SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 6-K

REPORT OF FOREIGN PRIVATE ISSUER

PURSUANT TO RULE 13a-16 OR 15d-16 OF

THE SECURITIES EXCHANGE ACT OF 1934

For the month of ~~August~~May, 2004

AREL COMMUNICATIONS AND SOFTWARE LTD.

(Translation of Registrant’s name into English)

22 Einstein St., Science Park, Building #22, P.O. Box 4042,
Kiryat Weizman, Nes Ziona 74140 Israel
(Address of Principal Executive Offices)

Indicate by check mark whether the registrant files or will file annual reports under cover of 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

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Arel Communications and Software Ltd.

BY: /S/ Daniel Yelin
——————————————
Daniel Yelin
Chief Financial Officer

Dated: ~~August~~May 2427, ~~2004~~2005






Contacts:
Media Relations:	Investor Relations:
Courtney Chauvin/Sandra Fathi	Jody Burfening/Carolyn Capaccio
Affect Strategies, Inc.	Lippert/Heilshorn & Associates
212-398-9680 x 142	212-838-3777
courtney@affectstrategies.com	ccapaccio@lhai.com

~~Arel Communications~~FOR ~~and~~IMMEDIATE ~~Software Reports Second Quarter 2004 Results~~ RELEASE

ATLANTA – August 24, 2004 – Arel Communications and Software (NASDAQ:Ltd. ARLC),Reports technologyFirst leaderQuarter in2005 universal voice, video and data web communication for interactive conferencing/collaboration and training applications, reported results for the second quarter ended June 30, 2004. Results

~~Revenue~~ATLANTA ~~for~~– ~~the~~May ~~second~~27, ~~quarter was~~2005 ~~$1.8~~– ~~million~~Arel ~~versus~~Communications ~~$1.0 million in the first quarter of 2004~~ and ~~$2.3~~Software ~~million in the second quarter of 2003~~Ltd. ~~Net loss for the quarter was $~~(~~0.98)~~NASDAQ: ~~million~~ARLC), ora ~~$(0.07)~~technology ~~per~~leader ~~share~~in ~~versus~~universal ~~net loss of $(1.1) million~~voice, orvideo ~~$(0.08) per share, in the first quarter of 2004~~ and a ~~net~~data ~~income~~communications offor ~~$71,000,~~interactive ~~or $0.01 per share~~conferencing, ~~in the second quarter of 2003. The company~~collaboration ~~recognized~~and $1training ~~million~~applications, ofreported ~~deferred~~results ~~revenue associated with a long-term multi-million dollar contract~~ for ~~which~~ the ~~deployment~~first ~~schedule~~quarter isended ~~reaching~~March ~~finalization;~~31, ~~the remainder $1~~2005.~~3 million~~ ~~portion of this contract’s revenue is included in deferred revenue. Total deferred revenue in the quarter was $1.87 million.~~

~~Philippe~~Revenue ~~Szwarc,~~for ~~chief~~the ~~executive officer~~fourth ~~of Arel, stated, “Second~~ quarter ~~results reflect Arel’s continued~~was ~~progress~~$754,000 versus $555,000 in ~~penetrating~~ the ~~very~~fourth ~~large~~quarter ~~market~~of ~~for~~2004 ~~collaborative~~and ~~rich-media conferencing~~$1. We0 ~~are~~million ~~pleased~~in ~~that~~ the first ~~implementation~~quarter ~~plan~~of ~~for~~2004. ~~our~~Net ~~previously-announced~~loss ~~contract~~for ~~with~~the ~~a major~~quarter ~~North~~was ~~American~~$(1.6) ~~retailer is materializing~~million, ~~allowing~~or us$(0.12) toper ~~begin recognizing~~share, ~~substantial~~versus ~~revenue~~$(2.1) ~~and~~million, ~~showing~~or us$(0.16) ~~some~~per ~~encouraging~~share ~~signs about a much larger scale deployment~~ in the ~~future.~~fourth ~~During the~~ quarter, ~~we both won a greater share~~ of ~~existing customers’~~2004 ITand ~~spending~~$(1.0) million, ~~with two customers extending~~ or ~~adding to existing contracts, and began many pilot tests with potential new customers~~$(0.08) ~~Currently,~~per ~~we have approximately ten pilots running~~share, ~~and see signs of strengthening~~ in ~~our~~the ~~overall~~first ~~business~~quarter ~~pipeline with a higher number~~ of ~~potential new deals for which customer budgets have been approved~~2004.

~~“Looking~~Philippe ~~into~~Szwarc, ~~the~~chief ~~second half,~~executive weofficer ~~remain~~of ~~upbeat~~Arel, ~~about~~stated, ~~our~~“We ~~ability~~are topleased ~~drive~~that ~~top-line~~our ~~momentum.~~first Wequarter ~~are~~results ~~supporting this~~improved ~~potential~~sequentially byfrom ~~building~~Q4, aalthough ~~platform~~they ~~for~~remain ~~growth,~~modest ~~making~~as ~~selected~~is ~~investments~~typical inof ~~sales~~nascent ~~and marketing~~technologies in emerging ~~Europe,~~markets. ~~the~~Through ~~Far~~new ~~East~~business ~~and~~wins, ~~North~~new ~~America.~~strategic Wealliances ~~are~~and ~~also~~a ~~preparing to roll out our~~growing ~~next-generation~~pipeline ~~Spotlight~~of ~~enterprise~~new ~~software solution~~business, ~~which~~we ~~adds~~are ~~functionality~~proving ~~and connection-agnostic~~both ~~usability to~~ the ~~original~~strength ~~version~~and ~~launched~~superiority inof ~~February 2004. We do~~the ~~continue~~Arel’s toSpotlight™ ~~expect~~solution ~~quarterly~~and ~~results~~the togathering bemomentum ~~subject~~of in the ~~near-term~~rich ~~to lengthy sales~~media ~~cycles~~conferencing and ~~lumpiness~~collaboration ~~from~~market. ~~large~~During ~~contracts~~Q1, ~~but~~we ~~are~~converted ~~focused~~6 onpilot ~~achieving~~programs ~~continued~~into new, ~~increasing~~signed ~~top~~end-~~line~~user ~~momentum~~contracts, byand ~~quarter~~launched asnew ~~well~~selling asagreements ~~profitability~~with by5 ~~year-end.~~new ~~Arel’s~~channel ~~superior~~partners, ~~unique~~each ~~communications~~a ~~tools~~leader ~~solution,~~in its ~~liquid,~~geography. ~~debt-free~~Through ~~balance~~our ~~sheet,~~direct and channel selling efforts, ~~expanding~~we ~~footprint~~are ~~represent~~also ~~competitive~~generating ~~advantages~~a ~~that~~solid ~~are~~pipeline ~~difficult~~of topilot ~~duplicate,~~projects and potential new customers. ~~position~~These opportunities affirm the ~~company~~immediate, ~~well~~unique tobenefits ~~capture~~of ~~the~~improving ~~growth~~business communication ~~opportunities~~and inincreasing ~~today~~productivity that Arel’s ~~changing enterprise~~solution ~~work styles~~offers.”

(Mr. Szwarc concluded, “Arel remains in the nascent stage of the rich-media conferencing and collaboration market’s development as this technology, by its disruptive nature, gains acceptance. Our focus this year remains on winning new customers through our highly active multi-pronged sales approach, the addition of new channel partnerships, and continued development of our managed service option, all supported by unrelenting demonstration of the benefits of our unparalleled collaboration solution. Further, we are carefully managing expenses and conserving cash while making selected investments in R&D and sales to sustain our competitive lead. Our objective is to create, over time, a more) consistent revenue stream, but remain subject in the near term to the quarter-to-quarter volatility that early stage development companies often experience. However, all indications are that industry sources and existing and prospective customers endorse Arel’s Spotlight™ solution as pioneering the development of this large addressable market through superior performance, seamless integration, and rich media capability. Arel remains focused capturing our emerging opportunity as rapidly as possible, on building a lengthening chain of opportunities, and on delivering the financial proof of our success over time.”

~~Revenue for the first six months of~~ 2004 was $2.8 million versus $4.4 million in the first six months of 2003. Net loss for the first six months of 2004 was $2 million, or $0.15 per share, versus net loss of $191,000 or $0.01 per share, for the same period in 2003. (more)

Conference Call Arel’s management will host a conference call at 910:00 a.m. ET today to discuss earnings and corporate activity. Please ~~call~~ call the following dial-in numbers to participate: ~~United States (888) 527-1593 International Participants (706) 679-7685 Conference ID: 9415953~~

~~The~~United ~~public~~States ~~is invited to listen to~~(888) ~~the~~527-1593 ~~live~~International ~~webcast~~Participants of(706) ~~the conference call. For details, visit Arel’s website at www.arelcom.com. An archive of the on~~679-~~line~~7685 ~~broadcast~~Conference ~~will~~ID: be6468725 ~~available on the website.~~

~~About~~The ~~Arel Communications~~public ~~and~~is ~~Software:~~invited ~~Arel~~to ~~Communications~~listen ~~and Software, a~~to ~~technology~~the ~~leader~~live inwebcast ~~interactive~~of ~~web~~the ~~communications,~~conference ~~develops,~~call. ~~markets~~For ~~and sells a universal conferencing software solution for enterprise-wide deployment of integrated voice~~details, ~~video~~visit ~~and data web conferencing/collaboration and training applications. Designed around~~ Arel’s ~~Integrated~~website ~~Conferencing PlatformTM (ICP) core software, the~~at 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 datawww.arelcom.com. ~~Arel’s~~An ~~scaleable,~~archive ~~secure,~~of ~~and network-friendly universal conferencing solution is becoming~~ the ~~choice solution for large enterprises moving from ‘off~~on-~~network’ pay~~line ~~per~~broadcast ~~usage~~will ~~services~~be toavailable ‘on~~-network’~~ ~~solutions~~the ~~for~~website ~~greater control, cost-savings and integration with internal systems. www.arelcom.com~~

~~Certain~~About ~~statements made herein~~Arel ~~that~~Communications ~~are~~and ~~not~~Software:Arel ~~historical~~Communications ~~are~~and ~~forward-looking~~Software, ~~within the meaning of the Private Securities~~a ~~Litigation~~technology ~~Reform~~leader ~~Act~~in ofinteractive ~~1995.~~web ~~The words “estimate”~~communications, ~~“project”~~develops, ~~“intend”,~~ ~~“expect”,~~markets ~~“believe”,~~and ~~“hopeful”~~sells ~~and~~a ~~similar~~universal ~~expressions~~conferencing ~~are~~software ~~intended~~solution tofor ~~identify forward~~enterprise-~~looking~~wide ~~statements.~~deployment ~~These~~of integrated ~~forward-looking~~voice, ~~statements~~video ~~involve known~~ and ~~unknown~~data ~~risks~~web conferencing/collaboration and ~~uncertainties~~training applications. ~~Many factors~~Designed ~~could~~around ~~cause~~Arel’s ~~the~~Integrated ~~actual~~Conferencing ~~results,~~Platform(TM) ~~performance~~(ICP) orcore ~~achievements~~software, of the ~~Company to be~~Arel ~~materially~~Spotlight(TM) ~~different~~application ~~from~~suite ~~any~~facilitates ~~future~~collaboration ~~results,~~for ~~performance~~key orbusiness ~~achievements~~processes ~~that may be~~such ~~expressed~~as orcorporate ~~implied~~and bymarketing ~~such~~communications, ~~forward-looking~~distance ~~statements~~learning, ~~including,~~product ~~among others~~development, ~~changes~~ incustomer ~~general~~relationship ~~economic~~management, and ~~business~~supply ~~conditions,~~chain ~~inability~~management toby ~~maintain~~allowing ~~market acceptance to~~dispersed ~~the~~enterprise ~~Company’s~~users ~~products, inability~~ to ~~timely~~collaborate ~~develop~~in ~~and~~real ~~introduce~~time ~~new~~with ~~technologies, products~~synchronized ~~and applications~~voice, ~~rapid~~video ~~changes~~and ~~in the market for the Company~~data. Arel’s ~~products~~scalable, ~~loss~~ ofsecure, ~~market share~~ and ~~pressure~~network-friendly onuniversal ~~prices~~conferencing ~~resulting~~solution ~~from~~is becoming ~~competition,~~the ~~introduction~~solution of ~~competing~~ ~~products~~choice byfor ~~other~~large ~~companies,~~enterprises ~~inability~~moving tofrom ~~manage growth and expansion, loss of~~‘off-network’ ~~key~~pay ~~partners,~~per ~~inability~~usage services to ~~attract~~‘on-network’ ~~and~~solutions ~~retain~~for ~~qualified~~greater ~~personnel~~control, ~~inability to protect~~ ~~the~~cost-savings ~~Company’s proprietary technology~~ and ~~risks~~integration ~~associated~~ with ~~the~~internal ~~Company’s international operations and its location in Israel~~systems. 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~~please ~~Securities~~visit ~~and Exchange Commission~~www. arelcom.com.

~~(tables~~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 ~~follow)~~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.

All ~~trademarks~~ trademarks recognized.

~~AREL COMMUNICATIONS AND SOFTWARE LTD.~~ (Antables ~~Israeli~~to ~~Corporation~~follow) ~~CONDENSED CONSOLIDATED BALANCE SHEETS~~

	June 30						December 31,
	2004			2003			2003
	(Unaudited)						(Audited)
	U.S. $ in thousands
A s s e t s
CURRENT ASSETS:
Cash and cash equivalents		3,873			9,006			3,897
Short term investments		2,215			239			4,106
Accounts receivable:
Trade		5,064			2,840			3,098
Other		757			710			614
Inventories		405			1,118			534
T o t a l current assets		12,314			13,913			12,249
INVESTMENT IN AREL NET LTD		125			125			125
PROPERTY, PLANT AND EQUIPMENT:
Cost		1,947			2,166			2,085
L e s s - accumulated depreciation and amortization		1,488			1,625			1,664
		459			541			421
OTHER ASSETS		96			31			683
T o t a l assets		12,994			14,610			13,478
Liabilities and shareholders' equity
CURRENT LIABILITIES:
Current maturities of long-term loan		41			52			52
Accounts payable and accruals:
Trade		390			770			489
Accrued restructuring costs					305			22
Deferred revenues		1,872			1,597			294
Other		3,880			3,650			3,718
T o t a l current liabilities		6,183			6,374			4,575
LONG-TERM LIABILITIES:
Liability for employee rights upon retirement,
net of amounts funded		210			362			391
Long-term loan					40
T o t a l long-term liabilities		210			402			391
T o t a l liabilities		6,393			6,776			4,966
SHAREHOLDERS' EQUITY:
Share capital		4			4			4
Capital surplus		52,875			52,746			52,760
Warrants and options		1,395			1,395			1,395
Accumulated deficit		(47,673	)		(46,311	)		(45,647	)
T o t a l shareholders' equity		6,601			7,834			8,512
T o t a l liabilities and shareholders' equity		12,994			14,610			13,478

AREL COMMUNICATIONS AND SOFTWARE LTD.
CONDENSED CONSOLIDATED BALANCE SHEETS

AREL COMMUNICATIONS AND SOFTWARE LTD. (An Israeli Corporation) CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

	March 31						December 31,
	2005			2004			2004
	(Unaudited)						(Audited)
	U.S. $ in thousands

A s s e t s
CURRENT ASSETS:
Cash and cash equivalents		912			3,134			3,123
Short-term investments		678			4,195			704
Accounts receivable:
Trade		2,419			5,865			1,681
Other		358			502			484
Investment in ArelNet Ltd.		1,271			641			1,070
Inventories		777			809			791

T o t a l current assets		6,415			15,146			7,853


SEVERANCE PAY FUNDS		439			554			601


PROPERTY AND EQUIPMENT, NET		335			418			352


OTHER ASSETS		82			686			86

T o t a l assets		7,271			16,804			8,892


Liabilities and shareholders' equity
CURRENT LIABILITIES:
Current maturities of long-term loans		-			65			-
Accounts payable and accruals:
Trade		291			1,015			332
Deferred revenues		412			3,078			104
Employees related obligations		737			620			709
Other		1,156			3,019			1,894

T o t a l current liabilities		2,596			7,797			3,039


LONG-TERM LIABILITIES:
Income tax payable		1,037			-			1,068
Accrued severance pay liability		699			947			840

T o t a l long-term liabilities		1,736			947			1,908

T o t a l liabilities		4,332			8,744			4,947


SHAREHOLDERS' EQUITY:
Share capital		4			4			4
Additional paid-in capital		54,271			54,233			54,271
Accumulated other comprehensive income		1,146			516			945
Accumulated deficit		(52,482	)		(46,693	)		(51,275	)

		2,939			8,060			3,945

		7,271			16,804			8,892

	Three months ended June 30					Six months ended June 30
	2004			2003		2004			2003
	(Unaudited)					(Unaudited)
	U.S. $ in thousands, except earnings (loss) per share
REVENUES:
Sales		1,178			636		1,464			2,212
Services		614			1,675		1,330			2,205
		1,792			2,311		2,794			4,417
COST OF SALES AND SERVICES		946			868		1,404			1,817
GROSS PROFIT		846			1,443		1,390			2,600
RESEARCH AND DEVELOPMENT EXPENSES - net		417			236		1,000			709
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES		1,354			935		2,807			1,842
INCOME FROM SETTLEMENT WITH W2COM							411
OPERATING INCOME (LOSS)		(925	)		272		(2,006	)		49
FINANCIAL EXPENSES - net		55			201		20			240
INCOME (LOSS) FOR THE PERIOD		(980	)		71		(2,026	)		(191	)
BASIC AND DILUTED EARNINGS (LOSS) PER SHARE		(0.07	)		0.01		(0.15	)		(0.01	)

AREL COMMUNICATIONS AND SOFTWARE LTD.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

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

	Three months ended March 31,
	2005			2004
	(Unaudited)
	U.S. $ in thousands

Revenues:
Sales		195			286
Services		559			716

		754			1,002
Cost of sales and services		359			458

Gross profit		395			544
Research and development expenses - net		607			583
Selling, general and administrative expenses		1,580			1,453
Income from settlement with W2COM		-			411

Operating loss		(1,792	)		(1,081	)
Financial income (expense) - net		1			35

Net loss before income tax benfit		(1,791	)		(1,046	)
Income tax benfit		228			-

Net loss for the period		(1,563	)		(1,046	)


Basic and Diluted loss per share		(0.12	)		(0.08	)

	Six months ended June 30
	2004			2003
	(Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Loss for the period		(2,026	)		(191	)
Adjustments required to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization of property and
Equipment		129			181
Employee stock-based compensation					6
Allowance for doubtful accounts		(15	)		(19	)
Accrued employee rights upon retirement - net		(181	)		(9	)
Loss (gain) on realization and decrease in value of
Marketable securities - net		2			(14	)
Other - net		(1	)		2
Changes in operating asset and liability items:
Increase in trade receivable before
Allowance for doubtful accounts		(1,951	)		(366	)
Increase in other accounts receivable		(143	)		(222	)
Increase (decrease) in accounts payable and
accruals		1,619			(653	)
Decrease in inventories		129			50
Net cash used in operating activities		(2,438	)		(1,235	)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment		(167	)		(32	)
Amounts carried from (to) other assets		82
Collection of long-term loan to an employee		4			4
Short-term bank deposits - net		2,351			(100	)
Acquisition of marketable securities		(15	)		(2	)
Proceeds from sale of marketable securities		53			6
Net cash provided by (used in) investing activities		2,308			(124	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Short-term bank credit - net					20
Repayment of long-term loan		(9	)		(9	)
Issuance of share capital		78
Exercise of options		37
Net cash provided by financing activities		106			11
DECREASE IN CASH AND CASH EQUIVALENTS		(24	)		(1,348	)
BALANCE OF CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD		3,897			10,354
BALANCE OF CASH AND CASH EQUIVALENTS AT
END OF PERIOD		3,873			9,006

AREL COMMUNICATIONS AND SOFTWARE LTD.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

	Three months ended March 31,
	2005			2004
	(Unaudited)
	U.S. $ in thousands
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss for the period		(1,563	)		(1,046	)
Adjustments required to reconcile net loss to net cash used
in operating activities:
Depreciation and amortization of property and equipment		36			88
Capital loss on sale of property and equipment		-			-
Trading marketable securities, net		1			55
Allowance for doubtful accounts		(173	)		(29	)
Accrued employee rights upon retirement - net		21			2
Loss from decline in the value of short-term investments		25			-
Other - net		2			1
Changes in operating asset and liability items:
Decrease (increase) in trade receivables (before allowance for
doubtful accounts)		(565	)		(2,738	)
Decrease in other accounts receivable		126			112
Decrease (increase) in inventories		14			(275	)
Increase (decrease) in trade payables		(41	)		570
Increase (decrease) in deferred revenues		308			2,784
Increase in employees related obligations		28			14
Decrease in other liabilities (including long-term)		(413	)		(160	)

Net cash used in operating activities		(2,194	)		(622	)

CASH FLOWS FROM INVESTING ACTIVITIES:
Short-term bank deposits - net		-			(144	)
Purchase of property, plant and equipment		(19	)		(85	)
Collection of long-term loan to an employee		2			2
Amounts carried to other assets		-			(6	)

Net cash provide by (used in) investing activities		(17	)		(233	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Short-term bank credit-net		-			19
Issuance of share capital		-			78
Exercises of options		-			-
Repayment of long-term loan		-			(5	)

Net cash provided by financing activities		-			92

NET DECREASE IN CASH AND CASH EQUIVALENTS		(2,211	)		(763	)
BALANCE OF CASH AND CASH EQUIVALENTS AT BEGINING OF PERIOD		3,123			3,897

BALANCE OF CASH AND CASH EQUIVALENTS AT END OF PERIOD		912			3,134

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