Arotech Corporation Reports Record Second Quarter
and First Half Revenues

Backlog including AoA now at $37.0 million –
positive EBITDA anticipated for second half

August 10, 2004 - Arotech Corporation (NasdaqNM: ARTX) a provider of quality defense and security products for the military, law enforcement and security markets, today reported second quarter and first half 2004 results.

The Company reported that revenues for the quarter were $9.9 million, an increase of 184% over the corresponding period in 2003. The Company also reported that backlog as of the end of June 2004 stood at $25.6 million, which increases to $37.0 million with the addition of Armour of America’s backlog. Adjusted LBITDA was reduced substantially compared to the same quarter last year. Net loss increased over the same period last year, primarily due to non-cash charges associated with acquisitions and financings.

Arotech Chairman and CEO Robert S. Ehrlich commented, “Once again, we are able to report record revenues. This quarter’s revenues represent our eighth consecutive quarter of reve-nue growth,” continued Ehrlich. “For the first time ever, our operating cash exceeded our cash expenses, and we anticipate achieving positive EBITDA beginning in the second half of 2004 and beyond,” concluded Ehrlich.

Conference Call

Arotech Corporation will hold it second quarter 2004 conference call on Wednesday, August 11, 2004 at 11:00 a.m. EDT. Those wishing to take part in the conference call should call 1-888-695-0608 (US) or +1-719-457-2659 (international) a few minutes before the 11:00 a.m. EDT start time. In addition, an instant replay will be available Wednesday, August 11, 2004 at 1:00 p.m. EDT until Friday, August 13, 2004 at 8:00 p.m. EDT. The replay telephone number is 1-888-203-1112 (US); +1-719-457-0820 (international). The confirmation number is 138511.

Results for the Second Quarter

Revenues for the quarter ended June 30, 2004 increased to $9.9 million as compared with $3.5 million for the corresponding period of 2003. This increase is largely attributed to strong sales in the Company’s Armored Vehicle Division, as well as the addition of the results of the Company’s new acquisitions, FAAC and Epsilor, to its results.

Gross profit for the quarter ended June 30, 2004 increased to $3.4 million (with a gross margin of 34%) as compared with $1.0 million (with a gross margin of 29%) for the corresponding period of 2003. This increase is largely attributed to strong sales in the Company’s Armored Vehicle Division, as well as the addition of the results of the Company’s new acquisitions, FAAC and Epsilor, to its results.

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 June 30, 2004 decreased to $857,000 as compared with $1.1 million for the corresponding period of 2003. Arotech believes that information concerning Adjusted LBITDA enhances overall understanding of its current fi-nancial performance and its progress towards cash-flow break even and toward GAAP profitabil-ity. Arotech computes Adjusted LBITDA, which is a non-GAAP financial measure, as reflected in the table below.

Net loss for the quarter ended June 30, 2004 increased to $4.4 million as compared with $2.5 million for the corresponding quarter of 2003, primarily as a result of non-cash charges.

Basic and diluted net loss per share for the quarter ended June 30, 2004 was $0.07 as compared with $0.07 for the corresponding period of 2003.

Results for the First Half

Revenues for the six months ended June 30, 2004 increased to $17.1 million as compared with $7.5 million for the corresponding period of 2003. This increase is largely attributed to strong sales in the Company’s Armored Vehicle Division, as well as the addition of the results of the Company’s new acquisitions, FAAC and Epsilor, to its results.

Gross profit for the six months ended June 30, 2004 increased to $6.0 million (with a gross margin of 35%) as compared with $2.4 million (with a gross margin of 32%) for the corresponding period of 2003. This increase is largely attributed to strong sales in the Company’s Armored Vehicle Division, as well as the addition of the results of the Company’s new acquisitions, FAAC and Epsilor, to its results.

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 six months ended June 30, 2004 decreased to $1.5 million as compared with $1.7 million for the corresponding period of 2003. Arotech believes that information concerning Adjusted LBITDA enhances overall understanding of its current fi-nancial performance and its progress towards cash-flow break even and toward GAAP profitability. Arotech computes Adjusted LBITDA, which is a non-GAAP financial measure, as reflected in the table below.

Net loss for the six months ended June 30, 2004 increased to $8.7 million as compared with $3.8 million for the corresponding period of 2003, primarily as a result of non-cash charges.

Basic and diluted net loss per share for the six months ended June 30, 2004 increased to $0.14 as compared with $0.11 for the corresponding period of 2003.

Cash Position at Quarter End

Cash-on-hand and cash equivalents, restricted collateral deposits and other re-stricted cash, and available-for-sale marketable securities stood at the end of the quarter at $5.1 million in cash, $8.9 million in restricted collateral securities and cash deposits due within one year, $2.0 million in long-term restricted securities and deposits, and $127,000 in marketable securities, as compared to at the end of 2003, when the Company had $13.7 million in cash and $706,000 in restricted cash deposits due within one year.

Stockholders’ equity stood at the end of the quarter at approximately $44.7 million.

About Arotech Corporation

Arotech Corporation 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 armoring.

The Battery and Power Systems Division includes Electric Fuel Battery Corporation and Epsilor Electronic Industries Ltd. The Simulation, Training and Consulting Division includes IES Interactive Training, FAAC Incorporated and Arocon Security Consulting. The Armoring Division includes MDT Armor Corp., MDT Protective Industries Ltd. and Armour of America, Incorporated.

Arotech is incorporated in Delaware, with corporate offices in New York, and research, development and production subsidiaries in Alabama, Colorado, Michigan, California 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, 2003 and other filings with the Securities and Exchange Commission. Arotech assumes no obliga-tion to update the information in this release. Reference to the Company’s website above does not constitute in-corporation of any of the information thereon into this press release.

Tables: AROTECH CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)