Aladdin Reports Strong Growth and Profitability in 3Q97 Third Quarter Sales Gain 28%; Net Income Up 70%; EPS +67%.

TEL AVIV, Israel--(BUSINESS WIRE)--Nov. 4, 1997--Aladdin Knowledge Systems Ltd. (NASDAQ/NMS: ALDNF) today reported third quarter 1997 sales rose 28 percent to $8.07 million compared with $6.32 million during third quarter 1996. For the nine months, sales rose 21 percent to $24.44 million compared with $20.27 million.

Net income for the third quarter increased 70 percent to $2.01 million, compared with net income of $1.18 million for the comparable 1996 quarter. Earnings per share for the third quarter were $0.20, based on 10.150 million shares outstanding, compared with $0.12 per share in the third quarter of 1996, based on 10.049 million shares outstanding, a gain of 67 percent.

For the nine months, net income reached $6.48 million compared with a net loss of $5.21 million in the comparable 1996 period. Earnings per share for the nine months were $0.64, based on 10.077 million shares outstanding, compared with a loss of $0.52 per share for the comparable 1996 period, based on 10.016 million shares outstanding. Without taking into consideration the one-time combination and reorganization expenses incurred in the first half of 1996, earnings per share for the nine months rose 52 percent from $0.42.

Yanki Margalit, Aladdin's President and CEO said that now more than ever software developers understand the need to protect their software and increase their revenues. The decline of software prices combined with the worldwide increasing problem of software piracy makes it clear for developers that active protection supplied by HASP and Hardlock is a must. Aladdin's management will conduct a teleconference call today at 1:00 p.m. (Eastern time) to discuss the Company's third quarter and nine months results. Those wishing to participate may call 719-448-2052, confirmation code 397404, shortly before 1:00 p.m.

Aladdin Knowledge Systems is a global leader in secure software licensing, distribution and management. Aladdin develops, manufactures and markets software security, license management and smart card systems. Aladdin's products include the HASP(R) and Hardlock(R) hardware/software platforms, which manage and monitor software licensing and prevent unauthorized use of computer programs; and ASE(R) - the Aladdin Smartcard Environment - a suite of smart card application development tools for integrating smart cards with PCs. Aladdin, with headquarters in Tel Aviv, Israel, has 5 international offices and distributors in more than 40 countries, serving over 20,000 clients worldwide. Aladdin is an ISO-9002 accredited company. For more information, visit the Aladdin home page at http://www.aks.com.

Safe Harbor for Forward-Looking Statements: Except for the statements of historical fact, the information presented herein constitutes forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the company to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Such factors include general economic and business conditions, the loss of market share, changes in consumer buying habits and other factors over which Aladdin Knowledge Systems Ltd. have little or no control.

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                    Aladdin Knowledge Systems Ltd.
                     Summary of unaudited results
                     (U.S. dollars, in thousands
                    -except for per share amount)

                             Three-month period     Nine-month period
                              ended September 30,  ended September 30,
                              1997        1996     1997           1996


Sales                      $  8,068    $  6,323   $ 24,442    $ 20,267
Cost of sales                 2,258       2,124      6,501       6,135
Gross profit                  5,810       4,199     17,941      14,132
Research and
 development, net               812         708      2,491       2,018
Selling and marketing         2,142       1,923      6,825       5,413

General and administrative      833         717      2,737       2,100
Combination and
 reorganization expenses                                         5,444
                              3,787       3,348     12,053      14,975

Operating (loss) income       2,023         851      5,888        (843)
Financial income, net           171         166        977         659
Other income (expenses)         (48)         44         82      (7,318)
Income (loss) before taxes    2,146       1,061      6,947      (7,502)
Taxes on income (benefit)       140        (118)       465      (2,294)
Net income (loss)          $  2,006    $  1,179   $  6,482    $ (5,208)
Earnings (loss) per share     $0.20    $   0.12   $   0.64    $  (0.52)
Weighted average number of
 shares outstanding          10,150      10,049     10,077      10,016

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            Aladdin Knowledge Systems Ltd. Balance Sheets
                     (U.S. dollars, in thousands)

                                   September   December
                                    30, 1997    31, 1996

Assets
Current assets
Cash and cash equivalents          $11,604      $6,786
Marketable securities                  113         159
Other receivables                    6,915       6,953
Inventories                          3,970       3,750
                                    22,602      17,648
Fixed assets, net                    3,191       2,642
Other long term assets, net         14,733      15,448
                                   $40,526     $35,738

Liabilities and shareholders' equity

Current liabilities                $4,839       $5,056
Accrued severance pay                 839          638
Shareholders' Equity              $34,848      $30,044
                                  $40,526      $35,738

CONTACT: Aladdin Knowledge Systems

Nurit Benjamini

[phone]

or

The Anne McBride Company

Katerina Charalambous

[phone]