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Q1 2008 Arotech Corporation Earnings Conference Call - Final.

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Original Source: FD (FAIR DISCLOSURE) WIRE

OPERATOR: Good day, everyone, and welcome to the Arotech first-quarter earnings conference call. Today's question-and-answer session will be conducted electronically. (OPERATOR INSTRUCTIONS). As a reminder today's conference is also being recorded. At this time I would like to turn the call over to Mr. Victor Allgeier for opening remarks and introductions. Please go ahead, sir.

VICTOR ALLGEIER, IR, TTC GROUP: Thank you and good morning everyone. My name is Vic Allgeier of the TTC Group, Arotech's investor relations firm. This morning Arotech released its fiscal 2008 first-quarter results. By now you should have received a copy of the press release. If you have not received the release, please call our office at 646-290-6400. The release is also available on the Arotech's website at www.arotech.com.

Representing the company today are Robert S. Ehrlich, Chairman and Chief Executive Officer, and Norm Johnson, Corporate Controller, sitting in for Vice President of Finance and Chief Financial Officer Thomas Paup, who is having elective surgery. Bob and Norm will deliver prepared remarks first and then we will open the call up to your questions.

I would like to remind you that in order to help you understand the company and its results, management may make some forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995, during the course of his call. Forward-looking statements that can be identified by words such as expect, predict, anticipate, and others 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 are detailed in Arotech's filings with the Securities and Exchange Commission.

Arotech assumes no obligation to update this information in the call. Reference to Arotech's website does not constitute incorporation of any of the information thereon into the conference call. I would now like to introduce Arotech's chairman and CEO, Mr. Robert Ehrlich. Bob?

ROBERT EHRLICH, CHAIRMAN & CEO, AROTECH: Thank you, Vic, and good morning everybody. While we are very pleased with the company's first-quarter results where we once again achieved record revenues, increasing sales by 15%, I would like to take a moment to address an item in the release that may have this misunderstood by the marketplace.

We unfortunately chose the word recall in our Armor Division, which was in fact not a recall. The materials that were meant to be supplied to us by our principal supplier, the Israel military industries, have failed to meet certain specs of the Israeli Defense Forces and was embargoed by the Army and therefore we were never able to get materials to produce cars in the first quarter.

So while it was unfortunate to use the word recall, we have basically did not we are not able to ship cars in the first quarter because materials were embargoed due to a fault from our supplier having nothing to do with us. Obviously it affected us adversely in that by not getting the materials we were obviously unable to finish cars and deliver them to the IDF.

Nevertheless the Armored Division did have revenues of $2.6 million largely coming from some deliveries of cars and mostly from our AoA division. But it was a misunderstanding to say that there had been any kind of a recall. None of the cars -- all of the cars that we have shipped have been perfectly sound, approved by the IDF, and actually the shipping has been resumed in the middle of May as the materials have now been approved by the IDF and we are beginning to get deliveries.

We did lose the time, which is unfortunate, but those kind of things happen when you have a principal supplier and that supplier fails in some respect. We have no recourse against them because they provide the materials to the IDF who turn them over to us. Nevertheless, we anticipate in both MDT U.S. and in MDT in Israel being able to get -- to resume shipping eight cars a month starting in the month of June.

So we expect to be able to hit most of our 2008 forecast still within this full fiscal year. And we are anticipating, while we haven't got it documented,...