FORM 6-K

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Report of Foreign Issuer

Pursuant to rule 13a-16 or 15d-16 of the Securities Exchange Act of 1934for the month of ~~August~~November 2003

AREL COMMUNICATIONS AND SOFTWARE LTD.
(Translation of registrant's name in English)

3 Hayarden Street, Yavne, Israel
(Address of principal executive offices)

Indicate by check mark whether the registrant files or will file annual
reports under cover Form 20-F or Form 40-F.

Form 20-F x

Form 40-F o

Indicate by check mark whether the registrant by furnishing the information
contained in this Form is also thereby furnishing the information to the Commission
pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.

Yes o

No x

Contact:




*Contact:*
Danny Yelin	Carmen Deville
Chief Financial Officer	Investor Relations
Arel Communications and Software Ltd.	Tel US: 770-396-8105 x 300
dyelin@arelcom.com	Tel Israel: +972-52-781748
	investor@arelcom.com

Danny Yelin	Carmen Deville
Chief Financial Officer	Investor Relations
Arel Communications and Software Ltd.	Tel US: 770-396-8105 x 300
dyelin@arelcom.com	Tel Israel: +972-52-781748
	investor@arelcom.com

Arel Reports Results for the Third Quarter of 2003

~~Arel~~• ~~Reports~~Revenues ~~Net~~increased ~~Profit~~15 ~~for~~percent ~~Second~~sequentially ~~Quarter~~and of219 ~~2003~~percent year over year to $2.65M

~~Represents~~• ~~first~~Gross ~~quarterly~~margin ~~profit~~improved ~~since Q2 of 2000 Revenues increased 10% sequentially and 115% year over year~~ to ~~$2.3M~~70 ~~Operating profit of approximately $272K Net profit of $71,000, or $0.01 per share~~percent

~~YAVNE,~~• ~~Israel~~Net –profit ~~August 14, 2003 – Arel Communications and Software Limited (NASDAQ: ARLC) (Arel), the world’s leading provider~~ of ~~Integrated Video~~$361, ~~Voice and Data conferencing and distance training solutions~~000, ~~announced~~or ~~today the results for the second quarter of 2003~~$0.03 per share

~~Second quarter revenues reached $2~~YAVNE,~~311,000,~~ anIsrael ~~increase~~- ofNovember ~~10%~~5, ~~compared~~2003 – toArel ~~$2,106,000~~Communications ofand ~~revenues~~Software inLimited ~~the~~(NASDAQ: ~~first~~ARLC) ~~quarter of 2003~~(Arel), ~~representing~~ the ~~third~~world’s leading ~~consecutive~~provider ~~quarterly~~of ~~growth~~integrated inweb, ~~revenues.~~voice ~~Revenues~~and ~~for~~video ~~the second~~conferencing ~~quarter~~and ofdistance ~~2003~~training solutions, ~~represent~~announced antoday ~~increase~~the ofresults ~~116% compared to revenues of $1,071,000~~ for the ~~second~~third quarter of ~~2002~~2003.

~~Second~~Third quarter ~~2003~~revenues ~~net profit was~~reached $712,646,000, ora ~~$0.01~~15 ~~basic~~percent ~~and~~sequential ~~diluted~~increase ~~per~~and ~~share,~~the ~~compared~~fourth toconsecutive aquarter ~~net loss~~ of ~~$262,000, or~~growth $0in revenues.02 ~~basic~~Revenues ~~and diluted per share~~ for the ~~first~~third quarter of 2003. ~~The~~increased ~~Company~~219 ~~reported~~percent ~~a net~~from ~~loss of~~ the $2829,~~465,~~000 ~~(including~~reported ~~amortization~~in ~~of goodwill of $142,000) or $0.19 basic and diluted per share, for~~ the ~~second~~third quarter of 2002.

~~Commenting~~Third onquarter ~~Arel’s~~2003 ~~results,~~net profit was Mr$361,000, or $0.03 ~~Philippe~~per ~~Szwarc~~share, ~~Chief~~compared ~~Executive~~to ~~Officer,~~a ~~said,~~net ~~“We~~profit ~~are~~of ~~proud~~$71,000, toor ~~report~~$0.01 ~~our~~per ~~first~~share in ~~quarterly~~the ~~profit~~second ~~since~~quarter ~~June~~of ~~2000~~2003. WeFor ~~have~~the ~~created~~third aquarter ~~lean~~of ~~operating~~2002 ~~structure~~the ~~and~~company ~~have~~reported ~~laid the~~a ~~foundation~~net ~~for~~loss of ~~continued~~$8,043,000, ~~revenue~~which ~~growth.~~included ~~Our~~impairment ~~progress~~of isgoodwill ~~evidenced~~of by$4,575,000, ~~new~~an ~~customers~~impairment of ~~such~~$279,000 asdue ~~the~~to ~~Texas~~a ~~Department~~decrease in the value of ~~Health.~~Arel ~~Visibility~~investment ~~has~~in ~~improved~~ArelNet, and wea ~~remain~~one ~~confident~~time inrestructuring ~~our~~expense ~~ability~~and toimpairment ~~continue~~of toproperty ~~improve~~and ~~our~~equipment ~~financial~~of ~~performance~~$1,671,000, or $0.”63 per share.

~~Gross~~Philippe ~~margins~~Szwarc, inArel ~~the~~chief ~~second~~executive officer, said, “The third quarter of ~~2003~~performance ~~improved~~is toa ~~62%~~result of improving our market reach, ~~compared~~which ~~with~~has ~~55%~~allowed inus ~~the~~to ~~first~~win ~~quarter~~significant ofcustomers ~~2003~~such ~~and~~as ~~44%~~Countrywide inHome ~~the~~Loans ~~year~~and ~~earlier~~The ~~period,~~Kroger ~~due~~Co. toOur aadvanced ~~particularly~~Integrated ~~favorable~~Conferencing ~~product~~Platform ~~mix~~is drawing excellent feedback and acceptance in the market.”

Gross margin in the third quarter of 12003 improved to 70 percent, compared with 62 percent in the second quarter of 2003, due to a particularly favorable product mix. Gross margin in the third quarter of 2002 was 13 percent.

~~Operating expenses (including the~~ positive impact of the Chief Scientist participation of $261,000 pertaining to the first six months of 2003) declined 15% sequentially and 61% from the same period a year ago, resulting in operating profit of $272,000 in the second quarter of 2003. The Company has been notified by the Chief Scientist that it has been approved for participation of approximately $520,000 for the entire calendar year of 2003. The relatively large discrepancy between operating profit and net profit is due to a financial loss of $201,000, mainly resulting from a sharp revaluation of the New Israeli Shekel against the U.S. Dollar during the second quarter. 2

~~Cash~~Research and ~~cash~~development ~~equivalents~~expenses this atquarter ~~June~~totaled 30$576,000 excluding Chief Scientist participation, and $457,000 ~~2003~~including ~~totaled~~the $9119,~~245,~~000 ~~(including~~Chief ~~short-term~~Scientist ~~investments~~participation ofin ~~$239~~the quarter,~~000)~~ compared ~~with~~to R&D expenses in the second quarter of $10497,~~260,~~000 ~~(including~~excluding ~~short-term~~Chief ~~investments~~Scientist ofparticipation, and $~~129~~236,000) atincluding the ~~end~~$261,000 ofChief ~~the~~Scientist ~~first~~participation, which pertained to the ~~quarter~~first six months of 2003. The ~~change~~main increase in Net R&D expenses relates to the difference ~~cash~~in ~~position~~the ~~versus~~Chief Scientist participation recognized in the ~~previous~~second quarter ~~relates~~(for ~~primarily to~~six ~~working~~months) ~~capital~~and ~~requirements~~in tothe ~~support~~third ~~growing~~quarter ~~revenues~~(for three months only).

~~About~~Selling, ~~Arel~~general ~~Communications~~and administrative expenses increased 19 percent sequentially to 42 percent of revenue due to a further investment in our sales and ~~Software~~marketing efforts, but decreased 4 percent from the same period a year ago.

~~Arel~~Operating ~~Communications~~profit ~~and~~for ~~Software~~the ~~Ltd~~third ~~(www.arelcom.com)~~quarter ~~offers~~was ~~effective fully integrated video~~$271,000, ~~voice~~similar ~~and~~to ~~data~~the ~~interactive conferencing~~operating ~~solutions~~profit bygenerated ~~optimizing~~in the ~~use~~second ofquarter ~~existing network resources available to~~of ~~distributed enterprises~~2003. Our integrated networking and software platform is winning us loyalty from major Fortune 500 customers, using our system for various needs such as video conferencing, collaboration, e-learning, and distance learning applications.

~~Certain statements made herein that are not historical are forward-looking within the meaning of the Private Securities Litigation Reform Act of 1995. The words “estimate”~~Cash, ~~“project”, “intend”, “expect”, “believe”, “hopeful”~~ and ~~similar~~ ~~expressions~~cash ~~are~~equivalents ~~intended to identify forward-looking statements. These~~plus ~~forward~~short-~~looking~~term ~~statements~~investments ~~involve~~at ~~known~~September ~~and unknown risks and uncertainties. Many factors could cause the actual results~~30, ~~performance or achievements of the Company to be materially different from any future results~~2003, ~~performance~~totaled ~~or achievements that may be expressed or implied by such forward-looking statements~~$8, ~~including~~485, ~~among others~~000, ~~changes in~~compared ~~general~~with ~~economic and business conditions~~$9, ~~inability to maintain market acceptance to the Company’s products~~245, ~~inability to timely develop and introduce new technologies,~~000 ~~products~~at ~~and applications, rapid changes in~~ the ~~market~~end ~~for the Company’s products, loss~~ of market share and pressure on prices resulting from competition, introduction of competing products by other companies, inability to manage growth and expansion, loss of key partners, inability to attract and retain qualified personnel, inability to protect the ~~Company’s~~second ~~proprietary~~quarter. ~~technology~~The ~~and~~change ~~risks~~in ~~associated with~~ the ~~Company’s international~~cash ~~operations~~position ~~and~~versus ~~its location in Israel. For additional information regarding these and other risks and uncertainties associated with~~ the ~~Company’s business,~~previous ~~reference~~quarter isrelates ~~made~~primarily to ~~the~~working ~~Company’s~~capital ~~reports~~requirements ~~filed from time~~ to ~~time~~support ~~with~~growing ~~the Securities and Exchange Commission~~revenues.

Arel management will hold a teleconference today, at 8:00 a.m. EST. to discuss the quarterly results. To participate in the call please dial 800-553-5275 (~~Tables~~in the United States) or 612-332-0634 (internationally), approximately five minutes prior to ~~follow~~the scheduled call start time. The call will also be available live as a webcast on www.arelcom.com, where it will be archived and available for replay. A digital replay of the conference call may also be accessed by dialing the following numbers: 800-475-6701 (in the United States.) or 320-365-3844 (internationally) and entering the following access code: 702186.

About Arel 2Communications and Software Arel Communications and Software Ltd (www.arelcom.com) offers effective fully integrated video, voice and data interactive conferencing solutions by optimizing the use of existing network resources available to distributed enterprises. Our integrated networking and software platform is winning us loyalty from major Fortune 500 customers, using our system for various needs such as web collaboration, video conferencing and distance learning applications.

~~Arel~~Certain ~~Communications~~statements made herein that are not historical are forward-looking within the meaning of the Private Securities Litigation Reform Act of 1995. The words “estimate”, “project”, “intend”, “expect”, “believe”, “hopeful” and similar ~~Software~~expressions ~~Ltd~~are intended to identify forward-looking statements. ~~(an~~These forward-looking ~~Israeli~~statements ~~Corporation)~~ involve known and unknown risks and uncertainties. Many factors ~~Condensed~~could ~~Consolidated~~cause the actual results, performance or achievements of the Company to be ~~Balance~~materially ~~Sheet~~different atfrom ~~June~~any 30future results, ~~2003~~performance ~~(Unaudited)~~or achievements that may be expressed or implied by such forward-looking statements, including, among others, changes in general economic and business conditions, inability to maintain market acceptance to the Company’s products, inability to timely develop and introduce new technologies, products and applications, rapid changes in the market for the Company’s products, loss of market share and pressure on prices resulting from competition, introduction of competing products by other companies, inability to manage growth and expansion, loss of key partners, inability to attract and retain qualified personnel, inability to protect the Company’s proprietary technology and risks associated with the Company’s international operations and its location in Israel. For additional information regarding these and other risks and uncertainties associated with the Company’s business, reference is made to the Company’s reports filed from time to time with the Securities and Exchange Commission.

	June 30,
	2003			2002			December 31, 2002
	(Unaudited)						(Audited)
	U.S. dollars in thousands
Assets
CURRENT ASSETS:
Cash and cash equivalents		9,006			3,109			10,354
Short-term investments		239			7,772			129
Accounts receivable:
Trade		2,840			3,429			2,455
Other		710			841			488
Inventories		1,118			1,271			1,168
Total current assets		13,913			16,422			14,594
INVESTMENTS AND LONG-TERM RECEIVABLE:
Investment in Arelnet Ltd.		125			404			125
Loans to employees, net of current maturity		31			37			31
		156			441			156
PROPERTY, PLANT AND EQUIPMENT:
Cost		2,166			3,761			2,183
Less - accumulated depreciation		1,625			2,089			1,493
		541			1,672			690
GOODWILL, net of accumulated amortization					4,575
		14,610			23,110			15,440
Liabilities and shareholders' equity
CURRENT LIABILITIES:
Short-term bank credit		52			38			27
Accounts payable:
Trade		770			650			801
Accrued restructuring costs		305						852
Deferred revenues		1,597			774			2,165
Other		3,650			3,242			3,157
Total current liabilities		6,374			4,704			7,002
LONG-TERM LIABILITIES:
Liability for employee rights upon retirement, net of
amount funded		362			304			371
Other		40			29			48
Total long-term liabilities		402			333			419
Total liabilities		6,776			5,037			7,421
SHAREHOLDERS' EQUITY:
Share capital		4			4			4
Capital surplus		52,746			52,740			52,740
Warrants and options		1,395			1,395			1,395
Accumulated deficit		(46,311	)		(36,066	)		(46,120	)
Total shareholders' equity		7,834			18,073			8,019
Total liabilities and shareholders' equity		14,610			23,110			15,440

(Tables to follow)

AREL COMMUNICATIONS AND SOFTWARE LTD. ~~CONDENSED~~(An ~~CONSOLIDATED STATEMENTS~~Israeli OFCorporation) ~~INCOME~~ ~~FOR~~CONDENSED ~~THE SIX AND THREE~~CONSOLIDATED ~~MONTH~~BALANCE ~~PERIODS~~SHEETSAT ~~ENDED~~SEPTEMBER ~~JUNE~~ 30, 2003

	Six months ended June 30,						Three months ended June 30,						Year ended December 31,
	September 30						December 31,
	2003			2002			~~2003~~2002			~~2002~~			~~2002~~
	(Unaudited)						(~~Unaudited~~Audited)						~~(Audited)~~
	U.S. dollars in thousands, except loss per share
	U.S. $ in thousands
REVENUES FROM SALES AND SERVICES	4,417				3,817			2,311			1,071			5,941
A s s e t s
COST OF SALES AND SERVICES	1,817				2,241			868			595			3,604
CURRENT ASSETS:
GROSS PROFIT	2,600				1,576			1,443			476			2,337
Cash and cash equivalents		2,369			6,107			10,354
RESEARCH AND DEVELOPMENT EXPENSES - net	709				1,199			236			869			2,218
Short-term investments		6,116			4,606			129
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES	1,842				3,908			935			1,972			6,439
Accounts receivable:
AMORTIZATION OF GOODWILL					283						142			283
Trade		2,929			1,902			2,455
IMPAIRMENT OF GOODWILL														4,575
Other		714			439			488
RESTRUCTURING EXPENSES and IMPAIRMENT OF PROPERTY AND EQUIPMENT														2,301
Inventories		931			1,142			1,168
OPERATING INCOME (LOSS)	49				(3,814	)		272			(2,507	)		(13,479	)
T o t a l current assets		13,059			14,196			14,594
FINANCIAL INCOME, (LOSS) - net	(240	)			212			(201	)		42			102
INVESTMENTS AND LONG-TERM RECEIVABLE:
IMPAIRMENT OF INVESTMENT IN ARELNET LTD.														(279	)
Investment in Arel Net Ltd.		125			125			125
INCOME (LOSS) FOR THE PERIOD	(191	)			(3,602	)		71			(2,465	)		(13,656	)
Loans to employees, net of current maturity		27			32			31
BASIC AND DILUTED INCOME (LOSS) PER SHARE	(0.01	)			(0. 28)			0.01			(0. 19)			(1.06	)
		152			157			156
Income (loss) for the period as reported	(191	)			(3,602	)		71			(2,465	)		(13,656	)
PROPERTY, PLANT AND EQUIPMENT:
Adjustments to reconcile income (loss) for the period to income (loss) excluding
Cost		2,191			2,333			2,183
unusual items:
L e s s - accumulated depreciation		1,697			1,530			1,493
Amortization of goodwill					283						142			283
		494			803			690
Impairment of goodwill														4,575
OTHER ASSETS		152
Restructuring expenses														2,301
		13,857			15,156			15,440
Impairment of investment in Arelnet Ltd.														279
Liabilities and shareholders' equity
Income (loss) excluding unusual items:	(191	)			(3,319	)		71			(2,323	)		(6,218	)
CURRENT LIABILITIES:
Basic and diluted income (loss) per share excluding unusual items:	(0.01	)			(0.26	)		0.01			(0.18	)		(0.48	)
Short-term bank credit and current maturities of long-term loan		24			13			27
Weighted average number of ordinary shares used in computing loss per share	12,856				12,856			12,856			12,856			12,856
Accounts payable and accruals:
amounts (in thousands):
Trade		615			884			801
Accrued restructuring costs		92			607			852
Deferred revenues		935			524			2,165
Other		3,593			2,829			3,157
T o t a l current liabilities		5,259			4,857			7,002
LONG-TERM LIABILITIES:
Liability for employee rights upon retirement, net of
amount funded		362			261			371
Other		35			8			48
T o t a l long-term liabilities		397			269			419
T o t a l liabilities		5,656			5,126			7,421
SHAREHOLDERS' EQUITY:
Share capital		4			4			4
Capital surplus		52,752			52,740			52,740
Warrants and options		1,395			1,395			1,395
Accumulated deficit		(45,950	)		(44,109	)		(46,120	)
		8,201			10,030			8,019
		13,857			15,156			15,440

AREL COMMUNICATIONS AND SOFTWARE LTD. (An Israeli Corporation) CONDENSED CONSOLIDATED STATEMENTS OF ~~CASH FLOWS~~OPERATIONS FOR THE ~~SIX~~NINE AND THREE MONTH PERIODS ENDED ~~JUNE~~SEPTEMBER 30, 2003

	Six months ended June 30,						Three months ended June 30,						Year ended December 31,
	Nine months ended September 30						Three months ended September 30						Year ended December 31,
	2003			2002			2003			2002			2002
	(Unaudited)						(Unaudited)						(Audited)
	U.S. $ in thousands
	U.S. $ in thousands(except per share data)
CASH FLOWS FROM OPERATING ACTIVITIES:
REVENUES FROM SALES AND SERVICES		7,063			4,646			2,646			829			5,941
Income (loss) for the period		(191	)		(3,602	)		71			(2,465	)		(13,656	)
COST OF SALES AND SERVICES		2,619			2,965			802			724			3,604
Adjustments required to reconcile net income (loss)
GROSS PROFIT		4,444			1,681			1,844			105			2,337
to net cash used in operating activities:
RESEARCH AND DEVELOPMENT EXPENSES - net		1,166			1,691			457			492			2,218
Depreciation and amortization of property and
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES		2,958			5,069			1,116			1,161			6,439
Equipment		181			389			85			210			588
AMORTIZATION OF GOODWILL					283									283
Impairment of property and equipment														785
IMPAIRMENT OF GOODWILL					4,575						4,575			4,575
Amortization of goodwill					283						142			283
RESTRUCTURING EXPENSES AND IMPAIRMENT OF
Impairment of goodwill														4,575
PROPERTY AND EQUIPMENT					1,671						1,671			2,301
Decline in value of investment in Arelnet Ltd.														279
OPERATING INCOME (LOSS)		320			(11,608	)		271			(7,794	)		(13,479	)
Employee stock-based compensation		6						6
FINANCIAL INCOME (EXPENSES) - net		(150	)		242			90			30			102
Allowance for doubtful accounts		(19	)		40			(31	)		40			170
IMPAIRMENT OF INVESTMENT IN ARELNET LTD					(279	)					(279	)		(279	)
Accrued employee rights upon retirement - net		(9	)		(7	)		(11	)		(6	)		60
INCOME (LOSS) FOR THE PERIOD		170			(11,645	)		361			(8,043	)		(13,656	)
Exchange differences on long-term loan		6						5						(2	)
BASIC AND DILUTED INCOME (LOSS) PER SHARE		0.01			(0.90	)		0.03			(0.63	)		(1.06	)
Capital loss on disposal of property and equipment					57						20			36
Loss (gain) on realization and decrease in value of
Marketable securities - net		(14	)		8			(11	)		2			10
Discount on (increase in value of) long-term loan
to an employee before allowance for doubtful accounts		(4	)		2			(3	)		1			3
Changes in operating asset and liability items:
Decrease (increase) in trade receivable before
Allowance for doubtful accounts		(366	)		(90	)		(312	)		(183	)		880
Decrease (increase) in other accounts receivable		(222	)					(361	)					210
Increase (decrease) in accounts payable and
accruals (includung long-term)		(653	)		(858	)		(728	)		(151	)		1,422
Decrease in inventories		50			994			270			73			1,097
Net cash used in operating activities		(1,235	)		(2,784	)		(1,020	)		(2,317	)		(3,260	)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment		(32	)		(129	)		(25	)		(16	)		(174	)
Proceeds from disposal of property and equipment					55						8			186
Collection of long-term loan to an employee		4			3			2			1			25
Short-term bank deposits - net		(100	)		535			(100	)		(46	)		8,172
Acquisition of marketable securities		(2	)											(4	)
Proceeds from sale of marketable securities		6			25			1						33
Net cash provided by (used in) investing activities		(124	)		489			(122	)		(53	)		8,238
CASH FLOWS FROM FINANCING ACTIVITIES:
Short-term bank credit - net		20			22			23			18			(5	)
Repayment of long-term loan		(9	)					(5	)					(1	)
Net cash provided by (used in) financing activities		11			22			18			18			(6	)
INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS		(1,348	)		(2,273	)		(1,124	)		(2,352	)		4,972
BALANCE OF CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD		10,354			5,382			10,130			5,461			5,382
BALANCE OF CASH AND CASH EQUIVALENTS AT
END OF PERIOD		9,006			3,109			9,006			3,109			10,354

~~Contact:~~ AREL COMMUNICATIONS AND SOFTWARE LTD. (An Israeli Corporation) CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

		Nine months ended September 30
Danny Yelin	Carmen Deville
Chief Financial Officer	Investor Relations
		2003			2002
Arel Communications and Software Ltd.	Tel US: 770-396-8105 x 300
		U.S. $ in thousands
dyelin@arelcom.com	Tel Israel: +972-52-781748
CASH FLOWS FROM OPERATING ACTIVITIES:
	investor@arelcom.com
Income (loss) for the period			170			(11,645	)
Adjustments required to reconcile income (loss) to net
cash used in operating activities:
Depreciation			254			500
Impairment of property and equipment						750
Employee stock-based compensation			12
Amortization of goodwill						283
Impairment of goodwill						4,575
Decline in value of investment in Arel Net Ltd.						279
Allowance for doubtful accounts			(28	)		101
Accrued employee rights up on retirement - net			(9	)		(50	)
Exchange differences on long-term loan			4
Capital loss on disposal equipment						45
Loss on realization and decrease in value of marketable securities			(8	)		17
Erosion of long-term loan to an employee						4
Changes in operating asset and liability items:
Decrease (increase) in accounts receivable			(672	)		1779
Increase (decrease) in accounts payable and accruals			(1,751	)		(701	)
Decrease in inventories			237			1,123
Increase in other assets			(152	)
Net cash used in operating activities			(1,943	)		(2,940	)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment			(58	)		(138	)
Proceeds from disposal of property and equipment						84
Collection of long-term loan to an employee			4			5
Short-term bank deposits - net			(5,983	)		3,696
Acquisition of marketable securities			(2	)		(4	)
Proceeds from sale of marketable securities			6			25
Net cash provided by (used in) investing activities			(6,033	)		3,668
CASH FLOWS FROM FINANCING ACTIVITIES:
Short-term bank credit - net			3			(3	)
Discharge of long-term loan			(12	)
Net cash used in financing activities			(9	)		(3	)
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS			(7,985	)		725
BALANCE OF CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD			10,354			5,382
BALANCE OF CASH AND CASH EQUIVALENTS AT
END OF PERIOD			2,369			6,107

~~AREL ANNOUNCES SETTLEMENT AGREEMENT WITH W2COM~~ 6

YAVNE, Israel – August 14, 2003 – Arel Communications and Software Limited (NASDAQ: ARLC) (Arel), the world’s leading provider of Integrated Video, Voice and Data conferencing and distance training solutions, announced today that its board of directors has approved a settlement agreement ending the litigation between Arel and the shareholders of W2Com. In 2000, Arel had purchased substantially all the assets and assumed certain liabilities of W2Com. The settlement agreement which was finalized between the parties is subject to the approval of Arel shareholders.

As part of the settlement agreement which provides for mutual waivers of all claims, Arel will receive $500,000 plus 200,000 shares of Arel common stock, which had been placed in escrow at the time of the asset purchase to secure post closing obligations.

“We are pleased that we have reached this settlement agreement,” said Izhak Gross, Chairman of Arel. “Removing this distraction will free management to concentrate on achieving our business performance goals.”

About Arel Communications and Software Arel Communications and Software Ltd (www.arelcom.com) offers effective fully integrated video, voice and data interactive conferencing solutions by optimizing the use of existing network resources available to distributed enterprises. Our integrated networking and software platform is winning us loyalty from major Fortune 500 customers, using our system for various needs such as video conferencing, collaboration, e-learning, and distance learning applications.

Certain statements made herein that are not historical are forward-looking within the meaning of the Private Securities Litigation Reform Act of 1995. The words “estimate”, “project”, “intend”, “expect”, “believe”, “hopeful” and similar expressions are intended to identify forward-looking statements. These forward-looking statements involve known and unknown risks and uncertainties. Many factors could cause the actual results, performance or achievements of the Company to be materially different from any future results, performance or achievements that may be expressed or implied by such forward-looking statements, including, among others, changes in general economic and business conditions, inability to maintain market acceptance to the Company’s products, inability to timely develop and introduce new technologies, products and applications, rapid changes in the market for the Company’s products, loss of market share and pressure on prices resulting from competition, introduction of competing products by other companies, inability to manage growth and expansion, loss of key partners, inability to attract and retain qualified personnel, inability to protect the Company’s proprietary technology and risks associated with the Company’s international operations and its location in Israel. For additional information regarding these and other risks and uncertainties associated with the Company’s business, reference is made to the Company’s reports filed from time to time with the Securities and Exchange Commission.

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