OMB APPROVAL
|
OMB Number: 3235-0070
Expires: September 30, 2018
Estimated average burden
hours per response 187.43
|
x
|
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED
March 31, 2016
.
|
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 name, former address and former fiscal year, if changed since last report)
|
Large accelerated filer:
o
|
Accelerated filer:
x
|
Non-accelerated filer:
o
(Do not check if a smaller reporting company)
|
Smaller reporting company:
o
|
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.
|
Item
|
Page
|
|
PART I - FINANCIAL INFORMATION
|
||
3
|
||
3
|
||
5
|
||
6
|
||
8
|
||
14
|
||
18
|
||
18
|
||
PART II - OTHER INFORMATION
|
||
19
|
||
20
|
March 31,
2016
|
December 31,
2015
|
|||||||
(Unaudited)
|
||||||||
ASSETS
|
||||||||
CURRENT ASSETS:
|
||||||||
Cash and cash equivalents
|
$
|
11,414,010
|
$
|
10,608,420
|
||||
Restricted collateral deposits
|
66,681
|
89,985
|
||||||
Trade receivables
|
14,957,216
|
17,401,479
|
||||||
Unbilled receivables
|
9,789,431
|
12,132,484
|
||||||
Other accounts receivable and prepaid expenses
|
1,291,747
|
1,007,358
|
||||||
Inventories
|
9,907,976
|
9,607,836
|
||||||
Total
current assets
|
47,427,061
|
50,847,562
|
||||||
LONG TERM ASSETS:
|
||||||||
Contractual and Israeli statutory severance pay fund
|
5,755,373
|
5,384,024
|
||||||
Other long term receivables
|
24,249
|
23,403
|
||||||
Property and equipment, net
|
6,483,985
|
6,440,270
|
||||||
Other intangible assets, net
|
8,594,678
|
9,334,730
|
||||||
Goodwill
|
45,614,293
|
45,463,027
|
||||||
Total long term assets
|
66,472,578
|
66,645,454
|
||||||
Total assets
|
$
|
113,899,639
|
$
|
117,493,016
|
March 31,
2016
|
December 31,
2015
|
|||||||
(Unaudited)
|
||||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
||||||||
CURRENT LIABILITIES:
|
||||||||
Trade payables
|
$
|
5,230,720
|
$
|
5,914,042
|
||||
Other accounts payable and accrued expenses
|
5,320,801
|
5,560,040
|
||||||
Current portion of long term debt
|
1,067,523
|
4,362,438
|
||||||
Short term bank credit
|
4,953,579
|
4,060,000
|
||||||
Deferred revenues
|
5,596,351
|
6,879,815
|
||||||
Total current liabilities
|
22,168,974
|
26,776,335
|
||||||
LONG TERM LIABILITIES:
|
||||||||
Contractual and accrued Israeli statutory severance pay
|
8,007,570
|
7,516,980
|
||||||
Long term portion of debt
|
9,252,338
|
11,856,522
|
||||||
Deferred income tax liability
|
7,182,217
|
7,031,564
|
||||||
Other long term liabilities
|
80,042
|
264,244
|
||||||
Total long-term liabilities
|
24,522,167
|
26,669,310
|
||||||
Total liabilities
|
46,691,141
|
53,445,645
|
||||||
STOCKHOLDERS’ EQUITY:
|
||||||||
Share capital –
|
||||||||
Common stock – $0.01 par value each;
Authorized: 50,000,000 shares as of March 31, 2016 and December 31, 2015;
Issued and outstanding: 26,470,457 shares and 24,697,335 shares as of
March 31, 2016 and December 31, 2015, respectively
|
264,705
|
246,973
|
||||||
Preferred shares – $0.01 par value each;
Authorized: 1,000,000 shares as of March 31, 2016 and December 31, 2015;
No shares issued or outstanding as of March 31, 2016 and December 31, 2015
|
–
|
–
|
||||||
Additional paid-in capital
|
250,018,489
|
246,591,415
|
||||||
Accumulated deficit
|
(183,198,414
|
)
|
(182,554,637
|
)
|
||||
Notes receivable from stockholders
|
(908,054
|
)
|
(908,054
|
)
|
||||
Accumulated other comprehensive income
|
1,031,772
|
671,674
|
||||||
Total stockholders’ equity
|
67,208,498
|
64,047,371
|
||||||
Total liabilities and stockholders’ equity
|
$
|
113,899,639
|
$
|
117,493,016
|
Three months ended March 31,
|
||||||||
2016
|
2015
|
|||||||
Revenues
|
$
|
25,406,481
|
$
|
24,226,708
|
||||
Cost of revenues
|
17,712,174
|
17,329,479
|
||||||
Research and development expenses
|
1,097,728
|
1,094,264
|
||||||
Selling and marketing expenses
|
1,654,866
|
1,225,416
|
||||||
General and administrative expenses
|
4,292,413
|
3,648,442
|
||||||
Amortization of intangible assets
|
768,003
|
860,773
|
||||||
Total operating costs and expenses
|
25,525,184
|
24,158,374
|
||||||
Operating income (loss)
|
(118,703
|
)
|
68,334
|
|||||
Other income
|
26,037
|
15,978
|
||||||
Financial expense, net
|
(337,658
|
)
|
(327,608
|
)
|
||||
Total other expense
|
(311,621
|
)
|
(311,630
|
)
|
||||
Loss before income tax expense
|
(430,324
|
)
|
(243,296
|
)
|
||||
Income tax expense
|
213,453
|
239,381
|
||||||
Net loss
|
(643,777
|
)
|
(482,677
|
)
|
||||
Other comprehensive income (loss), net of income tax:
|
||||||||
Foreign currency translation adjustment
|
360,098
|
(245,514
|
)
|
|||||
Comprehensive loss
|
$
|
(283,679
|
)
|
$
|
(728,191
|
)
|
||
Basic net loss per share
|
$
|
(0.03
|
)
|
$
|
(0.02
|
)
|
||
Diluted net loss per share
|
$
|
(0.03
|
)
|
$
|
(0.02
|
)
|
||
Weighted average number of shares used in computing basic net loss per share
|
24,797,875
|
23,305,679
|
||||||
Weighted average number of shares used in computing diluted net loss per share
|
24,797,875
|
23,305,679
|
Three months ended March 31,
|
||||||||
2016
|
2015
|
|||||||
CASH FLOWS FROM OPERATING ACTIVITIES:
|
||||||||
Net loss
|
$
|
(643,777
|
)
|
$
|
(482,677
|
)
|
||
Adjustments required to reconcile net loss to net cash provided by (used in) operating activities:
|
||||||||
Depreciation
|
407,035
|
479,460
|
||||||
Amortization of intangible assets
|
768,003
|
860,773
|
||||||
Loss on disposal of assets
|
–
|
57,840
|
||||||
Capital gain on sale of property and equipment
|
–
|
(895,000
|
)
|
|||||
Stock based compensation
|
491,806
|
158,874
|
||||||
Deferred tax provision
|
150,653
|
149,625
|
||||||
Changes in operating assets and liabilities:
|
||||||||
Trade receivables
|
2,632,488
|
1,082,702
|
||||||
Unbilled receivables
|
2,353,344
|
1,482,840
|
||||||
Other accounts receivable and prepaid expenses
|
(279,914
|
)
|
(553,775
|
)
|
||||
Inventories
|
(182,125
|
)
|
719,929
|
|||||
Severance pay, net
|
241,038
|
(52,427
|
)
|
|||||
Trade payables
|
(635,503
|
)
|
(2,107,658
|
)
|
||||
Other accounts payable and accrued expenses
|
(367,644
|
)
|
(1,443,069
|
)
|
||||
Deferred revenues
|
(1,283,464
|
)
|
(1,336,990
|
)
|
||||
Net cash provided by (used in) operating activities
|
3,651,940
|
(1,879,553
|
)
|
|||||
CASH FLOWS FROM INVESTING ACTIVITIES:
|
||||||||
Decrease in restricted collateral deposits
|
26,083
|
2,064
|
||||||
Purchase of property and equipment
|
(405,926
|
)
|
(470,255
|
)
|
||||
Proceeds from sale of property and equipment
|
–
|
895,000
|
||||||
Additions to capitalized software
|
(27,951
|
)
|
–
|
|||||
Net cash provided by (used in) investing activities
|
$
|
(407,794
|
)
|
$
|
426,809
|
Three months ended March 31,
|
||||||||
2016
|
2015
|
|||||||
CASH FLOWS FROM FINANCING ACTIVITIES:
|
||||||||
Proceeds from long term debt
|
$
|
10,000,000
|
$
|
–
|
||||
Repayment of long term debt
|
(15,889,151
|
)
|
(1,495,155
|
)
|
||||
Proceeds from issuance of common stock
|
2,952,999
|
–
|
||||||
Change in short term bank credit
|
893,579
|
3,726,762
|
||||||
Net cash provided by (used in) financing activities
|
(2,042,573
|
)
|
2,231,607
|
|||||
INCREASE IN CASH AND CASH EQUIVALENTS
|
1,201,573
|
778,863
|
||||||
CASH DIFFERENCES DUE TO EXCHANGE RATE DIFFERENCES
|
(395,983
|
)
|
(111,051
|
)
|
||||
CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE PERIOD
|
10,608,420
|
11,291,784
|
||||||
CASH AND CASH EQUIVALENTS AT THE END OF THE PERIOD
|
$
|
11,414,010
|
$
|
11,959,596
|
||||
SUPPLEMENTARY CASH FLOW INFORMATION:
|
||||||||
Interest paid during the period
|
$
|
188,461
|
$
|
185,981
|
||||
Taxes paid on income during the period
|
$
|
51,331
|
$
|
414,615
|
March 31, 2016
|
December 31, 2015
|
|||||||
(Unaudited)
|
||||||||
Raw and packaging materials
|
$
|
8,065,153
|
$
|
8,184,476
|
||||
Work in progress
|
1,188,620
|
760,585
|
||||||
Finished products
|
654,203
|
662,775
|
||||||
Total:
|
$
|
9,907,976
|
$
|
9,607,836
|
Training and
Simulation
Division
|
Power Systems
Division
|
Flow Battery Division
|
Corporate
Expenses
|
Total
Company
|
||||||||||||||||
Three months ended March 31, 2016
|
||||||||||||||||||||
Revenues from outside customers
|
$ | 13,300,842 | $ | 12,105,639 | $ | – | – | $ | 25,406,481 | |||||||||||
Depreciation, amortization and impairment expenses(1)
|
(272,660 | ) | (900,891 | ) | – | (1,487 | ) | (1,175,038 | ) | |||||||||||
Direct expenses(2)
|
(10,927,734 | ) | (11,101,609 | ) | (261,646 | ) | $ | (2,033,120 | ) | (24,324,109 | ) | |||||||||
Segment net income (loss)
|
$ | 2,100,448 | $ | 103,139 | $ | (261,646 | ) | (2,034,607 | ) | $ | (92,666 | ) | ||||||||
Financial income (expense)
|
(11,061 | ) | (29,054 | ) | – | (297,543 | ) | (337,658 | ) | |||||||||||
Income tax expense
|
(62,800 | ) | – | – | (150,653 | ) | (213,453 | ) | ||||||||||||
Net income (loss)
|
$ | 2,026,587 | $ | 74,085 | $ | (261,646 | ) | $ | (2,482,803 | ) | $ | (643,777 | ) | |||||||
Segment assets(3)
|
$ | 51,101,611 | $ | 60,327,299 | $ | – | $ | 2,470,729 | $ | 113,899,639 | ||||||||||
Additions to long-lived assets
|
$ | 150,411 | $ | 283,466 | $ | – | $ | – | $ | 433,877 | ||||||||||
Three months ended March 31, 2015
|
||||||||||||||||||||
Revenues from outside customers
|
$ | 13,438,122 | $ | 10,788,586 | $ | – | $ | – | $ | 24,226,708 | ||||||||||
Depreciation, amortization and impairment expenses(1)
|
(207,176 | ) | (1,126,588 | ) | – | (6,469 | ) | (1,340,233 | ) | |||||||||||
Direct expenses(2)
|
(11,731,646 | ) | (10,377,587 | ) | (181,027 | ) | (511,903 | ) | (22,802,163 | ) | ||||||||||
Segment net income (loss)
|
$ | 1,499,300 | $ | (715,589 | ) | $ | (181,027 | ) | $ | (518,372 | ) | $ | 84,312 | |||||||
Financial income (expense)
|
(11,615 | ) | (24,631 | ) | – | (291,362 | ) | (327,608 | ) | |||||||||||
Income tax expense
|
(27,257 | ) | – | – | (212,124 | ) | (239,381 | ) | ||||||||||||
Net income (loss)
|
$ | 1,460,428 | $ | (740,220 | ) | $ | (181,027 | ) | $ | (1,021,858 | ) | $ | (482,677 | ) | ||||||
Segment assets(3)
|
$ | 58,629,419 | $ | 62,437,020 | $ | – | $ | 520,771 | $ | 121,587,210 | ||||||||||
Additions to long-lived assets
|
$ | 95,659 | $ | 370,094 | $ | – | $ | 4,502 | $ | 470,255 |
(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 and Power Systems Divisions totaled $24,435,640 and $21,178,653, respectively, as of March 31, 2016 and $24,435,640 and $20,852,116, respectively, as of March 31, 2015. There was no goodwill as of either date in the Flow Battery Division.
|
Three months ended March 31,
|
||||||||
Type of Revenue
|
2016
|
2015
|
||||||
Sale of products
|
95.1
|
%
|
94.3
|
%
|
||||
Maintenance and support agreements
|
4.8
|
%
|
5.2
|
%
|
||||
Long term research and development contracts
|
0.1
|
%
|
0.5
|
%
|
||||
Total
|
100.0
|
%
|
100.0
|
%
|
Exhibit Number
|
Description
|
|
10.1
|
||
31.1
|
||
31.2
|
||
32.1
|
||
32.2
|
||
101.INS
|
XBRL Instance Document
|
|
101.SCH
|
XBRL Taxonomy Extension Schema Document
|
|
101.CAL
|
XBRL Taxonomy Extension Calculation Linkbase Document
|
|
101.DEF
|
XBRL Taxonomy Extension Definition Linkbase Document
|
|
101.LAB
|
XBRL Taxonomy Extension Label Linkbase Document
|
|
101.PRE
|
XBRL Taxonomy Extension Presentation Linkbase Document
|
AROTECH CORPORATION
|
||||
By:
|
/s/ Steven Esses
|
|||
Name:
|
Steven Esses
|
|||
Title:
|
President and CEO
|
|||
(Principal Executive Officer)
|
By:
|
/s/ Thomas J. Paup
|
||
Name:
|
Thomas J. Paup
|
||
Title:
|
Senior Vice President – Finance and CFO
|
||
(Principal Financial Officer)
|
The Company:
|
AROTECH CORPORATION
|
By:
/s/ Steven Esses
|
|
Name: Steven Esses
|
|
Title: President and CEO
|
|
The Investor:
|
ADMIRALTY PARTNERS, INC.
|
By:
/s/ Jon B. Kutler
|
|
Name: Jon B. Kutler
|
|
Title: Chairman and CEO
|
|
(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/ Steven Esses
|
||
Steven Esses, President and CEO
|
||
(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/ Thomas J. Paup
|
||
Thomas J. Paup, Senior Vice President – Finance and CFO
|
||
(Principal Financial Officer)
|
/s/ Steven Esses
|
||
Steven Esses, President and CEO
|
||
(Principal Executive Officer)
|
/s/ Thomas J. Paup
|
||
Thomas J. Paup, Senior Vice President –
Finance and CFO
|
||
(Principal Financial Officer)
|