Quarterly report pursuant to Section 13 or 15(d)

NOTE 1: BASIS OF PRESENTATION

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NOTE 1: BASIS OF PRESENTATION
3 Months Ended
Mar. 31, 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.

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, 2012, its operating results for the three-month periods ended March 31, 2012 and 2011, and its cash flows for the three-month periods ended March 31, 2012 and 2011.

The results of operations for the three months ended March 31, 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 three months ended March 31, 2012 and 2011 the compensation expense recorded related to restricted stock units and restricted shares was $63,203 and $41,657, respectively. The remaining total compensation cost related to share awards not yet recognized in the income statement as of March 31, 2012 was $196,825 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 three months of 2012 and no options were exercised in the first three months of 2012. The Company’s directors received their annual restricted stock grants on April 3, 2012 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, 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 three-month periods ended March 31, 2012 and 2011 were 667,693 and 1,250,649, respectively.

f.           Discontinued operations

In December 2011, the Company’s Board of Directors approved management’s plan to sell the Armor Division. On March 8, 2012, the Company signed a non-binding letter of intent to sell the division to an Israeli public company. The Company will continue to operate the Armor Division while continuing discussions with the potential purchaser of the Armor Division. The Company expects that the disposal of the Armor Division will be completed within the next twelve months. The Company also believes that the disposal of the Armor Division 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
 
March 31, 2012
   
December 31, 2011
 
   
(Unaudited)
       
ASSETS
           
CURRENT ASSETS:
           
Cash and cash equivalents
  $ 325,336     $ 74,945  
Restricted collateral deposits
    138,935       193,488  
Trade receivables
    1,594,633       2,131,599  
Other accounts receivable and prepaid expenses
    220,624       133,149  
Inventories
    2,147,859       3,499,444  
Total current assets 
    4,427,387       6,032,625  
LONG TERM ASSETS:
               
Severance pay fund
    726,615       683,883  
Total long term assets
    726,615       683,883  
Total assets
  $ 5,154,002     $ 6,716,508  
LIABILITIES
               
CURRENT LIABILITIES:
               
Trade payables
  $ 2,355,218     $ 4,165,367  
Other accounts payable and accrued expenses
    2,199,851       2,250,584  
Current portion of long term debt
    81,545       401,600  
Deferred revenues
    1,190,410       489,416  
Total current liabilities
    5,827,024       7,306,967  
LONG TERM LIABILITIES
               
Long term debt
    952,157       963,814  
Total long-term liabilities
    952,157       963,814  
Total liabilities
  $ 6,779,181     $ 8,270,781  

REVENUE AND EXPENSES – DISCONTINUED
 
Three months ended March 31,
 
   
2012
   
2011
 
Revenues
  $ 4,009,561     $ 862,170  
                 
Cost of revenues, exclusive of amortization of intangibles
    3,472,323       1,636,308  
Research and development expenses
    50,358       142,443  
Selling and marketing expenses 
    183,080       192,465  
General and administrative expenses 
    246,403       559,418  
Total operating costs and expenses
    3,952,164       2,530,634  
                 
Operating income (loss)
    57,397       (1,668,464 )
                 
Other (income) expense
    (21,281 )     38,813  
Financial income (expense), net
    14,518       (23,103 )
Total other (income) expense
    (6,763 )     15,710  
Income (loss) before income tax benefit
    64,160       (1,684,174 )
Net income (loss)
  $ 64,160     $ (1,684,174 )