Quarterly report pursuant to Section 13 or 15(d)

NOTE 1: BASIS OF PRESENTATION

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NOTE 1: BASIS OF PRESENTATION
6 Months Ended
Jun. 30, 2012
Organization, Consolidation and Presentation of Financial Statements Disclosure [Text Block]
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 advanced zinc-air and lithium batteries and chargers, and multimedia interactive simulators/trainers. The Company operates primarily through its wholly-owned subsidiaries FAAC Incorporated (“FAAC”), based in Ann Arbor, Michigan with locations in Royal Oak, Michigan and Orlando, Florida; Electric Fuel Battery Corporation (“EFB”), based in Auburn, Alabama; and Epsilor-Electric Fuel Ltd. (survivor of the merger of Electric Fuel Ltd. (“EFL”), based in Beit Shemesh, Israel, into Epsilor Electronic Industries, Ltd.) (“Epsilor-EFL”), based in Dimona, Israel. IES Interactive Training (“IES”) and Realtime Technologies (“RTI”) were merged with FAAC to create Arotech’s Training and Simulation Division. Pursuant to management discussions in the fourth quarter of 2011, the Company’s Armor Division, consisting of M.D.T. Protective Industries, Ltd. (“MDT”), based in Lod, Israel, and MDT Armor Corporation (“MDT Armor”), based in Auburn, Alabama, along with the trade name of Armour of America Incorporated (“AoA”), are reflected as discontinued operations for all periods presented. On June 20, 2012, the Company signed a definitive agreement with an Israeli public company, Shladot Ltd. (“Shladot”), and a wholly-owned U.S. subsidiary of Shladot, pursuant to which Shladot purchased certain of the assets, subject to certain of the liabilities, of the discontinued Armor Division, for a total cash purchase price of $50,000. The assets consisted principally of inventory, intellectual property and contracts. Closing of the transaction took place simultaneously with the signing of the agreement.

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 June 30, 2012, its operating results for the six- and three-month periods ended June 30, 2012 and 2011, and its cash flows for the six- and three-month periods ended June 30, 2012 and 2011.

The results of operations for the six- and three months ended June 30, 2012 are not necessarily indicative of results that may be expected for any other interim period or for the full fiscal year ending December 31, 2012.

The balance sheet at December 31, 2011 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, 2011.

c.           Accounting for stock-based compensation:

For the six months ended June 30, 2012 and 2011 the compensation expense recorded related to restricted stock units and restricted shares was $118,574 and $132,919, respectively. The remaining total compensation cost related to share awards not yet recognized in the income statement as of June 30, 2012 was $231,254 all of which was for restricted stock units and restricted shares that vest on longevity rather than performance. 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 six months of 2012 and no options were exercised in the first six months of 2012.

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, non-vested restricted stock, non-vested restricted stock units, and warrants have been excluded from the calculation of the basic net income (loss) per common share because all such securities are anti-dilutive for the periods presented and the Company has excluded any restricted stock or restricted stock units that will never vest under the current program. The total weighted average number of shares related to the outstanding options and warrants excluded from the calculations of diluted net income (loss) per share for the six-month periods ended June 30, 2012 and 2011 were 667,693 and 1,440,949, respectively.

f.           Discontinued operations

In December 2011, the Company’s Board of Directors approved management’s plan to sell the Armor Division. On June 20, 2012, the Company signed a definitive agreement with an Israeli public company, Shladot Ltd. (“Shladot”), and a wholly-owned U.S. subsidiary of Shladot, pursuant to which Shladot purchased certain of the assets, subject to certain of the liabilities, of the Armor Division, for a total cash purchase price of $50,000. The assets consisted principally of inventory, intellectual property and contracts. Closing of the transaction took place simultaneously with the signing of the agreement. The Company believes that the disposal of the Armor Division has not and will not have a material adverse effect on its liquidity.  Unless otherwise indicated, discontinued operations are not included in the Company’s reported results.

Unless otherwise noted, amounts and disclosures throughout the Notes to Consolidated Financial Statements relate to the Company’s continuing operations. The assets and liabilities of the discontinued operation after impairment and the revenues and expenses of the discontinued operation are shown below.

ASSETS AND LIABILITIES – DISCONTINUED
 
June 30, 2012
   
December 31, 2011
 
   
(Unaudited)
       
ASSETS
           
CURRENT ASSETS:
           
Cash and cash equivalents
  $ 163,872     $ 74,945  
Restricted collateral deposits
    162,763       193,488  
Trade receivables
    859,465       2,131,599  
Other accounts receivable and prepaid expenses
    59,342       133,149  
Inventories
    1,364,308       3,499,444  
Total current assets 
    2,609,750       6,032,625  
LONG TERM ASSETS:
               
Severance pay fund
    379,895       683,883  
Total long term assets
    379,895       683,883  
Total assets
  $ 2,989,645     $ 6,716,508  
LIABILITIES
               
CURRENT LIABILITIES:
               
Trade payables
  $ 1,196,040     $ 4,165,367  
Other accounts payable and accrued expenses
    1,335,858       2,250,584  
Current portion of long term debt
    57,809       401,600  
Deferred revenues
    766,667       489,416  
Total current liabilities
    3,356,374       7,306,967  
LONG TERM LIABILITIES
               
Long term debt
    931,955       963,814  
Total long-term liabilities
    931,955       963,814  
Total liabilities
  $ 4,288,329     $ 8,270,781  

REVENUE AND EXPENSES – DISCONTINUED
 
Six months ended June 30,
 
   
2012
   
2011
 
Revenues
  $ 5,375,503     $ 4,566,280  
                 
Cost of revenues, exclusive of amortization of intangibles
    4,985,859       5,248,310  
Research and development expenses
    57,584       157,904  
Selling and marketing expenses 
    302,218       430,034  
General and administrative expenses 
    1,517,669       992,449  
Total operating costs and expenses
    6,863,330       6,828,697  
                 
Operating loss
    (1,487,827 )     (2,262,417 )
                 
Other (income) expense
    53,392       (34,040 )
Financial income (expense), net
    (136,766 )     8,418  
Total other (income) expense
    (83,374 )     (25,622 )
Net loss
  $ (1,571,201 )   $ (2,288,039 )