916529--4/17/2007--AROTECH

related topics

{regulation, government, change}

{debt, indebtedness, cash}

{stock, price, share}

{acquisition, growth, future}

{cost, contract, operation}

{operation, international, foreign}

{customer, product, revenue}

{personnel, key, retain}

{property, intellectual, protect}

{tax, income, asset}

{cost, regulation, environmental}

{capital, credit, financial}

{control, financial, internal}

{provision, law, control}

{interest, director, officer}

We have had a history of losses and may incur future losses. We need significant amounts of capital to operate and grow our business and to pay our debt. Our existing indebtedness may adversely affect our ability to obtain additional funds and may increase our vulnerability to economic or business downturns. Failure to comply with the terms of our indebtedness could result in a default that could have material adverse consequences for us. We may not generate sufficient cash flow to service all of our debt obligations. The payment by us of our secured convertible notes in stock or the conversion of such notes by the holders could result in substantial numbers of additional shares being issued, with the number of such shares increasing if and to the extent our market price declines, diluting the ownership percentage of our existing stockholders. We have pledged a substantial portion of our assets to secure our borrowings. Any inability to continue to make use from time to time of our subsidiaries current working capital lines of credit could have an adverse effect on our ability to do business. We may not be successful in operating our acquired businesses. Our earnings will decline if we write off additional goodwill and other intangible assets. Failure to comply with the earnout provisions of our acquisition agreements could have material adverse consequences for us. We may consider acquisitions in the future to grow our business, and such activity could subject us to various risks. We may not successfully integrate our prior acquisitions. If we are unable to manage our growth, our operating results will be impaired. A reduction of U.S. force levels in Iraq may affect our results of operations. There are limited sources for some of our raw materials, which may significantly curtail our manufacturing operations. Some of the components of our products pose potential safety risks which could create potential liability exposure for us. Our fields of business are highly competitive. Our business is dependent on proprietary rights that may be difficult to protect and could affect our ability to compete effectively. We are dependent on key personnel and our business would suffer if we fail to retain them. Payment of severance or retirement benefits earlier than anticipated could strain our cash flow. There are risks involved with the international nature of our business. Investors should not purchase our common stock with the expectation of receiving cash dividends Risks Related to Government Contracts A significant portion of our business is dependent on government contracts and reduction or reallocation of defense or law enforcement spending could reduce our revenues. Our U.S. government contracts may be terminated at any time and may contain other unfavorable provisions. We may be liable for penalties under a variety of procurement rules and regulations, and changes in government regulations could adversely impact our revenues, operating expenses and profitability. Our operating margins may decline under our fixed-price contracts if we fail to estimate accurately the time and resources necessary to satisfy our obligations. If we are unable to retain our contracts with the U.S. government and subcontracts under U.S. government prime contracts in the competitive rebidding process, our revenues may suffer. The loss of, or a significant reduction in, U.S. military business would have a material adverse effect on us. The price of our common stock is volatile. If our shares were to be delisted, our stock price might decline further and we might be unable to raise additional capital. A substantial number of our shares are available for sale in the public market and sales of those shares could adversely affect our stock price. Exercise of our warrants, options and convertible debt could adversely affect our stock price and will be dilutive. Our certificate of incorporation and bylaws and Delaware law contain provisions that could discourage a takeover. A significant portion of our operations takes place in Israel, and we could be adversely affected by the economic, political and military conditions in that region. Service of process and enforcement of civil liabilities on us and our officers may be difficult to obtain. Exchange rate fluctuations between the U.S. dollar and the Israeli NIS may negatively affect our earnings. Some of our agreements are governed by Israeli law.

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916529--4/17/2007--AROTECH_CORP