OMB
APPROVAL
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OMB
Number: 3235-0070
Expires: July
31, 2011
Estimated
average burden
hours
per response
187.50
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T
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QUARTERLY REPORT PURSUANT TO
SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE
QUARTERLY PERIOD ENDED March
31, 2009 .
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AROTECH
CORPORATION
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(Exact
name of registrant as specified in its
charter)
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Delaware
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95-4302784
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(State
or other jurisdiction of
incorporation
or organization)
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(I.R.S.
Employer
Identification
No.)
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1229
Oak Valley Drive, Ann Arbor, Michigan
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48108
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(Address
of principal executive offices)
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(Zip
Code)
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(800)
281-0356
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(Registrant’s
telephone number, including area
code)
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(Former
name, former address and former fiscal year, if changed since last
report)
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Potential
persons who are to respond to the collection of
information
contained in this form are not required to respond
unless
the form displays a currently valid OMB control
number.
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Item
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Page
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PART
I - FINANCIAL INFORMATION
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Item
1 – Financial Statements (Unaudited):
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||
Condensed
Consolidated Balance Sheets at March 31, 2009 and December 31,
2008
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2
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Condensed
Consolidated Statements of Operations for the Three Months Ended March 31,
2009 and 2008
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4
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Condensed
Consolidated Statements of Cash Flows for the Three Months Ended March 31,
2009 and 2008
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5
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Notes
to the Interim Condensed Consolidated Financial Statements
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7
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Item
2 – Management’s Discussion and Analysis of Financial Condition and
Results of Operations
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14
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Item
3 – Quantitative and Qualitative Disclosures about Market
Risk
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20
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Item
4T – Controls and Procedures
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21
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PART
II - OTHER INFORMATION
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Item
1 – Legal Proceedings
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22
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Item
1A – Risk Factors
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23
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Item
6 – Exhibits
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23
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SIGNATURES
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24
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ITEM
1.
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FINANCIAL
STATEMENTS (UNAUDITED)
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March
31, 2009
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December
31, 2008
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|||||||
ASSETS
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(Unaudited)
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|||||||
CURRENT
ASSETS:
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||||||||
Cash
and cash equivalents
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$ | 3,480,041 | $ | 4,301,359 | ||||
Restricted
collateral deposits
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373,167 | 381,586 | ||||||
Available-for-sale
marketable securities
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45,281 | 49,204 | ||||||
Trade
receivables (net of allowance for doubtful accounts in the amount of
$29,000 as of March 31, 2009 and $19,000 as of December 31,
2008)
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14,286,665 | 19,346,084 | ||||||
Unbilled
receivables
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6,343,912 | 4,769,264 | ||||||
Other
accounts receivable and prepaid expenses
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3,265,092 | 3,625,955 | ||||||
Inventories
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9,852,104 | 9,678,960 | ||||||
Total
current assets
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37,646,262 | 42,152,412 | ||||||
LONG
TERM ASSETS:
Deferred
tax assets
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65,468 | 72,114 | ||||||
Severance
pay fund
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2,826,259 | 2,888,867 | ||||||
Other
long term receivables
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414,999 | 463,780 | ||||||
Property
and equipment, net
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4,722,075 | 5,058,263 | ||||||
Investment
in affiliated company
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40,987 | 40,987 | ||||||
Other
intangible assets, net
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6,225,227 | 6,867,873 | ||||||
Goodwill
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31,565,317 | 32,250,503 | ||||||
Total
long term assets
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45,860,332 | 47,642,387 | ||||||
Total
assets
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$ | 83,506,594 | $ | 89,794,799 |
March
31, 2009
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December
31, 2008
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|||||||
LIABILITIES
AND STOCKHOLDERS’ EQUITY
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(Unaudited)
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|||||||
CURRENT
LIABILITIES:
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||||||||
Trade
payables
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$ | 8,154,786 | $ | 9,664,558 | ||||
Other
accounts payable and accrued expenses
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4,624,479 | 5,858,959 | ||||||
Current
portion of capitalized leases
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52,662 | 62,833 | ||||||
Current
portion of long term debt
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1,854,085 | 1,861,187 | ||||||
Short
term bank credit
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2,707,890 | 3,607,890 | ||||||
Deferred
revenues
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2,737,604 | 3,789,020 | ||||||
Total
current liabilities
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20,131,506 | 24,844,447 | ||||||
LONG
TERM LIABILITIES:
Accrued
severance pay
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5,006,014 | 5,161,448 | ||||||
Long
term portion of capitalized leases
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110,319 | 122,090 | ||||||
Long
term debt
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2,646,514 | 3,866,727 | ||||||
Deferred
tax liability
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2,570,000 | 2,430,000 | ||||||
Other
long term liabilities
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419,581 | 146,738 | ||||||
Total
long term liabilities
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10,752,428 | 11,727,003 | ||||||
STOCKHOLDERS’
EQUITY:
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||||||||
Share
capital –
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||||||||
Common
stock – $0.01 par value each;
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||||||||
Authorized:
250,000,000 shares as of March 31, 2009 and December 31, 2008; Issued and
outstanding: 13,637,639 shares as of March 31, 2009 and December 31,
2008
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136,377 | 136,377 | ||||||
Preferred
shares – $0.01 par value each;
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||||||||
Authorized:
1,000,000 shares as of March 31, 2009 and December 31, 2008; No shares
issued and outstanding as of March 31, 2009 and December 31,
2008
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– | – | ||||||
Additional
paid-in capital
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219,811,206 | 220,124,075 | ||||||
Accumulated
deficit
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(166,394,405 | ) | (167,205,514 | ) | ||||
Notes
receivable from stockholders
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(1,357,788 | ) | (1,357,788 | ) | ||||
Accumulated
other comprehensive loss
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427,270 | 1,526,199 | ||||||
Total
stockholders’ equity
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52,622,660 | 53,223,349 | ||||||
Total
liabilities and stockholders’ equity
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$ | 83,506,594 | $ | 89,794,799 |
Three
months ended March 31,
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||||||||
2009
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2008
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|||||||
Revenues
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$ | 20,092,222 | $ | 13,250,576 | ||||
Cost
of revenues, exclusive of amortization of intangibles
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14,831,462 | 10,004,782 | ||||||
Research
and development
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331,888 | 607,094 | ||||||
Selling
and marketing expenses
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1,146,092 | 1,142,639 | ||||||
General
and administrative expenses
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2,766,669 | 3,532,460 | ||||||
Amortization
of intangible assets
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372,597 | 492,613 | ||||||
Escrow
adjustment – credit
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– | (1,448,074 | ) | |||||
Total
operating costs and expenses
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19,448,708 | 14,331,514 | ||||||
Operating
profit (loss)
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643,514 | (1,080,938 | ) | |||||
Other
income
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49,831 | 536,372 | ||||||
Financial
expenses, net
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(973,078 | ) | (190,013 | ) | ||||
Loss
before earnings from affiliated company and income tax
expenses
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(279,733 | ) | (734,579 | ) | ||||
Income
taxes
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(196,290 | ) | (119,934 | ) | ||||
Gain
(loss) from affiliated company
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– | (116,086 | ) | |||||
Net
loss attributable to common stockholders
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$ | (476,023 | ) | $ | (970,599 | ) | ||
Basic
and diluted net loss per share
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$ | (0.04 | ) | $ | (0.07 | ) | ||
Weighted
average number of shares used in computing basic and diluted net loss per
share
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13,576,885 | 13,473,443 |
Three
months ended March 31,
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||||||||
2009
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2008
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|||||||
CASH
FLOWS FROM OPERATING ACTIVITIES:
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||||||||
Net
loss
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$ | (476,023 | ) | $ | (970,599 | ) | ||
Adjustments
required to reconcile net loss to net cash provided by (used in) operating
activities:
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||||||||
Loss
from affiliated company
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– | 116,086 | ||||||
Depreciation
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315,776 | 301,911 | ||||||
Amortization
of intangible assets, capitalized software costs and impairment of
intangible assets
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372,597 | 492,613 | ||||||
Amortization
of debt discount
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202,555 | – | ||||||
Increase
in escrow receivable
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– | (1,845,977 | ) | |||||
Accrued
(deferred) severance pay, net
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(92,826 | ) | 202,230 | |||||
Compensation
related to shares issued to employees, consultants and
directors
|
99,431 | 409,555 | ||||||
Adjustment
to value of warrants and imbedded features on the senior convertible
notes
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195,814 | – | ||||||
Decrease
in trade receivables
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5,059,419 | 3,558,793 | ||||||
Decrease
(increase) in other accounts receivable and prepaid
expenses
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409,644 | (179,783 | ) | |||||
Decrease
in deferred taxes
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146,646 | 77,709 | ||||||
Increase
in inventories
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(173,144 | ) | (2,437,173 | ) | ||||
Decrease
(increase) in unbilled receivables
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(1,574,648 | ) | 449,745 | |||||
Decrease
in deferred revenues
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(1,051,416 | ) | (202,214 | ) | ||||
Increase
(decrease) in trade payables
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(1,509,772 | ) | 1,508,706 | |||||
Decrease
in other accounts payable and accrued expenses
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(1,265,386 | ) | (796,823 | ) | ||||
Net
cash provided by (used in) operating activities
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658,667 | 684,779 | ||||||
CASH
FLOWS FROM INVESTING ACTIVITIES:
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||||||||
Purchase
of property and equipment net of investment grants received from the State
of Israel
|
20,412 | (339,374 | ) | |||||
Additions
of capitalized software development
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(10,019 | ) | – | |||||
Net
assets acquired from acquisition of subsidiary
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– | 433,389 | ||||||
Acquisition
of subsidiary
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– | (1,275,000 | ) | |||||
Acquisition
of minority interest
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– | (661,149 | ) | |||||
Repayment
of promissory notes related to acquisition of subsidiaries
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– | (75,725 | ) | |||||
Decrease
in restricted cash
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12,342 | 154,329 | ||||||
Net
cash provided by (used in) investing activities
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22,735 | (1,763,530 | ) | |||||
FORWARD
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$ | 681,402 | $ | (1,078,751 | ) |
Three
months ended March 31,
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||||||||
2009
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2008
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|||||||
FORWARD
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$ | 681,402 | $ | (1,078,751 | ) | |||
CASH
FLOWS FROM FINANCING ACTIVITIES:
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||||||||
Repayment
of long term loans
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(469,045 | ) | (10,425 | ) | ||||
Decrease
in short term bank credit
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(900,000 | ) | – | |||||
Net
cash provided by (used in) financing activities
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(1,369,045 | ) | (10,425 | ) | ||||
DECREASE
IN CASH AND CASH EQUIVALENTS
|
(687,643 | ) | (1,089,176 | ) | ||||
CASH
ACCRETION (EROSION) DUE TO EXCHANGE RATE DIFFERENCES
|
(133,675 | ) | 76,243 | |||||
CASH
AND CASH EQUIVALENTS AT THE BEGINNING OF THE PERIOD
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4,301,359 | 3,447,671 | ||||||
CASH
AND CASH EQUIVALENTS AT THE END OF THE PERIOD
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$ | 3,480,041 | $ | 2,434,738 | ||||
SUPPLEMENTARY
INFORMATION ON NON-CASH TRANSACTIONS:
|
||||||||
Stock
issued for acquisition
|
$ | – | $ | 100,000 | ||||
Assets
recorded for capital lease addition
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$ | – | $ | 109,025 | ||||
Interest
paid during the period
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$ | 178,791 | $ | 109,173 |
March
31, 2009
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December
31, 2008
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|||||||
(Unaudited)
|
||||||||
Raw
materials
|
$4,885,596 | $6,798,662 | ||||||
Work-in-progress
|
2,206,066 | 2,251,734 | ||||||
Finished
goods
|
2,760,442 | 628,564 | ||||||
Total:
|
$9,852,104 | $9,678,960 |
Training
and
Simulation
|
Battery
and
Power
Systems
|
Armor
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All
Others
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Total
|
||||||||||||||||
Three
months ended March 31, 2009
|
||||||||||||||||||||
Revenues
from outside customers
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$ | 11,461,851 | $ | 3,912,653 | $ | 4,717,718 | $ | – | $ | 20,092,222 | ||||||||||
Depreciation,
amortization and impairment expenses (1)
|
(337,648 | ) | (256,923 | ) | (44,114 | ) | (49,688 | ) | (688,373 | ) | ||||||||||
Direct
expenses (2)
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(9,767,059 | ) | (3,485,987 | ) | (4,492,739 | ) | (1,161,009 | ) | (18,906,794 | ) | ||||||||||
Segment
income (loss)
|
1,357,144 | 169,743 | 180,865 | (1,210,697 | ) | 497,055 | ||||||||||||||
Financial
expense
|
– | (353,052 | ) | (127,945 | ) | (492,081 | ) | (973,078 | ) | |||||||||||
Net
income (loss)
|
$ | 1,357,144 | $ | (183,309 | ) | $ | 52,920 | $ | (1,702,778 | ) | $ | (476,023 | ) | |||||||
Segment
assets
(3)
|
$ | 46,397,902 | $ | 22,247,491 | $ | 11,472,560 | $ | 3,388,641 | $ | 83,506,594 | ||||||||||
Three
months ended March 31, 2008
|
||||||||||||||||||||
Revenues
from outside customers
|
$ | 7,534,597 | $ | 3,107,036 | $ | 2,608,943 | $ | – | $ | 13,250,576 | ||||||||||
Depreciation,
amortization and impairment expenses (1)
|
(449,319 | ) | (200,862 | ) | (29,043 | ) | (12,993 | ) | (692,217 | ) | ||||||||||
Direct
expenses (2)
|
(6,021,614 | ) | (3,331,911 | ) | (2,252,041 | ) | (1,733,379 | ) | (13,338,945 | ) | ||||||||||
Segment
income (loss)
|
1,063,664 | (425,737 | ) | 327,859 | (1,746,372 | ) | (780,586 | ) | ||||||||||||
Financial
expense
|
(105,664 | ) | 924 | (22,194 | ) | (63,079 | ) | (190,013 | ) | |||||||||||
Net
income (loss)
|
$ | 958,000 | $ | (424,813 | ) | $ | 305,665 | $ | (1,809,451 | ) | $ | (970,599 | ) | |||||||
Segment
assets
(3)
|
$ | 41,729,499 | $ | 23,458,725 | $ | 11,967,659 | $ | 4,696,387 | $ | 81,852,270 |
__________________________________ |
(1) | Includes depreciation of property and equipment, amortization expenses of intangible assets and impairment of goodwill and other 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, Battery and Power Systems and Armor Divisions was $24,435,640, $5,461,033 and $1,668,644, respectively, as of March 31, 2009 and $24,424,030, $6,437,042 and $1,898,812, respectively, as of March 31, 2008. |
Three
Months Ended March 31,
|
||||||||
2009
|
2008
|
|||||||
Net
loss
|
$(476,023 | ) | $(970,599 | ) | ||||
Foreign
currency translation
|
(1,098,929 | ) | 942,227 | |||||
Total
comprehensive loss
|
$(1,574,952 | ) | $(28,372 | ) |
Current
assets acquired, net of liabilities
|
$ | 433,389 | ||
Technology
and Patents - 7 year life
|
663,000 | |||
Trademark/Trade
Names - 10 year life
|
28,000 | |||
Customer
relationships - 10 year life
|
62,000 | |||
Goodwill
- indefinite life
|
200,222 | |||
Equity
Value
|
$ | 1,386,611 |
Variables
|
January
1, 2009
|
March
31, 2009
|
||||||
Stock
Price
|
$ | 0.41 | $ | 0.78 | ||||
Risk
free interest rate
|
1.00 | % | 1.15 | % | ||||
Volatility
|
81.40 | % | 83.90 | % | ||||
Dividend
yield
|
0.00 | % | 0.00 | % | ||||
Contractual
life
|
2.6
years
|
2.4
years
|
||||||
Values
|
January
1, 2009
|
March
31, 2009
|
||||||
Warrants
|
$ | 29,171 | $ | 101,003 | ||||
Conversion
option
|
42,036 | 168,875 | ||||||
Puts
|
14,787 | 11,930 | ||||||
Total
Value
|
$ | 85,994 | $ | 281,808 | ||||
Change
in value – charged to financial expense
|
$ | 195,814 |
Year
|
Amount
|
||
2009
|
$1,363,635 | ||
2010
|
1,818,180 | ||
2011
|
1,363,640 | ||
$4,545,455 |
ITEM
2.
|
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
|
Variables
|
January
1, 2009
|
March
31, 2009
|
||||||
Stock
Price
|
$ | 0.41 | $ | 0.78 | ||||
Risk
free interest rate
|
1.00 | % | 1.15 | % | ||||
Volatility
|
81.40 | % | 83.90 | % | ||||
Dividend
yield
|
0.00 | % | 0.00 | % | ||||
Contractual
life
|
2.6 years
|
2.4 years
|
||||||
Values
|
January 1,
2009
|
March 31,
2009
|
||||||
Warrants
|
$ | 29,171 | $ | 101,003 | ||||
Conversion
option
|
42,036 | 168,875 | ||||||
Puts
|
14,787 | 11,930 | ||||||
Total
Value
|
$ | 85,994 | $ | 281,808 | ||||
Change
in value – charged to financial expense
|
$ | 195,814 |
Year
|
Amount
|
||
2009
|
$ | 1,363,635 | |
2010
|
1,818,180 | ||
2011
|
1,363,640 | ||
$ | 4,545,455 |
ITEM
3.
|
QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK.
|
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
|
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)
|