BUSINESS COMBINATION AND CERTAIN TRANSACTIONS

9 Months Ended

Sep. 30, 2011

BUSINESS COMBINATION AND CERTAIN TRANSACTIONS [Abstract]

BUSINESS COMBINATION AND CERTAIN TRANSACTIONS

NOTE 2 BUSINESS COMBINATION AND CERTAIN TRANSACTIONS

1. On December 21, 2008, Mayosar, through its wholly owned subsidiary, Optics, entered into an agreement (the "Isorad Agreement") to purchase the Germanium Crystals Business of Isorad Ltd. ("Isorad"), an Israeli governmental company. 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 executed an addendum to the 2008 agreement, according to which the parties confirmed the validity of the Isorad Agreement under certain conditions. On December 19, 2010 (the "Effective Date"), the Isorad Agreement was approved and became effective. Pursuant to the Isorad Agreement, Optics is to pay annual royalties to Isorad of 3% out of sales for a period of 15 years commencing the Effective Date of the Isorad Agreement, with a minimum of approximately $133,000, payable on an annual basis 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 years following the above initial period. Isorad also has the right to acquire 5% of the share capital of Optics on a fully diluted basis for a nominal value during an original 24-month period beginning on the Effective Date. Such right was extended until January 1, 2012. In the event of an allotment of shares representing 5% of Optics' share capital to Isorad upon the exercise by Isorad of its option, Optics will issue additional shares of Optics to Mayotex on a pro rata basis, in order for Mayotex to retain an 82% interest in Optics' share capital.

Management performed a purchase price allocation for the purchase of Isorad IR based on the fair value of the assets acquired and liabilities assumed at the date of acquisition, and concluded upon the advice of an independent valuator that no intangible assets should be recognized and the excess purchase price over the fair value of the net assets purchased should be allocated to goodwill at the date of acquisition.

The following table summarizes the consideration transferred and estimated fair values of the assets acquired and liabilities assumed at the date of acquisition:

Cash payment to Isorad (in the form of a deposit paid in January 2009)	$	698,570
Minimum guaranteed royalty payments		750,000
Total consideration		1,448,570
Recognized amounts of identifiable assets acquired and liabilities assumed:
Current assets (including cash and cash equivalents of $82,947)		196,539
Property and equipment		152,284
Goodwill		1,267,000
Accounts payable and other current liabilities		(92,253	)
Deferred income taxes liabilities		(75,000	)
Total identifiable net assets acquired	$	1,448,570

Management has identified certain changes in circumstance, including a reduction in the volume of operations of Isorad IR and a decrease in sales following the acquisition as triggering events for applying a goodwill impairment test that would, more likely than not, reduce the fair value of Isorad IR below the booked amount, based on the provisions of ASC 350-20-35-28.

Management applied the Net Realized Value (NRV) approach to estimate the fair value of Isorad IR and recognized impairment losses of $549,933 and $ 141,312 for goodwill and fixed assets, respectively. Additionally, we wrote off certain current assets of Isorad IR in aggregate amount of $ 72,299.

The Companies are in the process of signing a second addendum to the Isorad agreement that will provide that the royalty payment will be postponed to a period that will start on January,  1, 2012 and that at the end of 2012, Isorad could under certain circumstances, determine to end the relationship between the parties, subject to a final payment of approximately $150,000.

Management is of the opinion that under the circumstances, including the recognition of impairment losses for long lived assets and goodwill, it is more likely than not that the Company will determine to make a final payment of approximately $150,000. Accordingly, the Company made a provision for such amount in our financial statements.

2. On February 22, 2010, Mayotex entered into a contract for the acquisition of the business of Vacutec Industries Ltd., a manufacturer of fiberglass for the automotive industry. Pursuant to the agreement Mayotex acquired certain fixed assets, inventories, customer lists and backlog in consideration of $23,000, of which $13,243 was paid prior to December 31, 2010.

Management allocated the purchase price to the following assets on the basis of their fair value:

Fixed assets	$	22,205
Inventory		1,830
Customer lists and backlog		28,445

Accordingly the excess fair value of the assets purchased over the purchase price (bargain purchase gain), in the amount of $25,994 was recognized in the income statement at the date of the acquisition.

3. On May 3, 2011, Mayotex entered into an agreement with Rabintex Industries Ltd. ("Rabintex"), to purchase Philcar Ltd. ("Philcar"), a company that specializes in equipping and protecting vehicles, for an amount of $235,502. Under the terms of the agreement, Mayotex may pay Rabintex additional compensation of up to $160,728, depending on the amount of orders that Philcar receives from certain customers during the nine-month period following the closing of the transaction.

The following table summarizes the consideration transferred and estimated fair values of the assets acquired and liabilities assumed at the date of acquisition:

Cash payment	$	235,502
Contingent consideration liability at fair value		133,950
Total consideration		369,452
Recognized amounts of identifiable assets acquired and liabilities assumed:
Current assets		197,711
Property and equipment		100,883
Backlog		84,823
Contractor Number		129,814
Goodwill		383,119
Accounts payable and other current liabilities		(526,898	)
Total identifiable net assets acquired	$	369,452

The allocation of purchase price for backlog, contract number and goodwill are provisional pending receipt of the final valuations of those assets. These assets have an expected future life of 2.67 years for the backlog and indefinite for all the others.

Amortization cost for the five months ended September 30, 2011 for the backlog was $15,000.

The unaudited pro forma information below assumes that the acquisition of the Philcar business was consummated on January 1, 2010, and includes the effect of amortization of intangible assets from that date. This data is presented for information purposes only and is not necessarily indicative of the results of future operations or the results that would have been achieved had the acquisition taken place at those dates.

The pro forma information is as follows:

	For the nine Months ended September 30, 2011			For the nine Months ended September 30, 2010			For the three Months ended September 30, 2011			For the three Months ended September 30, 2010
	Unaudited						Unaudited
Net revenues		12,144,965			13,069,135			3,815,920			6,805,458
Net loss		(3,727,151	)		(801,851	)		(1,469,246	)		(175,289	)
Basic net loss  per share		(0.132	)		(0.028	)		(0.052	)		(0.006	)
Diluted net loss per share		(0.132	)		(0.028	)		(0.052	)		(0.006	)

4. On July 11, 2011, Achidatex entered into an agreement to purchase the personal protection activity of Rabintex Ltd. (the "Agreement"). The personal protection activity to be acquired includes Rabintex's activities in respect to the development, manufacture, assembly and marketing of protection products, mainly based on lining of ballistic clothing and its manufacture of dry storage.

Achidatex agreed to purchase the activities free from any warranty, debt, lien, claim or third party     rights and on "as is" basis.  Achidatex also agreed to take all action reasonably necessary to complete project Italy for the supply of bullet proof vests to the Italian army, which is encumbered by a lien to Bank Hapoalim.  Achidatex has the right to decide whether to employ the employees of Rabintex after the latter of (i) the date of approval of the Agreement  by the banks whose loans are secured by the assets of Rabintex (the "Banks"), or the court enables the sale; (ii) approval of the Agreement by the Anti-Trust Authority; or (iii) the supply of documents and approvals required by Achidatex pursuant to the conditions precedent to closing the Agreement (the "Determination Date").  Rabintex agreed to change its name so as to no longer include "Rabintex" within 30 days of the Determination Date.  Rabintex also agreed to keep confidential any information related to the personal protection activity and to not compete with Achidatex for a period of three years from the date of receipt of the last payment.

The consideration to be paid by Achidatex is NIS 42 million (approximately $12.3 million) together with V.A.T. as required by law and 10% of the issued and outstanding share capital of the Company (2,815,053 shares of common stock). The consideration is to be paid as follows:  (i) NIS 9 million (approximately $2.6 million) to be paid to Rabintex in installments;(ii) NIS 14.5 million (approximately $4.25 million) to be paid directly to the Banks; (iii) NIS 6.5 million (approximately $1.9 million) to be paid to the accounts of Rabintex  at the Banks for the purchase of real estate; and (iv)  Achidatex agreed to take all action reasonably necessary to enable the collection of the accounts  receivable under a project in Italy for the Italian army. Payment is to be guaranteed by a NIS 15 million (approximately $4.4   million) lien on the personal protection activity assets purchased, including a floating lien on the inventory purchased in the framework of the Agreement, and a writ of guarantee from the Company's Export-Erez and Mayotex Ltd. subsidiaries. As of September 30, 2011 not all of the conditions to closing that are mentioned above had been met.