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, NJ, November 29, 2004–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® PayPass™.
  • OTI and Atmel received the first commercial order to support MasterCard® PayPass™. 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® 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: 877-519-4471 or International: 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, Prime Standard: 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.