OMB APPROVAL
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OMB Number: 3235-0070
Expires: October 31, 2021
Estimated average burden
hours per response 190.42
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FORM 10-Q
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x
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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
June 30, 2019
.
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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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______________________________________________________________________________________
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(Former name, former address and former fiscal year, if changed since last report)
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Title of each class
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Trading Symbol(s)
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Name of each exchange on which registered
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Common Stock, $0.01 par value
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ARTX
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The Nasdaq Stock Market LLC
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Large accelerated filer:
¨
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Accelerated filer:
x
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Non-accelerated filer:
¨
(Do not check if a smaller reporting company)
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Smaller reporting company:
x
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Emerging growth company:
¨
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|
Potential persons who are to respond to the collection of information contained in this form are not
required to respond unless the form displays a currently valid OMB control number.
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Item
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Page
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PART I - FINANCIAL INFORMATION
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PART II - OTHER INFORMATION
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June 30, 2019
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December 31, 2018
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||||
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(Unaudited)
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ASSETS
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CURRENT ASSETS:
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||||
Cash and cash equivalents
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$
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3,732,159
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$
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4,222,246
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Restricted collateral deposits
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154,058
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222,712
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||
Trade receivables, net
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15,572,079
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16,259,809
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Contract assets
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25,442,771
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17,867,896
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Other accounts receivable and prepaid expenses
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3,628,432
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5,989,263
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Inventories, net
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9,236,969
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9,912,748
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Total current assets
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57,766,468
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54,474,674
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LONG TERM ASSETS:
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Contractual and Israeli statutory severance pay fund
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3,727,353
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3,427,705
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Other long term receivables
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539,073
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543,205
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Property and equipment, net
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9,398,550
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8,914,247
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Right of use asset
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5,879,845
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—
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Other intangible assets, net
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4,857,478
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4,465,778
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Goodwill
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46,138,036
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46,138,036
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Total long term assets
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70,540,335
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63,488,971
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Total assets
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$
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128,306,803
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$
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117,963,645
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LIABILITIES AND STOCKHOLDERS’ EQUITY
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CURRENT LIABILITIES:
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Trade payables
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$
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7,303,070
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|
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$
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6,442,919
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Other accounts payable and accrued expenses
|
5,115,437
|
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6,498,045
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Current portion of lease obligations
|
634,005
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|
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—
|
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Current portion of long term debt
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2,397,206
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2,204,653
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Short term bank credit
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12,052,008
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5,500,416
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Contract liabilities
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6,430,106
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7,054,779
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Total current liabilities
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33,931,832
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27,700,812
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LONG TERM LIABILITIES:
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Contractual and accrued Israeli statutory severance pay
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4,509,731
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4,125,675
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Long term portion of lease obligations
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5,551,511
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—
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Long term portion of debt
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5,273,595
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6,360,569
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Deferred income tax liability
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3,078,859
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2,863,098
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Other long term liabilities
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43,817
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137,774
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Total long-term liabilities
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18,457,513
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13,487,116
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Total liabilities
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52,389,345
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41,187,928
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STOCKHOLDERS’ EQUITY:
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Share capital –
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Common stock – $0.01 par value each;
Authorized: 50,000,000 shares as of June 30, 2019 and December 31, 2018; Issued and outstanding: 26,665,240 shares and 26,486,152 shares as of June 30, 2019 and December 31, 2018, respectively |
266,653
|
|
|
264,862
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Preferred shares – $0.01 par value each;
Authorized: 1,000,000 shares as of June 30, 2019 and December 31, 2018; No shares issued or outstanding as of June 30, 2019 and December 31, 2018 |
—
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—
|
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Additional paid-in capital
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251,638,418
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251,551,001
|
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Accumulated deficit
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(177,512,794
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)
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(176,498,057
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)
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Notes receivable from stockholders
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(908,054
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)
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(908,054
|
)
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Accumulated other comprehensive income
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2,433,235
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2,365,965
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Total stockholders’ equity
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75,917,458
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76,775,717
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Total liabilities and stockholders’ equity
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$
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128,306,803
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$
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117,963,645
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Six months ended June 30,
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Three months ended June 30,
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2019
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2018
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2019
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2018
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Revenues
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$
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44,045,203
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$
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49,123,118
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$
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23,266,564
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$
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21,874,609
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Cost of revenues
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30,587,522
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34,812,163
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15,628,411
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15,275,082
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Research and development expenses
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2,095,922
|
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1,764,995
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1,021,858
|
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728,293
|
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Selling and marketing expenses
|
4,343,461
|
|
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3,809,461
|
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2,190,904
|
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1,931,388
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General and administrative expenses
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6,385,960
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6,211,813
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3,215,569
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2,985,879
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Amortization of intangible assets
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650,865
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906,742
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280,662
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391,831
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Total operating costs and expenses
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$
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44,063,730
|
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$
|
47,505,174
|
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$
|
22,337,404
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$
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21,312,473
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|
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Operating income (loss)
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(18,527
|
)
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1,617,944
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929,160
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562,136
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Other income (expense), net
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(9,091
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)
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7,399
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(9,077
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)
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7,396
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Financial expense, net
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(669,857
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)
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(522,887
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)
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(371,426
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)
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(309,779
|
)
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||||
Total other expense
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(678,948
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)
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(515,488
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)
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(380,503
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)
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(302,383
|
)
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Income (loss) before income tax expense
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(697,475
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)
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1,102,456
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548,657
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|
259,753
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||||
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|||||||
Income tax expense
|
317,262
|
|
|
423,385
|
|
|
156,381
|
|
|
176,271
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|
||||
Net income (loss)
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(1,014,737
|
)
|
|
679,071
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|
|
392,276
|
|
|
83,482
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||||
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||||||||
Other comprehensive income (loss), net of income tax:
|
|
|
|
|
|
|
|
||||||||
Foreign currency translation adjustment
|
67,270
|
|
|
(79,262
|
)
|
|
24,378
|
|
|
(55,002
|
)
|
||||
Comprehensive income (loss)
|
$
|
(947,467
|
)
|
|
$
|
599,809
|
|
|
$
|
416,654
|
|
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$
|
28,480
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Income (loss) per share of common stock:
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Basic net income (loss) per share
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$
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(0.04
|
)
|
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$
|
0.03
|
|
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$
|
0.01
|
|
|
$
|
0.00
|
|
Diluted net income (loss) per share
|
$
|
(0.04
|
)
|
|
$
|
0.03
|
|
|
$
|
0.01
|
|
|
$
|
0.00
|
|
Weighted average number of shares used in computing basic net income (loss) per share
|
26,522,553
|
|
|
26,457,133
|
|
|
26,551,466
|
|
|
26,432,094
|
|
||||
Weighted average number of shares used in computing diluted net income (loss) per share
|
26,522,553
|
|
|
26,457,133
|
|
|
26,551,466
|
|
|
26,432,094
|
|
|
Six months ended June 30,
|
||||||
|
2019
|
|
2018
|
||||
CASH FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
||||
Net income (loss)
|
$
|
(1,014,737
|
)
|
|
$
|
679,071
|
|
Adjustments required to reconcile net income (loss) to net cash (used in) provided by operating activities:
|
|
|
|
||||
Depreciation
|
1,011,904
|
|
|
960,557
|
|
||
Amortization of intangible assets
|
650,865
|
|
|
906,742
|
|
||
Stock based compensation
|
202,129
|
|
|
190,269
|
|
||
Deferred tax provision
|
215,761
|
|
|
361,834
|
|
||
Changes in operating assets and liabilities:
|
|
|
|
||||
Trade receivables
|
687,730
|
|
|
4,840,684
|
|
||
Contract assets
|
(7,574,875
|
)
|
|
(384,226
|
)
|
||
Other accounts receivable and prepaid expenses
|
2,670,634
|
|
|
(250,515
|
)
|
||
Inventories
|
676,863
|
|
|
(1,157,602
|
)
|
||
Severance pay, net
|
110,288
|
|
|
(26,425
|
)
|
||
Trade payables
|
860,165
|
|
|
(719,743
|
)
|
||
Other accounts payable and accrued expenses
|
(1,466,402
|
)
|
|
(2,022,522
|
)
|
||
Contract liabilities
|
(624,673
|
)
|
|
270,362
|
|
||
Net cash (used in) provided by operating activities
|
$
|
(3,594,348
|
)
|
|
$
|
3,648,486
|
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
||||
Purchases of property and equipment
|
$
|
(1,496,207
|
)
|
|
$
|
(652,156
|
)
|
Additions to capitalized software
|
(1,042,565
|
)
|
|
(244,324
|
)
|
||
Net cash used in investing activities
|
$
|
(2,538,772
|
)
|
|
$
|
(896,480
|
)
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
||||
Proceeds from long term debt
|
220,264
|
|
|
—
|
|
||
Repayment of long term debt
|
(1,114,685
|
)
|
|
(1,129,505
|
)
|
||
Other financing activities
|
(118,649
|
)
|
|
(54,155
|
)
|
||
Change in short term bank credit
|
6,551,592
|
|
|
478,936
|
|
||
Net cash provided by (used in) financing activities
|
$
|
5,538,522
|
|
|
$
|
(704,724
|
)
|
(DECREASE) INCREASE IN CASH, RESTRICTED CASH, AND CASH EQUIVALENTS
|
$
|
(594,598
|
)
|
|
$
|
2,047,282
|
|
CASH DIFFERENCES DUE TO EXCHANGE RATE DIFFERENCES
|
$
|
35,857
|
|
|
$
|
132,419
|
|
CASH, RESTRICTED CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE PERIOD
|
$
|
4,444,958
|
|
|
$
|
5,488,754
|
|
CASH, RESTRICTED CASH AND CASH EQUIVALENTS AT THE END OF THE PERIOD
|
$
|
3,886,217
|
|
|
$
|
7,668,455
|
|
|
Common stock
|
|
Additional
paid-in capital |
|
Accumulated deficit
|
|
Notes
receivable from stockholders |
|
Accumulated
other comprehensive income |
|
Total
stockholders’ equity |
|||||||||||||||
|
Shares
|
|
Amount
|
|
|
|
|
|
||||||||||||||||||
Balance as of January 1, 2019
|
26,486,152
|
|
|
$
|
264,862
|
|
|
$
|
251,551,001
|
|
|
$
|
(176,498,057
|
)
|
|
$
|
(908,054
|
)
|
|
$
|
2,365,965
|
|
|
$
|
76,775,717
|
|
Stock based compensation
|
—
|
|
|
—
|
|
|
202,129
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
202,129
|
|
||||||
Restricted stock issued
|
71,780
|
|
|
718
|
|
|
(718
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
||||||
Restricted stock units vested, net of taxes
|
112,775
|
|
|
1,128
|
|
|
(114,049
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(112,921
|
)
|
||||||
Restricted stock forfeitures
|
(5,467
|
)
|
|
(55
|
)
|
|
55
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
||||||
Foreign currency translation adjustment
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
67,270
|
|
|
67,270
|
|
||||||
Net Loss
|
—
|
|
|
—
|
|
|
—
|
|
|
(1,014,737
|
)
|
|
—
|
|
|
—
|
|
|
(1,014,737
|
)
|
||||||
Balance as of June 30, 2019
|
26,665,240
|
|
|
$
|
266,653
|
|
|
$
|
251,638,418
|
|
|
$
|
(177,512,794
|
)
|
|
$
|
(908,054
|
)
|
|
$
|
2,433,235
|
|
|
$
|
75,917,458
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Balance as of April 1, 2019
|
26,617,460
|
|
|
$
|
266,175
|
|
|
$
|
251,572,736
|
|
|
$
|
(177,905,070
|
)
|
|
$
|
(908,054
|
)
|
|
$
|
2,408,857
|
|
|
$
|
75,434,644
|
|
Stock based compensation
|
—
|
|
|
—
|
|
|
66,160
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
66,160
|
|
||||||
Restricted stock issued
|
47,780
|
|
|
478
|
|
|
(478
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
||||||
Restricted stock units vested, net of taxes
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
||||||
Restricted stock forfeitures
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
||||||
Foreign currency translation adjustment
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
24,378
|
|
|
24,378
|
|
||||||
Net Income
|
—
|
|
|
—
|
|
|
—
|
|
|
392,276
|
|
|
—
|
|
|
—
|
|
|
392,276
|
|
||||||
Balance as of June 30, 2019
|
26,665,240
|
|
|
$
|
266,653
|
|
|
$
|
251,638,418
|
|
|
$
|
(177,512,794
|
)
|
|
$
|
(908,054
|
)
|
|
$
|
2,433,235
|
|
|
$
|
75,917,458
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Balance as of January 1, 2018
|
26,395,048
|
|
|
$
|
263,951
|
|
|
$
|
250,826,873
|
|
|
$
|
(181,568,757
|
)
|
|
$
|
(908,054
|
)
|
|
$
|
2,479,205
|
|
|
$
|
71,093,218
|
|
Stock based compensation
|
|
|
|
|
190,269
|
|
|
|
|
|
|
|
|
190,269
|
|
|||||||||||
Restricted stock issued
|
86,900
|
|
|
869
|
|
|
(869
|
)
|
|
|
|
|
|
|
|
—
|
|
|||||||||
Restricted stock units vested, net of taxes
|
50,247
|
|
|
502
|
|
|
(54,657
|
)
|
|
|
|
|
|
|
|
(54,155
|
)
|
|||||||||
Restricted stock forfeitures
|
(46,043
|
)
|
|
(460
|
)
|
|
460
|
|
|
|
|
|
|
|
|
—
|
|
|||||||||
Foreign currency translation adjustment
|
|
|
|
|
|
|
|
|
|
|
(79,262
|
)
|
|
(79,262
|
)
|
|||||||||||
Net Income
|
|
|
|
|
|
|
679,071
|
|
|
|
|
|
|
679,071
|
|
|||||||||||
Balance as of June 30, 2018
|
26,486,152
|
|
|
$
|
264,862
|
|
|
$
|
250,962,076
|
|
|
$
|
(180,889,686
|
)
|
|
$
|
(908,054
|
)
|
|
$
|
2,399,943
|
|
|
$
|
71,829,141
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Balance as of April 1, 2018
|
26,452,462
|
|
|
$
|
264,525
|
|
|
$
|
250,880,639
|
|
|
$
|
(180,973,168
|
)
|
|
$
|
(908,054
|
)
|
|
$
|
2,454,945
|
|
|
$
|
71,718,887
|
|
Stock based compensation
|
|
|
|
|
81,774
|
|
|
|
|
|
|
|
|
81,774
|
|
|||||||||||
Restricted stock issued
|
45,900
|
|
|
459
|
|
|
(459
|
)
|
|
|
|
|
|
|
|
—
|
|
|||||||||
Restricted stock units vested, net of taxes
|
500
|
|
|
5
|
|
|
(5
|
)
|
|
|
|
|
|
|
|
—
|
|
|||||||||
Restricted stock forfeitures
|
(12,710
|
)
|
|
(127
|
)
|
|
127
|
|
|
|
|
|
|
|
|
—
|
|
|||||||||
Foreign currency translation adjustment
|
|
|
|
|
|
|
|
|
|
|
(55,002
|
)
|
|
(55,002
|
)
|
|||||||||||
Net Income
|
|
|
|
|
|
|
83,482
|
|
|
|
|
|
|
83,482
|
|
|||||||||||
Balance as of June 30, 2018
|
26,486,152
|
|
|
$
|
264,862
|
|
|
$
|
250,962,076
|
|
|
$
|
(180,889,686
|
)
|
|
$
|
(908,054
|
)
|
|
$
|
2,399,943
|
|
|
$
|
71,829,141
|
|
|
|
Six months ended June 30,
|
|
Three months ended June 30,
|
||||
|
|
2019
|
|
2019
|
||||
Operating lease cost
|
|
$
|
560,492
|
|
|
$
|
280,246
|
|
|
|
|
|
|
||||
Finance lease cost:
|
|
|
|
|
||||
Amortization of right-of-use assets
|
|
$
|
6,332
|
|
|
$
|
3,166
|
|
Interest on lease liabilities
|
|
1,604
|
|
|
876
|
|
||
Total finance lease costs
|
|
$
|
7,936
|
|
|
$
|
4,042
|
|
|
|
|
|
|
||||
Right-of-use assets obtained in exchange for lease obligations:
|
|
|
|
|
||||
Operating leases
|
|
$
|
2,785,444
|
|
|
$
|
—
|
|
Finance leases
|
|
31,386
|
|
|
—
|
|
|
|
June 30, 2019
|
||
Operating Leases:
|
|
|
||
Right of use asset
|
|
$
|
5,879,845
|
|
|
|
|
||
Current portion of lease obligations
|
|
634,005
|
|
|
Long term portion of lease obligations
|
|
5,551,511
|
|
|
Total operating lease obligations
|
|
6,185,516
|
|
|
|
|
|
||
Financing Leases:
|
|
|
||
Property and Equipment, at cost
|
|
56,933
|
|
|
Accumulated depreciation
|
|
(6,332
|
)
|
|
Property and Equipment, net
|
|
50,601
|
|
|
|
|
|
||
Other accounts payable and accrued expenses
|
|
11,638
|
|
|
Other long term liabilities
|
|
37,546
|
|
|
Total financing lease liabilities
|
|
$
|
49,184
|
|
|
|
|
||
Weighted Average Remaining Lease Term
|
|
|
||
Operating leases
|
|
11 years
|
|
|
Finance leases
|
|
4 years
|
|
|
|
|
|
||
Weighted Average Discount Rate
|
|
|
||
Operating leases
|
|
7.47
|
%
|
|
Finance leases
|
|
6.86
|
%
|
Year Ending December 31,
|
|
Operating Leases
|
|
Finance Leases
|
||||
2019 (excluding the six months ended June 30, 2019)
|
|
$
|
551,123
|
|
|
$
|
7,332
|
|
2020
|
|
1,106,961
|
|
|
14,664
|
|
||
2021
|
|
891,447
|
|
|
14,664
|
|
||
2022
|
|
805,503
|
|
|
12,276
|
|
||
2023
|
|
697,277
|
|
|
7,500
|
|
||
Thereafter
|
|
5,555,115
|
|
|
—
|
|
||
Total future minimum lease payments
|
|
9,607,426
|
|
|
56,436
|
|
||
Less imputed interest
|
|
(3,421,910
|
)
|
|
(7,252
|
)
|
||
Total:
|
|
$
|
6,185,516
|
|
|
$
|
49,184
|
|
•
|
Identification of the contract, or contracts, with a customer
|
•
|
Identification of the performance obligations within the contract
|
•
|
Determination of the transaction price
|
•
|
Allocation of the transaction price to the performance obligations within the contract
|
•
|
Recognition of revenue when, or as the performance obligation has been satisfied
|
|
Six months ended June 30,
|
||||||||||||||
|
2019
|
|
2018
|
||||||||||||
|
Training and Simulation Division
|
|
Power Systems Division
|
|
Training and Simulation Division
|
|
Power Systems Division
|
||||||||
Net income (loss)
|
$
|
690,376
|
|
|
$
|
233,950
|
|
|
$
|
588,596
|
|
|
$
|
(242,866
|
)
|
|
Three months ended June 30,
|
||||||||||||||
|
2019
|
|
2018
|
||||||||||||
|
Training and Simulation Division
|
|
Power Systems Division
|
|
Training and Simulation Division
|
|
Power Systems Division
|
||||||||
Net income (loss)
|
$
|
544,098
|
|
|
$
|
264,369
|
|
|
$
|
517,156
|
|
|
$
|
(123,088
|
)
|
|
Six months ended June 30,
|
|
Three months ended June 30,
|
||||||||||||
|
2019
|
|
2018
|
|
2019
|
|
2018
|
||||||||
Product Revenue
|
|
|
|
|
|
|
|
||||||||
Air Warfare Simulation
|
$
|
7,106,471
|
|
|
$
|
9,657,370
|
|
|
$
|
3,607,269
|
|
|
$
|
4,624,711
|
|
Vehicle Simulation
|
14,847,871
|
|
|
10,999,632
|
|
|
7,766,930
|
|
|
5,535,633
|
|
||||
Use-of-Force
|
5,397,384
|
|
|
6,545,553
|
|
|
2,940,207
|
|
|
3,285,505
|
|
||||
Service Revenue
|
|
|
|
|
|
|
|
||||||||
Warranty
|
2,007,064
|
|
|
1,707,695
|
|
|
1,054,769
|
|
|
906,537
|
|
||||
Total Training and Simulation Division
|
$
|
29,358,790
|
|
|
$
|
28,910,250
|
|
|
$
|
15,369,175
|
|
|
$
|
14,352,386
|
|
|
|
|
|
|
|
|
|
||||||||
|
|
|
|
|
|
|
|
||||||||
Contract Manufacturing
|
$
|
6,844,198
|
|
|
$
|
7,030,011
|
|
|
$
|
3,626,206
|
|
|
$
|
2,865,685
|
|
Power Distribution and Generation
|
330,785
|
|
|
4,281,921
|
|
|
80,085
|
|
|
1,006,541
|
|
||||
Batteries
|
4,533,738
|
|
|
6,649,514
|
|
|
2,151,263
|
|
|
2,503,403
|
|
||||
Engineering Services and Other
|
2,977,692
|
|
|
2,251,422
|
|
|
2,039,835
|
|
|
1,146,594
|
|
||||
Total Power Division
|
$
|
14,686,413
|
|
|
$
|
20,212,868
|
|
|
$
|
7,897,389
|
|
|
$
|
7,522,223
|
|
|
Six months ended June 30,
|
|
Three months ended June 30,
|
||||||||
Type of Revenue
|
2019
|
|
2018
|
|
2019
|
|
2018
|
||||
Sale of products
|
92.3
|
%
|
|
95.3
|
%
|
|
92.5
|
%
|
|
92.2
|
%
|
Maintenance and support agreements
|
4.6
|
%
|
|
3.4
|
%
|
|
4.5
|
%
|
|
4.1
|
%
|
Long term research and development contracts
|
3.1
|
%
|
|
1.3
|
%
|
|
3.0
|
%
|
|
3.7
|
%
|
Total
|
100
|
%
|
|
100
|
%
|
|
100
|
%
|
|
100
|
%
|
|
Training and
Simulation
Division
|
|
Power Systems
Division
|
||||
Six months ended June 30, 2019
|
|
|
|
||||
Fixed Price
|
$
|
23,554,301
|
|
|
$
|
13,890,756
|
|
Cost Reimbursement (Cost Plus)
|
2,777,113
|
|
|
433,581
|
|
||
Time and Materials
|
3,027,376
|
|
|
362,076
|
|
||
Total
|
$
|
29,358,790
|
|
|
$
|
14,686,413
|
|
Six months ended June 30, 2018
|
|
|
|
||||
Fixed Price
|
$
|
24,026,993
|
|
|
$
|
18,434,482
|
|
Cost Reimbursement (Cost Plus)
|
2,609,275
|
|
|
1,254,891
|
|
||
Time and Materials
|
2,273,982
|
|
|
523,495
|
|
||
Total
|
$
|
28,910,250
|
|
|
$
|
20,212,868
|
|
Three months ended June 30, 2019
|
|
|
|
||||
Fixed Price
|
$
|
12,583,199
|
|
|
$
|
7,721,099
|
|
Cost Reimbursement (Cost Plus)
|
1,427,768
|
|
|
2,531
|
|
||
Time and Materials
|
1,358,208
|
|
|
173,759
|
|
||
Total
|
$
|
15,369,175
|
|
|
$
|
7,897,389
|
|
Three months ended June 30, 2018
|
|
|
|
||||
Fixed Price
|
$
|
11,817,023
|
|
|
$
|
6,362,314
|
|
Cost Reimbursement (Cost Plus)
|
1,270,325
|
|
|
866,142
|
|
||
Time and Materials
|
1,265,038
|
|
|
293,767
|
|
||
Total
|
$
|
14,352,386
|
|
|
$
|
7,522,223
|
|
|
Training and
Simulation
Division
|
|
Power Systems
Division
|
||||
Six months ended June 30, 2019
|
|
|
|
||||
U.S. Government
|
|
|
|
||||
Department of Defense (DoD)
|
$
|
9,614,371
|
|
|
$
|
479,994
|
|
Non-DoD
|
6,388,309
|
|
|
—
|
|
||
Foreign Military Sales (FMS)
|
1,580,495
|
|
|
—
|
|
||
Total U.S. Government
|
$
|
17,583,175
|
|
|
$
|
479,994
|
|
|
|
|
|
||||
U.S. Commercial
|
$
|
10,008,874
|
|
|
$
|
6,982,356
|
|
Non-U.S. Government
|
467,988
|
|
|
457,974
|
|
||
Non-U.S. Commercial
|
1,298,753
|
|
|
6,766,089
|
|
||
Total Revenue
|
$
|
29,358,790
|
|
|
$
|
14,686,413
|
|
Six months ended June 30, 2018
|
|
|
|
||||
U.S. Government
|
|
|
|
||||
Department of Defense (DoD)
|
$
|
7,646,854
|
|
|
$
|
1,342,356
|
|
Non-DoD
|
4,382,879
|
|
|
—
|
|
||
Foreign Military Sales (FMS)
|
1,713,399
|
|
|
—
|
|
||
Total U.S. Government
|
13,743,132
|
|
|
1,342,356
|
|
||
|
|
|
|
||||
U.S. Commercial
|
$
|
11,802,062
|
|
|
$
|
11,489,572
|
|
Non-U.S. Government
|
1,392,449
|
|
|
1,823,167
|
|
||
Non-U.S. Commercial
|
1,972,607
|
|
|
5,557,773
|
|
||
Total Revenue
|
$
|
28,910,250
|
|
|
$
|
20,212,868
|
|
Three months ended June 30, 2019
|
|
|
|
||||
U.S. Government
|
|
|
|
||||
Department of Defense (DoD)
|
$
|
4,720,568
|
|
|
$
|
38,961
|
|
Non-DoD
|
3,783,823
|
|
|
—
|
|
||
Foreign Military Sales (FMS)
|
938,226
|
|
|
—
|
|
||
Total U.S. Government
|
$
|
9,442,617
|
|
|
$
|
38,961
|
|
|
|
|
|
||||
U.S. Commercial
|
$
|
5,237,832
|
|
|
$
|
3,815,135
|
|
Non-U.S. Government
|
226,435
|
|
|
166,009
|
|
||
Non-U.S. Commercial
|
462,291
|
|
|
3,877,284
|
|
||
Total Revenue
|
$
|
15,369,175
|
|
|
$
|
7,897,389
|
|
Three months ended June 30, 2018
|
|
|
|
||||
U.S. Government
|
|
|
|
||||
Department of Defense (DoD)
|
$
|
4,214,661
|
|
|
$
|
830,144
|
|
Non-DoD
|
1,644,072
|
|
|
—
|
|
||
Foreign Military Sales (FMS)
|
1,128,618
|
|
|
—
|
|
||
Total U.S. Government
|
$
|
6,987,351
|
|
|
$
|
830,144
|
|
|
|
|
|
||||
U.S. Commercial
|
$
|
5,773,064
|
|
|
$
|
3,771,608
|
|
Non-U.S. Government
|
466,285
|
|
|
305,348
|
|
||
Non-U.S. Commercial
|
1,125,686
|
|
|
2,615,123
|
|
||
Total Revenue
|
$
|
14,352,386
|
|
|
$
|
7,522,223
|
|
|
June 30, 2019
|
|
December 31, 2018
|
||||||||||||||||||||
|
Training and Simulation Division
|
|
Power Systems Division
|
|
Total
|
|
Training and Simulation Division
|
|
Power Systems Division
|
|
Total
|
||||||||||||
Contract Assets - Current
|
$
|
16,472,090
|
|
|
$
|
8,970,681
|
|
|
$
|
25,442,771
|
|
|
$
|
10,358,679
|
|
|
$
|
7,509,217
|
|
|
$
|
17,867,896
|
|
Contract Liabilities - Current
|
(6,188,910
|
)
|
|
(241,196
|
)
|
|
(6,430,106
|
)
|
|
(6,697,522
|
)
|
|
(357,257
|
)
|
|
(7,054,779
|
)
|
||||||
Net Contract Assets and Liabilities:
|
$
|
10,283,180
|
|
|
$
|
8,729,485
|
|
|
$
|
19,012,665
|
|
|
$
|
3,661,157
|
|
|
$
|
7,151,960
|
|
|
$
|
10,813,117
|
|
|
June 30, 2019
|
|
December 31, 2018
|
||||
Raw and packaging materials
|
$
|
7,654,479
|
|
|
$
|
7,912,883
|
|
Work in progress
|
1,163,272
|
|
|
1,626,960
|
|
||
Finished products
|
419,218
|
|
|
372,905
|
|
||
Total:
|
$
|
9,236,969
|
|
|
$
|
9,912,748
|
|
|
Training and
Simulation Division |
|
Power Systems
Division |
|
Corporate
Expenses |
|
Total
Company |
||||||||
Six months ended June 30, 2019
|
|
|
|
|
|
|
|
||||||||
Revenues from outside customers
|
$
|
29,358,790
|
|
|
$
|
14,686,413
|
|
|
$
|
—
|
|
|
$
|
44,045,203
|
|
Depreciation and amortization(1)
|
(382,464
|
)
|
|
(1,280,305
|
)
|
|
—
|
|
|
(1,662,769
|
)
|
||||
Direct expenses(2)
|
(23,897,563
|
)
|
|
(16,552,108
|
)
|
|
(1,951,290
|
)
|
|
(42,400,961
|
)
|
||||
Segment operating income (loss)
|
$
|
5,078,763
|
|
|
$
|
(3,146,000
|
)
|
|
$
|
(1,951,290
|
)
|
|
$
|
(18,527
|
)
|
Total other expense
|
(119,373
|
)
|
|
(131,237
|
)
|
|
(428,338
|
)
|
|
(678,948
|
)
|
||||
Income tax expense
|
(94,600
|
)
|
|
—
|
|
|
(222,662
|
)
|
|
(317,262
|
)
|
||||
Net income (loss)
|
$
|
4,864,790
|
|
|
$
|
(3,277,237
|
)
|
|
$
|
(2,602,290
|
)
|
|
$
|
(1,014,737
|
)
|
Segment assets(3)(4)
|
$
|
60,569,922
|
|
|
$
|
63,956,333
|
|
|
$
|
3,780,548
|
|
|
$
|
128,306,803
|
|
Additions to long-lived assets
|
$
|
918,890
|
|
|
$
|
1,293,125
|
|
|
$
|
326,757
|
|
|
$
|
2,538,772
|
|
Six months ended June 30, 2018
|
|
|
|
|
|
|
|
||||||||
Revenues from outside customers
|
$
|
28,910,250
|
|
|
$
|
20,212,868
|
|
|
$
|
—
|
|
|
$
|
49,123,118
|
|
Depreciation and amortization(1)
|
(397,140
|
)
|
|
(1,470,159
|
)
|
|
—
|
|
|
(1,867,299
|
)
|
||||
Direct expenses(2)
|
(22,844,511
|
)
|
|
(20,928,851
|
)
|
|
(1,864,513
|
)
|
|
(45,637,875
|
)
|
||||
Segment operating income (loss)
|
$
|
5,668,599
|
|
|
$
|
(2,186,142
|
)
|
|
$
|
(1,864,513
|
)
|
|
$
|
1,617,944
|
|
Total other expense
|
(132,145
|
)
|
|
(2,826
|
)
|
|
(380,517
|
)
|
|
(515,488
|
)
|
||||
Income tax expense
|
(61,551
|
)
|
|
—
|
|
|
(361,834
|
)
|
|
(423,385
|
)
|
||||
Net income (loss)
|
$
|
5,474,903
|
|
|
$
|
(2,188,968
|
)
|
|
$
|
(2,606,864
|
)
|
|
$
|
679,071
|
|
Segment assets(3)
|
$
|
52,169,769
|
|
|
$
|
58,798,604
|
|
|
$
|
3,404,904
|
|
|
$
|
114,373,277
|
|
Additions to long-lived assets
|
$
|
469,436
|
|
|
$
|
427,044
|
|
|
$
|
—
|
|
|
$
|
896,480
|
|
Three months ended June 30, 2019
|
|
|
|
|
|
|
|
||||||||
Revenues from outside customers
|
$
|
15,369,175
|
|
|
$
|
7,897,389
|
|
|
$
|
—
|
|
|
$
|
23,266,564
|
|
Depreciation and amortization(1)
|
(194,634
|
)
|
|
(604,815
|
)
|
|
—
|
|
|
(799,449
|
)
|
||||
Direct expenses(2)
|
(12,202,504
|
)
|
|
(8,290,181
|
)
|
|
(1,045,270
|
)
|
|
(21,537,955
|
)
|
||||
Segment operating income (loss)
|
2,972,037
|
|
|
(997,607
|
)
|
|
(1,045,270
|
)
|
|
929,160
|
|
||||
Total other expense
|
(76,366
|
)
|
|
(66,322
|
)
|
|
(237,815
|
)
|
|
(380,503
|
)
|
||||
Income tax expense
|
(44,600
|
)
|
|
—
|
|
|
(111,781
|
)
|
|
(156,381
|
)
|
||||
Net income (loss)
|
$
|
2,851,071
|
|
|
$
|
(1,063,929
|
)
|
|
$
|
(1,394,866
|
)
|
|
$
|
392,276
|
|
Three months ended June 30, 2018
|
|
|
|
|
|
|
|
||||||||
Revenues from outside customers
|
$
|
14,352,386
|
|
|
$
|
7,522,223
|
|
|
$
|
—
|
|
|
$
|
21,874,609
|
|
Depreciation, amortization and impairment expenses(1)
|
(196,780
|
)
|
|
(674,117
|
)
|
|
—
|
|
|
(870,897
|
)
|
||||
Direct expenses(2)
|
(10,966,284
|
)
|
|
(8,661,132
|
)
|
|
(814,160
|
)
|
|
(20,441,576
|
)
|
||||
Segment operating income (loss)
|
$
|
3,189,322
|
|
|
$
|
(1,813,026
|
)
|
|
$
|
(814,160
|
)
|
|
$
|
562,136
|
|
Total other expense
|
(93,522
|
)
|
|
(12,298
|
)
|
|
(196,563
|
)
|
|
(302,383
|
)
|
||||
Income tax expense
|
(41,750
|
)
|
|
—
|
|
|
(134,521
|
)
|
|
(176,271
|
)
|
||||
Net income (loss)
|
$
|
3,054,050
|
|
|
$
|
(1,825,324
|
)
|
|
$
|
(1,145,244
|
)
|
|
$
|
83,482
|
|
(1)
|
Includes depreciation of property and equipment and amortization expenses of intangible assets.
|
(2)
|
Including,
inter alia
, sales and marketing, general and administrative.
|
(3)
|
Out of those amounts, goodwill in the Company’s Training and Simulation Division and Power Systems Division totaled
$24,435,641
and
$21,702,395
, respectively, as of
June 30, 2019
and
2018
.
|
(4)
|
Out of those amounts, right-of-use assets for the Company’s Training and Simulation Division and Power Systems Division totaled
$456,373
and
$5,423,472
, respectively, as of
June 30, 2019
.
|
|
|
|
|
|
June 30, 2019
|
||||||
|
Maturity
|
|
Effective Interest Rate
|
|
Current
|
|
Long Term
|
||||
Debt:
|
|
|
|
|
|
|
|
||||
Revolver
|
March 11, 2021
|
|
6.25%
|
|
$
|
9,052,008
|
|
|
$
|
—
|
|
Revolver B
|
February 28, 2020
|
|
6.00%
|
|
3,000,000
|
|
|
—
|
|
||
Term Loan A
|
March 11, 2021
|
|
6.50%
|
|
2,166,667
|
|
|
2,489,625
|
|
||
Term Loan B & C
|
June 1, 2024
|
|
6.50%
|
|
154,464
|
|
|
2,612,631
|
|
||
Other Debt (1)
|
|
|
|
|
76,075
|
|
|
171,339
|
|
||
Total Debt
|
|
|
|
|
$
|
14,449,214
|
|
|
$
|
5,273,595
|
|
(1)
|
Other Debt includes various debt instruments that have maturities that range from July 22, 2019 to March 20, 2024 with varying interest rates between
2.75%
and
3.6%
.
|
|
|
|
|
|
December 31, 2018
|
||||||
|
Maturity
|
|
Effective Interest Rate
|
|
Current
|
|
Long Term
|
||||
Debt:
|
|
|
|
|
|
|
|
||||
Revolver
|
March 11, 2021
|
|
5.50%
|
|
$
|
5,500,416
|
|
|
$
|
—
|
|
Term Loan A
|
March 11, 2021
|
|
5.75%
|
|
2,000,000
|
|
|
3,656,291
|
|
||
Term Loan B & C
|
June 1, 2024
|
|
5.75%
|
|
154,464
|
|
|
2,689,863
|
|
||
Other Debt (1)
|
|
|
|
|
50,189
|
|
|
14,415
|
|
||
Total Debt
|
|
|
|
|
$
|
7,705,069
|
|
|
$
|
6,360,569
|
|
(1)
|
Other Debt includes various debt instruments that have maturities that range from February 3, 2019 to June 28, 2020 with an interest rate of
3.6%
.
|
|
Six months ended
June 30,
|
|
Three months ended
June 30,
|
||||||||
Type of Revenue
|
2019
|
|
2018
|
|
2019
|
|
2018
|
||||
Sale of products
|
92.3
|
%
|
|
95.3
|
%
|
|
92.5
|
%
|
|
92.2
|
%
|
Maintenance and support agreements
|
4.6
|
%
|
|
3.4
|
%
|
|
4.5
|
%
|
|
4.1
|
%
|
Long term research and development contracts
|
3.1
|
%
|
|
1.3
|
%
|
|
3.0
|
%
|
|
3.7
|
%
|
Total
|
100
|
%
|
|
100
|
%
|
|
100
|
%
|
|
100
|
%
|
Exhibit Number
|
|
Description
|
|
10.1
|
|
Incorporated by Reference
|
|
10.1.1
|
|
Filed Herewith
|
|
10.1.2
|
|
Filed Herewith
|
|
10.1.3
|
|
Filed Herewith
|
|
10.1.4
|
|
Filed Herewith
|
|
10.2
|
|
Incorporated by Reference
|
|
31.1
|
|
Filed Herewith
|
|
31.2
|
|
Filed Herewith
|
|
32.1
|
|
Furnished with this Report
|
|
32.2
|
|
Furnished with this Report
|
|
|
|
|
|
101.INS
|
|
XBRL Instance Document
|
Filed Herewith
|
101.SCH
|
|
XBRL Taxonomy Extension Schema Document
|
Filed Herewith
|
101.CAL
|
|
XBRL Taxonomy Extension Calculation Linkbase Document
|
Filed Herewith
|
101.DEF
|
|
XBRL Taxonomy Extension Definition Linkbase Document
|
Filed Herewith
|
101.LAB
|
|
XBRL Taxonomy Extension Label Linkbase Document
|
Filed Herewith
|
101.PRE
|
|
XBRL Taxonomy Extension Presentation Linkbase Document
|
Filed Herewith
|
|
AROTECH CORPORATION
|
|||
|
|
|||
|
|
|||
|
By:
|
/s/ Dean M. Krutty
|
|
|
|
|
Name:
|
Dean M. Krutty
|
|
|
|
Title:
|
President and Chief Executive Officer
|
|
|
|
|
(Principal Executive Officer)
|
|
|
|
|
|
|
|
By:
|
/s/ Kelli L. Kellar
|
|
|
|
|
Name:
|
Kelli L. Kellar
|
|
|
|
Title:
|
Vice President – Finance and CFO
|
|
|
|
|
(Principal Financial Officer)
|
|
AROTECH CORPORATION
|
|
By:
/s/ Kelli L. Kellar
|
|
Name:
Kelli L. Kellar
|
|
Title:
VP Finance & CFO
|
|
FAAC INCORPORATED
|
|
By:
/s/ Kelli L. Kellar
|
|
Name:
Kelli L. Kellar
|
|
Title:
Treasurer
|
|
ELECTRIC FUEL BATTERY CORP.
|
|
By:
/s/ Kelli L. Kellar
|
|
Name:
Kelli L. Kellar
|
|
Title:
Treasurer
|
|
UEC ELECTRONICS, LLC
|
|
By:
/s/ Kelli L. Kellar
|
|
Name:
Kelli L. Kellar
|
|
Title:
Treasurer
|
|
JPMORGAN CHASE BANK, N.A.
|
|
By:
/s/ Michelle L. Montague
|
|
Name:
Michelle L. Montague
|
|
Title:
Vice President
|
|
AROTECH CORPORATION
|
|
By:
/s/ Kelli L. Kellar
|
|
Name:
Kelli L. Kellar
|
|
Title:
VP Finance & CFO
|
|
FAAC INCORPORATED
|
|
By:
/s/ Kelli L. Kellar
|
|
Name:
Kelli L. Kellar
|
|
Title:
Treasurer
|
|
ELECTRIC FUEL BATTERY CORP.
|
|
By:
/s/ Kelli L. Kellar
|
|
Name:
Kelli L. Kellar
|
|
Title:
Treasurer
|
|
UEC ELECTRONICS, LLC
|
|
By:
/s/ Kelli L. Kellar
|
|
Name:
Kelli L. Kellar
|
|
Title:
Treasurer
|
|
JPMORGAN CHASE BANK, N.A.
|
|
By:
/s/ Michelle L. Montague
|
|
Name:
Michelle L. Montague
|
|
Title:
Vice President
|
|
AROTECH CORPORATION
|
|
By:
/s/ Kelli L. Kellar
|
|
Name:
Kelli L. Kellar
|
|
Title:
VP Finance & CFO
|
|
FAAC INCORPORATED
|
|
By:
/s/ Kelli L. Kellar
|
|
Name:
Kelli L. Kellar
|
|
Title:
Treasurer
|
|
ELECTRIC FUEL BATTERY CORP.
|
|
By:
/s/ Kelli L. Kellar
|
|
Name:
Kelli L. Kellar
|
|
Title:
Treasurer
|
|
UEC ELECTRONICS, LLC
|
|
By:
/s/ Kelli L. Kellar
|
|
Name:
Kelli L. Kellar
|
|
Title:
Treasurer
|
|
JPMORGAN CHASE BANK, N.A.
|
|
By:
/s/ Michelle L. Montague
|
|
Name:
Michelle L. Montague
|
|
Title:
Vice President
|
|
AROTECH CORPORATION
|
|
By:
/s/ Kelli L. Kellar
|
|
Name:
Kelli L. Kellar
|
|
Title:
VP Finance & CFO
|
|
FAAC INCORPORATED
|
|
By:
/s/ Kelli L. Kellar
|
|
Name:
Kelli L. Kellar
|
|
Title:
Treasurer
|
|
ELECTRIC FUEL BATTERY CORP.
|
|
By:
/s/ Kelli L. Kellar
|
|
Name:
Kelli L. Kellar
|
|
Title:
Treasurer
|
|
UEC ELECTRONICS, LLC
|
|
By:
/s/ Kelli L. Kellar
|
|
Name:
Kelli L. Kellar
|
|
Title:
Treasurer
|
|
JPMORGAN CHASE BANK, N.A.
|
|
By:
/s/ Michelle L. Montague
|
|
Name:
Michelle L. Montague
|
|
Title:
Vice President
|
|
(a)
|
designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;
|
(b)
|
designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
|
(c)
|
evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this quarterly report based on such evaluation; and
|
(d)
|
disclosed in this quarterly report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
|
(a)
|
all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
|
(b)
|
any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls over financial reporting.
|
|
/s/ Dean M. Krutty
|
|
|
Dean M. Krutty, President and Chief Executive Officer
|
|
|
(Principal Executive Officer)
|
(a)
|
designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;
|
(b)
|
designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
|
(c)
|
evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this quarterly report based on such evaluation; and
|
(d)
|
disclosed in this quarterly report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
|
(a)
|
all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
|
(b)
|
any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls over financial reporting.
|
|
/s/ Kelli L. Kellar
|
|
|
Kelli L. Kellar, Vice President – Finance and CFO
|
|
|
(Principal Financial Officer)
|
1.
|
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and,
|
2.
|
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
|
|
/s/ Dean M. Krutty
|
|
|
Dean M. Krutty, President and Chief Executive Officer
|
|
|
(Principal Executive Officer)
|
1.
|
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and,
|
2.
|
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
|
|
/s/ Kelli L. Kellar
|
|
|
Kelli L. Kellar, Vice President –
Finance and CFO
|
|
|
(Principal Financial Officer)
|