As filed with the Securities and Exchange Commission on January 30, 2009

Registration No. 333-153161

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Amendment No. 6

Form S-1

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

THE O’GARA GROUP, INC.

(Exact name of Registrant as specified in its charter)


Ohio	3827	20-2790142
(State or other jurisdiction of incorporation or organization)	(Primary Standard Industrial Classification Code Number)	(I.R.S. Employer Identification Number)

7870 East Kemper Road, Suite 460

Cincinnati, OH 45249

(513) 338-0660

(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)

Wilfred T. O’Gara

President & Chief Executive Officer

The O’Gara Group, Inc.

7870 East Kemper Road, Suite 460

Cincinnati, OH 45249

(513) 338-0660

(Name, address, including zip code, and telephone number, including area code, of agent for service)

With copies to:


George D. Molinsky, Esq. Patricia O. Lowry, Esq. Taft Stettinius & Hollister LLP 425 Walnut Street Suite 1800 Cincinnati, Ohio 45202 (513) 381-2838		David A. Gibbons, Esq. Miyun Sung, Esq. Hogan & Hartson LLP 555 Thirteenth Street, N.W. Washington, D.C. 20004 (202) 637-5600

Approximate date of commencement of proposed sale to the public: As soon as practicable after this registration statement becomes effective.

If any of the securities being registered on this form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box: o

If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering: o

If this form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o

If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering: o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):


Large accelerated filer o	Accelerated filer o	Non-accelerated filer þ	Smaller reporting company o

(Do not check if a smaller reporting company)

The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until this Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.

The information in this preliminary prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state or jurisdiction where the offer or sale is not permitted.

SUBJECT TO COMPLETION, DATED JANUARY 30, 2009

8,000,000 Shares

Common Stock

This is The O’Gara Group, Inc.’s initial public offering. We are selling all of the 8,000,000 shares of common stock offered in this offering.

Prior to this offering, there has been no public market for our common stock. It is currently estimated that the initial public offering price per share will be between $17 and $19. We have applied for listing of the common stock on The NASDAQ Global Market under the symbol “OGAR.”

Investing in our common stock involves risks. See “Risk Factors” beginning on page 12.


	Per Share	Total

Initial public offering price	$	$
Underwriting discount	$	$
Proceeds, before expenses, to us	$	$

We have granted the underwriters an option to purchase a maximum of 1,200,000 additional shares of our common stock to cover over-allotments of shares, exercisable at any time until 30 days after the date of this prospectus.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

Delivery of the shares of common stock is expected be made on or about , 2009.

Morgan Keegan & Company, Inc.

BB&T Capital Markets

Oppenheimer & Co.

Raymond James

Stifel Nicolaus

The date of this prospectus is , 2009

TABLE OF CONTENTS


	Page

PROSPECTUS SUMMARY		1
RISK FACTORS		12
FORWARD-LOOKING STATEMENTS		30
USE OF PROCEEDS		31
DIVIDEND POLICY AND RESTRICTIONS		31
CAPITALIZATION		32
DILUTION		34
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL AND OTHER DATA		36
SELECTED CONSOLIDATED HISTORICAL FINANCIAL DATA		46
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS		47
BUSINESS		73
THE PENDING ACQUISITIONS		106
MANAGEMENT		112
PRINCIPAL SHAREHOLDERS		133
CERTAIN RELATIONSHIPS AND RELATED PERSON TRANSACTIONS		135
DESCRIPTION OF CAPITAL STOCK		140
SHARES ELIGIBLE FOR FUTURE SALE		143
UNDERWRITING		145
LEGAL MATTERS		149
EXPERTS		150
WHERE YOU CAN FIND ADDITIONAL INFORMATION		150
INDEX TO FINANCIAL STATEMENTS		F-1
EX-10.13
EX-10.20
EX-23.2
EX-23.3
EX-23.4
EX-23.5
EX-23.6

You should rely only on the information contained in this prospectus and the registration statement of which this prospectus is a part. We have not authorized anyone to provide you with information different from that contained in this prospectus. We are offering to sell, and seeking offers to buy, shares of our common stock only in jurisdictions where offers and sales are permitted. The information contained in this prospectus is accurate only as of the date of this prospectus, regardless of the time of delivery of this prospectus or of any sale of our common stock.

PROSPECTUS SUMMARY

This summary highlights information contained elsewhere in this prospectus that we consider important to investors. You should read the entire prospectus carefully, including the “Risk Factors” section and the financial statements and related notes included in this prospectus, before making an investment decision.

Simultaneously with the closing of this offering, we will acquire Finanziaria Industriale S.p.A., together with its wholly- and partially-owned subsidiaries (Isoclima), Transportadora de Protección y Seguridad, S.A. de C.V. (TPS Armoring or TPS), and OmniTech Partners, Inc., Optical Systems Technology, Inc. and Keystone Applied Technologies, Inc. (collectively, OmniTech) using the proceeds from this offering, borrowings under our new credit facility and issuances of our common stock. The acquisitions of Isoclima, TPS and OmniTech are referred to as the Pending Acquisitions. These Pending Acquisitions will significantly increase our size, expand and enhance our product portfolio, broaden and deepen our customer base, expand our geographic presence and enhance our management team.

The closing of this offering, the closings of the three Pending Acquisitions and the funding of our new credit facility are interdependent. None will go forward unless all the others do. As a result, except in circumstances where the context indicates otherwise, we have described our business below assuming that our new credit facility is in place and has been funded and that the Pending Acquisitions already have occurred. See “The Pending Acquisitions” and “Risk Factors — Risks Related to Our Pending and Future Acquisitions.”

Unless the context indicates otherwise, references in this prospectus to “we,” “us,” “our,” the “company” or “The O’Gara Group” refer to The O’Gara Group, Inc. and its consolidated subsidiaries and assume and give effect to the closing of the Pending Acquisitions.

Our Company

We provide a diverse portfolio of security, safety and defense products and services to commercial and government organizations worldwide. Our business activities are focused on delivering specialized products and services that improve the ability of organizations and individuals to prepare for, respond to and recover from acts of terrorism, violent crime and other hazards. We have a varied and distinguished list of customers, including, among others: Mercedes-Benz, BMW and Azimut-Benetti in the commercial market; the U.S. Marine Corps, U.S. Special Operations Command (SOCOM), U.K. Ministry of Defence and Italian Ministry of Defense in the military market; the U.S. Department of State, U.S. Intelligence Community and various law enforcement agencies and state and local governments in the government market; and high-profile individuals. As indicated above, the Pending Acquisitions transform the size and, to a significant extent, the business of our company. Including the Pending Acquisitions, our pro forma combined revenues for the year ended December 31, 2007 and the nine months ended September 30, 2008 were $179.9 million and $152.0 million, respectively. Our pro forma EBITDA for the year ended December 31, 2007 and the nine months ended September 30, 2008 were $22.0 million and $24.5 million, respectively. Our pro forma net loss for the year ended December 31, 2007 was $2.0 million and our pro forma net income for the nine months ended September 30, 2008 was $4.5 million. Our pro forma combined firm backlog at December 31, 2008 was $137.6 million, of which $51.3 million was unfunded government orders and $50.8 million is not reasonably expected to be filled by the end of 2009. Comparable historical information, including a description of how we use EBITDA and its limitations as a non-GAAP measure, can be found under “Summary Consolidated Historical and Pro Forma Financial Data” on pages 9 to 11.

Our business activities are organized into three divisions — Advanced Transparent and Mobile Systems, Sensor Systems and Training and Services.


	•	Advanced Transparent and Mobile Systems. Our Advanced Transparent and Mobile Systems division designs, manufactures and sells highly engineered transparent armor, vehicle armoring systems and impact-resistant and other specialized glass. The majority of our revenues in this division are derived from sales to commercial market customers operating in the automotive, rail, marine and aviation industries. In the automotive industry, we supply transparent armor used in commercial and military armored vehicles and vehicle armoring systems for cars, trucks and SUVs. For the rail, marine and


		aviation industries, our activities are focused on the production of impact-resistant and other specialized glass used to protect a range of high-value assets, such as high-speed trains, yachts and aircraft. Our specialized glass products are also used in solar panels for alternative energy applications and for architectural purposes.


	•	Sensor Systems. Our Sensor Systems division designs, manufactures and sells optoelectronic equipment to the government and military markets. Our principal products in this division are specialized night vision equipment and tagging, tracking and locating systems, all of which enable government agencies and militaries to conduct covert intelligence, surveillance and reconnaissance missions and battlefield operations more effectively. We believe our proprietary technologies for illumination and detection are among the most advanced in the industry, in part as a result of our use of certain infrared bands that are undetectable by conventional night vision equipment. Our products also incorporate other advanced technologies, including heads-up displays and thermal imaging sensors.

	•	Training and Services. Our Training and Services division provides technical services, such as threat and vulnerability assessments and weapons of mass destruction training; tactical services, such as urban warfare and tactical driving training; and preparedness and response services, such as emergency response and continuity of operations planning. These offerings enhance our customers’ ability to prepare for, operate during and recover from high-risk situations and emergencies. We offer our training and services to government, military and corporate customers, both at our tactical training complex and at customer locations worldwide.

Our management team possesses a long history of building and acquiring businesses focused on the security, safety and defense markets. We believe their experience and relationships within these markets have been instrumental in the acquisition, integration and growth of the businesses we have acquired to date and will be critical to the execution of our business strategy. Our founders, Thomas M. O’Gara, Wilfred T. O’Gara and Michael J. Lennon, previously managed O’Gara-Hess & Eisenhardt Armoring Company, a pioneer and leader in designing, engineering and manufacturing armored vehicles. In addition to the companies acquired since our inception, our founders completed 19 acquisitions during their previous ventures.

Industry

Our products and services address a large and growing worldwide market comprised of governments, militaries, corporations and individuals seeking to more effectively protect and preserve lives and assets. The current environment of worldwide geopolitical and socioeconomic unrest, terrorism, violent crime and natural disasters has precipitated a number of global trends impacting the manner in which organizations, both commercial and governmental, execute their security, safety and defense-related initiatives. These trends, which are described below, are driving the growth of our target markets by increasing the demand for products and services that enhance situational awareness, improve the ability to respond to, operate during and recover from critical events and protect personnel and property in hostile, high-risk environments.

Evolving unconventional nature of threats. Governments and commercial organizations worldwide are increasingly encountering unconventional threats, such as highly organized and sophisticated terrorist groups and the use of unconventional weapons, that are presenting challenges to the operations of traditional security and defense practices unaccustomed to assessing and defeating those threats. In response, governments in particular are taking decisive actions, such as realigning spending priorities, to more effectively address the evolving nature of threats. In recent years, the U.S. government has shifted spending priorities away from large-scale weapons systems used primarily during periods of high-intensity conflict to tactical products more suited to combating the dangers associated with unconventional threats and to gathering intelligence to prevent — or more effectively respond to — such threats. This has resulted in the procurement of additional advanced products and services to enhance the capabilities of security and military personnel, particularly as part of the Global War on Terror, the Department of Defense-led initiative focused specifically on fighting against and eliminating terrorist organizations worldwide. Since September 11, 2001, the U.S. government has appropriated $636 billion for the Global War on Terror. In government fiscal year 2009, the budget request for the Global War on Terror is $66 billion.

Increased emphasis on emergency preparedness and response. In response to manmade and natural threats, U.S. federal, state and local governments, foreign governments and commercial organizations have allocated increased funding to prepare for, respond to and recover from acts of terror and other catastrophic events. These organizations are procuring services such as vulnerability assessments, emergency response planning, business continuity planning and recovery services. For example, in its government fiscal year 2009 budget request, the U.S. government has allocated approximately $5 billion to emergency preparedness and response initiatives. In addition, since 2001, the U.S. government has spent over $30 billion enhancing state and local emergency preparedness and response.

Expanding criminal activities. As a result of increased criminal activities in certain parts of the world, such as Latin America, the Middle East and areas of Europe, governmental and commercial organizations as well as individuals have taken measures to increase protection against these activities. Within the government market, law enforcement agencies are working rigorously to equip officers with the capabilities to combat escalating criminal threats, such as narcoterrorism and organized crime. Within the commercial market, both corporations and individuals are taking proactive measures, such as using armored vehicles, to enhance security in increasingly high-risk environments.

Increased reliance upon government outsourcing. In order to maximize efficiency, reduce costs and replace an aging government workforce, governments have come to rely upon the products and services of the private sector. Domestically, in the field of training, organizations such as the Department of Defense, the Department of Homeland Security and the Department of State all utilize the services of third-party professionals to ensure proper education and preparation of soldiers, first responders and government employees. According to the U.S. Government Accountability Office, the Department of Defense’s obligations under third-party service contracts grew from approximately $85 billion in government fiscal year 1996 to more than $151 billion in government fiscal year 2006, representing an increase of approximately 78%.

Market Opportunity

As threats to the security and safety of governments, militaries, corporations and individuals continue to increase and evolve, demand for technologies, products and services to more effectively combat such threats is growing rapidly. As a global provider of a diverse portfolio of advanced capability products and services, we believe we are uniquely positioned to capitalize upon the strong growth trends within the security, safety and defense markets worldwide. Specifically, we are able to provide specialty products that safeguard government and civilian personnel and enhance the effectiveness of military and intelligence missions, and training services for government and military personnel and private citizens that help them prepare for, respond to and recover from manmade and natural disasters. We have operations in the U.S., Europe and Mexico, which we believe will serve as strong bases for growth in the markets we currently serve as well as enable us to penetrate new markets globally. We believe our ability to develop and produce market-leading products and services together with our deep knowledge of our customers and end markets will enable us to expand our domestic and international market share and continue to offer our customers high-value solutions.

The Pending Acquisitions

Simultaneously with the closing of this offering, we will complete the acquisitions of the following companies:


	•	Isoclima — Established in 1977 and based in Este, Italy, Isoclima is a designer and manufacturer of transparent armor and impact-resistant and other specialized glass for the automotive, rail, marine, aviation and other markets. Isoclima will join our Advanced Transparent and Mobile Systems division. Subject to customary adjustments, we will acquire Isoclima for aggregate consideration of approximately $129.7 million consisting of cash and assumed debt.

	•	TPS Armoring — Established in 1994 and based in Monterrey, Mexico, TPS Armoring is a manufacturer of vehicle armoring systems used primarily by government officials and private individuals. TPS Armoring also will join our Advanced Transparent and Mobile Systems division. Subject to customary


		adjustments, we will acquire TPS for approximately $42.3 million consisting of cash, common stock and assumed debt.


	•	OmniTech — Established in 1995 and based in Freeport, Pennsylvania, OmniTech is a designer and manufacturer of optoelectronic systems serving the government and military markets. OmniTech will join our Sensor Systems division. Subject to customary adjustments, we will acquire OmniTech for aggregate consideration of approximately $31.6 million consisting of cash, common stock and assumed debt.

Our Competitive Strengths

Experienced and deep management team. Our management team has an average of 23 years of experience managing businesses that serve the security, safety and defense markets. In addition, our founders previously formed and managed a public company that served these markets. As we continue to grow, we believe that the experience and depth of our management team will serve as a significant competitive advantage and enable us to effectively execute our strategy.

Diversified business model. Our broad portfolio of products and services addresses the needs of both commercial and government customers operating in domestic and international markets. For the year ended December 31, 2007 and the nine months ended September 30, 2008, sales to commercial customers represented 62% and 63%, respectively, of our pro forma combined revenues and sales to government customers represented 38% and 37% of those revenues. For the year ended December 31, 2007 and the nine months ended September 30, 2008, sales to domestic customers were 22% and 20%, respectively, of our pro forma combined revenues and sales to international customers were 78% and 80% of those revenues. As a result of our highly diverse business activities, we believe that our future success is not dependent upon a single technology, product, service, customer, government program or geographic market.

Attractive, global customer base. We have a worldwide customer base that includes many highly discerning commercial, government and military organizations that typically are very difficult to penetrate without pre-existing business relationships. We believe that we have built a high degree of confidence with key customers, due in large part to our consistent ability to meet their exacting quality standards and field performance requirements. Our customer base provides us with substantial organic growth opportunities and, because of our customers’ reputations and stature, with strong references as we pursue new opportunities worldwide.

Strong knowledge of customer requirements. In each of our divisions, we interact directly and routinely with our customers. As a result, we have continuous sources of information regarding our customers’ requirements and evolving needs that we can apply in creating innovative solutions for them in our target markets. We believe our customer contacts also provide us with advantageous positioning for future projects and contracts.

Proprietary manufacturing methods, technologies and processes. We have developed proprietary manufacturing methods, technologies and processes that we believe provide us with competitive advantages in producing highly reliable and technologically advanced products. Our Advanced Transparent and Mobile Systems businesses have invested in state-of-the-art production and testing facilities that are integral to our ability to exceed the stringent performance and quality assurance standards mandated by our customers. Our Sensor Systems businesses have developed proprietary sensor and imaging technologies that we can incorporate into multiple products, providing them with unique attributes relative to those currently available in competing products.

Strong acquisition and integration track record. Our executive officers have a strong track record of identifying, consummating and integrating acquisitions. Since our inception, we have acquired and integrated five businesses, implementing initiatives at each to enhance operational efficiencies and financial performance.

As a result, we have been able to pursue larger, more competitive business opportunities from new customers and to capture additional revenues from existing customers.

Our Strategy

Our objective is to become the leading global provider of security, safety and defense products and services used by commercial, military and government customers to address risks associated with terrorism, violent crime and other hazards. We intend to realize this objective by implementing the following strategies:

Integrate our Pending Acquisitions. We intend to integrate Isoclima, TPS and OmniTech by, among other things, coordinating our expanded sales and marketing resources to increase the reach of our offerings; implementing our existing lean manufacturing practices to enhance manufacturing efficiencies; coordinating research and development activities to accelerate the development of next-generation products; leveraging our existing customer relationships, particularly those within the U.S. government, to generate incremental revenues; and realizing manufacturing and other efficiencies by sourcing internally key components used in our finished goods, such as Isoclima’s specialized glass used by TPS in its armoring systems.

Extend and enhance our product and service portfolio. We expect to continue developing innovative technologies that can be leveraged across multiple product groups within our divisions and to continue introducing new products and services that expand our offerings and help us maintain our competitive advantages within our existing markets. Through ongoing customer contact and market interaction, we monitor changing trends in all of our target markets and intend to continually modify our portfolio of products and services to address these changing demands.

Broaden and deepen our customer base. We intend to further penetrate our existing customer base by marketing additional products from our expanded portfolio to existing customers; migrating products from early adopters to a broader group of customers; and using our enhanced financial and operational resources to identify and pursue larger-scale opportunities. We also intend to increase the marketing of the products we currently produce internationally to the U.S. domestic market and of those we produce domestically to the international market.

Expand our geographical presence. We intend to continue expanding our geographical presence, both domestically and in attractive international markets across all of our divisions. We will consider opening select additional domestic and international facilities to compete more effectively for business opportunities that arise. We believe the combination of our management team’s prior experience with international expansion and the resident knowledge of our international managers will enable us to pursue this growth initiative systematically and efficiently.

Grow through acquisitions. We plan to grow our business by acquiring select companies and assets that enhance our technological capabilities, broaden our product and services offerings and expand our customer relationships or geographical presence. We look for companies with proprietary products or services that fit our business model and that have reached the point at which we believe we can add value. We intend to maintain a highly disciplined approach in our pursuit of acquisitions by performing assessments of a target’s proprietary technologies and processes, growth prospects and management aptitude.

* * * * * * *

We were formed in August 2003 to acquire Specialized Technical Services, Inc., a manufacturer of night vision equipment established in 1991 and the foundation of our Sensor Systems division. In 2005, we acquired Diffraction, Ltd., a developer and manufacturer of optoelectronic prototypes since 1993, and integrated its operations into our Sensor Systems division. Our Training and Services division was established in early 2006 when we hired the owners and employees of Tracor, Inc. to develop their training concepts. The division was enhanced later that year by the purchase of certain assets of Safety and Security Institute (SSI), the security and safety training division of VIR Rally, LLC, and by the acquisition of Homeland Defense Solutions, Inc. (HDS). In 2007, we created the Mobile Security division, which is being renamed the Advanced Transparent and Mobile Systems division, with the acquisition of Security Support Solutions Limited (3S), which has sold, leased and serviced armored military and commercial vehicles since 2003.

We are an Ohio corporation. Our principal executive offices are located at 7870 East Kemper Road, Suite 460, Cincinnati, Ohio 45249 and our telephone number is (513) 338-0660. Our internet address is www.ogaragroup.com. The information contained on or accessible from our website is not a part of, and is not incorporated by reference in, this prospectus.

Recent Developments

$35 Million Credit Facility

On January 16, 2009, we entered into a credit agreement with PNC Bank and First Commonwealth Bank, as lenders, pursuant to which, simultaneously with the closing of this offering, we will have the ability to draw funds under a $35 million credit facility for which PNC Bank will serve as Administrative Agent, and which will be comprised of a three-year $10 million senior secured term loan and a three-year $25 million senior secured revolving credit facility.

Option Agreement to Purchase Real Estate for Training & Services

On January 28, 2009, our subsidiary O’Gara Training and Services, LLC entered into a one-year option agreement with an unaffiliated third-party seller which gives us the option to purchase 325 acres of property in Virginia for $2.5 million. The purchase of this property would allow us to expand our Training and Services facilities closer to Washington, D.C. An initial deposit of $50,000 was made in connection with the option agreement, but we have sole discretion whether to exercise the option. In the event the option is exercised, O’Gara Training and Services, LLC intends to issue a promissory note for $2.3 million to the seller and pay the balance of the purchase price in cash. In the event the option is not exercised, the deposit would be forfeited. We also have contracted to purchase an adjacent 25.6 acre property for approximately $680,000, subject to satisfactory engineering and feasibility studies, financing and other conditions precedent. This property also would be used by our Training and Services division.

The Offering


Shares of common stock offered by The O’Gara Group, Inc.		8,000,000 shares

Shares of common stock to be outstanding after this offering		10,808,509 shares

Over-allotment option		1,200,000 shares

Use of proceeds		We estimate that our net proceeds from the sale of 8,000,000 shares of common stock being offered hereby, after deducting underwriting discounts and commissions and estimated offering expenses, will be approximately $131.8 million (or $148.6 million if the underwriters exercise the over-allotment option), based on an offering price of $18 per share, which is the mid-point of the estimated offering price range set forth on the cover page of this prospectus.

		We intend to use all of the approximately $131.8 million in net proceeds from this offering and approximately $27.4 million in borrowings under our new credit facility for the following:

		• to fund the approximately $138.3 million aggregate cash portion of the purchase price required for the Pending Acquisitions (based on the euro-dollar exchange rate at January 7, 2009),

		• to repay all outstanding indebtedness under our existing credit facility, as well as an outstanding promissory note, which together were approximately $8.3 million as of December 31, 2008,

		• to repay approximately $9.7 million of the $57.1 million debt assumed in the Pending Acquisitions, and

		• to pay $2.9 million of expenses related to the Pending Acquisitions and the new credit facility.

		We intend to use the proceeds of any shares sold pursuant to the underwriters’ over-allotment option to pay accounts payable, including $2 million in bonuses to two of our founders and certain costs of this offering, and to reduce amounts outstanding under our new credit facility which will then be available for working capital and general corporate purposes. See “Use of Proceeds.”

Dividend policy		We currently do not anticipate paying any cash dividends on our common stock. Our new credit facility will limit our ability to pay cash dividends.

Proposed NASDAQ symbol		“OGAR”

Unless we specifically state otherwise, all information in this prospectus:


	•	assumes that the Pending Acquisitions already have occurred and that 327,086 (post-split) shares of our common stock (based on a value of $18 per share, the mid-point of the estimated offering price range set forth on the cover page of this prospectus) have been issued as part of the purchase price for the Pending Acquisitions;


	•	assumes that our new credit facility is in place;

	•	assumes the filing of our amended and restated Articles of Incorporation, which will occur immediately before this offering;


	•	reflects the conversion of all outstanding shares of our preferred stock into 2,109,157 (post-split) shares of common stock to be effective immediately before the offering, and the issuance of 274,743 (post-split) shares of common stock in payment of all accrued dividends on our preferred stock to be paid upon closing of this offering (each based on a value of $18 per share, the mid-point of the estimated offering price range set forth on the cover page of this prospectus);

	•	reflects a 4.7550837-for-one split of our common stock in the form of a stock dividend to be effective immediately before the offering;

	•	assumes no exercise by the underwriters of their over-allotment option;

	•	excludes an aggregate of 257,211 shares of our common stock issuable upon exercise of outstanding stock options under our 2004 Stock Option Plan (2004 Option Plan) and 2005 Stock Option Plan (2005 Option Plan) at a weighted average exercise price of $10.78 per share, as well as 35,560 additional shares reserved for issuance under the 2004 and 2005 Option Plans for which options have not been granted; and

	•	excludes 475,508 shares of our common stock reserved for issuance under our 2008 Stock Incentive Plan (2008 Incentive Plan), none of which have been issued as of the date of this prospectus.

Risk Factors

Investing in our common stock involves substantial risks. You should carefully consider all of the information set forth in this prospectus and, in particular, should evaluate the specific factors set forth under “Risk Factors” in deciding whether to invest in our common stock. In general, we face risks associated with the following, any of which or the failure of which may have a material negative impact on our business, financial condition, results of operations and cash flows:


	•	our net losses of $1.8 million, $1.4 million and $2.9 million for the years ended December 31, 2006 and 2007 and the nine months ended September 30, 2008, respectively, our pro forma net loss of $2.0 million for the year ended December 31, 2007 and our pro forma net income of $4.5 million for the nine months ended September 30, 2008;

	•	our ability to integrate the Pending Acquisitions, including our ability to retain key employees and manage growth;

	•	our ability to identify and close suitable future acquisitions, including our ability to obtain financing for such acquisitions given the current volatile state and uncertain future of the financial and capital markets;

	•	our international operations and international sales, which subject us to material risks that our domestic business does not;

	•	a loss of, or significant reduction in business from, one or more of our major customers;

	•	our ability to obtain critical components for some of our products from a small number of suppliers; and

	•	our ability to develop, and then protect, new technologies in response to rapid changes in technology.

Summary Consolidated Historical and Pro Forma Financial And Other Data

The following summary consolidated historical and pro forma financial and other data should be read in conjunction with “Unaudited Pro Forma Condensed Combined Financial Data,” “Selected Consolidated Historical Financial Data,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the consolidated and combined financial statements and related notes of The O’Gara Group, Inc., Isoclima, TPS, OmniTech and 3S included elsewhere in this prospectus.


															Pro Forma
	Historical																	Nine Months
	Year Ended,									Nine Months Ended					Year Ended			Ended
	December 31,									September 30,					December 31,			September 30,
	2005			2006			2007			2007		2008			2007			2008
(in thousands except per share data)

Statement of Operations Data
Revenues	$	14,609		$	16,594		$	38,321		$	29,075	$	26,790		$	179,856		$	152,042
Cost of goods sold		8,951			11,128			25,736			18,793		18,637			125,869			101,979

Gross profit		5,658			5,466			12,585			10,282		8,153			53,987			50,063
Selling, general and administrative expenses		4,052			7,292			13,549			8,720		11,798			47,148			38,276

Income (loss) from operations		1,606			(1,826	)		(964	)		1,562		(3,645	)		6,839			11,787
Interest expense		374			484			620			443		239			5,542			4,555
Other (income) expense		(4	)		(56	)		(25	)		16		(146	)		238			(301	)

Income (loss) before provision (benefit) for income taxes		1,236			(2,254	)		(1,559	)		1,103		(3,738	)		1,059			7,533
Income tax provision (benefit)		464			(464	)		(116	)		486		(862	)		3,683			2,703
Income (loss) related to equity method investments		—			—			—			—		—			297			181
Minority interests’ loss (income)		—			—			—			—		—			279			(480	)

Net income (loss)	$	772		$	(1,790	)	$	(1,443	)	$	617	$	(2,876	)	$	(2,048	)	$	4,531

Net income (loss) per share:(1)
Basic	$	17,160.02		$	(39,767.80	)	$	(32,065.40	)	$	13,715.31	$	(79.93	)	$	(0.19	)	$	0.42
Diluted	$	0.85		$	(39,767.80	)	$	(32,065.40	)	$	0.30	$	(79.93	)	$	(0.19	)	$	0.42
Pro forma net income (loss) per share:(2)
Basic							$	(0.70	)			$	(1.34	)
Diluted							$	(0.70	)			$	(1.34	)


	As of September 30, 2008
							Pro Forma,
	Actual			Pro Forma(3)			as Adjusted(4)

Balance Sheet Data
Cash and cash equivalents	$	1,483		$	1,483		$	12,779
Working capital		(4,360	)		(4,360	)		(29,093	)(5)
Goodwill and other intangible assets, net		34,019			34,019			138,369
Total assets		55,364			55,364			346,737
Total debt, including current maturities		8,132			8,132			79,649
Total shareholders’ equity		35,584			35,584			164,842


	Year Ended		Nine Months Ended
	December 31, 2007		September 30, 2008

Other Data
Historical EBITDA⁽⁶⁾	$	1,061	$	(1,535	)
Pro forma EBITDA⁽⁶⁾	$	21,993	$	24,465


(1)		The basic and diluted net income (loss) per share computation excludes common shares issuable upon exercise of options to purchase shares of our common stock as their effect would be anti-dilutive. See Note 3 to the consolidated financial statements of The O’Gara


		Group, Inc. included elsewhere in this prospectus for a detailed explanation of the determination of shares used in computing basic and diluted loss per share.

(2)		Pro forma basic and diluted net income (loss) per share for the year ended December 31, 2007 and the nine months ended September 30, 2008 reflects the conversion of all our outstanding shares of preferred stock into 2,109,157 shares of common stock immediately before the offering and the issuance upon closing of the offering of 274,743 shares of common stock in payment of all accrued dividends on our preferred stock, each based on a value of $18 per share, the mid-point of the estimated offering price range set forth on the cover page of this prospectus.

(3)		On a pro forma basis to reflect the conversion of all of our outstanding shares of preferred stock into 2,109,157 shares of common stock immediately before the offering and the issuance upon closing of the offering of 274,743 shares of common stock in payment of all accrued dividends on our preferred stock, each based on a value of $18 per share, the mid-point of the estimated offering price set forth on the cover page of this prospectus.

(4)		On a pro forma as adjusted basis to reflect the conversion of all of our outstanding shares of preferred stock into 2,109,157 shares of common stock immediately before the offering and the issuance upon closing of the offering of 274,743 shares of common stock in payment of all accrued dividends on our preferred stock, each based on a value of $18 per share, the mid-point of the estimated offering price set forth on the cover page of this prospectus, the sale of 8,000,000 shares of our common stock in this offering at the assumed initial offering price of $18 per share, after deducting the underwriting discounts, commissions and estimated offering expenses payable by us, and the new credit facility.

(5)		Working capital is defined as current assets minus current liabilities and includes cash and short-term borrowings, which if excluded from the calculation would result in the following:


Working Capital	$	(29,093	)
Less:
Cash		(12,779	)
Add:
Short-term borrowings		45,571

Working capital excluding cash and short-term borrowings	$	3,699


(6)		EBITDA is net income before interest, income taxes, depreciation and amortization. Our management uses EBITDA:


	•	as a measurement of operating performance because it assists us in comparing our operating performance on a consistent basis as it removes the impact of items not directly resulting from our core operations;

	•	for planning purposes, including the preparation of our internal annual operating budget;

	•	to allocate resources to enhance the financial performance of our business;

	•	to evaluate the effectiveness of our operational strategies; and

	•	to evaluate our capacity to fund capital expenditures and expand our business.

We believe that EBITDA is useful to investors in evaluating our operating performance because EBITDA is widely used by investors to measure a company’s operating performance relative to other companies without regard to items such as interest expense, taxes, depreciation and amortization, which can vary substantially from company to company, and it provides investors with insight into how management, in part, measures operating performance. EBITDA is not a measure of financial performance under generally accepted accounting principles. Items excluded from EBITDA are significant components in understanding and assessing financial performance. EBITDA should not be considered in isolation or as an alternative to, or substitute for, net income, cash flows generated by operations, investing or financing activities, or other financial statement data presented in the consolidated financial statements. Because EBITDA is not a measurement determined in accordance with generally accepted accounting principles and is thus susceptible to varying calculations, EBITDA as presented may not be comparable to similarly titled measures of other companies.

The following table reconciles actual, historical net income (loss) of The O’Gara Group, Inc. to historical EBITDA:


	Historical
	Year Ended			Nine Months Ended
	December 31, 2007			September 30, 2008
Reconciliation of historical net income (loss) to historical EBITDA
Net income (loss)	$	(1,443	)	$	(2,876	)
Income taxes (benefit)		(116	)		(862	)
Interest expense, net		620			239
Depreciation and amortization		2,000			1,964

Historical EBITDA	$	1,061		$	(1,535	)

The following table reconciles pro forma net income (loss) to pro forma combined EBITDA:


	Pro Forma
	Year Ended			Nine Months Ended
	December 31, 2007			September 30, 2008
Reconciliation of pro forma net income (loss) to pro forma combined EBITDA
Net income (loss)	$	(2,048	)	$	4,531
Income taxes		3,683			2,703
Interest expense, net		5,542			4,555
Depreciation and amortization(a)		14,816			12,676

Pro forma combined EBITDA	$	21,993		$	24,465


	(a)	Reflects pro forma amortization expense included above reduced by depreciation expense related to assets of subsidiaries of Isoclima not included in the purchase agreement.

Backlog

The following table presents funded and unfunded backlog by segment on a historical basis for The O’Gara Group and on a pro forma combined basis at December 31, 2008.


	Historical						Pro Forma Combined
	December 31, 2008						December 31, 2008
					Total						Total
$ in thousands	Funded		Unfunded		Backlog		Funded		Unfunded		Backlog

Advanced Transparent and Mobile Systems (formerly known as Mobile Security)	$	4,400	$	—	$	4,400	$	41,200	$	—	$	41,200
Sensor Systems		25,200		—		25,200		36,300		43,100		79,400
Training and Services		8,800		8,200		17,000		8,800		8,200		17,000

Total backlog	$	38,400	$	8,200	$	46,600	$	86,300	$	51,300	$	137,600

We expect that $13.3 million of the historical total backlog and $50.8 million of pro forma combined total backlog at December 31, 2008 will not be filled by the end of 2009. Major components in pro forma unfunded backlog as of December 31, 2008 included a U.S. Marine Corps contract in the Sensor Systems division and contracts with the U.S. Department of State in the Training and Services division.

RISK FACTORS

You should carefully consider the risks described below before deciding to invest in us. Investing in our common stock involves a high degree of risk. Any of the following risks could harm our business and future results of operations and could result in a partial or complete loss of your investment. These risks are not the only ones that we may face. Additional risks not presently known to us or that we currently consider immaterial also could impair our business operations and financial condition.

Risks Related to Our Pending and Future Acquisitions

We may have difficulty integrating the Pending Acquisitions and managing the growth associated with them. If our integration efforts fail in one or more respects, the effect on our business, financial condition, results of operations or cash flows could be material.

The completion of the Pending Acquisitions may place a significant strain on our financial, technical, operational and administrative resources.


	•	We will transform immediately from a company with $38.3 million in 2007 revenues and operations or offices in five U.S. and two United Kingdom cities to a company with $179.9 million in 2007 pro forma combined revenues and operations or offices in six U.S., five European and three Mexican cities.

	•	Our business mix will shift from one primarily involving sales in the defense and security services markets, particularly to the U.S. government and its agencies, to one with substantial commercial and international sales.

	•	We will enter the markets for architectural and solar glass, in which our current management team has no prior experience.

	•	We will have substantial operations in Croatia, a country in which we previously have not done business and our current management has no experience, and in Italy and Mexico, countries in which our current management’s operating experience is not recent.

While our founders and executive officers have a long history of integrating acquisitions in our industry, the collective size and breadth of the Pending Acquisitions is greater than that of acquisitions previously undertaken by us. We may not be able to integrate the operations of the acquired companies without increases in costs, losses in revenues and other difficulties. In addition, we may not be able to realize the operating efficiencies, cost savings or other benefits expected from the Pending Acquisitions. A substantial portion of the acquired companies’ businesses is outside of the U.S. The difficulty of integrating and realizing benefits from the Pending Acquisitions may be exacerbated by the varied geographic locations involved and by the need to comply with multiple U.S. and foreign laws and regulatory requirements. Any unexpected costs or delays incurred in connection with the integration of the Pending Acquisitions could have a material adverse effect on our business, results of operations or financial condition.

The integration and continued success of the businesses being acquired in the Pending Acquisitions are dependent on key employees at those companies. The loss of any of those key employees could have a material adverse effect on our business, financial condition, results of operations and cash flows.

Our ability to successfully integrate and grow our business after the closing of this offering and the Pending Acquisitions depends to a significant extent on the continued services of the key employees at Isoclima, TPS and OmniTech, some of whom will be running significant portions of our business. If key employees at any of these companies were to leave and it became necessary to hire new employees to manage the business, we could experience difficulties in finding qualified personnel. Messrs. Herrera and Maxin, the principal shareholders of TPS Armoring and OmniTech, respectively, each will have a two-year employment agreement with us that contains customary confidentiality, noncompetition and nonsolicitation provisions. Mr. Bertolini, one of the shareholders of Isoclima, will have a two-year employment agreement with us containing competition restrictions. Other principal shareholders of Isoclima and OmniTech, Messrs. Gasparetto and Pochapsky, also will have similar employment agreements with us. We cannot guarantee that any of these

employees will not terminate his employment, which could have a materially adverse effect on our business, financial condition, results of operations and cash flows.

The market price of our common stock may decline as a result of the Pending Acquisitions.

The market price of our common stock may decline as a result of the Pending Acquisitions if, among other things, the integration of our business and any of the acquired businesses is unsuccessful or if the liabilities, expenses or transaction costs related to the Pending Acquisitions are greater than we expect. The market price of our common stock also may decline if the Pending Acquisitions do not result in the benefits to our financial results anticipated by financial or industry analysts or if those benefits are not achieved as rapidly as expected.

We may not be successful in identifying and consummating suitable future acquisitions on favorable terms, if at all, which may impede our growth and negatively impact the price of our common stock.

We intend to grow, in part, through the acquisition of additional security, safety and defense-related businesses. Our ability to expand through acquisitions is integral to our growth strategy and requires us to identify suitable acquisition candidates that complement our existing product and service offerings and/or expand those lines into related products and services. We may encounter difficulty identifying suitable acquisition candidates. The market for acquisitions of such companies is highly competitive, and many companies with which we compete have substantially greater resources that they can deploy in pursuing attractive acquisition candidates. If competition intensifies, there may be fewer acquisition opportunities available to us as well as higher prices for acquisitions. Even if we identify an appropriate acquisition candidate, we may not be able to negotiate satisfactory terms for the acquisition or to finance the acquisition. Moreover, if we are unable to negotiate satisfactory terms for an acquisition or we discover issues during our due diligence review and terminate negotiations, we may incur significant expenses related to the terminated transaction. For example, during the fourth quarter of 2007, we incurred approximately $0.8 million of expense in connection with acquisition opportunities that ultimately did not materialize. If we fail to complete acquisitions, we may not grow as rapidly as we expect, which could adversely affect the market price of our common stock. Further, any expenses incurred could adversely affect our financial condition, results of operations and cash flows.

Recent disruptions in the financial markets could affect our ability to obtain financing for future acquisitions and other purposes on reasonable terms and have other adverse effects on us and the market price of our common stock.

The United States and worldwide stock and credit markets have recently experienced significant price volatility, dislocations and liquidity disruptions, which have caused market prices of many stocks to fluctuate substantially and the spreads on prospective debt financings to widen considerably. These circumstances have materially impacted liquidity in the financial markets, making terms for certain financings less attractive, and in some cases have resulted in the unavailability of financing. Continued uncertainty in the stock and credit markets may negatively impact our ability to access additional financing at reasonable terms, which may negatively affect our ability to make future acquisitions. A prolonged downturn in the financial markets may cause us to seek alternative sources of potentially less attractive financing, and may require us to adjust our business plan accordingly. These events also may make it more difficult or costly for us to raise capital through the issuance of our common stock or preferred stock. The disruptions in the financial markets may have a material adverse effect on the market value of our common stock and other adverse effects on us and our business.

Both the Pending Acquisitions and future acquisitions could be difficult to integrate, divert the attention of key personnel, disrupt our business, dilute shareholder value and impair our financial condition, results of operations and cash flows.

In addition to the factors previously discussed, acquisitions involve numerous risks, any of which could harm our business, including the following:


	•	that the acquired company is less compatible with our growth strategy than originally anticipated because, for example, we do not realize anticipated operational or other benefits;

	•	difficulties in supporting, transitioning and retaining customers of the acquired company;

	•	diversion of financial and management resources from existing operations in order to integrate the acquired company’s operational and other systems with those we maintain, including difficulties encountered in implementing internal controls and timely preparation of financial statements; and

	•	that the price we pay or other resources that we devote may exceed the value we realize, or the value we could have realized if we had allocated the purchase price or other resources to another opportunity.

Acquisitions also frequently result in the recording of goodwill and other intangible assets which are subject to potential impairments in the future that could harm our financial results. In addition, if we finance acquisitions by issuing equity, or securities convertible into equity, our existing stockholders could be diluted, which could lower the market price of our common stock. If we finance acquisitions through debt, the debt financing may contain covenants or other provisions that limit our operational or financial flexibility. As a result, if we fail to evaluate acquisitions or investments properly, we may not achieve the anticipated benefits of any such acquisitions, and we may incur costs in excess of what we anticipate. The failure to evaluate and execute acquisitions or investments successfully or otherwise adequately address these risks could materially harm our business, financial condition, results of operations and cash flows.

Acquisitions may expose us to liabilities that could harm our growth and future operations.

We may acquire companies subject to known and unknown liabilities, such as liabilities to the government, third-party creditors, vendors or other persons, liabilities for clean-up of undisclosed environmental contamination, liabilities incurred in the ordinary course of business and claims for indemnification by parties entitled to be indemnified by the acquired company. Although our acquisition agreements, including the agreements for the Pending Acquisitions, generally include indemnity provisions from the sellers for known and unknown liabilities, we could incur losses if a liability exceeds the dollar amount of the indemnity available or if we could not collect all or some portion of the indemnity from the seller. As a result, if a liability were asserted against us based upon our ownership of a recently-acquired company, we might have to pay substantial sums to settle any such claim, which could harm our business, financial condition, results of operations and cash flows.

If we are unable to manage our growth, our business, financial condition, results of operations and cash flows could be adversely affected.

Our headcount and operations have grown rapidly both from organic growth and acquisitions. In connection with the Pending Acquisitions, they will continue to grow at an even greater pace. This rapid growth has placed, and we expect will continue to place, a significant strain on our management and our administrative, operational and financial infrastructure. We anticipate further growth of headcount, and facilities will be required to address increases in our product offerings and the geographic scope of our customer base. Our success will depend in part upon the ability of our senior management to manage this growth effectively. To do so, we must continue to hire, manage, integrate and retain a significant number of qualified managers and engineers. If our new employees perform poorly, or if we are unsuccessful in hiring, managing, integrating and retaining new employees or retaining valued existing employees, then our business may suffer.

For us to continue our growth, we must continue to improve our operational, financial and management information systems. If we are unable to manage our growth while maintaining our quality of service, or if new systems that we implement to assist in managing our growth do not produce the expected benefits, then our business, financial condition, results of operations and cash flows could be adversely affected.

Risks Related to Our Business

We have incurred losses in recent periods and may continue to incur losses in future periods.

We sustained net losses of $1.8 million and $1.4 million for the years ended December 31, 2006 and December 31, 2007, respectively, and a net loss of $2.9 million for the nine months ended September 30, 2008. On a pro forma basis, we sustained a net loss of $2.0 million for the year ended December 31, 2007 and had net income of $4.5 million for the nine months ended September 30, 2008. We cannot assure you that we will not incur operating losses upon closing this offering and the Pending Acquisitions as we integrate the businesses and continue to invest capital in the development of our products and our business generally. We also expect that our general and administrative expenses will increase due to additional operational and regulatory burdens associated with operating as a public company. Any failure to achieve and maintain profitability would have an adverse effect on our shareholders’ equity and working capital and could result in a decline in our stock price. A sustained failure to achieve profitability and positive cash flow would imperil our continued operations.

Our international operations, which constitute a significant percentage of our pro forma combined revenues, will subject us to material risks that our domestic business does not.

We derived approximately 73% of our pro forma combined revenues for both the year ended December 31, 2007 and the nine months ended September 30, 2008 from sales by our international operations. In addition to those described elsewhere in these risk factors, these operations will subject us to a number of risks, including the following:


	•	maintaining compliance with complex and unfamiliar foreign laws and regulations;

	•	maintaining compliance with U.S. laws applicable to the operation of foreign subsidiaries, most particularly the Foreign Corrupt Practices Act which, in some countries in which we do or may seek to do business, may prohibit activities by our foreign subsidiaries that are accepted and legal practices in those countries;

	•	difficulties and costs of staffing and managing foreign operations;

	•	difficulties in enforcing agreements and collecting receivables through foreign legal systems and other relevant legal issues, including fewer legal protections for intellectual property;

	•	fluctuations in foreign economies and in the value of foreign currencies and interest rates; and

	•	general economic and political conditions in the countries in which we operate.

Problems or negative developments in any of these areas could adversely impact our business, financial condition or results of operations. Furthermore, the integration of our non-U.S. businesses may require additional licenses or approvals from the U.S. government or other non-U.S. jurisdictions, which could result in delays or constraints on our integration plans.

Additionally, international sales of our products and services subject us to material risks that our domestic business does not.

We derived approximately 78% and 80%, respectively, of our pro forma combined revenues for the year ended December 31, 2007 and the nine months ended September 30, 2008 from sales to non-U.S. customers. Our international sales are subject to a number of risks, including the following:


	•	the unavailability of, or difficulties in obtaining, any U.S. governmental authorizations necessary for the export of our products and services to certain foreign jurisdictions;


	•	laws or regulations relating to non-U.S. military contracts that favor purchases from non-U.S. manufacturers over U.S. manufacturers; and

	•	the risk that we do not comply with U.S. government laws and regulations, including

	•	the International Traffic in Arms Regulations, which regulate the export of controlled technical data, defense articles and defense services and restrict the countries to or in which we may sell our products and services;

	•	the Export Administration Regulations, which regulate the export of dual-use goods, software and technology that have both commercial and military applications and may restrict certain export or reexport transactions; and

	•	the Foreign Corrupt Practices Act, which prohibits bribes, kick-backs and other payments to foreign public officials and governments that have discretionary authority over the granting or retention of business.

Our failure to comply with laws and regulations applicable to our international sales could subject us to fines, penalties and other legal consequences that could have a material adverse effect on our business, financial condition, results of operations and cash flows.

Fluctuations in currency exchange rates may materially and adversely impact our financial results.

Upon completion of the Pending Acquisitions, we will have significant revenues, expenses, assets and liabilities in countries denominated in currencies other than the U.S. dollar. Approximately 49% of our pro forma combined revenues for both the year ended December 31, 2007 and the nine months ended September 30, 2008 were denominated in euros. An additional 13% and 17% respectively, of pro forma combined revenues for those periods were denominated in the Mexican peso. Because our consolidated financial statements are presented in U.S. dollars, we must translate revenues, income and expenses, as well as assets and liabilities, into U.S. dollars at exchange rates in effect during or at the end of each reporting period. Therefore, increases or decreases in the value of the U.S. dollar against these other currencies will affect our net operating revenues, our operating income and the value of balance sheet items denominated in foreign currencies, even if those values have not changed in the original currencies. In the past, only Isoclima has used currency hedges. In the future we may implement additional currency hedges intended to reduce our exposure to changes in foreign currency exchange rates; however, our hedging strategies may not be successful. As a result, fluctuations in foreign currency exchange rates, particularly significant strengthening of the U.S. dollar against the euro, could materially and adversely affect our business, financial condition, results of operations and cash flows.

The loss of, or significant reduction in business from, one or more of our major customers could have a material adverse effect on our business, financial condition, results of operations and cash flows.

Aggregate revenues from the U.S. Marine Corps and Mercedes-Benz, our two largest customers, represented approximately 12% and 14% of pro forma combined revenues for the year ended December 31, 2007 and the nine months ended September 30, 2008. In the future, we may enter into one or more contracts that will constitute a significant portion of our revenue during the period of contract performance. Our success will depend on our continued ability to develop and manage relationships with significant customers. We cannot be sure that we will be able to retain our largest customers, that we will be able to attract additional customers or that our customers will continue to buy our products and services in the same volume as in prior years. The loss of one or more of our largest customers, any reduction or delay in sales to these customers or our inability to successfully develop relationships with additional customers could have a material adverse effect on our business, financial condition, results of operations and cash flows.

Pricing pressures, vehicle manufacturers’ cost reduction initiatives and the ability of vehicle manufacturers to re-source or cancel vehicle orders could have a material adverse effect on our business, financial condition, results of operations and cash flows.

Cost-cutting initiatives adopted by some of our Advanced Transparent and Mobile Systems customers may result in downward pressure on pricing. Vehicle manufacturers historically have had significant leverage over their outside suppliers because the automotive component supply industry is fragmented and serves a limited number of automotive vehicle manufacturers. Bentley, BMW, Fiat and Mercedes-Benz accounted for approximately 10% and 17%, respectively, of our pro forma combined revenues for the year ended December 31, 2007 and the nine months ended September 30, 2008. We have experienced pricing pressure on certain non-armored glass sales to these and other vehicle manufacturers. It is possible that pricing pressures could intensify as vehicle manufacturers pursue cost cutting initiatives, the impact of which may be exacerbated by our reliance on a relatively small number of manufacturers. Adverse global economic conditions may also exacerbate these pressures, especially on our products that are incorporated in high-end automobiles and yachts. If we are unable to generate sufficient production cost savings in the future to offset price reductions, our gross margin and profitability would be adversely affected.

Furthermore, in most instances our vehicle manufacturer customers are not required to purchase any minimum amount of products from us. The contracts we have entered into with most of our customers provide for supplying glass for a particular vehicle model, rather than for manufacturing a specific quantity of products. Such contracts range from one year to the life of the model (usually three to seven years), typically are non-exclusive or permit the vehicle manufacturer to re-source if we do not remain competitive and do not require the purchase by the customer of any minimum amount of glass from us.

Our business, financial condition, results of operations and cash flows may be adversely affected by increased costs or disruptions in the sourcing of raw materials and other components.

Our operations require the use of various raw materials and other components. Historically, we have attempted to manage the cost of these items by passing on any increases to our customers. However, we have not always been successful in these efforts. Moreover, in the future, we may not have cost-effective access to the same sources of raw materials as we currently do. For example, our Lipik Glas subsidiary manufactures solar collecting panels using a low-iron content quartz sand that is primarily available in the Balkan region of Europe. We currently enter into competitively bid annual contracts to purchase this sand from sources in the Czech Republic. If the supplier selected for any year were unable to fulfill our requirements, we could be required to acquire this raw material from another source that is not as cost-effective either because of price or transportation expense. These and similar events affecting our raw materials and other components could increase our costs and seriously harm our business, financial condition, results of operations and cash flows.

If our goodwill or amortizable intangible assets become impaired we may be required to record a significant charge to earnings.

Under generally accepted accounting principles, we review our amortizable intangible assets for impairment when events or changes in circumstances indicate the carrying value may not be recoverable. Goodwill is tested for impairment at least annually. Factors that may be considered a change in circumstances, indicating that the carrying value of our goodwill or amortizable intangible assets may not be recoverable, include a decline in stock price and market capitalization, reduced future cash flow estimates, and slower growth rates in our industry. We may be required to record a significant charge in our financial statements during the period in which any impairment of our goodwill or amortizable intangible assets is determined, negatively impacting our results of operations.

We may not be able to compete effectively with other firms, many of which have substantially greater resources.

The market for our products and services is rapidly evolving and highly competitive. We compete for customers, contracts and key personnel with organizations varying in size, including large, well established

multinational corporations, as well as small, start-up companies. We believe that our principal competitors are as follows:


	•	In our Advanced Transparent and Mobile Systems division, we compete with both manufacturers of specialized protective materials and producers of vehicle armoring systems. In the area of transparent armor, high-impact glass and other specialized glass, we compete principally with PPG Industries, Inc., American Glass Products Company, Saint-Gobain-Sully and SIA Triplex. In the market for vehicle armoring systems, we compete or expect to compete with worldwide companies, principally Centigon, BAE Systems, Inc. and Scalette Moloney Armoring Corporation, as well as with smaller armoring companies operating primarily on a home-country basis. In addition, several original equipment manufacturers (OEMs), such as Mercedes-Benz and BMW, which are also our customers for transparent armor, offer factory-equipped armoring packages that compete with our vehicle armoring systems business. OEMs have a greater technical understanding of the vehicle platform they have manufactured than we do.

	•	In our Sensor Systems division, we compete principally with Insight Technology, Inc. and Knight’s Armament Company in the U.S., Elbit Systems, Ltd. in Israel and Photonis Netherlands B.V. in Europe and ITT Corporation and L-3 Electro-Optics worldwide.

	•	In our Training and Services division, we compete with established companies such as Blackwater USA, Olive Group FZ-LLC, Kroll-Crucible, Science Applications International Corporation and Armor Group International plc and with a highly fragmented group of smaller companies, typically headed by retired Special Operations Forces personnel.

We compete on many factors including, among others, technical expertise, ability to deliver cost-effective solutions in a timely manner, reputation and standing with government and commercial customers, pricing, geographic reach, company size and scale, and availability of key professional personnel, including those with security clearances.

Some of our competitors have substantially greater financial, management, research and marketing resources than we do and may be able to utilize their greater resources to develop competing products and technologies. If these competing products or technologies provide the same or superior benefits as our products at equal or lesser cost, they could render our products obsolete or unmarketable. Because some of our products can have long development cycles, we must anticipate changes in the marketplace and the direction of technological innovation and customer demands. Our competitors may have better access to potential customers than we do and may be able to divert sales away from us by winning broader contracts. In order to secure contracts successfully when competing with larger, well-financed companies, we may be forced to agree to contractual terms that provide for lower aggregate payments to us over the life of the contract, which could adversely affect our margins. In addition, larger diversified competitors serving as prime contractors may be able to supply underlying products and services from affiliated entities, which would prevent us from competing for subcontracting opportunities on these contracts.

We are also at a disadvantage when bidding for contracts put up for re-competition for which we are not the incumbent provider, because incumbent providers are frequently able to capitalize on customer relationships, technical knowledge and pricing experience gained from their prior service. In addition, we must compete to attract the skilled and experienced personnel integral to our continued operation. Our larger competitors may be able to hire away our employees by offering more lucrative compensation packages. Our failure to compete effectively with respect to any of these or other factors could have a material adverse effect on our business, financial condition, results of operations and cash flows.

We currently obtain critical components for some of our products from a small number of suppliers. If the supply of these components becomes scarce or unavailable, or if we are unable to obtain these components on competitive terms, we may incur delays in manufacturing and delivery of our products, which could damage our business, financial condition, results of operations and cash flows.

We rely on a small number of suppliers for critical components in the production of certain of our products. In particular, in our Sensor Systems Division, we rely on two main suppliers, ITT Corporation and L-3 Electro-Optics Systems, a business division of L-3 Communications, for the production of the image intensifier tubes we utilize in our night vision goggles and other night vision devices. Each of these companies produces a wide variety of night vision devices, including goggles and weapons sights, and is a competitor of ours. We do not currently have long-term agreements with these suppliers, and either could discontinue supplying components to us at any time for competitive or other reasons. In addition, because these and other potential suppliers also use these tubes in night vision goggles that they manufacture and sell, we have in the past experienced delays in receiving this component due to supply shortages. For example, Northrop Grumman, which owned the tube manufacturing business now owned by L-3 Electro-Optics, had been unable to produce and deliver any significant quantity of image intensifier tubes to us since 2004. Also, during the last half of 2005 and beginning of 2006, the U.S. government purchased most of the available image intensifier tubes on the market, severely limiting our supply for non-U.S. government projects.

Our reliance on these suppliers involves significant risks and uncertainties, including whether they will provide the required components in sufficient quantities, of desirable quality, at acceptable prices and on a timely basis. If for any reason we are unable to obtain components from third-party suppliers in the quantities and of the quality that we require, on a timely basis and at acceptable prices, we may not be able to deliver our products on a timely or cost-effective basis to our customers, which could cause customers to terminate their contracts with us, increase our costs and seriously harm our business, financial condition, results of operations and cash flows. For example, during the nine months ended September 30, 2008, our working capital decreased due to the difficulty we experienced in obtaining image intensifier tubes from ITT Corporation. If we have to find new suppliers, it may take several months to do so or require us to redesign our products to accommodate components from different suppliers. As a result, we could experience significant delays in manufacturing and shipping our products to customers and incur additional development, manufacturing and other costs. We cannot predict if we will be able to obtain replacement components within the time frames that we require at an affordable cost, if at all.

We may not be able to attract and retain the highly skilled employees needed to succeed in our competitive business.

Our success depends in large part on our ability to recruit and retain the highly skilled personnel necessary to serve our customers effectively. Competition for scientists, engineers, technicians and professional personnel, including employees with sophisticated electrical, optical, manufacturing and mechanical engineering expertise and qualified personnel with extensive military and law enforcement training and backgrounds, is intense and competitors aggressively recruit key employees. We also require employees with security clearances for classified work. These employees are in great demand and are likely to remain a limited resource in the foreseeable future. If we are unable to recruit and retain a sufficient number of these and other employees, our ability to maintain our competitiveness and grow our business could be negatively affected. Moreover, some of our U.S. government contracts contain provisions requiring us to staff the contracts with personnel with specific skill sets that the customer considers key to our successful performance. In the event we are unable to provide these key personnel or acceptable substitutes, the customer may terminate the contract and our business, financial condition, results of operations and cash flows could be materially adversely effected.

We have collective labor agreements with various employees in Italy, Croatia and Mexico. We cannot guarantee that we will not in the future face labor problems that adversely affect our business, financial condition, results of operations and cash flows.

Relationships with our employees in the Italian-based operations of our Advanced Transparent and Mobile Systems division are governed by a national collective labor agreement, and some employees are members of the Italian General Confederation and the Italian Confederation of Trade Unions. Substantially all of our Croatian production employees are members of the Autonomous Trade Union of Energy, Chemical and Non-Metal Workers of Croatia. In Mexico, many of the employees of TPS are represented by the Sindicato Industrial de Trabajadores. We cannot guarantee that we will not be subject to strikes, work stoppages, work slowdowns, grievances, complaints, claims of unfair labor practices, other collective bargaining disputes or anti-union behavior in the future. Some of these activities could cause production delays and negatively affect our ability to deliver our production commitments to customers. Others could adversely affect our reputation. Any significant labor difficulties could have a material adverse effect on our business, financial condition, results of operations and cash flows.

Risks Related to Our Technology and Intellectual Property

The markets in which we compete are characterized by rapid changes in technology, which require us to develop responsive new products, services and enhancements rapidly so as to not render our offerings obsolete.

Our products and services are intended to enhance the safety and security of our customers in the face of rapidly evolving threats and, thus, must continue to evolve in step with those threats as they become increasingly sophisticated. Our future success will depend on our ability to develop and introduce a variety of new capabilities and enhancements to our existing products and services, as well as to introduce a variety of new product and service offerings that address the changing needs of the markets we serve. An inability to improve existing products and services, and to develop new product technologies and training processes, could make our products and services less competitive or obsolete, either generally or for particular applications, resulting in a material adverse effect on our business. We must be able to devote adequate resources to the development and introduction of new and enhanced products and services that meet customer requirements on a timely basis, to choose correctly among technical alternatives and to price our offerings competitively. If we are unable to do any of these things, our business, financial condition, results of operations and cash flows could be materially adversely affected.

A patent used in the manufacture of our low profile night vision goggles expired in early January 2009. We now could face competition for sales of this product that could have a material adverse effect on our business, financial condition, results of operations and cash flows.

We currently have an exclusive worldwide license of a patent, now expired, that is integral to the manufacture of the low profile night vision goggles (LPNVGs) sold by our Sensor Systems division. Sales of these goggles contributed approximately $16.7 million and $10.8 million, or 45% and 35%, respectively, of the Sensor Systems division’s pro forma combined revenues for the year ended December 31, 2007 and the nine months ended September 30, 2008, and 9.3% and 7.1% of our pro forma combined revenues for the same periods. If one or more competitors were to enter the market and we were unable to maintain our market share for LPNVGs, our business, financial condition, results of operations and cash flows could be materially adversely affected.

If we fail to protect, cannot protect or incur significant costs in defending our intellectual property and other proprietary rights, our business, financial condition, results of operations and cash flows could be materially adversely affected.

Our success depends, in large part, on our ability, and the ability of third-parties from whom we license our intellectual property, to protect our intellectual property and other proprietary rights, especially with respect to that of our Sensor Systems and Advanced Transparent and Mobile Systems divisions. However, a

significant portion of our technology is not patented, and we may be unable or may not seek to obtain patent protection for this technology. Additionally, patents we own or license will expire. As noted above, we have an exclusive worldwide license for a patent that is integral to the manufacture of our LPNVGs, which patent expired in early January 2009. Moreover, existing U.S. legal standards offer only limited protection of intellectual property rights, may not provide us with any competitive advantage, and may be challenged by third parties. Furthermore, despite our efforts, we may be unable to detect unauthorized use of our intellectual property and prevent third parties from infringing upon or misappropriating our intellectual property or otherwise gaining access to our technology. Unauthorized third parties may try to copy or reverse engineer our products, without infringing any patents that we own or have rights to.

In addition to patents, we rely on trademarks, copyrights, trade secrets and unfair competition laws, as well as license agreements, confidentiality agreements and other contractual provisions, to protect our intellectual property and other proprietary rights. Many of our employees have access to our trade secrets and other intellectual property. We generally require our U.S.-based employees, consultants and advisors to execute confidentiality agreements with us and to disclose and assign to us all inventions conceived during the term of their employment or engagement while using our property or which relate to our business. We intend to implement these requirements for appropriate employees of the companies to be acquired in the Pending Acquisitions to the extent they do not already have such agreements. However, these measures may not be adequate to safeguard our proprietary intellectual property. Our employees, consultants and advisors may unintentionally or willfully disclose our confidential information to competitors. In addition, confidentiality agreements may be unenforceable or may not provide an adequate remedy in the event of unauthorized disclosure. Enforcing a claim that a third party illegally obtained and is using our trade secrets may be expensive and time consuming, and the outcome is unpredictable.

The laws of countries other than the U.S. may be even less protective of intellectual property rights than those in the U.S. Accordingly, despite our efforts, we may be unable to prevent third parties from infringing upon or misappropriating our intellectual property or otherwise gaining access to our technology. Many countries, including certain countries in Europe, have compulsory licensing laws under which a patent owner may be compelled to grant licenses to third parties. In addition, many countries limit the enforceability of patents against third parties, including government agencies or government contractors. In these countries, the patent owner may have limited remedies, which could materially diminish the value of the patent.

In some cases, the U.S. government retains certain rights in intellectual property that we have developed using government research and development funds. Some of our U.S. government contracts permit us to retain ownership of the technology developed under the contracts, so long as we timely report the inventions and provide the applicable government agency a license to use the inventions for non-commercial purposes. The government also may exercise “march in” rights if we fail to continue developing the technology, under which the government may exercise a non-exclusive, royalty-free, irrevocable, worldwide license to any technology developed under contracts it has funded.

We may be sued by third parties for alleged infringement of their proprietary rights, which could be costly, time-consuming and limit our ability to use certain technologies or intellectual property in the future.

We may become subject to claims that our products or services infringe upon the intellectual property or other contractual or proprietary rights of third parties. Any such claims, with or without merit, could be time-consuming and expensive to defend and could divert our management’s attention away from the execution of our business plan. Some of our competitors may be able to sustain the costs of complex patent or intellectual property litigation more effectively than we can because they have substantially greater resources. We cannot be certain that we will successfully defend against allegations of infringement of third-party intellectual property rights. Moreover, any adverse judgment or settlement resulting from these claims could require us to pay substantial amounts in damages for infringement or substantial amounts to license continued use of the disputed technology or intellectual property, or could prohibit our use of the technology or intellectual property altogether. We cannot assure you that we would be able to obtain a license from the third party asserting the claim on commercially reasonable terms, if at all, that we would be able to develop alternative technology or intellectual property on a timely basis, if at all, or that we would be able to obtain a

license to use a suitable alternative technology or intellectual property to permit us to continue offering, and our customers to continue using, our affected products or services. If we were unable to sell a product at competitive prices or at all, our business, financial condition, results of operations and cash flows could be materially adversely affected.

Risks Related to Our U.S. Government Contracts

Sales to the U.S. government, particularly to agencies of the DoD, comprise a significant percentage of our revenues. A loss of a substantial portion of these contracts, or a delay or decline in funding of existing or future contracts, could adversely affect our business, financial condition, results of operations and cash flows.

Revenues from contracts and subcontracts with the U.S. government and its agencies represented approximately 18% and 16%, respectively, of our pro forma combined revenues for the year ended December 31, 2007 and the nine months ended September 30, 2008. The Department of Defense accounted for approximately 12% and 10%, respectively, of these pro forma combined revenues. We expect that U.S. government contracts, particularly with the Department of Defense, will continue to be an important source of revenue for the foreseeable future. Many of our government customers, including the Department of Defense, are subject to customary budgetary constraints and our continued performance under these contracts, or the award of additional contracts from the U.S. government, could be jeopardized by spending reductions or budget cutbacks, resulting in unexpected loss of revenue. The funding of U.S. government programs is uncertain and dependent on continued congressional appropriations and administrative allotment of funds based on an annual budgeting process. We cannot assure you that current levels of congressional funding for our products and services will continue.

Other factors that could impact U.S. government spending and reduce our federal government contracting business include:


	•	changes, delays or cancellations in government programs, requirements or policies that are related to our products and services;

	•	adoption of new laws or regulations relating to government contracting or changes to existing laws or regulations;

	•	changes in political or public support for security, safety and defense programs, including with regard to the funding or operation of the products or services we provide;

	•	impairment of our reputation or relationships with any significant government agency with which we conduct business;

	•	delays or changes in the government appropriations process;

	•	curtailment of the U.S. government’s outsourcing of services to private contractors; and

	•	uncertainties associated with the war on terrorism and other geo-political matters.

These and other factors could cause governmental agencies to reduce their purchases under existing contracts, to exercise their rights to terminate contracts at-will, to issue temporary stop-work orders or to abstain from renewing contracts, any of which would cause our revenue to decline and could otherwise harm our business, financial condition, results of operations and cash flows.

A decrease in U.S. military operational levels in Afghanistan and Iraq may affect the U.S. government’s future procurement priorities and existing programs, which could reduce demand for certain of our products and services.

The current high levels of operational activity in Afghanistan and Iraq have led to an increase in demand for the specialized products and services of our Sensor Systems and Training and Services divisions. It currently appears likely that operational levels in Iraq will decrease, perhaps significantly, over the coming years while levels in Afghanistan will increase. We cannot predict what the overall effect of these changes will

be. If, however, operations in Afghanistan and Iraq cease or slow down and other opportunities for the sale of our products and services do not materialize, our business, financial condition, results of operations and cash flows could be materially adversely affected.

Some of the business of our Sensor Systems and Training and Services divisions depends on our employees obtaining and maintaining required security clearances.

Some of our Sensor Systems division and Training and Services division contracts with the Department of Defense and other government agencies are classified and have strict security clearance requirements for the personnel who work on them. We must comply with these requirements and with various other executive orders, federal laws and regulations and customer security requirements, which may include restrictions on how we develop, store, protect and share information. Obtaining and maintaining security clearances for employees involves a lengthy process, and it is difficult to identify, recruit and retain employees who already hold security clearances. If our employees are unable to obtain security clearances in a timely manner, or at all, or if our employees who hold security clearances are unable to maintain the clearances or terminate their employment with us, customers requiring classified work could terminate their contracts with us or decide not to renew the contracts upon their expiration. We expect that many of the contracts on which we will bid in the future will require us to demonstrate our ability to employ personnel with specified types of security clearances. If we are not able to retain and engage employees with the required security clearances for particular contracts, we may not be able to bid on or win new contracts.

A failure to comply with stringent regulations applicable to our contracts with the U.S. and foreign governments could subject us to penalties, disbarment or other actions that could have a material adverse effect on our business, financial condition, results of operations and cash flows.

We are subject to and must comply with various governmental regulations that impact, among other things, our revenue, operating costs, profit margins and the internal organization and operation of our business. The most significant regulations and regulatory authorities affecting our U.S. government business include:


	•	the Federal Acquisition Regulations and supplemental agency regulations, which comprehensively regulate the formation and administration of, and performance under, U.S. government contracts and, among other things, impose accounting rules that define allowable and unallowable costs and govern our right to reimbursement under certain contracts;

	•	the False Claims Act and the False Statements Act, which impose penalties for payments made on the basis of false facts provided to the government and on the basis of false statements made to the government, respectively; and

	•	laws, regulations and executive orders restricting the use and dissemination of information classified for national security purposes and the exportation of certain products and technical data.

Our failure to comply with applicable regulations, rules and approvals or misconduct by any of our employees could result in the imposition of fines and penalties, the loss of security clearances, the loss of our U.S. government contracts or our suspension or debarment from contracting with the U.S. government generally, any of which could have a material adverse effect our business, financial condition, results of operations and cash flows.

In addition, we are subject to certain regulations of comparable government agencies in other countries, and our failure to comply with these non-U.S. regulations also could have a material adverse effect our business, financial condition, results of operations and cash flows.

Our U.S. government contracts may be unilaterally terminated or modified by the government prior to completion and contain other unfavorable provisions, which could adversely affect our business, financial condition, results of operations and cash flows.

Our contracts with the U.S. government typically contain provisions and are subject to laws and regulations that provide the government with rights and remedies not generally found in ordinary commercial contracts. For example, under the terms of our contracts, the U.S. government may unilaterally:


	•	terminate our existing contracts for convenience;

	•	modify some of the terms and conditions of our existing contracts;

	•	suspend or permanently prohibit us from doing business with the government or with any specific government agency;

	•	cancel or delay existing multi-year contracts and related orders if the necessary funds from contract performance for any subsequent year are not appropriated;

	•	decline to exercise an option to extend an existing multi-year contract;

	•	delay the payment of our invoices by government payment offices; and

	•	prohibit us from receiving new contracts pending resolution of alleged violations of procurement laws and regulations.

If the U.S. government terminated a contract with us for convenience, we generally could recover only our incurred or committed costs, settlement expenses and profit on the work completed prior to termination. If any of our contracts were terminated or adversely modified, it could have a material adverse effect on our business, financial condition, results of operations and cash flows.

Our business could be adversely affected by a negative audit by the U.S. government.

U.S. government agencies, primarily the Defense Contract Audit Agency and the Defense Contract Management Agency, routinely audit and investigate government contractors. These agencies review a contractor’s performance under its contracts, cost structure and compliance with applicable laws, regulations and standards. They also may review the adequacy of, and a contractor’s compliance with, its internal control systems and policies, including the contractor’s purchasing, estimating, compensation and management information systems. Any costs found to be improperly allocated to a specific contract will not be reimbursed, and such costs already reimbursed must be refunded. If an audit of our business were to uncover improper or illegal activities, we could be subject to civil and criminal penalties and administrative sanctions, including termination of contracts, forfeiture of profits, suspension of payments, fines and suspension or prohibition from doing business with the U.S. government. We also could suffer serious harm to our reputation if allegations of impropriety or illegal acts were made against us, even if the allegations were inaccurate. If any of the foregoing were to occur, our business, financial condition, results of operations and cash flows could be materially adversely affected.

Our subsidiaries may lose their small business eligibility for U.S. government contracts, which could have a material adverse effect on our business, financial condition, results of operations and cash flows.

In the past, some of our subsidiaries have been eligible or may in the future be eligible to bid on certain government procurement contracts restricted by the U.S. government to small businesses under the Small Business Administration set-aside program. “Small business” status is measured on a procurement-by-procurement basis, and depends on the number of employees and/or the annual revenue of a company. As a result of growth or other factors, our subsidiaries that may in the past have qualified as, or may in the future qualify as, small businesses could lose such status, and as a result could lose certain advantages or incur additional charges and costs related to disclosure, accounting and reporting requirements applicable to a government contractor not qualified as a small business.

Risks Related to Our Organization and Structure

We may not be able to obtain capital when desired on favorable terms, or at all.

It is possible that we may not generate sufficient cash flow from operations or otherwise have the capital resources to meet our future capital needs. If this occurs, then we may need additional financing to pursue our business strategies, including to:


	•	develop new or enhance existing products;

	•	acquire businesses or technologies;

	•	enhance our operating infrastructure;

	•	hire additional personnel;

	•	fund working capital requirements; or

	•	otherwise respond to competitive pressures.

We cannot assure you that additional financing will be available on terms favorable to us, or at all. In addition, our new $35 million credit facility will contain financial and other covenants, including coverage ratios and other limitations on our ability to incur indebtedness, sell all or substantially all of our assets and engage in mergers, consolidations and acquisitions, that could restrict our ability to engage in transactions that would be otherwise in our best interests. The credit facility also will require us to use a substantial portion of the proceeds from any new equity or debt offering to pay down the term loan portion of the facility. Any future debt agreements into which we enter may contain similar or more restrictive covenants. Failure to comply with any of the covenants in a debt instrument could result in a default under that instrument and trigger a default under other debt instruments, if any, thus causing the lenders to accelerate the repayment of the indebtedness and adversely affecting our business, financial condition, results of operations and cash flows.

In addition, certain of our customers require that we obtain letters of credit to support our obligations under some of our contracts. Our new credit facility will have a limit on outstanding letters of credit of $10 million that, to the extent utilized, will limit the amount that we may borrow under the revolver portion of the credit facility. Continued access to letters of credit may be important to our ability to retain current contracts and win contracts in the future. If adequate funds are not available or are not available on acceptable terms, if and when needed, then our ability to fund our operations, take advantage of unanticipated opportunities, develop or enhance our products, or otherwise respond to competitive pressures would be significantly limited.

Our current senior management and key employees are important to our customer relationships and overall business. The loss of any of these persons or the failure to attract and retain employees with the expertise required for our business could have a material adverse effect on our business, financial condition, results of operations and cash flows.

We believe that our success depends in part on the continued contributions of our current senior management and key employees, on whom we rely to generate business and execute programs successfully. In addition, the relationships and reputation that these persons have established and maintain with government defense personnel contribute to our ability to maintain good customer relations and to identify new business opportunities. Our future success will depend in part on our ability to retain our senior management and key employees and to identify, hire and retain additional qualified personnel with expertise in key areas. Each member of our senior management and each of our key employees may terminate his or her employment at will at any time. The loss of any of our senior management team or key employees could significantly delay or prevent the achievement of our business objectives, materially harm our business and customer relationships and impair our ability to identify and secure new contracts and otherwise manage our business. We do not maintain, and do not currently intend to obtain, key employee life insurance on any of our personnel.

Provisions in our Articles of Incorporation, Code of Regulations and Ohio law may discourage takeovers, which could affect the rights of holders of our common stock.

Some provisions of our Articles of Incorporation and Code of Regulations, as well as Ohio law, may have the effect of delaying or preventing a change in control. These provisions may make it more difficult for other persons, without the approval of our board of directors, to make a tender offer for our common stock or to launch other takeover attempts that shareholders might consider to be in their best interest. These provisions could limit the price that some investors might be willing to pay in the future for shares of our common stock. See “Description of Capital Stock — Anti-takeover Effects of Certain Provisions of Our Amended and Restated Articles of Incorporation and Code of Regulations and of the Ohio General Corporation Law.”

Our management and managers of the companies acquired in the Pending Acquisitions, whose interests may not be aligned with yours, will have substantial influence over the vote on all matters requiring shareholder approval.

Upon completion of this offering, our directors, executive officers and their affiliates will collectively beneficially own 1,492,424 shares, or 13.8%, of our total outstanding shares of common stock, assuming no exercise of outstanding stock options held by them and no exercise of the underwriters’ over-allotment option. If all currently outstanding stock options held by our directors, executive officers and employees were exercised, this percentage would increase to 15.2% of our outstanding shares of common stock. The managers of the companies acquired in the Pending Acquisitions will beneficially own an additional 327,086 shares, or 3.0% of our total outstanding shares of common stock, assuming no exercise of the underwriters’ over-allotment option. Accordingly, these persons collectively will have substantial influence over the vote on all matters requiring shareholder approval, including the election of directors. The interests of our directors, executive officers and key employees may not be fully aligned with yours. Although there is no agreement among them with respect to the voting of their shares, this concentration of ownership may delay, defer or even prevent a change in control of our company, and make transactions more difficult or impossible without the support of all or some of our directors and executive officers. These transactions might include proxy contests, tender offers, mergers or other purchases of common stock that could give you the opportunity to realize a premium over the then-prevailing market price for shares of our common stock. In addition, there may be an appearance of a conflict between the interests of our executive officers and our other shareholders as a result of certain relationships and transactions among our executive officers.

As a result of this offering, we will be subject to financial reporting and other requirements for which our accounting and other management systems and resources may not be adequately prepared, which could adversely affect our business, financial condition, results of operations and cash flows.

Under Section 404 of the Sarbanes-Oxley Act, beginning with our second annual report on Form 10-K, our management will be required to deliver an annual report that attests to the effectiveness of our internal control over financial reporting.

We will be required to devote significant resources to complete the assessment and documentation of our internal control system and financial processes, including an assessment of the design of our information systems. This process may be more difficult and costly given the increased complexity and expanded geography added by Isoclima, TPS and OmniTech. We also may incur significant costs to remediate any control deficiencies we identify through these efforts. We cannot assure you that we will be able to complete the required management assessment by our Section 404 reporting deadline. An inability to complete and document this assessment would cause our auditors to conclude that our internal control over financial reporting is or was not effective. In addition, if a material weakness is identified with respect to our internal control over financial reporting, then neither we nor our auditors would be able to conclude that our internal control over financial reporting was effective. Ineffective internal control over financial reporting could cause investors to lose confidence in our reported financial information, which could cause the price of our common stock to drop significantly. Any weakness or deficiencies identified in our internal controls also could make it more difficult for us to obtain certain types of insurance, including director and officer liability insurance, and we might be forced to accept reduced policy limits and coverage and/or incur substantially higher costs to

obtain the same or similar coverage. The impact of these events could also make it more difficult for us to attract and retain qualified persons to serve on our board of directors, on committees of our board of directors, or as executive officers.

We do not expect to pay cash dividends on our common stock in the foreseeable future.

We do not expect to pay cash dividends on our common stock, including the common stock issued in this offering. Any future dividend payments are within the absolute discretion of our board of directors and will depend on, among other things, our financial condition, results of operations, contractual restrictions, working capital requirements, business opportunities, anticipated cash needs and other factors that our board of directors may deem relevant. Additionally, our new credit facility, which expires three years from the closing of the facility, prohibits us from paying cash dividends on our common stock.

Risks Related to This Offering

There currently is no public market for our common stock and an active trading market may never develop following this offering. The price of our common stock could decline substantially following this offering.

Prior to this offering, there has been no public market for our common stock, and there can be no assurance that an active trading market will develop and be sustained after this offering. If an active sustained trading market does not develop, it would affect your ability to sell your common stock and depress the market price of your common stock. In addition, the initial offering price will be determined through negotiations between us and the representative of the underwriters and may bear no relationship to the price at which the common stock will trade after this offering.

Our quarterly operating results may vary widely.

Our quarterly revenue, cash flow and operating results have fluctuated, and may continue to fluctuate significantly in the future, due to a number of factors, including the following:


	•	the size, and timing of completion of, large orders for our products and services;

	•	the mix of products that we sell in the period;

	•	timing of receipt of critical supplies, such as image intensifying tubes, from the manufacturers;

	•	exchange rate and currency fluctuations;

	•	costs incurred in the introduction of new products;

	•	the timing of acceptance of our products in new markets;

	•	production or other delays in shipping our products;

	•	cancellations, delays or contract amendments by our governmental agency customers; and

	•	changes in policy or budgetary measures that adversely affect our governmental agency customers.

Because a relatively large amount of our expenses are fixed, changes in the volume of products and services provided under existing contracts and the number of contracts commenced, completed or terminated during any quarter may cause significant variations in our cash flow from operations. We incur significant operating costs during the start-up and early stages of large commercial and government contracts and typically do not receive corresponding payments in that same quarter. We may also incur significant or unanticipated expenses when contracts expire or are terminated or are not renewed. In addition, payments due to us from government agencies may be delayed due to billing cycles or as a result of failures of governmental budgets to gain congressional and presidential approval in a timely manner.

Our stock price may be volatile, which could affect negatively the value of your investment.

The equity markets, including The NASDAQ Global Market where we anticipate listing our common stock, have experienced extreme price and volume fluctuations in recent months and years that often may have been unrelated or disproportionate to the operating performance of listed companies. As a result, the market price of our common stock may be similarly volatile to the extent such fluctuation continues, and you could experience a decrease in the value of your shares unrelated to our operating performance or prospects.

The price of our common stock also could be subject to wide fluctuations in response to all of the factors described above and a number of other factors, such as:


	•	variations in our quarterly operating results;

	•	perceptions of the prospects for the markets in which we compete;

	•	changes in securities analysts’ estimates of our financial performance;

	•	regulatory developments in the U.S. and foreign countries;

	•	the initiation of litigation against us, regardless of the merit of the claims;

	•	changes in general economic conditions;

	•	terrorist acts or military action related to international conflicts, wars or otherwise;

	•	sales of large blocks of our common stock, including sales by our executive officers, directors and significant shareholders;

	•	sales of common stock or other securities by us in the future;

	•	trading volume of our common stock; and

	•	additions or departures of key personnel.

Future sales of our common stock may depress our stock price.

After completion of this offering and the Pending Acquisitions, we will have 10,808,509 shares of common stock outstanding. The 8,000,000 shares sold in this offering, or 9,200,000 shares if the underwriters’ over-allotment is exercised in full, will be freely tradable without restriction or further registration under federal securities laws, unless purchased by our “affiliates” as such term is used in Rule 144 of the Securities Act of 1933 (the Securities Act) or by any person who is subject to a lock-up agreement.

All of our directors and executive officers and the holders of substantially all of our shares of common stock and options to purchase common stock are subject to lock-up agreements. We also have obtained, lock-up agreements from all persons who will receive shares of our common stock upon completion of the Pending Acquisitions. The lock-up agreements generally prohibit the sale or other disposition of their shares for 365 days, in the case of our three founders and certain affiliates, and for 180 days, in the case of all others, after the date of this prospectus. After the 180-day lock-up agreements expire, approximately 1,317,292 shares of our common stock will become eligible for sale in the public market in addition to the 24,945 shares that are not subject to lock-ups. Of these, 825,325 are held by our directors, executive officers and other affiliates and may only be sold in accordance with the volume limitations of Rule 144. When the 365-day lock-up agreements expire, an additional 1,466,272 shares held by our founders and certain affiliates will become eligible for sale, subject to the volume limitations of Rule 144.

The above information assumes the effectiveness of the lock-up agreements. Morgan Keegan & Company, Inc., on behalf of the underwriters, may, in its sole discretion and at any time without notice, release all or any portion of the securities subject to lock-up agreements. In considering any request to release shares subject to a lock-up agreement, Morgan Keegan will consider the facts and circumstances relating to a request at the time of that request.

In addition, as soon as practicable after the completion of this offering, we intend to register under the Securities Act a total of 292,771 shares that are covered by outstanding options (257,211 shares) or remain available for grant (35,560 shares) under our 2004 and 2005 Option Plans and 475,508 shares reserved under our 2008 Incentive Plan. No awards are outstanding under the 2008 Incentive Plan. Of the 257,211 shares covered by options outstanding under the 2004 and 2005 Option Plans, most are immediately exercisable. Options for 51,939 shares are held by persons not subject to the lock-up agreements. Shares issued upon exercise of these options will become freely tradable on the effective date of the registration statement for the 2004 and 2005 Option Plans. Of the remaining options, 62,620 are covered by 180-day lock-up agreements and 142,652 are covered by 365-day lock-up agreements. Shares issued upon the exercise of these options will be freely tradable when the lock-up agreements expire, subject to compliance with certain restrictions on sales by our affiliates.

If our existing shareholders and option holders sell substantial amounts of common stock in the public market, or if the market perceives that these sales may occur, then the market price of our common stock may decline, including below the initial public offering price. See “Shares Eligible for Future Sale.”

As a new investor, you will experience immediate and substantial dilution in the pro forma net tangible book value of your shares of $17.26.

The initial public offering price of our common stock is substantially higher than the pro forma net tangible book value per share of our outstanding common stock immediately after this offering. If you purchase our common stock in this offering, you will incur immediate dilution of approximately $17.26 in the book value per share based on the mid-point of the range on the cover page of this prospectus. This means that investors who purchase common stock in this offering:


	•	will pay a price per share of common stock that substantially exceeds the per share book value of our tangible assets after subtracting our liabilities; and

	•	will have contributed 75.8% of the total amount of our pro forma net tangible book value since inception but will only own 74.0% of the shares outstanding.

If outstanding options to purchase our common stock are exercised, you will experience additional dilution. See the section entitled “Dilution” in this prospectus for a more detailed description of this dilution.

Securities analysts could issue negative reports on our common stock, or cease coverage of our company, either of which could have a negative impact on the market price of our common stock.

The trading market for our common stock may be affected in part by the research and reports that industry or financial analysts publish about us or our business. We do not control these analysts. If one or more of the analysts who elects to cover us downgrades our stock, our stock price would likely decline rapidly. If one or more of these analysts ceases coverage of our company, we could lose visibility in the market, which in turn could cause our stock price to decline.

FORWARD-LOOKING STATEMENTS

Some of the statements under the sections of this prospectus entitled “Prospectus Summary,” “Risk Factors,” “Use of Proceeds,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Business” and elsewhere in this prospectus contain forward-looking statements. In some cases, you can identify forward-looking statements by the following words: “may,” “will,” “could,” “would,” “should,” “expect,” “intend,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “project,” “potential,” “continue,” “ongoing” or the negative of these terms or other comparable terminology, although not all forward-looking statements contain these words. These statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to be materially different from the information expressed or implied by these forward-looking statements. Although we believe that we have a reasonable basis for each forward-looking statement contained in this prospectus, we caution you that these statements are based on a combination of facts and factors currently known by us and our projections of the future, about which we cannot be certain.

You should refer to the section of this prospectus entitled “Risk Factors” for a discussion of important factors that may cause our actual results to differ materially from those expressed or implied by our forward-looking statements. As a result of these, as well as other factors not presently known to us or that we currently consider immaterial, we cannot assure you that the forward-looking statements in this prospectus will prove to be accurate. Furthermore, if our forward-looking statements prove to be inaccurate, the inaccuracy may be material. In light of the significant uncertainties in these forward-looking statements, you should not regard these statements as a representation or warranty by us or any other person that we will achieve our objectives and plans in any specified time frame, or at all. We do not undertake to update any of the forward-looking statements after the date of this prospectus, except to the extent required by applicable securities laws.

USE OF PROCEEDS

We estimate that our net proceeds from the sale of 8,000,000 shares of common stock being offered hereby, after deducting underwriting discounts and commissions and estimated offering expenses, will be approximately $131.8 million (or $148.6 million if the underwriters exercise the over-allotment option), based on an offering price of $18 per share, which is the mid-point of the estimated offering price range set forth on the cover page of this prospectus.

We intend to use all of the approximately $131.8 million in net proceeds from this offering and approximately $27.4 million in borrowings under our new credit facility for the following:


	•	to fund the approximately $138.3 million aggregate cash portion of the purchase price required for the Pending Acquisitions (based on the euro-dollar exchange rate on January 7, 2009),

	•	to repay all outstanding indebtedness under our existing credit facility, as well as an outstanding promissory note, which together were approximately $8.3 million as of December 31, 2008,

	•	to repay approximately $9.7 million of the $57.1 million debt assumed in the Pending Acquisitions and

	•	to pay $2.9 million of expenses related to the Pending Acquisitions and the new credit facility.

We intend to use the proceeds of any shares sold pursuant to the underwriters’ over-allotment option to pay accounts payable, including $2 million in bonuses to two of our founders and certain costs of this offering, and to reduce amounts outstanding under our new credit facility which will then be available for working capital and general corporate purposes.

DIVIDEND POLICY AND RESTRICTIONS

We have not declared or paid any cash dividends in the past, and currently do not anticipate declaring or paying any cash dividends in the foreseeable future, on the common stock of The O’Gara Group, Inc. Additionally, our new credit facility, which expires three years from the closing date of the facility, prohibits us from paying cash dividends on our common stock. Any future determination as to the declaration and payment of dividends will be at the discretion of our board of directors and will depend on then-existing conditions, including our financial condition, results of operations, contractual restrictions, working capital requirements, business opportunities, anticipated cash needs and other factors our board of directors may deem relevant.

CAPITALIZATION

The following table sets forth our capitalization as of September 30, 2008:


	•	on an actual basis;

	•	on a pro forma basis to reflect:


	•	the filing of our amended and restated Articles of Incorporation to authorize 200,000,000 shares of common stock and 100,000 shares of undesignated preferred stock;

	•	the conversion of all outstanding shares of our preferred stock into 2,109,157 shares of common stock, and the issuance of 274,743 shares of common stock in payment of all accrued dividends on our preferred stock (based on a value of $18 per share, the mid-point of the estimated offering price range set forth on the cover page of this prospectus); and

	•	a 4.7550837-to-one split of our common stock in the form of a stock dividend;


	•	on a pro forma as adjusted basis to reflect:


	•	the sale by us of 8,000,000 shares of common stock in this offering at an assumed initial offering price of $18 per share, which is the mid-point of the estimated offering price range set forth on the cover page of this prospectus, after deducting underwriting discounts and commissions and estimated offering expenses;

	•	the closing of our new credit facility; and

	•	the issuance of 327,086 shares of common stock in connection with the completion of the Pending Acquisitions (based on a value of $18 per share, the mid-point of the estimated offering price range set forth on the cover page of this prospectus).

You should read the information in this table together with our financial statements and accompanying notes and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” appearing elsewhere in this prospectus.


	As of September 30, 2008
							Pro Forma
	Actual			Pro Forma			As Adjusted
	(dollars in thousands except share data)

Debt:
Revolving loans under existing credit facility	$	7,632		$	7,632			—
Revolving loans under new credit facility		—			—			15,874
Term loan under new credit facility		—			—			10,000
Other debt		500			500			53,775

Total debt		8,132			8,132			79,649
Shareholders’ equity:
New Class A 3% Cumulative Participating Preferred Stock, no par value: 280,000, 0 and 0 shares authorized actual, pro forma and pro forma as adjusted, respectively; 130,671, 0 and 0 shares issued and outstanding as of September 30, 2008 actual, pro forma, and pro forma as adjusted, respectively(1)		15,530			—			—
New Class B 5% Cumulative Participating Preferred Stock, no par value: 315,000, 0 and 0 shares authorized actual, pro forma and pro forma as adjusted, respectively; 312,890, 0 and 0 shares issued and outstanding as of September 30, 2008 actual, pro forma and pro forma as adjusted, respectively(1)		23,315			—			—
Undesignated preferred stock, no par value: 100,000 shares authorized; no shares issued and outstanding		—			—			—
Common stock, no par value: 956,000, 200,000,000 and 200,000,000 shares authorized actual, pro forma and pro forma as adjusted, respectively; 97,523, 2,481,423 and 10,808,509 shares issued and outstanding as of September 30, 2008 actual, pro forma and pro forma as adjusted, respectively(2)		—			—			—
Additional paid-in capital		2,129			45,248			181,606
Accumulated deficit		(5,273	)		(9,547	)		(16,647	)
Stock subscription receivable		—			—			—
Accumulated other comprehensive loss		(117	)		(117	)		(117	)

Total shareholders’ equity		35,584			35,584			164,842

Total capitalization	$	43,716		$	43,716		$	244,491


(1)		All shares of preferred stock are convertible into shares of common stock at any time and will convert automatically into shares of common stock immediately prior to this offering. The New Class A 3% Cumulative Participating Preferred Stock has a liquidation value of $118.85 per share and accrued cumulative dividends of $1,154,938 as of September 30, 2008 and the New Class B 5% Cumulative Participating Preferred Stock has an average liquidation value of $75.54 per share and accrued cumulative dividends of $3,118,998 as of September 30, 2008. At an assumed public offering price of $18 per share, an aggregate of 274,743 (post-split) shares of common stock will be issued in payment of accrued dividends on the preferred stock in connection with its conversion to shares of common stock.

(2)		All shares of common stock reflect the 4.7550837-for-one stock split that will occur immediately before the offering.

DILUTION

Dilution After This Offering

If you invest in our common stock in this offering, your ownership interest will be diluted to the extent of the difference between the initial public offering price per share and the pro forma net tangible book value per share of our common stock after this offering. Net tangible book value per share is determined by dividing the number of outstanding shares of our common stock into our total tangible assets (total assets less intangible assets) less total liabilities and outstanding preferred stock. The pro forma net tangible book value of our common stock as of September 30, 2008 was approximately $(41.6) million, or approximately $(16.75) per share, based on the number of shares outstanding as of September 30, 2008, after giving effect to the conversion of all outstanding shares of our preferred stock into 2,109,157 shares of common stock, our 4.7550837-for-one stock split and the issuance of 274,743 shares of common stock in payment of all accrued dividends on our preferred stock.

Investors participating in this offering will incur immediate, substantial dilution in net tangible book value per share. After giving effect to the sale of common stock offered in this offering at an assumed initial public offering price of $18 per share, the mid-point of the estimated offering price range set forth on the cover page of this prospectus and the issuance of approximately 327,086 shares for the stock portion of the consideration for the Pending Acquisitions and after deducting underwriting discounts and commissions and estimated offering expenses and transaction expenses related to the Pending Acquisitions payable by us, our pro forma as adjusted net tangible book value as of September 30, 2008 would have been approximately $8.0 million, or approximately $0.74 per share of common stock. This represents an immediate increase in pro forma as adjusted net tangible book value of $17.49 per share to existing stockholders, and an immediate dilution of $17.26 per share to investors participating in this offering. The following table illustrates this per share dilution:


Initial public offering price per share	$	18.00
Pro forma net tangible book value per share as of September 30, 2008	$	(16.75	)
Pro forma increase in net tangible book value per share attributable to investors participating in this offering	$	17.49
Pro forma as adjusted net tangible book value per share after this offering	$	0.74
Pro forma dilution per share to investors participating in this offering	$	17.26

If the underwriters exercise their over-allotment option in full, the pro forma as adjusted net tangible book value per share after the offering would be $2.74 per share, the increase in the pro forma net tangible book value per share to existing stockholders would be $19.49 per share and the pro forma dilution to new investors purchasing common stock in this offering would be $15.26 per share.

Differences Between New and Existing Investors in Number of Shares and Amount Paid

The following table summarizes, on a pro forma basis as of September 30, 2008, the number of shares of common stock purchased from us and the total consideration and the average price per share paid by existing shareholders, investors receiving shares at the initial public offering price of $18 per share in connection with the Pending Acquisitions and investors participating in this offering at the initial public offering price of $18 per share, before deducting underwriting discounts and commissions and estimated offering expenses:


	Shares Purchased					Total Consideration					Average Price
	Number		Percent			Amount		Percent			per Share

Existing shareholders before this offering		2,481,423		23.0	%	$	40,209,810		21.1	%	$	16.20
Investors receiving shares in connection with the Pending Acquisitions		327,086		3.0			5,887,548		3.1			18.00
Investors participating in this offering		8,000,000		74.0			144,000,000		75.8			18.00

Total		10,808,509		100.0	%	$	190,097,358		100.0	%

The number of shares of common stock outstanding in the table above is based on the pro forma number of shares outstanding as of September 30, 2008 and assumes no exercise of the underwriters’ over-allotment option. If the underwriters’ over-allotment option is exercised in full, the number of shares of common stock held by existing stockholders will be reduced to 20.7% of the total number of shares of common stock to be outstanding after this offering, the number of shares of common stock held by investors receiving shares in connection with the Pending Acquisitions will be reduced to 2.7% of the total number of shares of common stock to be outstanding after this offering and the number of shares of common stock held by investors participating in this offering will be increased to 9,200,000 shares or 76.6% of the total number of shares of common stock to be outstanding after this offering.

The above discussion and table also assumes no exercise of any outstanding stock options. As of January 1, 2009, there were 257,211 shares of our common stock issuable upon the exercise of outstanding stock options under our 2004 and 2005 Option Plans, having a weighted average exercise price of $10.78 per share. Assuming the exercise of all these options, the information presented in the table above would be as follows:


	Shares Purchased					Total Consideration					Average Price
	Number		Percent			Amount		Percent			per Share

Existing shareholders before this offering		2,738,634		24.7	%	$	42,982,545		22.3	%	$	15.69
Investors receiving shares in connection with the Pending Acquisitions		327,086		3.0			5,887,548		3.0			18.00
Investors participating in this offering		8,000,000		72.3			144,000,000		74.7			18.00

Total		11,065,720		100.0	%	$	192,870,093		100.0	%

Effective upon the closing of this offering, an aggregate of 511,068 shares of our common stock will be reserved for future issuance under our 2004 and 2005 Option Plans and the 2008 Incentive Plan. To the extent that any of these shares are issued or that we issue additional shares of common stock in the future, there will be further dilution to investors participating in this offering.

UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL AND OTHER DATA

The following unaudited pro forma condensed combined statements of operations for the year ended December 31, 2007 and the nine months ended September 30, 2008 of The O’Gara Group, Inc. and our subsidiaries give effect to the closing of this offering, the closings of the three Pending Acquisitions and the funding of our new credit facility, as described in the notes to these financial statements, as if the transactions had occurred on January 1, 2007. The following unaudited pro forma condensed combined balance sheet at September 30, 2008 gives effect to these five transactions as if they had occurred on September 30, 2008. All of the transactions are interdependent. None will go forward unless all the others do.

The assumptions used and pro forma adjustments derived from such assumptions are based on currently available information and we believe such assumptions are reasonable under the circumstances.

The following unaudited pro forma condensed combined financial statements and other data should be read in conjunction with the historical consolidated or combined financial statements of The O’Gara Group, Isoclima, OmniTech and TPS Armoring and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of The O’Gara Group, Inc. included elsewhere in this document. 3S refers to Security Support Solutions Limited, a wholly-owned subsidiary of The O’Gara Group, Inc. acquired in June 2007.

These unaudited pro forma condensed combined financial statements and other data are not necessarily indicative of our future results of operations or financial condition.

Unaudited Pro Forma Condensed Combined Statement of Operations
For the Year Ended December 31, 2007


																Pro Forma
	The O’Gara									TPS						Acquisition
	Group(1)			3S(2)			OmniTech(1)			Armoring(1)			Isoclima(1)(3)			Adjustments			Combined
	(in thousands, except per share data)

Revenues:
Advanced Transparent and Mobile Systems	$	2,965		$	1,278		$	—		$	30,277		$	99,793		$	(2,528	)(4)	$	131,785
Sensor Systems		24,715			—			12,715			—			—			—			37,430
Training and Services		10,641			—			—			—			—			—			10,641

Total revenues		38,321			1,278			12,715			30,277			99,793			(2,528	)		179,856
Cost of goods sold:
Advanced Transparent and Mobile Security		2,697			1,121			—			20,176			70,042			(384	)(5)		93,652
Sensor Systems		15,127			—			9,178			—			—			—			24,305
Training and Services		7,912			—			—			—			—			—			7,912

Total cost of goods sold		25,736			1,121			9,178			20,176			70,042			(384	)		125,869
Gross profit		12,585			157			3,537			10,101			29,751			(2,144	)		53,987
Operating expenses:
Selling, general and adminstrative		12,361			691			2,019			5,633			22,601			(1,097	)(6)		42,208
Amortization of intangible assets		1,189			—			—			—			—			3,751	(7)		4,940

Income (loss) from operations		(965	)		(534	)		1,518			4,468			7,150			(4,798	)		6,839
Interest expense (income)		620			91			(3	)		107			4,127			600	(8)		5,542
Other expense (income)		(26	)		—			(3	)		(146	)		413			—			238

Income (loss) before provision (benefit) for income taxes, income (loss) related to equity investments and minority interests’ loss		(1,559	)		(625	)		1,524			4,507			2,610			(5,398	)		1,059
Income tax provision (benefit)		(116	)		—			—			1,347			3,337			(885	)(9)		3,683
Income (loss) related to equity method investments		—			—			—			—			297			—			297
Minority interests’ loss		—			—			—			—			279			—			279

Net income (loss)	$	(1,443	)	$	(625	)	$	1,524		$	3,160		$	(151	)	$	(4,513	)	$	(2,048	)

Net income (loss) per share Basic and diluted	$	(32,065.40	)																$	(0.19	)

Weighted average shares of common stock outstanding:		45																		10,808,509


(1)		Derived from the audited consolidated statement of operations for each entity as of December 31, 2007 included elsewhere in this prospectus.

(2)		Derived from the unaudited condensed consolidated statement of operations for 3S for the six month period prior to acquisition in June 2007.

(3)		Converted Isoclima statement of operations from euros to U.S. Dollars using an average exchange rate of €1 = $1.368 for the year ended December 31, 2007.

(4)		Adjusted to eliminate the effect of intercompany revenues between Isoclima and TPS.

(5)		Adjustments to cost of goods sold to:


Eliminate the effect of cost of goods sold associated with intercompany revenues between Isoclima and TPS	$	(2,528	)
Eliminate Isoclima gross profit in TPS ending inventory		145
Record additional cost of goods sold as a result of the fair value adjustment to inventory recorded in connection with the acquisitions		1,826
Record additional depreciation expense resulting from the adjustment to the fair market value of property, plant and equipment in connection with the acquisitions		173

	$	(384	)


(6)		Adjustments to selling, general and administrative expenses to:


Eliminate expenses related to assets of subsidiaries included in Isoclima’s financial statements not included in the purchase agreement	$	(173	)
Eliminate excess compensation expense to the former owner of TPS pursuant to an employment agreement effective upon completion of the acquisition		(924	)

	$	(1,097	)


(7)		Adjustment to reflect the additional amortization expense associated with the preliminary fair value of the identifiable intangible assets acquired. Identifiable intangible assets were estimated based on The O’Gara Group’s historical allocation experience in purchase accounting in prior acquisitions. The amortization expense is calculated on an accelerated basis over the assets’ estimated useful lives ranging from 2 to 18 years. Useful lives also were estimated based on The O’Gara Group’s historical experience of assigning useful lives to identifiable intangible assets resulting from prior acquisitions. The final purchase price allocation may be different than the amounts estimated and the differences may be material which could result in significant changes to the additional amortization expense reflected above. A change of the weighted average estimated useful life by three years would impact amortization expense by approximately $76,000 per month. A change of $5 million in the estimated value of the identifiable intangible assets would impact amortization expense by approximately $28,000 per month. The estimated identifiable intangible assets as if the transactions had occurred on January 1, 2007 are as follows:


	Estimated		Estimated		Estimated
	Amount		Useful Life		Amortization

Customer relationships	$	36,238		18 years	$	2,013
Technology		18,119		15 years		1,208
Contractual agreements		1,060		2 years		530
Trademarks		2,000		indefinite

	$	57,417			$	3,751


(8)		Adjustment to reflect additional interest expense based on borrowings under the new credit facility, assuming completion of the offering on January 1, 2007, at an estimated interest rate of 6.5%. Since Isoclima debt is expected to be assumed upon completion of the acquisition, it does not impact borrowings under the new credit facility or this pro forma adjustment.


								Interest
	2007		Estimated			Interest		Expense		Additional
	Debt		Interest Rate			Expense		Recorded		Expense

Average O’Gara Group debt in 2007	$	4,763		6.50	%	$	310	$	620	$	(310	)
Average OmniTech debt in 2007		479		6.50	%		31		31		—
Average TPS debt in 2007		315		6.50	%		20		107		(87	)
Additional debt to complete the offering		15,333		6.50	%		997		—		997

						$	1,358	$	758	$	600


(9)		Income tax benefits resulting from the effect of the Pending Acquisitions and the related pro forma adjustments on the consolidated tax calculations as follows:


Domestic pro forma adjustments reflected above	$	(4,582	)
Estimated effective tax rate of 38% based on The O’Gara Group’s historical domestic effective tax rate		38	%

Tax effect					(1,741	)
International pro forma adjustments of $1,740 reflected above but not included in tax calculation due to non-deductibility of adjustments in foreign jurisdiction		–
International pro forma adjustments of $924 reflected above and taxable in the foreign jurisdiction		924
Estimated effective tax rate of 30% based on TPS’ historical experience		30	%

Tax effect					277
Taxable income resulting from converting OSTI from an S corporation		1,524
Estimated effective tax rate of 38% based on The O’Gara Group’s historical domestic effective tax rate		38	%

Tax effect					579

Total pro forma tax adjustment				$	(885	)

Unaudited Pro Forma Condensed Combined Statement of Operations
For the Nine Months Ended September 30, 2008


									Pro Forma
	The O’Gara				TPS				Acquisition
	Group(1)		OmniTech(1)		Armoring(1)		Isoclima (1)(2)		Adjustments			Combined
	(in thousands, except per share data)
Revenues:
Advanced Transparent and Mobile Systems	$	1,531		—	$	28,943	$	82,564	$	(1,567	)(3)	$	111,471
Sensor Systems		15,676	$	15,312		—		—		—			30,988
Training and Services		9,583		—		—		—		—			9,583

Total revenues		26,790		15,312		28,943		82,564		(1,567	)		152,042
Cost of goods sold:
Advanced Transparent and Mobile Systems		1,283		—		18,145		56,588		(1,321	)(4)		74,695
Sensor Systems		10,263		9,930		—		—		—			20,193
Training and Services		7,091		—		—		—		—			7,091

Total cost of goods sold		18,637		9,930		18,145		56,588		(1,321	)		101,979
Gross profit		8,153		5,382		10,798		25,976		(246	)		50,063


												Pro Forma
	The O’Gara						TPS					Acquisition
	Group(1)			OmniTech(1)			Armoring(1)		Isoclima (1)(2)			Adjustments			Combined
	(in thousands, except per share data)
Operating expenses:
Selling, general and adminstrative		10,714			1,466			8,339		17,004			(3,144	)(5)		34,379
Amortization		1,084			—			—		—			2,813	(6)		3,897

Income (loss) from operations		(3,645	)		3,916			2,459		8,972			85			11,787
Interest expense (income)		239			(2	)		201		3,452			665	(7)		4,555
Other expense (income)		(146	)		(1	)		145		(299	)		—			(301	)

Income (loss) before provision (benefit) for income taxes		(3,738	)		3,919			2,113		5,819			(580	)		7,533
Income tax provision (benefit)		(862	)		—			634		1,765			1,166	(8)		2,703
Income (loss) related to equity method investments		—			—			—		181			—			181
Minority interests’ loss (income)		—			—			—		(480	)		—			(480	)

Net income (loss)	$	(2,876	)	$	3,919		$	1,479	$	3,755		$	(1,746	)	$	4,531

Net income (loss) per share
Basic	$	(79.93	)												$	0.42

Diluted	$	(79.93	)												$	0.42

Weighted average shares of common stock outstanding
Basic		35,977														10,808,509

Diluted		35,977														10,912,224


(1)		Derived from the unaudited consolidated statement of operations for each entity as of September 30, 2008 included elsewhere in this prospectus.

(2)		Converted Isoclima statement of operations from euros to U.S. Dollars using an average exchange rate of €1 = $1.520 for the nine months ended September 30, 2008.

(3)		Adjusted to eliminate the effect of intercompany revenues between Isoclima and TPS.

(4)		Adjustment to cost of revenues to:


Eliminate the effect of cost of goods sold associated with intercompany revenues between Isoclima and TPS.	$	(1,567	)
Eliminate Isoclima gross profit in TPS ending inventory.		115
Record additional depreciation expense resulting from the adjustment to the fair market value of property, plant and equipment in connection with the acquisitions.		131

	$	(1,321	)


(5)		Adjustments to selling, general and administrative expenses to:


Eliminate expenses related to assets of subsidiaries included in Isoclima’s financial statements not included in the purchase agreement.	$	(84	)
Eliminate expense related to founders’ bonus to a member of the company’s board of directors		(1,000	)
Eliminate excess compensation expense to the former owner of TPS pursuant to an employment agreement effective upon completion of the acquisition.		(2,060	)

	$	(3,144	)


(6)		Adjustment to reflect the additional amortization expense associated with the preliminary fair value of the identifiable intangible assets acquired. Identifiable intangible assets were estimated based on The O’Gara Group’s historical experience in purchase accounting in prior acquisitions.

The amortization expense is calculated on an accelerated basis over the assets estimated useful lives ranging from 2 to 18 years. Useful lives also were estimated based on The O’Gara Group’s historical experience of assigning useful lives to identifiable intangible assets resulting from prior acquisitions. The final purchase price allocation for the Pending Acquisitions may be different than the amounts estimated and the differences may be material which could result in significant changes to the additional amortization expense reflected above. A change of the weighted average estimated useful life by three years would impact amortization expense by approximately $76,000 per month. A change of $5 million in the estimated value of the identifiable intangible assets would impact amortization expense by approximately


	$28,000 per month. The estimated identifiable intangible assets as if the transactions had occurred on January 1, 2007 are as follows:


	Estimated		Estimated		Estimated
	Amount		Useful Life		Amortization

Customer relationships	$	36,238		18 years	$	1,510
Technology		18,119		15 years		906
Contractual agreements		1,060		2 years		397
Trademarks		2,000		indefinite

	$	57,417			$	2,813


(7)		Adjustment to reflect additional interest expense based on borrowings under the new credit facility, assuming completion of the offering on January 1, 2007, at an estimated interest rate of 6.5%. Since Isoclima debt is expected to be assumed upon completion of the acquisition, it does not impact borrowings under the new credit facility or this pro forma adjustment.


								Interest
	2008		Estimated			Interest		Expense		Additional
	Debt		Interest Rate			Expense		Recorded		Expense

Average O’Gara Group debt in 2007	$	5,836		6.50	%	$	285	$	239	$	46
Average OmniTech debt in 2007		462		6.50	%		23		23		—
Average TPS debt in 2007		1,490		6.50	%		73		201		(128	)
Additional debt to complete the offering		15,333		6.50	%		747		—		747

						$	1,128	$	463	$	665


(8)		Additional income tax expense resulting from the effect of the Pending Acquisitions and the related pro forma adjustments on the consolidated tax calculation


Domestic pro forma adjustments reflected above	$	(2,478	)
Estimated effective tax rate of 38% based on The O’Gara Group’s historical domestic effective tax rate		38%

Tax effect					(941	)
International pro forma adjustments of $162 reflected above but not included in tax calculation due to non-taxability of adjustment in foreign jurisdiction		—
International pro forma adjustments of $2,060 reflected above and taxable in the foreign jurisdiction		2,060
Estimated effective tax rate of 30% based on TPS’ historical experience		30%

Tax effect					618
Taxable income resulting from converting OSTI from an S corporation to a C corporation		3,919
Estimated effective tax rate of 38% based on The O’Gara Group’s historical domestic effective tax rate		38%

Tax effect					1,489

Total pro forma tax adjustment				$	1,166

Unaudited Condensed Combined Pro Forma Balance Sheet
As of September 30, 2008
(in thousands)


													Pro Forma
	The O’Gara						TPS						Offering			Acquisition
	Group(1)			Omnitech(1)			Armoring(1)			Isoclima (1),(2)			Adjustments			Adjustments			Total

Assets
Current assets:
Cash	$	1,483		$	3,034		$	2,685		$	5,577		$	156,744	(3)	$	(156,744)	(4)	$	12,779
Accounts receivable — trade		4,314			991			5,339			31,681			—			—			42,325
Inventory		2,816			4,675			5,693			25,118			—			3,997	(11)		42,299
Deferred tax asset		218						709			1,652			—			—			2,579
Other current assets		2,963			393			875			684			—			—			4,915

		11,794			9,093			15,301			64,712			156,744			(152,747)			104,897

Property and equipment:
Property and equipment		5,658			1,917			2,929			137,972			—			(52,111)	(12)		96,365
Less: Accumulated depreciation		(2,357	)		(979	)		(1,384	)		(69,707	)		—			72,070	(13)		(2,357	)

Net property and equipment		3,301			938			1,545			68,265			—			19,959			94,008

Other assets
Goodwill		19,048			—			—			—			—			40,997	(14)		60,045
Other intangible assets		14,971			—			—			1,392			—			61,961	(14)		78,324
Other long term assets		6,250			87			—			5,476			900	(5)		(3,250)	(15)		9,463

Total assets	$	55,364		$	10,118		$	16,846		$	139,845		$	157,644		$	(33,080)		$	346,737


Liabilities and Shareholders’ Equity
Current liabilities:
Note payable — line of credit	$	7,632		$	100		$	2,474		$	24,673		$	15,874	(3)	$	(10,206)	(16)	$	40,547
Current maturities of long-term debt		500			74			—			3,117			2,000	(3)		(667)	(16)		5,024
Accounts payable		2,210			807			3,266			25,194			—			—			31,477
Other current liabilities		5,812			1,217			8,021			32,175			3,300	(6)		6,417	(7)		56,942

		16,154			2,198			13,761			85,159			21,174			(4,456)			133,990
Long-term deferred income taxes		2,964			—			289			1,204			—			—			4,457
Other long term liabilities		662			44			212			6,515			—			—			7,433
Long-term debt		—			56			—			27,033			8,000	(3)		(1,011)	(16)		34,078
Minority interest		—			—			—			1,937						—			1,937
Shareholders’ Equity:
Common stock		—			—			1,103			5,595			—			(6,698)	(17)		—
Paid in capital		2,129			848			—			—			173,589	(8)		5,040	(18)		181,606
Series A preferred stock		15,530												(15,530)	(9)		—			—
Series B preferred stock		23,315												(23,315)	(9)		—			—
Stock subscription receivable		—			—			—			—			—			—			—
Retained earnings (deficit)		(5,273	)		6,972			1,659			12,389			(6,274)	(10)		(26,120)	(19)		(16,647	)
Other comprehensive income		(117	)		—			(178	)		13			—			165	(17)		(117	)

		35,584			7,820			2,584			17,997			128,470			(27,613)			164,842

Total liabilities and shareholders’ equity	$	55,364		$	10,118		$	16,846		$	139,845		$	157,644		$	(33,080)		$	346,737

Unaudited Condensed Combined Pro Forma Balance Sheet
(in thousands)


1)		Derived from the unaudited consolidated balance sheets for each entity as of September 30, 2008 included elsewhere herein. The total purchase price of the Pending Acquisitions is comprised of the following:


Cash and stock purchase price of Isoclima	€	55,525
Exchange rate at September 30, 2008		1.444

Cash purchase price of Isoclima	$	80,204
Debt assumed					$	53,775
Total Purchase Price of Isoclima									$	133,979

Cash and stock purchase price of Omnitech	$	31,542
Cash purchase price of Omnitech	$	27,542
Stock purchase price of Omnitech			$	4,000
Debt assumed					$	230
Total purchase price of Omnitech									$	31,772

Cash and stock purchase price of TPS	$	40,000
Cash purchase price of TPS	$	38,112
Stock purchase price of TPS			$	1,888
Debt assumed					$	2,474
Contingent consideration estimated at fair value pursuant to SFAS No. 141(R), Business Combinations							$	4,617
Total purchase price of TPS									$	47,091


Total Purchase Price of Pending Acquisitions									$	212,842

This pro forma balance sheet considers SFAS 141(R) and its impact on business combinations. Pursuant to the provisions within SFAS 141(R), all transaction costs have been expensed and management has estimated the fair value of contractual contingencies pursuant to the stock purchase agreements of two of the Pending Acquisitions using a probability weighted discounted cash flow approach. The Company’s contractual contingency with TPS was estimated to have a fair value of $4,617 for purposes of pro forma presentation. In addition, the Company’s contractual contingency with Isoclima was estimated to have a fair value of $0 for purposes of pro forma presentation. As disclosed, the payment will either be $0 or $23,089 and the Company cannot conclude that it is more likely than not that a payment will occur. The final resolution of these contractual contingencies in the purchase price allocation may be different than the amounts estimated herein and the differences may be material which could result in significant changes to the estimates reflected above. Any changes to the purchase price allocation would result in a corresponding increase or decrease in goodwill. See “The Pending Acquisitions — Acquisition Structure and Consideration” for a description of the contingent consideration.


2)		Exchange rate used to convert Isoclima balance sheet was $1.444/Euro as of September 30, 2008.


3)		Adjustment to reflect recapitalization of The O’Gara Group, Inc. upon completion of the offering and funding of the new credit facility as follows:


Proceeds from $144 million offering	$	144,000
Proceeds from $10 million term loan		10,000
Proceeds from line of credit of new credit facility		15,874
Payment of professional fees associated with the offering		(12,230	)
Payment of deferred financing costs		(900	)

Total net proceeds from recapitalization	$	156,744


4)		Adjustment to reflect gross proceeds from offering and new credit facility used to fund the Pending Acquisitions as follows:


Payment of Isoclima cash purchase price	$	80,204
Payment of Omnitech cash purchase price		27,542
Payment of TPS cash purchase price less amount previously paid of $2.25 million		35,862
Payment of transaction costs associated with the Pending Acquisitions		2,300
Repayment of The O’Gara Group debt outstanding prior to the completion of the offering		8,132
Repayment of TPS debt		2,474
Repayment of OmniTech debt		230

Total use of proceeds	$	156,744


5)		Adjustment to reflect capitalization of deferred financing costs.

6)		Adjustment to reflect accrual of offering expenses and founders’ bonus not paid from the proceeds of this offering as follows:


Professional fees associated with the offering accrued at closing	$	1,300
Founders’ bonus accrued at closing		2,000

	$	3,300


7)		Adjustment to reflect accrual of transaction costs not paid from the proceeds of this offering as follows:


Accrual of transaction costs not paid out of the proceeds of the offering	$	1,800
Accrual of estimated contingent consideration related to the Pending Acquisition pursuant to SFAS 141(R)		4,617

Amount adjusted	$	6,417


8)		Adjustment to reflect the equity recapitalization of The O’Gara Group, Inc. post offering as follows:


Cash from equity offering	$	144,000
Conversion of existing preferred stock into common stock		38,845
Conversion of accumulated dividends on existing preferred stock into common stock		4,274
Professional fees associated with completing the offering to be paid at closing		(12,230	)
Professional fees associated with the offering accrued at closing		(1,300	)

Amount adjusted	$	173,589


9)		Adjustment to reflect the conversion of the existing preferred stock into common stock.

10)		Adjustments to reflect the following:


Expense the issuance of the founders’ bonus	$	2,000
Expense the issuance of the accumulated dividend to preferred stock holders		4,274

Amount adjusted	$	6,274


11)		Adjustment to reflect the fair value of inventory in connection with the acquisitions.

12)		Adjustment to reflect the preliminary allocation of the purchase price to the estimated fair value of property, plant and equipment in connection with the acquisitions.


The final purchase price allocation may be different than the amounts estimated and the differences may be material which could result in significant changes to the estimates reflected above. Any changes to the allocation would result in a corresponding increase or decrease in goodwill.
Historical cost of acquired property, plant and equipment	$	142,818
Estimated fair value of acquired property, plant and equipment		90,707

Amount adjusted		52,111


13)		Adjustment to reflect the elimination of historical accumulated depreciation of the Pending Acquisitions.

14)		Adjustment to reflect the preliminary allocation of the purchase price to identifiable net assets acquired and to goodwill associated with the Pending Acquisitions. The final purchase price allocation has not been completed. The final purchase price allocation may be different than the amounts below and the differences may be material. Any differences in allocation are expected to have a corresponding increase or decrease to goodwill.


Current assets	$	93,103
Property, plant and equipment		90,707
Other assets		5,563
Patents and licenses		1,392
Intangible assets:
Technology		19,553
Customer relationships		39,105
Non-competition agreements		1,303
Trademarks		2,000

		61,961

Goodwill		40,997
Current liabilities		(70,680	)
Deferred tax liabilities		(1,493	)
Other non-current liabilities		(6,771	)
Minority interest		(1,937	)

Net Assets Acquired	$	212,842

Pursuant to the provisions of SFAS 141(R), transaction costs related to acquisitions completed after December 31, 2008 must be expensed as incurred and may not be capitalized into goodwill. Such transaction costs are non-recurring and are not included in the pro forma statement of operations. In addition, the fair value of contractual contingencies must be estimated and recorded as a liability on the acquisition date. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — New Accounting Pronouncements.”


15)		Adjustment to eliminate deposit paid to TPS which was applied to the total purchase price and to reclassify transaction costs paid prior to closing as follows:


Deposits paid to TPS applied to the purchase price	$	2,250
Reclassification of transaction costs paid prior to closing		1,000

	$	3,250


16)		Adjustment to reflect debt repaid and debt not assumed in the Pending Acquisition as follows:


Repayment of The O’Gara Group line of credit existing prior to the offering	$	7,632
Repayment of TPS line of credit		2,474
Repayment of OmniTech line of credit		100

Total reduction in line of credits existing prior to the offering	$	10,206

Current portion of long-term debt of Isoclima not assumed by acquirer	$	93
Repayment of current portion of long-term debt of The O’Gara Group		500
Repayment of current portion of long-term debt of OmniTech		74

Total reduction in current portion of long-term debt	$	667

Long-term debt of Isoclima not assumed by acquirer	$	955
Repayment of long-term debt of OmniTech		56

Total reduction in long-term debt	$	1,011


17)		Elimination of subsidiary account balances in consolidation as follows:


Common stock	$	(6,698	)
Retained earnings (deficit)		(21,020	)
Other comprehensive income	$	165


18)		Adjustment to reflect the issuance of The O’Gara Group common stock in connection with the Pending Acquisitions:


OmniTech	$	4,000
TPS		1,888
Elimination of the OmniTech paid in capital account balance in consolidation		(848	)

	$	5,040


19)		Adjustment to reflect the following:


Expensed transactions costs related to the Pending Acquisitions pursuant to SFAS 141R	$	(5,100	)
Elimination of subsidiary retained earnings in consolidation		(21,020	)

Amount adjusted	$	(26,120	)

SELECTED CONSOLIDATED HISTORICAL FINANCIAL DATA

The following table presents the selected consolidated historical financial data of The O’Gara Group, Inc. as of December 31, 2003 and the four months then ended, as of December 31, 2004, 2005, 2006, 2007 and for the years then ended and as of and for the nine months ended September 30, 2007 and 2008. The selected financial data as of and for the years ended December 31, 2005, 2006 and 2007 is derived from the audited financial statements of The O’Gara Group, Inc., which appear elsewhere in this prospectus. The selected financial data as of and for the years ended December 31, 2003 and 2004 is derived from audited financial statements of The O’Gara Group, Inc. that are not included in this document. The selected financial data of The O’Gara Group, Inc. as of and for the nine months ended September 30, 2007 and 2008 is unaudited, but includes, in the opinion of our management, all adjustments, consisting only of normal, recurring adjustments, necessary for a fair presentation of such data. Due to the fact that the information below relates only to the operations of The O’Gara Group, Inc. prior to the closing of the Pending Acquisitions, our historical financial results are not indicative of our results after the completion of this offering and those acquisitions.

This information should be read together with the sections entitled “Summary Consolidated Historical and Pro Forma Financial and Other Data,” “Unaudited Pro Forma Condensed Combined Financial and Other Data,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the consolidated financial statements and the notes to those statements included elsewhere in this prospectus.


	Four Months
	Ended
	December 31,			Year Ended December 31,												Nine Months Ended September 30,
	2003			2004			2005			2006			2007			2007		2008
(in thousands, except per share data)

Statement of Operations Data(1)
Revenues	$	1,649		$	6,953		$	14,609		$	16,594		$	38,321		$	29,075	$	26,790
Cost of goods sold		1,171			4,597			8,951			11,128			25,736			18,793		18,637

Gross profit		478			2,356			5,658			5,466			12,585			10,282		8,153
Selling, general and administrative expenses		451			2,265			4,052			7,292			13,549			8,720		11,798

Income (loss) from operations		27			91			1,606			(1,826	)		(964	)		1,562		(3,645	)
Interest expense, net(2)		51			174			374			484			620			443		239
Other (income) expense		—			(19	)		(4	)		(56	)		(25	)		16		(146	)

Income (loss) before provision (benefit) for income taxes		(24	)		(64	)		1,236			(2,254	)		(1,559	)		1,103		(3,738	)
Income tax provision (benefit)		—			(72	)		464			(464	)		(116	)		486		(862	)

Net income (loss)	$	(24	)	$	8		$	772		$	(1,790	)	$	(1,443	)	$	617	$	(2,876	)

Net income (loss) per share:
Basic	$	(529.67	)	$	188.40		$	17,160.02		$	(39,767.80	)	$	(32,065.40	)	$	13,715.31	$	(79.93	)
Diluted	$	(529.67	)	$	0.01		$	0.85		$	(39,767.80	)	$	(32,065.40	)	$	0.30	$	(79.93	)
Weighted average shares
Basic		45			45			45			45			45			45		35,977
Diluted		45			592,783			907,493			45			45			2,040,582		35,977


											As of
	As of December 31,										September 30,
	2003		2004		2005		2006		2007		2008

Balance Sheet Data
Cash	$	33	$	70	$	83	$	83	$	147	$	1,483
Working capital		241		584		385		8,176		2,237		(4,360	)
Goodwill and other intangible assets, net		4,343		4,476		15,696		29,021		34,233		34,019
Total assets		6,806		8,423		23,527		47,525		52,313		55,364
Total debt, including current maturities		3,429		4,130		4,974		5,988		3,539		8,132
Total shareholders’ equity		1,306		3,301		13,793		34,141		37,033		35,584


(1)		See Note 1 to the Consolidated Financial Statements of The O’Gara Group, Inc., for information on acquisitions. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations” for information related to significant items affecting operating income (loss).

(2)		Includes related party amounts of $(33), $(150), $(204), $(157), $(130), $(112) and $(25) as of December 31, 2003, 2004, 2005, 2006 and 2007 and the nine months ended September 30, 2007 and 2008, respectively.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of our financial condition and results of operations is based on the actual, historical financial statements of The O’Gara Group, Inc. It is not based on, nor does it otherwise give effect to, the financial condition and results of operations of the companies to be acquired in the Pending Acquisitions unless it specifically states otherwise. A discussion giving pro forma effect to these acquisitions would differ substantially. This discussion should be read together with the sections entitled “Summary Consolidated Historical and Pro Forma Financial and Other Data,” “Unaudited Pro Forma Condensed Combined Financial and Other Data,” “Selected Historical Consolidated Financial Data” and the consolidated financial statements and the notes to those statements included elsewhere in this prospectus. This discussion also contains forward-looking statements that involve risks and uncertainties. See “Forward-Looking Statements.” For additional information regarding some of the risks and uncertainties that affect our business and the industry in which we operate and that apply to an investment in our common stock, please see “Risk Factors” beginning on page 12.

Overview

We provide security, safety and defense products and services to commercial and government organizations in the U.S. and abroad, including highly specialized products and services that safeguard government officials, security and military personnel, corporate executives and other individuals from terrorism, violent crime and other hazards. We have secured a varied and distinguished list of customers around the world, including, among others: the U.S. Marine Corps, the U.S. Special Operations Command (SOCOM), the U.K. Ministry of Defence, the Italian Ministry of Defense, the U.S. Department of State, the U.S. Intelligence Community, various state and local governments and law enforcement agencies and high-profile individuals.

Prior to the Pending Acquisitions, we have conducted our business in three divisions — Sensor Systems, Training and Services and Mobile Security. These divisions are consistent with our business segments for financial reporting purposes.


	•	Sensor Systems. Our Sensor Systems division designs, manufactures and sells specialized night vision equipment and tagging, tracking and locating systems to the government and military markets.

	•	Training and Services. Our Training and Services division provides technical services, such as threat and vulnerability assessments and weapons of mass destruction training; tactical services, such as urban warfare and tactical driving training; and preparedness and response services, such as emergency response and continuity of operations planning. We offer our training and services to government, military and corporate customers.

	•	Mobile Security. Our Mobile Security division distributes armored cars, trucks and SUVs to corporations, governments and individuals worldwide. The name of this division will be changed to Advanced Transparent and Mobile Systems after the closing of this offering.

Most of our revenues are derived from contracts with the U.S. government and European governments, under which we are either the prime contractor or a subcontractor. Contracts with the U.S. government and three European governments combined accounted for approximately $11.6 million or 80%, $11.4 million or 69%, $32.5 million or 85%, and $21.8 million or 81% of our revenues for the years ended December 31, 2005, 2006 and 2007 and the nine months ended September 30, 2008, respectively.

Our most significant expenses are cost of goods sold and services provided, which consist primarily of direct labor and associated costs for program personnel and direct expenses incurred to complete projects, including the costs of materials, equipment and subcontractors. Selling, general and administrative expenses consist primarily of costs associated with our management, finance and administrative groups; business development expenses, including bid and proposal efforts; and leasehold expenses, travel and other corporate costs. We receive revenue from some contracts for which our U.S. government customers pay us to develop specific products on their behalf. We also spend funds on internal research and development.

Historical Acquisitions

Historically, we have grown our business through acquisitions financed through private placements of equity and promissory notes issued to the sellers. Key milestones in the development of our business include the following:


	•	In August 2003, we acquired 100% of the outstanding common stock of Specialized Technical Services, Inc. (STS), a developer and producer of night vision devices, the core product of which is our low-profile night vision goggles (LPNVGs). The value of the consideration and related expenses was approximately $4.8 million. The STS purchase agreement included provisions for contingent payments to the former owners of STS upon the successful realization of performance goals. This has resulted in additional consideration of approximately $1.5 million.

	•	In August 2004, we started operations of a subsidiary in Great Britain, Sensor Technology Systems, LTD (STSL), for the primary purpose of servicing products already sold in this region and establishing a sales presence.

	•	In May 2005, we acquired 100% of the outstanding common stock of Diffraction, Ltd., a product-oriented solutions provider focused on the development, rapid prototyping and low rate initial production of next generation optoelectronic technology for the U.S. military. The value of the consideration and related expenses was approximately $9.8 million. Diffraction’s products and research activities, most of which are classified by the U.S. government, include digital and fused night vision devices, Identification Friend or Foe systems, illuminators/pointers, intelligent sensors, optical and radio frequency communication devices, and signature management devices.

	•	In April 2006, we acquired certain assets of Safety and Security Institute (SSI), a provider to the U.S. military and private companies of anti-terrorist and protective security drivers training, as well as basic, intermediate and tactical firearms training. The value of the consideration and related expenses was approximately $3.2 million. The SSI purchase agreement included provisions for contingent payments to the former owners upon the successful realization of specific performance goals for the four fiscal years after the acquisition. The contingent payments may be made in cash or stock at our election. Additional purchase price paid, if any, will be recorded in the period in which the specific provisions of the future contingent payments have been met. To date no payments have been made and future payments are not expected.

	•	In November 2006, we acquired all of the capital stock of Homeland Defense Solutions, Inc. (HDS), a provider of preparedness and response training for private sector and government security personnel and emergency first responders, threat and vulnerability assessments, and emergency operations and response plan development. The value of the consideration and related expenses was approximately $10.9 million. The purchase price was subject to upward or downward adjustment based on the earnings of HDS from November 1, 2006 through October 31, 2007. As a result of operations during the performance period, the purchase price and goodwill were reduced by approximately $2.6 million.

	•	In June 2007, we acquired all of the capital stock of Security Support Solutions (3S), a U.K.-based company that markets and sells armored vehicles to customers who need to obtain armored vehicles quickly or who are looking for a third party to simplify and manage the acquisition and delivery process for them. The value of the consideration and related expenses was approximately $4.0 million. The purchase price is subject to upward or downward adjustment based on the earnings of 3S from July 1, 2007 through June 30, 2008 and from July 1, 2008 through June 30, 2009. No adjustments were made for the first period; adjustments for the second period cannot be predicted at this time.

Pending Acquisitions

Simultaneously with the closing of this offering, we will complete the acquisitions of the following companies:


	•	Isoclima, a designer and manufacturer of transparent armor and impact-resistant and other specialized glass for the armored vehicle, premium automotive, rail, marine, aviation and other markets, for approximately $129.7 million in a combination of cash and the assumption of debt, to join our Advanced Transparent and Mobile Systems division.

	•	TPS Armoring, a manufacturer of vehicle armoring systems, for approximately $42.3 million in a combination of cash, common stock and the assumption of debt, also to join our Advanced Transparent and Mobile Systems division.

	•	OmniTech, a designer and manufacturer of optoelectronic systems serving the government and military markets, for approximately $31.6 million in a combination of cash, common stock and the assumption of debt, to join our Sensor Systems division.

We believe that these companies will add significant value to our organization as they will substantially increase our size, extend and enhance our product portfolio, broaden and deepen our customer base, expand our geographic presence and enhance our management team. Assuming the Pending Acquisitions occurred as of January 1, 2007, our pro forma combined revenues for the year ended December 31, 2007 and the nine months ended September 30, 2008 were $179.9 million and $152.0 million, respectively. Our pro forma net loss for the year ended December 31, 2007 was $2.0 million and our pro forma net income for the nine months ended September 30, 2008 was $4.5 million.

Factors That May Influence Future Results of Operations

We are subject to a variety of trends, events and uncertainties that may have a material impact on our future results of operations. Most notably, our results will be significantly affected by the closing of the Pending Acquisitions. We believe that certain factors that have affected the historical operating results of Isoclima, TPS and OmniTech are likely to continue to have an impact on our future results of operations. Other factors that affected the historical operating results of Isoclima, TPS and OmniTech, either positively or negatively, may not have a similar impact on our future results of operations. We believe that the following, among others, are such key factors:

Isoclima


	•	In some periods, costs of sales have been negatively impacted by rising fuel and energy costs, which have increased transportation and plant utility expense, and fluctuations in these costs may have a material effect on Isoclima’s results of operations. Isoclima’s cost of sales was 70.2% of net sales for the year ended December 31, 2007 compared to 68.9% of net sales for the year ended December 31, 2006, and was 68.5% of net sales for the nine months ended September 30, 2008 compared to 67.4% of net sales for the nine months ended September 30, 2007.

	•	Selling, general and administrative expenses constitute the other major portion of Isoclima’s expenses. Selling, general and administrative expenses were higher than usual in the nine months ended September 30, 2008 due to higher labor, business development and professional fee expenses and the cost of safety upgrades at certain facilities, which Isoclima completed during that period. As Isoclima’s selling, general and administrative expenses have been relatively flat in other recent periods, we can not predict how these expenses will change in the future. Isoclima’s selling, general and administrative expenses were 23.6% of net sales for the year ended December 31, 2007 compared to 27.7% of net sales for the year ended December 31, 2006, and were 29.1% of net sales for the nine months ended September 30, 2008 compared to 25.7% of net sales for the nine months ended September 30, 2007. We do not expect that our planned addition of sales and engineering staff to address the U.S. military and commercial markets will have a material impact on Isoclima’s selling, general and administrative expenses in the future.


	•	Isoclima has incurred a large amount of permanently non-deductible expenses in the past two years, which have resulted in high effective tax rates in both periods. We do not expect this trend to continue as the transactions that caused the permanent items are not expected to occur in the future.

	•	Isoclima’s net sales increased by 16.3% for the year ended December 31, 2007 compared to the year ended December 31, 2006, and its net loss for the year decreased by 94.8% compared to 2006, primarily due to higher sales. For the nine months ended September 30, 2008 compared to the nine months ended September 30, 2007, Isoclima’s net sales were relatively flat but its net income increased by 88.8% This increase was attributable primarily to higher income tax expense in the first nine months of 2007, which reduced net income in that period, as described in the previous bullet.

	•	Isoclima’s income from operations increased 110% for the year ended December 31, 2007 and 9% for the nine months ended September 30, 2008 as a result of gains arising from a $5.3 million sale of previously expensed research and development costs as well as other ordinary course sales of property, plant, equipment and intangible assets and the related removal of the assets’ cost and accumulated depreciation or amortization from Isoclima’s accounts. These gains were recorded as “Other operating income”.

TPS


	•	TPS’s net sales increased by 87.3% for the year ended December 31, 2007 compared to the year ended December 31, 2006, and increased by 28.4% for the nine months ended September 30, 2008 compared to the nine months ended September 30, 2007. These increases were attributable primarily to increasing demand for armored vehicles by government and individual customers.

	•	TPS’s net income increased by 2,708.5% for the year ended December 31, 2007 compared to the year ended December 31, 2006. This increase was attributable primarily to increased demand for TPS’s products and the small incremental effect increased sales have on its selling, general and administrative expenses. TPS’s net income decreased by 44.7% for the nine months ended September 30, 2008 compared to the nine months ended September 30, 2007, primarily because TPS incurred approximately $2.1 million in selling, general and administrative expenses in the first nine months of 2008 for an employee bonus, compared to $0.9 million of similar expenses incurred in 2007.

	•	TPS is one of three approved suppliers of armored vehicles to the Mexican federal government.

OmniTech


	•	OmniTech’s results of operations to date have depended on its ability to obtain and expand its sales to the U.S. government. Consequently, changes in OmniTech’s net sales between periods are primarily driven by the government’s contracting and procurement cycle and, in particular, by when government agencies have the funding and authorization to enter into and take deliveries under contracts. For example, OmniTech’s net sales increased by 80.2% for the nine months ended September 30, 2008 compared to the nine months ended September 30, 2007, primarily because OmniTech entered into, and made deliveries under, a new contract with the United States Marine Corps.

	•	In recent periods, OmniTech’s expenses have been relatively flat, and, after certain fixed costs, its costs of sales have not increased proportionately as net sales have increased. Likewise, primarily because it does not use a commission-based sales system, after certain fixed costs, its selling, general and administrative expense has not increased proportionately as net sales have increased. Consequently, the marginal cost of OmniTech’s increased net sales has been relatively low in recent years, causing proportionately greater increases in its income from operations and net income. For the nine months ended September 30, 2008 compared to the nine months ended September 30, 2007, OmniTech’s net sales increased by 80.2%, its income from operations increased by 231.1% and its net income increased by 228.9%.

	•	Certain OmniTech personnel perform both tasks that are related to the production of specific products and tasks, such as administration and development, that are not associated with specific products. The tasks assigned to these employees depend primarily on customer requirements, and these employees have


		historically performed production-related tasks when OmniTech is in the process of filling substantial customer orders. OmniTech accounts for certain expenses associated with these employees either as costs of sales or as selling, general and administrative expenses depending on how they are employed in a particular period. These variations in employee expenses have been a substantial source of period-to-period fluctuations in OmniTech’s cost of sales and selling, general and administrative expenses, and we expect these variations may contribute to fluctuations in our consolidated sales and selling, general and administrative expenses.

The completion of the Pending Acquisitions will significantly change the nature and composition of our business. We believe that the following factors, among others, will influence our results of operations upon completion of this offering and the Pending Acquisitions:


	•	At this time we do not foresee a leveling off in the global trends of increasing terrorist activities and other unconventional threats, and continue to foresee an expansion of criminal activities in certain parts of the world, that create a demand for our security, safety and defense-related products and services. We also believe that the increased use of outsourcing by governments will continue. Adverse global economic conditions, however, may adversely affect sales of commercial products by our Advanced Transparent and Mobile Systems division, which we expect to contribute the majority of our revenues after completion of the Pending Acquisitions. For example, recessionary trends in Europe may result in pricing pressures from manufacturers and decrease demand for high-end automobiles and yachts that incorporate our specialized glass. Significant changes in U.S. or foreign defense policies may adversely affect sales by our Sensor Systems and/or Training and Services divisions.

	•	Our business mix will shift from one primarily involving sales to the U.S. government and its agencies to one with substantial sales to the commercial and international markets. We also expect to derive a significantly greater portion of our revenues from our Advanced Transparent and Mobile Systems division. This division operates at historically lower gross margins than we have experienced in the past. Because of these changes, we expect gross margin as a percentage of sales to be negatively affected in the future. However, due to the significant increase in revenues resulting from the acquisitions, we expect our overall profitability to increase.

	•	We will conduct a significantly greater portion of our business in euros and currencies other than the U.S. dollar, the currency in which we report our consolidated financial statements. As a result, currency rate fluctuations will have a much greater impact on our results of operation than previously. We intend to enter into currency hedging agreements to offset a portion of this risk. We cannot currently estimate the effect of currency exchange rates fluctuations on our future business, because, among other things, the portions of our revenues that will be denominated in dollars, euros and other currencies will depend in part upon the success of our attempts to enter new markets and win new customers or additional work from existing customers.

	•	Isoclima is currently the primary supplier of transparent armor to TPS, and we believe the integration of these two businesses within the Advanced Transparent and Mobile Systems division will allow us to realize manufacturing efficiencies and other benefits. Importantly, this integration will provide TPS with a steady, priority source of transparent armor, which may reduce shipping and inventory storage and management costs, reduce idle time of production facilities and workers and allow TPS to fill orders more quickly. Other benefits may include: giving Isoclima access to TPS’s sophisticated engineering capabilities and expertise in lean manufacturing techniques, allowing TPS to use our sales group in London to approach potential customers in Europe and benefits arising from vertical integration of the armored vehicle business, including the ability to capture a larger portion of the margin on the components of an armored vehicle and improved management of cash flows within the business.

	•	The completion of the Pending Acquisitions will result in significant amortization expense, which may affect our results of operations for an extended period of time. Although increases in revenues and gross profit will diminish this effect if other factors remain static, amortization expense will increase if and as we complete additional acquisitions.


	•	After this offering and the closing of the Pending Acquisitions, we will have significantly higher relative interest expense than in the past, due to both borrowings under our new credit facility and debt of Isoclima that will remain outstanding. This may have a negative impact on our net income and also could limit the availability of cash for other purposes.

Select Key Performance Measures

EBITDA. We manage and assess the performance of our business by evaluating a variety of metrics, including non-GAAP measures such as EBITDA. We consider EBITDA as a key indicator of financial performance and cash flow potential. We define EBITDA as net income before interest, income taxes, depreciation and amortization. Our management uses EBITDA:


	•	as a measurement of operating performance because it assists us in comparing our operating performance on a consistent basis as it removes the impact of items not directly resulting from our core operations;

	•	for planning purposes, including the preparation of our internal annual operating budget;

	•	to allocate resources to enhance the financial performance of our business;

	•	to evaluate the effectiveness of our operational strategies; and

	•	to evaluate our capacity to fund capital expenditures and expand our business.

Our historical EBITDA was $1,061 and $(1,535) for the year ended December 31, 2007 and the nine months ended September 30, 2008, respectively.

Backlog. We track backlog in order to assess our current business development effectiveness and to assist us in forecasting our future business needs and financial performance. Our backlog consists of funded and unfunded amounts under contracts. Funded backlog is equal to the amounts actually appropriated by a customer for payment of goods and services less revenue already recognized under that appropriation. Unfunded backlog is the actual dollar value of unexercised priced contracts and their respective options for which funding has not yet been allocated. Most of our U.S. government contracts give the customer an option to extend the period of performance of the contract for a period of one or more years. These priced options may or may not be exercised at the sole discretion of the customer. Historically, it has been our experience that the customer has typically exercised contract options.

Firm funding for our contracts is usually made for one year at a time, with the remainder of the contract period consisting of a series of one-year options. As is the case with the base period of our U.S. government contracts, option periods are subject to the availability of funding for contract performance. The U.S. government is legally prohibited from ordering work under a contract in the absence of funding. Our historical experience has been that the government has typically funded the option periods of our contracts.

Our funded backlog was $47.2 million and $37.6 million as of December 31, 2006 and 2007 and was $33.9 million and $32.3 million as of September 30, 2007 and 2008, respectively. Our unfunded backlog was

$31.5 million and $24.3 million as of December 31, 2006 and 2007 and was $32.8 million and $17.0 million at September 30, 2007 and 2008, respectively.

The following table presents funded and unfunded backlog by segment on a historical basis for The O’Gara Group at December 31, 2007 and 2008 and on a pro forma combined basis at December 31, 2008.


													Pro Forma Combined
	December 31, 2007						December 31, 2008						December 31, 2008
					Total						Total						Total
$ in thousands	Funded		Unfunded		Backlog		Funded		Unfunded		Backlog		Funded		Unfunded		Backlog

Advanced Transparent and Mobile Systems (formerly known as Mobile Security)	$	—	$	—	$	—	$	4,400	$	—	$	4,400	$	41,200	$	—	$	41,200
Sensor Systems		26,300		—		26,300		25,200		—		25,200		36,300		43,100		79,400
Training and Services		11,300		24,300		35,600		8,800		8,200		17,000		8,800		8,200		17,000

Total backlog	$	37,600	$	24,300	$	61,900	$	38,400	$	8,200	$	46,600	$	86,300	$	51,300	$	137,600

Critical Accounting Policies and Estimates

As previously noted, this discussion and analysis of our financial condition and results of operations is based on the actual, historical consolidated financial statements of The O’Gara Group, Inc. and does not give effect to the Pending Acquisitions unless specifically stated. These consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the U.S. The preparation of financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and the related disclosure of contingent assets and liabilities. On an ongoing basis, we re-evaluate our estimates, including those related to revenue recognition, research and development, intangible assets and contingencies. We have based our estimates on historical experience and on various other assumptions that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. Our significant accounting policies are described in Note 2 to the consolidated financial statements of The O’Gara Group, Inc. included elsewhere in this prospectus. We believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of our consolidated financial statements.

Revenue Recognition.

We recognize revenues as services are rendered and when title transfers for products, subject to any special terms and conditions of individual contracts. We enter into two types of contracts:


	•	Fixed price. For fixed price services contracts, we must determine that the costs incurred provide a proportionate amount of progress on the work and that the ultimate costs incurred will not overrun the funding on the award and that the required hours will be delivered. On fixed price product orders, revenue is not recorded until we determine that the goods have been delivered and title has transferred, subject to any special terms and conditions of specific contracts. During the performance of such contracts, estimated final contract prices and costs are periodically reviewed and revisions are made as required. The effect of these revisions to estimates is included in earnings in the period in which the revisions are made.


	•	Time and materials. For time and materials contracts, revenue is recognized to the extent of billable rates multiplied by hours delivered, plus other direct costs. Anticipated losses on contracts are recorded when first identified.

The following table sets forth the percentage of revenues under each type of agreement for the fiscal years 2005, 2006 and 2007 and for the nine months ended September 30, 2008:


	Percentage of Revenues by
	Type
	Fiscal Year Ended									Nine Months
	December 31,									Ended
	2005			2006			2007			September 30, 2008

Fixed price		100.0	%		90.9	%		80.4	%		76.7	%
Time and materials		0.0			9.1			19.6			23.3

Total		100.0	%		100.0	%		100.0	%		100.0	%

Allowance for Doubtful Accounts. We evaluate the collectability of accounts receivable based on numerous factors, including past transaction history with customers and their creditworthiness. This estimate is periodically adjusted when we become aware of specific customers’ inability to meet their financial obligations (e.g. bankruptcy filing or other evidence of liquidity problems). As we determine that specific balances ultimately will be uncollectible, we remove them from accounts receivables and record an allowance.

Inventories. Inventories are stated at the lower of cost or market determined on the first-in, first-out method. Pursuant to contract provisions, agencies of the U.S. government and certain other customers have title to, or a security interest in, inventories related to their contracts as a result of advances, performance-based payments and progress payments. These advances and payments are reflected as an offset against the related inventory balances.

Goodwill. Business acquisitions typically result in the recording of goodwill, which is the excess of the purchase price over the fair value of the net assets acquired. Goodwill and other intangible assets are stated on the basis of cost net of any impairment. The purchase method of accounting for business combinations requires us to make estimates and judgments to allocate the purchase price paid for acquisitions to the fair value of the net tangible and identifiable intangible assets acquired and liabilities assumed. We have adopted Statement of Financial Accounting Standards (SFAS) No. 142, Goodwill and Other Intangible Assets (SFAS 142) which requires that we calculate, on an annual basis, the fair value of a reporting unit that contains goodwill and compare that to the carrying value of the reporting unit to determine if impairment exists. Impairment testing must take place more often if circumstances or events indicate a change in the impairment status. Management judgment is required in calculating the fair value of the reporting units. We performed our annual assessment of goodwill during the fourth quarter of 2007 and determined that no impairment existed.

Long-lived assets. Long-lived assets, including certain identifiable intangibles and goodwill, are reviewed annually for impairment or whenever events or changes in circumstances indicate that the carrying amount of the asset in question may not be recoverable including, but not limited to, a deterioration of profits for a business segment. We use the two-step methodology to determine any impairment. The initial step requires us to assess the fair value of intangible assets with respect to their carrying amounts. If a carrying amount exceeds fair value, step two of the impairment test must be performed to measure the amount of the impairment loss, if any. Step two uses discounted operating cash flows estimated over the remaining useful lives of the related long-lived asset or asset groups. Impairment is measured as the difference between fair value and the unamortized cost at the date an impairment is determined.

Income taxes. We account for income taxes pursuant to SFAS No. 109, Accounting for Income Taxes (SFAS 109). Under the asset and liability method specified thereunder, deferred taxes are determined based on the difference between the financial reporting and tax bases of assets and liabilities. Deferred tax liabilities are offset by deferred tax assets relating to net operating loss carryforwards, tax credit carryforwards and deductible temporary differences. Recognition of deferred tax assets is based on management’s belief that it is more likely than not that the tax benefit associated with temporary differences and operating and capital loss

carryforwards will be utilized. A valuation allowance is recorded for those deferred tax assets for which it is more likely than not that the realization will not occur.

Stock options. We recognize the cost of equity classified share-based awards on a straight-line basis over the vesting period of the award. Prior to January 1, 2006, we accounted for our stock option plans under the recognition and measurement provisions of Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees and related interpretations, as permitted by SFAS No. 123, Accounting for Stock-Based Compensation. No stock option-based employee compensation cost was recognized in the income statement, as all stock options granted under those plans had an exercise price equal to or greater than the estimated fair market value of the underlying common stock on the date of grant.

On January 1, 2006, we adopted SFAS No. 123 (revised 2004), Share-Based Payments (SFAS 123(R)), requiring us to recognize expense related to the fair value of our stock option awards. We adopted the fair value recognition provisions of SFAS 123(R) using the prospective transition method. Under this transition method, expense recognized during 2006 includes compensation cost for all share-based payments granted subsequent to January 1, 2006, based on the grant-date fair value estimated in accordance with the provisions of SFAS 123(R). Results for prior periods have not been restated. The effect on our income before income taxes as a result of adopting SFAS 123(R) was immaterial.

We have estimated the fair value of our option awards granted after January 1, 2006 using the Black-Scholes option pricing model. The expected life of the options granted is management’s estimate and represents the period of time that options granted are expected to be outstanding. We currently do not pay dividends on our common stock. Volatility is based on the historic volatility of comparable public companies. The risk-free interest rate for periods within the contractual life of the option is based on the U.S. Treasury yield curve in effect at the time of grant. The fair value of each option grant during the years ended December 31, 2006 and 2007 has been estimated on the date of grant with the following weighted-average assumptions:


	2006		2007

Expected life of option		5.6 yrs		5.6 yrs
Dividend yield		0%		0%
Volatility		57.1%		50.2%
Risk-free interest rate		4.6%		4.3%

Since September 30, 2007, we granted stock options with exercise prices as follows:

Weighted-Average

Grants Made During

Number of

Weighted-Average

Fair Value

Quarter Ended

Options Granted

Exercise Price

per Share

December 31, 2007

223,488

10.52

3.92

The fair value of the common stock was determined contemporaneously with the grants.

Determining the fair value of our stock requires making complex and subjective judgments. Our approach to valuation is based on a discounted future cash flow approach that uses our estimates of revenue, driven by assumed market growth rates, and estimated costs as well as appropriate discount rates. These estimates are consistent with the plans and estimates that we use to manage the business. There is inherent uncertainty in making these estimates.

Although it is reasonable to expect that the completion of this offering will add value to the shares because they will have increased liquidity and marketability, the amount of additional value cannot be measured with either precision or certainty.

Results of Operations

The following table sets forth, for each period indicated, components of the statement of operations of The O’Gara Group, Inc. expressed as a percentage of total revenues.


	Fiscal Year Ended									Nine Months Ended
	December 31,(1)									September 30,(1)
	2005			2006			2007			2007			2008

Revenues:
Sensor Systems		100	%		87	%		65	%		68	%		58	%
Training and Services		—			13			28			27			36
Mobile Security		—			—			8			5			6

Total		100			100			100			100			100
Costs of goods sold		61			67			67			65			70

Gross profit		39			33			33			35			30
Selling, general and administrative expenses		25			36			32			27			40
Amortization of other intangible assets		3			8			3			3			4

Income (loss) from operations		11			(11	)		(3	)		5			(14	)
Interest expense, net		(3	)		(3	)		(2	)		(2	)		(1	)
Other income (expense)		—			—			—			—			2

Income (loss) before provision (benefit) for income taxes		9			(14	)		(4	)		4			(14	)
Income tax provision (benefit)		(3	)		3			—			2			(3	)

Net income (loss)		5	%		(11	)%		(4	)%		2	%		(11	)%


(1)		Percentages do not foot due to rounding.

Nine Months Ended September 30, 2008 Compared to Nine Months Ended September 30, 2007

Revenues. Total revenues decreased $2.3 million, or 8%, to $26.8 million for the nine months ended September 30, 2008, compared to $29.1 million for the nine months ended September 30, 2007.

Sensor Systems revenues decreased $3.9 million, or 20%, to $15.7 million for the nine months ended September 30, 2008, compared to $19.6 million for the nine months ended September 30, 2007. This decrease was primarily due to difficulty we experienced in obtaining image intensifier tubes needed to manufacture night vision goggles.

Training and Services revenues increased $1.6 million, or 21%, to $9.6 million for the nine months ended September 30, 2008, compared to $7.9 million for the nine months ended September 30, 2007. This increase resulted from additional funding on certain long-term U.S. government contracts the division had previously been awarded.

Mobile Security revenues for the nine months ended September 30, 2008 were $1.5 million, compared to revenues of $1.6 million for the nine months ended September 30, 2007. There were no revenues related to this division in the first six months of 2007 as the division did not begin operations until the second half of 2007 following our acquisition of 3S. 3S is a broker for armored vehicles and revenues depend on customer demand for large armored vehicle orders, which varies significantly between periods.

Cost of Goods Sold. Cost of goods sold decreased $0.2 million, or 1%, to $18.6 million for the nine months ended September 30, 2008, compared to $18.8 million for the nine months ended September 30, 2007. Gross margin was 30.4% in 2008 compared to 35.4% in 2007. Gross margin was negatively impacted in 2008 by a combination of factors discussed below.

Cost of goods sold in the Sensor Systems division decreased $1.5 million, or 13%, to $10.3 million for the nine months ended September 30, 2008, compared to $11.7 million for the nine months ended September 30, 2007. This decrease was due primarily to the lower level of revenues for the division. Gross margin was 34.5% in 2008 compared to 40.0% in 2007 due to the less profitable mix of sales in 2008 when revenues derived from lower margin U.S. government funded low-rate-initial-production (LRIP) contracts increased relative to sales of higher margin night vision goggles.

Cost of services sold in the Training and Services division increased $1.5 million, or 26%, to $7.1 million for the nine months ended September 30, 2008, compared to $5.6 million for the nine months ended September 30, 2007. This increase was due primarily to the higher level of revenues for the division. Gross margin was 26.0% in 2008 compared to 29.2% in 2007 primarily due to a slightly less profitable mix of U.S. government sales, as prices are fixed for several of our large long-term U.S. government contracts and labor and other costs have increased slightly.

Cost of goods sold in the Mobile Security division for the nine months ended September 30, 2008 was $1.3 million, compared to $1.4 million for the nine months ended September 30, 2007. There was no cost of goods sold in the first six months of 2007 as the division did not begin operations until the second half of 2007. Gross margin was 16.2% in 2008 compared to 8.2% in 2007. Margins on the brokerage of armored vehicles vary depending on the customer.

Selling, General and Administrative Expenses. Selling, general and administrative expenses increased $2.8 million, or 35%, to $10.7 million for the nine months ended September 30, 2008, compared to $7.9 million for the nine months ended September 30, 2007. This increase was attributable to: (1) increased personnel, finance, legal and business development expenses of $1.4 million associated with the growth of the company in 2008 and with preparations for this initial public offering, (2) expenses of $0.6 million incurred by 3S in the first nine months of 2008 as we began development of the Mobile Security division, (3) increased depreciation expense of $0.3 million due to the implementation of a new software system in early 2007, (4) expenses of $0.3 million to administer the growth in the Training and Services division, and (5) increased expenses of $0.2 million due to increased internal research and development efforts and expenses associated with the increase in revenues in the Sensor Systems division.

As a percentage of revenues, selling, general and administrative expenses increased from 27% in 2007 to 40% in 2008.

Sensor Systems selling, general and administrative expenses increased $0.2 million, or 11%, to $2.3 million for the nine months ended September 30, 2008, compared to $2.1 million for the nine months ended September 30, 2007. This increase was primarily due to increased internal research and development expenses. As a percentage of net sales, selling, general and administrative expenses increased from 10.6% in 2007 to 14.7% in 2008. This increase was primarily due to the lower level of sales in the division.

Training and Services selling, general and administrative expenses increased $0.3 million, or 18%, to $1.8 million for the nine months ended September 30, 2008, compared to $1.5 million for the nine months ended September 30, 2007. This increase was due to additional administrative expenses to administer the growth experienced within the division during 2008. As a percentage of net sales, however, selling, general and administrative expenses decreased from 19.0% in 2007 to 18.5% in 2008, primarily due to the higher level of revenues in 2008 which offset the increased administrative expenses incurred.

Mobile Security selling, general and administrative expenses increased $0.6 million, or 132%, to $1.1 million for the nine months ended September 30, 2008, compared to $0.5 million for the nine months ended September 30, 2007. As a percentage of net sales, selling, general and administrative expenses increased from 29.0% in 2007 to 68.9%. As discussed above, this division had no operations in the first half of 2007.

Amortization of Other Intangible Assets. Amortization expense increased $0.3 million to $1.1 million for the nine months ended September 30, 2008, compared to $0.8 million for the nine months ended September 30, 2007, primarily due to amortization of identifiable intangible assets associated with the June 2007 acquisition of 3S. Amortization expense is related to patents and trademarks with finite lives and

acquired amortizable intangible assets that meet the criteria for recognition as an asset apart from goodwill under SFAS 141.

Income (Loss) from Operations. The operating loss for the nine months ended September 30, 2008 was $(3.6) million, compared to operating income for the nine months ended September 30, 2007 of $1.6 million. This decrease in operating income of $5.2 million in 2008 resulted primarily from the difficulty we experienced in obtaining image intensifier tubes needed to manufacture night vision goggles as well as from higher selling, general and administrative expenses incurred during the period.

Sensor Systems operating income for the nine months ended September 30, 2008 was $3.1 million, compared to operating income for the nine months ended September 30, 2007 of $5.8 million. The decrease in operating income of $2.6 million, or 46%, was due the difficulty we experienced in obtaining image intensifier tubes needed to manufacture night vision goggles and to the less profitable mix of sales discussed above.

Training and Services operating income for the nine months ended September 30, 2008 was $0.7 million, compared to operating income for the nine months ended September 30, 2007 of $0.8 million. The decrease in operating income of $0.1 million, or 11%, was due to higher selling, general and administrative expenses, partially offset by higher revenue levels in 2008, as discussed above.

Mobile Security operating loss for the nine months ended September 30, 2008 was $(0.8) million, compared to an operating loss of $(0.3) million in the nine months ended September 30, 2007. The increase in operating loss was due to higher selling, general and administrative expenses in 2008 because the division had no operations in the first six months of 2007. This increase in expense was not offset by higher revenues as discussed above.

Interest Expense, Net. Interest expense, net, decreased $0.2 million to $0.2 million for the nine months ended September 30, 2008, compared to $0.4 million for the nine months ended September 30, 2007, primarily due to lower outstanding debt balances and lower interest rates in 2008.

Income Tax Provision (Benefit). The income tax benefit for the nine months ended September 30, 2008 was $0.9 million, compared to income tax expense for the nine months ended September 30, 2007 of $0.5 million. The effective tax rate was 23% in 2008 compared to 44% in 2007. The decrease in the effective tax rate related to realized losses in certain foreign jurisdictions from which the company was not able to benefit for tax purposes due to uncertainty relating to the future realizability of the net operating loss carryforward.

Net Income (Loss). The net loss for the nine months ended September 30, 2008 was $(2.9) million compared to net income for the nine months ended September 30, 2007 of $0.6 million.

Fiscal Year 2007 Compared to Fiscal Year 2006

Revenues. Total revenues increased $21.7 million, or 131%, to $38.3 million for the year ended December 31, 2007, compared to $16.6 million for the year ended December 31, 2006. This increase in revenues primarily was attributable to: (1) an increase of $10.2 million in revenue in our Sensor Systems division due to product shipments in 2007 which had been delayed in 2006, (2) an increase of $8.5 million in revenue in the Training and Services division associated with companies acquired during 2006 for which we had a full year of revenues in 2007 and (3) an increase of $3.0 million in revenue associated with our 2007 acquisition of 3S as we began development of our Mobile Security division.

Sensor Systems revenues increased $10.2 million, or 71%, to $24.7 million for the year ended December 31, 2007, compared to $14.5 million for the year ended December 31, 2006. This increase was due primarily to shipment of product to a foreign customer in 2007 that had been postponed in 2006 while the customer obtained a financing instrument to support payment on the executed contract, which resulted in a more profitable mix of sales.

Training and Services revenues increased $8.5 million, or 403%, to $10.6 million for the year ended December 31, 2007, compared to $2.1 million for the year ended December 31, 2006. The increase was primarily due to a full year of operations in 2007 of companies acquired at various times during 2006. Had all

acquisitions in 2006 been completed at the beginning of that year, year-over-year revenue would have increased $2.7 million, or 34%. Contributing to 2007 revenues were a large U.S. military contract awarded to the division during the early part of 2007 resulting in $1.5 million of revenue, several smaller U.S. military contracts awarded during the year for $0.3 million and increased tactical and driver training of $0.6 million as the division expanded its operations into the Mexican market.

Mobile Security revenues for the year ended December 31, 2007 were $3.0 million. There were no revenues related to this division in 2006 as the division began operations in 2007.

Cost of Goods Sold. Cost of goods sold increased $14.6 million, or 131%, to $25.7 million for the year ended December 31, 2007, compared to $11.1 million for the year ended December 31, 2006. This increase was primarily due to the increased level of revenues in the Sensor Systems and Training and Services divisions discussed above. In addition, expenses of $2.7 million were incurred in connection with the acquisition of 3S. Gross margin was 32.8% in 2007 compared to 32.9% in 2006. Gross margin was negatively impacted in 2007 by the addition of the Mobile Security division which operates at historically lower margins than have been experienced in the Sensor Systems division.

Cost of goods sold in the Sensor Systems division increased $5.8 million, or 62%, to $15.1 million for the year ended December 31, 2007, compared to $9.4 million for the year ended December 31, 2006. This was primarily due to the increased level of revenues for the division. Gross margin was 38.8% in 2007 compared to 35.4% in 2006 due to a more profitable sales mix of higher margin LPNVGs versus lower margin government funded LRIP contracts in 2006.

Cost of services sold in the Training and Services division increased $6.1 million, or 346%, to $7.9 million for the year ended December 31, 2007, compared to $1.8 million for the year ended December 31, 2006. This was primarily due to the increased level of revenues for the division. Gross margin was 25.7% in 2007, compared to 16.1% in 2006, as the division focused on cost reductions resulting from integrated operations. In 2006, operations were less efficient as multiple companies were acquired and were not integrated into a new division until 2007. Once integration was completed in early 2007, communication and decision making were streamlined which resulted in better allocation of resources for training and the elimination of non-essential expenses.

Cost of goods sold in the Mobile Security division for the year ended December 31, 2007 was $2.7 million. There was no cost of goods sold in 2006 as the division started operations in 2007. Gross margin was 9.0% in 2007.

Selling, General and Administrative Expenses. Selling, general and administrative expenses increased $6.3 million, or 104%, to $12.3 million for the year ended December 31, 2007, compared to $6.0 million for the year ended December 31, 2006. The increase primarily was attributable to (1) increased personnel, finance, legal and business development expenses of $1.3 million associated with the growth of the company in 2007, (2) a full year of selling, general and administrative expenses incurred by the companies acquired in 2006 resulting in an additional $0.9 million of expense, (3) $1.0 million of compensation expense for options issued during 2007, (4) $0.8 million of expenses associated with the termination of negotiations with several acquisition targets during the year, (5) selling, general and administrative expenses incurred by 3S of $0.8 million, (6) increased selling and administrative expenses of $0.8 million due to the increase in revenues in the Sensor Systems division and (7) increased depreciation expense of $0.3 million due to the implementation of a new software system in early 2007.

As a percentage of net sales, selling, general and administrative expenses decreased from 36% in 2006 to 32% in 2007. This decrease was primarily due to the increased level of revenues in 2007 but was partially offset by significant expenses associated with the termination of acquisition due diligence and by the compensation expense for the issuance of stock options.

Sensor Systems selling, general and administrative expenses increased $0.8 million, or 40%, to $2.8 million for the year ended December 31, 2007, compared to $2.0 million for the year ended December 31, 2006. This increase was attributable to higher expenses for sales commissions as a result of the increased revenues during the year. As a percentage of net sales, selling, general and administrative expenses decreased from 14% in 2006

to 11% in 2007. This decrease was due primarily to the increase in revenues in 2007, which more than offset the increase in expenses that resulted from those revenues.

Training and Services selling, general and administrative expenses increased $0.9 million, or 94%, to $1.9 million for the year ended December 31, 2007, compared to $1.0 million for the year ended December 31, 2006. This increase was primarily due to a full year of expenses being recognized in 2007 from the companies acquired throughout 2006 when the division was started. As a percentage of net sales, selling, general and administrative expenses decreased from 46.3% in 2006 to 17.8% in 2007, due primarily to the higher level of revenues in 2007.

Mobile Security selling, general and administrative expenses for the year ended December 31, 2007 were $0.8 million. As discussed above, this division had no operations in 2006. As a percentage of net sales, selling, general and administrative expenses were 26.2%.

Amortization of Other Intangible Assets. Amortization expense remained relatively stable with a slight decrease of $0.1 million, or 5%, to $1.2 million for the year ended December 31, 2007, compared to $1.2 million for the year ended December 31, 2006. Amortization expense is related to patents and trademarks with finite lives and acquired amortizable intangible assets that meet the criteria for recognition as an asset apart from goodwill under SFAS 141.

Income (Loss) from Operations. The operating loss for the year ended December 31, 2007 was $(1.0) million, compared to an operating loss for the year ended December 31, 2006 of $(1.8) million. This decrease in operating loss of $0.8 million in 2007 resulted primarily from increased revenues which were partially offset by higher selling, general and administrative expenses incurred during the year.

Sensor Systems operating income for the year ended December 31, 2007 was $6.8 million, compared to operating income for the year ended December 31, 2006 of $3.1 million. The increase in operating income of $3.7 million, or 117%, was due to the more profitable mix of higher margin LPNVGs versus lower margin government funded LRIP contracts in 2006.

Training and Services operating income for the year ended December 31, 2007 was $0.8 million, compared to an operating loss for the year ended December 31, 2006 of $0.6 million. The increase in operating income of $1.4 million was due to higher revenue levels in 2007 and the cost reductions implemented as discussed above.

Mobile Security operating loss for the year ended December 31, 2007 was $(0.5) million.

Interest Expense, Net. Interest expense, net, increased $0.1 million, or 28%, to $0.6 million for the year ended December 31, 2007, compared to $0.5 million for the year ended December 31, 2006. This increase was attributable to increased debt resulting from the acquisitions completed in 2006 and 2007 as well as increased working capital requirements associated with the acquired companies.

Income Tax Provision (Benefit). The income tax benefit for the year ended December 31, 2007 was $0.1 million, compared to an income tax benefit for the year ended December 31, 2006 of $0.5 million. The effective tax rate was 7% in 2007, compared to 21% in 2006. The decrease in the effective tax rate related to realized losses in certain foreign jurisdictions from which the company was not able to benefit for tax purposes due to uncertainty relating to the future realizability of the net operating loss carryforward.

Net Income (Loss). The net loss for the year ended December 31, 2007 was $(1.4) million compared to the net loss for the year ended December 31, 2006 of $(1.8) million.

Fiscal Year 2006 Compared to Fiscal Year 2005

Revenues. Total revenues increased $2.0 million, or 14%, to $16.6 million for the year ended December 31, 2006, compared to $14.6 million for the year ended December 31, 2005. This increase in revenues was due to an increase of $2.1 million in revenue associated with companies acquired during 2006 as we developed our Training and Services division.

Sensor Systems revenues decreased $0.1 million, or 1%, to $14.5 million for the year ended December 31, 2006, compared to $14.6 million for the year ended December 31, 2005. Revenues in 2005 included eight months of operations for Diffraction. If Diffraction had been included in our results of operations for the entire fiscal 2005, revenues would have decreased $2.0 million, or 12.3%. This decrease was primarily due to a delay in receiving a financing instrument from one of our significant foreign customers, which resulted in our inability to ship product associated with and recognize revenue on an executed contract. Product related to this delay was shipped in fiscal year 2007.

Training and Services revenues for the year ended December 31, 2006 were $2.1 million. There were no revenues related to this division in 2005 as the division began operations in 2006.

Cost of Goods Sold. Cost of goods sold increased $2.2 million, or 24%, to $11.1 million for the year ended December 31, 2006, compared to $9.0 million for the year ended December 31, 2005. This increase was primarily due to an increase of $1.8 million in expenses related to services provided by companies acquired during 2006 in the Training and Services division. Gross margin was 32.9% in 2006 compared to 38.7% in 2005. Gross profit was negatively impacted in 2006 by the addition of the Training and Services division which operates at historically lower margins than have been experienced in the Sensor Systems division.

Cost of goods sold in the Sensor Systems division increased $0.4 million, or 4%, to $9.4 million for the year ended December 31, 2006, compared to $9.0 million for the year ended December 31, 2005. This was primarily due to a higher level of less profitable government funded LRIP contracts in 2006, which resulted in irregular production and decreased overhead absorption. Gross margin was 35.4% in 2006 compared to 38.7% in 2005 due to this less profitable sales mix.

Cost of services sold in the Training and Services division for the year ended December 31, 2006 was $1.8 million. There was no cost of services sold in 2005 as the division started operations in 2006. Gross margin was 16.1% in 2006 as the startup of operations of the division had a negative impact on profitability due to inefficiencies in work throughput at certain times in 2006.

Selling, General and Administrative Expenses. Selling, general and administrative expenses increased $2.4 million, or 68%, to $6.0 million for the year ended December 31, 2006, compared to $3.6 million for the year ended December 31, 2005. The increase was attributable to expenses incurred by the companies acquired in 2006 of $1.0 million and increased finance, legal and business development expenses of $1.3 million associated with the growth of the company in 2006.

As a percentage of net sales, selling, general and administrative expenses increased from 24.7% in 2005 to 36.4% in 2006, primarily due to increased fixed costs to administer the growth resulting from the acquisitions completed in 2005 and 2006.

Sensor Systems selling, general and administrative expenses increased $0.1 million, or 6%, to $2.0 million for the year ended December 31, 2006, compared to $1.9 million for the year ended December 31, 2005. This increase was primarily due to an increase in depreciation expense resulting from capital expenditures made for demonstration units used for marketing purposes. As a percentage of net sales, selling, general and administrative expenses increased from 12.9% in 2005 to 13.7% in 2006.

Training and Services selling, general and administrative expenses for the year ended December 31, 2006 were $1.0 million. This division had no operations in 2005. As a percentage of net sales, selling, general and administrative expenses were 46.3% in 2006 primarily due to the startup inefficiencies discussed previously.

Amortization of Other Intangible Assets. Amortization expense increased $0.8 million, or 179%, to $1.2 million for the year ended December 31, 2006, compared to $0.4 million for the year ended December 31, 2005, primarily due to the acquisitions completed in 2005 and 2006. Amortization expense is related to patents and trademarks with finite lives and acquired amortizable intangible assets that meet the criteria for recognition as an asset apart from goodwill under SFAS 141.

Income (Loss) from Operations. The operating loss for the year ended December 31, 2006 was $(1.8) million, compared to operating income for the year ended December 31, 2005 of $1.6 million. This

decrease in operating income of $3.4 million resulted primarily from increased selling, general and administrative expenses as well as increased amortization expenses due to the factors discussed above.

Sensor Systems operating income for the year ended December 31, 2006 was $3.1 million, compared to operating income for the year ended December 31, 2005 of $3.8 million. The decrease in operating income of $0.7 million, or 17%, primarily was due to the delay in product shipment.

Training and Services operating loss for the year ended December 31, 2006 was $(0.6) million due primarily to the costs associated with the startup of operations.

Interest Expense, Net. Interest expense, net, increased $0.1 million, or 29%, to $0.5 million for the year ended December 31, 2006, compared to $0.4 million for the year ended December 31, 2005. This increase was primarily due to increased debt resulting from the acquisitions completed in 2006 as well as increased working capital requirements associated with the acquired companies.

Income Tax Provision (Benefit). The income tax benefit for the year ended December 31, 2006 was $(0.5) million, compared to a provision for income taxes for the year ended December 31, 2005 of $0.5 million. The effective tax rate was 21% in 2006 compared to 38% in 2005. The decrease in the effective tax rate related to realized losses in certain foreign jurisdictions from which the company was not able to benefit for tax purposes due to uncertainty relating to the future realizability of the net operating loss carryforward.

Net Income (Loss). The net loss for the year ended December 31, 2006 was $(1.8) million, compared to net income for the year ended December 31, 2005 of $0.8 million.

Liquidity and Capital Resources

Historically, we have funded our operations primarily through a combination of the private placements of equity securities, issuances of debt and cash provided by operations. The company was initially funded with a capital contribution of $1.3 million in September 2003 through the issuance of common shares. Those shares were converted to preferred stock in conjunction with a recapitalization of the company in May 2004. Since May 2004, we have raised gross proceeds of $22.3 million from the sale of preferred stock. We also issued $15.5 million in preferred stock and $1.5 million in promissory notes as consideration for acquisitions in 2005, 2006 and 2007. All shares of our preferred stock will convert into shares of our common stock immediately before this offering and all accrued dividends on the preferred shares will be paid in shares of common stock upon the closing of this offering.

Our principal historical liquidity requirements have consisted of working capital, acquisition consideration, capital expenditures and general corporate expenses. As of September 30, 2008, we had $1.5 million of cash and cash equivalents and working capital of $(4.4) million.

Cash Flows

The following table sets forth the components of our cash flows for the following periods, in thousands:


	Year Ended December 31,									Nine Months Ended September 30,
	2005			2006			2007			2007			2008

Net cash provided by (used in) operating activities	$	(424	)	$	(6,570	)	$	3,134		$	1,098		$	1,234
Net cash (used in) investing activities		(4,614	)		(4,255	)		(4,358	)		(3,627	)		(4,601	)
Net cash provided by financing activities		5,064			10,819			1,288			2,802			4,703

Net cash provided by (used in) operating activities. Cash used in operating activities for 2005 was primarily attributable to investments in working capital of $1.9 million partially offset by net income of $0.8 million and depreciation and amortization expense of $0.7 million. Investments in working capital consisted primarily of an increase in accounts receivable resulting from a significant shipment of product at the end of the year.

Cash used in operating activities for 2006 was primarily attributable to investments in working capital of $6.7 million and a net loss of $1.8 million, partially offset by depreciation and amortization of $1.9 million. Working capital investments in 2006 consisted primarily of a $3.5 million increase in accounts receivable due to several large orders being shipped just prior to year end as well as an increase in inventory of $3.4 million as we purchased inventory at the end of the year in order to support our revenue growth in 2007.

Cash provided by operating activities in 2007 resulted from non-cash charges related to a $1.0 million stock based compensation charge and $2.0 million of depreciation and amortization expenses as well as a reduction in working capital of $1.6 million partially offset by a net loss of $1.4 million. Cash provided by operations during the first nine months of 2007 and 2008 resulted primarily from non-cash charges for depreciation and amortization as well as a decreased level of working capital investments. In 2007, working capital decreased primarily due to a reduction in accounts receivable as revenues shipped just prior to year end in 2006 were collected in the first half of 2007.

In the first nine months of 2008, working capital decreased primarily due to a reduction in inventory levels resulting from difficulties in obtaining image intensifier tubes from ITT Corporation for low profile night vision goggles, one of our main products, and due to accruals for costs related to this offering and the Pending Acquisitions.

Net cash used in investing activities. Cash used in investing activities included capital expenditures of $0.5 million for 2005, $1.6 million for 2006, $1.5 million for 2007 and $1.3 million and $0.5 million for the nine months ended September 30, 2007 and 2008, respectively. Cash used in investing activities in 2005, 2006 and 2007 and in the first nine months of 2007 and 2008 also included:


	•	in 2005, $4.1 million, net of cash acquired, in payments for the acquisition of Diffraction;

	•	in 2006, $2.3 million, net of cash acquired, in payments for the acquisition of HDS, and expenses of $0.2 million associated with the acquisition of SSI;

	•	in 2007, $1.7 million, net of cash acquired, in payments for the acquisition of 3S, $0.6 million of expenses related to the Pending Acquisitions, and $0.5 million in contingent purchase price payments related to the 2003 acquisition of STS;

	•	in the first nine months of 2007, $1.6 million, net of cash acquired, in payments for the acquisition of 3S, $0.4 million of expenses related to the Pending Acquisitions and $0.2 million in contingent purchase price payments related to the 2003 acquisition of STS; and

	•	in the first nine months of 2008, $3.6 million of expenses related to the Pending Acquisitions, including a $2.25 million prepayment of a portion of the TPS purchase price, and $0.5 million in contingent purchase price payments related to the 2003 acquisition of STS.

Deferred acquisition and financing costs and the prepayment of a portion of the purchase price for the TPS acquisition were primarily responsible for increasing our other long-term assets by $5.1 million in the first nine months of 2008.

Net cash provided by financing activities. Cash provided by financing activities for 2005 was primarily attributable to the issuance of $4.7 million of preferred stock.

Cash provided by financing activities in 2006 was attributable to the issuance of $11.3 million of preferred stock but was partially offset by debt repayments under the company’s then current credit facility of $0.5 million.

Cash provided by financing activities in 2007 was attributable to the issuance of $3.9 million of preferred stock but was partially offset by debt repayments under our then current credit facility of $2.2 million and $0.4 million of expenses related to this offering. During the first nine months of 2007, cash provided by financing activities was attributable to net borrowings of $2.1 million under our then current credit facility and to the issuance of $1.0 million of preferred stock.

During the first nine months of 2008, cash provided by financing activities was primarily attributable to net borrowings from the revolving line of credit under our current credit facility.

Short-Term and Long-Term Debt Prior to the Pending Acquisitions

Existing Credit Facility. On July 13, 2007, we entered into a one year credit facility with PNC Bank, National Association (PNC) for total maximum borrowings of $10.0 million and a $6.0 million sub-limit for the issuances of commercial and standby letters of credit. On September 14, 2007 the credit facility was amended to provide for additional maximum borrowings of $1.0 million, and on March 11, 2008 the credit facility was further amended to extend the expiration date to October 13, 2008. On September 10, 2008 the credit facility was amended to provide for additional maximum borrowings of $2.0 million and to extend the expiration date to January 31, 2009. On January 28, 2009, the credit agreement was amended to extend the expiration date to May 31, 2009. All borrowings under the credit facility bear interest at a rate equal to LIBOR plus 1.85% (5.57% at September 30, 2008). The credit facility is guaranteed by our domestic subsidiaries and is collateralized by substantially all of the assets of those subsidiaries. The credit facility includes customary affirmative and negative covenants, including covenants limiting our ability to dispose of assets, change our business, merge, make acquisitions, incur indebtedness or liens, pay dividends or make investments. The credit facility’s single financial covenant requires us to maintain a funded debt to EBITDA ratio of less than 3.75 to 1.00 on a consolidating rolling four quarter basis measured quarterly. As of September 30, 2008, we believe we were in compliance with all covenants except for the financial covenant. The bank has waived this covenant violation as of September 30, 2008. Outstanding borrowings were $7.6 million at September 30, 2008. We expect to be in compliance with all other covenants until this facility is replaced as described below.

STS Seller Note. In connection with our acquisition of the stock of STS in September 2003, we issued subordinated promissory notes in the aggregate principal amount of $2.5 million to the former shareholders of STS. The remaining balance of the subordinated notes is $0.5 million, of which $0.1 million plus accrued interest is due January 31, 2009 and $0.4 million is due March 31, 2009. Effective December 1, 2008, the notes bear interest at the prime rate plus 4%. The notes are secured by the stock of STS.

Diffraction Seller Note. In connection with our acquisition of the stock of Diffraction in May 2005, we issued a subordinated promissory note in the principal amount of $0.5 million to an entity affiliated with the former shareholders of Diffraction in exchange for equipment contributed as part of the transaction. The subordinated note was payable quarterly beginning August 1, 2005 in principal installments of $33,333, plus interest at prime plus 1% not to exceed 7%. This note was repaid in full in February 2007.

HDS Seller Note. In connection with our acquisition of the stock of HDS in November 2006, we issued a subordinated promissory note in the principal amount of $1.0 million to the former shareholder of HDS. The subordinated note was payable in semi-annual installments of varying amounts, plus interest at 8.25%. This note was repaid in full in April 2008.

Short-Term and Long-Term Debt Upon Completion of the Pending Acquisitions

New Credit Facility. On January 16, 2009, we entered into a credit agreement with PNC Bank and First Commonwealth Bank, as lenders, pursuant to which, simultaneously with the closing of this offering, we expect to have the ability to draw funds under a $35 million credit facility for which PNC Bank will serve as Administrative Agent, and which will be comprised of a three-year $10 million senior secured term loan and a three-year $25 million senior secured revolving credit facility. Within the $25 million senior secured revolving credit facility, availability will be reserved for (i) issuance of up to $10 million of letters of credit, (ii) up to $2 million of swingline borrowings, and (iii) up to $5 million of aggregate borrowings of euros, Mexican pesos, British pounds, Croatian kunas and Canadian dollars. We also will have the ability thereafter to increase the term loan by up to an additional $15 million, without the consent of the lenders, with any financial institution reasonably satisfactory to the Administrative Agent. The new credit facility will replace our existing revolving credit facility and will be used to refinance the borrowings outstanding on our existing facility, to pay a portion of the purchase price for the Pending Acquisitions, to pay certain fees and expenses, to refinance

certain debt of the companies to be acquired and, with respect to the revolver, to fund working capital, acquisitions hereafter permitted by the credit facility, capital expenditures, and other of our and our subsidiaries’ general corporate purposes.

The term loan will mature three years from the first loan under this facility. The term loan is expected to bear interest, at our option, at a rate per annum equal to either (i) the “Base Rate’’ (which is the highest of (a) the Federal Funds Rate plus 0.5%, (b) the PNC prime rate, and (c) the daily 1 month LIBOR rate plus 1%) plus 3.50% through the receipt of the March 31, 2009 compliance certificate and between 2.00% and 3.50% (based on the Company’s consolidated leverage ratio) thereafter; or (ii) the LIBOR rate plus 4.50% through the receipt of the March 31, 2009 compliance certificate and between 3.00% to 4.50% (based on the Company’s consolidated leverage ratio) thereafter. After an event of default, all loans will bear interest at a rate 2% above the rate otherwise accruing for loans using the Base Rate option. Interest is payable by us the earlier of quarterly or the last day of the chosen interest period for loans for which we have elected a LIBOR rate option. The term loan requires quarterly principal payments based upon annual reductions as follows: $2 million for year one; $3 million for year two; and $5 million for year three. The full $10 million term loan must be drawn on the closing date of the Pending Acquisitions.

The revolving credit facility will mature three years from the first loan under this facility. Borrowings under the swing line and foreign currency subline, as well as the unpaid face amount of letters of credit issued by the lenders, will reduce availability under the revolving credit facility. The revolving credit facility will bear interest, at our option, at a rate per annum equal to either the Base Rate or the LIBOR rate plus in each case then applicable margins, at the same rates as described above. The swingline loan will accrue interest at the Base Rate plus the margin then in effect. Foreign currency loans will accrue interest at the LIBOR rate plus the margin then in effect. Letters of credit will accrue fees, payable quarterly, at the LIBOR margin then in effect plus a 1/4% per annum fronting fee, in each case on the face amount of such outstanding letters of credit. We will be required to pay a fee quarterly in arrears on the daily unused portion of the revolving credit facility of 0.50% per annum.

Within 60 days of funding we are required to enter into an interest rate protection agreement for not less than 2 years on at least 50% of the outstanding balance of the term loan.

Our obligations to the lenders and the Administrative Agent, including those under the revolving credit facility and the term loan, will be guaranteed by us and all of our domestic subsidiaries. Such obligations will also be secured by a first priority lien on substantially all of our assets and the assets of our domestic subsidiaries, including any real property such entities may acquire, 100% of the stock of our domestic subsidiaries, and at least 65% of the stock of certain foreign subsidiaries.

We will be permitted to repay the revolving credit facility and term loan without penalty, but amounts repaid under the term loan may not be reborrowed. We will be required to repay the term loan with specified portions of the proceeds from certain new equity or debt securities issuances, non-ordinary course asset sales, and net proceeds from recovery events.

We have provided to the lenders and Administrative Agent representations and warranties that are usual and customary for credit facilities of this type.

In addition to the usual and customary funding conditions, the initial funding of the credit facility by the lenders requires satisfaction of the following conditions precedent:


	•	We have closed on the Pending Acquisitions on terms and conditions, and pursuant to documentation, acceptable to the Administrative Agent and the lenders.

	•	The aggregate cash purchase price payable by us in connection with the Pending Acquisitions does not exceed $144 million (excluding transaction expenses).

	•	We have raised a minimum of $142 million in gross equity proceeds through this offering of our common stock.


	•	The lenders have received satisfactory evidence that, after giving effect to the Pending Acquisitions, (i) our trailing 12 month Consolidated EBITDA for the period ended September 30, 2008, is at least $24.6 million, (ii) our ratio of pro forma total debt to total trailing 12 month Consolidated EBITDA for the period ended September 30, 2008 did not exceed 3.25x and (iii) our ratio of pro forma total debt less Isoclima debt at funding to total trailing 12 month Consolidated EBITDA less Isoclima Consolidated EBITDA at funding did not exceed 3.00x.


	•	Our existing credit agreements and the obligations thereunder have been repaid in full and all related documentation and liens have been terminated with the exception of debt to be assumed as part of the Pending Acquisitions, including the debt of Isoclima which may remain outstanding as of the closing in an amount not to exceed €40.6 million ($54,789,700).

The agreement contains affirmative covenants to the lenders and Administrative Agent that are usual and customary for transactions of this type, including maintaining books and records and providing inspection rights; maintaining insurance; paying taxes; preserving corporate existence, rights, and authority; maintaining properties and leases; maintaining intellectual property; complying with laws and material contractual obligations; using the proceeds of loans as restricted by the credit arrangements; subordinating intercompany loans; and repatriating on a regular basis, and at least on a quarterly basis, such portion of foreign cash flow from offshore subsidiaries in amounts necessary to service domestic fixed charges.

We and our U.S. subsidiaries, as guarantors, are subject to negative covenants that are usual and customary for transactions of this type, including the following:

Pro Forma Maximum Leverage Ratio — Our ratio of consolidated indebtedness to Consolidated EBITDA calculated at the end of each fiscal quarter for the four fiscal quarters then ended will not exceed the following amounts:


Period	Level

3/31/09		2.75	x
6/30/09		2.75	x
9/30/09		2.75	x
12/31/09-12/31/10		2.50	x
3/31/11 and thereafter		2.25	x

Our “Consolidated EBITDA” for any period of determination means: (i) the sum of net income, depreciation, depletion, amortization, interest expense, income tax expense, non-cash loss on derivative items, non-cash purchase accounting adjustments, non-cash foreign currency transaction losses, other non-recurring non-cash charges to net income, non-recurring transaction expenses paid during such period which are expensed and not capitalized, excess compensation paid for and expensed by TPS during the 2008 fiscal year in an amount not to exceed $2.1 million for such fiscal year, the Founders’ Bonus paid for and expensed during the 2008 fiscal year in an amount not to exceed $1.0 million, and non-cash stock option expense items incurred minus (ii) the sum of non-recurring non-cash credits to net income, interest income, non-cash gain on derivative items, non-cash foreign currency transaction gains and non-cash option gain items, in each case for such period determined and consolidated in accordance with GAAP. For purposes of this definition, with respect to permitted acquisitions, Consolidated EBITDA will be calculated on a pro forma basis, using historical numbers, in accordance with GAAP as if the acquisition had been consummated at the beginning of such period. Additionally, for purposes of this definition, with respect to permitted dispositions, Consolidated EBITDA will be calculated as if the disposition had been consummated at the beginning of such period.

Minimum Fixed Charge Coverage Ratio — As of the end of each fiscal quarter, our ratio of Consolidated EBITDA to fixed charges, as measured on a rolling four quarter at each fiscal quarter end (unless otherwise noted below), will not be less than the following amounts:


Period	Level

9/30/09 (9 months ended)		1.10	x
12/31/09		1.10	x
3/31/10 and thereafter		1.25	x

Maximum Capital Expenditures — Our capital expenditures will not exceed the following amounts on an annual basis:


Fiscal Year End	Level

12/31/2009	$	7,000,000
12/31/2010	$	6,500,000
12/31/2011	$	6,000,000

Minimum Consolidated EBITDA — Our Consolidated EBITDA, as measured on a rolling four quarter basis at each fiscal quarter end, will not be less than the following amounts:


Period	Level

3/31/09	$	26,500,000
6/30/09	$	26,500,000
9/30/09	$	26,500,000

Minimum Consolidated EBITDA will not be tested after the quarter ended September 30, 2009.

Limitation on Acquisitions — We and the guarantors will not be permitted to make acquisitions (other than the Pending Acquisitions) unless various conditions are satisfied, including that (i) our maximum Leverage Ratio at the close of any acquisition is lower than 2.25x and (ii) there then exists $10 million of unused availability under the revolving credit facility after giving effect to the acquisition.

Other Limitations — We and the guarantors will have limits on our ability to enter into joint ventures and to create non wholly-owned subsidiaries, to make asset divestitures, to incur additional indebtedness/guarantee obligations, to grant liens, to make investments, to pay dividends, to redeem and repurchase our capital stock, to change the lines of business conducted by us and the guarantors and to enter into transactions with affiliates.

Events of default under the credit facility will include payment defaults, breaches of representations or warranties, violations of covenants, cross-defaults to other indebtedness, bankruptcy or insolvency events, a change of control, and unsatisfied judgments.

Use of Proceeds and Assumed Debt. We intend to use all of the approximately $131.8 million in net proceeds from this offering and approximately $27.4 million in borrowings under our new credit facility for the following:


	•	to fund the approximately $138.3 million aggregate cash portion of the purchase price (which excludes $2,250,000 already paid to TPS as part of the purchase price) required for the Pending Acquisitions (based on the euro-dollar exchange rate at January 7, 2009),

	•	to repay all outstanding indebtedness under our existing credit facility, as well as an outstanding promissory note, which together was approximately $8.3 million as of December 31, 2008,

	•	to repay approximately $9.7 million of the $57.1 million debt assumed in the Pending Acquisitions, and

	•	to pay $2.9 million of expenses related to the Pending Acquisitions and the new credit facility.

The $9.7 million of assumed debt to be paid off upon closing of this offering and the Pending Acquisitions represents the following:


	•	all $2.3 million of debt to be assumed from TPS upon closing of the Pending Acquisitions,

	•	all $48,177 of debt to be assumed from OmniTech upon closing of the Pending Acquisitions, and

	•	$7.4 million of debt due to Unicredit Corporate Banking to be assumed from Isoclima upon closing of the Pending Acquisitions, assuming the bank does not consent to the assignment of this loan to us.

All other debt to be assumed from Isoclima will remaining outstanding.

Isoclima Debt. We will assume the credit facilities of Isoclima described below upon the closing of the acquisition. See “The Pending Acquisitions — Acquisition Structure and Consideration” for a description of the conditions related to debt assumption and reduction of the cash component of the purchase price.

In November 2001 Isoclima obtained a mortgage loan with a group of banks (Efibanca S.p.a. and Mediocredito Trentino Alto Adige S.p.A.) for an aggregate principal amount of €5.16 million, or $6.9 million (€1 = $1.3495 at January 7, 2009) repayable in semi-annual installments from March 15, 2002 until September 15, 2011. Interest accrues at a rate equal to that applied by the bank to the financial institutions plus a variable spread (interest rate as of September 30, 2008, 6.057%). The loan agreement requires Isoclima to maintain a net asset value of at least €10 million and to deliver its year end balance sheet within 30 days of completion. If the net asset value covenant is violated, the bank may increase the variable spread by up to 30 basis points or terminate the agreement. Isoclima was in compliance with those covenants as of September 30, 2008. Outstanding borrowings at September 30, 2008 were approximately €1.6 million, or $2.2 million, of which €0.5 million, or $0.7 million, were short-term obligations.

In September 1995, Isoclima obtained a loan granted by the Italian Ministry of Scientific Research to finance applied research activities. The loan requires repayment in annual installments from September 13, 2001 until September 13, 2010, with a fixed 1% half-yearly interest rate. Outstanding borrowings as of September 30, 2008 were €148,011, or $199,741. In December 2003, Isoclima obtained another loan for an amount of €2.6 million, or approximately $3.5 million, granted by the Italian Ministry of Scientific Research to finance applied research activities, repayable in annual installments from May 7, 2008 until May 7, 2017. Interest accrues at a 1.71% half-yearly interest rate. Outstanding borrowings at September 30, 2008 were approximately €2.5 million, or $3.4 million, of which €0.4 million, or $0.5 million, were short-term obligations.

Isoclima has unsecured lines of credit with 11 banks that are immediately due and payable on demand by each bank at any time. At September 30, 2008, the total outstanding was €18.8 million, or $25.4 million, with individual balances ranging from €20,000, or $26,990, to €4.8 million, or $6.5 million.

On November 14, 2008, Isoclima entered into an eight year term loan agreement with Unicredit Corporate Banking S.p.A. for the principal amount of €5.5 million ($7.4 million). The borrowings under the loan agreement bear interest, payable twice annually with principal, at a floating rate initially set at 6.4%. This rate increases by 1.95 base points annually, subject to further increase if Isoclima does not comply with certain year-end financial covenants based on calculations of net financial expenses and pre-tax operating margin as calculated under Italian law. The borrowings under the loan agreement are secured by a mortgage on certain real estate owned by Isoclima. The loan agreement includes customary affirmative and negative covenants, including covenants that could limit our ability to merge, make acquisitions or incur indebtedness or liens. Isoclima was in compliance with these covenants as of December 31, 2008. Unicredit may terminate the loan agreement if any of these covenants is breached. Outstanding borrowings under this loan agreement were €5.5 million ($7.4 million) at December 31, 2008.

Under the terms of the Isoclima purchase agreement, we will assume, or, if Unicredit does not consent to assignment, repay the outstanding loan balance under the loan agreement referred to above. If we repay the outstanding loan balance before maturity, we are obligated to pay Unicredit a commission equal to 1% of this balance. We do not expect a decision from Unicredit on the assignment until closer to the completion

of this offering. Due to this uncertainty, we have assumed that the Unicredit loan will be repaid upon closing of the Pending Acquisitions, as reflected in “Use of Proceeds.”

Isoclima also has capital lease obligations for equipment in its Italian plants that expire at various points between 2010 and 2016 and are payable in monthly installments during the term of the leases. As of September 30, 2008, the outstanding balance was approximately €9.8 million, or $13.2 million, of which €1.2 million, or $1.6 million, were short-term obligations.

Liquidity Requirements Following Completion of the Offering and the Pending Acquisitions

Short-term liquidity requirements. After the completion of this offering, given our cash and cash equivalents, the availability of borrowings under our new credit facility and our cash flows from operations, we believe that we will have sufficient liquidity to fund our business and meet our contractual obligations and capital expenditures over a period beyond the next 12 months.

Our principal short-term funding requirements over the 12 months following the closing of this offering will be as follows:


	•	Payments relating to operating leases and short and long-term borrowings, including debt service obligations of up to $50.1 million in respect of indebtedness that we expect to remain outstanding and the repayment of maturing debt assumed in the Pending Acquisitions.

	•	Capital expenditures of approximately $5.3 million.

Long-term liquidity requirements. We expect to satisfy our long-term liquidity requirements (excluding the short-term requirements referenced above), including debt service obligations of $8.6 million under our new credit facility due through 2012 and $28.5 million of debt assumed in the Pending Acquisitions due through 2016 through cash flow from operations, offerings of equity or debt securities or issuances of promissory notes, and borrowings under our new credit facility. We expect to assess our financing alternatives periodically and access the source of capital that we believe is in our shareholders’ best interest at any given point in time. If our existing resources are insufficient to satisfy our liquidity requirements, or if we enter into an acquisition or strategic arrangement with another company, we may need to sell additional equity or debt securities. Any sale of additional equity or debt securities may result in dilution to our shareholders, and debt financing may involve covenants limiting or restricting our ability to take specific actions, such as incurring additional debt or making capital expenditures. In addition, our new credit facility may require us to repay the $10 million term loan with portions of the proceeds of any additional equity issuance (other than this offering or any subsequent public offering) or the proceeds of certain additional indebtedness. These conditions may cause us to seek higher amounts of funding, which could increase our financing costs. We cannot be certain that additional public or private financing will be available in amounts or on terms acceptable to us, if at all.

Contractual Obligations and Commitments

The following table shows our contractual cash obligations as of December 31, 2007. We have no contractual cash obligations due after 2016.


	Payments Due by Period
			Less Than One						More Than
Contractual Obligations	Total		Year		1-3 Years		3-5 Years		5 Years
	(In thousands)

Operating leases	$	1,992	$	441	$	839	$	455	$	257
Short-term borrowings		2,789		2,789		—		—		—
Long-term debt obligations		788		788		—		—		—

Total	$	5,569	$	4,018	$	839	$	455	$	257

The following table shows our contractual cash obligations assuming completion of this offering, the new credit facility and the Pending Acquisitions as of December 31, 2007.


			Less Than One						More Than
	Total		Year		1-3 Years		3-5 Years		5 Years
	(In thousands)

Operating leases	$	3,189	$	803	$	1,422	$	707	$	257
Short-term borrowings		21,158		21,158		—		—		—
Capital leases		19,035		2,572		4,823		4,142		7,498
Long-term debt obligations		38,816		9,034		24,176		3,161		2,445

Total (1)	$	82,198	$	33,567	$	30,421	$	8,010	$	10,200


(1)		The total contractual obligations may increase based on the following contingent payments under the Isoclima and TPS purchase agreements as follows:

Isoclima:


	•	We will assume, or, if the lender does not consent to assignment, repay a €5.5 million ($7.4 million) loan with Unicredit Corporate Banking S.p.A. entered into by Isoclima on November 14, 2008. We do not expect a decision from the lender on the assignment until closer to the completion of this offering. If we assume the loan, our short-term borrowings due in less than one year will increase by €687,500 ($927,781) and our long-term borrowings will increase by the same amount for the next seven years. If we repay the loan, our short-term borrowings due in less than one year will increase by €5.5 million ($7.4 million).

	•	In 2009 and 2010, Isoclima has the option to purchase the stock held by Finest, a minority shareholder of Lipik Glas, for approximately €1,800,000 ($2,429,150). In 2010, Finest also has the option to call the purchase by Isoclima at the same price. If Isoclima acquires 100% of the stock of Lipik Glas by the end of 2009, or if Isoclima and Finest modify the terms of the equity investment by Finest in Lipik Glas or modify the terms of the put or call option, the former shareholders of Isoclima will be entitled to receive additional cash consideration of €15,309,000 ($20,659,919), of which €10,450,000 ($14,102,564) will be placed in an escrow account until December 31, 2010.

TPS:


	•	The former shareholders of TPS will be entitled to receive a contingent payment equal to the amount by which the EBITDA of the TPS business (adjusted for non-recurring charges and other items consistent with past practices of TPS), determined in accordance with Mexican GAAP for the year ended December 31, 2009, exceeds $6.5 million multiplied by 6.5. The payment, if any, will occur in the first quarter of 2010.

Quantitative and Qualitative Disclosure About Market Risk

We are exposed to certain market risks in the normal course of business. At December 31, 2007 and September 30, 2008, our primary exposure to market risk was through our line of credit, under which loans bear interest at a floating rate based on LIBOR. Assuming that we borrowed the entire $13.0 million available, a 1% change in interest rates would result in an immaterial change to our interest expense. We have entered into a commitment letter with PNC Bank to provide for maximum borrowings of $35.0 million and a $10.0 million sub-limit for the issuance of commercial and standby letters of credit, which will have variable interest rates based on LIBOR. Assuming that we borrowed the entire amount available, a 1% change in interest rates would have resulted in a change to interest expense of approximately $0.4 million annually. We also intend to maintain the €5 million notional amount interest rate swap contract in place at Isoclima to reduce the impact of interest rate changes.

Currently, substantially all of our products and services sales are denominated in U.S. dollars, so we are exposed to minimal foreign currency exchange rate risk. Upon the closing of this offering, approximately 50% of our products and services sales will be denominated in euros. The euro is the functional currency in most

cases. A decline in the strength of the euro in relation to the U.S. dollar will impact negatively our financial results due to the effect of transactions that are not in the same currency and the translation required for the presentation of our financial statements. We intend to engage in undetermined hedging transactions to reduce our exposure to fluctuations in the U.S. dollar to euro exchange rate.

A 10% change in the exchange rate between dollars and euros would have impacted our pro forma net income by approximately $0.4 million for the nine months ended September 30, 2008.

New Accounting Pronouncements

In June 2006, the FASB issued Financial Accounting Standards Board Interpretation No. 48 (FIN 48), Accounting for Uncertainty in Income Taxes — An Interpretation of SFAS No. 109. FIN 48 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with SFAS 109. The interpretation prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax provision taken or expected to be taken in a tax return. It also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. FIN 48 is effective for non-public entities for fiscal years beginning after December 15, 2007. We adopted FIN 48 on January 1, 2007. The adoption of FIN 48 did not have a material effect on our consolidated financial statements.

In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements (SFAS 157). SFAS 157 defines fair value, establishes a framework for measuring fair value in accordance with generally accepted accounting principles and expands disclosures about fair value measurements. SFAS 157 is effective for fiscal years beginning after November 15, 2007 and interim periods within those fiscal years. We adopted SFAS 157 on January 1, 2008. The adoption of SFAS 157 did not have a material effect on our consolidated financial statements.

In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities (SFAS 159). SFAS 159 permits entities to choose to measure many financial instruments and certain other items at fair value that are not currently required to be measured at fair value. The objective of SFAS 159 is to improve financial reporting by providing entities with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions. SFAS 159 is effective for the first fiscal year beginning after November 15, 2007. In adopting SFAS 159 on January 1, 2008, we did not elect the fair value option for any financial assets or liabilities; as such, the adoption did not have a material impact on our consolidated financial condition, results of operations or cash flows.

In December 2007, the FASB issued SFAS No. 141(R), Business Combinations (SFAS 141(R)). SFAS 141(R) presents several significant changes from current accounting practices for business combinations, most notably the following: revised definition of a business; a shift from the purchase method to the acquisition method; expensing of acquisition-related transaction costs; recognition of contingent consideration and contingent assets and liabilities at fair value; and capitalization of acquired in-process research and development. This statement applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. The impact of this new accounting principle on the company’s consolidated financial condition, results of operations and cash flows will be dependant upon the level of future acquisitions. Under SFAS 141(R), we are required to expense the acquisition costs of the Pending Acquisitions in 2009.

In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements — an amendment of ARB No. 51 (SFAS 160). SFAS 160 (a) amends ARB No. 51 to establish accounting and reporting standards for the noncontrolling interest in a subsidiary and the deconsolidation of a subsidiary; (b) changes the way the consolidated income statement is presented; (c) establishes a single method of accounting for changes in a parent’s ownership interest in a subsidiary that do not result in deconsolidation; (d) requires that a parent recognize a gain or loss in net income when a subsidiary is deconsolidated; and (e) requires expanded disclosures in the consolidated financial statements that clearly identify and distinguish between the interests of the parent’s owners and the interests of the noncontrolling owners of a subsidiary.

SFAS 160 must be applied prospectively, but the presentation and disclosure requirements must be applied retrospectively to provide comparability in the financial statements. Early adoption is prohibited. SFAS 160 is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008. The impact of this new accounting principle on the company’s consolidated financial condition, results of operations and cash flows will be dependant upon the level of future acquisitions.

In May 2008, the FASB issued SFAS No. 162, The Hierarchy of Generally Accepted Accounting Principles (SFAS 162). SFAS 162 identifies the sources of accounting principles and the framework for selecting the principles used in the preparation of financial statements of nongovernmental entities that are presented in conformity with generally accepted accounting principles in the United States. SFAS 162 is effective 60 days following approval by the Securities and Exchange Commission of the Public Company Accounting Oversight Board amendments to AU Section 411, The Meaning of Present Fairly in Conformity With Generally Accepted Accounting Principles. We do not expect the adoption of SFAS 162 to have a material impact on our consolidated financial condition, results of operations and cash flows.

Inflation

We believe that the relatively moderate rates of inflation in recent years have not had a significant impact on our revenue or profitability. Historically, we have been able to offset any inflationary effects by either increasing prices or improving cost efficiencies.

Off Balance Sheet Arrangements

As of September 30, 2008, other than the operating leases noted in “Contractual Obligations and Commitments,” which do not have and are not reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors, we had no off-balance-sheet arrangements.

BUSINESS

Simultaneously with the closing of this offering, we will acquire Finanziaria Industriale S.p.A. together with its wholly- and partially- owned subsidiaries (Isoclima), Transportadora de Protección y Seguridad, S.A. de C.V. (TPS Armoring or TPS), and OmniTech Partners, Inc., Optical Systems Technology, Inc. and Keystone Applied Technologies, Inc. (collectively, OmniTech) using the proceeds from this offering, borrowings under our new credit facility and issuances of our common stock. The acquisitions of Isoclima, TPS and OmniTech are referred to as the Pending Acquisitions. These Pending Acquisitions will significantly increase our size, expand and enhance our product portfolio, broaden and deepen our customer base, expand our geographic presence and enhance our management team.

Company Overview

We provide a diverse portfolio of security, safety and defense products and services to commercial and government organizations worldwide. Our business activities are focused on delivering specialized products and services that improve the ability of organizations and individuals to prepare for, respond to and recover from acts of terrorism, violent crime and other hazards. We have a varied and distinguished list of customers, including: Mercedes-Benz, BMW and Azimut-Benetti in the commercial market; the U.S. Marine Corps, U.S. Special Operations Command (SOCOM), U.K. Ministry of Defence and Italian Ministry of Defense in the military market; the U.S. Department of State, U.S. Intelligence Community and various state and local governments and law enforcement agencies in the government market; and high-profile individuals. As indicated above, the Pending Acquisitions transform the size and, to a significant extent, the business of our company. Including the Pending Acquisitions, our pro forma combined revenues for the year ended December 31, 2007 and the nine months ended September 30, 2008 were $179.9 million and $152.0 million, respectively. Our pro forma EBITDA for the year ended December 31, 2007 and the nine months ended September 30, 2008 were $22.0 million and $24.5 million, respectively. Our pro forma net loss for the year ended December 31, 2007 was $2.0 million and our pro forma net income for the nine months ended September 30, 2008 was $4.5 million. Our pro forma combined firm backlog at December 31, 2008 was $137.6 million, of which $51.3 million was unfunded government orders and $50.8 million is not reasonably expected to be filled by the end of 2009. Comparable historical information, including a description of how we use EBITDA and its limitations as a non-GAAP measure, can be found under “Summary Consolidated Historical and Pro Forma Financial Data” on pages 9 to 11.

Our business is organized into three divisions — Advanced Transparent and Mobile Systems, Sensor Systems and Training and Services.


	•	Advanced Transparent and Mobile Systems. Our Advanced Transparent and Mobile Systems division designs, manufactures and sells highly engineered transparent armor, vehicle armoring systems and impact-resistant and other specialized glass. Our products safeguard government officials, security and military personnel, corporate executives and other individuals from terrorism, violent crime and other hazards. The majority of our revenues in this division are derived from sales to commercial market customers operating in the automotive, rail, marine and aviation industries. In the automotive industry, we supply transparent armor used in commercial and military armored vehicles and vehicle armoring systems for cars, trucks and SUVs. For the rail, marine and aviation industries, our activities are focused on the production of impact-resistant and other specialized glass used to protect a range of high-value assets, such as high-speed trains, yachts and aircraft. Our specialized glass products are also used in solar panels for alternative energy applications and for architectural purposes.


	•	Sensor Systems. Our Sensor Systems division designs, manufactures and sells optoelectronic equipment to the government and military markets. Our principal products in this division are specialized night vision equipment and tagging, tracking and locating systems, all of which enable government agencies and militaries to conduct covert intelligence, surveillance and reconnaissance missions and battlefield operations more effectively. We believe our proprietary technologies for illumination and detection are among the most advanced in the industry, in part as a result of our use of certain infrared bands that are undetectable by conventional night vision equipment. Our products also incorporate other advanced technologies, including heads-up displays and thermal imaging sensors to enhance their overall functionality.

	•	Training and Services. Our Training and Services division provides technical services, such as threat and vulnerability assessments and weapons of mass destruction training; tactical services, such as urban warfare and tactical driving training; and preparedness and response services, such as emergency response and continuity of operations planning. These offerings enhance our customers’ ability to prepare for, operate during and recover from high-risk situations and emergencies. We offer our training and services to government, military and corporate customers, both at our tactical training complex and at customer locations worldwide.

Our management team possesses a long history of building and acquiring businesses focused on the security, safety and defense markets. We believe their resident knowledge of and relationships within these markets have been instrumental in the acquisition, integration and growth of the businesses we have acquired to date and will be critical to the execution of our business strategy. Our founders, Thomas M. O’Gara, Wilfred T. O’Gara and Michael J. Lennon, previously managed O’Gara-Hess & Eisenhardt Armoring Company, a pioneer and leader in designing, engineering and manufacturing armored vehicles, including the Up-Armored High Mobility Multi-purpose Wheeled Vehicle, a key tactical vehicle now used by militaries around the world. In addition to the companies we have acquired since our inception, our founders successfully completed the acquisition of 19 businesses during their previous ventures. We intend to continue leveraging the extensive knowledge and experience of our management team as we pursue expansion through a combination of organic growth and acquisitions.

Simultaneously with the closing of this offering, we will complete the acquisitions of the following three companies:


	•	Isoclima — Established in 1977 and based in Este, Italy, Isoclima is a designer and manufacturer of transparent armor and impact-resistant and other specialized glass for the automotive, rail, marine, aviation and other markets. Isoclima will join our Advanced Transparent and Mobile Systems division. Subject to customary adjustments, we will acquire Isoclima for approximately $129.7 million in a combination of cash and the assumption of debt.

	•	TPS Armoring — Established in 1994 and based in Monterrey, Mexico, TPS Armoring is a manufacturer of vehicle armoring systems used primarily by government officials and private individuals. TPS Armoring also will join our Advanced Transparent and Mobile Systems division. Subject to customary adjustments, we will acquire TPS for approximately $42.3 million in a combination of cash, common stock and the assumption of debt.

	•	OmniTech — Established in 1995 and based in Freeport, Pennsylvania, OmniTech is a designer and manufacturer of optoelectronic systems serving government and military customers. OmniTech will join our Sensor Systems division. Subject to customary adjustments, we will acquire OmniTech for approximately $31.6 million in a combination of cash, common stock and the assumption of debt.

We were formed in August 2003 to acquire Specialized Technical Services, Inc., a manufacturer of night vision equipment established in 1991 and the foundation of our Sensor Systems division. In 2005, we created our current holding company structure and also acquired Diffraction, Ltd., a developer and manufacturer of optoelectronic systems since 1993, now part of the Sensor Systems division. Our Training and Services division

was established in early 2006, when we hired the owners and employees of Tracor, Inc. to develop their training concepts. The division was enhanced later that year by the purchase of certain assets of Safety and Security Institute (SSI), the security and safety training division of VIR Rally, LLC, and by the acquisition of Homeland Defense Solutions, Inc. In 2007, we created the Mobile Security division, which is being renamed the Advanced Transparent and Mobile Systems division, with the acquisition of Security Support Solutions Limited (3S). 3S has sold, leased and serviced armored military and commercial vehicles since 2003.

Industry

Our advanced security, safety and defense products and services address a large and growing worldwide market comprised of governments, militaries, corporations and individuals seeking to more effectively execute their security and defense-related initiatives. Both our commercial and government customers are affected by common trends, including geopolitical and socioeconomic unrest, terrorism, violent crime and natural disasters, that have resulted in elevated concern over the protection of people and assets. These trends have resulted in increased demand for products and services that enhance situational awareness, improve the ability to respond to, operate during and recover from critical events and protect personnel in hostile, high-risk environments.

In the U.S. government market, expanding budgets related to the procurement of mission-critical products and services for security and defense initiatives are evidence of this increasing demand. For the U.S. government fiscal year 2009, budget requests for Department of Defense and homeland security-related initiatives are $581 billion and $66 billion, respectively, representing increases of approximately 31% and 63%, respectively, in the five-year period since government fiscal year 2004. The 2009 budget request for Department of Defense initiatives represents decreases of approximately 4% and 13% from amounts appropriated in 2007 and 2008, respectively. While these budgets are devoted to a diverse range of activities and initiatives, we expect certain areas of increased focus, such as counterterrorism, emergency preparedness and response and military capability enhancement, will continue to require accelerated growth in spending for the types of products and services that we offer.

Similarly, in the commercial market, both corporations and individuals have been affected by increasing security threats, and we believe there will be continued investment in products and services to enhance the security and protection of key assets and individuals. According to Homeland Security Research Corporation, the U.S. private sector is expected to procure approximately $28.5 billion of homeland security products and services between 2007 and 2011.

We believe the following trends will drive the growth in demand for our products and services.

Evolving unconventional nature of threats. Governments and commercial organizations worldwide are increasingly encountering unconventional threats, such as highly organized and sophisticated terrorist groups and the use of unconventional weapons, that are presenting challenges to the operational efficacy of traditional security and defense practices unaccustomed to assessing and defeating those threats. In response, governments in particular are taking decisive actions, such as realigning spending priorities, to more effectively address the evolving nature of threats. In recent years, the U.S. government has shifted spending priorities away from large-scale weapons systems used primarily during periods of high-intensity conflict to tactical products more suited to combating the dangers associated with unconventional threats and to gathering intelligence to prevent — or more effectively respond to — such threats. This has resulted in the procurement of additional advanced products and services to enhance the capabilities of security and military personnel, particularly as part of the Global War on Terror, the Department of Defense-led initiative focused specifically on fighting against and eliminating terrorist organizations worldwide.

In procuring these products and services, the government relies upon elite military organizations, such as the U.S. Special Operations Command (SOCOM), the lead Department of Defense agency in the planning and synchronizing of operations for the Global War on Terror, to test and validate solutions in the field. The growing importance of SOCOM in implementing DoD strategy will require increasing procurement of advanced technology solutions. The 2006 Quadrennial Defense Review announced a force structure and budget increase for SOCOM that is intended to address the challenges of evolving asymmetric threats. The Quadrennial Defense Review announced that SOCOM will add more than 13,000 personnel to its existing

52,000-personnel command and projected that its budget will increase by approximately $9 billion by 2011. Internationally, foreign governments have similar anti-terrorism initiatives in place, and we believe they also will continue to demand advanced products and services in support of these initiatives.

Since September 11, 2001, the U.S. government has appropriated $636 billion for the Global War on Terror. The government fiscal year 2009 budget request for the Global War on Terror is $66 billion. The government fiscal year 2009 Department of Defense and Global War on Terror budget requests allow for appropriations for training services to prepare field personnel, protection systems that provide mobile security and advanced sensor and surveillance systems to enhance situational awareness. For instance, the government fiscal year 2009 Department of Defense budget request includes line items for force protection and training of $5.6 billion and $7.4 billion, respectively, as well as $5.7 billion in funding for building SOCOM capabilities through improved surveillance, communication and weapons technologies, specialized skills training and tactical vehicles.

Increased emphasis on emergency preparedness and response. In response to destructive manmade and natural threats worldwide, U.S. federal, state and local governments, foreign governments and commercial organizations have been devoting increased funding to prepare for, respond to and recover from acts of terror and other catastrophic events. These organizations are procuring services such as vulnerability assessments, emergency response planning, business continuity planning and recovery services, which have become critical to the operational efficacy of governments and commercial organizations faced with these events.

Funding of preparedness and continuity planning initiatives continues to be a high priority for federal, state and local governments as they strive to create a viable homeland security infrastructure across all levels of government and encourage uniformity in practices and procedures instituted for addressing emergencies. In its government fiscal year 2009 budget request, the U.S. government allocates approximately $5.0 billion to emergency preparedness and response initiatives. It has spent over $30 billion enhancing state and local terrorism preparedness since government fiscal year 2001 through programs such as the National Incident Management System, which facilitates nationwide adoption of certain procedures by first responders, and the Department of Homeland Security Office of Grant Programs, which serves as the primary vehicle for federal funding of state and local preparedness efforts. These initiatives include disbursements for training and exercises as well as products enabling more efficient, effective responses to emergency situations.

Additionally, corporations continue to invest in emergency planning and response services in order to ensure continuity of operations and minimize business disruption following critical incidents. These measures range from the creation of emergency response plans to the utilization of training exercises for employees, and we believe commercial organizations will continue to increase adoption of these services to protect against threats.

Expanding criminal threats. As a result of increased criminal threats in certain parts of the world, such as Latin America, the Middle East and areas of Europe, commercial and governmental organizations as well as individuals have taken measures to increase protection against these activities. Within the government market, law enforcement agencies are working to equip officers with the capabilities to combat escalating criminal threats, such as narcoterrorism and organized crime. In June 2005, the U.S. State Department launched the Worldwide Personal Protective Services II program, which was implemented to provide for the security of U.S. government officials, U.S. diplomats and certain foreign heads of state in high-risk environments. The Worldwide Personal Protective Services II contract, which was awarded to three other contractors, has a ceiling of $3.6 billion over five years and substantially upgrades personnel qualifications, training, equipment and management requirements in order to further increase the security and oversight of these operations.

Within the commercial market, both corporations and individuals are taking proactive measures to enhance security in increasingly high-risk environments, particularly in response to criminal acts such as the kidnapping for ransom of high-profile individuals. For example, the average number of serious federal crimes reported daily in Mexico grew approximately 86% over the five-year period from 2002 to 2007, evidencing the rapidly escalating criminal threats in this region. To provide protection against these threats, corporations and individuals have increased their investment in and use of security products and services. A common example of this is the growing use of armored vehicles to transport government officials, business executives

and other high profile individuals. We believe that the use of armored vehicles will increase as multinational corporations continue to expand their operations geographically. Additionally, commercial organizations such as financial institutions continue to invest in protective capabilities to enhance security at high-risk locations and safeguard key assets.

Increased reliance upon government outsourcing. In order to maximize efficiency, reduce costs and replace an aging government workforce, governments have come to rely upon the products and services of the private sector. This enables government agencies to leverage the highly skilled and experienced labor forces of leading commercial organizations to enhance their capabilities. Domestically, in the field of training, organizations such as the Department of Defense, Department of Homeland Security and the Department of State all utilize the services of third-party professionals, many of whom are former military and government officials, to ensure proper education and preparation of soldiers, first responders and government employees. According to the U.S. Government Accountability Office, the Department of Defense’s obligations under third-party service contracts grew from approximately $85 billion in government fiscal year 1996 to more than $151 billion in government fiscal year 2006, representing an increase of approximately 78%. As a result of the diverse priorities of U.S. government agencies and the need to cost effectively train government employees and military personnel, we believe the trend in outsourcing will continue to benefit the government and lead to increased spending on third-party products and services.

Market Opportunity

As a global provider of a diverse portfolio of advanced capability products and services, we believe we are uniquely positioned to capitalize upon the strong growth trends within the security, safety and defense markets worldwide. Specifically, we are able to provide specialty products that safeguard government and civilian personnel and enhance the effectiveness of military officials and services for government and military personnel and private citizens that help them prepare for, respond to and recover from manmade and natural disasters. For example, we believe we are one of the few companies in the world capable of manufacturing the transparent armor required for the vehicle armoring systems that we also produce. We believe that we are a leading provider of proprietary optoelectronic sensor and imaging technologies that are superior to currently deployed technologies. We have operations in the U.S., Europe and Mexico, which we believe will serve as strong bases for growth in the markets we currently serve as well as enable us to penetrate new markets globally. We believe our ability to develop and produce market-leading products and services coupled with our deep knowledge of our customers and end markets will enable us to expand our domestic and international market share and continue to offer our customers high-value solutions.

Our Competitive Strengths

Experienced and deep management team. Our management team has an average of 23 years of experience managing businesses that serve the security, safety and defense markets. Many of our management team members, including our divisional executives, were involved in the formation of, and continue to actively manage, the businesses that currently constitute our company. In addition, our founders previously formed and managed a public company that served the security, safety and defense markets. As we continue to grow, we believe that the experience and depth of our management team will serve as a significant competitive advantage and enable us to more effectively execute our strategy.

customers represented 38% and 37%, respectively, of those revenues. In addition to broadening our addressable market, our strategy of serving both the commercial and government markets makes us less dependent upon government funding and commercial business cycles than businesses focused solely on either market. Similarly, by selling our products and services in many countries, we are less susceptible to economic and political uncertainties in any particular geographic region. For the year ended December 31, 2007 and the nine months ended September 30, 2008, sales to domestic customers were 22% and 20%, respectively, of our pro forma combined revenues and sales to international customers were 78% and 80%, respectively, of those revenues. As a result of this diversity, we believe that our future success is not dependent upon a single technology, product, service, customer, government program or geographic market.

Attractive, global customer base. We have built a worldwide customer base that includes many highly discerning commercial, government and military organizations that typically are very difficult to penetrate without pre-existing business relationships. Because our products are often used in extreme conditions and for mission-critical purposes, our customers scrutinize them carefully during the procurement process. We believe that we have built a high degree of confidence with key customers, including commercial businesses recognized for their exacting quality standards, such as Mercedes-Benz and BMW, and government organizations known for demanding high-performance tactical equipment, such as SOCOM, the U.S. Intelligence Community, the U.S. Marine Corps and the U.K. Ministry of Defence. Our existing customer base provides us with substantial organic growth opportunities, and because of our customers’ reputation and stature, with strong references as we pursue new opportunities worldwide.

Strong knowledge of customer requirements. In each of our divisions, our familiarity and direct interaction with customers provide us with strong knowledge of their requirements. Many of our personnel in the Training and Services division are former members of Special Operations Forces and other specialized U.S. military and federal government agency teams, which provides us with a means of continuing direct contact with these customers. Our Sensor Systems division has development contracts with SOCOM and other government agencies for prototype products that give us insight into, and we believe, advantageous positioning for future projects and contracts. Our Advanced Transparent and Mobile Systems division works in collaboration with major car manufacturers such as Mercedes-Benz, BMW, Audi and Fiat in developing new models of their armored vehicles as well as developing and incorporating high technology components into glass used in both armored and non-armored vehicles, such as advanced solar controls that reflect infrared energy and protect sensitive electronic instruments from interference. As a result, we have continual sources of information regarding our customers’ evolving needs that we can apply in creating innovative solutions for them.

Proprietary manufacturing methods, technologies and processes. We have developed proprietary manufacturing methods, technologies and processes that, we believe, provide us with competitive advantages in producing highly reliable and technologically advanced products. For example, our Advanced Transparent and Mobile Systems division has invested in state-of-the-art production and testing facilities for producing advances in transparent armor and other protective glass and has developed proprietary production processes for outfitting vehicles with transparent and opaque armor. These facilities and processes are integral to our ability to exceed the stringent performance and quality assurance standards mandated by our customers. Our Sensor Systems division has developed proprietary sensor and imaging technologies, such as sensor technologies incorporated into our patented dual-band night vision scope, which we believe to be superior to those currently deployed. We also have developed other proprietary technologies for illumination and detection, such as those using certain infrared bands that are undetectable by conventional night vision equipment, which can be leveraged across multiple product groups.

Strong acquisition and integration track record. Since our inception, we have acquired and integrated five businesses, implementing initiatives at each to enhance operational efficiencies and financial performance. This growth has allowed us to pursue and procure larger, more competitive opportunities from new customers and to capture additional revenues from existing customers. For example, in building our Training and Services division, we acquired and consolidated the operations of multiple businesses, each with distinct capabilities and in disparate locations, and hired new personnel to create a single division that addresses a significantly broader range of training and services requirements than each business previously provided. By drawing on the combined contracting experience, tactical combat experience and subject matter expertise of our personnel, in

2007, we were able to win a multi-million dollar, two-year tactical training contract with the U.S. Marine Corps Special Operation Group that we believe would not have been possible if any of the former businesses had pursued this opportunity independently. Since the initial contract was awarded, our revenues derived from it have expanded by more than 25% due to requests for additional training personnel.

Our Strategy

Integrate our Pending Acquisitions. A critical element of our growth strategy is the timely and successful integration of companies that we acquire, both across our entire company and within the division, with the goal of achieving sustained operational and financial benefits. We began this integration process during the negotiation and due diligence processes for each of the Pending Acquisitions. As a result, we expect to be in a position to implement our plan quickly after closing. For example, prior to this offering, we coordinated customer visits for TPS and Isoclima with a select group of our customers to begin evaluating additional business opportunities. We expect to integrate Isoclima, TPS and OmniTech and achieve benefits by, among other things:


	•	capitalizing on our experience in selling to the U.S. government to generate incremental revenues through new sales opportunities for Isoclima and TPS;

	•	coordinating our expanded sales and marketing resources to increase the reach of our product and service offerings by, for example, expanding TPS’s distribution capabilities from within Mexico to other parts of the world and providing OmniTech with access to our existing international sales network;

	•	implementing our lean manufacturing techniques throughout our company to enhance the efficiency of our manufacturing processes;

	•	coordinating the research and development activities of OmniTech with our current efforts in the Sensor Systems division to accelerate the development of the next generation of night vision and covert imaging equipment and broaden our product portfolio by combining various components currently produced by us with OmniTech’s products; and

	•	sourcing internally the transparent armor that Isoclima previously sold to TPS to realize manufacturing and other efficiencies, such as access to priority deliveries and the newest technological advances.

Extend and enhance our product and service portfolio. We expect to continue developing innovative technologies that can be leveraged across multiple product groups within our divisions and introducing new products and services that expand our offerings and help us maintain our competitive advantages within our existing markets. Through ongoing customer contact and market interaction, we monitor changing trends in all of our target markets and continually modify our portfolio of products and services to address these changing demands. For example:


	•	Our Sensor Systems division has developed extensive capabilities in a broad range of covert imaging, illumination and signaling technologies. Because many of today’s adversaries possess night vision equipment, our customers’ ability to observe, track and illuminate a target or to prevent friendly fire incidents while remaining invisible to the enemy is a crucial advantage. Our expertise also includes both exchanging data via the imaging system and fusing multiple bands of light into a single, lightweight, compact instrument that takes advantage of the strengths of both systems. We have included these technologies on products as diverse as weapons-mounted scopes, head-mounted goggles and hand-held, vehicle-mounted and unmanned aerial vehicle (UAV)-borne observation turrets.

	•	In our Training and Services division, we develop specific training doctrine for special units in the military. In the course of this work, we collaborate closely with our customers to understand their current priorities and the strategic direction of their training operations. This, in turn, allows us to be proactive in our training offerings before an official requirement is established.

We also intend to increase the marketing of products we currently produce internationally to the U.S. domestic market and of those we produce domestically to the international market. For example, in our Sensor Systems division, our low profile night vision goggles initially were developed for and sold to small groups within SOCOM. Over the years, sales of these goggles have expanded not only within the Department of Defense but also to international customers, as evidenced by the fact that the Italian Ministry of Defense is currently one of our largest customers for these products. In the Advanced Transparent and Mobile Systems division, we intend to market our transparent armor, which is currently sold predominantly to the commercial market and, to a lesser extent, the European military market, to the U.S. military market.

Expand our geographical presence. We intend to continue expanding our geographical presence, both domestically and internationally in attractive markets across all of our divisions. In our Advanced Transparent and Mobile Systems division, we will consider opening select domestic and international facilities to compete more effectively for business opportunities that arise. We believe the combination of our management team’s prior experience of expanding domestically and internationally and the resident knowledge of our managers will enable us to pursue these areas of growth systematically and efficiently. For example, in 2004, we opened a London office for our Sensor Systems division, which allowed us to expand and build upon existing relationships and to obtain follow-on contracts to supply night vision goggles to the U.K. Ministry of Defence.

Grow through acquisitions. We plan to grow our business by selectively acquiring companies and assets that enhance our technology portfolios, broaden our product and services offerings and/or expand our customer relationships or geographical presence. Overall, we believe the security, safety and defense markets are highly fragmented, with numerous small to medium size companies that have strong technologies and products but that may lack the necessary human or capital resources to achieve sustainable growth. We look for companies with proprietary products or services that fit our business model and that have reached the point at which they can recognize the benefits of our competitive strengths to support their long-term growth. We intend to continue to maintain a highly disciplined approach in our pursuit of acquisitions by performing assessments of a target’s proprietary technologies and processes, growth prospects and management aptitude.

Products and Services

Advanced Transparent and Mobile Systems Division

Our Advanced Transparent and Mobile Systems division designs, engineers, manufactures and sells highly engineered protective systems to corporations, governments and individuals worldwide. Specifically, we produce transparent armor used in automobiles and other modes of transportation to safeguard government officials, security and military personnel, corporate executives and other individuals from terrorism, violent crime and other hazards. We also produce other specialized glass used in all major modes of transportation and in alternative energy and architectural applications, that reduces noise and/or reflects heat. Our transparent armor products are manufactured to very strict quality standards and stringent dimensional tolerances for compound and simple curvatures.

Isoclima has been developing and implementing new technologies and processes for the production of composite laminate glass since 1977, and we believe we are a leader in the manufacture of ballistic resistant composite laminate, a critical component of our transparent armor products. Recently, we have made significant advances in the coating and tempering of transparencies. In the area of coating, we electronically coat glass or plastic with thin films of metal-oxide through the magnetron sputtering process. This process permits the heating and defrosting of windshields without wires, which disrupt vision, and also reflects a large part of the infrared spectrum, which greatly reduces heat build up. This metal-oxide film also can be used to shield sensitive electronic instruments from electro-magnetic interference. Although historically we have used this composite laminate process solely for the development of transparent armor, we recently have leveraged this experience to develop new laminate technologies for additional applications. For example, we have

developed a proprietary process, known as Chromalite^tm, that incorporates laminates and an emulsion between glass layers that, with a flip of a switch, makes transparent glass opaque from one side while it continues to be transparent on the other. We also use the laminate process to produce photovoltaic glass panels used to generate solar energy and manufacture a special patterned glass used for photovoltaic applications that intensify the sun’s rays on the cells. For applications requiring ballistic glass in which weight reduction is an important consideration, we recently have begun producing chemically tempered glass. Chemically tempered glass is much lighter and thinner than an equivalently hardened composite laminate glass; it also is flexible, thus allowing easier application by our customers. Furthermore, we have implemented technology and processes for bonding transparencies to opaque surfaces, eliminating traditional containment frames and allowing for maximum continuity between opaque and transparent surfaces together with curved and sinuous lines.

Automotive. Currently, our principal focus in the Advanced Transparent and Mobile Systems division is on the automotive market, for which we provide specialized protective glass, fully integrated armoring systems and a customer focused sales and marketing operation that sources armored vehicles from a variety of producers around the world.

We provide specialized protective glass for both commercial and government vehicles, primarily for the purposes of enhanced ballistic protection, privacy and comfort. Our ballistic-resistant transparent armor significantly enhances the safety of vehicle occupants, as compared to standard automotive glass, while maintaining optical clarity. Many of the world’s leading manufacturers of armored automobiles, including Mercedes-Benz, BMW, Audi, Fiat, Jaguar, Maserati and Rolls Royce, use our transparent armor in the vehicles they produce for corporate executives, government and military officials and private citizens. In addition to transparent armor, we produce non-armored glass that is currently included as standard equipment in the vehicles produced by many of the world’s leading premium car manufacturers, including Bentley, Aston Martin, McLaren, Ferrari, Lamborghini, Maserati and Alfa Romeo.

We are able to incorporate our technologies for electronic defrosting and defogging and the Chromalite^TM system for complete passenger privacy in either our ballistic or non-armored glass. Adding our chemically bonded films to reduce infrared radiation and heat build up becomes important when vehicle designers incorporate premium features, such as panoramic moon roofs.

In addition, we provide fully integrated armoring systems for a variety of vehicle makes and models and are capable of outfitting vehicles with the highest classification of protection commercially available against ballistic threats. Our highly customized processes and methodologies incorporate ballistic-resistant materials and structural modification technologies into these vehicles. There are two general classifications of armored vehicles that we manufacture: fully armored vehicles (FAVs), which represent the majority of our sales, and light armored vehicles (LAVs). The armoring package is priced and sold based upon the ability to defeat a particular number of shots of a specific type and caliber of ammunition within a defined area in accordance with U.S. or European standards.

The FAV designation means the vehicle is designed to protect against attacks from military assault rifles, such as an AK-47 or M-16 with standard ball ammunition or armor-piercing rounds, as well as from certain underbody explosives. The base vehicle that is converted into a FAV typically is a large sedan, such as a Mercedes-Benz S600 or BMW 750, or a sport utility vehicle, such as a Chevrolet Suburban or Jeep Cherokee, which is purchased new from a dealership or factory or provided by the customer directly to us.

The LAV designation means the vehicle is designed to protect against handguns, such as a 9mm or .357 Magnum. The armoring necessary for LAV protection uses substantially less total weight of armoring than a FAV. This allows smaller sedans and SUVs to be used as base vehicles in addition to the larger vehicles described above.

Our armoring process begins with disassembly of the new vehicle at our production facility. This typically involves the complete removal of the interior trim, seats, doors and windows. The passenger compartment then is armored with both opaque armor (metallic, fibrous and ceramic materials) and transparent armor (glass/

plastic laminate). Other features, such as run flat tires and heavy-duty suspension and brakes, also may be added to FAVs. Finally, the vehicle is reassembled as close to its original appearance as possible.

A small component of our Advanced Transparent and Mobile Systems business involves providing related services. As a complement to our fully integrated armoring systems, we sell on-site and on-road service packages and maintain a small rental fleet of our armored vehicles for the Mexican market. We also operate a sales and marketing organization based in the U.K., which sources vehicles from a variety of armored vehicle producers around the world and therefore is able to provide a large variety of vehicles very rapidly at competitive prices. We are a supplier to the United Nations, NATO, the U.K. government, the U.S. Department of Defense and other U.S. government agencies.

Rail. In the rail market, we provide impact-resistant and other specialized glass to protect high-speed trains and metro systems from natural risks such as falling ice and rocks and man-made risks such as items thrown from overpasses. Historically, the glass windshields used in railway applications have lacked advanced protective and aerodynamic properties. However, with the advent of high-speed rail systems and the resulting harm that can occur from falling or thrown objects, the composition, quality, level of protection and performance of a windshield have become a significant concern to transit system operators. Our proprietary manufacturing processes allow us to create specially formulated and coated glass with increased impact resistance, advanced solar temperature controls, built-in defog and defrost systems and enhanced aerodynamics while preserving the optical performance of the glass. Our specialized glass is in use at numerous high-profile locations, including the metro systems of Strasbourg, London, Milan and Helsinki and high-speed trains in Italy, Switzerland, Germany, China, Norway and Finland.

Marine. For the marine market, we provide protective glass used in windshields and windows of yachts. In many applications we utilize our advanced chemically tempered glass, which offers functional advantages by enabling aerodynamic design while maximizing protection from both natural and man-made threats. Specifically, we introduced the concept of bonded structural glass for marine use, resulting in substantial advantages, such as solar control, improved acoustic reduction, impact and ballistic resistance and improved aerodynamics and aesthetics. Our glass has been approved by major registers such as Lloyds, Norske Veritas, Germanish Lloyd and Rina, which classify vessels according to certain criteria of physical structure and equipment to enable underwriters, shipbrokers, and shipowners to assess commercial risk and negotiate marine insurance rates. Our glass for maritime applications has become the preferred material for numerous premier yacht manufacturers.

Aviation. In the aviation market, we provide specialized materials used in both civilian and military aircraft that are manufactured to each customer’s specifications. Specifically, we produce composite windshields and one-piece canopies for military aircraft. We also supply thermally or chemically strengthened glass as a part of windshields for the civil and military aviation industry. The materials are designed to protect the occupants from certain munitions and other objects or debris. Our ability to combine strengthened composite materials in specialized curved formations has enabled us to penetrate this market and secure new customers.

Architectural and Other Applications. We also produce ballistic and impact-resistant and other specialized glass for architectural use, including in high-risk environments such as banks, embassies and government facilities. Our architectural glass is installed in locations as diverse as the Andromeda Tower in Vienna, Canary Wharf in London, the Italian embassy in Washington, D.C. and the flagship Apple Store in New York City. Additionally, we manufacture a low-iron patterned glass for various applications, including solar collecting panels used to produce electrical energy and solar collectors used to produce hot water. This glass is in great demand in many European countries in response to the European Commission’s proposed directive that 20% of energy used must be sourced from renewable sources by 2020.

Each of the products of the Advanced Transparent and Mobile Systems division described above is produced by Isoclima or TPS Armoring and will be acquired by us in the Pending Acquisitions. For the year ended December 31, 2007 and the nine months ended September 30, 2008, this division contributed 73% and 73%, respectively, of our pro forma combined revenues. Of these revenues, sales by Isoclima contributed 54% and 53%, respectively, and sales by TPS Armoring contributed 17% and 19%, respectively. The Advanced Transparent and Mobile Systems division had firm backlog of $41.2 million at December 31, 2008 on a pro forma combined basis, of which $0.7 million is not reasonably expected to be filled by the end of 2009.

Sensor Systems Division

Our Sensor Systems division designs and manufactures products that provide our customers with enhanced visual capability and tactical advantages in dark or near-dark conditions. The principal products sold by our Sensor Systems division include:

Night Vision Goggles. Our Low Profile Night Vision Goggles (LPNVGs) provide the lowest profile available in the industry and have a unique “see-through” capability to allow a seamless transition from dark conditions to bright light. In contrast to a standard night vision goggle, which projects 5.86 inches from the face, the LPNVG has a profile of only 3.15 inches. This results in only a minimal change to the center of gravity of the helmet to which the goggle is attached. As a result, the LPNVG can be used in a wide variety of operational situations and harsh environments in which a standard goggle could not perform effectively. Because of the patented design of the LPNVG’s optical path, other capabilities and accessories may be integrated within the field of view. For example, our Enhanced Heads-Up-Display (EHUD) module overlays or fuses other video outputs such as thermal weapon information in the operator’s normal night vision view. Our LPNVGs are used in a wide variety of operational situations due to their design and features that enable a user to perform tasks and extract situational information that would be difficult or impossible with a standard goggle.

The table below highlights our Night Vision Goggle products. We owned and produced each of these products prior to this offering.


Product	Description	Customer(s)

AN/PVS-21	LPNVG with integral EHUD Ports; allows for aggressive movements in rough terrain, reduced neck strain, and seamless transition from dark to lit environments	SOCOM and other elite organizations, both domestic and international, such as U.K. Ministry of Defence and Italian Ministry of Defense

Model 2740 Monocular	Same as AN/PVS-21, but in a monocular (one-eye) configuration; device weighs and costs approximately half as much as a goggle, but has less depth-perception performance than a goggle configuration	Elite organizations, both domestic and international

Model 2758 DayViewer	Allows the use of an EHUD, without the need for the night vision goggle	SOCOM and elite international organizations

Model 2755 EHUD	When attached to goggle, monocular, or Dayviewer, allows overlay of external data (similar to picture-in-picture on a TV)	SOCOM and other elite organizations, both domestic and international

Various Accessories	Mounts, helmet adapters, head straps, quick-refocus lenses	SOCOM and other elite organizations, both domestic and international

Night Vision Surveillance Products. Our family of multi-spectral optical imaging products provide our customers, such as the U.S. Department of Homeland Security, Customs and Border Protection, FBI and Department of Defense, with short-, medium-and long-range surveillance capabilities for night operations. These products provide stand-alone viewing capabilities that can be coupled with photographic and video equipment.

The table below highlights our Night Vision Surveillance products. The MK880 Pocketscope and NiteCat^tm Catadioptric Lenses are produced by OmniTech and will be acquired by us in the Pending Acquisitions. We owned and produced the SCIB Mark 4 prior to this offering.


Product	Description	Customer(s)

SCIB Mark 4	Short-wave infrared (SWIR) reconnaissance imager with integrated laser illuminator/pointer	U.S. Intelligence Agencies, SOCOM, FBI

MK880 Pocketscope	Universal handheld night vision surveillance device that can be used with video and still image photographic equipment	Department of Defense, Department of Energy, Department of Justice, Customs and Border Patrol, Law Enforcement, Fish and Game

NiteCat^tm Catadioptric Lenses	High performance specialized optical lenses used with night vision devices to extend operational range	Department of Defense, Department of Energy, Department of Justice, Law Enforcement, Fish and Game

Small Arms Night Vision Weapon Sights. Our night vision weapon sight product line provides the DoD, Department of Energy, Department of Justice, U.S. law enforcement and international customers with clip-on, permanently aligned, in-line, night vision weapon sights used with existing day scopes. This configuration eliminates the need to boresight the weapon each time an operator is required to change from day to night time operations and thereby minimizes time delays and inaccuracies inherent in frequent changes of stand alone night vision weapon sights. Our products incorporate a patented permanent boresight alignment system and a proprietary Shock Mitigation System^tm (SMS^tm) to reduce system failures due to weapon induced shock upon discharge. We offer a range of products to suit the operators’ specific needs. Four of our products, the Tactical Night Sight^® (TaNS^®), the AN/PVS-22 Universal Night Sight^tm (UNS^tm), the AN/PVS-27 MAGNUM Universal Night Sight^tm (MUNS^tm), and the Universal Night Sight XR^tm, utilize image intensifier technology and provide the operator with night vision capabilities from tactical weapon effective ranges to extreme engagement scenarios for longer range sniper weapons. For example, our MAGNUM Universal Night Sight^tm has been selected by the U.S. Marine Corps as its Scout Sniper Mid-Range Night Sight (SSMRNS) and type classified by the U.S. Government as the AN/PVS-27. Our Dual Band Universal Night Sight^tm (DUNS^tm) provides the operator with the additional capability to operate in smoke, haze and light foliage by optically combining intensified images with long-wave infrared sensor images for improved target detection.

The table below highlights our Small Arms Night Vision Weapon Sights products. Each of these products is produced by OmniTech and will be acquired by us in the Pending Acquisitions.


Product	Description	Customer(s)

AN/PVS-22 UNS^tm	Mid-range clip on night vision weapon sight	Law Enforcement

AN/PVS-27 MUNS^tm	Long-range clip on night vision weapon sight	Law Enforcement

TaNS^®	Night vision weapon sight for use with tactical weapons	Law Enforcement

DUNS^tm	Fused imagery (thermal overlaid on an intensified image) clip on night vision weapon sight	Law Enforcement

Tagging, Tracking and Locating. In counter-terrorism operations, a rapidly growing tactical need is the ability to locate, identify, mark (or tag) and subsequently track enemy forces, as well as to identify and track friendly forces to prevent fratricide, or “friendly fire”, incidents and to enable quick rescue operations. The shorthand term for this capability is TTL. We provide an array of TTL products to SOCOM and other U.S. military, federal law enforcement and intelligence agencies. Our TTL products include miniature covert optical beacons and covert reconnaissance imagers. These devices are used to mark targets for surveillance and tracking by operators on the ground as well as by aircraft and unmanned aerial vehicles (UAVs). They are capable of marking targets in daylight and night and in all weather conditions while remaining invisible to the naked eye or conventional night vision systems. We believe the combined high power, high efficiency, small size and covert nature of these beacons is unique in our industry and positions us as a leading innovator in this field.

The table below highlights our TTL products. We owned and produced each of these products prior to consummation of the Pending Acquisitions.


Product	Description	Customer(s)

Thermal Beacons	A suite of beacons in the mid and long wave infrared bands — visible from 3 km	U.S. Intelligence Agencies, SOCOM, FBI


SWIR Beacons	A suite of beacons in the short wave infrared band — visible from 5 km	U.S. Intelligence Agencies, SOCOM, FBI

SWIR TTL Imager	Long range short wave infrared imager for covert imaging of SWIR beacons and tracking of targets	U.S. Intelligence Agencies, SOCOM, FBI

Advanced Prototype Solutions. The use of night vision equipment by terrorist and criminal organizations has proliferated since the 1990 Gulf War, reducing the tactical advantage of counter-terrorism, military and homeland security forces in night operations. We have produced a number of products on a prototype and low-rate initial production basis that focus on certain infrared illumination bands, predominately short wave infrared (SWIR) and near infrared (NIR), that are undetectable by conventional night vision equipment. These products offer our customers, predominately U.S. Special Forces and selected U.S. government agencies, the ability to regain a strategic advantage of operation in the night. The products include advanced fused night vision devices, “friend or foe” identification systems, illuminators, intelligent sensors, optical and radio frequency communications and signature management.

The table below highlights our Advanced Prototype Solutions. We owned and produced each of these products prior to consummation of the Pending Acquisitions.


Product	Description	Customer(s)

Fused Weapon Sight (FWS)	Fused image intensifier and SWIR clip-on weapon sight for long range sniper operation	SOCOM

FWS Dual Band Laser Pointer/Illuminator	Weapon mount infrared (NIR and SWIR) scope, spot and flood laser pointer/illuminator	SOCOM

UAV Miniature Illuminator Module	Miniature NIR or SWIR laser illuminator for use with existing infrared camera on UAV for reconnaissance	SOCOM, U.S. Air Force

UAV Miniature Dual Laser Illuminator Module	Miniature NIR or SWIR laser illuminator, for UAV reconnaissance application	U.S. Air Force

UAV High Power Laser Illuminator Module	NIR or SWIR laser illuminator	U.S. Air Force, Lockheed Martin, SOCOM

For the year ended December 31, 2007 and the nine months ended September 30, 2008, the Sensor Systems division contributed 21% and 20%, respectively, of our pro forma combined revenues. The Sensor Systems division had firm backlog of $79.4 million at December 31, 2008 on a pro forma combined basis, of which $43.1 million was unfunded government orders and $41.9 million is not reasonably expected to be filled by the end of 2009. The major component of unfunded government backlog related to a U.S. Marine Corps contract.

Training and Services Division

Our Training and Services division provides technical services, tactical operations and preparedness and response training and services that enhance our customers’ ability to prepare for, operate during and recover from high-risk situations or emergencies. We offer our training and services at our tactical training complex and at customer locations worldwide.

We have assembled a highly experienced employee base to perform the services offered by our Training and Services division, and we consider the credentials of our personnel to be a competitive advantage. Our staff is comprised of personnel with a range of backgrounds and experiences, including service in SOCOM, the U.S. Marine Corps, law enforcement and public health and emergency management, most of whom are subject matter experts in their fields. In delivering our services worldwide to highly demanding organizations, we have developed a strong customer base and expect to continue to expand the range of our services for these and other customers. Twenty of our Training and Services division employees have Top Secret security clearances.

Technical Services. We provide a range of services that assist customers in assessing potential threats to critical facilities and inform and train personnel regarding non-conventional threats, such as those posed by weapons of mass destruction (WMDs). Our offerings include:


	•	threat and vulnerability assessments;

	•	emergency preparedness and planning;

	•	homeland security exercise and evaluation programs;

	•	WMD/chemical, biological, radiological, nuclear and explosive response training;


	•	improvised explosive devices training; and

	•	self-protection instruction.

We provide our technical services to customers that include federal, state and local government organizations, hospitals, schools and utilities. Most notably, our technical services group delivers ongoing threat assessment support services to over 250 U.S. embassies and consulates worldwide.

Tactical Operations Training. We provide comprehensive anti-terrorism, force protection and tactical training, and training management services using the latest tactics, techniques and procedures during both static and realistic scenario-based evaluations. Our offerings include:


	•	tactical mobility training relating to mobile force protection, mounted patrols, convoys and escorts, airborne insertion and extraction and on/off road driving;

	•	firearms and marksmanship training for both basic and tactical pistols and carbines, as well as sniper training; and

	•	special tactics training in areas such as urban warfare and close quarters combat, maritime operations, reconnaissance and surveillance.

We provide our tactical operations services to federal, state and local law enforcement agencies and military organizations as well as private customers. We offer our services at our tactical training center in Danville, Virginia and at client locations worldwide.

Preparedness and Response Training. We provide training, exercise and evaluation programs that inform and support emergency planners and decision-makers in crisis management situations. Our offerings include:


	•	National Incident Management System/Incident Command System certification training;

	•	pandemic (public health) response;

	•	vulnerability, threat and risk assessments;

	•	table-top, functional and full-scale homeland security exercises;

	•	emergency operations and response plans; and

	•	business continuity and hazard mitigation plans.

We provide our preparedness and response services primarily to state and local government organizations responsible for public safety and typically conduct training and assessments on-site.

Each of the services provided by the Training and Services division described above has been provided by us prior to the closing of the Pending Acquisitions. For the year ended December 31, 2007 and the nine months ended September 30, 2008, the Training and Services division contributed 6% and 6%, respectively, of our pro forma combined revenues. The Training and Services division had firm backlog of $17.0 million at September 30, 2008 on a pro forma combined basis, of which $8.2 million was unfunded government orders and $8.2 million is not reasonably expected to be filled by the end of 2009. The major portion of unfunded backlog related to a U.S. Department of State contract.

Customers

We market and sell our products and services to a wide range of customers, including corporations, federal, state and local governments, domestic and foreign militaries and individuals worldwide. We define our customers as those with whom we contract and, in certain other instances, the end user as well.

The following table sets forth representative customers of each of our divisions with whom we have done business since January 1, 2007:

Representative Customers

Advanced Transparent and Mobile Systems


Automotive
Alfa Romeo	Aston Martin	Audi	Bentley
BMW	Ferrari	Fiat	Lamborghini
Maserati	Mercedes-Benz⁽¹⁾	Rolls Royce
Mexican government agencies and individuals	U.S. Intelligence Community

Marine
Azimut	Benetti	Ferretti	Mochi Craft
Perini Navi	Pershing	Riva	San Lorenzo

Rail
Alstom	Bombardier	Breda

Aircraft
Aermacchi	Agusta

Sensor Systems
Australia Department of Defence	Canada Ministry of Defence	German Federal Police	Italian Ministry of Defense⁽¹⁾
Lockheed Martin	Poland Ministry of Defense⁽²⁾	Portugal Ministry of Defense	Spain Ministry of Defense
Taiwan Ministry of Defense	U.K. Ministry of Defence⁽²⁾	U.S. Air Force	U.S. Army
U.S. Customs and Border Protection	U.S. Intelligence Community	U.S. Marine Corps⁽³⁾	U.S. Navy
U.S. Special Forces

Training and Services
Florida Department of Health	U.S. Intelligence Community	U.S. Marine Corps⁽¹⁾	U.S. Navy⁽¹⁾U.S. Department of State⁽³⁾

⁽¹⁾ Customer accounted for 10% or more of the division’s pro forma combined revenue for the nine months ended September 30, 2008.

⁽²⁾ Customer accounted for 10% or more of the division’s pro forma combined revenue for the twelve months ended December 31, 2007.

⁽³⁾ Customer accounted for 10% or more of the division’s pro forma combined revenue for the twelve months ended December 31, 2007 and the nine months ended September 30, 2008.

The following table sets forth, for the year ended December 31, 2007 and the nine months ended September 30, 2008, each division’s pro forma combined revenue by geographic area and customer type.

Pro Forma Revenue by Division


	Advanced Transparent and				Sensor Systems				Training and Services
	Mobile Systems Division				Division				Division
			Nine Months				Nine Months				Nine Months
	Year Ended		Ended		Year Ended		Ended		Year Ended		Ended
	December 31,		September 30,		December 31,		September 30,		December 31,		September 30,
	2007		2008		2007		2008		2007		2008
	(In thousands)

Domestic
Department of Defense	$	—	$	—	$	19,471	$	13,593	$	2,893	$	2,138
Other Government		1,595		1,076		3,915		3,928		7,310		7,153
Commercial		3,938		1,583		367		487		200		146

Total Domestic		5,533		2,659		23,753		18,008		10,403		9,437
International
Military		633		2,968		13,677		12,980		—		—
Other Government		19,374		13,024		—		—		—		—
Commercial		106,245		92,820		—		—		238		146

Total International		126,252		108,812		13,677		12,980		238		146

Total	$	131,785	$	111,471	$	37,430	$	30,988	$	10,641	$	9,583

Representative Customers, Products and Services

The following tables present selected examples of products and services provided by each of our divisions during the past five years. We believe that these examples provide relevant and important information regarding the typical use of our products and services across a representative cross-section of our customers. Each of these examples was selected by the company.

Advanced Transparent and Mobile Systems Division


Customer	Product/Service	Description

U.K. Government Agency	Coordination between customer and manufacturer in design and development of armored vehicle system	• Assisted in coordination of initial design and development of transparent armoring for a Mercedes-Benz G-wagon prototype for use alongside military operational vehicles. • Assisted in addressing substantial design challenges, including providing a high post-armoring payload capacity and the inclusion of highly sophisticated communications and electronic systems.

Advanced Transparent and Mobile Systems Division, cont’d


Customer	Product/Service	Description

Mexican Federal Policy Agency (PGR)	Armored vehicle system	• Manufacture armored vehicles for the PGR, which assigns the vehicles to all of its representatives in each state of Mexico. • 52 armored vehicles ordered.
Bombardier/London Underground Metroline	Protective glass windshields and side windows	• Utilizing proprietary manufacturing processes, produced specially formulated and coated glass that met stringent aerodynamic and impact resistance requirements. • Our coating expertise enabled us to provide enhanced features, including advanced control of solar heating and improved defog/defrost capability.
Alfa Romeo/Italian Police & Carabinieri	Design and development of transparent armoring system	• Developed and produced a light transparent armoring system for use in police vehicles, requiring only minor vehicle modifications during the installation process. • Approximately 4,000 vehicles outfitted since 1996.
Mercedes-Benz	Transparent armor	• Annual contract with Mercedes-Benz to fulfill their production needs for transparent armor used in their factory-built armored vehicles.
		• Continuous collaboration with Mercedes-Benz engineers to modify transparent armor for changes in body designs and to incorporate additional features to meet new requirements.
		• Proprietary coating enables favorable aesthetics and equips transparent armor with specialized capabilities, such as de-ice/defrost capabilities, noise and heat reduction and embedded antennas.

Sensor Systems Division


Customer	Product/Service	Description

SOCOM	LPNVG and MHUD	• SOCOM required high-end sensor fusion capability to conduct “brown” water insertion/extraction for similar special operations teams. • Fulfilled requirement of establishing night vision capability in rough waters and other difficult conditions.
Elite Special Operations Organization for a Member of NATO	LPNVG and LPNVM	• Provided equipment to support urgent operations outside the U.S., which required high-quality night vision equipment in order to operate effectively within the dark, mountainous terrain of the combat zone. • Delivered 350 systems within customer required timeframe, fulfilling the organization’s requirement.

Sensor Systems Division, cont’d


Customer	Product/Service	Description

U.K. Ministry of Defence	LPNVG	• U.K. Ministry of Defence selected LPNVG due to requisite capabilities to withstand continuous use in support of the war efforts outside the U.S. • Due to equipment capabilities and contract performance, Ministry of Defence later doubled original requirement, procuring approximately 500 night vision systems that were delivered within a short timeframe.
U.S. Government Agency	LPNVG and EHUD	• Required night vision equipment with sensor fusion capability to enable radio downlink of video imagery for personnel operating alongside military units outside the U.S. • Provided goggle and EHUD systems enabling the operator to simultaneously view the night vision scene and imagery from unmanned aerial vehicles operating overhead.
Elite Special Operations Organization for a Member of NATO	Dayviewer and EHUD	• Organization had urgent requirement for robust, hands-free, heads-up video display with recording capability for combat operations in Afghanistan. • Delivered four integrated systems in less than two months.
Italian Ministry of Defense	LPNVG	• Required night vision capability to support multi-role combat responsibilities of light infantry army units. • Contracted for approximately AN/PVS-21 2,300 systems. • Delivered over 1,200 systems to date of the 2,300 units ordered
U.S. SOCOM	SCIB Mark 4 Reconnaissance Imager	• Required covert imaging and optical tagging capability to support reconnaissance and tagging, tracking, and locating missions. • Developed covert beacons and a handheld reconnaissance imager. • Delivered 10 devices to date.
Federal Bureau of Investigation and U.S. Intelligence Agencies	Micro Thermal Beacons	• Fulfilled requirement for miniature covert thermal beacons for tagging and tracking persons of interest. • Developed miniature thermal beacons with the highest optical output and efficiency available. • Delivered over 1,000 beacons to date.

Training and Services Division


Customer	Product/Service	Description

U.S. Marine Corps Special Operations Training Group	Tactical Training	• Conducted special operations training for Marine Corps personnel, including close quarters battle, sniper and weapons manipulation training.
Department of State	Technical Training	• Performed ongoing Weapons of Mass Destruction training and provided threat assessment support services to over 250 U.S. embassies and consulates worldwide.
		• Conducted surveillance detection training both domestically and internationally for Department of State employees.
DynCorp International Inc.	Tactical Training	• Provided training and facility support to DynCorp International for the Department of State Worldwide Personnel Protective Program. • Conducted training program that included tactical driving, shooting and protective security detail.
U.S. Navy	Technical Training	• Provided counter-improvised explosive device (IED) training to Navy Explosive Ordnance Disposal teams. • Designed and built IED training aids based on actual roadside bombs encountered in combat zones.
Department of Public Health Florida	Preparedness and Response Training	• Conducted security assessments for 95 hospitals in the state of Florida utilizing the Homeland Security Comprehensive Assessment Model.

Sales and Marketing

We employ a team-based sales and marketing approach in which our senior management, sales and marketing personnel and business development staff collaborate to identify and develop domestic and international business opportunities. Some elements of our sales and marketing strategy are division specific and executed at the divisional level. Other elements of our sales and marketing strategy are coordinated across divisions to deliver a more comprehensive and effective solution to our customers.

Advanced Transparent and Mobile Systems Division

In our Advanced Transparent and Mobile Systems division, we organize our sales force, which includes employees and agents, by product line and geographic area. This organization allows our sales force to become more familiar with customers and the product requirements of our customers.

We market our transparent armor and other specialized glass products by highlighting our quality standards for ballistics, optics and dimensional tolerances and our ability to produce intricate shapes that meet demanding specifications for impact resistance and weight. We believe the Isoclima brand is associated with quality and superior ballistic performance. Our transparent armor sales team is comprised of six individuals based in Europe and Latin America who sell primarily to luxury vehicle manufacturers. Our marine, rail, aviation, architectural and other sales teams are comprised of ten individuals located throughout the world. In addition to these direct sales teams, we also engage a network of agents who work on a commission-only basis. We generate sales by developing relationships with key customers and responding to government

requests for proposals (RFPs) and other commercial solicitations. We also market our products at four major trade shows each year.

Notwithstanding this significant sales force, Isoclima has had very limited sales and marketing exposure to the U.S. military and commercial markets. We intend to add sales and engineering staff after this offering to specifically address transparent armor product sales to these markets. We also intend to pursue the U.S. aviation and marine markets for Isoclima’s products, which Isoclima currently is not doing.

We have historically focused our marketing of armored vehicles in Mexico on large corporations, high net worth families, government officials and federal and state police organizations. In addition to traditional marketing strategies, we rely on word-of-mouth recommendations. We believe the TPS brand is associated with high quality and ballistic performance. Our armored vehicle sales team is comprised of 16 individuals who sell to corporations and individuals in assigned geographic territories. We coordinate our sales to the Mexican federal government primarily through its bidding process. We believe we have been successful in winning business at the state and federal levels because of our competitive prices and commitment to quality and service.

Our international sales team at 3S for armored vehicles is comprised principally of three individuals based near London. These individuals focus on marketing and sales in the Middle East, Far East and Africa. Historically, prior to our acquisition of TPS, all of the armored vehicles we sold internationally were sourced by us from third parties. Typically, we generated these sales when customers required an armored vehicle immediately or when they outsourced the procurement process to us and relied upon our expertise to fulfill the requirement. After this offering, we will use our 3S sales team to sell TPS products directly in the international market place. Currently, TPS does not market or sell internationally and 3S has not sold TPS products. Also, we expect to use our current domestic sales personnel to market TPS products to the U.S. government.

In 2008 and to date in 2009, our marketing and sales efforts in anticipation of the acquisitions focused on introducing our products to U.S. government armored vehicle purchasers and marketing transparent armor products to U.S. military vehicle manufacturers. During these initial efforts, our goal has been to establish a dialogue with these potential customers and familiarize them with the products, services and facilities of the companies we are acquiring. Consequently, we have not yet solicited orders from these entities or entered into any contracts with them. We intend to expand this activity going forward.

Sensor Systems Division

Our Sensor Systems division generally markets and sells its products directly to domestic and foreign militaries and federal, state and local law enforcement agencies. Our Washington, D.C.-based business development office routinely works with federal government customers to generate sales opportunities for both existing and potential new Sensor Systems division products from discretionary funds in existing budgets or through requests in the yearly appropriation budgets of federal agencies. We also have an arrangement with a Washington, D.C.-based consulting firm that assist us in this process. Proposal preparation and presentation for government project opportunities is managed by a proposal team that consists of division personnel as well as other business development personnel when appropriate. Our office in the U.K. serves as our base for international sales. We believe our U.K. sales team gives us a competitive advantage because it allows us to better support our customers in Europe, the Middle East and the Far East. For some of our international customers, we use local companies, working as brokers or on commission, to market and sell our products.

We sell our products through multiple channels, including competitive quotations, competitive government RFPs, General Services Administration (GSA) Federal Supply Schedules and original equipment manufacturer contracts. The majority of our sales for small arms night vision sights and scopes result from our responses to RFPs.

Our Sensor Systems division also markets products by participating in approximately 10-15 trade shows and exhibitions each year. These shows and exhibitions are typically sponsored and heavily attended by our current and potential customers. To maximize our exposure at these events, we often present technical papers that educate existing and potential customers on the advanced capabilities of our product offerings. In 2007

and 2008 combined, we marketed our products at shows and exhibitions by attending approximately 30 events in the U.S., Europe, the Middle East and the Far East.

This division currently has a broad international sales capability through its network of agents and through direct sales by our employees in England. OmniTech also has some international agents who sell their product line outside the U.S. After this offering, we intend to consolidate the existing agent networks where there is overlap and then use the entire global network to sell the complete line of Sensor Systems products. In the domestic market, OmniTech’s full time sales person will join our full time domestic sales staff to market the complete Sensor Systems product line. OmniTech has a stronger presence in the law enforcement market than we historically have had, which we expect will enhance the division’s domestic sales capabilities. Additionally, from a marketing perspective the Sensor Systems division will have a larger presence at trade shows and exhibits post offering due to the increased breadth of its product line. We also anticipate that the combined larger manufacturing capability of the division will allow us to pursue higher volume orders from customers.

Training and Services Division

We generate sales in our Training and Services division through a focused sales and marketing effort on government procurement. The majority of our sales to federal, state and local governments result from our responses to RFPs. One team tracks all RFPs issued by the federal government and establishes contract mechanisms to facilitate the task of procuring our services. Once these contract mechanisms are established, our proposal development team, which typically consists of division employees and, when helpful, employees from our other divisions, prepares and submits our RFP response.

Our responses target specific commands in government agencies with large training requirements, such as emergency planning committees. Because many of our employees have served on these types of committees at the federal, state and local levels, we have extensive knowledge of the requirements and preferences of these customers. In addition to sales resulting from RFP responses, some of our services are listed on GSA Schedules, which enables customers to make purchases without completing the otherwise extensive negotiation and procurement process. The acquisition of TPS will enable us to use their existing in-country sales team, which is familiar with offerings such as driver training, with assistance from our existing sales team personnel who have in-depth knowledge of our complete training and services offerings, to market our training and services to potential Federal, state and private customers in Mexico.

Similar to the Sensor Systems division, our Training and Services division participates in trade shows and exhibitions. In 2007 and 2008 combined, we participated at approximately 15 shows and exhibitions. The Training and Services division also engages in a web-based marketing effort that provides details of course offerings, instructor experience and customer feedback.

Coordinated Sales and Marketing Strategy

Although certain elements of our sales and marketing strategy are division-specific and executed at that level, we coordinate other elements of our strategy across divisions to deliver a more comprehensive and effective solution to our customers. We expect to continue this strategy after the closing of the Pending Acquisitions. We believe our coordinated approach allows us to more effectively market and sell our products and services across divisions. For example, our Advanced Transparent and Mobile Systems and Training and Services divisions coordinate to market and sell driver training to customers purchasing our armored vehicles. Also, our Sensor Systems and Training and Services divisions coordinate to market and sell training services to our LPNVG customers. We believe our ability to market and offer these types of single-source solutions increases our business opportunities and revenue. We also expect to coordinate our sales and marketing efforts to the U.S. government by leveraging the experience and contacts within each division to develop new sales.

Technology and Product Development

We emphasize engineering excellence in all of our products and have invested heavily in developing proprietary technologies throughout the company, particularly in our Advanced Transparent and Mobile Systems and Sensor Systems divisions.

Our internally funded research and development expenditures, on a pro forma combined basis, were $4.0 million during 2007 and $2.6 million during the first nine months of 2008. Additionally, approximately $4.2 million and $4.0 million was spent on government funded research and development activities on a pro forma combined basis during 2007 and the first nine months of 2008, respectively. Research and development costs incurred under contracts are charged directly to the related contract and are reflected in the cost of sales. Costs not specifically covered by a contract are expensed as incurred.

Advanced Transparent and Mobile Systems Division

In the Advanced Transparent and Mobile Systems division, we have developed proprietary technologies, processes and design capabilities that we believe serve as substantial competitive differentiators. We have invested in state-of-the-art, customized production and testing facilities for producing specialized, protective glass. We continually work to further refine the composition, quality and performance of our specialty materials through internal research and development. Specifically, we conduct analysis and testing of composite materials, design and implement quality control and verification systems and assess the efficacy and optical clarity of all materials. In doing so, we believe we have established further credibility with our customer base, with whom we work on research and development projects on a regular basis to assess their evolving needs.

With regard to armored vehicles, we employ proprietary design methods involving ratchets and gears for window lifts, reinforced hinges for armored doors and glass support structures, all of which increase the efficiency of the armoring process as well as vehicle and passenger protection. Additionally, we conduct significant research and development on materials used in the armoring process. Development of manufacturing technologies to handle, form and cut new materials, such as high-hardness ballistic steel and ballistic fiber material, and the testing and evaluation of stronger, lower cost, lighter weight materials are core activities due to the potential impact of improvements on the price and quality of the end product.

Sensor Systems Division

In the Sensor Systems division, we are engaged in the research, development and production of advanced technology applications in support of U.S. Special Forces and other sophisticated U.S. government agency customers.

Research and development in our Sensor Systems division focuses on the areas of digitally augmented vision systems, short wave infrared fused day/night weapon sights, reconnaissance imagers, thermal beacons for tagging, tracking and locating activities, and laser illuminators/pointers. The division also has produced innovations in applying new technology to existing products, such as our Digital Universal Night Sight^tm, Fused Weapon Sight and Magnum Universal Night Sight^tm. Similarly, the development of our Enhanced Heads Up Display (EHUD) and various sensors that function with the EHUD has led to additional applications for our low profile night vision goggles. Additionally, we have made innovations that improve functionality, including our Shock Mitigation System (SMS^tm) for the installation of image intensifier tubes in weapon mounted night scopes. This proprietary approach protects the tubes from damage upon the weapon’s discharge, which often is especially severe on larger caliber weapons such as sniper rifles. We believe SMS technology was a significant contributor in the decision by the U.S. Marine Corps. to purchase our night sights and that it has given us a distinct competitive advantage over other manufacturers.

Some of the research and development in our Sensor Systems division for certain imagers in development takes place pursuant to U.S. government-funded contracts. Our government contracts generally permit us to retain ownership of the rights and inventions developed under the contracts so long as we timely report the

inventions and provide the applicable government agency a license to use the inventions for non-commercial purposes. The government receives unlimited rights in technical data produced under government contracts, but we may nevertheless use it for commercial purposes. In order to retain ownership over pre-existing technology developed privately, we must mark this technology with restrictive legends to limit the government’s right to use the technology. In addition, the government may also exercise “march-in” rights if we fail to continue to develop the technology, under which the government may exercise a non-exclusive, royalty-free, irrevocable, worldwide license to any technology developed under contracts it has funded. We believe we have taken the necessary steps to retain our ownership of this technology, although we do not believe any loss would be material.

We augment our internal research and development capabilities by partnering with companies and universities to obtain the subcomponents of products that are outside of our areas of expertise. For example, we are collaborating with ICx Technologies to develop high performance thermal beacons for the U.S. Army. We enter into non-disclosure agreements to protect the intellectual property disclosed or developed by us during these arrangements. However our partners may use the technology developed by them.

Intellectual Property

We protect our technology and products through the pursuit of patent protection in the U.S. and internationally. We have built a portfolio of patents and patent applications relating to various aspects of our technology and products. We have four issued U.S. patents, 16 issued patents in various European countries, 13 pending U.S. patent applications and eight pending Patent Cooperation Treaty applications. Twelve of our patents and patent applications relate to technology used by our Sensor Systems division. Our patents expire at various dates from 2017 through 2025. We do not believe that any single registered or pending patent is material to us.

In addition to our own patent rights, we license certain patent rights from third parties for use in connection with some of our technology and products. In particular, we have an exclusive worldwide license for a patent that is integral to the manufacture of our low profile night vision goggles, for which we pay a per unit royalty. This patent covers the general configuration of the goggle. As the patent expired in early January 2009, others will be able to use the technology. Because we have made substantial proprietary refinements to the original patent, we currently believe that our position in this market, coupled with the investment necessary to enter the market, will provide us with a competitive advantage over future competitors who might otherwise seek to compete with us.

We also have significant rights in trademarks and trade secrets which we use to protect our intellectual property. In addition to common law trademark and trade secret rights, we have 10 issued U.S. registered trademarks and 11 pending applications in the U.S. and numerous registered trademarks and pending applications in Italy, Mexico, the U.K., Germany and other countries. We currently are involved in a dispute with Knight’s Armament Company over the rights to certain trademarks. See “Legal Proceedings.”

Our subsidiaries’ products and services have established brand recognition in their respective markets. Following the closing, we intend to continue marketing both our current subsidiaries’ existing products and services, and those acquired in the Pending Acquisitions, under their current brands. However, as part of our integration process, we will engage in a rigorous review to determine transitional and longer-term branding strategies for all of our products and services, including how they interrelate with our future product and services offerings. The branding strategies to be considered may involve the expanded use of the O’Gara name by our current and future subsidiaries. Our evaluation of new branding strategies will include consideration of others’ rights to use, or limit the use of, the O’Gara name. For example, in 2001, Thomas M. O’Gara, our Chairman of the Board, Wilfred T. O’Gara, our President and Chief Executive Officer and director, and Abram S. Gordon, our Vice President, General Counsel and Secretary, entered into agreements with Armor Holdings, Inc., in connection with its acquisition of O’Gara, Hess & Eisenhardt Armoring Company and its affiliates, a provider of military and commercial vehicles and, at the time, a provider of certain training services. Pursuant to these agreements they agreed, among other things, not to use or authorize any person to use the O’Gara name in connection with any product or service in a business competitive with the businesses

being acquired by Armor Holdings. We believe that our current use of the O’Gara name does not violate any rights that Armor Holdings may have under those agreements. We also believe that, to the extent necessary, we can successfully execute our business plans based upon our current use of the O’Gara name, together with the established brands of our current subsidiaries and the subsidiaries being acquired. For example, TPS Armoring, whose business may be deemed to compete with the business acquired by Armor Holdings, is an established brand in its current markets, and we believe that we could successfully execute our business plan based on continued use of the TPS brand, if we so determine.

In addition, O’Gara Coach Company LLC, an automotive sales business, owned by Thomas M. O’Gara, and O’Gara Protective Services, a provider of private security services, and O’Gara Aviation, a provider of aircraft sales, leasing and flight operations services, both controlled by Edward F. O’Gara (the brother of T. O’Gara and W. O’Gara), use the O’Gara name in connection with their respective businesses. Although these individuals and companies do not have contractual rights to limit our use of the O’Gara name, their use of the O’Gara name will be considered as a part of our branding review in order to avoid confusion among consumers.

There is no guarantee that we will adopt new branding strategies as part of our integration process following our branding review, or that if we do so the goodwill associated with our established and acquired brands will be transferred successfully to one or more new brands. Although the rights of third parties, including with respect to the use of the O’Gara name, will be considered as we evaluate our future branding strategies, there is no guarantee that we will not become involved in a legal dispute or that an adverse result will not occur which could cause us to change those strategies.

Our employees who have access to confidential information and our contractors and customers who have access to our intellectual property are bound by strict confidentiality and nondisclosure obligations. A significant number of our trade secrets are internally “compartmentalized” to increase their protection. Our engineering and research and development employees and those who supervise them also are obligated to assign to us the rights to inventions made by them while employed by us.

Ownership of technology developed with third-party research partners and customers who are involved in the research and development of some products is determined on a contract-by-contract basis. We maintain all ownership rights over work-for-hire developments. In the case of joint development agreements, each party typically maintains ownership rights based on the market for the product.

Competition

The market for our products and services is rapidly evolving and highly competitive. Many of our target markets are subject to quickly changing product technologies, continuously evolving customer needs, stringent regulatory requirements and frequent introductions of new products and services. We compete with organizations varying in size, including many small, start-up companies as well as large, established and well-capitalized international businesses. As the markets for our products and services continue to expand, we expect that competition will continue to increase within our target markets. We encounter different competitors in each of our divisions.

Advanced Transparent and Mobile Systems Division

In our Advanced Transparent and Mobile Systems division, we compete with both manufacturers of specialized protective materials and producers of vehicle armoring systems. In the area of transparent armor, high-impact glass and other specialized glass, we compete principally with PPG Industries, Inc., American Glass Products Company, Saint-Gobain-Sully, GKN plc and SIA Triplex. In the market for vehicle armoring systems, we compete or expect to compete with worldwide companies, principally Centigon, BAE Systems plc and Scalette Moloney Armoring Corporation, as well as with smaller armoring companies operating primarily on a regional basis. In addition, several OEMs, such as Mercedes-Benz and BMW, which are our customers for transparent armor, offer factory equipped armoring packages that compete with our vehicle armoring systems business. OEMs have a greater technical understanding of the vehicle platforms they manufacture than

we do. However, we compete by providing customized armoring options that are not available from OEMs, and we may also act as an OEM subcontractor.

In each case, the principal competitive factors are engineering quality, the protective capabilities of the product, price, service and reputation in the industry. We believe that we compete effectively in the markets in which we operate and that the vertical integration capabilities resulting from the Isoclima and TPS acquisitions will enhance our competitive position in both the transparent armor and other specialized glass markets and the vehicle armoring market, including those markets in which we currently do not have a presence.

Sensor Systems Division

Competitors in our Sensor Systems division include Insight Technology, Inc. and Knight’s Armament Company in the U.S., Elbit Systems, Ltd. in Israel and Photonis Netherlands B.V. in Europe and ITT Corporation and L-3 Electro-Optics Systems worldwide. Currently, we have an exclusive worldwide license for a patent that is integral to the manufacture of our low profile night vision goggles. Since the patent used in the manufacture of those goggles expired in January 2009, these and other competitors could choose to enter this market. ITT Corporation and L-3 Electro-Optics Systems also are the primary producers of image intensifier tubes, which are the core component of night vision goggles.

The principal competitive factors in sales of our Sensor Systems division products are technology, device capability and functionality, price, quality, durability and speed of delivery. We believe that we are at the forefront in the design of next-generation night vision products and that our design innovations, willingness to meet special customer requirements, response time and reputation as a high-technology supplier have enabled us to compete effectively in this market and will enable us to continue to do so.

Training and Services Division

Our Training and Services division faces competition both from established businesses such as Blackwater USA, Olive Group FZ-LLC, Kroll-Crucible, Science Applications International Corporation and Armor Group International plc and from a highly fragmented group of smaller companies, typically headed by retired Special Operations Forces personnel. Competitive factors in this market vary depending on the services desired by a customer but generally involve the expertise of the trainers, facility capabilities, proximity of facilities and price. We believe that our ability to compete is enhanced by the personal reputations of our highly credentialed training personnel, our ability to deliver custom training and exercise programs quickly and efficiently, both at our tactical training complex in Virginia and at customer locations, and the competitive pricing of our services.

Manufacturing

Our manufacturing facilities and processes are designed to produce cost-competitive, quality-assured products. We believe that we emphasize the highest standards and that our proprietary manufacturing processes serve as market differentiators and have allowed us to compete successfully domestically and internationally.

Advanced Transparent and Mobile Systems Division

We produce our transparent armor and other specialized glass at manufacturing facilities in Italy, Mexico and Croatia with a total of approximately 4.2 million square feet of manufacturing space. We emphasize the highest standards and believe our proprietary manufacturing processes serve as market differentiators that have allowed us to compete successfully internationally in supplying some of the most discerning customers in the world.

Our facilities employ proprietary technologies and include high-value manufacturing equipment and assets that are specific to the production of transparent armor, impact resistant glass and other specialized glass. Our transparent armor consists of multiple layers of glass of various thicknesses (totaling .03 inch to 4 inches) and hardnesses based on individual client requirements and international standards for protection. The layered glass required for each particular order is cut to size from large glass plates. Materials are shaped to the required

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curvature on special bending fixtures in tooling furnaces, further shaped by cutting and grinding and then bonded together with interlayers that incorporate various additional functions such as: heating systems for defrosting and defogging, communications antennas, metal coatings for controlling solar heat, electromagnetic interference shielding, noise reduction, and switchable capability to control visible light transmission. Typically, an additional inner layer of an elastic polycarbonate or similar material also is included to provide spall protection. The bonding of the layers and interlayers is done through heat and pressure in high pressure autoclave vessels.

In addition, our Croatian operations manufacture glass sheets from very high quality silica sand. The basic process includes preparing the required raw materials and melting them at high temperatures in a glass furnace. Raw material enters the melting furnace through a feeder on a continuous flow basis. As the silica melts, the molten glass moves to the front of the melter and flows through to the refiner. Once in the refiner, the molten glass is heat conditioned to a specific temperature and ready for the forming process. Our forming process consists of drawing the glass horizontally on plain or patterned rollers, with thickness of the sheet determined by the speed of the draw and configuration of the patterned rollers. The end product then is annealed, cut to required size, edge ground to requirement and thermally tempered.

Our Monterrey, Mexico armoring facility employs lean manufacturing concepts. In-house processes include disassembly of the new vehicle, complete removal of the interior trim, seats, doors and windows, armoring with both opaque armor and transparent armor and reassembly as close to its original appearance as possible. Inspection controls exist for each step of the process as well as for the finished product. Raw materials such as armored steel, aramid fabrics and transparent armor are sourced through U.S. and Mexican suppliers, including Isoclima, that have a proven track record of delivering quality products. We are not dependent on any one supplier for key components.

Sensor Systems Division

We manufacture our small arms night vision weapon sight products at our ISO-compliant facility in Freeport, Pennsylvania. This facility contains approximately 16,000 square feet of manufacturing space including clean room assembly areas, optical fabrication and test equipment and machine shop and environmental test systems. Manufacturing operations are divided into distinct fabrication and assembly processes and employ personnel with skill sets in optics, electronics and precision mechanical mechanisms. We employ sophisticated temperature, shock, pressure and performance test systems in the product manufacturing cycle to increase product integrity in the severe operating environment in which these products are required to perform. A second 20,000 square foot facility in North Buffalo, Pennsylvania currently is in the initial start-up phase and will, when renovations are completed during the first half of 2009, be the location of a state-of-the art precision computerized optical lens fabrication and coating facility. This facility will produce optical lens elements as well as complete assemblies to military standards.

We manufacture our low profile night vision goggles and related products at our ISO-compliant facility in Beavercreek, Ohio. This facility contains approximately 6,000 square feet of manufacturing space, including a 1,200 square foot clean room for optical assembly. In-house processes include electrical assembly, precision mechanical component assembly and precision electro-optical component assembly. Engineering design, research and development and product support and repair functions also are located at the facility.

Our tagging, tracking and locating products and our prototype and low rate initial production optoelectronic devices are manufactured at our facility in Waitsfield, Vermont. The 12,000 square foot facility includes electronics assembly and test areas, optical assembly and test laboratories, a machine shop, and environmental and mechanical test laboratories. The facility also houses engineering and research and development groups. In-house manufacturing capabilities include printed circuit board manufacturing, optoelectronic assembly, precision optical alignment, and computer numerical control machining. A local U.S. Army training center is used for outdoor optical system testing and live fire testing.

Product components for this division are sourced both domestically and internationally. We attempt to dual-source critical components such as the image intensifier tubes used in our night vision products from ITT Corporation, our primary supplier, and L-3 Electro-Optics Systems. In addition, we attempt to maintain

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adequate inventory of the tubes to cover current obligations plus, if available, additional supply as we deem prudent. Because our suppliers of image intensifier tubes also use these tubes in night vision goggles they manufacture and sell, and because of the priority given to tubes needed to fulfill U.S. government contracts, we have, nevertheless, experienced and are currently experiencing delays in receiving this component to fulfill foreign government contracts. Although these supply shortages have delayed shipments of products under certain foreign government contracts, pursuant to the terms of these contracts they have not caused and do not cause a default under or cancellation of the purchase agreement.

Government Contracts; Regulation

Government Contracts

A significant portion of our business is with the U.S. government. U.S. government contracts are generally awarded through formal, competitive bidding processes initiated through RFPs and, for certain products and services, pursuant to GSA Federal Supply Schedules, which enable federal agencies to order services and supplies directly from vendors holding such schedules at specified prices without engaging in a formal solicitation and bidding process. We have secured contracts with the U.S. government through both of these processes. These contracts are generally structured as fixed-price or time-and-materials contracts as described below:


	•	Fixed-Price Contracts: In a fixed-price contract, the price is not subject to adjustment based on costs incurred, which can favorably or adversely impact our profitability depending upon our execution in performing the contracted service. Most of our U.S. government contracts are firm fixed-price contracts. Our fixed-price contracts include low rate initial production (LRIP) contracts. Fixed-price contracts from the U.S. government represented approximately 11% and 8% of our pro forma combined revenues for the year ended December 31, 2007 and the nine months ended September 30, 2008, respectively.

	•	Time-and-Materials Contracts: A time-and-materials contract provides for acquiring supplies or services on the basis of direct labor hours at fixed hourly/daily rates plus materials at cost. Time-and-material contracts from the U.S. government represented approximately 3% of our pro forma combined revenues for the year ended December 31, 2007 and the nine months ended September 30, 2008.

In addition, our U.S. government contracts may be executed under an indefinite-delivery/indefinite-quantity (IDIQ) contract, which may be awarded to multiple contractors. IDIQ contracts obligate the government to order only a minimum quantity. When the U.S. government wishes to order services under an IDIQ contract, it issues a task order and/or request for proposal to the contractor awardees.

U.S. government contracts are conditioned upon the continuing availability of Congressional appropriations. Congress appropriates funds on a fiscal-year basis even though contract performance may extend over many years. Long-term government contracts and related orders are thus subject to cancellation if appropriations for subsequent performance periods are not provided.

Our contracts with the U.S. government or the U.S. government’s prime contractor (to the extent that we are a subcontractor) generally contain standard, unilateral provisions under which the U.S. government may terminate for convenience or for default. Government contracts generally also contain provisions that allow the U.S. government unilaterally to suspend us from receiving new contracts pending resolution of alleged violations of procurement laws or regulations, to reduce the value of existing contracts or to issue modifications to contracts. U.S. government agencies routinely audit government contractors for performance under its contracts, cost accounting and compliance with applicable laws, regulations and standards.

A small portion of our pro forma combined revenue is classified by the U.S. government and cannot be specifically described. The operating results of these classified programs are included in our consolidated financial statements. The business risks associated with classified programs, as a general matter, do not differ materially from those of our other government programs and products.

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Our sales to foreign governments are subject to similar contractual requirements, including competitive bidding processes, contract structures and audit requirements. In addition, our sales to foreign governments are subject to various U.S. policies and regulations as described below. Unlike our contracts with the U.S. government, the purchase orders or contracts for our foreign government sales historically have not been subject to conditions upon continuing funding or contained termination for convenience rights and are supported by irrevocable letters of credit. We had $4.3 million of orders supported by letters of credit at September 30, 2008.

Regulations

Since we contract with the Department of Defense and other agencies of the U.S. government, we are subject to and must comply with numerous federal laws and regulations, including the Federal Acquisition Regulations, the Defense Federal Acquisitions Regulations, the Truth in Negotiations Act, the Foreign Corrupt Practices Act, the False Claims Act and the regulations promulgated under the National Industrial Security Program Operating Manual, which establishes the security guidelines for classified programs and facilities as well as individual security clearances. We are also subject to government contracting laws and regulations in foreign jurisdictions into which we sell. In addition, our sales to foreign governments are subject to various U.S. policies and regulations. We provide all employees with written guidelines on interactions with government officials and on the provision of gifts and entertainment. We also carefully monitor all of our contracts and contractual efforts to minimize the possibility of any violation of these regulations.

We are subject to further U.S. and non-U.S. government regulations due to the nature of some of the products and services we provide. U.S. export control laws include the International Traffic in Arms Regulations, which are administered by the Department of State, and the Export Administration Regulations, which are administered by the Department of Commerce. These regulations give those agencies great flexibility in preventing the export of any controlled items, software, or technical data. Under U.S. sanctions laws, we are prohibited from exporting our products, technology or services to certain sanctioned countries, including Cuba, Iran, North Korea, Syria or Sudan, or to certain restricted entities or individuals designated by the U.S. Government for terrorism, narcotics trafficking, and proliferation reasons, and our compliance system is structured to address these restrictions as well. These U.S. export control laws and regulations place licensing restrictions on certain transfers of products, software, technology and services to our foreign subsidiaries or customers, and export licenses or other appropriate authorizations are obtained, as appropriate, from the U.S. Department of State or the U.S. Department of Commerce, when required by law.

U.S. export control and sanctions regulations carry substantial penalty provisions, including fines and suspension or debarment from government contracting or subcontracting for a period of time if we are found to be in violation. We recognize that an effective compliance program can help protect the reputation and relationship of a regulated company with the federal agencies administering these laws. Each of the regulatory agencies administering these laws has a voluntary disclosure program that offers the possibility of significantly reduced penalties, if any are applicable, and we have utilized these agency disclosure procedures as part of our overall compliance policy and system of internal controls.

In the ordinary course of business, we are subject to numerous other laws and regulations ranging from those relating to labor and health and safety requirements to those designed to protect the environment. In the opinion of management, compliance with existing laws and regulations applicable to us will not materially affect our business or financial condition.

Employees

As of January 1, 2009 we had approximately 1,450 employees, of which approximately 250 were located in the U.S., approximately 330 were located in Mexico and approximately 860 were located in Europe. Approximately 100 of our employees have U.S. security clearances. We believe that our relations with our employees are good. Relationships with our employees in the Italian-based operations of our Advanced Transparent and Mobile Systems division are governed by a national collective labor agreement and some employees are members of the Italian General Confederation and the Italian Confederation of Trade Unions.

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Substantially all of our Croatian production employees are members of the Autonomous Trade Union of Energy, Chemical and Non-Metal Workers of Croatia. In the Mexico-based operations of our Advanced Transparent and Mobile Systems division, many of our employees are represented by the Sindicato Industrial de Trabajadores.

As of January 1, 2009, our employees were divided among our three divisions and corporate parent level as follows: approximately 1,200 employees in the Advanced Transparent and Mobile Systems division, approximately 120 employees in the Sensor Systems division, approximately 120 employees in the Training and Services division and 13 in corporate.

Properties and Facilities

Our principal executive and administrative offices are located in Cincinnati, Ohio, where we lease approximately 5,300 square feet under an agreement expiring in 2012. We also lease or own facilities around the world, including six additional facilities or properties in the U.S., seven facilities in Italy, four facilities in Mexico, three locations in the U.K., one facility in Croatia and one location in Germany.

Our principal properties and facilities as of January 1, 2009 were as follows:


Location	Approximate Size	Owned/Leased	Facility Use

Cincinnati, Ohio	5,300 sq. ft.	Leased	Executive offices
Beavercreek, Ohio	12,000 sq. ft.	Leased	Office/manufacturing
Waitsfield, Vermont	14,000 sq. ft.	Subleased	Office/manufacturing
Waitsfield, Vermont	6,600 sq. ft.	Leased	Office/manufacturing
Freeport, Pennsylvania	16,000 sq. ft.	Leased	Office/manufacturing
North Buffalo, Pennsylvania	20,000 sq. ft.	Leased	Office/manufacturing
Alton, Virginia	174 acres dedicated, use of additional 853 acres	Subleased	Training
Cincinnati, Ohio	14,000 sq. ft.	Leased	Office
Bletchingley, Surrey (England)	1,200 sq. ft.	Subleased	Office
Mexico City, Mexico	4,800 sq. ft.	Leased	Office
Monterrey (Santa Catarina), Mexico	371,000 sq. ft.	Leased	Office/production/warehouse
Naucalpan de Juarez, Mexico	19,000 sq. ft.	Leased	Office/production
Este, Italy	12 acres uncovered 377,000 sq. ft. covered	Owned	Office/production
Lipik, Croatia (1)	45 acres uncovered 25 acres covered	Owned & leased	Office/production
Mexicali, Mexico	161,000 sq. ft. uncovered 71,000 sq. ft. covered	Leased	Office/production
National City, CA	793 sq. ft.	Leased	Office
Weymouth, Dorset, UK	1,062 sq. ft.	Leased	Office


(1)	Includes land on which Lipik has concessions from the Croatian government to mine sand and remove water.

Legal Proceedings

On August 23, 2007, Knights Armament Company (KAC) filed suit in the federal district court for the Middle District of Florida against Optical Systems Technology, Inc. (OSTI), OmniTech Partners, Inc.,

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Keystone Applied Technologies, Inc. and Paul Maxin (Knights Armament Company v. Optical Systems Technology, Inc., et al. (M.D.Fla.)), alleging federal and Florida state trademark infringement and related claims in connection with certain of OSTI’s night vision products. KAC seeks unspecified damages as well as injunctive and declaratory relief. OSTI counterclaimed against KAC and its owner, alleging misappropriation of OSTI’s trade secrets and asserting trademark infringement and related claims. On May 21, 2008, the court dismissed OmniTech Partners, Keystone Applied Technologies and Mr. Maxin from the proceedings for lack of personal jurisdiction. On July 15, 2008, the court dismissed OSTI’s claim for declaratory judgment without leave to amend; dismissed without prejudice OSTI’s claims for trade secret misappropriation, common law unfair competition, business disparagement and federal trade dress infringement; and denied OSTI’s motion to dismiss with respect to the claims for trademark infringement and unfair competition under the Lanham Act. This case involves common issues of law and fact with a proceeding initially filed by OSTI in 2005 with the U.S. Trademark Trial and Appeal Board (Optical Systems Technology, Inc. v. Knight’s Armament Company, Proceeding No. 92044819), which has been suspended pending resolution of the federal litigation.

In addition to the above, we are periodically subject to various other claims and lawsuits incidental to the operation of our business. We believe that none of these other claims or lawsuits to which we are currently subject, individually or in the aggregate, will have a material adverse effect on our business, financial position, results of operations or cash flows.

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THE PENDING ACQUISITIONS

Overview

We have entered into definitive purchase agreements for the acquisition of each of Finanziaria Industriale S.p.A. (together with its wholly- and partially- owned subsidiaries, Isoclima), Transportadora de Protección y Seguridad, S.A. de C.V. (TPS Armoring or TPS), and OmniTech Partners, Inc., Optical Systems Technology, Inc. and Keystone Applied Technologies, Inc. (collectively, OmniTech) (OmniTech, together with Isoclima and TPS, the Pending Acquisitions). We intend that all of the conditions to the closing of each of the Pending Acquisitions, other than the closing of this offering, will have been satisfied prior to the pricing of this offering. Simultaneously with the closing of this offering, we will close each of the Pending Acquisitions using the proceeds from this offering, borrowings under our new credit facility and issuances of our common stock. These Pending Acquisitions will significantly increase our size, expand and enhance our product portfolio, broaden and deepen our customer base, expand our geographic presence and enhance our management team.

Isoclima

Isoclima, a privately-held Italian company founded in 1977, together with its wholly- and partially- owned subsidiaries, is a recognized producer of high-quality, ballistic-resistant transparent armor, impact-resistant glass and other specialized glass used throughout the world. With manufacturing operations in Italy, Croatia and Mexico and offices in the U.K. and Germany, Isoclima employs approximately 970 persons. Transparent armor is a critical component of vehicle armoring systems due to a number of factors including: the difficulty of fitting transparent armor to the original sweep of the windshield; the need for a thin cross-section in order to reduce overall vehicle weight; the need for optical clarity to operate the vehicle safely; and, most importantly, the need to protect what is visible, and therefore vulnerable, through the transparency. The high quality of Isoclima’s transparent armor has made it a key supplier to many vehicle armoring businesses, including TPS, and luxury car manufacturers such as Mercedes-Benz, BMW and Audi. In addition, Isoclima’s specialized and impact-resistant glass are used in various modes of transportation, such as high-speed rail, yachts, military and commercial aircraft and racing cars, to provide one or more key capabilities, such as ballistic or impact resistance, acoustic reduction, thermal resistance and improved aerodynamics. Isoclima’s specialized glass also serves architectural uses, including in high-risk environments such as banks, embassies, government facilities and detention facilities.

Isoclima’s manufacturing facilities total approximately 4.2 million square feet, including approximately 1.6 million square feet of covered space. Its facilities employ sophisticated proprietary technologies and include high-value manufacturing equipment and assets that are specific to the production of transparent armor, impact-resistant glass and other specialized glass. Although Isoclima has the rights to mine sand and water from four sand mines in Croatia through its majority-owned Lipik Glas subsidiary. Lipik currently obtains most quartz sand, a major raw material necessary for its glass solar collecting panels, from sources in the Czech Republic. In the future, Lipik may utilize the Croatian mines as a source for its quartz sand. Additionally, Isoclima purchases float glass from a variety of suppliers in Europe and Mexico.

Upon closing of the Isoclima acquisition, we will own, among other things, Isoclima’s equity interests in its partially-owned subsidiaries, including LIPIK Glas d.o.o., in which we currently own a 83.59% interest. In 2009, Isoclima has the right to purchase the stock held by the other Lipik minority shareholder for approximately €1.8 million.

Isoclima had consolidated revenues of $99.8 million and $82.6 million for the year ended December 31, 2007 and the nine months ended September 30, 2008, respectively, and EBITDA of $15.7 million and $16.3 million for the same periods.

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The following table reconciles net income of Isoclima to EBITDA:


	Year Ended			Nine Months Ended
	December 31, 2007			September 30, 2008
	(in thousands)

Reconciliation of net income to EBITDA
Net income	$	(151	)	$	3,755
Income taxes		3,337			1,765
Interest expense, net		4,127			3,452
Depreciation and amortization		8,410			7,340

EBITDA	$	15,723		$	16,312

Please see note 5 to “— Summary Consolidated Historical and Pro Forma Financial and Other Data” for a description of how we use EBITDA and its limitations as a non-GAAP measure.

The combined firm backlog of Isoclima at December 31, 2008 was $34.8 million, of which $0.8 million is not reasonably expected to be filled by the end of 2009.

TPS Armoring

TPS Armoring, a privately-held Mexican company founded in 1994, is a recognized provider of vehicle armoring systems and related services to large corporations, high net worth families and individuals, government officials and federal and state police organizations in Mexico. It employs approximately 200 persons at its headquarters and production facilities in Monterrey and approximately 25 sales and service employees in Mexico City. The primary production facility is approximately 59,000 square feet and is fully equipped to design, engineer, manufacture and service vehicle armoring systems. During the year ended December 31, 2007 and the nine months ended September 30, 2008, TPS armored 227 and 201 vehicles, respectively. TPS’s facilities employ manufacturing processes and proprietary methods that are designed to achieve high-quality results while maintaining cost efficiencies. Unlike luxury car OEMs that provide standardized armored vehicles for commercial sale, TPS customizes its armored vehicle systems to the customer’s specifications, using one of many commercially available models as the base vehicle. TPS obtains the steel, other hardware components and raw materials necessary for its operations from various suppliers within Mexico and throughout the world. It obtains the substantial majority of its transparent armor from Isoclima.

In addition to its primary business of producing vehicle armoring systems, TPS maintains a fleet of approximately 10 armored vehicles for lease and provides related services. Generally, sales are generated directly by TPS’s sales and marketing force, which is led by the company’s founder and principal owner.

TPS Armoring had consolidated revenues of $30.3 million and $28.9 million for the years ended December 31, 2007 and the nine months ended September 30, 2008, respectively, and EBITDA of $4.9 million and $2.6 million for the same periods. Net income for the nine months ended September 30, 2008 was negatively affected by excess executive compensation expense of $2.1 million.

The following table reconciles net income of TPS Armoring to EBITDA:


	Year Ended		Nine Months Ended
	December 31, 2007		September 30, 2008
	(In thousands)

Reconciliation of net income to EBITDA
Net income	$	3,160	$	1,479
Income taxes		1,347		634
Interest expense, net		107		201
Depreciation and amortization		291		326

EBITDA	$	4,905	$	2,640

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Please see note 5 to “— Summary Consolidated Historical and Pro Forma Financial and Other Data” for a description of how we use EBITDA and its limitations as a non-GAAP measure.

The combined firm backlog of TPS Armoring at December 31, 2008 was $2.0 million, all of which is reasonably expected to be filled by the end of 2009.

OmniTech

OmniTech, a group of Pennsylvania corporations founded in 1995, designs and manufactures multi-spectral optical systems, including night vision weapon sights, pocket scopes, and camera kits and catadioptic lenses, for military and law enforcement applications. The company also designs, develops and builds prototypes of next-generation, multi-spectral optical imaging and surveillance systems. OmniTech employs approximately 75 persons at its headquarters and manufacturing facilities in Freeport and North Buffalo, Pennsylvania. Its primary manufacturing facility is approximately 16,000 square feet of multiple use buildings that house administration and engineering offices, laboratories and production space as well as a 3,000 square feet warehouse.

OmniTech emphasizes an innovative approach to addressing customers’ needs. For instance, OmniTech developed the ability to mount its night sights in front of a standard day scope, which provides users with increased functionality for night firing without the complication of resighting the main scope. Additionally, OmniTech developed a shock attenuation process that extends the image tube life and increases durability, particularly when used with high caliber weapons, which is critically important to customers.

OmniTech had consolidated revenues of $12.7 million and $15.3 million for the years ended December 31, 2007 and the nine months ended September 30, 2008, respectively, and EBITDA of $1.7 million and $4.0 million for the same periods.

The following table reconciles net income of OmniTech to EBITDA:


	Year Ended		Nine Months Ended
	December 31, 2007		September 30, 2008
	(In thousands)

Reconciliation of net income to EBITDA
Net income	$	1,524	$

O'Gara Group, Inc. S-1/A