Arotech Announces Second Quarter Results

ANN ARBOR, Mich.--Aug. 14, 2006--Arotech Corporation, a provider of quality defense and security products for the military, law enforcement and security markets, today reported results for the quarter and six months ended June 30, 2006.

Revenues for the second quarter of 2006 were $7.4 million, a decline of $4.8 million, or 39%, from the corresponding period in 2005. The revenue shortfall was primarily attributable to the deferment of orders for the Company's "David" vehicles by the Israeli Defense Force ("IDF") and deferred revenues in the Company's simulation business. The Company expects to begin to record a portion of deferred revenues in the second half of 2006.

Gross Profit for the quarter was $1.3 million or 18% of revenues, compared to $3.6 million or 30% of revenues for the corresponding period in 2005. The decline is due to the overall decreased company sales and the initial costs in respect to the production of new products in the Armor Division.

The Company recorded an operating loss for the quarter of $3.3 million, compared to an operating loss of $4.5 million in the corresponding period in 2005.

The Comparable Net Loss from continuing operations for the quarter was $8.2 million or ($0.98) per share, compared to a net loss of $5.4 million or ($0.94) per share for the corresponding period in 2005. A non-cash expense of $5.0 million relating to the conversion of the Company's convertible notes was recorded in the second quarter of 2006 results.

Backlog of orders totaled approximately $42.5 million at the end of the second quarter, up $22 million from a year earlier and up $3.6 million sequentially from the first quarter. Approximately 59% of the backlog was related to the "David" vehicle and 28% was related to the Company's simulation business.

Cash-on-hand and cash equivalents, restricted securities and deposits due within one year and available-for-sale marketable securities stood at the end of the quarter at $4.6 million in cash, $8.3 million in restricted collateral securities and cash deposits due within one year and $38,172 in marketable securities, as compared with $6.2 million in cash and cash equivalents and $3.9 million in restricted securities and deposits due within one year and $35,984 in marketable securities as at December 31, 2005.

Stockholders' Equity stood at the end of the quarter at approximately $52.2 million.

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