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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q
 
    T  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED      March 31, 2010   .
Commission file number:   0-23336 

AROTECH CORPORATION
 
(Exact name of registrant as specified in its charter)
 
 

Delaware
 
95-4302784
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)

1229 Oak Valley Drive, Ann Arbor, Michigan
 
48108
(Address of principal executive offices)
 
(Zip Code)

(800) 281-0356
(Registrant’s telephone number, including area code)

 
(Former name, former address and former fiscal year, if changed since last report)
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.Yes  £ No  £
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this     chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).Yes  T No  £
 
Indicate by check mark whether the registrant is large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of “large accelerated filer,” accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act:
 
        Large accelerated filer: £                                                                                                         Accelerated filer: £
        Non-accelerated filer: £                                                                                               Smaller reporting company: T
             (Do not check if a smaller reporting company)
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).                              Yes  £  No  T
 
The number of shares outstanding of the issuer’s common stock as of May 12, 2010 was 14,454,527.
 
 


SEC 1296 (04-09)
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information contained in this form are not required to respond 
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INDEX
 
Item
 
Page
PART I - FINANCIAL INFORMATION
   
Item 1 – Financial Statements (Unaudited):
   
Condensed Consolidated Balance Sheets at March 31, 2010 and December 31, 2009
 
3
Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 2010 and 2009
 
5
Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2010 and 2009
 
6
Notes to the Interim Condensed Consolidated Financial Statements
 
8
Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations
 
14
Item 3 – Quantitative and Qualitative Disclosures about Market Risk
 
21
Item 4T – Controls and Procedures
 
21
     
PART II - OTHER INFORMATION
   
Item 1 – Legal Proceedings
 
22
Item 1A – Risk Factors
 
23
Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds
 
23
Item 6 – Exhibits
 
23
     
SIGNATURES
 
24



 
 2

 

ITEM 1.
FINANCIAL STATEMENTS (UNAUDITED).
 


CONDENSED CONSOLIDATED BALANCE SHEETS
(U.S. Dollars)

   
March 31, 2010
   
December 31, 2009
 
   
(Unaudited)
       
ASSETS
           
CURRENT ASSETS:
           
Cash and cash equivalents
  $ 1,784,764     $ 1,901,525  
Restricted collateral deposits
    1,997,450       1,997,165  
Trade receivables (net of allowance for doubtful accounts in the amount of $42,000 as of March 31, 2010 and $47,000 as of December 31, 2009)
    16,275,578       14,010,974  
Unbilled receivables
    6,506,230       4,142,107  
Other accounts receivable and prepaid expenses
    2,753,852       2,825,202  
Inventories
    10,539,547       12,335,037  
Total current assets
    39,857,421       37,212,010  
LONG TERM ASSETS:
               
Deferred tax assets
    41,537       41,405  
Severance pay fund
    3,583,059       3,447,884  
Other long term receivables
    447,701       395,456  
Property and equipment, net
    4,459,869       4,624,833  
Investment in affiliated company
    67,018       67,018  
Other intangible assets, net
    5,637,567       6,025,600  
Goodwill
    32,428,696       32,303,673  
Total long term assets
    46,665,447       46,905,869  
Total assets
  $ 86,522,868     $ 84,117,879  


The accompanying notes are an integral part of the Interim Condensed Consolidated Financial Statements.

 
 
3

 

CONDENSED CONSOLIDATED BALANCE SHEETS
(U.S. Dollars, except share data)


   
March 31, 2010
   
December 31, 2009
 
   
(Unaudited)
       
LIABILITIES AND STOCKHOLDERS’ EQUITY
           
CURRENT LIABILITIES:
           
Trade payables
  $ 6,061,500     $ 5,149,243  
Other accounts payable and accrued expenses
    5,414,896       6,239,436  
Current portion of capitalized leases
    47,868       45,911  
Current portion of long term debt
    1,903,864       1,902,097  
Short term bank credit
    5,061,585       4,074,890  
Deferred revenues
    5,368,788       4,434,093  
Total current liabilities
    23,858,501       21,845,670  
LONG TERM LIABILITIES:
Accrued severance pay
    5,305,599       4,985,011  
Long term portion of capitalized leases
    39,124       52,021  
Long term debt
    1,847,005       2,270,152  
Deferred tax liability
    3,130,000       2,990,000  
Other long term liabilities
    511,943       555,220  
Total long term liabilities
    10,833,671       10,852,404  
STOCKHOLDERS’ EQUITY:
               
Share capital –
               
Common stock – $0.01 par value each;
               
Authorized: 50,000,000 shares as of March 31, 2010 and December 31, 2009; Issued and outstanding: 14,423,659 shares and 14,405,948 shares as of March 31, 2010 and December 31, 2009, respectively
    144,237       144,060  
Preferred shares – $0.01 par value each;
               
Authorized: 1,000,000 shares as of March 31, 2010 and December 31, 2009; No shares issued and outstanding as of March 31, 2010 and December 31, 2009
           
Additional paid-in capital
    220,634,377       220,481,911  
Accumulated deficit
    (169,696,474 )     (169,788,022 )
Notes receivable from stockholders
    (954,647 )     (954,647 )
Accumulated other comprehensive income
    1,703,203       1,536,503  
Total stockholders’ equity
    51,830,696       51,419,805  
Total liabilities and stockholders’ equity
  $ 86,522,868     $ 84,117,879  

The accompanying notes are an integral part of the Interim Condensed Consolidated Financial Statements.

 
 
4

 

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(U.S. Dollars, except share data)

   
Three months ended March 31,
 
   
2010
   
2009
 
Revenues
  $ 21,150,394     $ 20,092,222  
                 
Cost of revenues, exclusive of amortization of intangibles
    15,326,651       14,831,462  
Research and development
    814,481       331,888  
Selling and marketing expenses 
    1,160,659       1,146,092  
General and administrative expenses
    2,953,597       2,766,669  
Amortization of intangible assets
    421,648       372,597  
Total operating costs and expenses
    20,677,036       19,448,708  
                 
Operating profit
    473,358       643,514  
                 
Other income
    23,460       49,831  
Financial expenses, net
    (143,250 )     (973,078 )
Total other expenses
    (119,790 )     (923,247 )
Income (loss) before income tax expenses
    353,568       (279,733 )
                 
Income tax expenses
    (262,020 )     (196,290 )
Net profit (loss)
  $ 91,548     $ (476,023 )
                 
Basic  net profit (loss) per share
  $ 0.01     $ (0.04 )
Diluted net profit (loss) per share
  $ 0.01     $ (0.04 )
                 
Weighted average number of shares used in computing basic net profit (loss) per share
    13,487,673       13,576,885  
Weighted average number of shares used in computing diluted net profit (loss) per share
    14,090,413       13,576,885  


 
 

The accompanying notes are an integral part of the Interim Condensed Consolidated Financial Statements.

 
 
5

 


CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
(U.S. Dollars)
 

 
   
Three months ended March 31,
 
   
2010
   
2009
 
CASH FLOWS FROM OPERATING ACTIVITIES:
           
Net profit (loss)
  $ 91,548     $ (476,023 )
Adjustments required to reconcile net profit (loss) to net cash provided by (used in) operating activities:
               
Depreciation
    314,659       315,776  
Amortization of intangible assets and capitalized software costs
    421,648       372,597  
Amortization of debt discount
    51,488       202,555  
Compensation related to shares issued to employees, consultants and directors
    118,938       99,431  
Adjustment to value of warrants and imbedded features on the senior convertible notes
    (48,056 )     195,814  
Deferred tax expense
    139,868       146,646  
Changes in operating assets and liabilities:
               
Severance pay, net
    185,413       (92,826 )
Trade receivables
    (2,264,604 )     5,059,419  
Other accounts receivable and prepaid expenses
    19,105       409,644  
Inventories
    1,795,490       (173,144 )
Unbilled receivables
    (2,364,123 )     (1,574,648 )
Deferred revenues
    934,695       (1,051,416 )
Trade payables
    912,257       (1,509,772 )
Accounts payable and accrued expenses
    (830,700 )     (1,265,386 )
Net cash provided by (used in) operating activities
    (522,374 )     658,667  
CASH FLOWS FROM INVESTING ACTIVITIES:
               
Purchase of property and equipment, net of investment grants received from the State of Israel
    (149,695 )     20,412  
Additions to capitalized software development
          (10,019 )
Restricted cash
    (285 )     12,342  
Net cash provided by (used in) investing activities
    (149,980 )     22,735  
FORWARD
  $ (672,354 )   $ 681,402  


The accompanying notes are an integral part of the Interim Condensed Consolidated Financial Statements.

 
 
6

 

CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
(U.S. Dollars)

   
Three months ended March 31,
 
   
2010
   
2009
 
FORWARD
  $ (672,354 )   $ 681,402  
CASH FLOWS FROM FINANCING ACTIVITIES:
               
Long term loans
    (429,534 )     (469,045 )
Short term bank credit
    986,695       (900,000 )
Treasury stock purchased
    (9,630 )      
Net cash provided by (used in) financing activities
    547,531       (1,369,045 )
DECREASE IN CASH AND CASH EQUIVALENTS
    (124,823 )     (687,643 )
CASH ACCRETION (EROSION) DUE TO EXCHANGE RATE DIFFERENCES
    8,062       (133,675 )
CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE PERIOD
    1,901,525       4,301,359  
CASH AND CASH EQUIVALENTS AT THE END OF THE PERIOD
  $ 1,784,764     $ 3,480,041  
SUPPLEMENTARY INFORMATION ON NON-CASH TRANSACTIONS:
               
Interest paid during the period
  $ 143,841     $ 178,791  
Taxes on income paid during the year
  $     $ 2,800  
Note conversion to common stock
  $ 43,000     $  


The accompanying notes are an integral part of the Interim Condensed Consolidated Financial Statements.

 
 
7

 

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTE 1:                      BASIS OF PRESENTATION
 
a.           Company:
 
Arotech Corporation (“Arotech”) and its wholly-owned subsidiaries (the “Company”) provide defense and security products for the military, law enforcement and homeland security markets, including multimedia interactive simulators/trainers, lightweight vehicle armoring, and advanced zinc-air and lithium batteries and chargers. The Company operates primarily through its wholly-owned subsidiaries FAAC Incorporated (“FAAC”), based in Ann Arbor, Michigan and Royal Oak, Michigan; MDT Protective Industries, Ltd. (“MDT”), based in Lod, Israel; MDT Armor Corporation (“MDT Armor”), based in Auburn, Alabama; Electric Fuel Battery Corporation (“EFB”), based in Auburn, Alabama; Electric Fuel Ltd. (“EFL”), based in Beit Shemesh, Israel; and Epsilor Electronic Industries, Ltd. (“Epsilor”), based in Dimona, Israel. The Company’s former subsidiaries Armour of America Incorporated (“AoA”) and Realtime Technologies, Inc. (“RTI”) have been merged into MDT Armor and FAAC, respectively.
 
b.           Basis of presentation:
 
The accompanying interim condensed consolidated financial statements have been prepared by Arotech Corporation in accordance with generally accepted accounting principles for interim financial information, with the instructions to Form 10-Q and with Article 10 of Regulation S-X, and include the accounts of Arotech Corporation and its subsidiaries. Certain information and footnote disclosures, normally included in complete financial statements prepared in accordance with generally accepted accounting principles, have been condensed or omitted. In the opinion of the Company, the unaudited financial statements reflect all adjustments (consisting only of normal recurring adjustments) necessary for a fair presentation of its financial position at March 31, 2010, its operating results for the three-month periods ended March 31, 2010 and 2009, and its cash flow for the three-month periods ended March 31, 2010 and 2009.
 
The results of operations for the three months ended March 31, 2010 are not necessarily indicative of results that may be expected for any other interim period or for the full fiscal year ending December 31, 2010.
 
The balance sheet at December 31, 2009 has been derived from the audited financial statements at that date but does not include all the information and footnotes required by generally accepted accounting principles for complete financial statements. These condensed consolidated financial statements should be read in conjunction with the audited financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2009.
 
c.           Accounting for stock-based compensation:
 
For the three months ended March 31, 2010 and 2009 the compensation expense recorded related to stock options and restricted shares was $118,938 and $99,431, respectively, of which $0 and $8,975, respectively, was for stock options and $118,938 and $90,456, respectively, was for restricted shares. The remaining total compensation cost related to non-vested stock options and restricted share awards not yet recognized in the income statement as of March 31, 2010 was
 

 
 8

 

$165,579 all of which was for restricted shares. The weighted average period over which this compensation cost is expected to be recognized is approximately one and one-half years. Income tax expense was not impacted since the Company is in a net operating loss position. There were no new options issued in the first three months of 2010 and no options were exercised in the first three months of 2010. The Company’s directors received their annual restricted stock grants on April 1, 2010 in accordance with the terms of the directors’ stock compensation plan.
 
d.           Reclassification:
 
Certain comparative data in these financial statements may have been reclassified to conform to the current year’s presentation.
 
e.           Anti-dilutive shares for EPS calculation
 
All outstanding stock options and warrants have been excluded from the calculation of the diluted net loss per common share because all such securities are anti-dilutive for the periods presented and the Company has excluded any restricted stock that will never vest under the current program. The total weighted average number of shares excluded from the calculations of diluted net profit (loss) per share for the three-month periods ended March 31, 2010 and 2009 were 1,112,608 and 937,230, respectively.
 
NOTE 2:                      INVENTORIES
 
Inventories are stated at the lower of cost or market value. Cost is determined using the average cost method or the FIFO method. The Company periodically evaluates the quantities on hand relative to current and historical selling prices and historical and projected sales volume. Based on these evaluations, provisions are made in each period to write down inventory to its net realizable value. Inventory write-offs are provided to cover risks arising from slow-moving items, technological obsolescence, excess inventories, and for market prices lower than cost. Inventories are composed of the following:
 
   
March 31, 2010
   
December 31, 2009
 
   
(Unaudited)
       
Raw materials
  $ 7,686,687     $ 7,479,672  
Work-in-progress
    2,212,605       3,943,073  
Finished goods
    640,255       912,292  
Total
  $ 10,539,547     $ 12,335,037  
 
NOTE 3:                      IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
 
For information about previous new accounting pronouncements and the potential impact on the Company’s Consolidated Financial Statements, see Note 2 of the Notes to Consolidated Financial Statements in the Company’s 2009 Form 10-K and Notes 6 and 8 below.
 
NOTE 4:                      SEGMENT INFORMATION
 
a.           General:
 
The Company and its subsidiaries operate primarily in three business segments and follow the requirements of FASB ASC 280-10.
 

 
 9

 

The Company’s reportable operating segments have been determined in accordance with the Company’s internal management structure, which is organized based on operating activities. The accounting policies of the operating segments are the same as those used by the Company in the preparation of its annual financial statement. The Company evaluates performance based upon two primary factors, one is the segment’s operating income and the other is the segment’s contribution to the Company’s future strategic growth.
 
b.           The following is information about reported segment revenues, income (losses) and total assets for the three months ended March 31, 2010 and 2009:
 
   
Training and
Simulation
   
Armor
   
Battery and
Power Systems
   
All Others
   
Total
 
Three months ended March 31, 2010
                             
Revenues from outside customers                                                               
  $ 9,645,541     $ 6,551,821     $ 4,953,032     $     $ 21,150,394  
Depreciation and amortization(1)
    (392,176 )     (46,017 )     (253,866 )     (44,248 )     (736,307 )
Direct expenses (2) 
    (8,013,141 )     (6,192,343 )     (4,576,869 )     (1,396,936 )     (20,179,289 )
Segment income (loss)
  $ 1,240,224     $ 313,461     $ 122,297     $ (1,441,184 )   $ 234,798  
Financial expense
          (33,090 )     (6,066 )     (104,094 )     (143,250 )
Net profit (loss)
  $ 1,240,224     $ 280,371     $ 116,231     $ (1,545,278 )   $ 91,548  
Segment assets (3) 
  $ 48,796,684     $ 11,725,685     $ 23,328,821     $ 2,671,678     $ 86,522,868  
Three months ended March 31, 2009
                                       
Revenues from outside customers                                                               
  $ 11,461,851     $ 4,717,718     $ 3,912,653     $     $ 20,092,222  
Depreciation and amortization (1)
    (337,648 )     (44,114 )     (256,923 )     (49,688 )     (688,373 )
Direct expenses (2) 
    (9,767,059 )     (4,492,739 )     (3,485,987 )     (1,161,009 )     (18,906,794 )
Segment income (loss)
    1,357,144       180,865       169,743       (1,210,697 )     497,055  
Financial expense
          (127,945 )     (353,052 )     (492,081 )     (973,078 )
Net profit (loss)
  $ 1,357,144     $ 52,920     $ (183,309 )   $ (1,702,778 )   $ (476,023 )
Segment assets (3) 
  $ 46,397,902     $ 11,472,560     $ 22,247,491     $ 3,388,641     $ 83,506,594  
   
(1)
Includes depreciation of property and equipment and amortization expenses of intangible assets.
(2)
Including, inter alia, sales and marketing, general and administrative and tax expenses.
(3)
Out of those amounts, goodwill in our Training and Simulation, Armor and Battery and Power Systems Divisions stood at $24,435,640, $1,833,397 and $6,159,659, respectively, as of March 31, 2010 and $24,435,640, $1,668,644 and $5,461,033, respectively, as of March 31, 2009. Subsequent to the 2004 purchase of AoA, the Company recorded an impairment charge in 2005 to fully impair related goodwill ($10.5 million) and intangible assets ($2.6 million). Additionally, due to an earnout on the same transaction, the Company recorded an additional $316,000 in goodwill in 2007 and immediately recorded an impairment of $316,000. The Company has not recorded any other goodwill impairment charges.
 
NOTE 5:                      COMPREHENSIVE INCOME (LOSS)
 
Comprehensive income (loss) for the three months ended March 31, 2010 and 2009 is summarized below:
 
   
Three Months Ended March 31,
 
   
2010
   
2009
 
Net income (loss)
  $ 91,548     $ (476,023 )
Foreign currency translation
    166,700       (1,098,929 )
Total comprehensive income (loss)
  $ 258,248     $ (1,574,952 )
 

 

 
 10

 

 
NOTE 6:                      CONVERTIBLE NOTES AND DETACHABLE WARRANTS
 
10% Senior Convertible Notes due August 15, 2011
 
Pursuant to the terms of a Securities Purchase Agreement dated August 14, 2008, the Company issued and sold to a group of institutional investors 10% senior convertible notes in the aggregate principal amount of $5.0 million due August 15, 2011. These notes are convertible at any time prior to August 15, 2011 at a conversion price of $2.24 per share. As part of our analysis of the convertible debt and related warrants, we reviewed and followed the guidance of FASB ASC 718-10, ASC 815-40-15, ASC 470-20-30 and ASC 105-10-05.
 
As part of the securities purchase agreement, the Company issued to the purchasers of its 10% senior convertible notes due August 15, 2011, warrants to purchase an aggregate of 558,036 shares of common stock at any time prior to August 15, 2011 at a price of $2.24 per share. The warrants were classified in 2008 as equity based on relative fair value. The relative fair value of these warrants was determined in 2008 using the Black-Scholes pricing model, assuming a risk-free interest rate of 2.78%, a volatility factor 75%, dividend yields of 0% and a contractual life of 3.0 years.
 
On March 31, 2010, the Company revalued its warrants, their embedded conversion options and their embedded put options and recorded a reduction of approximately $48,000 in the first quarter of 2010 as a credit to financial expense. The approximate year-to-date financial expense associated with this transaction is $48,000. The table below lists the variables used in the Black-Scholes calculation and the resulting values:
 
Variables
 
December 31, 2009
   
March 31, 2010
 
Stock price
  $ 1.70     $ 1.72  
Risk free interest rate
    1.70 %     1.60 %
Volatility
    79.85 %     77.87 %
Dividend yield
    0.00 %     0.00 %
Contractual life
 
1.6 years
   
1.4 years
 
                 
Values
 
December 31, 2009
   
March 31, 2010
 
Warrants
  $ 298,570     $ 265,139  
Conversion option
    88,156       75,696  
Puts
    7,371       5,206  
Total value
  $ 394,097     $ 346,041  
                 
Change in value – charged to financial expense
    $ (48,056 )
 
Principal payments are due on the convertible notes as follows:
 
Year
 
Amount
 
2010
  $ 1,363,635  
2011
    1,363,640  
    $ 2,727,275  


 
 11

 

 
NOTE 7:                      FINANCING ACTIVITIES
 
Loan to DEI Services Corporation
 
Concurrent with the Securities Purchase Agreement dated August 14, 2008, the Company purchased a $2,500,000 Senior Subordinated Convertible Note from an unaffiliated company, DEI Services Corporation (“DEI”). This 10% Senior Subordinated Convertible Note (the “DEI Note”) was due December 31, 2009. The DEI Note is convertible at maturity at the Company’s option into such number of shares of DEI’s common stock, no par value per share, as shall be equal at the time of conversion to twelve percent (12%) of DEI’s outstanding common stock.
 
In the third quarter of 2009 DEI repaid a portion of their internal shareholder loans, which was a violation of the DEI Note covenants with the Company. Because of this, the Company agreed in October of 2009 to amend the DEI Note to provide that the interest rate on the DEI Note would be increased to 15% and would be payable through the payment date. In the event that the DEI Note is not paid in full at maturity, the DEI Note will be convertible into a minimum of 20% of DEI’s then outstanding common stock, or more under certain circumstances.
 
In November 2009, DEI brought in a new investor that was prepared to provide DEI with additional working capital, but only if the Company agreed to step aside and accept a $500,000 discount on the DEI Note and waive its associated rights of first refusal and conversion. In view of the possibility that DEI would seek an extension of the DEI Note, the Company decided to enable DEI to bring in the new investor and thereby be able to pay the DEI Note on time, albeit at a discount. The Company accordingly wrote down the value of the DEI Note in the third quarter of 2009 by $500,000, to $2.0 million and charged the associated expense to allowance for settlements on the statement of operations. When the new investor’s investment did not close, the Company retained all its rights under the DEI Note, including its right to be paid the full amount of the DEI Note and its conversion option and right of first refusal.
 
The Company declared a default on the DEI Note when it was not paid pursuant to its terms at the end of December 2009. The Company is presently prohibited from bringing suit to collect this note pursuant to the terms of a subordination agreement with DEI’s senior lender. However, the Company is maintaining communication with DEI, and the Company continues to believe that DEI’s anticipated earnings and cash flow will enable the DEI Note to be paid, albeit late. As of March 31, 2010, interest on the DEI Note has been paid by DEI through November 15, 2009, and the Company expects DEI to continue to make interest payments on the Note.
 
Management has determined that the DEI Note, in the event of an impairment, would be valued using Level 2 inputs under FASB ASC 820-10, using inputs related to interest rates, term of the note and relative risk on similar notes available in the marketplace.
 
NOTE 8:                      FAIR VALUE MEASUREMENT
 
The carrying value of short term assets and liabilities in the accompanying condensed consolidated balance sheets for cash and cash equivalents, restricted collateral deposits, trade receivables, unbilled receivables, inventories, prepaid and other assets, trade payables, accrued expenses, deferred revenues and other liabilities as of March 31, 2010 and December 31, 2009, approximate
 

 
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fair value because of the short maturity of these instruments. The carrying amounts of long term debt approximates the estimated fair values at March 31, 2010, based upon the Company’s ability to acquire similar debt at similar maturities.
 
NOTE 9:                      COMMON STOCK REPURCHASE PROGRAM
 
In February of 2009, the Company authorized, for a period of one year, the repurchase in the open market or in privately negotiated transactions of up to $1.0 million of its common stock. Pursuant to this plan, the Company through March 31, 2010 had repurchased 452,858 shares of its common stock for $572,811 ($563,614 net of commissions), all of which was purchased after April 1, 2009.  At March 31, 2010, the Company had remaining authorization for the repurchase of up to $436,386 in shares of its common stock. The repurchase program is subject to the discretion of the Company’s management.
 

 
 13

 

ITEM 2.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
This report contains forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These statements involve inherent risks and uncertainties. When used in this discussion, the words “believes,” “anticipated,” “expects,” “estimates” and similar expressions are intended to identify such forward-looking statements. Such statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those projected. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. We undertake no obligation to publicly release the result of any revisions to these forward-looking statements that may be made to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of certain factors including, but not limited to, those set forth elsewhere in this report. Please see “Risk Factors” in our Annual Report on Form 10-K and in our other filings with the Securities and Exchange Commission.
 
Arotech™ is a trademark and Electric Fuel® is a registered trademark of Arotech Corporation. All company and product names mentioned may be trademarks or registered trademarks of their respective holders. Unless the context requires otherwise, all references to us refer collectively to Arotech Corporation and its subsidiaries.
 
We make available through our internet website free of charge our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, amendments to such reports and other filings made by us with the SEC, as soon as practicable after we electronically file such reports and filings with the SEC. Our website address is www.arotech.com. The information contained in this website is not incorporated by reference in this report.
 
The following discussion and analysis should be read in conjunction with the interim financial statements and notes thereto appearing elsewhere in this Quarterly Report. We have rounded amounts reported here to the nearest thousand, unless such amounts are more than 1.0 million, in which event we have rounded such amounts to the nearest hundred thousand.
 
Executive Summary
 
We are a defense and security products and services company, engaged in three business areas: interactive simulation for military, law enforcement and commercial markets (Training and Simulation Division); high-level armoring for military, paramilitary and commercial vehicles (Armor Division); and batteries and charging systems for the military (Battery and Power Systems Division).
 
Overview of Results of Operations
 
Acquisitions
 
In acquisition of subsidiaries, part of the purchase price is allocated to intangible assets and goodwill. Amortization of intangible assets related to acquisition of subsidiaries is recorded based on the estimated expected life of the assets. Accordingly, for a period of time following an
 

 
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acquisition, we incur a non-cash charge related to amortization of intangible assets in the amount of a fraction (based on the useful life of the intangible assets) of the amount recorded as intangible assets. Such amortization charges continued during the first three months of 2010. We are required to review intangible assets and goodwill for impairment at least annually or whenever events or changes in circumstances indicate that carrying amount of the assets may not be recoverable. If we determine, through the impairment review process, that goodwill has been impaired, we must record the impairment charge in our statement of operations.
 
In the case of goodwill, the assets recorded as goodwill are not amortized; instead, we are required to perform an annual impairment review. If we determine, through the impairment review process, that goodwill has been impaired, we must record the impairment charge in our statement of operations.
 
Financings and Issuances of Warrants
 
The non-cash charges that relate to our financings occurred in connection with our issuance of convertible securities with warrants, and in connection with our repricing of certain warrants and grants of new warrants. When we issue convertible securities, we record a discount for a beneficial conversion feature that is amortized ratably over the life of the debenture.
 
During the third quarter of 2008 and pursuant to the terms of a Securities Purchase Agreement dated August 14, 2008, we issued and sold to a group of institutional investors 10% senior convertible notes in the aggregate principal amount of $5.0 million due August 15, 2011. These notes are convertible at any time prior to August 15, 2011 at a conversion price of $2.24 per share. As part of our analysis of the convertible debt and related warrants, we reviewed and followed the guidance of FASB ASC 718-10, ASC 815-40-15, ASC 470-20-30 and ASC 105-10-05.
 
As part of the securities purchase agreement, we issued to the purchasers of our 10% senior convertible notes due August 15, 2011, warrants to purchase an aggregate of 558,036 shares of common stock at any time prior to August 15, 2011 at a price of $2.24 per share. The warrants were classified in 2008 as equity based on relative fair value. The relative fair value of these warrants was determined in 2008 using the Black-Scholes pricing model, assuming a risk-free interest rate of 2.78%, a volatility factor 75%, dividend yields of 0% and a contractual life of 3.0 years.
 
In connection with the original accounting for these convertible notes, we recorded a deferred debt discount on the balance sheet of $412,000 in 2008. The beneficial conversion feature and the discount arising from fair value allocation of the warrants according to FASB ASC 470-20-25 is being amortized from the date of issuance to the stated redemption date – August 15, 2011.
 
On January 1, 2009 we adopted FASB ASC 815-40-15, “Determining Whether an Instrument is Indexed to an Entity’s Own Stock.” FASB ASC 815-40-15 requires us to re-evaluate the warrants issued with the convertible notes and to also re-evaluate the embedded conversion option and embedded put options within the notes to determine if the previous accounting for these items would change. Upon this re-evaluation, we were required to reclassify the warrants along with the value of the embedded conversion feature from equity to a derivative liability. The
 

 
 15

 

embedded put options remained classified as derivative liabilities. The Company again used the Black-Scholes valuation model to determine the value of the warrants, the value of the embedded conversion feature and the value of the embedded put options associated with the convertible notes as of January 1, 2009. In accordance with the guidance of FASB ASC 815-40-15, a cumulative adjustment increasing January 1, 2009 retained earnings by $1,287,000 was made in the first quarter of 2009 to reflect this new accounting. We re-valued this amount in the second quarter of 2009 based on a revised valuation of the derivative liability.  This resulted in a debt discount balance in the amount of approximately $325,000, which is included in Long Term Debt on the balance sheet, and a revised cumulative adjustment to retained earnings of $471,000.
 
On March 31, 2009, we revalued these warrants, their embedded conversion option and their embedded put options and recorded a reduction of approximately $48,000 in the first quarter as a credit to financial expense. The year to date financial expense associated with this transaction is approximately $48,000. The table below lists the variables used in the Black-Scholes calculation and the resulting values.
 
Variables
 
December 31, 2009
   
March 31, 2010
 
Stock price
  $ 1.70     $ 1.72  
Risk free interest rate
    1.70 %     1.60 %
Volatility
    79.85 %     77.87 %
Dividend yield
    0.00 %     0.00 %
Contractual life
 
1.6 years
   
1.4 years
 
                 
Values
 
December 31, 2009
   
March 31, 2010
 
Warrants
  $ 298,570     $ 265,139  
Conversion option
    88,156       75,696  
Puts
    7,371       5,206  
Total value
  $ 394,097     $ 356,041  
                 
Change in value – charged to financial expense
    $ (48,056 )
 
Principal payments are due on the convertible notes as follows:
 
Year
 
Amount
 
2010
  $ 1,363,635  
2011
    1,363,640  
    $ 2,727,275  
 
Concurrent with the Securities Purchase Agreement dated August 14, 2008, we purchased a $2,500,000 Senior Subordinated Convertible Note from an unaffiliated company, DEI Services Corporation (“DEI”). This 10% Senior Subordinated Convertible Note (the “DEI Note”) is due December 31, 2009. The DEI Note is convertible at maturity at our option into such number of shares of DEI’s common stock, no par value per share, as shall be equal at the time of conversion to twelve percent (12%) of DEI’s outstanding common stock.
 

 
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Interest on the outstanding principal amount of the DEI Note commenced accruing on the issuance date and is payable quarterly, in arrears. We will discontinue accruing interest on the DEI Note due to the provision on the DEI Note recorded in the third quarter. The remaining interest payment was due on November 15, 2009, with the final payment due on December 31, 2009; however, since the DEI Note is now in default, interest continues to accrue. Interest on the DEI Note will be recognized as a reduction of financial expenses and will be shown on an accrual basis. Related fees and costs will be recorded as general and administrative expense.
 
In November 2009, DEI brought in a new investor that was prepared to provide DEI with additional working capital, but only if we agreed to step aside and accept a $500,000 discount on the DEI Note and waive our associated rights of first refusal and conversion. In view of the possibility that DEI would seek an extension of the DEI Note, we decided to enable DEI to bring in the new investor and thereby be able to pay the DEI Note on time, albeit at a discount. We accordingly wrote down the value of the DEI Note in the third quarter of 2009 by $500,000, to $2.0 million and charged the associated expense to allowance for settlements on the statement of operations. When the new investor’s investment did not close, we retained all our rights under the DEI Note, including our right to be paid the full amount of the DEI Note and our conversion option and right of first refusal.
 
We declared a default on the DEI Note when it was not paid pursuant to its terms at the end of December 2009. We are presently prohibited from bringing suit to collect this note pursuant to the terms of a subordination agreement with DEI’s senior lender. However, we are maintaining communication with DEI, and we continue to believe that DEI’s anticipated earnings and cash flow will enable the DEI Note to be paid, albeit late. As of March 31, 2010, interest on the DEI Note has been paid by DEI through November 15, 2009 and we expect DEI to continue to make interest payments on the DEI Note.
 
We incurred non-cash expenses related to our financings in the amount of $3,000 (as discussed above) during the first three months of 2010.
 
Restricted Shares and Options
 
In accordance with FASB ASC 505-50, we incurred, for the three months ended March 31, 2010 and 2009, compensation expense related to stock options and restricted shares of approximately $119,000 and $99,000, respectively, of which $0 and $9,000, respectively, was for stock options and $119,000 and $90,000, respectively, was for restricted shares. Our directors received their annual restricted stock grants on April 1, 2010 in accordance with the terms of the directors’ stock compensation plan.
 
Overview of Operating Performance and Backlog
 
Overall, our income before income tax expenses for the three months ended March 31, 2010 was $354,000 on revenues of $21.2 million, compared to a loss before income tax expenses of $280,000 on revenues of $20.1 million during the three months ended March 31, 2009. Our overall backlog as of March 31, 2010 totaled $42.5 million.
 

 
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In our Training and Simulation Division, revenues decreased from approximately $11.5 million in the first three months of 2009 to $9.6 million in the first three months of 2009. As of March 31, 2010, our backlog for our Training and Simulation Division totaled $25.1 million.
 
In our Armor Division, revenues increased from $4.7 million during the first three months of 2009 to $6.6 million during the first three months of 2010. As of March 31, 2010, our backlog for our Armor Division totaled $4.7 million.
 
In our Battery and Power Systems Division, revenues increased from approximately $3.9 million in the first three months of 2009 to approximately $5.0 million in the first three months of 2010. As of March 31, 2010, our backlog for our Battery and Power Systems Division totaled $12.7 million.
 
Common Stock Repurchase Program
 
In February of 2009, we authorized, for a period of one year, the repurchase in the open market or in privately negotiated transactions of up to $1 million of our common stock. Pursuant to this plan, through March 31, 2009 we have repurchased 452,858 shares of its common stock for $572,811 ($563,614 net of commissions), all of which was purchased after April 1, 2009. At March 31, 2010, we had remaining authorization for the repurchase of up to $436,386 in shares of our common stock. The repurchase program is subject to the discretion of our management.
 
Recent Developments
 
None
 
Functional Currency
 
We consider the United States dollar to be the currency of the primary economic environment in which we and our Israeli subsidiary EFL operate and, therefore, both we and EFL have adopted and are using the United States dollar as our functional currency. Transactions and balances originally denominated in U.S. dollars are presented at the original amounts. Gains and losses arising from non-dollar transactions and balances are included in net income.
 
The majority of financial transactions of our Israeli subsidiaries MDT and Epsilor is in New Israel Shekels (“NIS”) and a substantial portion of MDT’s and Epsilor’s costs is incurred in NIS. Management believes that the NIS is the functional currency of MDT and Epsilor. Accordingly, the financial statements of MDT and Epsilor have been translated into U.S. dollars. All balance sheet accounts have been translated using the exchange rates in effect at the balance sheet date. Statement of operations amounts have been translated using the average exchange rate for the period. The resulting translation adjustments are reported as a component of accumulated other comprehensive income (loss) in stockholders’ equity.
 
Results of Operations
 
Three months ended March 31, 2010 compared to the three months ended March 31, 2009.
 
Revenues. Revenues for the three months ended March 31, 2010 totaled $21.2 million, compared to $20.1 million in the comparable period in 2009, an increase of $1.1 million, or 5.3%. In the first quarter of 2010, revenues were $9.6 million for the Training and Simulation Division
 

 
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(compared to $11.5 million in the first quarter of 2009), a decrease of $1.8 million, or 15.8%, due primarily to a simulation contract with the military that concluded in fourth quarter 2009. Revenue of $6.6 million for the Armor Division (compared to $4.7 million in the first quarter of 2009), an increase of $1.8 million, or 38.9%, due primarily to increased production of the David vehicle; and $5.0 million for the Battery and Power Systems Division (compared to $3.9 million in the first quarter of 2009) an increase of $1.0 million, or 26.6%, due primarily to increased orders for our battery and charger products.
 
Cost of revenues. Cost of revenues totaled $15.3 million during the first quarter of 2010, compared to $14.8 million in the first quarter of 2009, an increase of $495,000, or 3.3%, due primarily to increased production in our Armor and Battery and Power divisions.
 
Direct expenses were $8.0 million for the Training and Simulation Division (compared to $9.8 million in the first quarter of 2009), a decrease of $1.8 million, or 18.0%, due primarily to the reduction in revenue for the quarter; $6.2 million for the Armor Division (compared to $4.5 million in the first quarter of 2009), an increase of $1.7 million, or 37.8%, due primarily to increased production of the David vehicle; and $4.6 million for the Battery and Power Systems Division (compared to $3.5 million in the first quarter of 2009), an increase of $1.1 million, or 31.3%, due primarily to increased orders for our battery and charger products.
 
Amortization of intangible assets. Amortization of intangible assets totaled $422,000 in the first quarter of 2010, compared to $373,000 in the first quarter of 2009, an increase of $49,000, or 13.2%, due primarily to the increase in amortization of capitalized software in our Simulation Division.
 
Research and development expenses. Research and development expenses for the first quarter of 2010 were $814,000, compared to $332,000 during the first quarter of 2009, an increase of $483,000, or 145.4%, due primarily to the development of new vehicles in the Armor Division along with increases in new product development in the other divisions.
 
Selling and marketing expenses. Selling and marketing expenses for the first quarter of 2010 were $1.2 million, compared to $1.1 million in the first quarter of 2009, an increase of $15,000, or 1.3%, due primarily to increased expenses in the Batter and Power Systems Division.
 
General and administrative expenses. General and administrative expenses for the first quarter of 2010 were $3.0 million, compared to $2.8 million in the first quarter of 2009, an increase of $187,000, or 6.8%, due primarily to an increase in severance and social benefit expenses in Israel along with increased professional fees in our Armor Division.
 
Financial expense, net. Financial expenses totaled $143,000 in the first quarter of 2010, compared to $973,000 in the first quarter of 2009, a decrease of $830,000, or 85.3%, due primarily to a decrease in warrant and debt discount expense from 2009 along with a reduction in currency exchange expenses.
 
Income taxes. With respect to some of our subsidiaries that operated at a net profit during 2010, we were able to offset federal taxes against our accumulated loss carry forward. We recorded a total of $262,000 in tax expense in the first quarter of 2010, compared to $196,000 in
 

 
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tax expense in the first quarter of 2009, an increase of $66,000, or 33.5%, mainly concerning state and local taxes along with the required adjustment of taxes due to the deduction of goodwill for U.S. federal taxes, which totaled $140,000 in non cash expenses in the first quarter of 2010.
 
Net profit. Due to the factors cited above, we went from a net loss of $476,000 in the first quarter of 2009 to a net profit of $92,000 in the first quarter of 2010, an improvement of $568,000.
 
Liquidity and Capital Resources
 
As of March 31, 2010, we had $1.8 million in cash and $2.0 million in restricted cash, as compared to December 31, 2009, when we had $1.9 million in cash and $2.0 million in restricted cash.
 
We used available funds in the three months ended March 31, 2010 primarily for sales and marketing, continued research and development expenditures, and other working capital needs. We purchased approximately $150,000 of fixed assets during the three months ended March 31, 2010. Our net fixed assets amounted to $4.5 million at quarter end.
 
Net cash (used in)/provided by operating activities from continuing operations for the three months ended March 31, 2010 and 2009 was $(522,000) and $659,000, respectively, a decrease of $1.2 million. This decrease in cash provided was primarily the result of changes in operating assets and liabilities.
 
Net cash (used in)/provided by investing activities for the three months ended March 31, 2010 and 2009 was $(150,000) and $23,000, an increase of $173,000. This increase was primarily the result of purchases of property and equipment.
 
Net cash (used in)/provided by financing activities for the three months ended March 31, 2010 and 2009 was $548,000 and $(1.4) million, respectively, an increase of $1.9 million, primarily due to an  increase in short-term borrowings.
 
As of March 31, 2010, we had approximately $5.1 million in bank debt and $3.8 million in long-term debt outstanding. This is in comparison to $4.1 million in bank debt and $4.2 million in long-term debt outstanding as of December 31, 2009.
 
Subject to all of the reservations regarding “forward-looking statements” set forth above, we believe that our present cash position, anticipated cash flows from operations and lines of credit should be sufficient to satisfy our current estimated cash requirements through the remainder of the year.
 

 
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ITEM 3.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
 
Interest Rate Risk
 
It is our policy not to enter into interest rate derivative financial instruments, except for hedging of foreign currency exposures discussed below. We do not currently have any significant interest rate exposure.
 
Foreign Currency Exchange Rate Risk
 
Since a significant part of our sales and expenses are denominated in U.S. dollars, we have experienced only insignificant foreign exchange gains and losses to date, and do not expect to incur significant gains and losses in 2010. Certain of our research, development and production activities are carried out by our Israeli subsidiary, EFL, at its facility in Beit Shemesh, and accordingly we have sales and expenses in NIS. Additionally, our MDT and Epsilor subsidiaries operate primarily in NIS. However, the majority of our sales are made outside Israel in U.S. dollars, and a substantial portion of our costs are incurred in U.S. dollars. Therefore, our functional currency is the U.S. dollar.
 
While we conduct our business primarily in U.S. dollars, some of our agreements are denominated in foreign currencies, which could have an adverse effect on the revenues that we incur in foreign currencies. We do not hold or issue derivative financial instruments for trading or speculative purposes.
 
ITEM 4T.                      CONTROLS AND PROCEDURES.
 
As of the end of the period covered by this report, an evaluation was carried out by the Company's management, with the participation of our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934). Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that these disclosure controls and procedures were effective as of the end of the period covered by this report. In addition, no change in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934) occurred during our most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
 

 
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PART II
 
 
ITEM 1.
LEGAL PROCEEDINGS.
 
Class Action Litigation
 
In May 2007, two purported class action complaints (the “Class Action Complaint”) were filed in the United States District Court for the Eastern District of New York against us and certain of our officers and directors. These two cases were consolidated in June 2007. In January 2010, we reached an agreement with lead plaintiffs to settle the Class Action Complaint. Under the terms of the proposed settlement, the lawsuit will be dismissed with prejudice, and we and all our current and former officers and directors named in the complaint will receive a full and complete release of all claims asserted against them in the litigation, as well as any related claims that could have been asserted. The claims will be settled for $2.9 million. The monetary payment for this settlement will be funded entirely from insurance proceeds. The hearing with respect to court approval of this settlement was held on May 6, 2010, and we are awaiting a decision in respect of such approval.
 
Additionally, on May 6, 2009 a purported shareholders derivative complaint (the “Derivative Complaint”) was filed in the United States District Court for the Eastern District of New York against us and certain of our officers and directors. The Derivative Complaint is based on the same facts as the class action litigation currently pending against us in the same district, and primarily relates to our acquisition of Armour of America in 2005 and certain public statements made by us with respect to our business and prospects during the Period. The Derivative Complaint seeks an unspecified amount of damages. We moved for dismissal of the Derivative Complaint in March of 2010.
 
Although the ultimate outcome of these matters cannot be determined with certainty, we believe that the allegations stated in the Class Action Complaint and the Derivative Complaint are without merit and we and our officers and directors named in the Complaint intend to defend ourselves vigorously against such allegations.
 
NAVAIR Litigation
 
In December 2004, AoA filed an action in the United States Court of Federal Claims against the United States Naval Air Systems Command (NAVAIR), seeking approximately $2.2 million in damages for NAVAIR’s alleged improper termination of a contract for the design, test and manufacture of a lightweight armor replacement system for the United States Marine Corps CH-46E rotor helicopter. NAVAIR, in its answer, counterclaimed for approximately $2.1 million in alleged reprocurement and administrative costs (subsequently revised to approximately $1.5 million). Trial in this matter has concluded and closing briefs and certain supplemental briefs have been filed, but no decision has yet been rendered.
 
Based on the trial results and subsequent inquiries, we, after consultation with our litigation counsel handling this case and with an outside firm with particular expertise in government contract litigation, formed a conclusion that it would be appropriate and prudent to take a allowance against an adverse decision in this case, in the amount of one-half of the amount of NAVAIR’s counterclaim. Based on the legal advice received by management, our management
 

 
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deemed a loss of $750,000 in this case to be a probable outcome as determined under GAAP and recorded a related charge as part of our financial statements for 2009.
 
 
ITEM 1A.
RISK FACTORS.
 
For information regarding our risk factors, please refer to Item 1A in our Annual Report on Form 10-K for the year ended December 31, 2009. We do not believe that there have been any material changes in the risk factors disclosed in the Annual Report on Form 10-K.
 
ITEM 2.
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
 
In February of 2009, we authorized, for a period of one year, the repurchase in the open market or in privately negotiated transactions of up to $1 million of our common stock. Through December 31, 2009, we repurchased 447,358 shares for a total of $554,099. The following table shows information relating to the repurchase of our common stock during the three months ended March 31, 2010:
 
Period
 
Total Number of Shares Purchased
   
Average Price Paid Per Share(1)
   
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs
   
Maximum Approximate Dollar Value of Shares that May Yet be Purchased Under the Plans
 
January 1, 2010 through January 31, 2010
        $           $ 445,901  
February 1, 2010 through February 28, 2010
        $           $ 445,901  
March 1, 2010 through March 31, 2010
    5,500     $ 1.73       5,500     $ 436,386  
TOTAL THIS QUARTER
    5,500               5,500          
                                   
(1)Average price paid per share includes commissions and is rounded to the nearest two decimal places.
 
 
The repurchase program is subject to management’s discretion.
 
 
ITEM 6.
EXHIBITS.
 
The following documents are filed as exhibits to this report:
 
Exhibit Number
 
Description
31.1
 
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2
 
Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1
 
Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2
 
Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
 

 
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SIGNATURES

 
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
Dated:                      May 12, 2010

 
AROTECH CORPORATION
 
     
     
 
By:
/s/ Robert S. Ehrlich
   
Name:
Robert S. Ehrlich
   
Title:
Chairman and CEO
     
(Principal Executive Officer)



 
By:
/s/ Thomas J. Paup
   
Name:
Thomas J. Paup
   
Title:
Vice President – Finance and CFO
     
(Principal Financial Officer)


 
 
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