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, 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. (“Epsilor-EFL”), based in Dimona, Israel with a location in Beit Shemesh, 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 September 30, 2012, its operating results for the nine and three-month periods ended September 30, 2012 and 2011, and its cash flows for the nine month period ended September 30, 2012 and 2011.

The results of operations for the nine and three months ended September 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 nine months ended September 30, 2012 and 2011 the compensation expense recorded related to restricted stock units and restricted shares was $171,001 and $245,372, respectively. The remaining total compensation cost related to share awards not yet recognized in the income statement as of September 30, 2012 was $176,377 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 stock options issued in the first nine months of 2012 and no stock options were exercised in the first nine 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, and non-vested restricted stock units have been excluded from the calculation of the basic/diluted net loss per common share for 2011 because all such securities are anti-dilutive. The Company has excluded any contingent restricted stock from the calculation of the basic net income (loss) per common share for 2012. The total number of shares related to the contingent restricted stock excluded from the calculations of basic net income (loss) per share for the three and nine-month periods ended September 30, 2012 and 2011 were 602,740.

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
 
September 30, 2012
   
December 31, 2011
 
   
(Unaudited)
   
(Unaudited)
 
ASSETS
           
CURRENT ASSETS:
           
Cash and cash equivalents
  $ 144,466     $ 74,945  
Restricted collateral deposits
    162,793       193,488  
Trade receivables
    408,284       2,131,599  
Other accounts receivable and prepaid expenses
    53,416       133,149  
Inventories
    447,687       3,499,444  
Total current assets 
    1,216,646       6,032,625  
LONG TERM ASSETS:
               
Severance pay fund
          683,883  
Total long term assets
          683,883  
Total assets
  $ 1,216,646     $ 6,716,508  
LIABILITIES
               
CURRENT LIABILITIES:
               
Trade payables
  $ 318,032     $ 4,165,367  
Other accounts payable and accrued expenses
    592,213       2,250,584  
Current portion of long term debt
    58,605       401,600  
Deferred revenues
    300,000       489,416  
Total current liabilities
    1,268,850       7,306,967  
LONG TERM LIABILITIES
               
Long term debt
    922,464       963,814  
Total long-term liabilities
    922,464       963,814  
Total liabilities
  $ 2,191,314     $ 8,270,781  

REVENUE AND EXPENSES – DISCONTINUED
 
Nine months ended September 30,
 
   
2012
   
2011
 
Revenues
  $ 6,423,731     $ 9,640,396  
                 
Cost of revenues, exclusive of amortization of intangibles
    6,028,582       9,364,521  
Research and development expenses
    14,379       445,132  
Selling and marketing expenses 
    315,284       614,949  
General and administrative expenses 
    1,507,392       1,782,042  
Total operating costs and expenses
    7,865,637       12,206,644  
                 
Operating loss
    (1,441,906 )     (2,566,248 )
                 
Other (income) expense
    84,195       (23,982 )
Financial income (expense), net
    (148,642 )     (246,831 )
Total other (income) expense
    (64,447 )     (270,813 )
Net loss
  $ (1,506,353 )   $ (2,837,061 )