| Followers | 318 |
| Posts | 16326 |
| Boards Moderated | 2 |
| Alias Born | 09/05/2009 |
Wednesday, December 22, 2010 11:00:47 PM
Overview
We are a manufacturer and global provider of personal military and civilian protective equipment and supplies. Our products are used by military, law enforcement, border patrol enforcement, and other special security forces, corporations, non-governmental organizations and individuals throughout the world.
Our main products include body armor, bomb disposal suits, bullet proof vests and jackets, ballistic wall coverings, bullet proof ceramic and polyethylene panels, V.I.P. car armoring and lightweight armor kits for vehicles, personal military equipment, dry storage systems, liquid logistic products, tents and other camping and travel gear.
As a supplier of products to the civilian and military markets, our business is affected by economic conditions. The volatile economic conditions of 2009 have continued into 2010 and slowed down our sales process and complicated our ability to conduct transactions. The current economic climate and the uncertainty in the global economic conditions could impact the ability of our customers, including governmental entities, to make capital expenditures, thereby affecting their ability to purchase our products. Our business and financial performance, including collection of our accounts receivable, realization of inventory and recoverability of assets including investments, may be adversely affected if economic conditions deteriorate or continue to be volatile. Our profitability may also be adversely affected by our fixed costs and the possibility that we would be unable to scale back other costs within a time frame sufficient to match any decreases in revenue relating to changes in market and economic conditions.
We develop our products in Israel and sell them in Israel, North and South America, Asia, Africa and several European countries. Our sales in Israel are denominated in NIS, while most of our export sales are denominated in U.S. dollars. Under U.S. GAAP we report all of our sales in U.S. dollars. Accordingly, appreciation of the U.S. dollar against the NIS reduces our reported sales while the devaluation of the U.S. dollar against the NIS increases our reported sales.
Our cost of sales and operating expenses are affected in the same manner. Most of our purchases of raw material are made in U.S. dollars while most of our labor and other operating expenses are in NIS, however, under U.S. GAAP we report our cost of sales and operating expenses in U.S. dollars. Accordingly, appreciation of the U.S. dollar against the NIS reduces our reported cost of sales and operating expenses while the devaluation of the U.S. dollar against the NIS increases our reported cost of sales and operating expenses.
17
--------------------------------------------------------------------------------
Exchange rate fluctuations also affect our financial results in other ways. Most of our deposits and a portion of our tradable securities are linked to the rate of exchange between the U.S. dollar and the NIS. Accordingly, a devaluation of the U.S. dollar against the NIS is reflected as comprehensive income in our consolidated statement. In the period ended September 30, 2010, the NIS appreciated in relation to the U.S. dollar at a rate of 2.9% and our accumulated comprehensive income as of September 30, 2010 was $760,000
In addition, we develop products in Israel and sell them in Israel, North and South America, Asia, Africa and several European countries. Our sales in Israel are denominated in NIS, while most of our export sales are denominated in U.S. dollars. Under U.S. GAAP we report all of our sales in U.S. dollars. Accordingly, appreciation of the U.S. dollar against the NIS reduces our reported sales while the devaluation of the U.S. dollar against the NIS increases our reported sales.
Our cost of sales and operating expenses are affected in the same manner. Most of our purchases of raw material are made in U.S. dollars while most of our labor and other operating expenses are in NIS, however, under U.S. GAAP we report our cost of sales and operating expenses in U.S. dollars. Accordingly, appreciation of the U.S. dollar against the NIS reduces our reported cost of sales and operating expenses while the devaluation of the U.S. dollar against the NIS increases our reported cost of sales and operating expenses.
In the quarter ended September 30, 2010, the NIS depreciated against the U.S. dollar by approximately 5.42% and our financial results were negatively impacted. Exchange rates between the U.S. dollar and the NIS fluctuate continuously. As a result, exchange rate fluctuations and especially larger periodic devaluations will have an impact on our profitability and period-to-period comparisons of our results. We cannot assure you that in the future our results of operations will not be materially adversely affected by currency fluctuations.
Material Trends
Local Military Market . The demand for our products increased significantly in the first quarter of 2009, mainly due to the effect of the hostilities between Israel and the Hamas in Gaza, which took place in December 2008 and January 2009. During the end of 2009 and the first nine months of 2010, the demand for our products decreased due to a break in the hostilities in Gaza. We believe that the demand for our products from the Israeli Ministry of Defense will continue at the current levels during the remainder of 2010.
As of November 9, 2010, we had a backlog of firm orders from the Israeli Ministry of Defense of approximately $1.3 million, including orders of approximately $500,000 that we received subsequent to September 30, 2010. In the nine month periods ended September 30, 2010 and 2009, sales to the Israeli Ministry of Defense were $3.5 million and $5.9 million, accounting for 28.2% and 45.9% of our sales, respectively.
Export Military Market . Our customers in this market are military and law enforcement organizations mostly in South America, North America, Africa and Europe. Their budgets fluctuate, and as a result, we cannot identify definite trends in these markets.
Since 2003, we have increased our export efforts and are continuing our efforts to strengthen our position in our existing export markets in the U.S., South America, Asia and Europe, and to extend our presence to new export markets in South America, Africa, Europe and Australia. Any future success in such markets is mainly dependant on our marketing efforts, our ability to be competitive in our pricing and the quality of our products.
The following table presents details of our export military sales during the three and nine month periods ended September 30, 2010 and 2009:
18
--------------------------------------------------------------------------------
Three Months Ended
September 30, Nine Months Ended
September 30,
2010 2009 2010 2009
Sales to South America $2,825,282 $ 335,766 $3,292,725 $ 1,544,182
Sales to North America --- 11,214 7,356 187,868
Sales to Europe and Asia 190,264 147,896 625,116 980,553
Sales to Africa 636,792 350,717 639,053 1,738,208
Total Export Military Sales $3,652,338 $ 845,593 $4,564,250 $ 4,450,811
Local Civilian Market. Our product range for the civilian market is diversified. In the three and nine month periods ended September 30, 2010, our local market business increased to $1,311,624_ and $2,996,771 respectively, compared to $485,000 and $1,6 million for the three and nine month periods ended September 30, 2009, mainly due to sales of armored vehicles for civilian use. We expect to maintain the same level of revenues in the fourth quarter, due to marketing efforts and increased demand for armored vehicles in the civilian market.
The following table sets forth the breakdown of sales by segment for the three and nine month periods ended September 30, 2010 and 2009.
Three Months Ended
September 30, Nine Months Ended
September 30,
2010 2009 2010 2009
Local civilian market $1,311,624 $ 484,888 $2,996,771 $ 1,640,218
Export civilian market 488,141 340,489 1,096,859 763,342
Local military market 1,129,326 1,883,167 3,805,094 6,089,191
Export military market 3,652,338 845,593 4,564,250 4,450,811
Total $6,581,429 $ 3,554,137 $12,462,974 $ 12,943,562
Backlog. We had approximately $3.3 million of unfilled customer orders at September 30, 2010, compared to $3.5 million of unfilled customer orders at September 30, 2009. Of the $3.3 million of unfilled customer orders at September 30, 2010, approximately $270,000 was attributable to orders from military customers in South America, approximately $140,000 was attributable to orders from military customers in Europe and Asia, approximately $600,000 was attributable to orders from military customers in Africa, approximately $400,000 was attributable to the local civilian market , approximately $400,000 was attributable to the U.S. civilian market and approximately $1.5 million was attributable to the Israeli Ministry of Defense.
Sarino Agreement
On December 17, 2008, our subsidiary, Mayotex Ltd., or Mayotex, entered into an agreement with Sarino Crystal Technologies Ltd. and Sarino Optronics Ltd., or Sarino, to cooperate in the manufacture of optical grade Germanium crystals and sales of lenses to be used in optical and infra-red night vision products utilizing the Germanium crystals, or the Sarino Agreement.
On December 21, 2008, Mayosar Ltd., or Mayosar, which was incorporated by Mayotex and Sarino, through its wholly owned subsidiary Isorad IR Optics Ltd., or Optics, entered into an agreement, or the Isorad Agreement, to purchase the Germanium Crystals Business of Isorad Ltd., an Israeli governmental company, or Isorad. The Isorad Agreement provided for the purchase of certain know-how, equipment, inventories and production activities of Germanium Crystals for lenses used in infra-red night vision system applications.
After a period of uncertainty, in August 2010, Mayosar, Optics and Isorad Ltd. executed an addendum to the 2008 agreement, according to which the parties confirmed the validity of the Isorad Agreement under certain conditions. Pursuant to the Sarino Agreement:
19
--------------------------------------------------------------------------------
? Mayotex and Sarino agreed to incorporate Mayosar, with Mayotex being the majority shareholder owning 50.1% and Sarino owning 49.9%. As majority shareholder, Mayotex will have operational control of Mayosar.
? In consideration of the above, Mayotex paid Sarino $1 million, out of which $300,000 is non-refundable to Mayotex upon 24 months following the execution of the Isorad Agreement, and the remaining $700,000 will be earned by Sarino based on 10% of sales over $3 million and up to $10 million during the first 36 months of operations. Amounts not earned are to be refunded to Mayotex, including interest of Libor + 2% per annum. The refundable consideration is secured by Sarino’s interest in Mayosar and personal guarantees provided by Sarino Crystal Technologies Ltd.'s controlling shareholders.
? Mayotex agreed to provide Mayosar with a loan in the aggregate amount of $2 million under a timetable to be determined by Mayosar’s board of directors. Such loan will bear interest at the rate of Libor + 2%, and is payable from profits generated by Mayosar.
As of September 30, 2010, Mayotex has provided loans of $1.0 million to Sarino and $1.0 million to Mayosar. Such payments are recognized as refundable deposits pending resolution of the Isorad Agreement.
Pursuant to the Isorad Agreement, Optics is to pay annual royalties of 3% out of sales for a period of 15 years commencing the effective date of the Isorad Agreement , or the Effective Date, with a minimum amount of approximately $133,000 payable per year during the first 18 months or until the date of completion of the transfer of the site of the Germanium Crystals Business, whichever is earlier (this payment includes a reimbursement of costs for the usage of the site and equipment in this initial period), and approximately $53,000 per year during the following years of the royalties payment period.
Pursuant to the Isorad Agreement, Isorad has the right to acquire 5% of the share capital of Optics on a fully diluted basis for their nominal value during the 24 month period beginning on the Effective Date. Such right was recently extended for an additional 12-month period 1 January 2012. If the Israeli Government does not approve the 5% purchase of the Optics shares by Isorad within the above period, the right to acquire the shares will expire and Isorad will be entitled to a payment of $75,000.
In the event of an allotment of shares to Isorad, representing 5% of Optics’ share capital, Mayosar will issue to Mayotex additional shares of Mayosar on a pro rata basis, in order for Mayotex to retain a 50.01% indirect interest in Optics’ share capital.
Optics has the right during the four year period following the Effective Date to redeem its commitment to pay royalties under the Isorad Agreement in consideration of a fixed payment of $750,000, less all royalties paid to Isorad through that date.
As of the balance sheet date Management assessed its legal position and is of the opinion, based on legal advice received, that the amounts paid under the Sarino and Isorad agreements should be fully refunded to the Company in the event that the Isorad Agreement is not consummated.
Results of Operations
Key Indicators
Our management views revenues, the sources of our revenues, gross profit margin and the level of inventory compared to revenues as the key performance indicators in assessing our company’s financial condition and results of operations. While our management believes that demand for our products will continue to grow, our business is subject to a high degree of volatility because of the impact of geopolitical events, government budgeting, and competition.
20
--------------------------------------------------------------------------------
Three Months Ended September 30, 2010 Compared with Three Months Ended September 30, 2009
Net Revenues . Net revenues for the three months ended September 30, 2010 increased to $6.6 million from $3.6 million in the three months ended September 30, 2009, a increase of 85.2_%. The increase is mainly attributable to a increase of approximately $827,000 in our local civilian market segment, a increase of approximately $2.8 million in our export military market segment, and a increase of approximately $150,000 in our export civilian market segment which was offset by an decrease of approximately $750,000 in our local military market segment. The decreased revenues in our local military market segment are attributable to an decrease in demand for our products from the Israeli Ministry of Defense. The increased revenues in our export military market and local civilian market segments are attributable to a general increase in demand for our products in those markets, especially in South America.
Gross Profit . Gross profit for the three months ended September 30, 2010 was $1.7 million compared to $716,000 for the three months ended September 30, 2009. Our gross profit margin for the three months ended September 30, 2010 increased to 26.1% compared to 20.2% for the three months ended September 30, 2009. The increase in gross profit margin is primarily attributable to the 85.2% increase in revenues while our cost of sales increased by only 71.4%, which is primarily due to our fixed costs that are not revenue dependent.
Selling Expenses . Selling expenses for the three months ended September 30, 2010 increased by 200.2% to $461,000 from $153,000 for the three months ended September 30, 2009. The increase in our selling expenses was attributable primarily to the increase in export sales commissions.
General and Administrative Expenses . General and administrative expenses for the three months ended September 30, 2010 increased by 14.6% to $631,000 from $551,000 for the three months ended September 30, 2009. This increase is primarily attributable to an increase in professional services expenses.
Compensation from Israeli Government . In the second quarter of 2009, our subsidiaries Export Erez and Mayotex received a total of $224,000, as compensation from the Israeli Government under the "Property tax and compensation payments for war damages" regulations, for the loss of employment days and potential revenues during the last two years due to the security and military situation in the area in which Export Erez and Mayotex are located. We recorded approximately $4,500 of income due to exchange rate differences in the third quarter of 2009 with respect to the compensation received from the Israeli Government. .
Financial Income (Expenses), Net . We had financial expenses, net of $313,000 for the three months ended September 30, 2010 compared to financial expenses, net of $255,000 for the three months ended September 30, 2009. Our financial expenses are primarily due to the change in the U.S. dollar exchange rate versus the NIS, which resulted in a loss of $304,000 for the three months ended September 30, 2010 compared to a loss of $255,000 for the three months ended September 30, 2009.
Other Income, Net . We had other income, net for the three months ended September 30, 2010 of $10,000 as compared to other income, net of $72,000 for the three months ended September 30, 2009. Our other income in the three months ended September 30, 2010 is attributable to a $11,000 gain derived from the revaluation of funds in respect of employee rights upon retirement, which was offset by a small loss derived from the sale of tradable securities and a small unrealized gain on tradable securities. Our other income in the three months ended September 30, 2009 is attributable to a $30,000 gain derived from the revaluation of funds in respect of employee rights upon retirement, a $9,000 gain derived from sales of tradable securities and a $33,000 unrealized gain on tradable securities.
Income Tax Benefit . We recorded an income tax benefit of $3,000 for the three months ended September 30, 2010 compared to an income tax benefit of $17,000 for the three months ended September 30, 2009. The decrease in the income tax benefit was mainly due to increased income before income taxes in the three months ended September 30, 2010 compared to the loss before income taxes in the three months ended September 30, 2009
Net Income (Loss). For the three months ended September 30, 2010, our consolidated net income was $325,000 compared to a net loss of $150,000 for the three months ended September 30, 2009.
21
--------------------------------------------------------------------------------
Nine Months Ended September 30, 2010 Compared with Nine Months Ended September 30, 2009
Net Revenues . Net revenues for the nine months ended September 30, 2010 decreased to $12.5 million from $12.9 million in the nine months ended September 30, 2009, an decrease of 3.7%. The decrease is mainly attributable to an decrease in revenues from our local military market segment. In the period ended September 30, 2010, revenues from our local military market segment decreased by approximately $2.3 million due to a decrease in demand for our products. This decrease was offset by a increase of approximately $1.4 million in our local civilian market segment and an increase of approximately $300,000 in our export civilian market segment.
Gross Profit . Gross profit for the nine months ended September 30, 2010 was $2.5 million compared to $3.0 million for the nine months ended September 30, 2009. This decrease in gross profit is primarily attributable to the decrease in sales. Our gross profit margin for the nine months ended September 30, 2010 decreased to 20% compared to 22.9% for the nine months ended September 30, 2009 due to the change in the mix of products sold and the impact of our fixed costs that are not revenue dependent.
Selling Expenses. Selling expenses for the nine months ended September 30, 2010 increased by 63.4% to $793,000 from $486,000 for the nine months ended September 30, 2009. The increase in our selling expenses was primarily attributable to increased commissions due to a different mix of products sold and an increase in sales through agents.
General and Administrative Expenses. General and administrative expenses for the nine months ended September 30, 2010 increased by 32.1% to $2 million from $1.5 million for the nine months ended September 30, 2009. This increase is primarily attributable to an increase in professional services expenses.
Compensation from Israeli Government. In the second quarter of 2009, Export Erez and Mayotex received a total of $224,000 as compensation from the Israeli Government under the "Property tax and compensation payments for war damages" regulations, for the loss of employment days and potential revenues during the last two years due to the security and military situation in the area in which Export Erez and Mayotex are located. We recorded $4,000 of income due to exchange rate differences in the third quarter of 2009 with respect to the compensation received from the Israeli Government.
Financial (Expenses), Net. We had financial expenses, net of $161,000 for the nine months ended September 30, 2010 compared to financial expenses, net of $38,000 for the nine months ended September 30, 2009. Our financial expense is primarily due to the change in the U.S. dollar exchange rate versus the NIS, which resulted in a loss of $170,000 for the nine months ended September 30, 2010 compared to a loss of $98,000 for the nine months ended September 30, 2009.
Other Income, Net. We had other income, net for the nine months ended September 30, 2010 of $101,000 as compared to other income, net of $293,000 for the nine months ended September 30, 2009. Our other income in the nine months ended September 30, 2010 is mainly attributable to the revaluation
of funds in respect of employee rights upon retirement of $20,000, an unrealized gain of $59,000 on tradable securities and a gain of $23,000 from the dissolution of Dragonwear. Our other income in the nine months ended September 30, 2009 was mainly attributable to revaluation of funds in respect of employee rights upon retirement of $112,000 a gain derived from sales of tradable securities of $34,000 and an unrealized gain of $148,000 on tradable securities.
Income Tax Expense. Our income tax expense for the nine months ended September 30, 2010 was $5,000 compared to income tax expense of $341,000 for the nine months ended September 30, 2009. The decrease in income tax expense was mainly due to the decrease in our income before income taxes in the nine months ended September 30, 2010.
Net Income(Loss) . In the nine months ended September 30, 2010 our consolidated net loss was $402,081 compared to net income of $1.1 million for the nine months ended September 30, 2009.
22
--------------------------------------------------------------------------------
Liquidity and Capital Resources
We assess liquidity in terms of our ability to generate cash to fund our operating and investing activities. Of particular importance to management are cash flows generated by operating activities and cash used for capital and financing expenditures.
In the last few years we have financed our operating needs and capital expenditures through cash flows from our operations, payments from the Israeli government relating to the evacuation by our Erez Export and Mayotex subsidiaries from their manufacturing facilities in the Erez Industrial Zone in the Gaza Strip and existing cash. We expect to continue to finance current and planned operating requirements principally through cash from operations, as well as existing cash resources. We believe that these funds will be sufficient to meet our operating requirements for the foreseeable future. However, we may, from time to time, seek additional funding through a combination of equity and debt financings or from other sources. The current economic climate and the uncertainty in the global financial markets resulting from the disruption in credit markets may affect our ability to raise additional funds in the future, if required. There can be no assurance that such additional financing will be available to us, or if available, will be on terms favorable to our company.
Most of our large contracts, which are Israeli Governmental contracts, are supported by letters of credit. As a result, we believe that we have limited exposure to doubtful accounts receivables. We have endeavored to balance our accounts payable and accounts receivable.
As of September 30, 2010, we had $3.1 million in cash and cash equivalents, $2.0 million in trading securities and working capital of $10.3 million as compared to $3.8 million in cash and cash equivalents, $2.3 million in trading securities and working capital of $10.2 million at December 31, 2009.
We believe that we have sufficient working capital and borrowing capability to sustain our current level of operations for the next twelve months.
Subsequent Event
On October 27, 2010, our subsidiary Mayotex Ltd., or Mayotex, entered into an agreement to purchase shares of Mayo-Ben Investments and Development Ltd., or Mayo-Ben. Pursuant to the agreement, Mayotex agreed to invest up to $1.5 million in Mayo-Ben, a real estate company holding industrial properties in Israel which are partially occupied by the Company's subsidiaries, in consideration for the purchase of approximately 20 per cent of the share capital of Mayo-Ben on a fully diluted basis. The subscription price is subject to adjustment based on an appraisal of the properties to be conducted by a major accounting firm in Israel.
Mayotex also agreed to lend Mayo-Ben $1 million, which funds will be utilized by Mayo-Ben to improve and renovate its industrial properties, subject to and upon the terms of the agreement. Within the framework of a recent amendment to the Evacuation Compensation Law, under which several of our subsidiaries received compensation for their forced evacuation from the Gaza Strip area, such subsidiaries are eligible to apply for additional compensation under such law, subject to certain requirements, including investment in the factories and properties to which they moved their activities and businesses, such as the properties held by Mayo-Ben. We expect that a portion of the grants, if any, to be received from the Israeli government within the above framework, will be used (subject to the amount granted), with the funds to be invested by Mayo-Ben, for renovations and improvements to the properties occupied by the Company’s subsidiaries and will entitle the Company’s subsidiaries to apply for additional grants and tax benefits.
The Company has agreed to forgive the loan in the event that Mayo-Ben invests at least $1 million in the renovation and improvement of the properties in accordance with a renovation plan agreed to by both parties and to the complete satisfaction of the Company within a three (3) year period commencing on the first closing date of the transaction, of which at least $200,000 must be spent for such renovations prior to August 30, 2011.
23
--------------------------------------------------------------------------------
Cash Flows
The following table summarizes our cash flows for the periods presented:
Nine months ended
September 30,
2010 September 30,
2009
Net cash provided by (used in) operating activities $(761,329) $ 1,587,773
Net cash provided by (used in) investing activities (181,130) 2,042,210
Net cash used in financing activities 132,653 (1,695,666)
Net (decrease) increase in cash and cash equivalents (682,373) 2,155,409
Cash and cash equivalents at beginning of period 3,783,631 1,719,921
Cash and cash equivalents at end of period $3,101,258 $3,875,330
Operating activities. Net cash used in operating activities was $761,000 for the nine months ended September 30, 2010 as compared to $1.6 million provided by operating activities in the nine months ended September 30, 2009. This was primarily due to our net loss of $402,000, an increase in accounts receivable of $913,000, a decrease in other current liabilities of $261,000, an increase in other current assets of $273,000, a decrease in related parties accounts of 425,000 and a increase in inventories of $190,000, offset by an increase in accounts payable of $937,000 and a decrease in trading securities of $419,000. The $1.6 million provided by operating activities in the 2009 period was primarily provided from net income of $1.1 million, a decrease in accounts receivable of $429,000, a decrease in inventories of $505,000 and a decrease in trading securities of $276,000, offset by a decrease in accounts payable of $228,000 and a decrease in other current liabilities of $690,000.
Investing activities. Net cash used in investing activities was $181,000 for the nine months ended September 30, 2010 as compared to $2.0 million provided by investing activities in the nine months ended September 30, 2009. During the nine months ended September 30, 2010, $174,000 was used to purchase fixed assets and $14,000 was used for the purchase of a business. During the nine months ended September 30, 2009, $3.0 million was provided from the redemption of bank deposits, $52,000 was provided from the sale of fixed assets, $91,000 was used to purchase fixed assets and $919,000 was used for the purchase of a business.
Financing activities. Net cash provided in financing activities was $133,000 for the nine months ended September 30, 2010 as compared to $1.7 million used in financing activities for the nine months ended September 30, 2009. During the nine months ended September 30, 2010, we incurred additional short-term debt of $233,000 and long-term debt of $125,000, which was offset by the repayment of $225,000 of long-term debt. During the nine months ended September 30, 2009, we incurred additional short-term debt of $231,000, repaid $264,000 of long-term debt and paid $1.2 million to related parties for the purchase of their minority interest in Achidatex and 1,050,000 of our Company’s shares held by them..
Foreign Currency Exchange Risk
We develop products in Israel and sell them in Israel, North and South America, Asia, Africa and several European countries. Our sales in Israel are denominated in NIS while most of our export sales are denominated in U.S. dollars. In addition, our labor expenses are primarily paid in NIS while our expenses for raw materials are paid primarily in U.S. dollars. As a result, our financial results could be affected by factors such as changes in foreign currency exchange rates or weak economic conditions in foreign markets.
Our foreign currency exposure is significant due to the depreciation of the U.S. dollar versus the NIS. We expect our exposure will continue to be significant, since a significant portion of the prices of our raw material purchases, as well as part of our sales are denominated in U.S. dollars.
In the year ended December 31, 2009, the inflation rate in Israel was 3.91% and the NIS appreciated in relation to the U.S. dollar at a rate of 0.71%, from NIS 3.802 per $1 on December 31, 2008 to NIS 3.775 per $1 on December 31, 2009. In the nine months ended September 30, 2010, inflation in Israel was 1.9% while the NIS appreciated in relation to the U.S. dollar at a rate of 2.9%. If future inflation in Israel exceeds the devaluation of the NIS against the U.S. dollar or if the timing of such devaluation lags behind increases in inflation in Israel, our results of operations may be materially adversely affected.
We did not enter into any foreign exchange contracts or hedging transactions in the nine months ended September 30, 2010.
We are a manufacturer and global provider of personal military and civilian protective equipment and supplies. Our products are used by military, law enforcement, border patrol enforcement, and other special security forces, corporations, non-governmental organizations and individuals throughout the world.
Our main products include body armor, bomb disposal suits, bullet proof vests and jackets, ballistic wall coverings, bullet proof ceramic and polyethylene panels, V.I.P. car armoring and lightweight armor kits for vehicles, personal military equipment, dry storage systems, liquid logistic products, tents and other camping and travel gear.
As a supplier of products to the civilian and military markets, our business is affected by economic conditions. The volatile economic conditions of 2009 have continued into 2010 and slowed down our sales process and complicated our ability to conduct transactions. The current economic climate and the uncertainty in the global economic conditions could impact the ability of our customers, including governmental entities, to make capital expenditures, thereby affecting their ability to purchase our products. Our business and financial performance, including collection of our accounts receivable, realization of inventory and recoverability of assets including investments, may be adversely affected if economic conditions deteriorate or continue to be volatile. Our profitability may also be adversely affected by our fixed costs and the possibility that we would be unable to scale back other costs within a time frame sufficient to match any decreases in revenue relating to changes in market and economic conditions.
We develop our products in Israel and sell them in Israel, North and South America, Asia, Africa and several European countries. Our sales in Israel are denominated in NIS, while most of our export sales are denominated in U.S. dollars. Under U.S. GAAP we report all of our sales in U.S. dollars. Accordingly, appreciation of the U.S. dollar against the NIS reduces our reported sales while the devaluation of the U.S. dollar against the NIS increases our reported sales.
Our cost of sales and operating expenses are affected in the same manner. Most of our purchases of raw material are made in U.S. dollars while most of our labor and other operating expenses are in NIS, however, under U.S. GAAP we report our cost of sales and operating expenses in U.S. dollars. Accordingly, appreciation of the U.S. dollar against the NIS reduces our reported cost of sales and operating expenses while the devaluation of the U.S. dollar against the NIS increases our reported cost of sales and operating expenses.
17
--------------------------------------------------------------------------------
Exchange rate fluctuations also affect our financial results in other ways. Most of our deposits and a portion of our tradable securities are linked to the rate of exchange between the U.S. dollar and the NIS. Accordingly, a devaluation of the U.S. dollar against the NIS is reflected as comprehensive income in our consolidated statement. In the period ended September 30, 2010, the NIS appreciated in relation to the U.S. dollar at a rate of 2.9% and our accumulated comprehensive income as of September 30, 2010 was $760,000
In addition, we develop products in Israel and sell them in Israel, North and South America, Asia, Africa and several European countries. Our sales in Israel are denominated in NIS, while most of our export sales are denominated in U.S. dollars. Under U.S. GAAP we report all of our sales in U.S. dollars. Accordingly, appreciation of the U.S. dollar against the NIS reduces our reported sales while the devaluation of the U.S. dollar against the NIS increases our reported sales.
Our cost of sales and operating expenses are affected in the same manner. Most of our purchases of raw material are made in U.S. dollars while most of our labor and other operating expenses are in NIS, however, under U.S. GAAP we report our cost of sales and operating expenses in U.S. dollars. Accordingly, appreciation of the U.S. dollar against the NIS reduces our reported cost of sales and operating expenses while the devaluation of the U.S. dollar against the NIS increases our reported cost of sales and operating expenses.
In the quarter ended September 30, 2010, the NIS depreciated against the U.S. dollar by approximately 5.42% and our financial results were negatively impacted. Exchange rates between the U.S. dollar and the NIS fluctuate continuously. As a result, exchange rate fluctuations and especially larger periodic devaluations will have an impact on our profitability and period-to-period comparisons of our results. We cannot assure you that in the future our results of operations will not be materially adversely affected by currency fluctuations.
Material Trends
Local Military Market . The demand for our products increased significantly in the first quarter of 2009, mainly due to the effect of the hostilities between Israel and the Hamas in Gaza, which took place in December 2008 and January 2009. During the end of 2009 and the first nine months of 2010, the demand for our products decreased due to a break in the hostilities in Gaza. We believe that the demand for our products from the Israeli Ministry of Defense will continue at the current levels during the remainder of 2010.
As of November 9, 2010, we had a backlog of firm orders from the Israeli Ministry of Defense of approximately $1.3 million, including orders of approximately $500,000 that we received subsequent to September 30, 2010. In the nine month periods ended September 30, 2010 and 2009, sales to the Israeli Ministry of Defense were $3.5 million and $5.9 million, accounting for 28.2% and 45.9% of our sales, respectively.
Export Military Market . Our customers in this market are military and law enforcement organizations mostly in South America, North America, Africa and Europe. Their budgets fluctuate, and as a result, we cannot identify definite trends in these markets.
Since 2003, we have increased our export efforts and are continuing our efforts to strengthen our position in our existing export markets in the U.S., South America, Asia and Europe, and to extend our presence to new export markets in South America, Africa, Europe and Australia. Any future success in such markets is mainly dependant on our marketing efforts, our ability to be competitive in our pricing and the quality of our products.
The following table presents details of our export military sales during the three and nine month periods ended September 30, 2010 and 2009:
18
--------------------------------------------------------------------------------
Three Months Ended
September 30, Nine Months Ended
September 30,
2010 2009 2010 2009
Sales to South America $2,825,282 $ 335,766 $3,292,725 $ 1,544,182
Sales to North America --- 11,214 7,356 187,868
Sales to Europe and Asia 190,264 147,896 625,116 980,553
Sales to Africa 636,792 350,717 639,053 1,738,208
Total Export Military Sales $3,652,338 $ 845,593 $4,564,250 $ 4,450,811
Local Civilian Market. Our product range for the civilian market is diversified. In the three and nine month periods ended September 30, 2010, our local market business increased to $1,311,624_ and $2,996,771 respectively, compared to $485,000 and $1,6 million for the three and nine month periods ended September 30, 2009, mainly due to sales of armored vehicles for civilian use. We expect to maintain the same level of revenues in the fourth quarter, due to marketing efforts and increased demand for armored vehicles in the civilian market.
The following table sets forth the breakdown of sales by segment for the three and nine month periods ended September 30, 2010 and 2009.
Three Months Ended
September 30, Nine Months Ended
September 30,
2010 2009 2010 2009
Local civilian market $1,311,624 $ 484,888 $2,996,771 $ 1,640,218
Export civilian market 488,141 340,489 1,096,859 763,342
Local military market 1,129,326 1,883,167 3,805,094 6,089,191
Export military market 3,652,338 845,593 4,564,250 4,450,811
Total $6,581,429 $ 3,554,137 $12,462,974 $ 12,943,562
Backlog. We had approximately $3.3 million of unfilled customer orders at September 30, 2010, compared to $3.5 million of unfilled customer orders at September 30, 2009. Of the $3.3 million of unfilled customer orders at September 30, 2010, approximately $270,000 was attributable to orders from military customers in South America, approximately $140,000 was attributable to orders from military customers in Europe and Asia, approximately $600,000 was attributable to orders from military customers in Africa, approximately $400,000 was attributable to the local civilian market , approximately $400,000 was attributable to the U.S. civilian market and approximately $1.5 million was attributable to the Israeli Ministry of Defense.
Sarino Agreement
On December 17, 2008, our subsidiary, Mayotex Ltd., or Mayotex, entered into an agreement with Sarino Crystal Technologies Ltd. and Sarino Optronics Ltd., or Sarino, to cooperate in the manufacture of optical grade Germanium crystals and sales of lenses to be used in optical and infra-red night vision products utilizing the Germanium crystals, or the Sarino Agreement.
On December 21, 2008, Mayosar Ltd., or Mayosar, which was incorporated by Mayotex and Sarino, through its wholly owned subsidiary Isorad IR Optics Ltd., or Optics, entered into an agreement, or the Isorad Agreement, to purchase the Germanium Crystals Business of Isorad Ltd., an Israeli governmental company, or Isorad. The Isorad Agreement provided for the purchase of certain know-how, equipment, inventories and production activities of Germanium Crystals for lenses used in infra-red night vision system applications.
After a period of uncertainty, in August 2010, Mayosar, Optics and Isorad Ltd. executed an addendum to the 2008 agreement, according to which the parties confirmed the validity of the Isorad Agreement under certain conditions. Pursuant to the Sarino Agreement:
19
--------------------------------------------------------------------------------
? Mayotex and Sarino agreed to incorporate Mayosar, with Mayotex being the majority shareholder owning 50.1% and Sarino owning 49.9%. As majority shareholder, Mayotex will have operational control of Mayosar.
? In consideration of the above, Mayotex paid Sarino $1 million, out of which $300,000 is non-refundable to Mayotex upon 24 months following the execution of the Isorad Agreement, and the remaining $700,000 will be earned by Sarino based on 10% of sales over $3 million and up to $10 million during the first 36 months of operations. Amounts not earned are to be refunded to Mayotex, including interest of Libor + 2% per annum. The refundable consideration is secured by Sarino’s interest in Mayosar and personal guarantees provided by Sarino Crystal Technologies Ltd.'s controlling shareholders.
? Mayotex agreed to provide Mayosar with a loan in the aggregate amount of $2 million under a timetable to be determined by Mayosar’s board of directors. Such loan will bear interest at the rate of Libor + 2%, and is payable from profits generated by Mayosar.
As of September 30, 2010, Mayotex has provided loans of $1.0 million to Sarino and $1.0 million to Mayosar. Such payments are recognized as refundable deposits pending resolution of the Isorad Agreement.
Pursuant to the Isorad Agreement, Optics is to pay annual royalties of 3% out of sales for a period of 15 years commencing the effective date of the Isorad Agreement , or the Effective Date, with a minimum amount of approximately $133,000 payable per year during the first 18 months or until the date of completion of the transfer of the site of the Germanium Crystals Business, whichever is earlier (this payment includes a reimbursement of costs for the usage of the site and equipment in this initial period), and approximately $53,000 per year during the following years of the royalties payment period.
Pursuant to the Isorad Agreement, Isorad has the right to acquire 5% of the share capital of Optics on a fully diluted basis for their nominal value during the 24 month period beginning on the Effective Date. Such right was recently extended for an additional 12-month period 1 January 2012. If the Israeli Government does not approve the 5% purchase of the Optics shares by Isorad within the above period, the right to acquire the shares will expire and Isorad will be entitled to a payment of $75,000.
In the event of an allotment of shares to Isorad, representing 5% of Optics’ share capital, Mayosar will issue to Mayotex additional shares of Mayosar on a pro rata basis, in order for Mayotex to retain a 50.01% indirect interest in Optics’ share capital.
Optics has the right during the four year period following the Effective Date to redeem its commitment to pay royalties under the Isorad Agreement in consideration of a fixed payment of $750,000, less all royalties paid to Isorad through that date.
As of the balance sheet date Management assessed its legal position and is of the opinion, based on legal advice received, that the amounts paid under the Sarino and Isorad agreements should be fully refunded to the Company in the event that the Isorad Agreement is not consummated.
Results of Operations
Key Indicators
Our management views revenues, the sources of our revenues, gross profit margin and the level of inventory compared to revenues as the key performance indicators in assessing our company’s financial condition and results of operations. While our management believes that demand for our products will continue to grow, our business is subject to a high degree of volatility because of the impact of geopolitical events, government budgeting, and competition.
20
--------------------------------------------------------------------------------
Three Months Ended September 30, 2010 Compared with Three Months Ended September 30, 2009
Net Revenues . Net revenues for the three months ended September 30, 2010 increased to $6.6 million from $3.6 million in the three months ended September 30, 2009, a increase of 85.2_%. The increase is mainly attributable to a increase of approximately $827,000 in our local civilian market segment, a increase of approximately $2.8 million in our export military market segment, and a increase of approximately $150,000 in our export civilian market segment which was offset by an decrease of approximately $750,000 in our local military market segment. The decreased revenues in our local military market segment are attributable to an decrease in demand for our products from the Israeli Ministry of Defense. The increased revenues in our export military market and local civilian market segments are attributable to a general increase in demand for our products in those markets, especially in South America.
Gross Profit . Gross profit for the three months ended September 30, 2010 was $1.7 million compared to $716,000 for the three months ended September 30, 2009. Our gross profit margin for the three months ended September 30, 2010 increased to 26.1% compared to 20.2% for the three months ended September 30, 2009. The increase in gross profit margin is primarily attributable to the 85.2% increase in revenues while our cost of sales increased by only 71.4%, which is primarily due to our fixed costs that are not revenue dependent.
Selling Expenses . Selling expenses for the three months ended September 30, 2010 increased by 200.2% to $461,000 from $153,000 for the three months ended September 30, 2009. The increase in our selling expenses was attributable primarily to the increase in export sales commissions.
General and Administrative Expenses . General and administrative expenses for the three months ended September 30, 2010 increased by 14.6% to $631,000 from $551,000 for the three months ended September 30, 2009. This increase is primarily attributable to an increase in professional services expenses.
Compensation from Israeli Government . In the second quarter of 2009, our subsidiaries Export Erez and Mayotex received a total of $224,000, as compensation from the Israeli Government under the "Property tax and compensation payments for war damages" regulations, for the loss of employment days and potential revenues during the last two years due to the security and military situation in the area in which Export Erez and Mayotex are located. We recorded approximately $4,500 of income due to exchange rate differences in the third quarter of 2009 with respect to the compensation received from the Israeli Government. .
Financial Income (Expenses), Net . We had financial expenses, net of $313,000 for the three months ended September 30, 2010 compared to financial expenses, net of $255,000 for the three months ended September 30, 2009. Our financial expenses are primarily due to the change in the U.S. dollar exchange rate versus the NIS, which resulted in a loss of $304,000 for the three months ended September 30, 2010 compared to a loss of $255,000 for the three months ended September 30, 2009.
Other Income, Net . We had other income, net for the three months ended September 30, 2010 of $10,000 as compared to other income, net of $72,000 for the three months ended September 30, 2009. Our other income in the three months ended September 30, 2010 is attributable to a $11,000 gain derived from the revaluation of funds in respect of employee rights upon retirement, which was offset by a small loss derived from the sale of tradable securities and a small unrealized gain on tradable securities. Our other income in the three months ended September 30, 2009 is attributable to a $30,000 gain derived from the revaluation of funds in respect of employee rights upon retirement, a $9,000 gain derived from sales of tradable securities and a $33,000 unrealized gain on tradable securities.
Income Tax Benefit . We recorded an income tax benefit of $3,000 for the three months ended September 30, 2010 compared to an income tax benefit of $17,000 for the three months ended September 30, 2009. The decrease in the income tax benefit was mainly due to increased income before income taxes in the three months ended September 30, 2010 compared to the loss before income taxes in the three months ended September 30, 2009
Net Income (Loss). For the three months ended September 30, 2010, our consolidated net income was $325,000 compared to a net loss of $150,000 for the three months ended September 30, 2009.
21
--------------------------------------------------------------------------------
Nine Months Ended September 30, 2010 Compared with Nine Months Ended September 30, 2009
Net Revenues . Net revenues for the nine months ended September 30, 2010 decreased to $12.5 million from $12.9 million in the nine months ended September 30, 2009, an decrease of 3.7%. The decrease is mainly attributable to an decrease in revenues from our local military market segment. In the period ended September 30, 2010, revenues from our local military market segment decreased by approximately $2.3 million due to a decrease in demand for our products. This decrease was offset by a increase of approximately $1.4 million in our local civilian market segment and an increase of approximately $300,000 in our export civilian market segment.
Gross Profit . Gross profit for the nine months ended September 30, 2010 was $2.5 million compared to $3.0 million for the nine months ended September 30, 2009. This decrease in gross profit is primarily attributable to the decrease in sales. Our gross profit margin for the nine months ended September 30, 2010 decreased to 20% compared to 22.9% for the nine months ended September 30, 2009 due to the change in the mix of products sold and the impact of our fixed costs that are not revenue dependent.
Selling Expenses. Selling expenses for the nine months ended September 30, 2010 increased by 63.4% to $793,000 from $486,000 for the nine months ended September 30, 2009. The increase in our selling expenses was primarily attributable to increased commissions due to a different mix of products sold and an increase in sales through agents.
General and Administrative Expenses. General and administrative expenses for the nine months ended September 30, 2010 increased by 32.1% to $2 million from $1.5 million for the nine months ended September 30, 2009. This increase is primarily attributable to an increase in professional services expenses.
Compensation from Israeli Government. In the second quarter of 2009, Export Erez and Mayotex received a total of $224,000 as compensation from the Israeli Government under the "Property tax and compensation payments for war damages" regulations, for the loss of employment days and potential revenues during the last two years due to the security and military situation in the area in which Export Erez and Mayotex are located. We recorded $4,000 of income due to exchange rate differences in the third quarter of 2009 with respect to the compensation received from the Israeli Government.
Financial (Expenses), Net. We had financial expenses, net of $161,000 for the nine months ended September 30, 2010 compared to financial expenses, net of $38,000 for the nine months ended September 30, 2009. Our financial expense is primarily due to the change in the U.S. dollar exchange rate versus the NIS, which resulted in a loss of $170,000 for the nine months ended September 30, 2010 compared to a loss of $98,000 for the nine months ended September 30, 2009.
Other Income, Net. We had other income, net for the nine months ended September 30, 2010 of $101,000 as compared to other income, net of $293,000 for the nine months ended September 30, 2009. Our other income in the nine months ended September 30, 2010 is mainly attributable to the revaluation
of funds in respect of employee rights upon retirement of $20,000, an unrealized gain of $59,000 on tradable securities and a gain of $23,000 from the dissolution of Dragonwear. Our other income in the nine months ended September 30, 2009 was mainly attributable to revaluation of funds in respect of employee rights upon retirement of $112,000 a gain derived from sales of tradable securities of $34,000 and an unrealized gain of $148,000 on tradable securities.
Income Tax Expense. Our income tax expense for the nine months ended September 30, 2010 was $5,000 compared to income tax expense of $341,000 for the nine months ended September 30, 2009. The decrease in income tax expense was mainly due to the decrease in our income before income taxes in the nine months ended September 30, 2010.
Net Income(Loss) . In the nine months ended September 30, 2010 our consolidated net loss was $402,081 compared to net income of $1.1 million for the nine months ended September 30, 2009.
22
--------------------------------------------------------------------------------
Liquidity and Capital Resources
We assess liquidity in terms of our ability to generate cash to fund our operating and investing activities. Of particular importance to management are cash flows generated by operating activities and cash used for capital and financing expenditures.
In the last few years we have financed our operating needs and capital expenditures through cash flows from our operations, payments from the Israeli government relating to the evacuation by our Erez Export and Mayotex subsidiaries from their manufacturing facilities in the Erez Industrial Zone in the Gaza Strip and existing cash. We expect to continue to finance current and planned operating requirements principally through cash from operations, as well as existing cash resources. We believe that these funds will be sufficient to meet our operating requirements for the foreseeable future. However, we may, from time to time, seek additional funding through a combination of equity and debt financings or from other sources. The current economic climate and the uncertainty in the global financial markets resulting from the disruption in credit markets may affect our ability to raise additional funds in the future, if required. There can be no assurance that such additional financing will be available to us, or if available, will be on terms favorable to our company.
Most of our large contracts, which are Israeli Governmental contracts, are supported by letters of credit. As a result, we believe that we have limited exposure to doubtful accounts receivables. We have endeavored to balance our accounts payable and accounts receivable.
As of September 30, 2010, we had $3.1 million in cash and cash equivalents, $2.0 million in trading securities and working capital of $10.3 million as compared to $3.8 million in cash and cash equivalents, $2.3 million in trading securities and working capital of $10.2 million at December 31, 2009.
We believe that we have sufficient working capital and borrowing capability to sustain our current level of operations for the next twelve months.
Subsequent Event
On October 27, 2010, our subsidiary Mayotex Ltd., or Mayotex, entered into an agreement to purchase shares of Mayo-Ben Investments and Development Ltd., or Mayo-Ben. Pursuant to the agreement, Mayotex agreed to invest up to $1.5 million in Mayo-Ben, a real estate company holding industrial properties in Israel which are partially occupied by the Company's subsidiaries, in consideration for the purchase of approximately 20 per cent of the share capital of Mayo-Ben on a fully diluted basis. The subscription price is subject to adjustment based on an appraisal of the properties to be conducted by a major accounting firm in Israel.
Mayotex also agreed to lend Mayo-Ben $1 million, which funds will be utilized by Mayo-Ben to improve and renovate its industrial properties, subject to and upon the terms of the agreement. Within the framework of a recent amendment to the Evacuation Compensation Law, under which several of our subsidiaries received compensation for their forced evacuation from the Gaza Strip area, such subsidiaries are eligible to apply for additional compensation under such law, subject to certain requirements, including investment in the factories and properties to which they moved their activities and businesses, such as the properties held by Mayo-Ben. We expect that a portion of the grants, if any, to be received from the Israeli government within the above framework, will be used (subject to the amount granted), with the funds to be invested by Mayo-Ben, for renovations and improvements to the properties occupied by the Company’s subsidiaries and will entitle the Company’s subsidiaries to apply for additional grants and tax benefits.
The Company has agreed to forgive the loan in the event that Mayo-Ben invests at least $1 million in the renovation and improvement of the properties in accordance with a renovation plan agreed to by both parties and to the complete satisfaction of the Company within a three (3) year period commencing on the first closing date of the transaction, of which at least $200,000 must be spent for such renovations prior to August 30, 2011.
23
--------------------------------------------------------------------------------
Cash Flows
The following table summarizes our cash flows for the periods presented:
Nine months ended
September 30,
2010 September 30,
2009
Net cash provided by (used in) operating activities $(761,329) $ 1,587,773
Net cash provided by (used in) investing activities (181,130) 2,042,210
Net cash used in financing activities 132,653 (1,695,666)
Net (decrease) increase in cash and cash equivalents (682,373) 2,155,409
Cash and cash equivalents at beginning of period 3,783,631 1,719,921
Cash and cash equivalents at end of period $3,101,258 $3,875,330
Operating activities. Net cash used in operating activities was $761,000 for the nine months ended September 30, 2010 as compared to $1.6 million provided by operating activities in the nine months ended September 30, 2009. This was primarily due to our net loss of $402,000, an increase in accounts receivable of $913,000, a decrease in other current liabilities of $261,000, an increase in other current assets of $273,000, a decrease in related parties accounts of 425,000 and a increase in inventories of $190,000, offset by an increase in accounts payable of $937,000 and a decrease in trading securities of $419,000. The $1.6 million provided by operating activities in the 2009 period was primarily provided from net income of $1.1 million, a decrease in accounts receivable of $429,000, a decrease in inventories of $505,000 and a decrease in trading securities of $276,000, offset by a decrease in accounts payable of $228,000 and a decrease in other current liabilities of $690,000.
Investing activities. Net cash used in investing activities was $181,000 for the nine months ended September 30, 2010 as compared to $2.0 million provided by investing activities in the nine months ended September 30, 2009. During the nine months ended September 30, 2010, $174,000 was used to purchase fixed assets and $14,000 was used for the purchase of a business. During the nine months ended September 30, 2009, $3.0 million was provided from the redemption of bank deposits, $52,000 was provided from the sale of fixed assets, $91,000 was used to purchase fixed assets and $919,000 was used for the purchase of a business.
Financing activities. Net cash provided in financing activities was $133,000 for the nine months ended September 30, 2010 as compared to $1.7 million used in financing activities for the nine months ended September 30, 2009. During the nine months ended September 30, 2010, we incurred additional short-term debt of $233,000 and long-term debt of $125,000, which was offset by the repayment of $225,000 of long-term debt. During the nine months ended September 30, 2009, we incurred additional short-term debt of $231,000, repaid $264,000 of long-term debt and paid $1.2 million to related parties for the purchase of their minority interest in Achidatex and 1,050,000 of our Company’s shares held by them..
Foreign Currency Exchange Risk
We develop products in Israel and sell them in Israel, North and South America, Asia, Africa and several European countries. Our sales in Israel are denominated in NIS while most of our export sales are denominated in U.S. dollars. In addition, our labor expenses are primarily paid in NIS while our expenses for raw materials are paid primarily in U.S. dollars. As a result, our financial results could be affected by factors such as changes in foreign currency exchange rates or weak economic conditions in foreign markets.
Our foreign currency exposure is significant due to the depreciation of the U.S. dollar versus the NIS. We expect our exposure will continue to be significant, since a significant portion of the prices of our raw material purchases, as well as part of our sales are denominated in U.S. dollars.
In the year ended December 31, 2009, the inflation rate in Israel was 3.91% and the NIS appreciated in relation to the U.S. dollar at a rate of 0.71%, from NIS 3.802 per $1 on December 31, 2008 to NIS 3.775 per $1 on December 31, 2009. In the nine months ended September 30, 2010, inflation in Israel was 1.9% while the NIS appreciated in relation to the U.S. dollar at a rate of 2.9%. If future inflation in Israel exceeds the devaluation of the NIS against the U.S. dollar or if the timing of such devaluation lags behind increases in inflation in Israel, our results of operations may be materially adversely affected.
We did not enter into any foreign exchange contracts or hedging transactions in the nine months ended September 30, 2010.
Made Bucks On This, and still have them....
Join the InvestorsHub Community
Register for free to join our community of investors and share your ideas. You will also get access to streaming quotes, interactive charts, trades, portfolio, live options flow and more tools.
