OTI Reports FY 2005 Nine Months and Third Quarter Financial Results

* Revenues Up 72% Compared to First Nine Months of 2004 * Revenues Up 120% Compared to Third Quarter of 2004 * Growth Related Mainly to Contactless Payments Market in the US 


FORT LEE, N.J., Nov. 28  /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, payments, petroleum payments and other applications, today announced its consolidated financial results for the nine months ended September 30, 2005.

  * Revenues for the first nine months increased by 72% to $26.4 million
    from $15.4 million for the same period of last year.
  * Revenues for the third quarter increased by 120% to $12.1 million from
    $5.5 million for the same period of last year.
  * Strong balance sheet with cash, cash equivalents and short term
    investments of more than $30 million excluding more than $20 million
    raised earlier this month through a private placement.
  * The Company incurred in the nine months ended September 30, 2005
    expenses of $1.8 million related to the Company's extraordinary activity
    in the Far-East.
  * Cash used in operating activities amounted to $1.1 M for the nine months
    ended September 30, 2005.
  * Net loss for the first nine months of 2005 decreased by 4% to $(6.8)
    million, from $(7.1) million for the same period in 2004.
  * Licensing and transaction fees for the first nine months were up 107% to
    $2.2 million from $1.1 million for the same period in 2004.
  * Gross margin for nine months decreased to 35% from 42% for the same
    period in 2004. The decrease in our overall gross margin is mainly due
    to the execution of the initial stages of projects which are
    characterized by lower margins in their early stages.



Oded Bashan, President & CEO of OTI, commented: "We are pleased with our results. We are starting to see the results of our strategy, we are well positioned with strong and important contracts in hand. The increase in revenues represents the rapid advancements in the contactless market around the world, and mainly, the contactless payments market in the US. Our financial position at the end of nine month remains strong with more than $30 million in cash and cash equivalents and short term investments."

"The private placement for more then $20M we completed at the beginning of fourth quarter will further assist us in continuing with the restructuring and executing large contracts and opportunities for the company. The investors in this transaction were institutional investors from the US, Switzerland and United Kingdom."

"While revenues were up 72% for the nine months, compared to the same period last year, our gross margin decreased to 35%, mainly due to the execution of initial stages of projects which are characterized by lower margins in their early stages." Mr. Bashan continued, "The completion of a series of strategic acquisitions in China that we announced earlier this year will assist us in increasing these margins, we continue to implement our strategy of capturing a leading position in the contactless market."

  Recent Announcements

  * OTI will deliver contactless solutions for more than ten million payment
    cards in 2005 in the US.

  * STMicroelectronics, one of the world's leading semiconductor
    manufacturers  together with OTI, announced that their secure
    contactless microcontroller solution is  approved by Visa International
    for use in its Visa Contactless program in the U.S. volume shipments in
    the US are already underway.

  * OTI and a government entity of a major Asian country establish a joint
    venture for manufacturing and selling electronic travel document inlays
    for that Asian government.  Revenues from the program are expected to
    reach low tens of millions of dollars starting FY 2007. It is estimated
    that the delivery of initial quantities will commence in the second half
    of 2006.

  * OTI grants BP a worldwide license to enable expansion beyond Africa -
    OTI announced that BP Africa, a division of BP p.l.c., has extended and
    expanded its relationship with OTI.  In addition, OTI has granted BP a
    worldwide license for its petroleum payment solution.

  * OTI and Venue1 implement MasterCard PayPass(TM) with the Seattle
    Seahawks. OTI and Venue1, a leader in technology solutions for sports
    and entertainment venues, are providing contactless reader solutions
    for the Seattle Seahawks to support its MasterCard PayPass(TM) program.

  Company Developments

  * OTI completed a series of strategic acquisitions in China, increasing
    manufacturing capacity to 1.5 million units per week by the second half
    of 2006. The transactions will substantially increase OTI's capacity to
    manufacture smart cards, inlays for smart cards & electronic passports,
    and machinery for the fabrication of such products. We anticipate that
    the increased capacity will enable us to meet the rollouts and rapidly
    growing demand for our payments and ID products, As a result, OTI
    expects to realize increase in gross margins.

  * OTI completes $22.2 million private placement of new equity financing
    with institutional investors from the US, Switzerland and England. OTI
    intends to use the net proceeds from the placement to support large-
    scale implementation of projects in the ID and payments markets.

  * OTI Received 2005 company of the year award from Frost & Sullivan, a
    global company offering business consulting, market analysis and growth
    partnership services.  OTI received the award based on its technology
    leadership, significant revenue expansion and its prominent position in
    the smart card contactless solutions market, including OTI's excellent
    strategic moves and ability to expand its market reach with providing
    its customers with optimum solutions.

  * Following the approval of the General shareholders' meeting, the Board
    of Directors of OTI applied for the delisting of the Company's shares
    from the Frankfurt Stock Exchange which has been approved. The last day
    of trading of the shares on Frankfurt Stock Exchange will be December
    20, 2005. The Company's shares will be traded only on the NASDAQ stock
    exchange.

  Financial Results


Revenues for the first nine months increased to $26.4 million from $15.4 million for the same period of last year. Revenues for the third quarter of 2005 were up to $12.1 million from $5.5 million in the third quarter of 2005. The increase is mainly due to sales in the payments market. Gross margin for the first nine months of 2005 decreased to 35% from 42% for the same period in 2004. The decrease in our overall gross margin is mainly due to the execution of the initial stages of projects which are characterized by lower margins in their early stages. Operating loss for the nine months ended September 30, 2005 increased by 12% to $(7.6) million from $(6.8) million in the same period in 2004. Net loss for the nine months ended September 30, 2005 decreased by 4% to $(6.8) million, from $(7.1) million for the same period in 2004. Cash and cash equivalents and short term investments were at $30.8 million compared to $27.7 million on September 30, 2004, and $28.5 million on December 31, 2004.

The Company has scheduled a conference call and simultaneous Web cast for Monday, November 28, 2005, which will be hosted by Oded Bashan, President and CEO, Guy Shafran, CFO, and Ohad Bashan, Chief Marketing Officer 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=226

For those unable to participate, the teleconference will be available for replay until midnight December 7th, by calling U.S: 877-519-4471 or International; 973-341-3080 and entering the PIN number # 6725998, or on the web at:  http://www.otiglobal.com/content.aspx?id=226.

About OTI

Established in 1990, OTI (NASDAQ:OTIVNASDAQ:PrimeNASDAQ: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 Frost & Sullivan 2005 Company of the Year Award in the field of smart cards. 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.

  OTI Contact:            Media Relations        IR Contact:
  Galit Mendelson         Adam Handelsman        David Pasquale/Denise Roche
  Director of Corporate   5W Public Relations    The Ruth Group
   Communications         212 999 5585           646 536 7006/8
  201 944 5200 ext. 111      
                              



                        ON TRACK INNOVATIONS LTD.
                   INTERIM CONSOLIDATED BALANCE SHEETS
              US dollars in thousands, except per share data
              On Track Innovations Ltd. and its subsidiaries

                             September 30     September 30    December 31
                                  2005             2004           2004
                               (Unaudited)      (Unaudited)    (Audited)

  Assets
  Current Assets
  Cash and cash equivalents       $16,175         $27,615       $23,917
  Short-term investments           14,553               -         4,559
  Short-term deposit                   46              44             -
  Trade receivables (net of
   allowance for doubtful accounts
   of $ 565, $ 285 and $ 329 as of
   September 30, 2005 and 2004
   and December 31, 2004,
   respectively)                    9,524           2,965         3,477
  Other receivables and
   prepaid expenses                 3,278           1,815         2,705
  Inventories                       7,162           4,480         4,765
  Total current assets             50,738          36,919        39,423

  Severance Pay Deposits Fund         583             597           595
  Deferred tax assets                  71               -             -
  Long-Term Receivables               856               -         1,077
  Property, Plant and
   Equipment, Net                   6,763           5,622         5,324
  Investments in affiliated companies   8               -             -
  Other Intangible Assets, Net      2,197             184         1,438
  Goodwill                          4,146           5,383         4,146
  Total Assets                    $65,362         $48,705       $52,003

  Liabilities and Shareholders' Equity
  Current Liabilities
  Short-term bank credit and
   current maturities
   of long-term bank loans         $1,520          $2,495        $1,641
  Trade payables                    5,781           3,307         4,305
  Other current liabilities         5,589           2,473         3,824
  Total current liabilities        12,890           8,275         9,770
  Long-Term Liabilities
  Long-term loans, net of
   current maturities               1,595           2,556         2,018
  Accrued severance pay             1,868           1,295         1,361
  Deferred tax liabilities            307               -           162
  Total long-term liabilities       3,770           3,851         3,541
  Total liabilities                16,660          12,126        13,311
  Minority interest                   370               -             -
  Shareholders' Equity
  Ordinary shares of NIS 0.1
   par value: authorized -
   30,000,000 as of September 30,
   2005 and 2004 and December 31,
   2004 Issued and outstanding -
   9,731,554, 7,830,396 and
   8,422,175 shares as of
   September 30, 2005 and 2004 and
   December 31, 2004, respectively    225             186           199
  Additional paid-in capital      105,914          83,855        90,779
  Deferred compensation            (2,168)           (808)       (3,553)
  Accumulated other comprehensive
   income                             268             263           353
  Accumulated deficit             (55,907)        (46,917)      (49,086)
  Total shareholder's equity       48,332          36,579        38,692
  Total Liabilities and
   Shareholders' Equity           $65,362         $48,705       $52,003


                        ON TRACK INNOVATIONS LTD.
              INTERIM CONSOLIDATED STATEMENTS OF OPERATIONS
              US dollars in thousands, except per share data
              On Track Innovations Ltd. and its subsidiaries

                   Nine months ended       Three months ended     Year ended
                     September 30              September 30      December 31
                   2005       2004           2005        2004        2004
               (Unaudited)  (Unaudited)  (Unaudited)  (Unaudited)  (Audited)

  Revenues
  Products        $23,049      $12,907      $11,374      $4,356     $19,120
  Non-recurring
   engineering        477          363           54         246         433
  Licensing and
   transaction
   fees             2,215        1,069          471         540       2,237
  Customer service
   and technical
   support            658        1,039          155         330       1,362
  Total
   revenues        26,399       15,378       12,054       5,472      23,152

  Cost of Revenues
  Products         16,521        8,114        7,677       2,606      11,853
  Non-recurring
   engineering        181          178           22         136         183
  Customer service
   and technical
   support            505          570          125         198         763
  Total cost of
   revenues        17,207        8,862        7,824       2,940      12,799
  Gross profit      9,192        6,516        4,230       2,532      10,353

  Operating Expenses
  Research and
   development      4,218        2,549        1,511         893       3,544
  Less - participation
   by the Office of
   the Chief
   Scientist          651          383          146          46         394

  Research and
   development,
   net              3,567        2,166        1,365         847       3,150
  Selling and
   marketing        4,809        4,231        1,457       1,471       6,010
  General and
   administrative   6,902        4,648        2,642       1,293       6,549
  Amortization of
   intangible
   assets             285          141           89          47         261
  Other
   expenses*        1,768         2115        1,768           -        3227
  Gain from sale
   of a
   subsidiary        (510)           -            -           -           -
  Total operating
   expenses        16,821       13,301        7,321       3,658      19,197

  Operating
   loss            (7,629)      (6,785)      (3,091)     (1,126)     (8,844)
  Financial income
   (expenses),
   net                562         (174)         666         (66)       (287)
  Other income,
   net                 53           24           49           2          29
  Loss before
   income
   taxes           (7,014)      (6,935)      (2,376)     (1,190)     (9,102)
  Taxes on
   income            (177)        (171)        (133)          18       (173)
  Minority share
   in income of
   subsidiaries       (79)           -          (79)           -          -
  Equity in
   income of
   affiliates           5            -            5           -           -
  Loss before
   extraordinary
   item            (7,265)      (7,106)      (2,583)     (1,172)     (9,275)
  Extraordinary
   item               444            -          444           -           -
  Net loss        $(6,821)     $(7,106)     $(2,139)    $(1,172)    $(9,275)
  Basic and
   diluted loss per
   ordinary share from:
  Loss before
   extraordinary
   item            $(0.81)      $(1.08)      $(0.27)     $(0.15)     $(1.33)
  Extraordinary
   item            $(0.05)          $-       $(0.05)         $-          $-
  Net loss         $(0.76)      $(1.08)      $(0.23)     $(0.15)     $(1.33)
  Weighted average
   number of ordinary
   shares used in
   computing basic
   and diluted loss
   per ordinary
   share        8,985,072    6,595,012    9,495,554   7,723,728   6,972,878

  * Consist of:
  Research and
   development        $78         $137          $78          $-        $335
  Selling and
   marketing          231          400          231           -         511
  General and
   administrative   1,459        1,578        1,459           -       2,381
                   $1,768       $2,115       $1,768          $-      $3,227


DATASOURCE: On Track Innovations Ltd.



CONTACT:  Galit Mendelson, OTI, Director of Corporate Communications, +1-

201-944-5200 ext. 111, ; Media Relations, Adam Handelsman,

5W Public Relations, [phone], ; IR Contact, David

Pasquale, [phone], , Denise Roche, +1-646-

536-7008, , both of The Ruth Group 



Web site:  http://www.otiglobal.com/

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