Annual report pursuant to Section 13 and 15(d)

NOTE 1: - GENERAL

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NOTE 1: - GENERAL
12 Months Ended
Dec. 31, 2016
Disclosure Text Block [Abstract]  
Organization, Consolidation and Presentation of Financial Statements Disclosure [Text Block]
NOTE 1:–                        GENERAL

a.           Corporate structure:

Arotech Corporation (“Arotech”) and its wholly-owned subsidiaries (the “Company”) provide defense and security products for the military, law enforcement, emergency services and homeland security markets, including advanced zinc-air and lithium batteries and chargers, and multimedia interactive simulators/trainers. The Company operates primarily through its wholly-owned subsidiaries FAAC Incorporated, a Michigan corporation located in Ann Arbor, Michigan (Training and Simulation Division) with a location in Orlando, Florida; Epsilor-Electric Fuel Ltd. (“Epsilor-EFL”), an Israeli corporation located in Beit Shemesh, Israel (between Jerusalem and Tel-Aviv), Dimona, Israel (in Israel’s Negev desert area) and Sderot, Israel (near the Gaza Strip) (Power Systems Division); UEC Electronics, LLC (“UEC”), a South Carolina limited liability company located in Hanahan, South Carolina (Power Systems Division).

b.           Discontinued operations

Asset Held for Sale and Discontinued Operations

In August 2016, the Board approved a strategic shift to discontinue the Flow Battery segment (“the segment”) with an effective date of August 31, 2016. The principal activities of the Flow Battery segment were research and development related and were focused on developing a commercial application based upon the Iron Flow Storage concept. In connection with the discontinuance of the operations, management has developed a plan to sell the assets to a third party for future development.  Management believes that the Company will be able to execute the plan in 2017.  

The amounts presented in the consolidated statements of comprehensive income as discontinued operations represent research and development and general and administrative expenses. As the Flow Battery segment is reported within the Epsilor-EFL legal entity and the legal entity has net operating loss carryforwards for which the Company has recorded a valuation allowance, there is no tax impact. Included in the Flow Battery segment’s general and administrative expenses for the year ended December 31, 2016, is a contractual buyout associated with the termination of the Chairman of the Flow Battery segment of $524,052.

The impact of the discontinued operations on operating and investing activities within the consolidated statements of cash flows for the year ended December 31, 2016, 2015, and 2014 was ($1,337,751), ($879,428), and ($396,221); and ($252,064), ($22,075), and none, respectively.

The assets and liabilities of the Flow Battery segment have been classified as held for sale as of December 31, 2016 and 2015. These amounts consist of the following carrying values in each major class.

 
 
December 31, 2016
   
December 31, 2015
 
 
           
ASSETS
           
Property and equipment, net
 
$
270,139
   
$
55,032
 
Long-term assets
   
     
13,269
 
Total assets
 
$
270,139
   
$
68,301
 
LIABILITIES
               
Long term liabilities
   
     
19,295
 
Total liabilities
 
$
   
$
19,295
 

Unless otherwise indicated, discontinued operations are not included in the reported results. The Notes to the Consolidated Financial Statements relate to the Company’s continuing operations. 

c.           Related parties

Note Receivable 

Two former executives entered into non-recourse promissory notes whereby the Company provided the note to the executives and the executives in turn exercised stock options. The promissory notes originally accrued interest at an annual rate of 1% over the then federal funds rate. In 2008, the Company stopped accruing interest on the promissory notes. As of December 31, 2016 and 2015, the aggregate amount outstanding pursuant to this promissory note was $908,054.

UEC Facility Headquarters

On October 31, 2014, the Company entered into a lease agreement with UEC Properties, LLC, a company controlled by the former owners of UEC, and now consultants and shareholders of the Company, for land and buildings that represent the headquarters of UEC Electronics.  The lease term with UEC Properties commenced on January 1, 2015 and it extends for ten years, expiring on December 31, 2024. The 2016 monthly lease payment is $29,585 and increases at a rate of 2.5% per year through the term of the lease. Lease expense recognized in 2016 and 2015 was $355,000 and $346,344, respectively. Upon written notice, the Company and UEC Properties, LLC, may elect to terminate the lease after five years.

Admiralty Partners

On February 2, 2016, the Company and Admiralty Partners (the “Investor”) entered into a Stock Purchase Agreement (the “Investment Agreement”) providing for the sale to the Investor of a total of 1,500,000 shares of the Company’s common stock at a price valued at $1.99 per share. As the Investor was also given the right to nominate a member of the Board of Directors pursuant to the terms of the Investment Agreement, and the shares were issued as a discount to the then market price, this resulted in additional stock compensation expense of $375,000.

Subsequently, on February 3, 2016, the Company entered into a consulting agreement with the Investor for a period of three years. In exchange, the Company pays an annual fee equal to the difference between total accrued compensation of the Board member and $125,000. The agreement can be terminated by either party upon sufficient written notice. Total compensation expense recognized in 2016 was $27,000.