OTI Reports First Quarter 2011 Financial Results

ISELIN, N.J. - On Track Innovations Ltd. (OTI) (Nasdaq GM: OTIV), a global leader in contactless microprocessor-based smart card solutions for homeland security, payments, petroleum payments and other applications, today announced results of operations, revenues and gross margins slightly better than originally expected by the company for the first quarter ended March 31, 2011 The following are various financial figures that compare first quarter of 2011 to 2010.

• Total revenues of $12 million, a 17% decrease compared to $14.4 million last year.
• Revenues from Licensing and Transaction Fees of $1.2 million, a 32% increase compared to $874 thousand last year.
• Gross margin was 53% for the first quarter of 2011.
• Non-GAAP operating expenses of $6.8 million, a 4% decrease compared to $7.1 million last year. GAAP operating expenses of $7.4 million, a 9% decrease compared to $8.2 million last year.
• Non-GAAP operating loss of $445,000, compared to non-GAAP operating profit of $1.2 million last year. GAAP operating loss was $1.1 million, compared to GAAP operating profit of $75,000 last year.
• Strong balance sheet with cash, cash equivalents and short-term investments of $37.2 million as of March 31, 2011.

Oded Bashan, Chairman and CEO of OTI, said: We have opened 2011 with slightly higher revenues than expected by the company. The company is financially stronger, which will help us cope better with the growing pipeline of opportunities. We are introducing new products to existing growing markets such as the COPNI, we are establishing strategic channel partnerships to bring the various products to market. We maintain the previously provided guidance of annual operating profitability for 2011 on a non-GAAP basis with revenues expected to be back-loaded and grow from 2010 revenues to $55-$60 million.

Discontinued Operations

During the fourth calendar quarter of 2009, the Company signed an agreement for the sale of the assets of OTIs subsidiary Millennium Card's Technology Ltd ("MCT") including the machinery and inlay production IP of OTI to SMARTRAC NV. Results for the discontinued operations have been separated and are presented separately.

Use of Non-GAAP Financial Information

In addition to reporting financial results in accordance with generally accepted accounting principles, or GAAP, OTI uses non-GAAP measures of operating expenses, operating income, net income and earnings per share, which are adjustments from results based on GAAP to exclude noncash equity-based compensation charges related to employees and non employees in accordance with the requirements of Accounting Standards Codification (ASC) Topic 718 (originally issued as SFAS No. 123(R)) and ASC Subtopic 505-50 - Equity-Based Payments to Non-Employees (formerly EITF 96-18); amortization of intangible assets; and results from discontinued operations. OTI management believes the non-GAAP financial information provided in this release provides meaningful supplemental information regarding our performance and enhances the understanding of the Companys on-going economic performance. The presentation of this non-GAAP financial information is not intended to be considered in isolation or as a substitute for results prepared in accordance with GAAP. Management uses both GAAP and non-GAAP information in evaluating and operating the business and as such deemed it important to provide all this information to investors. Reconciliations between GAAP measures and non-GAAP measures are provided later in this press release.

About OTI

Established in 1990, OTI (NASDAQ GM: OTIV) 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, payments, mass transit ticketing, parking and loyalty programs. OTI has a global network of regional offices to market and support its products. The company was awarded the Frost & Sullivan 2005 and 2006 Company of the Year Award in the field of smart cards.