OTIV On Track Innovations Ltd

Dutton Associates continues its coverage of On Track Innovations Ltd. (NASDAQ:OTIV), raising its rating to Strong Buy and maintaining its $18.00 price target. The 10-page report by Dutton senior analyst Rafael K. Kapelinski is available at www.jmdutton.com as well as from First Call, Bloomberg, Zacks, Reuters, and other leading financial portals. We are raising our rating to Strong Buy in light of the pullback of its share price from its mid April highs. We continue to argue that the long-term prospects remain intact and that OTI should be among the primary beneficiaries of the accelerating switch to contactless microprocessor-based smart card solutions in the banking, merchant, medical and other industries. We believe that OTI generated some revenue from both MasterCard and Amex in the last quarter, which bodes well for the future given the relative immaturity of these programs. Whatever the timing of the US ePassport contract, we do believe that OTI will be among the contract winners given the maturity of the Company's standards-compliant technology and the strong track record. At present, our 2005 estimates include only a nominal contribution from this opportunity. Management expects to be able to win at least one international ePassport project, which would provide a scope for a significant upgrade of our current estimates. We are raising our 2005 revenue forecast from $29 million to $31 million as we had initially overestimated the negative impact of the recent divestments of the Germany subsidiary. The Chinese ID program continues to pick up the pace as well. While we are upbeat about the revenue prospects in both 2005 and 2006, the profitability outlook has become slightly less encouraging. We are lowering our 2005 EPS estimate from -$0.51 to -$0.65 primarily as a function of slightly lower gross profit margins. We estimate that the Company should be able to lift the gross margin to 47% by 4Q 2005E as the Chinese ID program should contribute to the revenues strongly. Finally, the growing contribution of higher-margin non-product revenues should additionally boost the gross margin. About Dutton Associates Dutton Associates is one of the largest independent investment research firms in the U.S. Its 27 senior analysts are primarily CFAs and have expertise in many industries. Dutton Associates provides continuing analyst coverage of over 95 enrolled companies, and its research, estimates, and ratings are carried in all the major databases serving institutions and online investors. The cost of enrollment in our one-year continuing research program is US $33,000 prepaid for 4 Research Reports, typically published quarterly, and requisite Research Notes. The Firm does not accept any equity compensation. We received $41,000 from the Company for 6 quarterly Research Reports with coverage commencing on 10/19/2004. Our principals and analysts are prohibited from owning or trading in securities of covered companies. The views expressed in this research report accurately reflect the analyst's personal views about the subject securities or issuer. Neither the analyst's compensation nor the compensation received by us is in any way related to the specific ratings or views contained in this research report or note. Please read full disclosures and analyst background at www.jmdutton.com before investing.