, Alabama (“MDT Armor”);
and
|
·
|
We
provide ballistic armor kits for rotary and fixed wing aircraft, marine
armor and specialized personal armor through our subsidiary Armour of
America, located in Auburn, Alabama, which we merged into our MDT Armor
subsidiary in June of 2008 (“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 and Realtime
Technologies nameplates;
|
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.
|
Division
|
2008
|
2007
|
||||||
Training
and Simulation Division
|
$ | 16,503,000 | $ | 21,670,000 | ||||
Armor
Division
|
7,874,000 | 14,164,000 | ||||||
Battery
and Power Systems Division
|
12,226,000 | 12,861,000 | ||||||
TOTAL:
|
$ | 36,603,000 | $ | 48,695,000 |
·
|
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
long term horizon of the valuation process versus a short term valuation
using current market conditions;
|
·
|
The
valuation by individual business segments versus the market share value
based on our company as a whole;
and
|
·
|
The
fact that our stock is thinly traded and widely dispersed with minimal
institutional ownership, and thus not followed by major market analysts,
leading management to conclude that the market in our securities was not
acting as an informationally efficient reflection of all known information
regarding us.
|
·
|
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.
|
Year Ended December 31,
2008
|
High
|
Low
|
||||||
Fourth Quarter
|
$ | 1.13 | $ | 0.39 | ||||
Third Quarter
|
$ | 2.07 | $ | 1.02 | ||||
Second Quarter
|
$ | 2.70 | $ | 2.00 | ||||
First Quarter
|
$ | 2.73 | $ | 1.66 | ||||
Year Ended December 31,
2007
|
High
|
Low
|
||||||
Fourth Quarter
|
$ | 3.63 | $ | 1.94 | ||||
Third Quarter
|
$ | 3.70 | $ | 2.52 | ||||
Second Quarter
|
$ | 3.73 | $ | 2.15 | ||||
First Quarter
|
$ | 4.87 | $ | 3.03 |
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 Training
and Simulation 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).
|
·
|
The
long term horizon of the valuation process versus a short term valuation
using current market conditions;
|
·
|
The
valuation by individual business segments versus the market share value
based on our company as a whole;
and
|
·
|
The
fact that our stock is thinly traded and widely dispersed with minimal
institutional ownership, and thus not followed by major market analysts,
leading management to conclude that the market in our securities was not
acting as an informationally efficient reflection of all known information
regarding us.
|
Year
|
Amount
|
|||
2009
|
$ | 1,818,180 | ||
2010
|
1,818,180 | |||
2011
|
1,363,640 | |||
$ | 5,000,000 |
Year
Ended December 31,
|
||||||||
2008
|
2007
|
|||||||
(as
restated; see
Note 19
to Consolidated Financial
Statements)
|
||||||||
Revenues:
|
||||||||
Training
and Simulation Division
|
$ | 36,032,703 | $ | 27,760,858 | ||||
Armor
Division
|
17,762,439 | 18,724,107 | ||||||
Battery
and Power Systems Division
|
15,153,827 | 11,234,596 | ||||||
$ | 68,948,969 | $ | 57,719,561 | |||||
Cost
of revenues:
|
||||||||
Training
and Simulation Division
|
$ | 22,017,653 | $ | 15,528,023 | ||||
Armor
Division
|
15,932,478 | 15,906,071 | ||||||
Battery
and Power Systems Division
|
12,227,778 | 8,205,718 | ||||||
$ | 50,177,909 | $ | 39,639,812 | |||||
Research
and development expenses:
|
||||||||
Training
and Simulation Division
|
$ | 797,112 | $ | 629,430 | ||||
Armor
Division
|
247,462 | 115,500 | ||||||
Battery
and Power Systems Division
|
613,094 | 1,132,233 | ||||||
$ | 1,657,668 | $ | 1,877,163 | |||||
Sales
and marketing expenses:
|
||||||||
Training
and Simulation Division
|
$ | 3,232,367 | $ | 2,956,995 | ||||
Armor
Division
|
754,645 | 634,237 | ||||||
Battery
and Power Systems Division
|
712,858 | 570,768 | ||||||
All
Other
|
– | 2,464 | ||||||
$ | 4,699,870 | $ | 4,164,464 | |||||
General
and administrative expenses:
|
||||||||
Training
and Simulation Division
|
$ | 4,068,614 | $ | 3,400,013 | ||||
Armor
Division
|
1,590,549 | 1,295,079 | ||||||
Battery
and Power Systems Division
|
1,239,288 | 1,658,968 | ||||||
All
Other
|
7,195,313 | 6,804,237 | ||||||
$ | 14,093,764 | $ | 13,158,297 | |||||
Escrow
Adjustment:
|
||||||||
All
Other
|
$ | (1,448,074 | ) | $ | – | |||
$ | (1,448,074 | ) | $ | – |
Year
Ended December 31,
|
||||||||
2008
|
2007
|
|||||||
(as
restated; see
Note 19
to Consolidated Financial
Statements)
|
||||||||
Other
income:
|
||||||||
Training
and Simulation Division
|
$ | 34,714 | $ | 122,934 | ||||
Armor
Division
|
63,099 | 152,206 | ||||||
Battery
and Power Systems Division
|
27 | – | ||||||
All
Other
|
325,043 | 342,812 | ||||||
$ | 422,883 | $ | 617,952 | |||||
Financial
expense:
|
||||||||
Training
and Simulation Division
|
$ | 195 | $ | 14,610 | ||||
Armor
Division
|
357,517 | 93,292 | ||||||
Battery
and Power Systems Division
|
313,671 | 176,834 | ||||||
All
Other
|
142,706 | 621,152 | ||||||
$ | 814,089 | $ | 905,888 | |||||
Tax
expenses (credits):
|
||||||||
Training
and Simulation Division
|
$ | 68,608 | $ | 69,930 | ||||
Armor
Division
|
58,147 | 2,639 | ||||||
Battery
and Power Systems Division
|
100,113 | (28,653 | ) | |||||
All
Other
|
800,000 | 565,000 | ||||||
$ | 1,026,868 | $ | 608,916 | |||||
Amortization
of intangible assets:
|
||||||||
Training
and Simulation Division
|
$ | 1,212,958 | $ | 776,736 | ||||
Armor
Division
|
13,350 | 95,907 | ||||||
Battery
and Power Systems Division
|
509,240 | 509,239 | ||||||
$ | 1,735,548 | $ | 1,381,882 | |||||
Loss
from affiliated company:
|
||||||||
Training
and Simulation Division
|
$ | (352,166 | ) | $ | (40,230 | ) | ||
Armor
Division
|
(100,000 | ) | – | |||||
$ | (452,166 | ) | $ | (40,230 | ) | |||
Minority
interest in profit of subsidiaries:
|
||||||||
Armor
Division
|
$ | – | $ | (62,296 | ) | |||
$ | – | $ | (62,296 | ) | ||||
Net
income (loss):
|
||||||||
Training
and Simulation Division
|
$ | 4,317,744 | $ | 4,467,825 | ||||
Armor
Division
|
(1,228,610 | ) | 671,292 | |||||
Battery
and Power Systems Division
|
(562,188 | ) | (990,511 | ) | ||||
All
Other
|
(6,364,902 | ) | (7,650,041 | ) | ||||
$ | (3,837,956 | ) | $ | (3,501,435 | ) |
Ø
|
FAAC,
IES and RTI recognized revenues from the sale of military operations and
vehicle simulators, 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 commercial customers, 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
|
Increased
revenues from our Training and Simulation Division ($8.2 million more in
2008 versus 2007), which includes $2.6 million in revenues from our newly
acquired subsidiary RTI and an increase of approximately $5.0 million in
sales of military vehicle
simulators.
|
Ø
|
Increased
revenues from our Battery and Power Systems Division ($4.0 million more in
2008 versus 2007), primarily due to increased military and commercial
battery sales at Epsilor.
|
Payment
Due by Period
|
||||||||||||||||||||
Contractual
Obligations
|
Total
|
Less
Than 1 Year
|
1-3
Years
|
3-5
Years
|
More
than 5 Years
|
|||||||||||||||
Long-term
debt
|
$ | 6,072,775 | $ | 1,845,285 | $ | 3,242,967 | $ | 71,710 | $ | 912,813 | ||||||||||
Short-term
debt*
|
$ | 3,607,890 | $ | 3,607,890 | $ | – | $ | – | $ | – | ||||||||||
Operating
lease obligations**
|
$ | 3,916,964 | $ | 724,821 | $ | 1,028,113 | $ | 859,614 | $ | 1,304,416 | ||||||||||
Capital
lease obligations
|
$ | 234,166 | $ | 85,394 | $ | 111,908 | $ | 36,864 | $ | – | ||||||||||
Severance
obligations***
|
$ | 5,161,448 | $ | – | $ | 5,161,448 | $ | – | $ | – |
Page
|
||||
Consolidated Financial
Statements
|
||||
F-1 | ||||
F-2 | ||||
F-4 | ||||
F-5 | ||||
F-7 | ||||
F-9 | ||||
Financial Statement
Schedule
|
||||
F-39 |
Name
|
Age
|
Position
|
||
Robert
S. Ehrlich
|
70
|
Chairman
of the Board and Chief Executive Officer
|
||
Steven
Esses
|
45
|
President,
Chief Operating Officer and Director
|
||
Thomas
J. Paup
|
60
|
Vice
President – Finance and Chief Financial Officer
|
||
Dr.
Jay M. Eastman
|
60
|
Director
|
||
Edward
J. Borey
|
58
|
Director
|
||
Seymour
Jones
|
77
|
Director
|
||
Elliot
Sloyer
|
44
|
Director
|
||
Michael
E.
Marrus
|
45
|
Director
|
Name
|
Fees
Earned or Paid in Cash
($)
|
Stock
Awards(1)
($)
|
Total
($)
|
||||||||
Dr.
Jay M. Eastman
|
$ | 32,000 | $ |
15,000
|
(2) | $ | 47,000 | ||||
Edward
J. Borey
|
$ | 32,000 | $ |
15,000
|
(3) | $ | 47,000 | ||||
Seymour
Jones
|
$ | 36,000 | $ |
15,000
|
(4) | $ | 51,000 | ||||
Elliot
Sloyer
|
$ | 32,000 | $ |
25,000
|
(5) | $ | 57,000 | ||||
Michael
E.
Marrus
|
$ | 32,000 | $ |
25,000
|
(6) | $ | 57,000 | ||||
Jack
Rosenfeld (7)
|
$ |
30,000
|
$ | 15,000 | $ | 45,000 | |||||
Lawrence
M. Miller (7)
|
$ |
30,000
|
$ | 15,000 | $ | 45,000 |
(1)
|
This
column reflects the compensation cost for the year ended December 31, 2008
of each director’s restricted stock, calculated in accordance with SFAS
123R.
|
|||||||
(2)
|
As
of December 31, 2008, Dr. Eastman held 8,785 restricted shares of our
common stock.
|
|||||||
(3)
|
As
of December 31, 2008, Mr. Borey held 8,785 restricted shares of our common
stock.
|
|||||||
(4)
|
As
of December 31, 2008, Prof. Jones held 8,785 restricted shares of our
common stock.
|
|||||||
(5)
|
As
of December 31, 2008, Mr. Sloyer held 10,978 restricted shares of our
common stock.
|
|||||||
(6)
|
As
of December 31, 2008, Mr. Marrus held 10,978 restricted shares of our
common stock.
|
|||||||
(7)
|
This
individual retired as a director as of October 27,
2008.
|
Name
|
Age
|
Position
|
||
Dean
Krutty
|
43
|
President,
Training and Simulation Division
|
||
Jonathan
Whartman
|
54
|
President,
Armor Division
|
||
Ronen
Badichi
|
43
|
President,
Battery and Power Systems Division
|
||
Yaakov
Har-Oz
|
51
|
Senior
Vice President, General Counsel and Secretary
|
||
William
Graham
|
49
|
Vice
President of Government Affairs
|
||
Norman
Johnson
|
56
|
Controller
|
Name
and Principal Position
|
Year
|
Salary
($)
|
Bonus
($)
|
Stock
Awards(2)
($)
|
All
Other
Compensation
($)
|
Total
($)
|
|||||||||||||||
Robert
S. Ehrlich
Chairman,
Chief Executive Officer and a director
|
2008
|
$ |
400,000
|
$ | 90,000 | $ | – | $ | 518,017 | (3) | $ | 1,008,017 | |||||||||
2007
|
$ |
400,000
|
$ | 175,000 | $ | 753,783 | $ | 241,411 | (4) | $ | 1,570,194 | ||||||||||
Thomas
J. Paup
Vice
President – Finance and Chief Financial Officer
|
2008
|
$ |
160,000
|
$ | 48,000 | $ | – | $ | 6,188 | (5) | $ | 214,188 | |||||||||
2007
|
$ |
143,100
|
$ | 71,550 | $ | 138,067 | $ | 2,908 | (5) | $ | 355,625 | ||||||||||
Steven
Esses
President,
Chief Operating Officer and a director
|
2008
|
$ |
167,352
|
(6) | $ | 75,000 | $ | – | $ | 136,588 | (7) | $ | 378,940 | ||||||||
2007
|
$ |
72,816
|
(8) | $ | 138,520 | (9) | $ | 259,891 | $ | 106,528 | (10) | $ | 577,755 |
(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, except that certain items are pursuant to
corporate policy paid at a set exchange rate that may be higher than the
actual exchange rate on the date of payment. The difference, which was a
positive number in 2007 and 2008, has been reported under “All Other
Compensation,” below.
|
(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.p. of the Notes to Consolidated Financial Statements. The number of
shares of restricted stock received by our executive officers pursuant to
such awards in 2007, vesting in equal amounts over three years (one-half
based on tenure and performance criteria and one-half based only on
tenure), was as follows: Mr. Ehrlich, 240,000; Mr. Paup, 43,125; Mr.
Esses, 120,000. The number of shares of restricted stock received by our
executive officers pursuant to such awards in 2006, vesting one-quarter
immediately and the remaining three-quarters in equal amounts over three
years (one-half based on tenure and performance criteria and one-half
based only on tenure), was as follows: Mr. Ehrlich, 200,000; Mr. Paup,
53,125; Mr. Esses, 100,000.
|
(3)
|
Of
this amount, $82,802 represents payments to Israeli pension and education
funds; $30,192 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; $176,442 represents the
effect of exchange rate differences on salary and bonus payments; and
$131,771 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.
|
(4)
|
Of
this amount, $69,137 represents payments to Israeli pension and education
funds; $13,289 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; $44,047 represents the
increase of the accrual for vacation days redeemable by Mr. Ehrlich; and
$29,859 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)
|
Represents
the increase in our accrual for Mr. Paup for accrued but unused vacation
days.
|
(6)
|
Does
not include $153,668 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.
|
(7)
|
Of
this amount, $29,671 represents payments to Israeli pension and education
funds; $42,701 represents the effect of exchange rate differences on
salary and bonus payments; and $(21,158) represents the
decrease of our accrual for severance pay that would be payable to Mr.
Esses if we were to terminate his employment.
|
(8)
|
Does
not include $194,598that 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 $24,756 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, $15,744 represents payments to Israeli pension and education
funds; and $4,177 represents the increase of our accrual for severance pay
that would be payable to Mr. Esses if we were to terminate his
employment.
|
Name
of Borrower
|
Date
of Loan
|
Original
Principal
Amount
of Loan
|
Amount
Outstanding
as
of 12/31/08
|
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 | $ | 818,357 |
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 | $ | 46,593 |
Twenty-five-year
non-recourse loan to purchase our stock, secured by the shares of stock
purchased.
|
Name
|
Number
of Shares
Acquired
on Vesting
(#)
|
Value
Realized
on
Vesting(1)
($)
|
||||||
Robert
S.
Ehrlich
|
106,667 | $ | 43,733 | |||||
Steven
Esses
|
45,000 | $ | 18,450 | |||||
Thomas
J.
Paup
|
21,459 | $ | 8,798 |
(1)
|
Reflects
the aggregate market value of the shares of restricted stock determined
based on a per share price of $0.41, the closing price of our common stock
on the Nasdaq Global Market on December 31, 2008, which was the last
trading day of 2008.
|
Option
Awards
|
Stock
Awards
|
|||||||||||||||||||||||||||||||
Number
of Securities Underlying
Unexercised
Options(1)
(#)
|
Equity
Incentive
Plan
Awards
|
|||||||||||||||||||||||||||||||
Name |
Exercisable
|
Unexercisable
|
Option
Exercise
Price ($) |
Option
Expiration
Date
|
Number
of Shares
that Have
Not Vested
(#) |
Market
Value of
Shares that Have
Not Vested(2)
($) |
Number
of
Unearned
Shares
that
Have
Not
Vested
(#) |
Market
Value
of
Unearned
Shares
that
Have
Not
Vested(2)
($)
|
||||||||||||||||||||||||
Robert
S. Ehrlich
|
5,178 | 0 | $ | 5.46 |
12/31/11
|
106,666 | $ | 43,733 | 80,000 | $ | 32,800 | |||||||||||||||||||||
4,687 | 0 | $ | 5.46 |
04/01/12
|
||||||||||||||||||||||||||||
1,116 | 0 | $ | 5.46 |
07/01/12
|
||||||||||||||||||||||||||||
4,687 | 0 | $ | 5.46 |
10/01/12
|
||||||||||||||||||||||||||||
6,294 | 0 | $ | 5.46 |
01/01/13
|
||||||||||||||||||||||||||||
Thomas
J. Paup
|
– | – | – | – | 32,291 | $ | 13,239 | 42,916 | $ | 17,596 | ||||||||||||||||||||||
Steven
Esses
|
714 | 0 | $ | 8.54 |
12/31/12
|
120,000 | $ | 49,200 | 90,000 | $ | 36,900 | |||||||||||||||||||||
1,785 | 0 | $ | 11.62 |
07/22/12
|
(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 $0.41, the closing price of our common stock
on the Nasdaq Global Market on December 31, 2008, which was the last
trading day of 2008.
|
ROBERT
S. EHRLICH
|
||||||||||||||||||||||||
Payments
and Benefits
|
Death
or
Disability(1)
|
Cause(2)
|
Good
Reason(3)
|
Change
of
Control(4)
|
Termination
at
Will(5)
|
Other
Employee
Termination(6)
|
||||||||||||||||||
Accrued
but unpaid:
|
||||||||||||||||||||||||
Base
salary
|
$ | 33,333 | $ | 33,333 | $ | 33,333 | $ | 33,333 | $ | 33,333 | $ | 33,333 | ||||||||||||
Vacation
|
77,340 | 77,340 | 77,340 | 77,340 | 77,340 | 77,340 | ||||||||||||||||||
Recuperation
pay(7)
|
363 | 363 | 363 | 363 | 363 | 363 | ||||||||||||||||||
Benefits:
|
||||||||||||||||||||||||
Manager’s
insurance(8)
|
5,277 | 5,277 | 5,277 | 5,277 | 5,277 | 5,277 | ||||||||||||||||||
Continuing
education fund(9)
|
2,500 | 2,500 | 2,500 | 2,500 | 2,500 | 2,500 | ||||||||||||||||||
Tax
gross-up on automobile
|
1,167 | – | 1,167 | 1,167 | 1,167 | – | ||||||||||||||||||
Contractual
severance
|
1,625,400 | – | 1,625,400 | 1,625,400 | 1,625,400 | – | ||||||||||||||||||
Statutory
severance(10)
|
715,388 | – | 715,388 | 715,388 | 715,388 | – | ||||||||||||||||||
Accelerated
vesting of restricted stock
|
168,800 | – | 168,800 | 168,800 | – | – | ||||||||||||||||||
TOTAL:
|
$ | 2,629,568 | $ | 118,813 | $ | 2,629,568 | $ | 2,629,568 | $ | 2,460,768 | $ | 118,813 |
(1)
|
“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.
|
(2)
|
“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.
|
(3)
|
“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.
|
(4)
|
“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 2/3 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 1/3 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.
|
(5)
|
“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.
|
(6)
|
“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.”
|
(7)
|
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 $86) per day.
|
(8)
|
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 31, 2008, which funds are
reflected in the table under the “Statutory severance”
heading.
|
(9)
|
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 31, 2008, the ceiling
then in effect was NIS 15,712 (approximately $4,133). 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.
|
(10)
|
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.
|
STEVEN
ESSES
|
||||||||||||||||||||||||||||||||||||
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
|
$ | 13,946 | $ | 13,946 | $ | 13,946 | $ | 13,946 | $ | 13,946 | $ | 13,946 | $ | 13,946 | $ | 13,946 | $ | 13,946 | ||||||||||||||||||
Vacation
|
64,721 | 64,721 | 64,721 | 64,721 | 64,721 | 64,721 | 64,721 | 64,721 | 64,721 | |||||||||||||||||||||||||||
Sick
leave(11)
|
17,455 | 17,455 | – | 17,455 | 17,455 | 17,455 | 17,455 | 17,455 | – | |||||||||||||||||||||||||||
Recuperation
pay(12)
|
254 | 254 | 254 | 254 | 254 | 254 | 254 | 254 | 254 | |||||||||||||||||||||||||||
Benefits:
|
||||||||||||||||||||||||||||||||||||
Manager’s
insurance(13)
|
2,209 | 2,209 | 2,209 | 2,209 | 2,209 | 2,209 | 2,209 | 2,209 | 2,209 | |||||||||||||||||||||||||||
Continuing
education fund(14)
|
1,415 | 1,415 | 1,415 | 1,415 | 1,415 | 1,415 | 1,415 | 1,415 | 1,415 | |||||||||||||||||||||||||||
Tax
gross-up on automobile
|
1,167 | 1,167 | – | 1,167 | 1,167 | 1,167 | 1,167 | 1,167 | – | |||||||||||||||||||||||||||
Contractual
severance
|
356,432 | 356,432 | – | 356,432 | 356,432 | 356,432 | 356,432 | 356,432 | – | |||||||||||||||||||||||||||
Statutory
severance(15)
|
70,738 | 70,738 | – | 70,738 | 70,738 | 70,738 | 70,738 | 70,738 | – | |||||||||||||||||||||||||||
Benefits
|
75,000 | 75,000 | – | 75,000 | 150,000 | 150,000 | 150,000 | 150,000 | – | |||||||||||||||||||||||||||
TOTAL:
|
$ | 603,337 | $ | 603,337 | $ | 82,545 | $ | 603,337 | $ | 603,337 | $ | 603,337 | $ | 603,337 | $ | 603,337 | $ | 82,545 |
(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 2/3 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 1/3 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 31, 2008 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 $86) 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 31, 2008, 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 31, 2008, the ceiling then in effect
was NIS 15,712 (approximately $4,350). 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.
|
THOMAS
J. PAUP
|
||||||||||||||||
Payments
and Benefits
|
Death
or
Disability(1)
|
Cause(2)
|
Change
of
Control(3)
|
Non-Renewal(4)
|
||||||||||||
Accrued
but unpaid:
|
||||||||||||||||
Base
salary
|
$ | 6,666 | $ | 6,666 | $ | 6,666 | $ | 6,666 | ||||||||
Vacation
|
11,692 | 11,692 | 11,692 | 11,692 | ||||||||||||
Contractual
severance
|
– | – | 160,000 | 80,000 | ||||||||||||
TOTAL:
|
$ | 18,358 | $ | 18,358 | $ | 178,358 | $ | 98,358 |
(1)
|
“Disability”
is defined in Mr. Paup’s employment agreement as a physical or mental
infirmity which impairs the Mr. Paup’s ability to substantially perform
his duties and which continues for a period of at least 180 consecutive
days.
|
(2)
|
“Cause”
is defined in Mr. Paup’s employment agreement as (i) a breach of trust by
Mr. Paup, including, for example, but without limitation, commission of an
act of moral turpitude, theft, embezzlement, self-dealing or insider
trading; (ii) the unauthorized disclosure by Mr. Paup of confidential
information of or relating to us; (iii) a material breach by Mr. Paup of
his employment agreement; or (iv) any act of, or omission by, Mr. Paup
which, in our reasonable judgment, amounts to a serious failure by Mr.
Paup to perform his responsibilities or functions or in the exercise of
his authority, which failure, in our reasonable judgment, rises to a level
of gross nonfeasance, misfeasance or malfeasance.
|
(3)
|
“Change
of Control” is defined in Mr. Paup’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
December 31, 2007, were members of our Board of Directors (the “Original
Board”), together with individuals approved by a vote of at least 2/3 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 1/3 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.
|
(4)
|
“Non-Renewal”
is defined in Mr. Paup’s employment agreement as Mr. Paup terminating his
employment with us on written notice of at least 120 days in advance of
the effective date of such
termination.
|
Name and Address of Beneficial Owner(1)
|
Shares Beneficially Owned(2)(3)
|
Percentage
of Total Shares Outstanding(3)
|
||||||
Dimensional
Fund Advisors LP
|
681,759
|
(4) | 5.0 | % | ||||
Robert
S. Ehrlich
|
606,393
|
(5) | 4.4 | % | ||||
Steven
Esses
|
349,284
|
(6) | 2.6 | % | ||||
Thomas
J. Paup
|
139,166
|
(7) | 1.0 | % | ||||
Dr.
Jay M. Eastman
|
10,430
|
(8) | * | |||||
Edward
J. Borey
|
11,572
|
(9) | * | |||||
Prof.
Seymour Jones
|
10,430
|
(10) | * | |||||
Elliot
Sloyer
|
43,720
|
(11) | * | |||||
Michael
E. Marrus
|
13,720
|
(12) | * | |||||
All
of our directors and executive officers as a group (8
persons)
|
1,184,715
|
(13) | 8.7 | % |
*
|
Less
than one percent.
|
|
(1)
|
The
address of each named beneficial owner other than Dimensional Fund
Advisors LP 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 13,637,639 shares of common stock outstanding as of February 28, 2009.
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)
|
Dimensional
Fund Advisors LP (“Dimensional”), Palisades West, Building One, 6300 Bee
Cave Road, Austin, Texas, 78746, an investment advisor registered under
Section 203 of the Investment Advisors Act of 1940, furnishes investment
advice to four investment companies registered under the Investment
Company Act of 1940, and serves as investment manager to certain other
commingled group trusts and separate accounts. These investment companies,
trusts and accounts are the “Funds.” In its role as investment advisor or
manager, Dimensional possesses investment and/or voting power over our
securities that are owned by the Funds, and may be deemed to be the
beneficial owner of our shares held by the Funds. However, all such
securities are owned by the Funds. Dimensional disclaims beneficial
ownership of such securities. All information in this footnote and in the
text to which this footnote relates is based on a Schedule 13G filed with
the Securities and Exchange Commission on February 6, 2008, as amended on
February 9, 2009.
|
|
(5)
|
Consists
of 382,667 shares held directly by Mr. Ehrlich, 186,666 shares of unvested
restricted stock (the vesting of 80,000 of which is subject to future
performance criteria), 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, and 21,962 shares issuable upon exercise of
options exercisable within 60 days of February 28,
2009.
|
|
(6)
|
Consists
of 136,785 shares held directly by Mr. Esses, 210,000 shares of unvested
restricted stock (the vesting of 90,000 of which is subject to future
performance criteria), and 2,499 shares issuable upon exercise of options
exercisable within 60 days of February 28, 2009.
|
|
(7)
|
Consists
of 63,959 shares held directly by Mr. Paup and 75,207 shares of unvested
restricted stock (the vesting of 42,916 of which is subject to future
performance criteria).
|
|
(8)
|
Consists
of 1,645 shares owned directly by Dr. Eastman and 8,785 shares of unvested
restricted stock.
|
|
(9)
|
Consists
of 2,787 shares owned directly by Mr. Borey and 8,785 shares of unvested
restricted stock.
|
|
(10)
|
Consists
of 1,645 shares owned directly by Prof. Jones and 8,785 shares of unvested
restricted stock.
|
|
(11)
|
Consists
of 32,742 shares owned directly by Mr. Sloyer and 10,978 shares of
unvested restricted stock.
|
|
(12)
|
Consists
of 2,742 shares owned directly by Mr. Marrus and 10,978 shares of unvested
restricted stock.
|
|
(13)
|
Includes
24,461 shares issuable upon exercise of options exercisable within 60 days
of February 28, 2009 and 520,184 shares of unvested restricted stock (the
vesting of 212,916 of which is subject to future performance
criteria).
|
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)
|
951,564 | $ | 6.28 |
None
|
(1)
|
For
a description of the material features of grants of options and warrants
other than options granted under our employee stock option plans, see Note
13.c. of the Notes to the Consolidated Financial
Statements.
|
|
(2)
|
All
of the plans are currently over-subscribed and will be revised based on a
new equity compensation plan that is in development that will be voted on
at our next annual meeting of
stockholders.
|
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, 2008 and 2007 totaled
approximately $514,000 and $428,000,
respectively.
|
Ø
|
Audit-Related
Fees. BDO billed us $23,000 and $16,000 for the fiscal
years ended December 31, 2008 and 2007, 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 or expected to bill us an aggregate of $25,000 for each of the
fiscal years ended December 31, 2008 and 2007, for tax services,
principally advice regarding the preparation of income tax
returns.
|
Ø
|
All Other Fees.
BDO did
not provide additional services other than the services reported
above.
|
(1)
|
Financial
Statements – See Index to Financial Statements on page 31 above and
the financial pages following page 48 below.
|
(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
|
|
(3)
|
3.1.1
|
Amendment
to our Amended and Restated Certificate of
Incorporation
|
|
(6)
|
3.1.2
|
Amendment
to our Amended and Restated Certificate of
Incorporation
|
|
(7)
|
3.1.3
|
Amendment
to our Amended and Restated Certificate of
Incorporation
|
|
(12)
|
3.1.4
|
Amendment
to our Amended and Restated Certificate of
Incorporation
|
|
(2)
|
3.2
|
Amended
and Restated By-Laws
|
|
(7)
|
4.1
|
Specimen
Certificate for shares of common stock, $.01 par value
|
|
(10)
|
10.1
|
Promissory
Note dated December 3, 1999, from Robert S. Ehrlich to
us
|
|
(10)
|
10.2
|
Promissory
Note dated February 9, 2000, from Robert S. Ehrlich to
us
|
|
(10)
|
10.3
|
Promissory
Note dated January 12, 2001, from Robert S. Ehrlich to
us
|
|
(4)
|
10.4
|
Agreement
of Lease dated December 6, 2000 between Janet Nissim et al. and M.D.T.
Protection (2000) Ltd. [English summary of Hebrew
original]
|
|
(4)
|
10.5
|
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]
|
|
(5)
|
10.6
|
Promissory
Note dated July 1, 2002 from Robert S. Ehrlich to us
|
|
(5)
|
10.7
|
Lease
dated April 8, 1997, between AMR Holdings, L.L.C. and FAAC
Incorporated
|
|
†
(7)
|
10.8
|
Consulting
Agreement, effective as of January 1, 2005, between us and Sampen
Corporation
|
|
†
(13)
|
10.9
|
Fourth
Amended and Restated Employment Agreement, dated April 16, 2007, between
us, EFL and Robert S. Ehrlich
|
|
**
|
10.9.1
|
||
†
(15)
|
10.10
|
Amended
and Restated Employment Agreement, dated April 14, 2008 and effective as
of January 1, 2008, between EFL and Steven Esses
|
|
**
|
10.10.1
|
||
(11)
|
10.11
|
Conversion
Agreement dated April 7, 2006 between us and the Investors named
therein
|
|
†
(15)
|
10.12
|
Amended
and Restated Employment Agreement between the Company and Thomas J. Paup
dated April 14, 2008 and effective as of January 1,
2008
|
|
**
|
10.12.1
|
||
(10)
|
10.13
|
Lease
dated February 10, 2006 between Arbor Development Company LLC and FAAC
Incorporated
|
|
(14)
|
10.14
|
Loan
Agreement between FAAC Incorporated and Keybank National Association dated
December 27, 2007
|
|
(14)
|
10.15
|
Security
Agreement between us and Keybank National Association dated December 27,
2007
|
|
(14)
|
10.16
|
Guaranty
from us to Keybank National Association dated December 27,
2007
|
|
*
(15)
|
10.17
|
Agreement
with Yossi Bar in respect of our purchase of the minority interest of
M.D.T. Protective Industries Ltd. and MDT Armor Corporation dated January
15, 2008
|
|
(15)
|
10.18
|
Stock
Purchase Agreement among FAAC Incorporated, Realtime Technologies Ltd. and
Richard Romano dated February 4, 2008
|
|
(16)
|
10.19
|
Securities
Purchase Agreement dated August 14, 2008 between us and the Investors
named therein
|
|
(16)
|
10.20
|
Form
of Senior Subordinated Note due August 15, 2011
|
|
(16)
|
10.21
|
Form
of Warrant dated August 14, 2008
|
|
(16)
|
10.22
|
Convertible
Note of DEI Services Corporation due December 31, 2009
|
|
(16)
|
10.23
|
Limited
Guaranty, Pledge and Voting Agreement from the stockholders of DEI
Services Corporation dated August 14, 2008
|
|
(9)
|
21.1
|
List
of Subsidiaries of the Registrant
|
|
**
|
23.1
|
||
**
|
31.1
|
||
**
|
31.2
|
||
**
|
32.1
|
||
**
|
32.2
|
*
|
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 January 6,
2003
|
|
(4)
|
Incorporated
by reference to our Annual Report on Form 10-K for the year ended December
31, 2002
|
|
(5)
|
Incorporated
by reference to our Annual Report on Form 10-K for the year ended December
31, 2003
|
|
(6)
|
Incorporated
by reference to our Current Report on Form 8-K filed July 15,
2004
|
|
(7)
|
Incorporated
by reference to our Annual Report on Form 10-K for the year ended December
31, 2004
|
|
(8)
|
Incorporated
by reference to our Quarterly Report on Form 10-Q for the quarter ended
June 30, 2004
|
|
(9)
|
Incorporated
by reference to our Current Report on Form 8-K filed January 5,
2006
|
|
(10)
|
Incorporated
by reference to our Annual Report on Form 10-K for the year ended December
31, 2005
|
|
(11)
|
Incorporated
by reference to our Current Report on Form 8-K filed April 7,
2006
|
|
(12)
|
Incorporated
by reference to our Quarterly Report on Form 10-Q for the quarter ended
June 30, 2006
|
|
(13)
|
Incorporated
by reference to our Annual Report on Form 10-K for the year ended December
31, 2006
|
|
(14)
|
Incorporated
by reference to our Current Report on Form 8-K filed January 3,
2008
|
|
(15)
|
Incorporated
by reference to our Annual Report on Form 10-K for the year ended December
31, 2007
|
|
(16)
|
Incorporated
by reference to our Current Report on Form 8-K filed August 15,
2008
|
Signature
|
Title
|
Date
|
/s/ Robert S.
Ehrlich
Robert
S. Ehrlich
|
Chairman
Chief Executive Officer and Director
(Principal
Executive Officer)
|
April 9, 2009
|
/s/ Thomas J.
Paup
Thomas
J. Paup
|
Vice
President – Finance
(Principal
Financial Officer)
|
April 9, 2009
|
/s/ Norman
Johnson
Norman
Johnson
|
Controller
(Principal
Accounting Officer)
|
April 9, 2009
|
/s/ Steven
Esses
Steven
Esses
|
President,
Chief Operating Officer
and
Director
|
April 9, 2009
|
/s/ Jay M.
Eastman
Dr.
Jay M. Eastman
|
Director
|
April 9, 2009
|
_____________________
Edward J. Borey
|
Director
|
April
__, 2009
|
/s/ Seymour
Jones
Seymour
Jones
|
Director
|
April 9, 2009
|
/s/ Elliot
Sloyer
Elliot
Sloyer
|
Director
|
April 9, 2009
|
/s/ Michael E.
Marrus
Michael
E. Marrus
|
Director
|
April 9,
2009
|
December
31,
|
||||||||
2008
|
2007
|
|||||||
(as
restated; see
Note 19)
|
||||||||
ASSETS
|
||||||||
CURRENT
ASSETS:
|
||||||||
Cash
and cash equivalents
|
$ | 4,301,359 | $ | 3,447,671 | ||||
Restricted
collateral deposits
|
381,586 | 320,454 | ||||||
Escrow
receivable
|
– | 1,479,826 | ||||||
Available
for sale marketable securities
|
49,204 | 47,005 | ||||||
Trade
receivables (net of allowance for doubtful accounts in the amounts of
$19,000 and $25,000 as of December 31, 2008 and 2007,
respectively)
|
19,346,084 | 14,583,213 | ||||||
Unbilled
receivables
|
4,769,264 | 3,271,594 | ||||||
Other
accounts receivable and prepaid expenses
|
3,625,955 | 1,614,614 | ||||||
Inventories
|
9,678,960 | 7,887,820 | ||||||
Total
current assets
|
42,152,412 | 32,652,197 | ||||||
DEFERRED
TAX ASSET
|
72,114 | 77,709 | ||||||
SEVERANCE
PAY FUND
|
2,888,867 | 2,815,040 | ||||||
OTHER
LONG-TERM RECEIVABLES
|
463,780 | 309,190 | ||||||
PROPERTY
AND EQUIPMENT, NET
|
5,058,263 | 5,079,796 | ||||||
INVESTMENT
IN AFFILIATED COMPANY
|
40,987 | 352,168 | ||||||
OTHER
INTANGIBLE ASSETS, NET
|
6,867,873 | 7,837,076 | ||||||
GOODWILL
|
32,250,503 | 31,358,131 | ||||||
Total
long term assets
|
47,642,387 | 47,829,110 | ||||||
Total
Assets
|
$ | 89,794,799 | $ | 80,481,307 |
December
31,
|
||||||||
2008
|
2007
|
|||||||
(as
restated; see
Note 19)
|
||||||||
LIABILITIES
AND STOCKHOLDERS’ EQUITY
|
||||||||
CURRENT
LIABILITIES:
|
||||||||
Trade
payables
|
$ | 9,664,558 | $ | 4,233,288 | ||||
Other
accounts payable and accrued expenses
|
5,858,959 | 4,889,729 | ||||||
Current
portion of capitalized leases
|
62,833 | 67,543 | ||||||
Current
portion of promissory notes due to purchase of
subsidiaries
|
– | 151,450 | ||||||
Current
portion of long term debt
|
1,861,187 | 103,844 | ||||||
Short
term bank credit
|
3,607,890 | 4,557,890 | ||||||
Deferred
revenues
|
3,789,020 | 2,903,166 | ||||||
Total
current liabilities
|
24,844,447 | 16,906,910 | ||||||
LONG
TERM LIABILITIES
|
||||||||
Accrued
severance pay
|
5,161,448 | 4,853,231 | ||||||
Long
term portion of capitalized leases
|
122,090 | 86,989 | ||||||
Long
term debt
|
3,866,727 | 1,088,498 | ||||||
Deferred
tax liability
|
2,430,000 | 1,865,000 | ||||||
Other
long term liabilities
|
146,738 | 110,255 | ||||||
Total
long-term liabilities
|
11,727,003 | 8,003,973 | ||||||
COMMITMENTS
AND CONTINGENT LIABILITIES (Note 11)
|
||||||||
MINORITY
INTEREST
|
– | 83,816 | ||||||
STOCKHOLDERS’
EQUITY:
|
||||||||
Share
capital –
|
||||||||
Common
stock – $0.01 par value each;
|
||||||||
Authorized:
250,000,000 shares as of December 31, 2008 and 2007; Issued and
Outstanding: 13,637,639 shares and 13,544,819 shares as of December 31,
2008 and 2007, respectively;
|
136,377 | 135,448 | ||||||
Preferred
shares – $0.01 par value each;
|
||||||||
Authorized:
1,000,000 shares as of December 31, 2008 and 2007; No shares issued and
outstanding as of December 31, 2008 and 2007
|
– | – | ||||||
Additional
paid-in capital
|
220,124,075 | 218,551,110 | ||||||
Accumulated
deficit
|
(167,205,514 | ) | (163,367,558 | ) | ||||
Notes
receivable from shareholders
|
(1,357,788 | ) | (1,333,833 | ) | ||||
Accumulated
other comprehensive income
|
1,526,199 | 1,501,441 | ||||||
Total
stockholders’ equity
|
53,223,349 | 55,486,608 | ||||||
$ | 89,794,799 | $ | 80,481,307 |
2008
|
2007
|
|||||||
(as
restated; see
Note 19)
|
||||||||
Revenues
|
$ | 68,948,969 | $ | 57,719,561 | ||||
Cost
of revenues, exclusive of amortization of intangibles
|
50,177,909 | 39,639,812 | ||||||
Research
and development
|
1,657,668 | 1,877,163 | ||||||
Selling
and marketing expenses
|
4,699,870 | 4,164,464 | ||||||
General
and administrative expenses
|
14,093,764 | 13,158,297 | ||||||
Amortization
of intangible assets
|
1,735,548 | 1,381,882 | ||||||
Escrow
adjustment
|
(1,448,074 | ) | – | |||||
Total
operating costs and expenses
|
70,916,685 | 60,221,618 | ||||||
Operating
loss
|
(1,967,716 | ) | (2,502,057 | ) | ||||
Other
income
|
422,883 | 617,952 | ||||||
Financial
expenses, net
|
(814,089 | ) | (905,888 | ) | ||||
Loss
before minority interest in earnings of a subsidiaries, earnings from
affiliated company, and income tax expenses
|
(2,358,922 | ) | (2,789,993 | ) | ||||
Income
taxes
|
(1,026,868 | ) | (608,916 | ) | ||||
Losses
from affiliated companies
|
(452,166 | ) | (40,230 | ) | ||||
Minority
interest in earnings of subsidiaries
|
– | (62,296 | ) | |||||
Net
loss
|
$ | (3,837,956 | ) | $ | (3,501,435 | ) | ||
Basic
and diluted net loss per share
|
$ | (0.30 | ) | $ | (0.31 | ) | ||
Weighted
average number of shares used in computing basic and diluted net loss per
share
|
12,605,786 | 11,274,387 |
|
Common
stock
|
||||||||||||||||||||||||||
Shares
|
Amount
|
Additional
paid-in
capital
|
Accumulated
deficit
|
Treasury
stock
|
Notes
receivable
from
stockholders
|
Accumulated
other
comprehensive
income
(loss)
|
Total
comprehensive
income
(loss)
|
Total
stockholders’
equity
|
|||||||||||||||||||
Balance
as of January 1, 2007 as previously reported
|
12,023,242 | $ | 120,232 | $ | 217,735,860 | $ | (159,466,123 | ) | $ | (3,537,106 | ) | $ | (1,304,179 | ) | $ | 511,154 | $ | – | $ | 54,059,838 | |||||||
Prior
period adjustment
|
– | – | – | (400,000 | ) | – | – | – | – | (400,000 | ) | ||||||||||||||||
Balance
as of January 1, 2007, as adjusted
|
12,023,242 | $ | 120,232 | $ | 217,735,860 | $ | (159,866,123 | ) | $ | (3,537,106 | ) | $ | (1,304,179 | ) | $ | 511,154 | $ | – | $ | 53,659,838 | |||||||
Principal
installment of convertible debenture payment in shares
|
930,125 | 9,301 | 2,873,454 | – | – | – | – | – | 2,882,755 | ||||||||||||||||||
Treasury
shares cancellation
|
(39,666 | ) | (396 | ) | (3,536,710 | ) | – | 3,537,106 | – | – | – | – | |||||||||||||||
Stock
based compensation
|
– | – | 1,417,521 | – | – | – | – | – | 1,417,521 | ||||||||||||||||||
Stock
options and restricted stock
|
631,118 | 6,311 | 31,331 | – | – | – | – | – | 37,642 | ||||||||||||||||||
Interest
accrued on notes receivable from shareholders
|
– | – | 29,654 | – | (29,654 | ) | – | – | – | ||||||||||||||||||
Other
comprehensive loss – foreign currency translation
adjustment
|
– | – | – | – | – | – | 988,740 | 988,740 | 988,740 | ||||||||||||||||||
Other
comprehensive loss – unrealized gain on available for sale marketable
securities
|
– | – | – | – | – | – | 1,547 | 1,547 | 1,547 | ||||||||||||||||||
Net
loss as restated
|
– | – | – | (3,501,435 | ) | – | – | – | (3,501,435 | ) | (3,501,435 | ) | |||||||||||||||
Total
comprehensive loss as restated
|
– | – | – | – | – | – | – | $ | (2,511,148 | ) | – | ||||||||||||||||
Balance
as of December 31, 2007 as restated
|
13,544,819 | $ | 135,448 | $ | 218,551,110 | $ | (163,367,558 | ) | $ | – | $ | (1,333,833 | ) | $ | 1,501,441 | $ | 55,486,608 |
Common
stock
|
||||||||||||||||||||||||||||||||
Shares
|
Amount
|
Additional
paid-in
capital
|
Accumulated
deficit
|
Notes
receivable
from
stockholders
|
Accumulated
other
comprehensive
income
(loss)
|
Total
comprehensive
income
(loss)
|
Total
stockholders’
equity
|
|||||||||||||||||||||||||
Balance
as of January 1, 2008
|
13,544,819 | $ | 135,448 | $ | 218,551,110 | $ | (163,367,558 | ) | $ | (1,333,833 | ) | $ | 1,501,441 | $ | – | $ | 55,486,608 | |||||||||||||||
Issuance
of warrants
|
– | – | 412,300 | – | – | – | – | 412,300 | ||||||||||||||||||||||||
Stock
based compensation
|
– | – | 1,039,270 | – | – | – | – | 1,039,270 | ||||||||||||||||||||||||
Stock
options and restricted stock
|
38,472 | 385 | (385 | ) | – | – | – | – | ||||||||||||||||||||||||
Issuance
of stock for acquisition
|
54,348 | 544 | 97,825 | – | – | – | – | 98,369 | ||||||||||||||||||||||||
Interest
accrued on notes receivable from shareholders
|
– | – | 23,955 | – | (23,955 | ) | – | – | – | |||||||||||||||||||||||
Other
comprehensive loss – foreign currency translation
adjustment
|
– | – | – | – | – | 23,103 | 23,103 | 23,103 | ||||||||||||||||||||||||
Other
comprehensive loss – unrealized gain on available for sale marketable
securities
|
– | – | – | – | – | 1,655 | 1,655 | 1,655 | ||||||||||||||||||||||||
Net
loss
|
– | – | – | (3,837,956 | ) | – | – | (3,837,956 | ) | (3,837,956 | ) | |||||||||||||||||||||
Total
comprehensive loss
|
– | – | – | – | – | – | $ | (3,813,198 | ) | – | ||||||||||||||||||||||
Balance
as of December 31, 2008
|
13,637,639 | $ | 136,377 | $ | 220,124,075 | $ | (167,205,514 | ) | $ | (1,357,788 | ) | $ | 1,526,199 | $ | 53,223,349 |
2008
|
2007
|
|||||||
Cash
flows from operating activities:
|
(as
restated; see
Note 19)
|
|||||||
Net
loss
|
$ | (3,837,956 | ) | $ | (3,501,435 | ) | ||
Adjustments
required to reconcile net loss to net cash used in operating
activities:
|
||||||||
Minority
interest in loss of subsidiary
|
– | 62,296 | ||||||
Loss
from affiliated companies
|
452,168 | 40,230 | ||||||
Depreciation
|
1,246,238 | 1,376,749 | ||||||
Amortization
of intangible assets and capitalized software costs
|
1,735,548 | 1,381,822 | ||||||
Escrow
adjustment
|
(1,845,977 | ) | – | |||||
Accrued
severance pay, net
|
234,390 | 245,599 | ||||||
Compensation
related to shares issued to employees, consultants and
directors
|
1,039,270 | 1,417,521 | ||||||
Financial
expenses in connection with convertible debenture principle
repayment
|
– | 280,382 | ||||||
Amortization
related to warrants issued to the holders of convertible debentures and
beneficial conversion feature
|
– | 18,745 | ||||||
Amortization
of deferred charges related to convertible debentures
issuance
|
– | 44,253 | ||||||
Amortization
of debt discount
|
51,537 | – | ||||||
Capital
gain (loss) from sale of property and equipment
|
(11,379 | ) | 56,224 | |||||
Increase
in trade receivables
|
(4,570,057 | ) | (6,802,248 | ) | ||||
Decrease
(increase) in other accounts receivable and prepaid
expenses
|
234,402 | (706,569 | ) | |||||
Decrease
in deferred taxes
|
570,595 | 545,323 | ||||||
Increase
in inventories
|
(1,760,946 | ) | (36,000 | ) | ||||
Decrease
(increase) in unbilled receivables
|
(1,432,369 | ) | 3,630,939 | |||||
Increase
in deferred revenues
|
885,854 | 1,581,854 | ||||||
Increase
in trade payables
|
5,420,310 | 1,425,156 | ||||||
Increase
(decrease) in other accounts payable and accrued expenses
|
911,112 | (137,834 | ) | |||||
Net
cash provided by (used in) operating activities
|
$ | (677,260 | ) | $ | 923,007 | |||
Cash
flows from investing activities:
|
||||||||
Purchase
of property and equipment
|
(1,191,822 | ) | (1,594,426 | ) | ||||
Purchase
of convertible notes
|
(2,500,000 | ) | – | |||||
Increase
in capitalized software costs
|
– | (15,750 | ) | |||||
Proceeds
from escrow settlement
|
3,325,803 | – | ||||||
Acquisition
of subsidiary, net of cash acquired
|
(1,037,884 | ) | – | |||||
Acquisition
of minority interest
|
(660,500 | ) | – | |||||
Investment
in affiliated company
|
(140,987 | ) | – | |||||
Repayment
of promissory notes related to acquisition of subsidiaries
|
(151,450 | ) | (302,900 | ) | ||||
Proceeds
from sale of property and equipment
|
87,521 | 36,061 | ||||||
Decrease
(increase) in restricted cash
|
(63,331 | ) | 322,682 | |||||
Net
cash used in investing activities
|
$ | (2,332,650 | ) | $ | (1,554,333 | ) |
2008
|
2007
|
|||||||
(as
restated; see
Note 19)
|
||||||||
Forward
|
$ | (3,009,910 | ) | $ | (631,326 | ) | ||
Cash
flows from financing activities:
|
||||||||
Proceeds
from exercise of options
|
– | 37,642 | ||||||
Repayment
of long term loans
|
(166,165 | ) | 549,874 | |||||
Increase
(decrease) in short term bank credit
|
(950,000 | ) | 1,061,883 | |||||
Increase
in long term debt
|
5,000,000 | – | ||||||
Net
cash provided by financing activities
|
$ | 3,883,835 | $ | 1,649,399 | ||||
Increase
in cash and cash equivalents
|
873,925 | 1,018,073 | ||||||
Cash
accretion (erosion) due to exchange rate differences
|
(20,237 | ) | 60,726 | |||||
Cash
and cash equivalents at the beginning of the year
|
3,447,671 | 2,368,872 | ||||||
Cash
and cash equivalents at the end of the year
|
$ | 4,301,359 | $ | 3,447,671 | ||||
Supplementary
information on non-cash and other transactions:
|
||||||||
Stock
issued for acquisition
|
$ | 100,000 | $ | – | ||||
Assets
recorded for capital lease addition
|
$ | 106,029 | $ | – | ||||
Mortgage
note payable (seller financed) issued for purchase of
building
|
$ | – | $ | 1,115,000 | ||||
Interest
paid during the period
|
$ | 455,051 | $ | 662,789 | ||||
Taxes
on income paid during the period
|
$ | 333,144 | $ | 298,109 | ||||
Relative
fair value of warrants issued in connections with convertible
note
|
$ | 412,300 | $ | – | ||||
Payment
of principal installment of convertible debentures in
shares
|
$ | – | $ | 2,882,753 |
Current
assets acquired, net of liabilities
|
$ | 433,389 | ||
Technology
and Patents - 7 year life
|
663,000 | |||
Trademark/Trade
Names - 10 year life
|
28,000 | |||
Customer
relationships - 10 year life
|
62,000 | |||
Goodwill
- indefinite life
|
200,222 | |||
Equity
Value
|
$ | 1,386,611 |
·
|
The
long term horizon of the valuation process versus a short term valuation
using current market conditions;
|
·
|
The
valuation by individual business segments versus the market share value
based on the Company as a whole;
and
|
·
|
The
fact that the Company’s stock is thinly traded and widely dispersed with
minimal institutional ownership, and thus not followed by major market
analysts, leading management to conclude that the market in the Company’s
securities was not acting as an informationally efficient reflection of
all known information regarding the
Company.
|
Depreciable
life (in years)
|
|
Computers
and related equipment
|
3
to 5
|
Motor
vehicles
|
5
to 7
|
Demo
inventory
|
5
|
Office
furniture and equipment
|
10
|
Machinery
and equipment
|
10
|
Buildings
|
30
|
Leasehold
improvements
|
By
the shorter of the term of the lease or the life of the
asset
|
December
31,
|
||||||||
2008
|
2007
|
|||||||
Short-term:
|
||||||||
Deposits
in connection with MDT projects
|
$ | 381,586 | $ | 254,668 | ||||
Deposits
in connection with EFL projects
|
– | 65,786 | ||||||
Total
Restricted Collateral
|
$ | 381,586 | $ | 320,454 |
Cost
|
Unrealized
gains
|
Estimated
fair value
|
||||||||||||||||||||||
2008
|
2007
|
2008
|
2007
|
2008
|
2007
|
|||||||||||||||||||
Available
for sale marketable securities
|
$ | 47,005 | $ | 41,166 | $ | 2,199 | $ | 5,839 | $ | 49,204 | $ | 47,005 |
December
31,
|
|||||||||
2008
|
2007
|
||||||||
Government
authorities
|
$ | 114,090 | $ | 259,036 | |||||
Employees
|
45,458 | 60,950 | |||||||
Prepaid
expenses
|
623,561 | 790,158 | |||||||
Loan
to non-affiliated entity
|
2,531,250 | – | |||||||
Other
|
311,596 | 504,470 | |||||||
Total
|
$ | 3,625,955 | $ | 1,614,614 |
December
31,
|
||||||||
2008
|
2007
|
|||||||
Raw
and packaging materials
|
$ | 6,798,662 | $ | 6,043,170 | ||||
Work
in progress
|
2,251,734 | 1,583,790 | ||||||
Finished
products
|
628,564 | 260,860 | ||||||
Total
|
$ | 9,678,960 | $ | 7,887,820 |
December
31,
|
||||||||
2008
|
2007
|
|||||||
Cost:
|
||||||||
Computers and related
equipment
|
$ | 2,408,734 | $ | 2,494,370 | ||||
Motor vehicles
|
529,685 | 561,737 | ||||||
Office furniture and
equipment
|
1,030,199 | 1,194,132 | ||||||
Machinery, equipment
and installations
|
5,499,776 | 4,485,959 | ||||||
Buildings
|
1,172,072 | 1,172,072 | ||||||
Land
|
115,538 | 115,538 | ||||||
Leasehold
improvements
|
973,360 | 846,271 | ||||||
Demo inventory
|
1,424,831 | 1,150,129 | ||||||
$ | 13,154,195 | $ | 12,020,208 | |||||
Accumulated
depreciation:
|
||||||||
Computers and related
equipment
|
2,163,444 | 2,061,044 | ||||||
Motor vehicles
|
290,839 | 249,627 | ||||||
Office furniture and
equipment
|
648,278 | 536,472 | ||||||
Machinery, equipment and
installations
|
3,671,997 | 3,132,202 | ||||||
Buildings
|
55,097 | 25,045 | ||||||
Leasehold
improvements
|
611,139 | 407,030 | ||||||
Demo
inventory
|
655,138 | 528,992 | ||||||
8,095,932 | 6,940,412 | |||||||
Property
and equipment, net
|
$ | 5,058,263 | $ | 5,079,796 |
12/31/07
|
Additions
|
Adjustments
(currency)
|
12/31/08
|
|||||||||||||
Simulation
|
$ | 24,235,419 | $ | 200,222 | $ | – | $ | 24,435,641 | ||||||||
Battery
|
5,946,649 | – | 68,820 | 6,015,469 | ||||||||||||
Armor
|
1,176,063 | 607,100 | 16,230 | 1,799,393 | ||||||||||||
Total
|
$ | 31,358,131 | $ | 807,322 | $ | 85,050 | $ | 32,250,503 |
December
31,
|
|||||||||||||||||
2008
|
2007
|
||||||||||||||||
Useful
life
|
Cost
|
Net
Book Value
|
Cost
|
Net
Book Value
|
|||||||||||||
Technology
|
4-8
years
|
$ | 7,068,000 | $ | 2,297,036 | $ | 6,405,000 | $ | 2,305,000 | ||||||||
Capitalized
software costs
|
1-3
years
|
1,720,991 | 100,408 | 1,720,991 | 442,816 | ||||||||||||
Trademarks
|
10
years
|
28,000 | 25,200 | – | – | ||||||||||||
Backlog
|
1-10
years
|
744,000 | 55,800 | 682,000 | – | ||||||||||||
Covenants
not to compete
|
5
years
|
99,000 | – | 99,000 | – | ||||||||||||
Customer
list
|
2-10
years
|
7,602,045 | 3,186,342 | 7,548,645 | 3,846,117 | ||||||||||||
Certification
|
3
years
|
246,969 | – | 246,969 | – | ||||||||||||
17,509,005 | $ | 5,664,786 | 16,702,605 | $ | 6,593,933 | ||||||||||||
Exchange
differences
|
404,088 | 444,143 | |||||||||||||||
Less
- accumulated amortization
|
(11,844,220 | ) | (10,108,672 | ) | |||||||||||||
Amortized
cost
|
6,068,873 | 7,038,076 | |||||||||||||||
Trademarks
|
799,000 | 799,000 | |||||||||||||||
Net
book value
|
$ | 6,867,873 | $ | 7,837,076 |
Year
ended December 31,
|
||||
2009
|
$ | 1,452,741 | ||
2010
|
1,315,418 | |||
2011
|
1,315,054 | |||
2012
|
725,454 | |||
2013
|
725,403 | |||
2014
and forward
|
130,716 | |||
Total
|
$ | 5,664,786 |
December
31,
|
||||||||
2008
|
2007
|
|||||||
Employees
and payroll accruals
|
$ | 1,557,628 | $ | 1,531,157 | ||||
Accrued
vacation pay
|
675,142 | 530,850 | ||||||
Accrued
expenses
|
1,759,873 | 1,813,947 | ||||||
Government
authorities
|
333,390 | 401,826 | ||||||
Advances
from customers
|
1,532,926 | 611,949 | ||||||
Total
|
$ | 5,858,959 | $ | 4,889,729 |
Future
Minimum Rental Payments
|
December
31
|
|||
2009
|
$ | 724,821 | ||
2010
|
510,119 | |||
2011
|
517,994 | |||
2012
|
523,332 | |||
2013
|
336,282 | |||
Thereafter
|
1,304,416 | |||
Total
|
$ | 3,916,964 |
Leased
Assets
|
December
31,
|
|||||||
2008
|
2007
|
|||||||
Equipment
|
$ | 355,561 | $ | 249,532 | ||||
Less:
Accumulated Depreciation
|
(179,429 | ) | (97,789 | ) | ||||
Net
book value
|
$ | 176,132 | $ | 151,743 |
Liabilities
|
December
31, 2008
|
|||
Obligations
under capital leases:
|
||||
Current
|
$ | 85,394 | ||
Non-current
|
148,772 | |||
Total
minimum payments
|
234,166 | |||
Less:
Interest
|
(49,243 | ) | ||
Present
value of payments
|
$ | 184,923 |
Future
Minimum Lease Payments
|
December
31,
|
|||
2009
|
$ | 85,394 | ||
2010
|
64,959 | |||
2011
|
46,949 | |||
2012
|
30,294 | |||
2013
and forward
|
6,570 | |||
Total
minimum lease payments
|
$ | 234,166 |
Mortgage
Future Payments
|
December
31,
|
|||
2009
|
$ | 27,105 | ||
2010
|
29,355 | |||
2011
|
31,792 | |||
2012
|
34,423 | |||
2013
|
37,287 | |||
Thereafter
|
912,813 | |||
$ | 1,072,775 |
2008
|
2007
|
|||||||||||||||
Amount
|
Weighted
average
exercise
price
|
Amount
|
Weighted
average
exercise
price
|
|||||||||||||
$
|
$
|
|||||||||||||||
Options
outstanding at beginning of year
|
291,390 | $ | 6.03 | 623,693 | $ | 8.22 | ||||||||||
Changes
during year:
|
||||||||||||||||
Granted
|
– | $ | – | – | $ | – | ||||||||||
Exercised
|
– | $ | – | – | $ | – | ||||||||||
Forfeited
|
(54,484 | ) | $ | 5.52 | (332,303 | ) | $ | 10.14 | ||||||||
Options
outstanding at end of year
|
236,906 | $ | 6.14 | 291,390 | $ | 6.03 | ||||||||||
Options
vested at end of year (1)
|
203,908 | $ | 6.69 | 217,057 | $ | 7.14 | ||||||||||
Options
expected to vest
|
32,998 | $ | 2.77 | 74,333 | $ | 2.77 |
2008
|
2007
|
|||||||||||||||
Shares
|
Weighted
average
fair value at grant date
|
Shares
|
Weighted
average
fair value at grant date
|
|||||||||||||
$
|
$
|
|||||||||||||||
Nonvested
at the beginning of the year
|
994,452 | $ | 2.42 | 863,572 | $ | 2.51 | ||||||||||
Changes
during year:
|
||||||||||||||||
Granted
|
38,472 | $ | 2.73 | 631,118 | $ | 2.36 | ||||||||||
Vested
|
(244,538 | ) | $ | 2.39 | (500,238 | ) | $ | 2.62 | ||||||||
Forfeited
|
(75,073 | ) | $ | 2.22 | - | $ | – | |||||||||
Nonvested
at the end of the year
|
713,313 | $ | 2.41 | 994,452 | $ | 2.42 | ||||||||||
Restricted
shares vested at end of year
|
793,347 | $ | 2.53 | 548,809 | $ | 2.51 |
Total
options outstanding
|
Vested
options outstanding
|
|||||||||||||||||||||
Range
of
exercise
prices
|
Amount
outstanding
at
December
31,
2008
|
Weighted
average
remaining
contractual
life
|
Weighted
average
exercise
price
|
Amount
exercisable
at
December
31, 2008
|
Weighted
average
exercise
price
|
|||||||||||||||||
$
|
Years |
$
|
$
|
|||||||||||||||||||
0.00-4.99 | 99,000 | 2.97 | $ | 2.77 | 66,002 | $ | 2.77 | |||||||||||||||
5.00-9.99 | 102,752 | 3.09 | $ | 5.86 | 102,752 | $ | 5.86 | |||||||||||||||
10.00-34.99 | 35,154 | 3.42 | $ | 16.49 | 35,154 | $ | 16.49 | |||||||||||||||
Total
|
236,906 | 3.09 | $ | 6.14 | 203,908 | $ | 6.69 |
2008
|
2007
|
|||||||||||||||
Amount
|
Weighted
average exercise price
|
Amount
|
Weighted
average exercise price
|
|||||||||||||
$
|
$
|
|||||||||||||||
Options
outstanding at beginning of year
|
11,870 | $ | 54.39 | 11,870 | $ | 54.39 | ||||||||||
Changes
during year:
|
||||||||||||||||
Granted
|
– | – | – | – | ||||||||||||
Exercised
|
– | – | – | – | ||||||||||||
Forfeited
or cancelled
|
(4,553 | ) | $ | 32.12 | – | – | ||||||||||
Options
outstanding at end of year
|
7,317 | $ | 68.24 | 11,870 | $ | 54.39 | ||||||||||
Options
vested at end of year
|
7,317 | $ | 68.24 | 11,870 | $ | 54.39 |
December
31,
|
||||||||
2008
|
2007
|
|||||||
(as
restated; see
Note 19)
|
||||||||
Operating
loss carryforward
|
$ | 34,958,606 | $ | 33,741,900 | ||||
Other
temporary differences
|
2,894,915 | 4,088,598 | ||||||
Net
deferred tax asset before valuation allowance
|
37,853,521 | 37,830,498 | ||||||
Valuation
allowance
|
(37,781,407 | ) | (37,752,789 | ) | ||||
Total
deferred tax asset
|
$ | 72,114 | $ | 77,709 | ||||
Deferred
tax liability
|
$ | 2,430,000 | $ | 1,865,000 |
December
31,
|
||||||||
2008
|
2007
|
|||||||
(as
restated; see
Note 19)
|
||||||||
Domestic
|
$ | 8,470,576 | $ | 7,216,709 | ||||
Foreign
|
26,488,030 | 26,525,191 | ||||||
$ | 34,958,606 | $ | 33,741,900 |
Year
ended December 31
|
||||||||
2008
|
2007
|
|||||||
(as
restated; see
Note 19)
|
||||||||
Domestic
|
$ | (1,929,564 | ) | $ | (2,464,512 | ) | ||
Foreign
|
(881,524 | ) | (365,711 | ) | ||||
$ | (2,811,088 | ) | $ | (2,830,223 | ) |
Year
ended December 31
|
||||||||
2008
|
2007
|
|||||||
(as
restated; see
Note 19)
|
||||||||
Current
state and local taxes
|
$ | 499,196 | $ | 111,162 | ||||
Deferred
taxes
|
570,595 | 545,323 | ||||||
Taxes
in respect of prior years
|
(42,923 | ) | (47,569 | ) | ||||
$ | 1,026,868 | $ | 608,916 | |||||
Domestic
|
$ | 926,182 | $ | 634,930 | ||||
Foreign
|
100,686 | (26,014 | ) | |||||
$ | 1,026,868 | $ | 608,916 |
Year
ended December 31,
|
||||||||
2008
|
2007
|
|||||||
(as
restated; see
Note 19)
|
||||||||
Loss
before taxes and minority interest, as reported in the consolidated
statements of operations
|
$ | (2,811,088 | ) | $ | (2,830,223 | ) | ||
Statutory
tax rate
|
34 | % | 34 | % | ||||
Theoretical
income tax on the above amount at the U.S. statutory tax
rate
|
$ | (955,770 | ) | $ | (962,276 | ) | ||
Deferred
taxes on losses for which valuation allowance was provided
|
1,872,798 | 1,400,412 | ||||||
Non-deductible
credits (expenses)
|
(352,029 | ) | 126,864 | |||||
Foreign
non-deductible expenses
|
32,400 | 27,748 | ||||||
State
taxes
|
361,182 | 69,930 | ||||||
Foreign
income in tax rates other then U.S rate
|
(35,782 | ) | (5,969 | ) | ||||
Taxes
in respect of prior years
|
(42,923 | ) | (47,569 | ) | ||||
Others
|
146,992 | (224 | ) | |||||
Actual
tax expense
|
$ | 1,026,868 | $ | 608,916 |
Year
ended December 31,
|
||||||||
2008
|
2007
|
|||||||
Financial
expenses:
|
||||||||
Interest,
bank charges and fees
|
$ | (579,913 | ) | $ | (662,789 | ) | ||
Expenses
in connection with convertible debenture principle
repayment
|
– | (280,382 | ) | |||||
Bonds
discount amortization
|
(51,537 | ) | (18,745 | ) | ||||
Foreign
currency translation differences
|
(291,869 | ) | – | |||||
Other
|
(99 | ) | (91,624 | ) | ||||
(923,418 | ) | (1,053,540 | ) | |||||
Financial
income:
|
||||||||
Interest
|
97,851 | 53,298 | ||||||
Foreign
currency translation differences
|
– | 94,354 | ||||||
Other
|
11,478 | – | ||||||
Total
|
$ | (814,089 | ) | $ | (905,888 | ) |
Training
and Simulation
|
Armor
|
Battery
and
Power
Systems
|
All
Others
|
Total
|
||||||||||||||||
2008
|
||||||||||||||||||||
Revenues
from outside customers
|
$ | 36,032,703 | $ | 17,762,439 | $ | 15,153,827 | $ | – | $ | 68,948,969 | ||||||||||
Depreciation
, amortization and impairment expenses (1)
|
(1,573,017 | ) | (175,733 | ) | (1,033,374 | ) | (199,662 | ) | (2,981,786 | ) | ||||||||||
Direct
expenses (2)
|
(30,141,747 | ) | (18,457,799 | ) | (14,368,970 | ) | (6,022,534 | ) | (68,991,050 | ) | ||||||||||
Segment
net income (loss)
|
$ | 4,317,939 | $ | (871,093 | ) | $ | (248,517 | ) | $ | (6,222,196 | ) | $ | (3,023,867 | ) | ||||||
Financial
expenses
|
(195 | ) | (357,517 | ) | (313,671 | ) | (142,706 | ) | (814,089 | ) | ||||||||||
Net
income (loss)
|
$ | 4,317,744 | $ | (1,228,610 | ) | $ | (562,188 | ) | $ | (6,364,902 | ) | $ | (3,837,956 | ) | ||||||
Segment
assets (3)
(4)
|
$ | 48,181,444 | $ | 12,572,672 | $ | 24,037,512 | $ | 5,003,171 | $ | 89,794,799 | ||||||||||
2007 (as restated; see
Note 19)
|
||||||||||||||||||||
Revenues
from outside customers
|
$ | 27,760,858 | $ | 18,724,107 | $ | 11,234,596 | $ | – | $ | 57,719,561 | ||||||||||
Depreciation
, amortization and impairment expenses (1)
|
(1,037,064 | ) | (469,093 | ) | (1,024,434 | ) | (227,980 | ) | (2,758,571 | ) | ||||||||||
Direct
expenses (2)
|
(22,241,359 | ) | (17,490,430 | ) | (11,023,839 | ) | (6,800,909 | ) | (57,556,537 | ) | ||||||||||
Segment
net income (loss)
|
$ | 4,482,435 | $ | 764,584 | $ | (813,677 | ) | $ | (7,028,889 | ) | $ | (2,595,547 | ) | |||||||
Financial
expenses
|
(14,610 | ) | (93,292 | ) | (176,834 | ) | (621,152 | ) | (905,888 | ) | ||||||||||
Net
income (loss)
|
$ | 4,467,825 | $ | 671,292 | $ | (990,511 | ) | $ | (7,650,041 | ) | $ | (3,501,435 | ) | |||||||
Segment
assets (3)
(4)
|
$ | 43,810,684 | $ | 11,235,386 | $ | 21,191,545 | $ | 4,243,692 | $ | 80,481,307 |
_______________________
|
(1)
|
Includes
depreciation of property and equipment and amortization expenses of
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 Training and Simulation,
Battery and Power Systems and Armor Divisions stood at $24,435,642,
$6,015,469 and $1,799,392 as of December 31, 2008, and $24,235,419,
$5,946,649 and $1,176,063 as of December 31,
2007.
|
2008
|
2007
|
|||||||||||||||
Total
revenues
|
Long-lived
assets
|
Total
revenues
|
Long-lived
assets
|
|||||||||||||
U.S.
dollars
|
||||||||||||||||
U.S.A.
|
$ | 49,386,798 | $ | 31,794,288 | $ | 45,198,904 | $ | 31,714,391 | ||||||||
Germany
|
951,533 | – | 230,571 | – | ||||||||||||
England
|
389,518 | – | 273,239 | – | ||||||||||||
Thailand
|
– | – | – | – | ||||||||||||
India
|
1,854,052 | – | 1,153,521 | – | ||||||||||||
Egypt
|
538,774 | – | – | – | ||||||||||||
Israel
|
13,443,119 | 12,382,351 | 8,239,135 | 12,560,612 | ||||||||||||
Other
|
2,385,175 | – | 2,624,191 | – | ||||||||||||
$ | 68,948,969 | $ | 44,176,639 | $ | 57,719,561 | $ | 44,275,003 |
Year
ended December 31,
|
||||||||
2008
|
2007
|
|||||||
Batteries
and power systems:
|
||||||||
Customer A
|
9 | % | 6 | % | ||||
Customer B
|
3 | % | 0 | % | ||||
Armor:
|
||||||||
Customer C
|
13 | % | 6 | % | ||||
Customer D
|
6 | % | 19 | % | ||||
Training
and Simulation:
|
||||||||
Customer E
|
37 | % | 27 | % |
Year
ended December 31,
|
||||||||
2008
|
2007
|
|||||||
Water
activated batteries
|
$ | 1,861,958 | $ | 1,629,014 | ||||
Military
batteries
|
13,291,868 | 9,605,582 | ||||||
Car,
aircraft and other armoring
|
17,762,440 | 18,724,107 | ||||||
Simulators
|
36,032,703 | 27,760,858 | ||||||
Total
|
$ | 68,948,969 | $ | 57,719,561 |
2007
|
As
previously reported
|
Adjustment
|
Corrected
amount
|
|||||||||
Income
taxes
|
$ | (163,916 | ) | $ | (445,000 | ) | $ | (608,916 | ) | |||
Net
loss
|
$ | (3,056,435 | ) | $ | (445,000 | ) | $ | (3,501,435 | ) | |||
Basic
and diluted net loss per share
|
$ | (0.27 | ) | $ | (0.04 | ) | $ | (0.31 | ) |
Description
|
Balance
at
beginning
of
period
|
Additions
charged
to
costs
and
expenses*
|
Balance
at
end
of
period
|
|||||||||
Year
ended December 31, 2008
|
||||||||||||
Allowance
for doubtful accounts
|
$ | 25,000 | $ | (6,000 | ) | $ | 19,000 | |||||
Allowance
for slow moving inventory
|
1,724,000 | 155,000 | 1,879,000 | |||||||||
Valuation
allowance for deferred taxes
|
37,753,000 | 28,000 | 37,781,000 | |||||||||
Totals
|
$ | 39,502,000 | $ | 177,000 | $ | 39,679,000 | ||||||
Year
ended December 31, 2007
(as
restated; see Note 19)
|
||||||||||||
Allowance
for doubtful accounts
|
$ | 159,000 | $ | (134,000 | ) | $ | 25,000 | |||||
Allowance
for slow moving inventory
|
1,573,000 | 151,000 | 1,724,000 | |||||||||
Valuation
allowance for deferred taxes
|
39,457,000 | (1,704,000 | ) | 37,753,000 | ||||||||
Totals
|
$ | 41,189,000 | $ | (1,687,000 | ) | $ | 39,502,000 |