Annual report pursuant to Section 13 and 15(d)

NOTE 10: - COMMITMENTS AND CONTINGENT LIABILITIES

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NOTE 10: - COMMITMENTS AND CONTINGENT LIABILITIES
12 Months Ended
Dec. 31, 2012
Commitments and Contingencies Disclosure [Text Block]
NOTE 10:–               COMMITMENTS AND CONTINGENT LIABILITIES

a.              Royalty commitments:

Under Epsilor-EFL’s research and development agreements with the Office of the Chief Scientist (“OCS”), and pursuant to applicable laws, Epsilor-EFL is required to pay royalties at the rate of 3%-3.5% of net sales of products developed with funds provided by the OCS, up to an amount equal to 100% of research and development grants received from the OCS. (Amounts due in respect of projects approved after 1999 also bear interest at the LIBOR rate.) Epsilor-EFL is obligated to pay royalties only on sales of products in respect of which OCS participated in their development. Should the project fail, Epsilor-EFL will not be obligated to pay any royalties or refund the grants.

Royalties paid or accrued for the years ended December 31, 2012 and 2011 to the OCS amounted to zero and $1,946, respectively.

b.              Lease commitments:

The Company rents its facilities under various operating lease agreements, which expire on various dates through 2018. The minimum rental payments under non-cancelable operating leases are as follows:

Minimum rental payments
 
December 31
 
2013
  $ 860,306  
2014
    441,333  
2015
    362,624  
2016
    366,959  
2017
    371,294  
Thereafter
    98,266  
Total
  $ 2,500,782  

Total rent expenses for the years ended December 31, 2012 and 2011 were $924,864 and $901,216, respectively.

The existing capital leases have terms from 3 to 5 years and are for equipment purchases. The equipment is classified under machinery and equipment in property and equipment.

The table below details the original value, accumulated depreciation and net book value of the assets included.

Leased Assets
 
December 31,
 
   
2012
   
2011
 
Equipment
  $ 77,654     $ 77,654  
Less: Accumulated depreciation
    (77,654 )     (52,164 )
Net book value
  $     $ 25,490  

There are no remaining capital lease obligations.

c.              Guarantees:

The Company obtained bank guarantees in the amount of $427,783 in connection with (i) obligations of one of the Company’s subsidiaries to the Israeli customs authorities, and (ii) the obligation of one of the Company’s subsidiaries to secure the return of products loaned to the Company from one of its customers.

d.              Liens:

As security for compliance with the terms related to the investment grants from the State of Israel, Epsilor-EFL has registered floating liens (that is, liens that apply not only to assets owned at the time but also to after-acquired assets) on all of its assets, in favor of the State of Israel.

The Company has $723,000 in credit liens collateralized by the assets of the Company and guaranteed by the Company.

Epsilor-EFL has recorded a lien on all of its assets in favor of its banks to secure lines of credit. In addition Epsilor-EFL has a specific pledge on assets in respect of which government guaranteed loans were given.

e.              Litigation and other claims:

As of the date of this filing, there were no material pending legal proceedings against the Company.