Aladdin Knowledge Systems Reports Second Quarter 2008 Financial Results

Aladdin Analyst Day Scheduled for August 1st in New York

TEL AVIV, ISRAEL, July 21, 2008 - Aladdin Knowledge Systems Ltd. (NASDAQ: ALDN), an information security leader specializing in authentication, software DRM and content security, today announced financial results for the second quarter of fiscal year 2008, ended June 30, 2008.

Total revenues for the second quarter 2008 were $26.4 million, an increase of four percent from $25.5 million for the same period in 2007. Software DRM revenues for the second quarter of 2008 were $16.4 million, in-line with the same period in 2007. Enterprise Security revenues for the second quarter were $10.0 million, an 11 percent increase from $9.0 million recorded in the same period in 2007.

Net income in accordance with U.S. Generally Accepted Accounting Principles (GAAP) for the second quarter of 2008 was $0.1 million, or $0.01 per basic and diluted share, compared to second quarter of 2007 GAAP net income of $3.9 million or $0.27 per basic share and $0.26 per diluted share. GAAP net income for the second quarter of 2008 included $0.4 million for stock-based compensation expenses, compared to $0.2 million reported in the second quarter of 2007.

Excluding stock-based compensation expenses, the Company reported non-GAAP net income for the second quarter of 2008 of $0.5 million, or $0.04 per basic share and diluted share, compared to second quarter of 2007 non-GAAP net income of $4.6 million or $0.32 per basic share and $0.31 per diluted share. Refer to the "Use of Non-GAAP Measures" section and accompanying financial table for a reconciliation of GAAP financial information to non-GAAP.

Cash, cash equivalents and marketable securities totaled $94.5 million at June 30, 2008. The Company generated cash flow from operations of $0.6 million during the second quarter of 2008.

Yanki Margalit, Chairman and CEO of Aladdin Knowledge Systems, said, "Our second quarter 2008 revenue and earnings per share results were in line with our preliminary results announced on July 2, 2008. With a goal of improving long-term performance, we are increasing our investment in customer focused research and development as well as marketing resources in order to drive organic growth while also seeking additional complementary acquisition opportunities. I believe these investments in our core business will strengthen our portfolio of IT security offerings and increase our global brand recognition."

Financial and Operating Highlights

• Quarterly revenues of $26.4 million, an increase of four percent year-over-year.
• Announced a definitive agreement to acquire Italian-based Eutronsec, S.p.A. for approximately €10.0 million in cash, including acquisition-related expenses. The closing of the transaction is subject to customary closing conditions and is expected to be consummated by September 2008.
• Established a new office in Portugal as part of Aladdin Europe. Located near Lisbon, the Portuguese office, Aladdin Europe, Lda., is set to strengthen its HASP software DRM business in Portugal through the acquisition of long-time partner and distributor, Futurmática.

Quarterly Product Highlights

• Released Aladdin eToken NG-FLASH 72K, which combines the features of a USB encrypted flash drive and an open Java Card technology with an advanced smartcard.
• Aladdin HASP SRM won "Most Innovative Software for the Software Industry" at the Computer Technology Industry Association (CompTIA) 2008 SoftwareCEO Software Innovation Awards.
• Aladdin HASP SRM won a 2008 Codie Award in the "Best Digital Rights Management Solution" category from the Software and Information Industry Association (SIIA).
• Released Aladdin eSafe v6.2 Proxy, offering organizations more options in control and flexibility for secure Web gateway deployment.
• Announced Linux support for Aladdin HASP SRM, the first fully-integrated software- and hardware-based copy protection and licensing solution.

For further information on product highlights, refer to the press room on the Company's Web site at http://www.aladdin.com/about/press/corporate.aspx.

Future Business Outlook

Based on current business conditions and expectations, Aladdin management is reiterating the recently updated 2008 top line revenue target range issued on July 2, 2008 of between $112.0 million and $120.0 million for fiscal year 2008 as compared to the $105.9 million in revenues reported for fiscal year 2007.

The Company is also reiterating its recently updated fiscal year 2008 GAAP diluted earnings per share guidance range of between $0.36 to $0.44. These figures do not include amortization and reorganization charges related to the acquisition of Eutronsec, as they are not yet determinable. The Company reported GAAP diluted earnings per share of $1.02 for fiscal year 2007.

Fiscal year 2008 non-GAAP diluted earnings per share are expected to be in the range of $0.48 to $0.56. Non-GAAP earnings per share guidance excludes the projected impact of stock-based compensation expenses and anticipated one-time expenses related to the Company's recent and announced acquisitions. The Company reported non-GAAP earnings per diluted share of $1.20 for fiscal year 2007, which excluded stock-based compensation expense and the impact of the $2.0 million non-recurring up-front cost associated with production of video-based training.

The Company undertakes no obligation to update its estimates.

Use of Non-GAAP Measures

This press release provides financial measures for net income, basic and diluted earnings per share that exclude stock-based compensation expense and anticipated one-time mergers and acquisition related expenses which are not calculated in accordance with U.S. Generally Accepted Accounting Principles (GAAP). Management believes that these non-GAAP financial measures provide meaningful supplemental information regarding the Company's performance that enhances management's and investors' ability to evaluate the Company's net income and earnings per share as well as to compare it with historical net income and earnings per share.

Earnings Teleconference & Web Cast

The Company will hold a teleconference today, July 21st, at 9 a.m. EDT to discuss the quarterly results. To participate in the call, dial +1 (800) 994-4498 in North America, or +972 (3) 918-0610 internationally, approximately five minutes prior to the scheduled call start time. The call is being simultaneously Web cast and can be accessed on the Aladdin Web site at www.Aladdin.com/investor. Please visit the Web site at least 15 minutes prior to the scheduled call time to register for the Web cast and download any necessary audio software.

A replay of the call can also be accessed via telephone from 12:00 p.m. EDT on July 21st through 11:59 p.m. EDT on August 21st by calling +1 (877) 456-0009 in North America, or +972 (3) 925-5953 internationally. A Web cast replay of the call will also be made and can be accessed on the Aladdin Web site at www.Aladdin.com/investor.

Analyst Day

Aladdin will host an analyst day on Friday, August 1st from 10:00 a.m. to 12:30 p.m. EDT in New York, at the NASDAQ Market Site, 43rd and Broadway. Speakers at the breakfast event will include Chairman and CEO Yanki Margalit, CFO Aviram Shemer, and the vice presidents of the Aladdin HASP, eSafe and eToken Business Units. Aladdin management will provide an update on Aladdin's vision for growth and expansion into new global markets and technologies, as well as operational and financial highlights. Following the breakfast, Mr. Margalit will host a question and answer session.

A live Web cast of the presentations will be available on the Aladdin Web site at www.Aladdin.com. Please visit the Web site at least 15 minutes early to register for the Web cast and download any necessary audio software.

For more details and to register, email investor@aladdin.com or call +1 (646) 468-0481.

About Aladdin Knowledge Systems

Aladdin Knowledge Systems' Software Rights Management products are the #1 choice of software developers and publishers to protect intellectual property, increase revenues, and reduce losses from software piracy. Aladdin eToken is the world's #1 USB-based authentication solution. The Aladdin eSafe secure Web gateway provides the most advanced protection against the latest Web-based threats and attacks. Aladdin has offices in 12 countries, a worldwide network of channel partners, and has won numerous awards for innovation. For more information, visit the Aladdin Web site at www.Aladdin.com.

©2008 Aladdin Knowledge Systems, Ltd. All rights reserved. HASP, eToken, eSafe, Aladdin Knowledge Systems and the Aladdin logo are trademarks or registered trademarks of Aladdin Knowledge Systems, Ltd. All other product and brand names mentioned in this document are trademarks or registered trademarks of their respective owners.

Safe Harbor Statement

Certain information presented herein constitutes forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements are subject to 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, risks relating to our recent acquisition of Athena Smartcards and the proposed acquisition of Eutronsec, including the failure to realize expected synergies, failure to effectively integrate these businesses into our business and increasing unexpected liabilities, the loss of market share, changes in the level of business or anticipated business from a large customer or customers, failure to achieve anticipated customer orders, changes in the competitive landscape and other factors over which the company has little or no control. For more information, please refer to the Company's filings with the Securities and Exchange Commission, which are available on the Commission's website at www.sec.gov.

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