Quarterly report pursuant to Section 13 or 15(d)

NOTE 1: BASIS OF PRESENTATION

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NOTE 1: BASIS OF PRESENTATION
9 Months Ended
Sep. 30, 2011
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 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; 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; 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). The Company’s former subsidiary Armour of America Incorporated (“AoA”) has been merged into MDT Armor. Additionally, IES Interactive Training (“IES”), and Realtime Technologies (“RTI”) were merged with FAAC to create Arotech’s Training and Simulation Division (“ATSD”).

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 September 30, 2011, its operating results for the nine- and three-month periods ended September 30, 2011 and 2010, and its cash flow for the nine-month periods ended September 30, 2011 and 2010.

The results of operations for the nine and three months ended September 30, 2011 are not necessarily indicative of results that may be expected for any other interim period or for the full fiscal year ending December 31, 2011.

The balance sheet at December 31, 2010 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, 2010.

c.           Accounting for stock-based compensation:

For the nine months ended September 30, 2011 and 2010, the compensation expense recorded related to stock-based compensation was $245,372 and $404,192, respectively, all of which was for restricted stock units and restricted shares. The remaining total compensation cost related to non-vested stock options and non-vested restricted share awards not yet recognized in the income statement as of September 30, 2011 was $243,350. 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 nine months of 2011 and no options were exercised in the first nine months of 2011. The Company’s directors received their annual restricted stock grants on April 1, 2011 in accordance with the terms of the directors’ stock compensation plan. Additionally, certain corporate officers received restricted stock grants on April 25, 2011.

d.           Anti-dilutive shares for EPS calculation:

All outstanding stock options, non-vested restricted stock units, non-vested restricted stock 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 shares that will never vest under the current program. The total weighted average number of shares related to the outstanding options, non-vested restricted stock, non-vested restricted stock units and warrants excluded from the calculations of diluted net loss per share for the nine-month periods ended September 30, 2011 and 2010 were 875,423 and 1,425,132, respectively.

e.           Reclassification:

Certain comparative data in these financial statements may have been reclassified to conform to the current year’s presentation.