OTI Revenues Up 34% & 11% in 2004 Third Quarter & Nine Months, Respectively

OTI Revenues Up 34% & 11% in 2004 Third Quarter & Nine Months, Respectively

- Year-to-Date Revenues of $15.4 Million vs. $13.8 Million

- Q3 Revenues up 19% from Q2

- Year-to-Date Licensing and Transaction Fees Up 75%

FORT LEE, N.J., Nov. 29 /PRNewswire-FirstCall/ -- On Track Innovations Ltd. (OTI) (Nasdaq: OTIV; Prime Standard (Frankfurt): OT5), a global leader in contactless microprocessor-based smart card solutions for homeland security, micropayments, petroleum payments and other applications, today announced its consolidated financial results for the nine months and third quarter ended September 30, 2004.

Business development highlights include:

-- OTI is first company to receive MasterCard multi-product certification
for both card and reader solutions to support MasterCard(R)
PayPass(TM).

-- OTI and Atmel received the first commercial order to support
MasterCard(R) PayPass(TM). OTI anticipates orders for its card readers
to support the PayPass cards to follow.

-- OTI completed the acquisition of ASEC S.A. of Poland whose software and
back office systems for mass transit ticketing and payment solutions
enable OTI to provide end-to-end solutions and focus on higher margin
products in the growing European emerging markets. ASEC S.A. has
already received an initial order exceeding $500,000 for a
micropayments application allowing customers to pay for their mass
transit tickets and other small ticket-items.

-- J4 and OTI announce first deployment of MediSmart in the U.S.
Installation to start at HARMONEX(R) outpatient mental health
services. Planned expansion in 2005 includes a network of
affiliated practitioners.

-- OTI Africa and Sasol Oil, South Africa's largest oil company,
signed a long-term agreement to implement OTI's petroleum
payment solution in Sasol network to service both the oil
company-contracted and bank-contracted fleet market and the
private motorist sector.

-- OTI and Hypercom Corporation will deliver world-leading
"contactless" electronic card payment programs that add
convenience, speed checkout and increase security. The companies'
combined technologies will help expand merchant and consumer use
of contactless payment programs, at U.S. retail countertops.

Financial Results


Revenues for the third quarter rose to $5.5 million, up 34% from $4.1 million in the same period last year, and up 19% from the previous quarter. Operating loss decreased 26% to $(1.1) million from $(1.5) million at the same period in 2003. Gross Profit climbed to 46% from 37% in the year prior same period. Net loss for the quarter ended September 30, 2004, was down 35% to $(1.2) million from $(1.8) million at the same period last year.

Revenues for the first nine months increased 11% to $15.4 million from $13.8 million for the same period of last year. Combined licensing and transaction fees, and customer service and technical support revenues increased 88% to $2.1 million from $1.1 million for the same period last year, and constituted 13% of total revenues compared to 8% for the same period last year. This increase represents OTI's successful business model of providing the customer more than products, and creating long-term relationships through service and fees.

Gross Profit for first nine months was down 4% to $6.5 million from $6.8 million for the same period last year. The small decrease resulted from several projects with relatively lower margins. The operating loss for the nine months ended September 30, 2004 increased to $(6.8) million from $(2.6) million in the same period in 2003. These expenses were reported earlier in the year, and include $2.1 million one-time expenses related to raising of capital and a $1.3 million increase in marketing expenses to increase our presence in China and the Far-East, and to promote major projects in the US. Net loss increased to $(7.1) million, from $(3.7) million for the same period in 2003. The increase was mainly due to the increase in the operating loss. Cash and cash equivalents were $27.6 million at September 30, 2004.

Oded Bashan, President and CEO of OTI commented: "In the third quarter, we saw the projects pace beginning to pick up after a slower-than-expected implementation in the second quarter. In the first nine month operating loss has increased due to the expenses related to the raising of capital resulted in $2.1 million shown in our P&L. The increase in revenues from licensing & transaction fees, and customer service & technical support validates our business model of generating revenues from products, licensing fees and technical support. As the size of our projects grow, the licensing fees and technical support become more meaningful and contribute to OTI's profitability, providing constant stream of revenues."

Mr. Bashan added: "We focus on the three vertical markets of Petroleum, SmartID and Micropayments. The contactless payment market is increasing with both reader and card quantities expected to ramp up in the next quarters. The acquisition of ASEC completed in this quarter, will better position the company to provide complete solutions and support to the emerging European markets."

The Company has scheduled a conference call and simultaneous Web cast for Tuesday, November 30, 2004, which will be hosted by Oded Bashan, President and CEO, Guy Shafran, CFO, and Ohad Bashan, Head of Global Marketing and President OTI America, for 10:00 AM EST to discuss operating results and future outlook. To participate, call: 1-800-963-8290 (U.S. toll free), 1-800-931-5196 (Israel toll free), 0-800-182-1463 (Germany toll free), or 1-973-409-9260 (standard international) ID Code: OTI. To attend the Web cast, use the following links: http://www.otiglobal.com/content.aspx?id=98

For those unable to participate, the teleconference will be available for replay until midnight December 6th by calling U.S.: 1-877-519-4471 or International: 1-973-341-3080 and entering the PIN number #5422604 or on the web at http://www.otiglobal.com/content.aspx?id=98.

About OTI

Established in 1990, OTI (NASDAQ:OTIV)(NASDAQ:Prime)(NASDAQ:Standard:)(NASDAQ:OT5) designs, develops and markets secure contactless microprocessor-based smart card technology to address the needs of a wide variety of markets. Applications developed by OTI include product solutions for petroleum payment systems, homeland security solutions, electronic passports and IDs, micropayments, mass transit ticketing, parking, loyalty programs and secure campuses. OTI has a global network of regional offices to market and support its products. The company was awarded the prestigious ESCAT Award for smart card innovation in both 1998 and 2000. Major clients include: MasterCard International, Atmel, BP, Scheidt & Bachmann, EDS, Repsol, and the Government of Israel. For more information on OTI, visit http://www.otiglobal.com/.

This press release contains forward-looking statements. These statements can be identified by their use of the words "will," "anticipates" and "expects" and other similar expressions, as well as by such phrases as "starting to see" and "we believe". Each of these statements is subject to certain risks and uncertainties, such as market acceptance of new products and our ability to execute production on orders, which could cause actual results to differ materially from those in the statements included in this press release. Although OTI believes that the expectations reflected in such forward-looking statements are based on reasonable assumptions, it can give no assurance that its expectations will be achieved. OTI disclaims any intention or obligation to update or revise any forward-looking statements, which speak only as of the date hereof, whether as a result of new information, future events or otherwise. Results could differ materially from expected results.

This press release and other releases are available on http://www.otiglobal.com/ and http://www.portfoliopr.com/

OTI Contact:
Galit Mendelson
Director of Corporate Communication, OTI
201 944 5200 ext. 111
galit@otiglobal.com

Media Relations: IR Contact:
Adam Handelsman Paul Holm
5W Public Relations PortfolioPR
212 999 5585 212 736 9224
ahandelsman@5wpr.compholm@portfoliopr.com


ON TRACK INNOVATIONS LTD.
CONSOLIDATED STATEMENTS OF OPERATIONS
US dollars in thousands, except share and per share data

September 30 September 30 December 31
2004 2003 2003
(Unaudited) (Unaudited) (Audited)
Assets
Current assets
Cash and cash equivalents $27,615 $2,358 $9,712
Short-term investments - 989 999
Short-term deposit 44 - -
Trade receivables (net of
allowance for doubtful accounts
of $285, $349 and $282 as of
September 30, 2004, 2003 and
December 31, 2003, respectively) 2,965 1,866 3,223
Other receivables and prepaid expenses 1,815 1,145 881
Inventories 4,480 4,274 4,069
Total current assets 36,919 10,632 18,884

Severance Pay Deposits Fund 597 851 906

Property, Plant and Equipment, Net 5,622 5,873 5,770

Other Intangible Assets, Net 184 372 325

Goodwill 5,383 5,383 5,383
Total assets $48,705 $23,111 $31,268

Liabilities and Shareholders' Equity
Current Liabilities
Short-term bank credit and current
maturities of long-term bank loans $2,495 $2,231 $1,751
Trade payables 3,307 2,584 3,339
Other current liabilities 2,473 2,393 2,624
Total current liabilities 8,275 7,208 7,714

Long-Term Liabilities
Long-term loans, net of
current maturities 2,556 3,116 3,121
Convertible note - 459 -
Accrued severance pay 1,295 1,308 1,130
Total long-term liabilities 3,851 4,883 4,251
Total liabilities 12,126 12,091 11,965

Shareholders' Equity
Ordinary share of NIS 0.1 par value:
authorized - 30,000,000,
5,000,000 and 10,000,000 shares
as of September 30, 2004, 2003 and
December 31, 2003, respectively;
issued and outstanding - 7,830,392,
2,726,226 and 4,778,715 shares as
of September 30, 2004, 2003 and
December 31, 2003, respectively 186 72 119
Additional paid-in capital 83,855 51,332 59,965
Deferred stock compensation (808) (748) (1,257)
Accumulated other comprehensive income 263 277 287
Accumulated deficit (46,917) (39,913) (39,811)
Total shareholder's equity 36,579 11,020 19,303

Total liabilities and
shareholders' equity $48,705 $23,111 $31,268



ON TRACK INNOVATIONS LTD.
CONSOLIDATED STATEMENTS OF OPERATIONS
US dollars in thousands, except share and per share data

Nine months Three months Year
ended ended ended
September 30 September 30 December 31
2004 2003 2004 2003 2003
(Unaudited) (Unaudited) (Unaudited) (Unaudited) (Audited)
Revenues
Products $12,907 $12,417 $4,356 $3,623 $17,245
Non-recurring
engineering 363 268 246 73 284
Licensing and 1,069 612 540 203 808
transaction fees
Customer service
and technical
support 1,039 520 330 179 1,258
Total revenues 15,378 13,817 5,472 4,078 19,595

Cost of Revenues
Products 8,114 6,621 2,606 2,427 8,678
Non-recurring
engineering 178 104 136 40 109
Customer service
and technical
support 570 294 198 118 691
Total cost of
revenues 8,862 7,019 2,940 2,585 9,478

Gross profit 6,516 6,798 2,532 1,493 10,117

Operating Expenses
Research and
development 2,549 2,440 893 675 3,159
Less - participation
by the Office of
the Chief Scientist 383 518 46 154 853
Research and
development, net 2,166 1,922 847 521 2,306
Selling and
marketing 4,231 2,965 1,471 818 4,092
General and
administrative 4,648 4,407 1,293 1,640 5,853
Amortization of
intangible assets
Expenses relating 141 141 47 47 188
to raising
of capital 2,115 - - - -
Total operating
expenses 13,301 9,435 3,658 3,026 12,439

Operating loss (6,785) (2,637) (1,126) (1,533) (2,322)
Financial
expenses, net (174) (685) (66) (141) (897)
Other income
(expenses), net 24 (340) 2 (115) (244)
Loss before taxes
on income (6,935) (3,662) (1,190) (1,789) (3,463)
Taxes on income (171) (7) 18 (7) (104)

Net loss (7,106) $(3,669) (1,172) $(1,796) $(3,567)

Basic and diluted
net loss per
ordinary share $(1.08) $(1.71) $(0.15) $(0.67) $(1.52)

Weighted average
number of
ordinary shares
used in computing
basic and
diluted net
loss per ordinary
shares 6,595,012 2,139,849 7,723,728 2,665,696 2,354,254



Source: On Track Innovations Ltd.

CONTACT: Galit Mendelson, Director of Corporate Communication, OTI,
+1-201-944-5200 ext. 111, galit@otiglobal.com; or Media Relations - Adam
Handelsman, 5W Public Relations, +1-212-999-5585, ahandelsman@5wpr.com; or
IR - Paul Holm, PortfolioPR - +1-212-736-9224, pholm@portfoliopr.com

Web site: http://www.otiglobal.com/
http://www.otiglobal.com/content.aspx?id=98


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