Annual report pursuant to Section 13 and 15(d)

COMMITMENTS AND CONTINGENT LIABILITIES

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COMMITMENTS AND CONTINGENT LIABILITIES
12 Months Ended
Dec. 31, 2018
Commitments and Contingencies Disclosure [Abstract]  
COMMITMENTS AND CONTINGENT LIABILITIES
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 3.0%-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. No royalties were expensed for 2018, 2017, and 2016.
During 2018, 2017, and 2016, Epsilor-EFL received grants in the total amount of $500,271, $461,894, and $612,249, respectively. 
b.
Lease commitments:
The Company rents its facilities and certain equipment under various operating lease agreements, which expire on various dates through 2023. The minimum rental payments under non-cancellable operating leases are as follows:
December 31,
Minimum rental payments
2019
$
1,161,909

2020
753,383

2021
527,295

2022
441,243

2023
334,722

Thereafter
1,508,915

Total
$
4,727,467


Total rent expense for the years ended December 31, 2018, 2017, and 2016, was $1,275,785, $1,332,758, and $1,418,136, respectively.
c.
Guarantees:
The Company obtained bank guarantees in the amount of $182,500 (i) in connection with obligations of one of the Company’s subsidiaries to the Israeli Customs Authorities, and (ii) given in order to secure payments made by customers prior to delivery of the final product for milestones achieved during production.
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 does not have any credit liens collateralized by the assets of, or guaranteed by, the Company.
Epsilor-EFL has recorded a lien on all of its assets in favor of its banks to secure overdraft protection. In addition Epsilor-EFL has a specific pledge on assets in respect of which government guaranteed loans were given.
e.
Litigation and other claims:
The Company from time to time is involved in legal proceedings and other claims. The Company is required to assess the likelihood of any adverse judgments or outcomes to these matters, as well as potential ranges of probable losses. The Company has not made any material changes in its accounting methodology used to establish its self-insured liabilities during the past three fiscal years.
A determination of the amount of reserves required, if any, for any contingencies are made after careful analysis of each individual issue. The required reserves may change due to future developments in each matter or changes in approach, such as a change in settlement strategy in dealing with any contingencies, which may result in higher net loss.
If actual results are not consistent with our assumptions and judgments, we may be exposed to gains or losses that could be material.
f.    Government Termination for Convenience:
On October 3, 2018, the Company’s U.S. Power Systems Division subsidiary was informed by its customer, SAIC, that the USMC had discontinued its efforts to upgrade the Assault Amphibious Vehicle (“AAV”) fleet that was undergoing survivability and electrical upgrades under a prime contract with SAIC. As a result of this termination for the USMC’s convenience, the Company presented its costs related to this program for reimbursement by SAIC and the USMC in December 2018. The amounts of and time frame for resolution have not yet been determined.