Arotech Announces Fiscal 2006 Third Quarter and Nine Month Results
Quarterly Revenues of $12.7 Million Are Up 14% Over Third Quarter 2005; Company Announces a Backlog of $47.3 Million

Arotech Corporation (NASDAQ: ARTX), a provider of quality defense and security products for the military, law enforcement, and security markets, today reported results for the quarter and nine months ended September 30, 2006.

Revenues for the third quarter of 2006 were $12.7 million, an increase of $1.5 million, or 14%, from the corresponding period in 2005. The revenue gain was attributable to commencing the production of the "DAVID" vehicles for the Israeli Defense Forces (IDF). The Company anticipates increased production of the vehicle in the fourth quarter of 2006 and the beginning of 2007.

Gross Profit for the quarter was $4.1 million, or 32% of revenues, compared to $2.8 million, or 25% of revenues, in the third quarter of 2005.

The Company recorded an operating loss of $815,000 for the quarter versus $12.0 million in the third quarter of 2005.

The comparable loss from continuing operations for the quarter was $1.1 million or $0.12 per share versus $12.7 million or $2.16 per share for the corresponding quarter in 2005.

Backlog

Backlog of orders totaled approximately $47.3 million at the end of the third quarter of 2006, up $4.8 million from the second quarter of 2006 and $19.7 million from the third quarter in 2005.

Cash Position as of September 30, 2006

As of September 30, 2006 the Company had $4.7 million in cash and $40,000 in available-for-sale marketable securities. This compares to $6.2 million in cash and $36,000 at the beginning of the year and $4.6 million in cash and $38,000 in marketable securities at the end of the second quarter of 2006.

Stockholder's equity stood at the end of quarter at $55.7 million.

Results for the nine months ended September 30, 2006

Revenues for the nine months ended September 30, 2006 were $29.0 million, compared to $33.8 million for the same period in 2005, a decrease of 14%.

Gross Profit for the nine months ended September 30, 2006 was $7.6 million, or 26% of revenues, compared to $2.7 million, or 30% of revenues, during the first nine months in 2005.

The Operating Loss for the nine months ended September 30, 2006 was $6.9 million, compared to an operating loss of $18.3 million for the corresponding period in 2005. 2005 included $11.0 million in impairment charges for the write down of goodwill.

The Comparable Net Loss for the nine months ended September 30, 2006 was $13.5 million or $1.72 per share versus a net loss of $20.8 million or $3.55 per share for the same period in 2005. The net loss for the nine month period in 2006 included $6.5 million in non-cash financial expenses.

Management Discussion

"We believe the efforts of our restructuring are beginning to pay off and are being reflected in our top line and our operating cash flow, which was positive during the quarter for the first time since 2004," said Arotech Chairman and CEO Robert S. Ehrlich. "We are hopeful that our efforts in continued expense reduction and revenue growth will continue at an increasing pace. We are also pleased to report that at quarter end our backlog was up to $47.3 million, the highest it has ever been. A significant portion of this backlog represents third quarter orders, and we anticipate shipping virtually all of our existing backlog by mid-2007," concluded Ehrlich.

Conference Call

The Company will host a conference call tomorrow, November 15, 2006 at 11:00 a.m. ET. Those wishing to access the conference call should dial (800) 862-9098 (U.S.) or (785) 424-1051 (international) a few minutes before the 11:00 a.m. ET start time. A replay of the conference call will be available starting Wednesday, November 15, 2006 at 2:00 p.m. until Sunday, November 19, 2006 at 11:59 p.m. The replay telephone number is (888) 203-1112 (U.S.) and (719) 457-0820 (international). The replay passcode is: 7410136.

About Arotech

Arotech Corporation is a leading provider of quality defense and security products for the military, law enforcement and security markets, including multimedia interactive simulators/trainers, lightweight armoring and advanced zinc-air and lithium batteries and chargers. Arotech operates through three major business divisions: Armor, Simulation and Training and Battery and Power Systems.

Arotech is incorporated in Delaware, with corporate offices in Ann Arbor, Michigan, and research, development and production subsidiaries in Alabama, Michigan, and Israel.

Except for the historical information herein, the matters discussed in this news release include forward-looking statements, as defined in the Private Securities Litigation Reform Act of 1995, including the results of our restructuring program. Forward-looking statements reflect management's current knowledge, assumptions, judgment and expectations regarding future performance or events. Although management believes that the expectations reflected in such statements are reasonable, readers are cautioned not to place undue reliance on these forward-looking statements, as they are subject to various risks and uncertainties that may cause actual results to vary materially. These risks and uncertainties include, but are not limited to, risks relating to: product and technology development; the uncertainty of the market for Arotech's products; changing economic conditions; delay, cancellation or non-renewal, in whole or in part, of contracts or of purchase orders; dilution resulting from issuances of Arotech's common stock upon conversion or payment of its outstanding convertible debt, which would be increasingly dilutive if and to the extent that the market price of Arotech's stock decreases; and other risk factors detailed in Arotech's most recent Annual Report on Form 10-K for the fiscal year ended December 31, 2005, as amended, and other filings with the Securities and Exchange Commission. Arotech assumes no obligation to update the information in this release. Reference to the Company's website above does not constitute incorporation of any of the information thereon into this press release.



                       AROTECH CORPORATION
            CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)


                        Nine months ended           Three months ended
                          September 30,               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      9,124,758    10,874,309     2,883,950     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   14,568,350    28,759,629     4,883,837    14,760,232
                    ------------  ------------  ------------  ------------
Operating loss        (6,931,200)  (18,360,033)     (815,305)  (12,003,840)
Other income
 (expense)               (16,766)      160,652       (52,754)       38,636
Financial expenses,
 net                  (6,833,740)   (2,056,518)     (374,944)     (750,052)
                    ------------  ------------  ------------  ------------
Loss before
 minority interest
 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 income (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

                    ============  ============  ============  ============


1  Includes $434,185 and $0 deemed dividend in the calculation of the loss
   per share for the respective nine and three months ended September 30,
   2006.


Investor relations Contact:

Victor Allgeier
TTC Group
(646) 290-6400
Email Contact

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