|
OMB
APPROVAL
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OMB
Number:
3235-0063
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2008
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UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-K/A
T
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE
ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER
31, 2005 .
£ TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ____
TO _____.
|
Commission
File Number:
|
0-23336
|
|
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)
|
Securities
registered pursuant to Section 12(b) of the Act:
|
Title
of each class
|
Name
of each exchange on which registered
|
|
|
None
|
Not
applicable
|
Securities
registered pursuant to Section 12(g) of the Act: Common
Stock, $0.01 par
value
Indicate
by check mark if
the
registrant is a well-known seasoned issuer, as defined in Rule 405 of the
Securities Act.
Yes
£ No
T
Indicate
by check mark if
the
registrant is not required to file reports pursuant to Section 13 or Section
15(d) of the Act). Yes
£
No
T
Indicate
by check mark whether the registrant (1) has filed all reports required to
be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements
for
the past 90 days: Yes
£ No
T
Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not
be contained, to the best of registrant’s knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-K
or any amendment to this Form 10-K. £
Indicate
by check mark whether the registrant is large accelerated filer, an accelerated
filer, or a non-accelerated filer. See definition of “accelerated filer and
large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check
one):
Large
accelerated filer: £
Accelerated
filer: T
Non-accelerated
filer: £
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Act). Yes
£ No
T
The
aggregate market value of the registrant’s voting stock held by non-affiliates
of the registrant as of June 30, 2005 was approximately $84,064,177 (based
on
the last sale price of such stock on such date as reported by The Nasdaq
National Market and assuming, for the purpose of this calculation only, that
all
of the registrant’s directors and executive officers are
affiliates).
(Applicable
only to corporate registrants)
Indicate
the number of shares outstanding of each of the registrant’s classes of common
stock, as of the latest practicable date: 95,490,846
as of 3/15/06
Documents
incorporated by reference: None
|
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.
|
PRELIMINARY
NOTE
Arotech
Corporation is filing this Amendment No. 1 to its Annual Report on Form 10-K
for
the year ended December 31, 2005, as filed with the Securities and Exchange
Commission on March 31, 2006. This amendment reports the following changes
resulting from Arotech’s completed assessment of internal control over financial
reporting as required under Section 404 of the Sarbanes-Oxley Act of
2002:
| Ø |
Replaces
Item 9A, “Controls and Procedures”;
|
| Ø |
Replaces
and supersedes the report of Kost, Forer, Gabbay & Kasierer, a member
of Ernst & Young Global, Independent Registered Public Accounting
Firm, previously filed under Item 8, “Financial Statements and
Supplementary Data”;
|
| Ø |
Adds
the report on internal control over financial reporting from Kost,
Forer,
Gabbay & Kasierer, a member of Ernst & Young Global, Independent
Registered Public Accounting Firm;
|
| Ø |
Provides
additional Consents of Kost, Forer, Gabbay & Kasierer, a member of
Ernst & Young Global, and Stark Winter Schenkein & Co., LLP,
Independent Registered Public Accounting Firms;
and
|
| Ø |
Replaces
the Section 302 and Section 906 certifications from the Chairman
and Chief
Executive Officer and the Vice President - Finance and Chief Financial
Officer.
|
This
amendment does not reflect the restatement of any previously reported financial
statements, results of operations or any other related financial
disclosures.
PART
II
|
ITEM
9A.
|
CONTROLS
AND PROCEDURES
|
Evaluation
of Disclosure Controls and Procedures
As
of
December 31, 2005, our management, including the principal executive officer
and
principal financial officer, evaluated our disclosure controls and procedures
related to the recording, processing, summarization, and reporting of
information in our periodic reports that we file with the SEC. These disclosure
controls and procedures are intended to ensure that material information
relating to us, including our subsidiaries, is made known to our management,
including these officers, by other of our employees, and that this information
is recorded, processed, summarized, evaluated, and reported, as applicable,
within the time periods specified in the SEC’s rules and forms. Due to the
inherent limitations of control systems, not all misstatements may be detected.
These inherent limitations include the realities that judgments in
decision-making can be faulty and that breakdowns can occur because of simple
error or mistake. Any system of controls and procedures, no matter how well
designed and operated, can at best provide only reasonable assurance that
the
objectives of the system are met and management necessarily is required to
apply
its judgment in evaluating the cost benefit relationship of possible controls
and procedures. Additionally, controls can be circumvented by the individual
acts of some persons, by collusion of two or more people, or by management
override of the control. Our controls and procedures are intended to provide
only reasonable, not absolute, assurance that the above objectives have been
met.
Based
on
their evaluation as of December 31, 2005, and solely because of the material
weakness described below, our principal executive officer and principal
financial officer were able to conclude that our disclosure controls and
procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the
Securities Exchange Act of 1934) were not effective to ensure that the
information required to be disclosed by us in the reports that we file or
submit
under the Securities Exchange Act of 1934 is recorded, processed, summarized
and
reported within the time periods specified in SEC rules and forms.
In
light
of the material weakness described below, our management performed additional
analyses and other procedures to determine that our 2005 consolidated financial
statements were prepared in accordance with generally accepted accounting
principles in the United States (U.S. GAAP). Accordingly, management believes
that the consolidated financial statements included in this report fairly
present in all material respects our financial position, results of operations
and cash flows for the periods presented.
Management’s
Report on Internal Control Over Financial Reporting
Our
management, including our principal executive and financial officers, is
responsible for establishing and maintaining adequate internal control over
our
financial reporting, as such term is defined in Exchange Act Rule 13a-15(f).
Our
management has evaluated the effectiveness of our internal controls, pursuant
to
the requirements of Sarbanes-Oxley Section 404, as of the end of the period
covered by this amended Annual Report on Form 10-K for the year ended
December 31, 2005. In making our assessment of internal control over
financial reporting, management used the criteria set forth by the Committee
of
Sponsoring Organizations (“COSO”) of the Treadway Commission in Internal
Control - Integrated Framework.
For
the
reasons described below, we have concluded that there was a material weakness
in
our internal control over financial reporting at December 31, 2005. A material
weakness is
a
control deficiency, or a combination of control deficiencies, that results
in
more than a remote likelihood that a material misstatement of the annual
or
interim financial statements will not be prevented or detected. We note in
this
connection that our Independent Registered Public Accounting Firm audited,
in
accordance with the standards of the Public Company Accounting Oversight
Board
(United States), our consolidated financial statements and financial statement
schedule as of and for the year ended December 31, 2005, and their report
dated
March 30, 2006 expressed an unqualified opinion with respect thereto.
We
have
identified the following material weakness as of December 31, 2005, related
to
our FAAC subsidiary:
| Ø |
Revenue
recognition.
We did not maintain effective controls over the monitoring, review
and
approval of revenue recognition calculations at FAAC. Specifically,
these
calculations were not being reviewed by appropriate accounting personnel
at FAAC to determine that revenue is recognized in accordance with
company
policy and generally accepted accounting principles. This material
weakness affects the revenue and unbilled receivables
accounts.
|
Because
of this material weakness, management has concluded that our internal control
over financial reporting was not effective as of December 31, 2005.
The
foregoing management assessment of the effectiveness of our internal control
over financial reporting as of December 31, 2005, has been audited by Kost,
Forer, Gabbay and Kasierer, a member of Ernst & Young Global, the
independent registered public accounting firm that audited the financial
statements included in our annual report, as stated in their report which
is
included below.
Plans
to Remediate the Material Weakness
In
response to the material weakness described above, we have undertaken the
following initiatives with respect to our internal controls and procedures
that
we believe are reasonably likely to improve and materially affect our internal
control over financial reporting.
| Ø |
Revenue
recognition.
We have instituted procedures at FAAC to determine that revenue
recognition calculations are reviewed by the new Chief Financial
Officer
of FAAC. Specifically, revenue calculations are now routinely reviewed
by
the new Chief Financial Officer of FAAC prior to being categorized
in
order to ensure that they revenues are being recognized in accordance
with
company policy and generally accepted accounting
principles.
|
Our
management and Audit Committee will monitor closely the implementation of
our
remediation plan, and senior management and the Audit Committee of the Board
of
Directors will take a more active role in supervising the evaluation and
compliance process. The effectiveness of the steps we intend to implement
is
subject to continued management review, as well as
-
2 -
Audit
Committee oversight, and we may make additional changes to our internal control
over financial reporting.
Additionally,
our management has concluded that we need to dedicate greater resources and
personnel to the process of evaluation of effectiveness of our internal controls
as required by Sarbanes-Oxley Section 404, and that senior management and
the Audit Committee of the Board of Directors should take a more active role
in
supervising the evaluation and compliance process.
We
cannot
assure you that we will not in the future identify further material weaknesses
in our internal control over financial reporting. However, we have taken
action
to strengthen pertinent controls and are in the process of testing these
controls. Since we do not anticipate that we will have completed this testing
by
the end of the second quarter of 2006, we presently anticipate that we will
report in our Quarterly Report on Form 10-Q for the second quarter of
fiscal 2006 that the material weakness referred to above continues to exist.
Changes
in Internal Controls Over Financial Reporting
Other
than as set forth above, there have been no changes in our internal control
over
financial reporting that occurred during our last fiscal quarter to which
this
Annual Report on Form 10-K, as amended, relates that have materially affected,
or are reasonably likely to materially affect, our internal control over
financial reporting.
-
3 -
 |
n Kost
Forer Gabbay & Kasierer
3
Aminadav St.
Tel-Aviv
67067, Israel
|
n Phone:
972-3-6232525
Fax:
972-3-5622555
|
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To
the Stockholders of
AROTECH
CORPORATION
We
have
audited the accompanying consolidated balance sheets of Arotech Corporation
(the
“Company”) and its subsidiaries as of December 31, 2005 and 2004, and the
related consolidated statements of operations, changes in stockholders’ equity
and cash flows for each of the three years in the period ended December 31,
2005. Our audits also included the financial statement schedule listed in
Item
15(a)(2) of the Company’s 10-K. These financial statements and schedule are the
responsibility of the Company’s management. Our responsibility is to express an
opinion on these financial statements and schedule based on our audits. We
did
not audit the financial statements of “Armor of America Incorporated”, a
wholly-owned subsidiary of the Company, financial statements of which reflect
total assets of 2.8% of the consolidated assets of the Company as of December
31, 2005, and total revenues of 8.8% of the consolidated revenues of the
Company
for the year then ended, or of “IES Interactive Training, Inc.”, a wholly-owned
subsidiary of the Company, financial statements of which reflect total assets
of
3.5% of the consolidated assets of the Company as of December 31, 2005, and
total revenues of 11.8% of the consolidated revenues of the Company for the
year
then ended. Those statements were audited by other auditors whose report
has
been furnished to us, and our opinion, insofar as it relates to the data
included for this subsidiary, is based solely on the report of the other
auditors.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that
we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining,
on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In
our
opinion based on our audits and the other auditors the consolidated financial
statements referred to above present fairly, in all material respects, the
consolidated financial position of the Company and its subsidiaries as of
December 31, 2005 and 2004, and the consolidated results of their operations
and
their cash flows for each of the three years in the period ended December
31,
2005, in conformity with U.S. generally accepted accounting principles.
Additionally, in our opinion the related financial statement schedule, when
considered in relation to the basic financial statements and schedule taken
as a
whole, present fairly in all material respects the information set forth
therein.
We
have
also audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the effectiveness of the Company’s internal
control over financial reporting as of December 31, 2005, based on criteria
established in Internal Control - Integrated Framework issued by the Committee
of Sponsoring Organizations of the Treadway Commission (COSO) and our report
dated June 15, 2006 expressed an unqualified opinion on
-
4
-
management’s
assessment of and an adverse opinion on the effectiveness of internal control
over financial reporting.
|
/s/
Kost, Forer, Gabbay & Kasierer
|
|
|
Tel
Aviv, Israel
|
KOST,
FORER, GABBAY & KASIERER
|
|
March
30, 2006,
except
for the final paragraph above,
as
to which the date is June 15, 2006
|
A
Member of Ernst & Young Global
|
-
-
|
|
n Kost
Forer Gabbay & Kasierer
3
Aminadav St.
Tel-Aviv
67067, Israel
|
n Phone:
972-3-6232525
Fax:
972-3-5622555
|
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The
Board of Directors and Shareholders of
AROTECH
CORPORATION
We
have
audited management’s assessment, included in the accompanying “Management’s
Report on Internal Control Over Financial Reporting,” that Arotech Corporation
(“Arotech” or “Company”) did not maintain effective internal control over
financial reporting as of December 31, 2005, because of the effect of the
material weakness related to revenue recognition identified in management’s
assessment, based on criteria established in Internal Control - Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission (the COSO criteria). Arotech’s management is responsible for
maintaining effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over financial reporting.
Our responsibility is to express an opinion on management’s assessment and an
opinion on the effectiveness of the company’s internal control over financial
reporting based on our audit. We did not examine the effectiveness of internal
control over financial reporting of Armor of America Incorporated or IES
Interactive Training Inc., wholly owned subsidiaries, whose financial statements
in the aggregate reflect total assets and revenues constituting 6.3% and
20.6%,
respectively, of the related consolidated financial statement amounts as
of and
for the year ended December 31, 2005. The effectiveness of Armor of America
Incorporated’s and IES Interactive Training Inc.’s internal control over
financial reporting was audited by other auditors whose reports have been
furnished to us, and our opinion, insofar as it relates to the effectiveness
of
Armor of America Incorporated’s and IES Interactive Training Inc.’s internal
control over financial reporting, is based solely on the reports of the other
auditors.
We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that
we plan
and perform the audit to obtain reasonable assurance about whether effective
internal control over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of internal control
over
financial reporting, evaluating management’s assessment, testing and evaluating
the design and operating effectiveness of internal control, and performing
such
other procedures as we considered necessary in the circumstances. We believe
that our audit and the reports of the other auditors provide a reasonable
basis
for our opinion
A
company’s internal control over financial reporting is a process designed 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. A company’s internal control over
financial reporting includes those policies and procedures that (1) pertain
to
the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (2)
provide reasonable assurance that transactions are recorded as necessary
to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company
are
being made only in accordance with authorizations of management and directors
of
the company; and (3) provide reasonable assurance regarding prevention or
timely
detection of
-
6
-
unauthorized
acquisition, use, or disposition of the company’s assets that could have a
material effect on the financial statements.
Because
of its inherent limitations, internal control over financial reporting may
not
prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may
become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
In
our
report dated March 30, 2006, we disclaimed an opinion on management’s assessment
and on the effectiveness of the Company’s internal control over financial
reporting as of December 31, 2005, because management had not yet completed
its
assessment of the Company’s internal control over financial reporting.
Management has subsequently completed its assessment of internal control
over
financial reporting as of December 31, 2005. Accordingly, our present report
on
the effectiveness of the Company’s internal control over financial reporting as
of December 31, 2005, as presented herein, is different from our previous
report
dated March 30, 2006.
A
material weakness is a control deficiency, or combination of control
deficiencies, that results in more than a remote likelihood that a material
misstatement of the annual or interim financial statements will not be prevented
or detected. The following material weakness has been identified and included
in
management’s assessment: The Company did not maintain effective controls over
the monitoring, review and approval of revenue recognition calculations at
FAAC
Inc. Specifically, these calculations were not being reviewed by appropriate
accounting personnel at FAAC Inc. to determine that revenue is recognized
in
accordance with company policy and generally accepted accounting principles.
This material weakness affects the Company’s revenue and unbilled receivable
accounts. This material weakness was considered in determining the nature,
timing, and extent of audit tests applied in our audit of the 2005 financial
statements, and this report does not affect our report dated March 30, 2006,
except for the final paragraph of our report as to which the date is June
15,
2006, on those financial statements.
In
our
opinion, based on our audit and the reports of the other auditors, management’s
assessment that Arotech did not maintain effective internal control over
financial reporting as of December 31, 2005, is fairly stated, in all material
respects, based on the COSO control criteria. Also, in our opinion, based
on our
audit and the reports of the other auditors, because of the effect of the
material weakness described above on the achievement of the objectives of
the
control criteria, Arotech has not maintained effective internal control over
financial reporting as of December 31, 2005, based on the COSO control criteria.
|
/s/
Kost, Forer, Gabbay & Kasierer
|
|
|
Tel
Aviv, Israel
|
KOST,
FORER, GABBAY & KASIERER
|
|
June
15, 2006
|
A
Member of Ernst & Young Global
|
-
7
-
PART
IV
|
ITEM
15.
|
EXHIBITS,
FINANCIAL STATEMENT
SCHEDULES
|
(a) The
following documents are filed as part of this amended report:
|
(3)
|
Exhibits
- The following Exhibits are either filed herewith or have previously
been
filed with the Securities and Exchange Commission and are referred
to and
incorporated herein by reference to such filings:
|
|
Exhibit
No.
|
Description
|
|
|
*
|
23.1
|
Consent
of Kost, Forer, Gabbay & Kasierer, a member of Ernst & Young
Global
|
|
*
|
23.2
|
Consent
of Stark Winter Schenkein & Co., LLP
|
|
*
|
31.1
|
Certification
of Principal Executive Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
|
|
*
|
31.2
|
Certification
of Principal Financial Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
|
|
*
|
32.1
|
Certification
of Principal Executive Officer pursuant to 18 U.S.C. Section 1350,
as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002
|
|
*
|
32.2
|
Certification
of Principal Financial Officer pursuant to 18 U.S.C. Section 1350,
as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002
|
|
*
|
Filed
herewith
|
|
-
8 -
SIGNATURES
Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act
of
1934, the Registrant has duly caused this amended report to be signed on
its
behalf by the undersigned, thereunto duly authorized, on June 15,
2006.
AROTECH
CORPORATION
By: /s/
Robert S. Ehrlich
Name: Robert
S.
Ehrlich
|
Title:
|
Chairman
and Chief Executive Officer
|
Pursuant
to the requirements of the Securities Exchange Act of 1934, this amended
report
has been signed below by the following persons on behalf of the registrant
and
in the capacities and on the dates indicated.
|
Signature
|
Title
|
Date
|
|
/s/
Robert S. Ehrlich
Robert
S. Ehrlich
|
Chairman,
Chief Executive Officer and Director
(Principal
Executive Officer)
|
June
15, 2006
|
|
/s/
Thomas J. Paup
Thomas
J. Paup
|
Vice
President - Finance
(Principal
Financial Officer)
|
June
15, 2006
|
|
/s/
Danny Waldner
Danny
Waldner
|
Controller
(Principal
Accounting Officer)
|
June
15, 2006
|
|
/s/
Steven Esses
Steven
Esses
|
President,
Chief Operating Officer
and
Director
|
June
15, 2006
|
|
/s/
Jay
M. Eastman
Dr.
Jay M. Eastman
|
Director
|
June
15, 2006
|
|
/s/
Lawrence M. Miller
Lawrence
M. Miller
|
Director
|
June
15, 2006
|
|
Jack
E. Rosenfeld
|
Director
|
June
__, 2006
|
|
/s/
Edward J. Borey
Edward
J. Borey
|
Director
|
June
15, 2006
|
|
Seymour
Jones
|
Director
|
June
__, 2006
|
- 9 -
Exhibit
Index
|
Exhibit
Number
|
Description
|
|
23.1
|
Consent
of Kost, Forer, Gabbay & Kasierer, a member of Ernst & Young
Global
|
|
23.2
|
Consent
of Stark Winter Schenkein & Co., LLP
|
|
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 Principal Executive Officer pursuant to 18 U.S.C. Section 1350,
as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002
|
|
32.2
|
Certification
of Principal Financial Officer pursuant to 18 U.S.C. Section 1350,
as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002
|