Arotech Reports Record First Quarter Revenues

Revenues up 78% over last year; backlog stands at $27 million

May 12, 2004 - Arotech Corporation (NasdaqNM: ARTX) a provider of quality defense and security products for the military, law enforcement and homeland security markets, today reported its first quarter 2004 results.

The Company reported that revenues for the quarter were $7.2 million, an increase of 78% over the corresponding period in 2003. The Company also reported that backlog as of the end of April 2004 stood at $26.9 million, which amount does not include the $2.1 million in orders shipped in April and not reflected in the first quarter’s financial results. Loss increased over the same period last year, primarily due to non-cash charges associated with acquisitions and financings.

Commenting on the results, Arotech Chairman and CEO Robert S. Ehrlich said, “The sustained quarter-to-quarter increase in our revenues and backlog continues to validate the change in our business model. We are on plan, we stand by the guidance we gave earlier in 2004, and we continue to look forward to moving to being cash-flow positive in the second half,” concluded Ehrlich.

Conference Call

Arotech Corporation will hold its first quarter 2004 conference call on Thursday, May 13, 2004 at 10:00 a.m. EDT. Those wishing to take part in the conference call should call 1-800-310-1961(US) or +1-719-457-2692 (international) a few minutes before the 10:00 a.m. EDT start time. In addition, an instant replay will be available Thursday, May 13, 2004 at 1:00 p.m. EDT until Friday, May 14, 2004 at 11:59 p.m. EDT. The replay telephone number is 1-888-203-1112 (US); +1-719-457-0820 (international). The confirmation number is 130143.

Results for the First Quarter

Revenues for the quarter ended March 31, 2004 increased to $7.2 million, as compared with $4.0 million for the corresponding period of 2003, an increase of $3.1 million, or 78%. This increase is largely attributed to strong sales in the Company’s Armored Vehicle Division and in its Battery and Power Systems 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 March 31, 2004 increased to $2.6 million, as compared with $1.4 million for the corresponding period of 2003, an increase of $1.2 million, or 88%, with a gross margin of 37%. This increase is largely attributed to strong sales in the Company’s Armored Vehicle Division and in its Battery and Power Systems 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 March 31, 2004 was $(681,000), as compared with Adjusted LBITDA of $(553,000) for the corresponding period of 2003. 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 $1.6 million, primarily related to the repricing and issuance of warrants to investors.

Net loss for the quarter ended March 31, 2004, as a result of the factors described above and in the table below, increased to $(4.3) million, as compared with a net loss of $(1.4) million for the corresponding quarter of 2003.

Basic and diluted net loss per share for the quarter ended March 31, 2004 was $(0.07), as compared with a loss of $(0.04) for the corresponding period of 2003.

Cash Position at Year End

Cash-on-hand and cash equivalents, restricted collateral deposits and other restricted cash, and available-for-sale marketable securities stood at the end of the quarter at $4.9 million in cash, $5.7 million in restricted collateral securities and cash deposits due within one year, $3.8 million in long-term restricted securities and deposits, and $124,000 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 $44.0 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 vehicle armoring.

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

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, 2003 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.

Tables: AROTECH CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)