Arotech Corporation 2003 Revenues Nearly Triple Those of 2002

Revenues expected to more than double in 2004; backlog for first two months of 2004 already exceeds revenues for all of 2003

March 9, 2004 - Arotech Corporation (NasdaqNM: ARTX) a provider of quality defense and security products for the military, law enforcement and security markets, today reported its fourth quarter and year-end 2003 results.

The Company also reported that backlog as of the end of February 2004 stood at $17.6 million.

Commenting on the results, Arotech Chairman and CEO Robert S. Ehrlich said, “This past year of 2003 was a turn-around year for Arotech. We clearly positioned ourselves as strong defense and security company, with leading products in growing markets,” noted Ehrlich. “We are now only two months into 2004, and we already had, as of the end of February, a backlog of $17.6 million, which is more than our revenues were for all of 2003 – and our revenues in 2003 were the highest in our history. We believe that 2004 will be a year of increased revenue, EBITDA profitability and positive cash flow,” concluded Ehrlich.

Conference Call

Arotech Corporation will hold its fourth quarter and year-end 2003 conference call on Wednesday, March 10, 2004 at 10:00 a.m. EST. Those wishing to take part in the conference call should call 1-800-289-0494 (US) or +1-913-981-5520 (international) a few minutes before the 10:00 a.m. EST start time. In addition, an instant replay will be available Wednesday, March 10, 2004 at 1:00 p.m. EST until Thursday, March 11, 2004 at 11:59 p.m. EST. The replay telephone number is 1-888-203-1112 (US); +1-719-457-0820 (international). The confirmation number is 409570.

Results for the Full Year

Revenues for the year ended December 31, 2003 increased to $17.3 million as compared with $6.4 million for 2002, an increase of 170%. This increase is largely attributed to sales of interactive training systems in the Defense and Security Products Division by IES (which was not owned by the Company in much of the corresponding period in 2002) and sales of military batteries in the Battery Division.

Gross profit for the year ended December 31, 2003 increased to $6.2 million as compared with $2.0 million for 2002, an increase of 214% , with a gross margin of 36%. This increase is largely attributed to sales of interactive training systems in the Defense and Security Products Division by IES (which was not owned by the Company in much of the corresponding period in 2002) and sales of military batteries in the Battery Division.

Adjusted Loss Before Interest, Taxes, Depreciation and Amortization (Adjusted LBITDA), excluding discontinued operations and adjusted to eliminate certain non-cash charges described below and in the table below, for the year ended December 31, 2003 was $(2.2) million as compared with Adjusted LBITDA of $(3.5) million for 2002. Arotech believes that information concerning Adjusted LBITDA enhances overall understanding of its current financial performance. Arotech computes Adjusted LBIDTA, which is a non-GAAP financial measure, as reflected in the table below.

Non-cash items in this year included a charge $334,000 related to the issuance of shares to consultants, $465,000 related to the issuance of warrants and options, and $839,000 related to the issuance of share and warrants in connection with the litigation settlement with IES Electronic Industries, Ltd.

Net loss for the year ended December 31, 2003, as a result of the factors described above and in the table below, decreased to $9.0 million as compared with $18.5 million for 2002.

Combined basic and diluted net loss per share for the year ended December 31, 2003 narrowed to $0.23 as compared with $0.57 for 2002.

Results for the Fourth Quarter

Revenues for the quarter ended December 31, 2003 increased to $4.1 million as compared with $2.1 million for the corresponding period of 2002, an increase of 91%. This increase is largely attributed to sales of IES interactive training systems in the Defense and Security Products Division and sales of military batteries in the Battery Division.

Gross profit for the quarter ended December 31, 2003 increased to $1.4 million as compared with $156,000 for the corresponding period of 2002, an increase of 782%, with a gross margin of 34%. This increase is largely attributed to sales of IES interactive training systems in the Defense and Security Products Division and sales of military batteries in the Battery Division.

Adjusted Loss Before Interest, Taxes, Depreciation and Amortization (Adjusted LBITDA), excluding discontinued operations and adjusted to eliminate certain non-cash charges described below and in the table below, for the quarter ended December 31, 2003 was $(1.1) million, as compared with Adjusted LBITDA of $(1.7) million for the corresponding period of 2002. Arotech believes that information concerning Adjusted LBITDA enhances overall understanding of its current financial performance. Arotech computes Adjusted LBIDTA, which is a non-GAAP financial measure, as reflected in the table below.

Non-cash items in this quarter included a charge $179,000 related to the issuance of shares to consultants, $312,000 related to the issuance of warrants and options, and $839,000 related to the issuance of shares and warrants in connection with the litigation settlement with IES Electronic Industries, Ltd.

Net loss for the quarter ended December 31, 2003, as a result of the factors described above and in the table below, increased to $(5.2) million, as compared with a net loss of $(2.9) million for the corresponding quarter of 2002.

Basic and diluted net loss per share for the quarter ended December 31, 2003 was $(0.12) as compared with a loss of $(0.08) for the corresponding period of 2002.

Cash Position at Year End

Cash-on-hand and cash equivalents and certificate of deposit due within one year stood at the end of the year at approximately $14.4 million, as compared to $2.1 million at the end of 2002, with backlog of orders as of the end of the year in excess of $7.2 million (not including the backlog of Arotech’s new FAAC and Epsilor subsidiaries, which were purchased in January 2004).

Stockholders’ equity stood at the end of the year at approximately $22.0 million.

Guidance for 2004

Arotech Corporation also provided guidance for its 2004 results. Based on current and historical trends, Arotech anticipates being cash-flow positive for the full year of 2004, with Adjusted EBITDA profits beginning in the second half. For the full 2004, Arotech anticipates revenues in excess of between $37 million and $42 million for 2004, and Adjusted EBITDA of between $2.5 million and $4 million. Revenues are projected to be stronger in the second half than in the first half, with revenues by quarter growing throughout the year.

About Arotech Corporation

Arotech Corporation (www.arotech.com) provides quality defense and security products for the military, law enforcement and homeland security markets, including advanced zinc-air and lithium batteries and chargers, multimedia interactive simulators/trainers and lightweight vehicle armoring.

The Battery and Power Systems Division includes Electric Fuel Battery Corporation (www.electric-fuel.com) and Epsilor Electronic Industries (www.epsilor.com). The Simulation, Training and Consulting Division includes IES Interactive Training (www.ies-interactive.com), FAAC Incorporated (www.faac.com) and Arocon Security Consulting (www.arocon-security.com). The Armored Vehicle Division includes MDT Armor Corp. (www.mdt-armor.com) and MDT Protective Industries Ltd. (www.mdtisrael.com).

Arotech is incorporated in Delaware, with corporate offices in New York, and research, development and production subsidiaries in Alabama, Colorado, Michigan and Israel.

Except for the historical information herein, the matters discussed in this news release include forward-looking statements, as defined in the Private Securities Litigation Reform Act of 1995. 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 significantly. These risks and uncertainties include, but are not limited to, risks relating to: product and technology development; the uncertainty of the market for Arotech’s products; changing economic conditions; delay, cancellation or non-renewal, in whole or in part, of contracts or of purchase orders; and other risk factors detailed in Arotech’s most recent Annual Report on Form 10-K for the fiscal year ended December 31, 2002 and other filings with the Securities and Exchange Commission. Arotech assumes no obligation to update the information in this release. Reference to the Company’s website above does not constitute incorporation of any of the information thereon into this press release.

AROTECH CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

Reconciliation of Non-GAAP Financial Measure

To supplement Arotech’s consolidated financial statements presented in accordance with GAAP, Arotech uses a non-GAAP measure, Loss Before Interest, Taxes, Depreciation and Amortization (LBITDA), as adjusted to eliminate certain non-cash charges (Adjusted LBITDA). This non-GAAP measure is provided to enhance overall understanding of Arotech’s current financial performance and its progress towards cash-flow break even and toward GAAP profitability. Reconciliation of Adjusted LBITDA to the nearest GAAP measure follows: