OMB
APPROVAL
|
OMB
Number:
3235-0070
Expires:
January
31, 2008
Estimated
average burden
hours
per
response
192.00
|
AROTECH
CORPORATION
|
(Exact
name of registrant as specified in its charter)
|
Delaware
|
95-4302784
|
|
(State
or other jurisdiction of
incorporation
or organization)
|
(I.R.S.
Employer
Identification
No.)
|
1229
Oak Valley Drive, Ann Arbor, Michigan
|
48108
|
|
(Address
of principal executive offices)
|
(Zip
Code)
|
(800)
281-0356
|
(Registrant’s
telephone number, including area
code)
|
|
(Former
address, if changed since last
report)
|
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.
|
PART
I - FINANCIAL INFORMATION
|
Item
1 -Financial Statements (Unaudited):
|
|
Condensed
Consolidated Balance Sheets at September 30, 2006 and December 31,
2005
|
3
|
Condensed
Consolidated Statements of Operations for the Nine and Three Months
Ended
September 30, 2006 and 2005
|
5
|
Condensed
Consolidated Statements of Changes in Shareholders’ Equity during the
Nine-Month Period Ended September 30, 2006
|
6
|
Condensed
Consolidated Statements of Cash Flows for the Nine Months Ended September
30, 2006 and 2005
|
7
|
Notes
to the Interim Condensed Consolidated Financial Statements
|
10
|
Item
2 - Management’s Discussion and Analysis of Financial Condition and
Results of Operations
|
24
|
Item
3 - Quantitative and Qualitative Disclosures about Market
Risk
|
36
|
Item
4 - Controls and Procedures
|
37
|
PART
II - OTHER INFORMATION
|
Item
1A - Risk Factors
|
39
|
Item
6 - Exhibits
|
46
|
SIGNATURES
|
47
|
ITEM
1.
|
FINANCIAL
STATEMENTS (UNAUDITED)
|
|
September
30, 2006
|
December
31, 2005
|
|||||
ASSETS
|
(Unaudited)
|
|
|||||
CURRENT
ASSETS:
|
|||||||
Cash
and cash equivalents
|
$ |
4,722,532
|
$
|
6,150,652
|
|||
Restricted
collateral deposits
|
919,510
|
3,897,113
|
|||||
Available-for-sale
marketable securities
|
39,903
|
35,984
|
|||||
Trade
receivables (net of allowance for doubtful accounts in the amount
of
$160,152 and $176,180 as of September 30, 2006 and December 31, 2005,
respectively)
|
7,497,178
|
11,747,876
|
|||||
Unbilled
receivables
|
6,815,928
|
5,228,504
|
|||||
Other
accounts receivable and prepaid expenses
|
1,209,892
|
2,114,331
|
|||||
Inventories
|
8,186,299
|
7,815,806
|
|||||
Total
current assets
|
29,391,242
|
36,990,266
|
|||||
SEVERANCE
PAY FUND
|
2,253,768
|
2,072,034
|
|||||
RESTRICTED
DEPOSITS
|
432,352
|
779,286
|
|||||
PROPERTY
AND EQUIPMENT, NET
|
3,843,953
|
4,252,931
|
|||||
INVESTMENT
IN AFFILIATED COMPANY
|
318,675
|
37,500
|
|||||
OTHER
INTANGIBLE ASSETS, NET
|
10,154,117
|
11,027,499
|
|||||
GOODWILL
|
30,560,641
|
29,559,157
|
|||||
$
|
76,954,748
|
$
|
84,718,673
|
September
30, 2006
|
December
31, 2005
|
||||||
(Unaudited)
|
|||||||
LIABILITIES
AND SHAREHOLDERS’ EQUITY
|
|||||||
CURRENT
LIABILITIES:
|
|||||||
Trade
payables
|
$ |
3,663,077
|
$
|
5,830,820
|
|||
Other
accounts payable and accrued expenses
|
6,213,317
|
5,586,061
|
|||||
Current
portion of promissory notes due to purchase of
subsidiaries
|
304,575
|
453,764
|
|||||
Short-term
bank loans and current portion of long-term loans
|
1,358,723
|
2,036,977
|
|||||
Deferred
revenues
|
1,535,698
|
603,022
|
|||||
Convertible
debenture
|
4,027,815
|
11,492,238
|
|||||
Liability
in connection with warrants issuance
|
-
|
44,047
|
|||||
Liabilities
of discontinued operation
|
- |
120,000
|
|||||
Total
current liabilities
|
17,103,205
|
26,166,929
|
|||||
LONG
TERM LIABILITIES
|
|||||||
Accrued
severance pay
|
4,142,250
|
3,657,328
|
|||||
Convertible
debenture
|
-
|
8,590,233
|
|||||
Total
long-term liabilities
|
4,142,250
|
12,247,561
|
|||||
MINORITY
INTEREST
|
-
|
38,927
|
|||||
SHAREHOLDERS’
EQUITY:
|
|||||||
Share
capital -
|
|||||||
Common
stock - $0.01 par value each;
|
|||||||
Authorized:
250,000,000 shares as of September 30, 2006 and December 31, 2005;
Issued:
10,625,012 shares as of September 30, 2006 and 6,221,193
shares as of December 31, 2005; Outstanding: 10,585,346
shares as of September 30, 2006 and 6,181,527
shares as of December 31, 2005
|
1,212,394
|
870,969
|
|||||
Preferred
shares - $0.01 par value each;
|
|||||||
Authorized:
1,000,000 shares as of September
30, 2006
and December 31, 2005; No shares issued and outstanding as of September
30, 2006
and December 31, 2005
|
-
|
-
|
|||||
Additional
paid-in capital
|
215,490,023
|
193,560,579
|
|||||
Accumulated
deficit
|
(156,490,970
|
)
|
(142,996,964
|
)
|
|||
Treasury
stock, at cost (common stock - 39,666 shares as of September
30, 2006
and December 31, 2005)
|
(3,537,106
|
)
|
(3,537,106
|
)
|
|||
Notes
receivable from shareholders
|
(1,294,616
|
)
|
(1,256,777
|
)
|
|||
Accumulated
other comprehensive loss
|
329,568
|
(375,445
|
)
|
||||
Total
shareholders’ equity
|
55,709,293
|
46,265,256
|
|||||
$
|
76,954,748
|
$
|
84,718,673
|
Nine
months ended September 30,
|
Three months ended September
30,
|
||||||||||||
2006
|
2005
|
2006
|
2005
|
||||||||||
Revenues
|
$
|
29,033,433
|
$
|
33,814,030
|
$
|
12,722,686
|
$
|
11,189,675
|
|||||
Cost
of revenues
|
21,396,283
|
23,414,434
|
8,654,154
|
8,433,283
|
|||||||||
Gross
profit
|
7,637,150
|
10,399,596
|
4,068,532
|
2,756,392
|
|||||||||
Operating
expenses:
|
|||||||||||||
Research
and development
|
1,235,000
|
1,245,452
|
714,371
|
346,948
|
|||||||||
Selling
and marketing
|
2,600,477
|
3,241,179
|
852,345
|
1,018,486
|
|||||||||
General
and administrative
|
9,309,867
|
10,874,309
|
3,069,059
|
4,031,477
|
|||||||||
Amortization
of intangible assets
|
1,404,056
|
2,346,083
|
433,171
|
699,843
|
|||||||||
Impairment
of goodwill and other intangible assets
|
204,059
|
11,052,606
|
-
|
8,663,478
|
|||||||||
Total
operating costs and expenses
|
14,553,459
|
28,759,629
|
5,068,946
|
14,760,232
|
|||||||||
Operating
loss
|
(7,116,309
|
)
|
(18,360,033
|
)
|
(1,000,414
|
)
|
(12,003,840
|
)
|
|||||
Other
income
|
168,343
|
|
160,652
|
132,355
|
|
38,636
|
|||||||
Financial
expenses, net
|
(6,833,740
|
)
|
(2,056,518
|
)
|
(374,944
|
)
|
(750,052
|
)
|
|||||
Loss
before minority interest in loss of subsidiaries, earnings from affiliated
company and tax expenses
|
(13,781,706
|
)
|
(20,570,659
|
)
|
(1,243,003
|
)
|
(12,762,798
|
)
|
|||||
Income
tax credits (expenses)
|
(19,418
|
)
|
(314,760
|
)
|
34,635
|
(47,542
|
)
|
||||||
Minority
interest in (loss) earnings of subsidiaries
|
25,943
|
(17,287
|
)
|
-
|
53,866
|
||||||||
Earnings
from affiliated company
|
281,175
|
-
|
143,145
|
-
|
|||||||||
Loss
from continuing operations
|
(13,494,006
|
)
|
(20,587,946
|
)
|
(1,065,223
|
)
|
(12,708,932
|
)
|
|||||
Loss
from discontinued operations
|
-
|
(200,000
|
)
|
-
|
-
|
||||||||
Net
loss
|
(13,494,006
|
)
|
(20,787,946
|
)
|
(1,065,223
|
)
|
(12,708,932
|
)
|
|||||
Deemed
dividend to certain shareholders
|
(434,185
|
)
|
-
|
-
|
-
|
||||||||
Net
loss attributable to common shareholders
|
$
|
(13,928,191
|
)
|
$
|
(20,787,946
|
)
|
$
|
(1,065,223
|
)
|
$
|
(12,708,932
|
)
|
|
Basic
and diluted net loss per share from continuing operations
|
$
|
(1.72
|
)
|
$
|
(3.55
|
)
|
$
|
(0.12
|
)
|
$
|
(2.16
|
)
|
|
Basic
and diluted net earnings (loss) per share from discontinued
operation
|
$
|
0.00
|
$
|
(0.03
|
)
|
$
|
0.00
|
$
|
0.00
|
||||
Basic
and diluted net loss per share1
|
$
|
(1.77
|
)
|
$
|
(3.59
|
)
|
$
|
(0.12
|
)
|
$
|
(2.16
|
)
|
|
Weighted
average number of shares used in computing basic and diluted net
loss per
share
|
7,841,428
|
5,794,463
|
8,596,782
|
5,891,127
|
(U.S.
Dollars, except share data)
|
||||||||||||||||||||||||||||||||||||||||
Common Stock
Shares
Amount
|
Additional
paid-in
capital
|
Accumulated
deficit
|
Treasury
stock
|
Notes
receivable
from
shareholders
|
Accumulated
other
comprehensive
income
(loss)
|
|
Total
comprehensive
loss
|
Total
|
||||||||||||||||||||||||||||||||
BALANCE
AT JANUARY 1, 2006 - NOTE 1
|
6,221,193
|
$
|
870,969
|
$
|
193,560,579
|
$
|
(142,996,964
|
)
|
$
|
(3,537,106
|
)
|
$
|
(1,256,777
|
)
|
$
|
(375,445
|
)
|
$
|
-
|
$
|
46,265,256
|
|||||||||||||||||||
CHANGES
DURING THE NINE-MONTH
PERIOD ENDED SEPTEMBER 30, 2006
|
||||||||||||||||||||||||||||||||||||||||
Principal
installment of convertible debenture payment in shares
|
3,658,412
|
237,048
|
17,236,776
|
-
|
-
|
-
|
-
|
-
|
17,473,824
|
|||||||||||||||||||||||||||||||
Warrants
exercise
|
745,549
|
104,377
|
4,246,258
|
-
|
-
|
-
|
-
|
-
|
4,350,635
|
|||||||||||||||||||||||||||||||
Amortization
of deferred stock compensation
|
-
|
-
|
408,571
|
-
|
-
|
-
|
-
|
-
|
408,571
|
|||||||||||||||||||||||||||||||
Interest
accrued on notes receivable from shareholders
|
-
|
-
|
37,839
|
-
|
-
|
(37,839
|
)
|
-
|
-
|
-
|
||||||||||||||||||||||||||||||
Other
comprehensive loss - foreign currency translation
adjustment
|
-
|
-
|
-
|
-
|
-
|
-
|
704,146
|
704,146
|
704,146
|
|||||||||||||||||||||||||||||||
Other
comprehensive loss - unrealized gain on available for sale marketable
securities
|
-
|
-
|
-
|
-
|
-
|
-
|
867
|
867
|
867
|
|||||||||||||||||||||||||||||||
Adjustment
of fractional shares due to reverse split
|
(142
|
)
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
||||||||||||||||||||||||||||||
Net
loss
|
-
|
-
|
-
|
(13,494,006
|
)
|
-
|
-
|
-
|
(13,494,006
|
)
|
(13,494,006
|
)
|
||||||||||||||||||||||||||||
Total
comprehensive loss
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
$
|
(12,788,993
|
)
|
||||||||||||||||||||||||||||||
BALANCE
AT SEPTEMBER
30, 2006
- UNAUDITED
|
10,625,012
|
$
|
1,212,394
|
$
|
215,490,023
|
$
|
(156,490,970
|
)
|
$
|
(3,537,106
|
)
|
$
|
(1,294,616
|
)
|
$
|
329,568
|
$
|
55,709,293
|
||||||||||||||||||||||
Nine
months ended September 30,
|
|||||||
2006
|
2005
|
||||||
CASH
FLOWS FROM OPERATING ACTIVITIES:
|
|||||||
Net
loss for the period before deemed dividend to certain shareholders
of
common stock
|
$
|
(13,494,006
|
)
|
$
|
(20,787,946
|
)
|
|
Less
loss for the period from discontinued operations
|
200,000
|
||||||
Adjustments
required to reconcile net loss to net cash used in operating
activities:
|
|||||||
Depreciation
|
986,543
|
940,529
|
|||||
Amortization
of intangible assets, capitalized software costs and impairment of
intangible assets
|
1,404,056
|
2,346,083
|
|||||
Impairment of goodwill and other intangible assets | 204,059 | 11,052,606 | |||||
Amortization
of compensation related to warrants issued to the holders of convertible
debentures and beneficial conversion feature
|
1,217,213
|
1,190,715
|
|||||
Financial
expenses in connection with convertible debenture principal
repayment
|
5,395,338
|
-
|
|||||
Amortization
of deferred expenses related to convertible debenture
issuance
|
744,875
|
36,384
|
|||||
Amortization of capitalized research and development projects | 115,172 | 94,419 | |||||
Remeasurement
of liability in connection with warrants granted
|
(700,113
|
)
|
-
|
||||
Stock-based
compensation due to shares granted and to be granted to consultants
and
shares granted as a donation
|
-
|
219,966
|
|||||
Stock
based compensation due to options and shares granted to
employees
|
-
|
386,186
|
|||||
Adjustment
of stock based compensation related to non-recourse note granted
to
shareholder
|
(28,500
|
)
|
|||||
(Earnings)
loss to minority
|
(25,943
|
)
|
17,288
|
||||
Share
in earnings of affiliated company
|
(281,175
|
)
|
-
|
||||
Interest
expenses accrued on promissory notes issued to purchase of
subsidiary
|
- |
517,923
|
|||||
Amortization
of premium related to restricted securities
|
- |
42,234
|
|||||
Liability
for employee rights upon retirement, net
|
155,737
|
-
|
|||||
Capital loss
from sale of marketable securities
|
- |
2,694
|
|||||
Capital gain (loss) from sale of property and equipment | (1,842 | ) | 4,517 | ||||
Stock based compensation related to shares granted and to be granted to consultants and shares granted as a donation | 408,571 | 533,501 | |||||
Write-off and write-down of inventories | 292,864 | 647,614 | |||||
Write-off of fixed assets | - | 32,367 | |||||
Impairment of fixed assets | 32,485 | (60,693 | ) | ||||
Decrease
in deferred tax assets
|
25,440
|
75,078
|
|||||
Changes
in operating asset and liability items:
|
|||||||
Decrease
in trade receivables and notes receivable
|
4,101,873
|
1,015,895
|
|||||
Decrease
(increase) in unbilled receivables
|
(1,587,424
|
)
|
828,986
|
||||
Increase
in other accounts receivable and prepaid expenses
|
4,566
|
(52,558
|
)
|
||||
Increase
in inventories
|
(569,559
|
)
|
(1,908,500
|
)
|
|||
Decrease
in trade payables
|
(2,272,518
|
)
|
(944,996
|
)
|
|||
Increase
in deferred revenues
|
932,676
|
489,488
|
|||||
Increase
(decrease) in accounts payable and accruals
|
477,357
|
(51,983
|
)
|
||||
Net
cash used in operating activities from continuing
operations
|
(2,433,755
|
)
|
(5,156,493
|
)
|
Net
cash used in operating activities from discontinuing
operations
|
(120,000 | ) | - | ||||
Net
cash used in operating activities
|
(2,553,755 | ) | (5,156,493 | ) | |||
CASH
FLOWS FROM INVESTING ACTIVITIES:
|
|||||||
Repayment
of promissory note related to purchase of subsidiary
|
(245,183
|
)
|
(14,120,602
|
)
|
|||
Purchase
of property and equipment
|
(551,376
|
)
|
(761,003
|
)
|
|||
Proceeds
from sale of marketable securities
|
- |
92,036
|
|||||
Proceeds
from sale of property and equipment
|
- | 13,000 | |||||
Payment
of transactions expenses in relation to previous year investment
in
subsidiary
|
(590,350
|
) |
(12,945
|
)
|
|||
Investment
in affiliated company
|
- |
(112,500
|
)
|
||||
Increase
in capitalized research and development projects
|
(379,496
|
)
|
(181,342
|
)
|
|||
Decrease
in restricted securities and deposits, net
|
3,562,381
|
4,278,671
|
|||||
Net
cash provided by (used in) investing
activities
|
1,795,976
|
(10,804,685
|
)
|
||||
FORWARD
|
$
|
757,777
|
$
|
(15,961,178
|
)
|
Nine
months ended September 30,
|
|||||||
2006
|
2005
|
||||||
FORWARD
|
$
|
757,779
|
$
|
(15,961,178
|
)
|
||
CASH
FLOWS FROM FINANCING ACTIVITIES:
|
|||||||
Increase
(decrease) in short-term credit from banks
|
(357,037
|
)
|
1,079,583
|
||||
Proceeds
from issuance (repayment) of convertible debentures, net
|
-
|
|
16,511,372
|
||||
Repayment
of debentures
|
(4,537,500 | ) |
-
|
||||
Proceeds
from exercise of options
|
- |
17,192
|
|||||
Proceeds
from issuance of share capital, net
|
- |
2,872,321
|
|||||
Proceeds
from exercise of warrants
|
4,350,635
|
-
|
|||||
Repayment
of long-term loans
|
(19,552
|
)
|
(61,460
|
)
|
|||
Net
cash provided by (used in) financing
activities
|
(563,454
|
)
|
20,419,008
|
||||
INCREASE
(DECREASE) IN CASH AND CASH EQUIVALENTS
|
(1,321,233
|
)
|
4,457,830
|
||||
CASH
EROSION (ACCRETION) DUE TO EXCHANGE RATE
DIFFERENCES
|
(106,887
|
)
|
39,838
|
||||
BALANCE
OF CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE
PERIOD
|
6,150,652
|
6,734,512
|
|||||
BALANCE
OF CASH AND CASH EQUIVALENTS AT THE END OF THE
PERIOD
|
$
|
4,722,532
|
$
|
11,232,180
|
|||
SUPPLEMENTAL INFORMATION ON NON-CASH TRANSACTIONS: | |||||||
Payment
of principal installment of convertible debenture in
shares
|
$ | 17,473,824 | $ | - | |||
Issuance
of shares and warrants against accrued expenses
|
$ | - | $ | 56,577 | |||
Exercise
of options and issuance of shares against notes
receivables
|
$ | - | $ | 1,115,915 | |||
Issuance
expenses against accounts payable
|
$ | - | $ | 70,181 | |||
Accrual
for earnout in respect of subsidiary acquisition
|
$ | - | $ | 535,546 | |||
Liability
in connection to warrants granted
|
$ | - | $ | 422,034 | |||
SUPPLEMENTAL
DISCLOSURE OF CASH FLOWS INFORMATION - CASH PAID DURING THE PERIOD
FOR:
|
|||||||
Interest
|
$
|
(1,347,216
|
) |
$
|
(813,976
|
)
|
|
Nine
months ended
September
30, 2005
|
Three
months ended
September
30, 2005
|
||||||
Unaudited
|
Unaudited
|
||||||
Net
loss as reported
|
$
|
(20,787,946
|
)
|
$
|
(12,708,932
|
)
|
|
Add
- stock-based compensation expense determined under APB 25
|
606,152
|
157,781
|
|||||
Deduct
- stock based compensation expense determined under fair value method
for
all awards
|
(1,464,734
|
)
|
(613,343
|
)
|
|||
Pro
forma net loss
|
$
|
(21,646,526
|
)
|
$
|
(13,164,494
|
)
|
|
Loss
per share:
|
|||||||
Basic
and diluted, as reported
|
$
|
(3.59
|
)
|
$
|
(2.16
|
)
|
|
Pro
forma basic and diluted
|
$
|
(3.74
|
)
|
$
|
(2.23
|
)
|
|
September
30, 2006
|
||||||
|
Amount
|
Weighted
average
exercise
price
|
|||||
$
|
|||||||
Options
outstanding at beginning of quarter
|
604,663
|
$
|
10.17
|
||||
Changes
during quarter:
|
-
|
-
|
|||||
Granted
|
-
|
-
|
|||||
Exercised
|
-
|
-
|
|||||
Forfeited
|
(927
|
)
|
5.46
|
||||
Options
outstanding at September 30, 2006
|
603,706
|
$
|
10.17
|
||||
Options
exercisable at end of quarter
|
576,685
|
$
|
10.03
|
September
30, 2006
|
|||||||
Amount
|
Weighted
average grant
date
fair value
|
||||||
$
|
|||||||
Non-vested
shares outstanding at beginning of quarter
|
52,143
|
$
|
19.52
|
||||
Changes
during quarter:
|
|||||||
Granted
|
-
|
-
|
|||||
Vested
|
-
|
-
|
|||||
Forfeited
|
-
|
-
|
|||||
Non
vested shares outstanding at September 30, 2006
|
52,143
|
$
|
19.52
|
|
September
30, 2006
|
December
31, 2005
|
|||||
(Unaudited)
|
|||||||
Raw
and packaging materials
|
$
|
3,993,340
|
$
|
3,296,453
|
|||
Work-in-progress
|
3,261,049
|
3,697,361
|
|||||
Finished
goods
|
931,910
|
821,992
|
|||||
$
|
8,186,300
|
$
|
7,815,806
|
Simulation
and Training
|
Battery
and
Power
Systems
|
|
|
Armor
|
|
|
All
Others
|
|
|
Total
|
||||||
Nine
months ended September
30, 2006
|
||||||||||||||||
Revenues
from outside customers
|
$
|
16,395,627
|
$
|
5,943,319
|
$
|
6,694,487
|
- |
$
|
29,033,433
|
|||||||
Depreciation,
amortization and impairment expenses (1)
|
(1,165,628
|
)
|
(701,026
|
)
|
(770,718
|
)
|
(185,537
|
)
|
(2,822,909
|
)
|
||||||
Direct
expenses (2)
|
(13,619,617
|
)
|
(6,219,157
|
)
|
(7,716,424
|
)
|
(5,315,593
|
)
|
(32,870,798
|
)
|
||||||
Segment
income (loss)
|
$
|
1,610,382
|
$
|
(976,864
|
)
|
$
|
(1,792,654
|
)
|
$
|
(5,501,130
|
)
|
(6,660,266
|
)
|
|||
Financial
expenses (after deduction of minority interest)
|
(6,833,740
|
)
|
(6,833,740
|
)
|
||||||||||||
Loss
from continuing operations
|
$
|
(13,494,006
|
)
|
|||||||||||||
Segment
assets
(3), (4)
|
$
|
32,065,426
|
$
|
13,328,837
|
$
|
6,508,949
|
$
|
841,797
|
$
|
52,424,580
|
||||||
Nine
months ended September
30, 2005
|
||||||||||||||||
Revenues
from outside customers
|
$
|
16,794,959
|
$
|
7,600,090
|
$
|
9,418,981
|
$
|
-
|
$
|
33,814,030
|
||||||
Depreciation
expenses and amortization (1)
|
(1,203,691
|
)
|
(690,604
|
)
|
(12,429,841
|
)
|
(109,500
|
)
|
(14,433,636
|
)
|
||||||
Direct
expenses (2)
|
(14,485,473
|
)
|
(7,441,305
|
)
|
(10,645,962
|
)
|
(5,337,448
|
)
|
(37,910,188
|
)
|
||||||
Segment
income (loss)
|
$
|
1,105,795
|
$
|
(531,819
|
)
|
$
|
(13,656,822
|
)
|
$
|
(5,446,948
|
)
|
(18,529,794
|
)
|
|||
Financial
expenses (after deduction of minority interest)
|
(2,058,152
|
)
|
||||||||||||||
Loss
from continuing operations
|
$
|
(20,587,946
|
)
|
|||||||||||||
Segment
assets
(3)
|
$
|
32,458,316
|
$
|
14,898,075
|
$
|
5,326,840
|
$
|
719,456
|
$
|
53,402,687
|
||||||
Three
months ended September
30, 2006
|
||||||||||||||||
Revenues
from outside customers
|
$
|
6,950,826
|
$
|
1,802,665
|
$
|
3,969,195
|
$ | - |
$
|
12,722,686
|
||||||
Depreciation
, amortization and impairment expenses (1)
|
(386,647
|
)
|
(234,588
|
)
|
(173,807
|
)
|
(57,944
|
)
|
(852,986
|
)
|
||||||
Direct
expenses (2)
|
(5,236,307
|
)
|
(1,989,037
|
)
|
(3,593,301
|
)
|
(1,741,334
|
)
|
(12,559,979
|
)
|
||||||
Segment
income (loss)
|
$
|
1,327,872
|
$
|
(420,960
|
)
|
$
|
202,088
|
$
|
(1,799,278
|
)
|
(690,279
|
)
|
||||
Financial
expenses (after deduction of minority interest)
|
(374,944
|
)
|
||||||||||||||
Loss
from continuing operations
|
$
|
(1,065,223
|
)
|
|||||||||||||
|
Simulation
and Training
|
|
Battery
and
Power
Systems
|
Armor
|
All
Others
|
Total
|
||||||||||
Three
months ended September
30, 2005
|
||||||||||||||||
Revenues
from outside customers
|
$
|
7,155,887
|
$
|
2,539,120
|
$
|
1,494,668
|
$
|
-
|
$
|
11,189,675
|
||||||
Depreciation
, amortization and impairment expenses (1)
|
(397,341
|
)
|
(235,764
|
)
|
(9,051,210
|
)
|
(36,500
|
)
|
(9,720,815
|
)
|
||||||
Direct
expenses (2)
|
(5,993,882
|
)
|
(2,378,728
|
)
|
(2,895,703
|
)
|
(2,159,420
|
)
|
(13,427,733
|
)
|
||||||
Segment
income (loss)
|
$
|
764,664
|
$
|
(75,372
|
)
|
$
|
(10,452,245
|
)
|
$
|
(2,195,920
|
)
|
(11,958,873
|
)
|
|||
Financial
expenses (after deduction of minority interest)
|
(750,059
|
)
|
||||||||||||||
Loss
from continuing operations
|
$
|
(12,708,932
|
)
|
|||||||||||||
b.
|
8%
Secured Convertible Debentures due September 30, 2006 and issued
in
December 2003:
|
a.
|
Warrants
issued in June 2003:
|
b.
|
Warrants
issued in September 2003:
|
c.
|
Warrants
issued in December 2003:
|
d.
|
Warrants
issued in September 2003:
|
e.
|
Warrants
issued in July 2004:
|
12/31/2005
|
Additions
|
Reductions
|
Currency
Fluctuation
|
9/30/2006
|
||||||||||
Simulation
and Training
|
$
|
23,605,069
|
$
|
590,350
|
$ | - | $ | - |
$
|
24,195,419
|
||||
Battery and
Power Systems
|
|
4,968,675
|
- | - |
|
347,645
|
|
5,316,320
|
||||||
Armor
|
|
985,413
|
|
204,059
|
(204,059
|
)
|
|
63,489
|
|
1,048,902
|
||||
$
|
29,559,157
|
$
|
794,409
|
$ |
(204,059
|
)
|
$
|
411,134
|
$
|
30,560,641
|
Ø |
Our
Simulation
and Training Division,
consisting of:
|
· |
FAAC
Incorporated, located in Ann Arbor, Michigan, which provides simulators,
systems engineering and software products to the United States military,
government and private industry (“FAAC”);
and
|
· |
IES
Interactive Training, Inc., located in Ann Arbor, Michigan, which
provides
specialized “use of force” training for police, security personnel and the
military (“IES”).
|
Ø |
Our
Armor
Division,
consisting of:
|
· |
Armour
of America, located in Auburn, Alabama, which manufactures ballistic
and
fragmentation armor kits for rotary and fixed wing aircraft, marine
armor,
personnel armor, military vehicles and architectural applications,
including both the LEGUARD Tactical Leg Armor and the Armourfloat
Ballistic Floatation Device, which is a unique vest that is certified
by
the U.S. Coast Guard (“AoA”);
|
· |
MDT
Protective Industries, Ltd., located in Lod, Israel, which specializes
in using state-of-the-art lightweight ceramic materials, special
ballistic
glass and advanced engineering processes to fully armor vans and
SUVs, and
is a leading supplier to the Israeli military, Israeli special forces
and
special services (“MDT”) (75.5% owned);
and
|
· |
MDT
Armor Corporation, located in Auburn, Alabama, which conducts MDT’s United
States activities (“MDT Armor”)
(88% owned).
|
Ø |
Our
Battery
and Power Systems Division,
consisting of:
|
· |
Epsilor
Electronic Industries, Ltd., located in Dimona, Israel (in Israel’s Negev
desert area), which develops and sells rechargeable and primary lithium
batteries and smart chargers to the military and to private industry
in
the Middle East, Europe and Asia (“Epsilor”);
|
· |
Electric
Fuel Battery Corporation, located in Auburn, Alabama, which manufactures
and sells Zinc-Air fuel sells, batteries and chargers for the military,
focusing on applications that demand high energy and light weight
(“EFB”);
and
|
· |
Electric
Fuel (E.F.L.) Ltd., located in Beit Shemesh, Israel, which produces
water-activated battery (“WAB”) lifejacket lights for commercial aviation
and marine applications, and which conducts our Electric Vehicle
effort,
focusing on obtaining and implementing demonstration projects in
the U.S.
and Europe, and on building broad industry partnerships that can
lead to
eventual commercialization of our Zinc-Air energy system for electric
vehicles (“EFL”).
|
Ø |
IES
and FAAC recognized revenues from the sale of interactive use-of-force
training systems and from the provision of maintenance services in
connection with such systems.
|
Ø |
MDT,
MDT Armor and AoA recognized revenues from payments under vehicle
armoring
contracts, for service and repair of armored vehicles, and on sale
of
armoring products.
|
Ø |
EFB
and Epsilor recognized revenues from the sale of batteries, chargers
and
adapters to the military, and under certain development contracts
with the
U.S. Army.
|
Ø |
EFL
recognized revenues from the sale of water-activated battery (WAB)
lifejacket lights.
|
Ø |
Decreases
in certain general and administrative expenses in comparison to 2005,
such
as auditing, legal expenses and travel expenses, as a result of
cost-cutting programs implemented by
management.
|
Ø |
Decrease
in general and administrative expenses related to our Simulation
and
Training Division (payroll, legal and other
expenses).
|
Ø |
IES
and FAAC recognized revenues from the sale of interactive use-of-force
training systems and from the provision of maintenance services in
connection with such systems.
|
Ø |
MDT,
MDT Armor and AoA recognized revenues from payments under vehicle
armoring
contracts, for service and repair of armored vehicles, and on sale
of
armoring products.
|
Ø |
EFB
and Epsilor recognized revenues from the sale of batteries, chargers
and
adapters to the military, and under certain development contracts
with the
U.S. Army.
|
Ø |
EFL
recognized revenues from the sale of water-activated battery (WAB)
lifejacket lights.
|
Ø |
Decreased
revenues from our Armor Division ($2.7 million less in the first
nine
months of 2006 versus the first nine months of 2005).
|
Ø |
Decreased
revenues from our Battery and Power Systems Division, particularly
Epsilor
($1.7 million less in the first nine months of 2006 versus the first
nine
months of 2005).
|
Ø |
Decreases
in certain general and administrative expenses in comparison to 2005,
such
as auditing, legal expenses and travel expenses, as a result of
cost-cutting programs implemented by
management.
|
Ø |
Decrease
in general and administrative expenses related to FAAC, primarily
payroll,
legal and other expenses.
|
Ø |
Decrease
in general and administrative expenses related to IES as a result
of the
consolidation of IES and FAAC
operations.
|
Ø |
Decrease
in general and administrative expenses related to AoA due to decrease
in
operations, employees and the relocation of AoA to Alabama
|
ITEM
4.
|
Ø |
Revenue
recognition.
We will institute procedures at FAAC to determine that revenue recognition
calculations are reviewed by an appropriate accounting
person.
|
· |
we
must dedicate a portion of our cash flows from operations to pay
principal
and interest and, as a result, we may have less funds available for
operations and other purposes;
|
· |
it
may be more difficult and expensive to obtain additional funds through
financings, if available at all;
|
· |
we
are more vulnerable to economic downturns and fluctuations in interest
rates, less able to withstand competitive pressures and less flexible
in
reacting to changes in our industry and general economic conditions;
and
|
· |
if
we default under any of our existing debt instruments, including
paying
the outstanding principal when due, and if our creditors demand payment
of
a portion or all of our indebtedness, we may not have sufficient
funds to
make such payments.
|
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)
|
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
|