Arel Communications and Software Comments on First Quarter Expected Results; Company Decides to Defer $2.3 Million in First-Quarter Revenue.

Business Editors/High-Tech Writers

ATLANTA--(BUSINESS WIRE)--May 13, 2004

Arel Communications and Software (NASDAQ:ARLC), technology leader in universal voice, video and data web communication for interactive conferencing/collaboration and training applications, announced today it has decided to defer $2.3 million of the revenue associated with a multi-million dollar contract. This new contract represents the second stage of deployment of Arel's Integrated Conferencing Platform(TM) (ICP) into one of the largest North American retail companies. The company has decided to adopt a prudent accounting approach since the exact 2004 deployment schedule is yet in process of being finalized. Once the deployment scheduled is finalized, the company expects to recognize the revenue associated with this contract.

Although the Company had record shipment of approximately $3.3 million in the first quarter of 2004 that should have resulted in a net profit of approximately $600,000, as a result of the $2.3 million revenue deferral, the company expects first quarter 2004 revenue to be approximately $1 million versus $2.1 million a year ago, and to report a first quarter 2004 net loss of $900,000 to $1.1 million versus a loss of $260,000 a year ago.

Philippe Szwarc, chief executive officer of Arel, stated, "Accounting treatments aside, Arel remains on track to achieve our 2004 objective of driving top-line growth. We are working diligently to expand our customer and channel base in order to mitigate the impact of long sales cycles on our reported results. As we proceed however, we do remain subject in the foreseeable future to quarterly fluctuations driven by a small number of high-value contracts with Fortune 1000 customers. With corporations increasingly recognizing the benefits of our enterprise collaboration solutions and supported by our strong debt-free balance sheet and $8 million in cash, Arel is well positioned to continue to expand its footprint in the market for interactive universal conferencing and collaboration."

The company expects to report first quarter 2004 results on May 20, 2004.

About Arel Communications and Software:

Arel Communications and Software, a technology leader in interactive web communications, develops, markets and sells a universal conferencing software solution for enterprise-wide deployment of integrated voice, video and data web conferencing/collaboration and training applications. Designed around Arel's Integrated Conferencing Platform(TM) (ICP) core software, the Arel Spotlight(TM) application suite facilitates collaboration for key business processes such as corporate and marketing communications, distance learning, product development, customer relationship management, and supply chain management by allowing dispersed enterprise users to collaborate in real time with synchronized voice, video and data. Arel's scaleable, secure, and network-friendly universal conferencing solution is becoming the choice solution for large enterprises moving from 'off-network' pay per usage services to 'on-network' solutions for greater control, cost-savings and integration with internal systems. www.arelcom.com

This press release contains forward-looking statements that are subject to risks and uncertainties. Factors that could cause results to differ materially from these forward-looking statements include, but are not limited to, the satisfaction of the conditions to closing, general business conditions in the industry, changes in demand for products, the timing and amount or cancellation of orders and other risks detailed from time to time in Arel Communications and Software's filings with the Securities Exchange Commission. Arel is under no obligation (and expressly disclaims any such obligation) to update or alter any forward-looking statements whether as a result of new information, future events or otherwise.

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