Arel Communications and Software Limited announces results of operations for the fourth quarter of 1996 and the year ended December 31, 1996.

YAVNE, Israel--(BUSINESS WIRE)--March 19, 1997--Arel Communications and Software Limited (NASDAQ NMS Symbols ARLCF; ARLWF) announced today the results for the fourth quarter of 1996, and the year ended December 31, 1996.

Revenues from sales and services decreased to $5,001,112 in 1996 from $6,276,432 in 1995. Net loss in 1996 was $2,054,126 in comparison to net income of $1,404,311 in 1995. This decrease in revenues was the outcome of a decrease in sales resulting from erosion of prices, increased competition and the cancellation of a major project.

Revenues from sales and services for the fourth quarter of 1996 were $1,236,413, as compared to fourth quarter 1995 revenues of $2,250,647. Loss for the last quarter of 1996 was $717,465 in comparison to net income of $625,259 in the same quarter of 1995.

Selling, general and administrative expenses increased to $3,674,617 in 1996, from $2,394,674 in 1995. In the fourth quarter of 1996 selling, general and administrative expenses increased to $1,128,294 from $737,899 in the prior period. This increase was attributable to the company's expansion of its marketing activities, which may result in an increase of future sales. The company anticipates that its marketing and R&D investments will continue to increase in the future, as it penetrates new markets with its new products.

Research and development expenses increased in 1996, to $1,655,412 from $809,051 in 1995. In the fourth quarter of 1996, R&D expenses increased to $535,408 from $246,362 for the same period in 1995. This significant increase in R&D expenses was attributed principally to the continued development of the company's new products -- IDEAL and i-FAX.

In 1996, the company has recorded an expense of $280,000, out of a total of $460,000 (the remainder of which will be recorded in 1997), related to the formation of Arel Net Ltd. and the acquisition of i-FAX core technology, as well as know-how from Elron Electronic Industries Ltd. The Arel Net Ltd., founded in mid-1996, is owned 80% by Arel and 20% by Elron Electronic Industries Ltd. (NASDAQ/NMS: ELRNF).

Ms. R. Ben Nun, CEO of Arel, stated that "the total net loss announced today relates primarily to the research and development, technology acquisition and higher marketing investments made in the company's IDEAL and i-FAX product lines. We believe that these product lines, which to-date have not generated significant revenue, will begin to generate revenue following the company's current intensive worldwide marketing activity, particularly in the US."

Ben Nun also noted that, "we have successfully completed the integration of our new i-FAX product and our traditional ARCOM product lines, presently being marketed by ArelNet. The basic development of our second-generation IDEAL product is complete. This product is based on an open architecture and incorporates a range of new features."

Arel Communications and Software Ltd. designs, develops, markets, produces, integrates and supports, on a worldwide basis, a family of value-added telecommunications Network Service systems ("VANS"). Arel's leading product, ARCOM, is rated worldwide amongst the leading products in this field. Arel provides a second family of products, IDEAL, an interactive distance learning solution to corporate training and educational markets world wide. -0-

                Arel Communications and Software Ltd.
                       (An Israeli Corporation)
                   Consolidated Statement of Income


                             Year Ended         Three Months Ended
                               Dec. 31,               Dec. 31,
                           1996      1995        1996        1995
                                 $                       $

Revenues from sales
 and services          $5,001,112 $6,276,432  $1,236,413 $2,250,647
Cost of sales and
 services               1,918,921  1,814,905     401,011    817,494
Gross profit            3,082,191  4,461,527     835,402  1,633,153
Research and
 development
 costs - net            1,655,412    809,051     535,408    246,362
Selling, general
 and administrative
 expense                3,674,617  2,394,674   1,128,294    737,899
Operating income
 (loss)                -2,247,838  1,257,802    -828,300    648,892
Financial income, net     211,823    325,383     137,381     50,816
Income (loss) before
 taxes on income       -2,036,015  1,583,185    -690,919    699,708
Taxes on income                     -178,874                -74,449
Minority interest
 in profit of
 consolidated
 subsidiary               -18,111                -26,546
Net income (loss)     ($2,054,128)$1,404,311   ($717,465) $ 625,259
Earning (loss)
 per share             ($0.38)         $0.25      ($0.13)     $0.11
Weighted average number
 of shares outstanding 5,400,000   5,582,680   5,400,000  5,582,680

                   Arel Communications and Software Ltd.
                          (An Israeli Corporation)
                        Consolidated Balance Sheets

                                        December 31,
                                  1996               1995
                                            US$

              Assets

CURRENT ASSETS:
  Cash and cash equivalents   1,346,933           3,320,340
  Short-term investments      5,313,319           3,734,592
  Accounts receivable
      Trade                   2,534,198           3,117,077
      Other                     456,948             640,303
  Inventories                   129,643             136,674
  Costs in excess of
    advances on
    uncompleted contracts         6,538              71,667
        Total current assets  9,787,579          11,020,653

LONG-TERM LOAN TO AN EMPLOYEE,
  net of current maturity        67,030

PLANT AND EQUIPMENT:
  Cost                        1,759,237           1,450,578
  Less - accumulated
    depreciation and
    amortization                590,643             325,923
                              1,168,594           1,124,655

OTHER ASSET AND DEFERRED
  CHARGES, net of
  accumulated amortization      179,792             197,000
                             11,202,995          12,342,308


                                        December 31,
                                  1996               1995
                                            US$
  Liabilities and shareholders'
            equity

CURRENT LIABILITIES:
  Short-term bank credit                             17,958
  Current maturity of long-term
    bank loan                                        80,000
  Accounts payable and accruals:
      Trade                     335,412             389,375
      Other                     928,576             642,103
  Advances in excess of costs
    on uncompleted contracts                         36,082
      Total current liabilities 1,263,988         1,165,518

ACCRUED EMPLOYEE RIGHTS UPON
  RETIREMENT, net of amount
  funded                           79,557           108,905

COMMITMENTS

    Total liabilities          1,343,545           1,274,423

MINORITY INTEREST               485,343

SHAREHOLDERS' EQUITY:
  Share capital - Ordinary
    Shares of NIS 0.001 par
    value (authorized -
    December 31, 1996 and
    1995 - 10,000,000 shares;
    issued and outstanding -
    December 31, 1996 and
    1995 - 5,400,000 shares)      1,801               1,801

  Capital surplus             7,700,912           7,632,912
  Warrant                       292,348
  Retained earnings           1,379,046           3,433,172
    Total shareholders'
      equity                  9,374,107          11,067,885
                             11,202,995          12,342,308

CONTACT: Arel Communications and Software Limited

Itzhak Gross, 972-8-942-0880