Edgar Filing: ON TRACK INNOVATIONS LTD

Filed Pursuant to Rule 424(b)(3) Registration No. 333-115953

PROSPECTUS

2,162,944 ORDINARY SHARES

[LOGO OF ON TRACK INNOVATIONS LTD.]

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On Track Innovations Ltd. is registering 2,162,944 ordinary shares for sale
by the selling shareholders identified in this prospectus, at such price or
prices as each selling shareholder may, from time to time, determine. We will
pay all expenses of registering the securities. We will not receive any proceeds
from the sale of ordinary shares by the selling shareholders. Our ordinary
shares are listed on the Nasdaq SmallCap Market under the symbol "OTIV." On May
26, 2004 the last reported sale price of our ordinary shares on Nasdaq was $9.71
per share. Our ordinary shares also are listed on the Prime Standard Segment of
the Frankfurt Stock Exchange under the symbol "OT5." On May 26, 2004, the last
reported sale price of our ordinary shares on the Frankfurt Stock Exchange was
(euro)8.05 per share, equivalent to $9.72 per share, calculated using the
exchange rate of $1.2073 per euro on such date.

INVESTING IN OUR ORDINARY SHARES INVOLVES RISKS.
SEE "RISK FACTORS" BEGINNING ON PAGE 4.

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NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.

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The date of this prospectus is June 21, 2004.

YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED OR INCORPORATED BY
REFERENCE IN THIS PROSPECTUS. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH
DIFFERENT OR ADDITIONAL INFORMATION. WE ARE NOT MAKING AN OFFER OF THESE
SECURITIES IN ANY STATE WHERE THE OFFER IS NOT PERMITTED. YOU SHOULD NOT ASSUME
THAT THE INFORMATION PROVIDED BY THIS PROSPECTUS IS ACCURATE AS OF ANY DATE
OTHER THAN THE DATE ON THE FRONT OF THIS PROSPECTUS. OUR BUSINESS, FINANCIAL
CONDITION, RESULTS OF OPERATIONS AND PROSPECTS MAY HAVE CHANGED SINCE THEN.

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TABLE OF CONTENTS

PROSPECTUS SUMMARY.......................................................... 1

RISK FACTORS................................................................ 4

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS........................... 16

CAPITALIZATION.............................................................. 17

USE OF PROCEEDS............................................................. 17

PRICE RANGE OF OUR SHARES................................................... 17

SELLING SHAREHOLDERS........................................................ 19

PLAN OF DISTRIBUTION........................................................ 29

DIVIDEND POLICY............................................................. 30

DESCRIPTION OF ORDINARY SHARES.............................................. 30

LEGAL MATTERS............................................................... 30

EXPERTS .................................................................... 30

ENFORCEABILITY OF CIVIL LIABILITIES......................................... 31

WHERE YOU CAN FIND MORE INFORMATION......................................... 33

INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE............................. 34

EXPENSES.................................................................... 34

PROSPECTUS SUMMARY

THIS SUMMARY HIGHLIGHTS SELECTED INFORMATION CONTAINED ELSEWHERE IN THIS
PROSPECTUS. THIS SUMMARY MAY NOT CONTAIN ALL OF THE INFORMATION THAT YOU SHOULD
CONSIDER BEFORE BUYING ORDINARY SHARES IN THIS OFFERING. YOU SHOULD CAREFULLY
READ THIS ENTIRE PROSPECTUS, INCLUDING EACH OF THE DOCUMENTS INCORPORATED HEREIN
BY REFERENCE, BEFORE MAKING AN INVESTMENT DECISION.

We design, develop and sell contactless microprocessor-based smart card
products. A smart card is traditionally a credit card-sized plastic card
containing a semiconductor chip. The type of semiconductor chip determines the
amount of information that the card can store and the number and complexity of
applications that can be provided by the card, or how "smart" the card is. Our
products support smart cards that contain microprocessor chips which run
multiple applications, can be reprogrammed and support high levels of security.
A smart card system consists of smart cards, readers that transmit and receive
data from the smart card and computers that process data received from the
readers.

Traditionally, the information stored on the smart card chip was updated
through contact of the card with the reader either by swiping the card through,
or inserting it in, a reader. However, our products utilize "contactless" smart
cards which do not require physical contact with a reader, as power and data are
transferred to the card through a magnetic field generated by the reader.

By combining the advantages of microprocessors and contactless smart cards,
we believe that our products offer the following benefits:

o The information stored on a card and transferred between the card and
the reader is secure;
o Our products provide for a reliable transfer of information to and
from a card;
o Our cards are durable, easy to use and take a variety of forms,
including key chains, tags, stickers and wristwatches;
o Our products are easy to install and maintain;
o Our products enable the transition from other card technologies to our
contactless microprocessor-based technology; and
o Our products support multiple, independent applications on the same
card.

Substantially all of our contactless microprocessor-based products are
based on a common platform which we refer to as the OTI Platform. The OTI
Platform combines our patented technologies and consists of our smart cards, our
smart card readers, software that enables the development of applications for
the smart card and a communications technology that ensures the transmission of
data to and from the card. The OTI Platform can be customized to support a large
number of applications such as credit and debit card functions, identification
and loyalty programs. The OTI Platform has been deployed in different markets,
such as petroleum, mass transit and national documentation, and is being
developed for other markets such as medical services. For some markets, we have
developed extensively customized hardware and software systems based on our OTI
Platform, such as a gasoline management system for fleet managers and an
electronic parking payment system.

Additionally, as a result of our acquisition of InterCard GmbH
Kartensysteme and InterCard GmbH Systemelectronic, which we refer to as the
InterCard group, we offer closed campus products for universities and products
that operate copying machines. These products are based on other card
technologies that require physical contact between the card and the reader and
that do not use microprocessors. The InterCard group also manufactures
electronic devices, some of which it incorporates into contact-based smart card
readers that it sells and some of which it sells for nonsmart card applications
in the transportation industry.

We intend to enhance our position in the design and development of
contactless microprocessor based smart card products by developing new
applications for our technology. We also intend to enter new markets, either
alone or through relationships with other parties. We have established such
relationships with, among others, Mastercard Intenational and Beyond Petroleum
(formerly known as British Petroleum).

Our sales and marketing efforts are directed from Cupertino, California,
and effected through our global network of subsidiaries in North America, Africa
and Europe, as well as through e-Smart System Inc., our joint venture with
Cheung Kong Infrastructure Holdings, a Hong Kong-based infrastructure company,
for the marketing and distribution of our products in Greater China (the
People's Republic of China, Taiwan, Hong Kong and Macau).

Since our initial public offering in Germany in 1999, we have acquired the
SoftChip group, an Israeli designer of microprocessors and operating systems for
smart cards; and the InterCard group.

Our shares are traded on the Prime Standard Segment of the Frankfurt Stock
Exchange and on the Nasdaq Small-Cap Market. Our headquarters are located in
Rosh Pina, Israel. As of March 31, 2004, we employed 200 employees worldwide, of
whom 84 were employed at our headquarters and the remainder were employed by our
subsidiaries. In this prospectus we sometimes refer to ourselves as OTI.

RECENT DEVELOPMENTS

On April 29, 2004, we issued and sold to certain financial institutions, in
a private placement, 1,300,000 of our units, each consisting of one ordinary
share and a warrant to purchase six-tenths of an ordinary share. The aggregate
purchase price of the units was $15,132,000, based on a market price of $11.64
per unit, which was the average closing price of our ordinary shares for the
last five trading days prior to April 22, 2004, the pricing date. The warrants,
which are for the purchase of an aggregate of up to 780,000 ordinary shares, are
immediately exercisable, have terms of five years and an exercise of $13.97 per
share, and may be redeemed by us after two years if the market price of the
underlying ordinary shares reaches $25.15 and certain other conditions are met.
We did not receive any independent consideration for our issuance of the
warrants to the financial institutions who purchased our ordinary shares. In
addition to the issuance of warrants to the purchasers, we also issued an
aggregate of 119,920 warrants to Oppenheimer & Co. Inc., as placement agent in
the private placement of the units, and to certain other persons who facilitated
the offering. Pursuant to the registration statement of which this prospectus is
a part, we have registered under the Securities Act of 1933, as amended, all of
the ordinary shares sold and 842,944 of the ordinary shares issuable upon
exercise of the warrants issued in the private placement, for resale by the
respective holders thereof.

RISK FACTORS

Our ability to attain our objectives depends upon our success in addressing
the risks relating to our business, industry and conditions in Israel discussed
in "Risk Factors" and elsewhere in this prospectus, including the following:

o We have a history of losses and although we achieved profitability in the
fourth quarter of 2003, we may not continue to do so in the future.
o If the market for smart cards in general, and for contactless
microprocessor-based smart cards in particular, does not grow, sales of our
products may not grow and may even decline.
o If we fail to develop new products or adapt our existing products for use
in new markets, our revenue growth may be impeded and we may incur
significant losses.
o We have historically derived a significant portion of our revenues from
sales to system integrators who are not the end-users of our products and
we are to a certain extent dependent on their ability of these integrators
to maintain their existing business and secure new business.

THE OFFERING

Ordinary shares which may be sold by
the Selling Shareholders..................... 2,162,944 shares, including
ordinary shares issuable upon
exercise of warrants. See
"Selling Shareholders."

Ordinary shares to be outstanding after this
Offering..................................... 8,506,381 shares, excluding
the ordinary shares issuable
as of the date of this
prospectus upon exercise of
options, but including
ordinary shares issuable upon
the exercise of warrants. We
have outstanding options to
acquire 2,905,603 ordinary
shares, 2,162,553 of which are
currently exercisable.

Use of proceeds................................ We will receive no proceeds
from the sales described in
this prospectus.

Prime Standard Segment symbol.................. OT5

Nasdaq SmallCap Market symbol.................. OTIV

Risk factors................................... See "Risk Factors" and the
other information included in
this prospectus for a
discussion of risk factors you
should carefully consider
before deciding to invest in
our ordinary shares.

The share numbers set forth above and, unless otherwise noted, throughout
this prospectus give effect to our 10-for-1 reverse share split effective as of
June 17, 2002.

We were incorporated in the State of Israel in February 1990. The address
of our registered and principal executive office is Z.H.R. Industrial Zone, P.O.
Box 32, Rosh Pina, Israel 12000, and our telephone number is (011)
972-4-686-8000. Our web site address is www.otiglobal.com. The information on
our web site does not constitute part of this prospectus.

"OTI" and "OTI INSIGHT" are both registered trademarks in the United States
and Israel and are European Community Trade Marks which cover all the countries
of the European Union, "SCIENCE -- NON FICTION" is subject to a pending European
Community Trade Mark application and a pending trademark application in the
United States and Israel and "EASYPARK" is a registered trademark of Easy Park
Ltd., one of our subsidiaries, in the United States, Canada and Israel and has
been accepted in Singapore. Certain other trademarks and trade names are owned
and used by us on an unregistered basis. All other registered trademarks
appearing in this prospectus are owned by their respective holders.

As used in this prospectus:

o all references to "New Shekels" or "NIS" are to the lawful currency of
Israel;
o all references to "euros," "EUR" or "(euro)" are to the lawful
currency of the European Union;
o all references to "dollars" or "$" are to the lawful currency of the
United States.
o all references to "Deutsche Mark" or "DM" are to the currency used in
the Federal Republic of Germany until December 31, 2001, before its
conversion into euro at the rate of EUR 1.00=DM 1.95583.

RISK FACTORS

THIS OFFERING INVOLVES A HIGH DEGREE OF RISK. YOU SHOULD CAREFULLY CONSIDER
THE FOLLOWING RISKS TOGETHER WITH THE OTHER INFORMATION IN THIS PROSPECTUS
BEFORE DECIDING TO INVEST IN OUR ORDINARY SHARES. IF ANY OF THE FOLLOWING RISKS
ACTUALLY OCCUR, OUR BUSINESS, FINANCIAL CONDITION AND RESULTS OF OPERATIONS
COULD BE MATERIALLY AND ADVERSELY AFFECTED. IN THAT CASE, THE TRADING PRICE OF
OUR ORDINARY SHARES COULD DECLINE, AND YOU MAY LOSE ALL OR PART OF YOUR
INVESTMENT. THE RISKS DESCRIBED BELOW ARE NOT NECESSARILY IN ORDER OF DEGREE OR
MAGNITUDE OF RISK.

RISKS RELATED TO OUR BUSINESS

WE HAVE A HISTORY OF LOSSES. ALTHOUGH WE ACHIEVED PROFITABILITY IN THE FOURTH
QUARTER OF 2003, WE MAY NOT CONTINUE TO DO SO IN THE FUTURE.

We have incurred losses in each year since we commenced operations in 1990.
We reported net losses of $3.1 million in 1999, $8.3 million in 2000, $11.7
million in 2001, $6.2 million in 2002 and $3.6 million in 2003. Although we
reported $102,000 of net income for the fourth quarter of 2003, we expect to
incur full year losses at least through 2005 as we invest in the expansion of
our global marketing network, reduce our product prices in return for
transaction fees based on the volume of transactions effected in systems that
contain our products, enhance our research and development capabilities and
expand our internal manufacturing capabilities.

IF THE MARKET FOR SMART CARDS IN GENERAL, AND FOR CONTACTLESS
MICROPROCESSOR-BASED SMART CARDS IN PARTICULAR, DOES NOT GROW, SALES OF OUR
PRODUCTS MAY NOT GROW AND MAY EVEN DECLINE.

The success of our products depends on commercial enterprises, governmental
authorities and other potential card issuers adopting contactless
microprocessor-based smart card technologies. Other card technologies, such as
magnetic strips or bar codes, are widely used and could be viewed by potential
customers as more cost effective alternatives to our products. Additionally,
potential customers in developed countries such as the United States may already
have installed systems that are based on technologies different from ours and
may therefore be less willing to incur the capital expenditures required to
install or upgrade to a contactless microprocessor-based smart card system. As a
result, we cannot assure you that there will be significant market opportunities
for contactless microprocessor-based smart card products. If demand for
contactless microprocessor-based smart card products such as ours does not
develop or develops more slowly than we anticipate, we may have fewer
opportunities for growth than we expect.

IF WE FAIL TO DEVELOP NEW PRODUCTS OR ADAPT OUR EXISTING PRODUCTS FOR USE IN NEW
MARKETS, OUR REVENUE GROWTH MAY BE IMPEDED AND WE MAY INCUR SIGNIFICANT LOSSES.

To date, we have sold products incorporating our technology within a
limited number of markets. We are currently developing and marketing products
such as medical cards for use in hospitals and identity cards for use by
governmental authorities. We have yet to recognize revenues from sales of these
products. We are devoting significant resources to developing and marketing
these and other products and adapting our existing products for use in new
markets. If we fail to develop new products or adapt our existing products for
new markets, we may not recoup the expenses incurred in our efforts to do so,
our revenue growth may be impeded and we may incur significant losses.

WE HAVE HISTORICALLY DERIVED A SIGNIFICANT PORTION OF OUR REVENUES FROM SALES TO
SYSTEMS INTEGRATORS WHO ARE NOT THE END-USERS OF OUR PRODUCTS. WE ARE TO A
CERTAIN EXTENT DEPENDENT ON THE ABILITY OF THESE INTEGRATORS TO MAINTAIN THEIR
EXISTING BUSINESS AND SECURE NEW BUSINESS.

In 2001, 2002 and 2003, 18%, 22% and 28%, respectively, of our revenues
were derived from sales to systems integrators, who incorporate our products
into systems which they supply and install for use in a specific project. To the
extent our revenues depend on the ability of systems integrators to successfully
market, sell, install and provide technical support for systems in which our
products are integrated or to sell our products on a stand-alone basis, our
revenues may decline if the efforts of these systems integrators fail. Further,
the faulty or negligent implementation and installation of our products by
systems integrators may harm our reputation and dilute our brand name. Because
we are one step removed from the end-users of our products, it may be more
difficult for us to rectify damage to our reputation caused by systems
integrators who have direct contact with end-users. In addition, termination of
agreements with systems integrators or revocation of exclusive distribution
rights within a certain area can be difficult. If we are unable to maintain our
current relationships with systems integrators or develop relationships with new
systems integrators, we may not be able to sell our products and our results of
operations could be impaired.

Unless we continue to expand our direct sales, our future success will
depend upon the timing and size of future purchases by systems integrators and
the success of the projects and services for which they use our products.

OUR REVENUE GROWTH MAY BE IMPAIRED IF WE ARE UNABLE TO MAINTAIN OUR CURRENT, AND
ESTABLISH NEW, STRATEGIC RELATIONSHIPS.

The markets for our products are usually highly specialized and require us
to enter into strategic relationships in order to facilitate or accelerate our
penetration into new markets. We consider a relationship to be strategic when we
integrate our technology into some of the product offerings of a manufacturer or
systems integrator that has a significant position in a specified market, and
then we cooperate in marketing the resulting product. The termination of any of
our strategic relationships or our failure to develop additional relationships
in the future may limit our ability to expand the markets in which our products
are deployed or to sell particular products.

SOME OF OUR AGREEMENTS MAY IN THE FUTURE RESTRICT OUR ABILITY TO TAKE ACTIONS
THAT WE THEN BELIEVE TO BE DESIRABLE.

In some of our agreements with suppliers, distributors and joint venture
partners, we have agreed to restrict ourselves in some areas of business for
different time periods ranging from several months to several years. For
example, we have granted our e-Smart joint venture with Cheung Kong exclusive
rights to distribute our products in Greater China and we granted our joint
venture partner veto rights over key business decisions relating to the
distribution of our products in that region. In addition, in the event that our
products are sold in Greater China by third parties other than through e-Smart,
we have agreed to pay to e-Smart 7.5% of the net revenues we receive from such
sales. Our agreement with Samsung concerning the development and manufacture of
a particular type of microprocessor chip that we refer to as a "monochip"
requires us not to sell that microprocessor chip to the existing customers of
Samsung. In addition, in some markets we sell our products through distributors
who, in general, have exclusive distribution rights in that market if sales
quota are met.

WE FACE INTENSE COMPETITION. IF WE ARE UNABLE TO COMPETE SUCCESSFULLY, OUR
BUSINESS PROSPECTS WILL BE IMPAIRED.

We face intense competition from developers of contact and contactless
microprocessor-based technologies and products, developers of contactless
products that use other types of technologies that are not microprocessor-based,
and non-smart card technologies. We compete on the basis of a range of
competitive factors including price, compatibility with the products of other
manufacturers, and the ability to support new industry standards and introduce
new reliable technologies. Many of our competitors, including Philips
Semiconductors, a division of Philips Electronics N.V., and Infineon
Technologies AG, have greater market recognition, larger customer bases, and
substantially greater financial, technical, marketing, distribution, and other
resources than we possess. As a result, they may be able to introduce new
products, respond to customer requirements and adapt to evolving industry
standards more quickly than we can. In addition, we may not be able to
differentiate our products sufficiently from those of our competitors.

From time to time, we or one or more of our present or future competitors
may announce new or enhanced products or technologies that have the potential to
replace or shorten the life cycles of our existing products. The announcement of
new or enhanced products may cause customers to delay or alter their purchasing
decisions in anticipation of such products, and new products developed by our
competitors may render our products obsolete or achieve greater market
acceptance than our products.

If we cannot compete successfully with our existing and future competitors,
we could experience lower sales, price reductions, loss of revenues, reduced
gross margins and reduced market share.

IF THERE IS A SUSTAINED INCREASE IN DEMAND FOR MICROPROCESSORS, AVAILABILITY
MIGHT BE LIMITED AND PRICES MIGHT INCREASE.

Our products require microprocessors. The microprocessor industry
periodically experiences increased demand and limited availability due to
production capacity constraints. Increased demand for, or limited availability
of, microprocessors could substantially increase the cost of producing our
products. Because some of our contracts have fixed prices, we may not be able to
pass on any increases in costs to these customers, and consequently our profit
margin could be reduced.

In addition, as a result of a shortage, we may be compelled to delay
shipments of our products, or devote additional resources to maintaining higher
levels of microprocessor inventory. Consequently, we may experience substantial
period-to-period fluctuations in our cost of revenues and, therefore, in our
future results of operations.

OUR PRODUCTS HAVE LONG DEVELOPMENT CYCLES AND WE MAY EXPEND SIGNIFICANT
RESOURCES IN RELATION TO A SPECIFIC PROJECT WITHOUT REALIZING ANY REVENUES.

The development cycle for our products varies from project to project.
Typically, the projects in which we are involved are complex and require that we
customize our products to our customers' needs and specifications in return for
payment of a fixed amount. We then conduct evaluation, testing, implementation
and acceptance procedures of the customized products with the customer. Only
after successful completion of these procedures will customers place orders for
our products in commercial quantities. In addition, our contracts do not
typically include minimum purchase requirements. We, therefore, cannot assure
you that contracts into which we enter will result in commercial sales. Our
average development cycle is typically between 12 and 18 months from initial
contact with a potential customer until we deliver commercial quantities to the
customer and recognize significant revenues. As a result, we may expend
financial, management and other resources to develop customer relationships
before we recognize any revenues.

FLUCTUATIONS IN OUR QUARTERLY FINANCIAL PERFORMANCE MAY CREATE VOLATILITY IN THE
MARKET PRICE OF OUR SHARES AND MAY MAKE IT DIFFICULT TO PREDICT OUR FUTURE
PERFORMANCE.

Our quarterly revenues and operating results have varied in the past and
are likely to do so in the future. These fluctuations may be driven by various
factors which are beyond our control, are difficult to predict and may not meet
the expectations of analysts and investors. These factors include:

o The size and timing of orders placed by our customers, particularly in
government projects. Government projects typically involve a
protracted competitive procurement process and in some circumstances
litigation following the award of a contract. As a result, it is
difficult to predict the timing and size of orders under such
contracts. For example, we started to prepare our offer for the
Israeli national electronic parking system project in 1992, we were
awarded the contract in May 1998 and deployment began in January 2000.
We started recognizing revenues in the second half of 2000.

o The fact that our rental and financing expenses are fixed and we may
not be able to reduce them in the event of a reduction in revenues in
a particular quarter. In addition, our payroll expenses are relatively
fixed and we would not expect to reduce our workforce due to a
reduction in revenues in any particular quarter.

o The tendency of our clients to place orders for products toward the
last quarter of their financial year.

Because of these factors, our revenues and operating results in any quarter
may not be indicative of our future performance, and it may be difficult for you
to evaluate our prospects.

DELAYS OR DISCONTINUANCE OF THE SUPPLY OF COMPONENTS MAY HAMPER OUR ABILITY TO
PRODUCE OUR PRODUCTS ON A TIMELY BASIS AND CAUSE SHORT-TERM ADVERSE EFFECTS.

The components we use in our products, including microprocessors and cards,
are supplied by third party suppliers and manufacturers. Except for Samsung,
currently the sole supplier of the chip that integrates our antenna interface
into Samsung's microprocessor, none of these suppliers is a sole supplier.
Nevertheless, we sometimes experience short-term adverse effects due to delayed
shipments that have in the past interrupted and delayed, and could in the future
interrupt and delay, the supply of our products to our customers, and may result
in cancellation of orders for our products. In addition, we do not generally
have long term supply contracts under which our suppliers are committed to
supply us with components at a fixed price. Suppliers could increase component
prices significantly without warning or could discontinue the manufacture or
supply of components used in our products. We may not be able to develop
alternative sources for product components if and as required in the future.
Even if we are able to identify alternative sources of supply, we may need to
modify our products to render them compatible with other components. This may
cause delays in product shipments, increase manufacturing costs and increase
product prices.

Because some of our suppliers are located in Europe and the Far East, we
may experience logistical problems in our supply chain, including long lead
times for receipt of products or components and shipping delays. In addition,
our subcontractors located in Israel and the Far East may, on occasion, feel the
impact of potential economic or political instability in their regions, which
could affect their ability to supply us with components for our products in a
timely manner.

WE CURRENTLY RELY ON A THIRD PARTY FOR LICENSING AND UPDATING THE PRIMARY
OPERATING SYSTEM WE USE IN OUR PRODUCTS.

We are currently required to license operating system software for the
operation of our products. Since 1995, the principal licensor of this software
has been Personal Cipher Card Corporation, or PC3, pursuant to a license
agreement that terminates on July 5, 2005. If PC3 terminates the license it
granted us, we may face some delays in providing our products to our customers
and we expect that it would take several months to arrange an adequate
alternative. Sales of products containing the PC3 smart card operating system
accounted for 73% of our revenues from smart cards in 1999, substantially all of
our revenues from smart cards in 2000, 53% of our revenues from smart cards in
2001, 46% of our revenues from smart cards in 2002 and 17% of our revenues from
smart cards in 2003.

IF WE FAIL TO HIRE, TRAIN AND RETAIN QUALIFIED RESEARCH AND DEVELOPMENT
PERSONNEL, OUR ABILITY TO ENHANCE OUR EXISTING PRODUCTS, DEVELOP NEW PRODUCTS
AND COMPETE SUCCESSFULLY MAY BE MATERIALLY AND ADVERSELY AFFECTED.

Our success depends in part on our ability to hire, train and retain
qualified research and development personnel. Individuals who have expertise in
research and development in our industry are scarce. Competition for such
personnel in the electronics industry is intense, particularly in Israel.
Consequently, hiring, training and retaining such personnel is both time
consuming and expensive. In addition, it may be difficult to attract qualified
personnel to Rosh Pina, which is in the North of Israel. If we fail to hire,
train and retain employees with skills in research and development, we may not
be able to enhance our existing products or develop new products.

OUR ABILITY TO COMPETE DEPENDS ON OUR CONTINUING RIGHT TO USE, AND OUR ABILITY
TO PROTECT, OUR INTELLECTUAL PROPERTY RIGHTS.

Our success and ability to compete depend in large part on using our
intellectual property and proprietary rights to protect our technology and
products. We rely on a combination of patent, trademark, copyright and trade
secret law, as well as confidentiality agreements and other contractual
relationships with our employees, customers, affiliates, distributors and
others. While substantially all of our employees are subject to non-compete
agreements, these agreements may be difficult to enforce as a result of Israeli
law limiting the scope of employee non-competition undertakings.

We currently have patents in the United States, Israel and other countries
covering some of our technology and have pending applications in the United
States, Europe, Israel and elsewhere which have not yet resulted in granted
patents. We cannot be certain that patents will be issued with respect to any of
our pending or future patent applications or that the scope of our existing
patents, or any future patents that are issued to us, will provide us with
adequate protection for our technology and products. Others may challenge our
patents or registered trademarks. We do not know whether any of them will be
upheld as valid or will be enforceable against alleged infringers. Thus we do
not know whether they will enable us to prevent or hinder the development of
competing products or technologies. Moreover, patents provide legal protection
only in the countries where they are registered and the extent of the protection
granted by patents varies from country to country.

The measures we have taken to protect our technology and products may not
be sufficient to prevent their misappropriation by third parties or independent
development by others of similar technologies or products. Competitors may also
develop competing technology by designing around our patents and thereafter
manufacturing and selling products that compete directly with ours.

In order to protect our technology and products and enforce our patents and
other proprietary rights, we may need to initiate, prosecute or defend
litigation and other proceedings before courts and patent and trademark offices
in numerous countries. These legal and administrative proceedings could be
expensive and could occupy significant management time and resources.

Our European patent covering contactless transmission of power and data
between a microprocessor and a reader was revoked as the result of a third party
opposing our patent. Currently, this patent is the subject of an appeal
proceeding before the European Patent Office. If our appeal is not successful,
we will lose our European patent and therefore the right to prevent others in
Europe from using the technology covered by the patent.

Furthermore, a successful opposition to our patent could provide a basis
for our competitors to claim that our patents covering this technology in other
jurisdictions are invalid.

OUR PRODUCTS MAY INFRINGE THE INTELLECTUAL PROPERTY RIGHTS OF OTHERS.

It is not always possible to know with certainty whether or not the
manufacture and sale of our products does or will infringe patents or other
intellectual property rights owned by third parties. For example, patent
applications may be pending at any time which, if granted, cover products that
we developed or are developing. In certain jurisdictions, the subject matter of
patents is not published until the patents are issued. Third parties may from
time to time claim that our products infringe their patent or other intellectual
property rights. In addition, if third parties claim that our customers are
violating their intellectual property rights, our customers may seek
indemnification from us (which could be costly), or may terminate their
relationships with us. Our products depend on operating systems licensed to us
and we may also be subject to claims by third parties that our use of these
operating systems infringes their intellectual property rights. Any intellectual
property claim could involve time-consuming and disruptive litigation that, if
determined adversely to us, could prevent us from making or selling our
products, subject us to substantial monetary damages or require us to seek
licenses.

Intellectual property rights litigation is complex and costly, and we
cannot be sure of the outcome of any litigation. Even if we prevail, the cost of
litigation could harm our results of operations. In addition, litigation is time
consuming and could divert our management's attention and resources away from
our business. If we do not prevail in any litigation, in addition to any damages
we might have to pay, we might be required to discontinue the use of certain
processes, cease the manufacture, use and sale of infringing products and
solutions, expend significant resources to develop non-infringing technology or
obtain licenses on unfavorable terms. Licenses may not be available to us on
acceptable terms or at all. In addition, some licenses are non-exclusive and,
therefore, our competitors may have access to the same technology licensed to
us. If we fail to obtain a required license or cannot design around any third
party patents or otherwise avoid infringements, we may be unable to sell some of
our products.

THE LOSS OF THE SERVICES OF OUR CHAIRMAN, PRESIDENT AND CHIEF EXECUTIVE OFFICER,
ODED BASHAN, COULD SERIOUSLY HARM OUR BUSINESS.

Our success depends, in part, on the continued service of Oded Bashan, our
Chairman, President and Chief Executive Officer. Mr. Bashan is one of our
founders and has developed our business and technology strategy since our
inception. The loss of services of Mr. Bashan could disrupt our operations and
harm our business.

IN THE PAST FOUR YEARS WE HAVE ACQUIRED THREE COMPANIES OR GROUPS OF COMPANIES
AND WE INTEND TO CONTINUE TO PURSUE STRATEGIC ACQUISITIONS IN THE FUTURE. THE
FAILURE TO SUCCESSFULLY INTEGRATE ACQUIRED COMPANIES AND BUSINESSES OR TO
ACQUIRE NEW COMPANIES AND BUSINESSES MAY HARM OUR FINANCIAL PERFORMANCE AND
GROWTH.

In the past four years we have acquired City Smart, a systems integrator in
Hong Kong; the SoftChip group, an Israeli designer of microprocessors and
operating systems for smart cards; and the InterCard group, a German systems
integrator for card systems and manufacturer of electronic devices. We paid for
all three of these acquisitions through the issuance of our ordinary shares.
These and future acquisitions could result in:

o Difficulties in integrating our operations, technologies, products and
services with those of the acquired companies. For example, we cannot
be sure that the InterCard group's current customer base will upgrade
their systems to incorporate our products.

o Difficulty in integrating operations that are spread across
significant geographic distances.

o Diversion of our capital and our management's attention away from
other business issues.

o Potential loss of key employees and customers of companies we acquire.

o Increased liabilities as a result of liabilities of the companies we
acquire.

o Dilution of shareholdings in the event we acquire companies in
exchange for our shares.

We may not successfully integrate any technologies, manufacturing
facilities or distribution channels that we have or may acquire and we cannot
assure you that any of our recent acquisitions will be successful. In addition,
if we do not acquire new companies and businesses in the future, our business
may not grow as expected. If any of our recent or future acquisitions are not
successful, our financial performance and business may be adversely affected.

WE ARE SUSCEPTIBLE TO CHANGES IN INTERNATIONAL MARKETS AND DIFFICULTIES WITH
INTERNATIONAL OPERATIONS COULD HARM OUR BUSINESS.

Over the last five years, we have derived revenues from different
geographical areas. The following table sets forth our sales in different
geographical areas as a percentage of revenues:

NORTH SOUTH
AFRICA EUROPE FAR EAST AMERICA AMERICA ISRAEL
------ ------ -------- ------- ------- ------

1999 16 16 33 30 2 3
2000 8 56 13 19 1 3
2001 6 72 10 9 * 3
2002 13 67 3 11 1 5
2003 15 66 1 10 * 8

* Less than 1%

Our ability to maintain our position in existing markets and to penetrate
new, regional and local markets, is dependent, in part, on the stability of
regional and local economies. Our regional sales may continue to fluctuate
widely and may be adversely impacted by future political or economic instability
in these or other foreign countries or regions.

In addition, there are inherent risks in these international operations
which include:

o changes in regulatory requirements and communications standards;

o required licenses, tariffs and other trade barriers;

o difficulties in enforcing intellectual property rights across, or
having to litigate disputes in, various jurisdictions;

o difficulties in staffing and managing international operations;

o potentially adverse tax consequences; and

o the burden of complying with a wide variety of complex laws and
treaties in various jurisdictions.

If we are unable to manage the risks associated with our focus on
international sales, our business may be harmed.

BECAUSE WE REPORT IN DOLLARS WHILE A PORTION OF OUR REVENUES AND EXPENSES ARE
INCURRED IN OTHER CURRENCIES, CURRENCY FLUCTUATIONS COULD ADVERSELY AFFECT OUR
RESULTS OF OPERATIONS.

Our functional and reporting currency is the U.S. dollar. We generate a
significant portion of our revenues in U.S. dollars but we incur a large portion
of our expenses in other currencies, principally some employees' salaries in NIS
and the majority of the expenses of the InterCard group in Euros. To the extent
that we and our subsidiaries based in Israel and Germany conduct our business in
different currencies, our revenues and expenses and, as a result, our assets and
liabilities are not necessarily in the same currency. We are, therefore, exposed
to foreign exchange rate fluctuations. These fluctuations may negatively affect
our results of operations. Our operations also could be adversely affected if we
are unable to limit our exposure against currency fluctuations in the future.
Accordingly, we may enter into currency hedging transactions to decrease the
risk of financial exposure from fluctuations in the exchange rate of the U.S.
dollar against the NIS.

However, these measures may not adequately protect us from material adverse
effects resulting from currency fluctuations. In addition, if we wish to
maintain the dollar-denominated value of sales made in other currencies, any
devaluation of the other currencies relative to the U.S. dollar would require us
to increase our other currency denominated sales price. That could cause our
customers to cancel or decrease orders.

WE MAY HAVE TO ADAPT OUR PRODUCTS IN ORDER TO INTEGRATE THEM INTO OUR CUSTOMERS'
SYSTEMS OR IF NEW GOVERNMENT REGULATIONS OR INDUSTRY STANDARDS ARE ADOPTED OR
CURRENT REGULATIONS OR STANDARDS ARE CHANGED.

Some of our products are subject to government regulation in the countries
in which they are used. For example, card readers that are used in the United
States and in Europe require certification of compliance with regulations of the
Federal Communications Commission and the European Telecommunications Standards
Institute, respectively, regarding emission limits of radio frequency devices.
In addition, governmental certification for the systems into which our products
are integrated may be required. The International Standards Organization is in
the process of approving industry standards regulating the transfer of data
between contactless smart cards and a reader. If there is a change to government
regulations or industry standards, we may have to make significant modifications
to our products and, as a result, could incur significant costs and may be
unable to deploy our products in a timely manner.

In addition, prior to purchasing our products, some customers may require
us to receive certification that our products can be integrated successfully
into their systems or comply with applicable regulations. Receipt of these
certifications may not occur in a timely manner or at all. In some cases, in
order for our products, or for the system into which they are integrated, to be
certified, we may have to make significant product modifications. Failure to
become so certified could render us unable to deploy our products in a timely
manner or at all.

OUR PRODUCTS MAY CONTAIN DEFECTS THAT ARE ONLY DISCOVERED AFTER THE PRODUCTS
HAVE BEEN DEPLOYED. THIS COULD HARM OUR REPUTATION, RESULT IN LOSS OF CUSTOMERS
AND REVENUES AND SUBJECT US TO PRODUCT LIABILITY CLAIMS.

Our products are highly technical and deployed as part of large and complex
projects. Because of the nature of our products, they can only be fully tested
when fully deployed. For example, the testing of our parking payment product
required distribution of sample parking payment cards to drivers, installation
of electronic kiosks at which a card holder can increase the balance on his or
her card, linking the kiosks to financial and parking databases, collecting data
through handheld terminals, processing of data that is collected by the system,
compilation of reports and clearing the parking transactions. Any defects in our
products could result in:

o harm to our reputation;

o loss of, or delay in, revenues;

o loss of customers and market share;

o failure to attract new customers or achieve market acceptance for our
products; and

o unexpected expenses to remedy errors.

In addition, we could be exposed to potential product liability claims.
While we currently maintain product liability insurance, we cannot assure you
that this insurance will be sufficient to cover any successful product liability
claim. Any product liability claim could result in changes to our insurance
policies, including premium increases or the imposition of a large deductible or
co-insurance requirements. Any product liability claim in excess of our
insurance coverage would have to be paid out of our cash reserves. Furthermore,
the assertion of product liability claims, regardless of the merits underlying
the claim, could result in substantial costs to us, divert management's
attention away from our operations and damage our reputation.

TERRORIST ATTACKS MAY HAVE A MATERIAL ADVERSE EFFECT ON OUR OPERATING RESULTS.

Terrorist attacks and other acts of violence or war may affect the markets
on which our ordinary shares trade, the markets in which we operate, our
operations and profitability and your investment. These attacks or subsequent
armed conflicts resulting from or connected to them may directly impact our
physical facilities or those of our suppliers or customers. Furthermore, these
terrorist attacks may make travel and the transportation of our supplies and
products more difficult and/or expensive and ultimately affect the sales of our
products.

RISKS RELATED TO OUR ORDINARY SHARES

OUR SHARE PRICE HAS FLUCTUATED IN THE PAST AND MAY CONTINUE TO FLUCTUATE IN THE
FUTURE.

The market price of our ordinary shares has experienced significant
fluctuations and may continue to fluctuate significantly. The market price of
our ordinary shares may be significantly affected by factors such as the
announcements of new products or product enhancements by us or our competitors,
technological innovations by us or our competitors or quarterly variations in
our results of operations. In addition, any statements or changes in estimates
by analysts covering our shares or relating to the smart card industry could
result in an immediate effect, that may be adverse on the market price of our
shares.

Trading in shares of companies listed on the Nasdaq SmallCap and the Prime
Standard Segment of the Frankfurt Stock Exchange in general and trading in
shares of technology companies in particular has been subject to extreme price
and volume fluctuations that have been unrelated or disproportionate to
operating performance. These factors may depress the market price of our
ordinary shares, regardless of our actual operating performance.

Securities litigation has also often been brought against companies
following periods of volatility in the market price of its securities. In the
future, we may be the target of similar litigation that could result in
substantial costs and diversion of our management's attention and resources.

OUR SHARE PRICE COULD BE ADVERSELY AFFECTED BY FUTURE SALES OF OUR ORDINARY
SHARES.

As of May 26, 2004, we have outstanding 7,397,422 ordinary shares, warrants
to purchase 1,098,959 additional ordinary shares at a weighted average exercise
price of $12.49 per share and options to purchase 2,905,603 additional ordinary
shares at a weighted average exercise price of $8.91 per share.

We may in the future sell or issue additional ordinary shares. The market
price of our ordinary shares could drop as a result of sales of substantial
amounts of our ordinary shares in the public market or the perception that such
sales may occur. These factors could also make it more difficult to raise
additional funds through future offerings of our ordinary shares or other
securities.

WE CANNOT PREDICT THE FURTHER IMPACT ON THE PRICE OF OUR ORDINARY SHARES
FOLLOWING OUR RESTATEMENT IN AUGUST 2002 OF CERTAIN OF OUR FINANCIAL STATEMENTS
OR THE EXTENT OF THE POTENTIAL CLAIMS THAT MAY BE ASSERTED AGAINST US.

We reevaluated our accounting treatment of certain past transactions and
restated our financial statements for the fiscal years ended December 31, 1999,
December 31, 2000 and December 31, 2001. We filed our restated financial
statements in accordance with requirements in Germany where our ordinary shares
are listed. The market for our ordinary shares in Germany was adversely affected
by our restatement and the adverse effect in Germany may have an adverse impact
on the value of our ordinary shares listed on the Nasdaq SmallCap Market. Our
share price may be adversely affected by the threat of litigation based upon our
restatement and the recovery by plaintiffs in any litigation actually commenced
against us.

IF OUR ORDINARY SHARES ARE EVER CONSIDERED A PENNY STOCK, ANY INVESTMENT IN OUR
ORDINARY SHARES WILL BE CONSIDERED A HIGH-RISK INVESTMENT AND BECOME SUBJECT TO
RESTRICTIONS ON MARKETABILITY.

If the bid price of our ordinary shares falls below $5.00 and we fail to
maintain our Nasdaq listing, our ordinary shares may be deemed a "penny stock"
for the purposes of the Exchange Act. The bid price of our ordinary shares as of
May 26, 2004 was $9.71 but was less than $5.00 from February 26, 2003 until
October 22, 2003. We continue to maintain our Nasdaq listing. Brokers effecting
transactions in a penny stock are subject to additional customer disclosure and
record keeping obligations. The additional obligations include disclosure of the
risks associated with low price stocks, stock quote information and broker
compensation. In addition, brokers making transactions in penny stocks are
subject to additional sales practice requirements under the Exchange Act. These
additional requirements include making inquiries into the suitability of penny
stock investments for each customer or obtaining the prior written agreement of
the customer for the penny stock purchase. Because of these additional
obligations, some brokers will not effect transactions in penny stocks. If our
shares are deemed a "penny stock" in the future, this designation could have an
adverse effect on the liquidity of our ordinary shares and your ability to sell
our ordinary shares.

OUR SHAREHOLDERS COULD EXPERIENCE DILUTION OF THEIR OWNERSHIP INTEREST BY REASON
OF OUR ISSUING MORE SHARES THAT ARE PURCHASED BY THIRD PARTIES.

Under Israeli law, shareholders in public companies do not have preemptive
rights. This means that our shareholders do not have the legal right to purchase
shares in a new issue before they are offered to third parties. In addition, our
board of directors may approve the issuance of shares in many instances without
shareholder approval. As a result, our shareholders could experience dilution of
their ownership interest by reason of our raising additional funds through the
issuance of more shares that are purchased by third parties. The weighted
average price per share at which we sold shares during 2003 was $4.40. In
addition, we may continue to acquire companies or businesses in exchange for our
shares, resulting in dilution of your shareholding.

WE DO NOT ANTICIPATE PAYING CASH DIVIDENDS IN THE FORESEEABLE FUTURE.

We have never declared or paid cash dividends and we do not anticipate
paying cash dividends in the foreseeable future. We intend to retain all future
earnings to fund the development of our business. In addition, because we have
received benefits under Israeli law for our "Approved Enterprises," payment of a
cash dividend may create additional tax liabilities for us.

OUR CONCENTRATION OF VOTING POWER WILL LIMIT YOUR ABILITY TO INFLUENCE OR
CONTROL CORPORATE ACTIONS.

Oded Bashan currently has the right to vote approximately 21% of our
outstanding shares by reason of his ownership of 937,493 of our outstanding
shares and his holding to vote 667,742 additional ordinary shares that are owned
by others. He therefore has the ability to control the election of directors and
the outcome of most corporate actions requiring shareholder approval. This
concentration of voting power may also have the effect of delaying or preventing
a change in control of us.

OUR UNITED STATES INVESTORS COULD SUFFER ADVERSE TAX CONSEQUENCES IF WE ARE
CHARACTERIZED AS A PASSIVE FOREIGN INVESTMENT COMPANY.

We cannot assure you that we will not be treated as a passive foreign
investment company for 2003 or future years. We could be a passive foreign
investment company if 75% or more or our gross income in a taxable year is
passive income. We would also be a passive foreign investment company if at
least 50% of the average value, or possibly the adjusted bases of our assets in
particular circumstances, of our assets in a taxable year produce, or are held
for the production of, passive income. Passive income includes interest,
dividends, royalties, rents and annuities. If we are or become a passive foreign
investment company, many of our U.S. shareholders may be subject to adverse tax
consequences.

RISKS RELATED TO ISRAEL

CONDITIONS IN ISRAEL MAY HARM OUR ABILITY TO PRODUCE AND SELL OUR PRODUCTS AND
SERVICES AND MAY ADVERSELY AFFECT OUR SHARE PRICE.

Our principal executive offices and research and development facilities, as
well as some of our suppliers, are located in Israel. Political, economic and
military conditions in Israel directly affect our operations. Since the
establishment of the State of Israel in 1948, a number of armed conflicts have
taken place between Israel and its Arab neighbors. A state of hostility, varying
in degree and intensity, has led to security and economic problems for Israel.
Despite the progress towards peace between Israel and its Arab neighbors, the
future of these peace efforts remains uncertain. Since October 2000, there has
been a substantial deterioration in the relationship between Israel and the
Palestinian Authority and a significant increase in violence, primarily in the
West Bank and Gaza Strip. The ongoing violence between Israel and the
Palestinians or any future armed conflicts, political instability or continued
violence in the region would likely have a negative effect on our business
condition, harm our results of operations and adversely affect the share price
of publicly traded Israeli companies such as us. In addition, Israel's economy
has been subject to numerous destabilizing factors, including a period of
rampant inflation in the early to mid-1980s, low foreign exchange reserves,
fluctuations in world commodity prices, military conflicts and civil unrest.
Furthermore, several countries still restrict business with Israel and Israeli
companies, which may limit our ability to make sales in those countries. These
restrictions may have an adverse impact on our operating results, financial
condition or the expansion of our business.

OUR OPERATIONS COULD BE DISRUPTED AS A RESULT OF THE OBLIGATION OF KEY PERSONNEL
TO PERFORM ISRAELI MILITARY SERVICE.

Some of our executive officers and employees must perform annual military
reserve duty in Israel and may be called to active duty at any time under
emergency circumstances. Our operations could be disrupted by the absence for a
significant period of one or more of our executive officers or other key
employees due to military service. Any disruption to our operations would harm
our business.

THE ISRAELI GOVERNMENT PROGRAMS AND TAX BENEFITS IN WHICH WE CURRENTLY
PARTICIPATE OR WHICH WE CURRENTLY RECEIVE REQUIRE US TO MEET SEVERAL CONDITIONS
AND MAY BE TERMINATED OR REDUCED IN THE FUTURE. THIS COULD INCREASE OUR COSTS OR
TAXES.

We are entitled to tax benefits under Israeli government programs, largely
as a result of the "Approved Enterprise" status granted to $4.5 million of our
capital investment programs by the Israeli Ministry of Industry and Trade.
Taxable income derived from each program is tax exempt for a period of ten years
beginning in the year in which the program first generates taxable income, up to
14 years from the date of approval or 12 years from the date of the beginning of
production. Without such benefits our taxable income would be taxed at a rate of
36%. To maintain our eligibility for these tax benefits, we must continue to
meet conditions, including making specified investments in property, plant and
equipment, 30% of which must be from paid-in capital. We cannot assure you that
we will continue to receive these tax benefits at the same rate or at all. From
time to time, we submit requests for expansion of our approved enterprise
programs. These requests might not be approved. The termination or reduction of
these programs and tax benefits could increase our taxes and could have a
material adverse effect on our business. The Law for Encouragement of Capital
Investments, 1959, under which we receive the Approved Enterprise status will
expire on June 30, 2004, unless its terms are extended. Accordingly, requests
for new programs or expansions that are not approved by June 30, 2004 will not
confer any tax benefits, unless the term of the law is extended. The termination
or reduction of these tax benefits could harm our results of operations.

IT MAY BE DIFFICULT TO ENFORCE A UNITED STATES JUDGMENT AGAINST US, OUR OFFICERS
AND DIRECTORS OR TO ASSERT UNITED STATES SECURITIES LAW CLAIMS IN ISRAEL.

We are incorporated in Israel. Most of our executive officers and directors
and the Israeli experts named in this prospectus are non residents of the United
States and a substantial portion of our assets and the assets of these persons
are located outside of the United States. Therefore, it may be difficult for an
investor, or any other person or entity, to enforce a United States court
judgment based upon the civil liability provisions of the United States federal
securities laws in an Israeli court against us or any of these persons or to
effect service of process upon these person in the United States. Additionally,
it may be difficult for an investor, or any other person or entity, to enforce
civil liabilities under United States federal securities laws in original
actions instituted in Israel.

PROVISIONS OF ISRAELI LAW MAY DELAY, PREVENT OR MAKE UNDESIRABLE AN ACQUISITION
OF ALL OR A SIGNIFICANT PORTION OF OUR SHARES OR ASSETS.

Israeli corporate law regulates acquisitions of shares through tender
offers, requires special approvals for transactions involving significant
shareholders and regulates other matters that may be relevant to these types of
transactions. These provisions of Israeli law could have the effect of delaying
or preventing a change in control and may make it more difficult for a third
party to acquire us, even if doing so would be beneficial to our shareholders.
These provisions may limit the price that investors may be willing to pay in the
future for our ordinary shares. Furthermore, Israeli tax considerations may make
potential transactions undesirable to us or to some of our shareholders.

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This prospectus includes forward-looking statements. We have based these
forward-looking statements on our current expectations and projections about
future events.

Words such as "believe," "anticipate," "expect," "intend," "seek," "will,"
"plan," "could," "may," "project," "goal," "target" and similar expressions
often identify forward-looking statements but are not the only way we identify
these statements.

These forward-looking statements involve risks, uncertainties, assumptions
and other factors that could cause our actual results to differ materially from
future results expressed or implied by the forward-looking statements. Important
factors that could cause actual results to differ materially from the
information set forth in any forward-looking statements include the risk factors
described in "Risk Factors" above and other factors discussed elsewhere in this
prospectus and in our Annual Report on Form 20-F for the year ended December 31,
2003, which is incorporated herein by reference.

Many of these factors are beyond our ability to control or predict. You
should not assume that forecasts and anticipated events will occur, or that our
expectations and plans will not change. We do not have any intention to update
forward-looking statements after we distribute this prospectus unless we are
required to do so under U.S. federal securities laws or other applicable laws.

CAPITALIZATION

The following table sets forth our capitalization as of December 31, 2003
(in thousands) on an actual basis and as adjusted to give effect to the
issuance, subsequent to December 31, 2003, of 1,300,000 ordinary shares and
immediately exercisable warrants for up to an additional 899,920 ordinary
shares, for an aggregate purchase price of $15,132,000.

You should read this table in conjunction with "Selling Shareholders," and
our consolidated financial statements and related notes incorporated by
reference to this prospectus.

DECEMBER 31, 2003
----------------------
ACTUAL AS ADJUSTED
-------- -----------
(UNAUDITED)

Current portion of long-term loans ............ $ 564 $ 564
======== ========

Long-term loans (excluding current portion) ... $ 3,121 $ 3,121
-------- --------

Total shareholders' equity .................... 19,303 34,435
Total capitalization ....................... $ 22,424 $ 37,556
======== ========

USE OF PROCEEDS

We will not receive any proceeds from the sale of the ordinary shares by
the selling shareholders.

PRICE RANGE OF OUR SHARES

Our ordinary shares were quoted on the Neuer Markt of the Frankfurt Stock
Exchange from August 31, 1999 until January 31, 2003. Since January 31, 2003,
the shares have been listed on the new Prime Standard Segment of the Frankfurt
Stock Exchange. Commencing November 12, 2002, our shares have also been listed
for trading on the Nasdaq SmallCap Market.

The following table shows, for the periods indicated, the high and low
closing prices of our ordinary shares in euros giving effect to the reverse
split as reported on the Neuer Markt of the Frankfurt Stock Exchange. The
closing prices that are indicated below commencing January 31, 2003 were as
reported in the Prime Standard Market of the Frankfurt Stock Exchange. It also
shows, for the periods indicated, the high and low closing prices of our
ordinary shares expressed in U.S. dollars based on the noon buying rate in New
York City for cable transfers in foreign currencies, as certified for customs
purposes by the Federal Reserve Bank of New York on the relevant dates. See the
discussion below for the exchange rates applicable during the periods set forth
below. The following table also shows, for the periods indicated since November
12, 2002, the high and low closing prices of our ordinary shares in U.S. dollars
as reported on the Nasdaq SmallCap Market.

FRANKFURT STOCK FRANKFURT STOCK
EXCHANGE (1) PER EXCHANGE (1) PER NASDAQ SMALLCAP
SHARE (EURO) SHARE $ PER SHARE $
---------------- ---------------- ---------------
HIGH LOW HIGH LOW HIGH LOW
----- ----- ----- ---- ----- -----

1999
Third quarter (from August 31, 1999) ... 77.8 51.0 82.0 53.6 n/a n/a
Fourth quarter ......................... 71.0 49.5 72.0 49.6 n/a n/a
Annual 1999 ............................ 77.8 49.5 82.3 49.7 n/a n/a
2000 n/a n/a
First quarter .......................... 334.0 64.7 322.1 66.4 n/a n/a
Second quarter ......................... 220.0 149.5 200.6 44.2 n/a n/a
Third quarter .......................... 193.5 86.0 180.2 75.9 n/a n/a
Fourth quarter ......................... 102.5 32.5 90.2 60.4 n/a n/a
Annual 2000 ............................ 313.0 32.5 301.7 30.2 n/a n/a
2001 n/a n/a
First quarter .......................... 77.5 31.4 73.8 29.8 n/a n/a
Second quarter ......................... 40.4 24.0 35.6 20.7 n/a n/a
Third quarter .......................... 25.7 8.5 22.5 7.4 n/a n/a
Fourth quarter ......................... 23.1 12.2 20.9 10.8 n/a n/a
Annual 2001 ............................ 77.5 8.5 73.1 7.4 n/a n/a
2002 n/a n/a
First quarter .......................... 14.5 10.4 12.8 9.1 n/a n/a
Second quarter ......................... 11.4 7.0 10.7 6.8 n/a n/a
Third quarter .......................... 9.6 3.9 9.7 3.8 n/a n/a
Fourth quarter ......................... 8.4 3.5 8.4 3.5 8.10 4.65
Annual 2002 ............................ 14.5 3.5 12.8 3.5 8.10 4.65
2003
First quarter .......................... 5.3 3.0 5.7 3.2 5.03 3.60
Second quarter ......................... 4.7 3.2 5.4 3.7 4.06 3.40
Third quarter .......................... 4.4 3.0 4.9 3.4 4.50 3.20
Fourth quarter ......................... 9.7 3.6 12.1 4.3 13.80 3.90
Annual 2003 ............................ 9.7 3.0 12.1 3.3 13.80 3.20
January 2003 ........................... 5.2 3.9 5.5 4.2 5.00 4.60
February 2003 .......................... 5.3 3.8 5.7 4.1 5.03 4.11
March 2003 ............................. 4.2 3.0 4.4 3.3 4.11 3.60
April 2003 ............................. 4.2 3.3 4.5 3.5 4.06 3.49
May 2003 ............................... 4.7 3.6 5.4 4.3 3.90 3.40
June 2003 .............................. 4.0 3.2 4.7 3.7 3.70 3.49
July 2003 .............................. 3.6 3.0 4.1 3.5 3.75 3.20
November 2003.......................... 8.2 5.9 9.8 7.1 9.35 7.24
December 2003 .......................... 9.7 5.7 12.1 6.9 13.80 7.25
2004
First quarter .......................... 11.5 5.9 14.5 7.2 14.74 8.76
January 2004 ........................... 11.5 9.5 14.5 11.9 14.74 12.09
February 2004 .......................... 10.3 9.8 12.9 12.2 12.70 11.50
March 2004 ............................. 8.4 5.9 10.3 7.2 10.85 8.76
April 2004 ............................. 11.0 7.5 13.1 9.2 12.65 9.39
May 2004 (through May 26, 2004) ........ 9.4 7.6 11.4 9.1 11.61 8.91

(1) Our shares were quoted on the Neuer Markt of the Frankfurt Stock Exchange
from August 31, 1999 until January 31, 2003 after which, the shares have been
listed on the new Prime Standard Segment of the Frankfurt Stock Exchange. To the
extent required, share prices are adjusted to give effect to our 10-for-1
reverse share split effective as of June 17, 2002.

Our ordinary shares, to the extent they are admitted to the Prime Standard
Segment, are represented by global share certificates registered in the name of
Clearstream Banking AG. As a result, we do not know the number of our
outstanding ordinary shares held in the United States or the number of holders
of our ordinary shares who reside in the United States.

The following table sets forth, for the periods and dates indicated,
information concerning the noon buying rate for the euro, express in euros per
dollar.

AVERAGE PERIOD-
RATE(1) HIGH LOW END RATE
------- ------ ------ --------

1999 ......................... 0.9455 0.9984 0.8466 0.9930
2000 ......................... 1.0860 1.2090 0.9675 1.0650
2001 ......................... 1.1173 1.2346 1.0488 1.1235
2002 ......................... 0.9454 1.1636 0.9537 0.9537
2003 ......................... 1.1321 0.9652 0.7938 0.7938
2004 (through May 21, 2004)... 1.2303 0.8474 0.7780 0.8327

(1) The average daily noon buying rate from the Federal Reserve Bank of New
York.

Our ordinary shares are traded publicly on the Nasdaq SmallCap Market under
the symbol "OTIV." Our ordinary shares are also traded publicly on the Prime
Standard Segment of the Frankfurt Stock Exchange under the symbol "OT5."

On May 26, 2004, the last reported sale prices of our ordinary shares on
the Prime-Standard Segment and the Nasdaq SmallCap Market were $9.72 and $9.71
per share, respectively. According to our transfer agent, as of May 25, 2004,
there were 54 holders of record of our ordinary shares.

SELLING SHAREHOLDERS

We understand that the selling shareholders named below may sell the
ordinary shares held by them as listed below as of the date of this prospectus.
Except as indicated below, to our knowledge, none of the selling shareholders is
a director, officer, consultant or holder of 10% or more of our shares or a
broker-dealer. The information provided in the table below with respect to each
selling shareholder has been obtained from that selling shareholder. For the
selling shareholders that are entities, we have identified in the footnotes the
individuals who have or share voting and/or investment control over such selling
shareholder. The number of shares held by certain selling shareholders prior to
the offering and thereafter as set forth below includes certain unexercised
warrants held by the selling shareholders. The number of ordinary shares and
number of ordinary underlying warrants to be offered for the selling
shareholders' account are represented in separate columns. Because the selling
shareholders may sell all, some or no portion of the ordinary shares
beneficially owed by them, we cannot estimate either the number or percentage of
ordinary shares that will be beneficially owned by the selling shareholders
following this offering. We believe that the selling shareholders have sole
voting and investment powers over their ordinary shares, except as indicated
below.

AMOUNT OF
ORDINARY SHARES
AMOUNT OF UNDERLYING
ORDINARY WARRANTS OR
SHARES TO BE OPTIONS TO BE
RELATIONSHIP OFFERED OFFERED FOR THE AMOUNT PERCENT
WITH US TOTAL AMOUNT FOR THE SELLING SELLING BENEFICIALLY BENEFICIALLY
WITHIN PAST BENEFICIALLY SHAREHOLDERS' SHAREHOLDERS' OWNED AFTER THE OWNED AFTER THE
NAME 3 YEARS OWNED(*) ACCOUNT ACCOUNT OFFERING(**) OFFERING(***)
--------------------------- --------------- ------------ --------------- --------------- --------------- ---------------

Alpha Capital AG Shareholder 48,000(1) 30,000 18,000 -- --
Pradafan 7
Furstentume 9498
Vaduz
Liechtenstein

Banque Privee Shareholder 158,400(2) 99,000 59,400 -- --
Edmond de Rothschild S.A.
18, Rue de Hesse
1204 Geneve
Switzerland

Bonanza Trust Shareholder 10,588(3) -- 2,742 7,846 --(a)
Horwood, Marcus & Berk
180 North Laslie Street
Suite 3700
Chicago, IL 60601

Yvonne K. Briggs Shareholder 500(4) -- 500 -- --
c/o Andrew F. Kaminsky
125 Broad Street -
16th Flr.
New York, NY 10014

Frank Colen Shareholder 1,000(5) -- 1,000 -- --
c/o Andrew F. Kaminsky
125 Broad Street -
16th Flr.
New York, NY 10014

Cougar Trading, LLC Shareholder 80,000(6) 50,000 30,000 -- --
Suite 2301
375 Park Avenue
New York, NY 10152

Cranshire Capital, L.P. Shareholder 102,400(7) 64,000 38,400 -- --
666 Dundee Road
Suite 1901
Northbrook, IL 60062

Crestview Capital Master,
L.L.C. Shareholder 232,000(8) 145,000 87,000 -- --
95 Revere Drive
Suite A
Northbrook, IL 60062

Cory Dorzek Shareholder 1,000(9) -- 1,000 -- --
c/o Andrew F. Kaminsky
125 Broad Street -
16th Flr.
New York, NY 10014

Finsbury Technology Trust Shareholder 158,400(10) 99,000 59,400 -- --
4 Crown Place
London EC2A 4FT
England

Hadar Insurance Company
Ltd. Shareholder 112,000(11) 70,000 42,000 -- --
53 Derech Hashalam
Givatayira 53454
Israel

Christopher T. Hagar Shareholder 5,000(12) -- 5,000 -- --
c/o Andrew F. Kaminsky
125 Broad Street -
16th Flr.
New York, NY 10014

HUG Funding LLC Shareholder 33,600(13) 21,000 12,600 -- --
145 Huguenot Street
Suite 404
New Rochelle, NY 10801

Iroquois Capital, LP Shareholder 54,982(14) 34,364 20,618 -- --
641 Lexington Avenue -
26th Flr.
New York, NY 10022

Jason Janosz Shareholder 1,000(15) -- 1,000 -- --
c/o Andrew F. Kaminsky
125 Broad Street -
16th Flr.
New York, NY 10014

Andrew F. Kaminsky Shareholder 10,500(16) -- 10,500 -- --
125 Broad Street -
16th Flr.
New York, NY 10014

Keren Fortune Neemanuyot
Ltd. Shareholder 8,000(17) 5,000 3,000 -- --
19, Yehuda Halevey Street
Tel Aviv
Israel

Keypunch & Co. Shareholder 232,000(18) 145,000 87,000 -- --
100 E.Pratt Street -
17th Flr.
Baltimore, MD 21202

KWG Trust Shareholder 10,588(19) -- 2,742 7,846 --(a)
Horwood, Marcus & Berk
180 North Laslie Street
Suite 3700
Chicago, IL 60601

LB Capital Investments LLC Shareholder 67,200(20) 42,000 25,200 -- --
10 Sinclair Terrace
Short Hills, NJ 07078

LibertyView Funds, LP Shareholder 45,328(21) 28,330 16,998 -- --
c/o Neuberger Berman, LLC
111 River Street
Suite 1000
Hoboken, NJ 07030

LibertyView Special
Opportunities Fund, LP Shareholder 90,672(22) 56,670 34,002 -- --
c/o Neuberger Berman, LLC
111 River Street
Suite 1000
Hoboken, NJ 07030

Sandy MacDonald Shareholder 1,000(23) -- 1,000 -- --
c/o Andrew F. Kaminsky
125 Broad Street -
16th Flr.
New York, NY 10014

Zubin Mory Shareholder 500(24) -- 500 -- --
c/o Andrew F. Kaminsky
125 Broad Street -
16th Flr.
New York, NY 10014

Mutavim Investment
Consultants Ltd. Shareholder 48,000(25) 30,000 18,000 -- --
Sahaf 5
Hod Asharon
Israel

Aharon Orlansky Shareholder 7,529(26) -- 2,984 4,545 --(a)
201 East 62nd Street -
Apt. 10A
New York, NY 10021

Ophir Enterprise &
Investment Ltd. Shareholder 32,000(27) 20,000 12,000 -- --
Kibbutz Bet Govrin D.N
Lachish Darom 79370
Israel

Ramco Mutual Funds
Management (1383) Ltd. Shareholder 48,000(28) 30,000 18,000 -- --
30 Kalisher Street
Tel Aviv 65257
Israel

S.A.R.A Ltd. Shareholder 16,000(29) 10,000 6,000 -- --
A Rafsoda 38 Rishon
Lezhion
Israel

Senvest International
L.L.C. Shareholder 27,200(30) 17,000 10,200 -- --
680 Fifth Avenue
Suite 1300
New York, NY 10019

Senvest Israel Partners LP Shareholder 27,200(31) 17,000 10,200 -- --
680 Fifth Avenue
Suite 1300
New York, NY 10019

Senvest Master Fund LP Shareholder 27,200(32) 17,000 10,200 -- --
680 Fifth Avenue
Suite 1300
New York, NY 10019

Smithfield Fiduciary LLC Shareholder 160,000(33) 100,000 60,000 -- --
c/o Highbridge Capital
Management LLC
9 West 57th Street -
27th Flr.
New York, NY 10019

Sphere Master Fund LP Shareholder 112,000(34) 70,000 42,000 -- --
21 Ha'arba Street
Tel Aviv
Israel

Stanley B. Stern Shareholder 35,476(35) -- 35,476 -- --
125 Broad Street -
16th Flr.
New York, NY 10014

Vertical Ventures, LLC Shareholder 47,418(36) 29,636 17,782 -- --
641 Lexington Avenue -
26th Flr.
New York, NY 10022

Henry P. Williams Shareholder 1,000(37) -- 1,000 -- --
c/o Andrew F. Kaminsky
125 Broad Street -
16th Flr.
New York, NY 10014

Y.A.Z. Investments &
Assets Ltd. Shareholder 158,790(38) 60,000 36,000 62,790 1%
24 Lilenblum Street
Tel Aviv 65132
Israel

Yordent Ltd. Shareholder 21,556(39) 10,000 6,000 5,556 --(a)
24 Smilansky Street
Netanya 42432
Israel

Howard Sterling Shareholder 11,345(40) -- 2,500 8,845 --(a)
c/o Ganer & Ganer
1995 Broadway - 16th Flr.
New York, NY 10023

Alpine Capital Partners
Inc. Finder 5,000(41) -- 5,000 -- --
570 Lexington Avenue -
32nd Flr.
New York, NY 10022

Zysman, Aharoni Gayer &
Co. Law Offices Israeli Counsel 10,000(42) -- 10,000 -- --
52A Hayarkon Street
Tel Aviv 63432
Israel

----------
(a) Less than 1%.

(*) Except as otherwise noted and pursuant to applicable community property
laws, each person or entity named in the table has sole voting and investment
power with respect to all ordinary shares listed as owned by that person or
entity. Shares beneficially owned include shares that may be acquired pursuant
to options and warrants exercisable within 60 days of the date of this
prospectus.

(**) Assuming the sale of all shares registered for the account of the selling
shareholders. The selling shareholders may sell all, some or no portion of the
ordinary shares registered hereunder.

(***) Based on 7,397,422 ordinary shares outstanding as of May 26, 2004.
Ordinary shares deemed to be beneficially owned by virtue of the right of any
person to acquire these shares within 60 days of the date of this prospectus are
treated as outstanding only for purposes of determining the percent owned by
such person.

(1) Includes 30,000 ordinary shares and 18,000 ordinary shares underlying
warrants exercisable within 60 days with an exercise price of $13.97 per
share. Konrad Ackerman has voting and/or investment control over this
selling shareholder.

(2) Includes 99,000 ordinary shares and 59,400 ordinary shares underlying
warrants exercisable within 60 days with an exercise price of $13.97 per
share. Patrick Segal has voting and/or investment control over this selling
shareholder.

(3) Consists of 2,500 ordinary shares underlying warrants exercisable within 60
days with an exercise price of $5.75 per share, 4,546 ordinary shares
underlying warrants exercisable within 60 days with an exercise price of
$3.85 per share, 2,050 ordinary shares underlying warrants exercisable
within 60 days with an exercise price of $7.50 per share and 1,492 ordinary
shares underlying warrants exercisable within 60 days with an exercise
price of $13.97 per share. Jeff Zaluda has voting and/or investment control
over this selling shareholder.

(4) Consists of 500 ordinary shares underlying warrants exercisable within 60
days with an exercise price of $13.97 per share.

(5) Consists of 1,000 ordinary shares underlying warrants exercisable within 60
days with an exercise price of $13.97 per share.

(6) Includes 50,000 ordinary shares and 30,000 ordinary shares underlying
warrants exercisable within 60 days with an exercise price of $13.97 per
share. Emanuel E. Geduld has voting and/or investment control over this
selling shareholder.

(7) Includes 64,000 ordinary shares and 38,400 ordinary shares underlying
warrants exercisable within 60 days with an exercise price of $13.97 per
share. Mitchel P. Kopin has voting and/or investment control over this
selling shareholder.

(8) Includes 145,000 ordinary shares and 87,000 ordinary shares underlying
warrants exercisable within 60 days with an exercise price of $13.97 per
share. Richard Levy has voting and/or investment control over this selling
shareholder.

(9) Consists of 1,000 ordinary shares underlying warrants exercisable within 60
days with an exercise price of $13.97 per share.

(10) Includes 99,000 ordinary shares held by Hare & Co. as custodian for the
Finsbury Technology Trust, and 59,400 ordinary shares underlying warrants
exercisable within 60 days with an exercise price of $13.97 per share.
Michael Bourne has voting and/or investment control over this selling
shareholder.

(11) Includes 70,000 ordinary shares and 42,000 ordinary shares underlying
warrants exercisable within 60 days with an exercise price of $13.97 per
share. Eitan Levy has voting and/or investment control over this selling
shareholder.

(12) Consists of 5,000 ordinary shares underlying warrants exercisable within 60
days with an exercise price of $13.97 per share.

(13) Includes 21,000 ordinary shares and 12,600 ordinary shares underlying
warrants exercisable within 60 days with an exercise price of $13.97 per
share. Ethan Benovitz has voting and/or investment control over this
selling shareholder.

(14) Includes 34,364 ordinary shares and 20,618 ordinary shares underlying
warrants exercisable within 60 days with an exercise price of $13.97 per
share. Josh Silverman has voting and/or investment control over this
selling shareholder.

(15) Consists of 1,000 ordinary shares underlying warrants exercisable within 60
days with an exercise price of $13.97 per share.

(16) Consists of 10,500 ordinary shares underlying warrants exercisable within
60 days with an exercise price of $13.97 per share.

(17) Includes 5,000 ordinary shares and 3,000 ordinary shares underlying
warrants exercisable within 60 days with an exercise price of $13.97 per
share. Avi Saban and/or Meni Mizrachi has voting and/or investment control
over this selling shareholder.

(18) Includes 145,000 ordinary shares and 87,000 ordinary shares underlying
warrants exercisable within 60 days with an exercise price of $13.97 per
share. James Thorne has voting and/or investment control over this selling
shareholder.

(19) Consists of 2,500 ordinary shares underlying warrants exercisable within 60
days with an exercise price of $5.75 per share and 4,546 ordinary shares
underlying warrants exercisable within 60 days with an exercise price of
$3.85 per share, 2,050 ordinary shares underlying warrants exercisable
within 60 days with an exercise price of $7.50 per share and 1,492 ordinary
shares underlying warrants exercisable within 60 days with an exercise
price of $13.97 per share. Jeff Zaluda has voting and/or investment control
over this selling shareholder.

(20) Includes 42,000 ordinary shares and 25,200 ordinary shares underlying
warrants exercisable within 60 days with an exercise price of $13.97 per
share. Lior Bregman has voting and/or investment control over this selling
shareholder.

(21) Includes 28,330 ordinary shares and 16,998 ordinary shares underlying
warrants exercisable within 60 days with an exercise price of $13.97 per
share. Richard Meckler has voting and/or investment control over this
selling shareholder.

(22) Includes 56,670 ordinary shares and 34,002 ordinary shares underlying
warrants exercisable within 60 days with an exercise price of $13.97 per
share. Richard Meckler has voting and/or investment control over this
selling shareholder.

(23) Consists of 1,000 ordinary shares underlying warrants exercisable within 60
days with an exercise price of $13.97 per share.

(24) Consists of 500 ordinary shares underlying warrants exercisable within 60
days with an exercise price of $13.97 per share.

(25) Includes 30,000 ordinary shares and 18,000 ordinary shares underlying
warrants exercisable within 60 days with an exercise price of $13.97 per
share. Itzik Babayov has voting and/or investment control over this selling
shareholder.

(26) Consists of 4,545 ordinary shares underlying warrants exercisable within 60
days with an exercise price of $3.85 per share and 2,984 ordinary shares
underlying warrants exercisable within 60 days with an exercise price of
$13.97 per share.

(27) Includes 20,000 ordinary shares and 12,000 ordinary shares underlying
warrants exercisable within 60 days with an exercise price of $13.97 per
share. Gadi Hazan has voting and/or investment control over this selling
shareholder.

(28) Includes 30,000 ordinary shares and 18,000 ordinary shares underlying
warrants exercisable within 60 days with an exercise price of $13.97 per
share. Rami Rahimi has voting and/or investment control over this selling
shareholder.

(29) Includes 10,000 ordinary shares and 6,000 ordinary shares underlying
warrants exercisable within 60 days with an exercise price of $13.97 per
share. Sami Totah has voting and/or investment control over this selling
shareholder.

(30) Includes 17,000 ordinary shares and 10,200 ordinary shares underlying
warrants exercisable within 60 days with an exercise price of $13.97 per
share. Robert Katz has voting and/or investment control over this selling
shareholder.

(31) Includes 17,000 ordinary shares and 10,200 ordinary shares underlying
warrants exercisable within 60 days with an exercise price of $13.97 per
share. Robert Katz has voting and/or investment control over this selling
shareholder.

(32) Includes 17,000 ordinary shares and 10,200 ordinary shares underlying
warrants exercisable within 60 days with an exercise price of $13.97 per
share. Robert Katz has voting and/or investment control over this selling
shareholder.

(33) Includes 100,000 ordinary shares and 60,000 ordinary shares underlying
warrants exercisable within 60 days with an exercise price of $13.97 per
share. Highbridge Capital Management, LLC is the trading manager of
Smithfield Fiduciary LLC and consequently has voting control and investment
discretion over securities held by Smithfield. Glenn Dubin and Henry Swieca
control Highbridge. Each of Highbridge, Glenn Dubin and Henry Swieca
disclaims beneficial ownership of the securities held by Smithfield.

(34) Includes 70,000 ordinary shares and 42,000 ordinary shares underlying
warrants exercisable within 60 days with an exercise price of $13.97 per
share. Doron Breen has voting and/or investment control over this selling
shareholder.

(35) Consists of 35, 476 ordinary shares underlying warrants exercisable within
60 days with an exercise price of $13.97 per share.

(36) Includes 29,636 ordinary shares and 17,782 ordinary shares underlying
warrants exercisable within 60 days with an exercise price of $13.97 per
share. Josh Silverman has voting and/or investment control over this
selling shareholder.

(37) Consists of 1,000 ordinary shares underlying warrants exercisable within 60
days with an exercise price of $13.97 per share.

(38) Includes 122,790 ordinary shares and 36,000 ordinary shares underlying
warrants exercisable within 60 days with an exercise price of $13.97 per
share. Yehuda Zadik and Ahouva Zadik have voting and/or investment control
over this selling shareholder.

(39) Includes 15,556 ordinary shares and 6,000 ordinary shares underlying
warrants exercisable within 60 days with an exercise price of $13.97 per
share. Yuri Rabinovitch has voting and/or investment control over this
selling shareholder.

(40) Consists of 5,000 ordinary shares underlying warrants exercisable within 60
days with an exercise price of $5.75 per share, 4,545 ordinary shares
underlying warrants exercisable within 60 days with an exercise price of
$3.85 per share and 1,800 ordinary shares underlying warrants exercisable
within 60 days with an exercise price of $7.50 per share.

(41) Consists of 5,000 ordinary shares underlying warrants exercisable within 60
days with an exercise price of $5.75 per share. Evan Bines and Leslie Bines
have voting and/or investment control over this selling shareholder.

(42) Consists of 10,000 ordinary shares underlying options exercisable within 60
days with an exercise price of NIS 0.1 per share. Shmuel Zysman, Erez
Aharony and Joseph Gayer have voting and/or investment control over this
selling shareholder.

PLAN OF DISTRIBUTION

The selling shareholders may sell their shares on the Prime Standard
Segment of the Frankfurt Stock Exchange or on the Nasdaq SmallCap Market after
the registration statement of which this prospectus forms a part is declared
effective. The selling shareholders and their successors, including their
permitted transferees, pledgees or donees or their successors, may sell the
ordinary shares directly to purchasers or through underwriters, broker-dealers
or agents, who may receive compensation in the form of discounts, concessions or
commissions from the selling shareholders or the purchasers. These discounts,
concessions or commissions as to any particular underwriter, broker-dealer or
agent may be in excess of those customary in the types of transactions involved.

The shares covered by this prospectus to be sold from time to time by the
selling shareholders may be sold in one or more transactions at fixed prices, at
prevailing market prices at the time of sale, at prices related to the
prevailing market prices, at varying prices determined at the time of sale, or
at negotiated prices. These sales may be effected in transactions:

o on any national securities exchange or U.S. inter-dealer system of a
registered national securities association on which the ordinary
shares may be listed or quoted at the time of sale;
o in the over-the-counter market;
o in private transactions;
o by pledge to secure debts and other obligations; or
o a combination of any of the above transactions.

The selling shareholders may either sell shares directly to purchasers, or
sell shares to, or through, broker-dealers. These broker-dealers may act either
as an agent of the selling shareholders, or as a principal for the
broker-dealer's own account. These transactions may include transactions in
which the same broker-dealer acts as an agent on both sides of the trade. Such
broker-dealers may receive compensation in the form of discounts, concessions or
commissions from the selling shareholders and/or the purchasers of the shares.
This compensation may be received both if the broker-dealer acts as an agent or
as principal. This compensation might also exceed customary commissions.

If any selling shareholder notifies us that any material arrangement has
been entered into with a broker-dealer for the sale of shares through:

o a block trade,
o a special offering,
o an exchange distribution or secondary distribution, or
o a purchase by a broker or dealer,

then we will file, if required, a supplement to this prospectus under Rule
424(b) of the Securities Act.

The supplement will disclose, to the extent required:

o the names of the selling shareholders and of the participating
broker-dealer(s);
o the number of shares involved;
o the price at which such shares were sold;
o the commissions paid or discounts or concessions allowed to such
broker-dealer(s), where applicable;
o that such broker-dealer(s) did not conduct any investigation to verify
the information set out or incorporated by reference in this
prospectus; and
o any other fact material to the transaction.

The selling shareholders and any underwriters, broker-dealers or agents
that participate in the sale or distribution of the ordinary shares may be
deemed "underwriters" within the meaning of Section 2(11) of the Securities Act.
Any discounts, commissions, concessions or profit they earn on any resale of the
shares may be underwriting discounts and commissions under the Securities Act.
Selling shareholders who are "underwriters" within the meaning of Section 2(11)
of the Securities Act will be subject to the prospectus delivery requirements of
the Securities Act.

Under the Securities Exchange Act, any person engaged in the distribution
of the shares may not simultaneously engage in market making activities with
respect to our ordinary shares for a period of up to 5 business days prior to
the commencement of such distribution. In addition, the selling shareholders
will be subject to the applicable provisions of the Securities Exchange Act,
including Regulation M, which may limit the timing of purchases and sales of
ordinary shares by the selling shareholders or any other such persons. These
restrictions may affect the marketability of the shares and the ability of any
person or entity to engage in market-making activities with respect to the
shares.

In order to comply with the securities laws of some jurisdictions, if
applicable, the ordinary shares must be sold in these jurisdictions only through
registered or licensed brokers or dealers. In addition, in certain
jurisdictions, the ordinary shares may not be sold unless they have been
registered or qualified for sale or an exemption from registration or
qualification requirements is available and is complied with.

DIVIDEND POLICY

We have never declared or paid any cash dividends on our ordinary shares or
other securities. We currently expect to retain all future earnings, if any, to
finance the development of our business, and do not anticipate paying any cash
dividends in the foreseeable future. Any future determination relating to
dividend policy will be made by our board of directors and will depend on a
number of factors, including future earnings, capital requirements, financial
condition and future prospects and other factors the board of directors may deem
relevant. In the event of a distribution of a cash dividend out of tax exempt
income, we will be liable to corporate tax at a rate of 25% in respect of the
amount distributed.

DESCRIPTION OF ORDINARY SHARES

As of May 26, 2004, our authorized share capital consists of 30,000,000
ordinary shares, nominal value of NIS 0.1 per share, of which 7,397,422 are
issued and outstanding, excluding shares issuable upon exercise of warrants or
options.

The ownership or voting of ordinary shares by non-residents of Israel is
not restricted in any way by our articles of association or the laws of the
State of Israel, except that nationals of countries which are in a state of war
with Israel might not be recognized as owners of ordinary shares.

LEGAL MATTERS

The validity of the ordinary shares offered in this offering and certain
other matters in connection with this offering relating to Israeli law will be
passed upon for us by Zysman Aharoni Gayer & Co. Law Offices, Tel Aviv, Israel.
Weil, Gotshal & Manges LLP, New York, New York, has advised us with respect to
United States legal matters in connection with this offering. As of the date of
this prospectus, Zysman Aharoni Gayer & Co. beneficially owns options to acquire
10,000 of our ordinary shares.

EXPERTS

The consolidated financial statements of On Track Innovations Ltd. and its
subsidiaries as of December 31, 2003 and for the year then ended, have been
incorporated by reference herein in reliance upon the report of Somekh Chaikin,
independent public accounting firm, a member of KPMG International, incorporated
by reference herein, and upon the authority of said firm as experts in
accounting and auditing.

Luboshitz Kasierer, an affiliate member of Ernst & Young International,
independent auditors, have audited our consolidated financial statements as of
December 31, 2002 and for the year then ended included in our Annual Report on
Form 20-F for the year ended December 31, 2003, as set forth in their report,
which is incorporated by reference in this prospectus and in the registration
statement. Our financial statements are incorporated by reference in reliance on
Luboshitz Kasierer's report, given on their authority as experts in accounting
and auditing.

Our financial statements as of and for the year ended December 31, 2001
incorporated by reference in this prospectus have been audited by Luboshitz
Kasierer Arthur Andersen ("AA"), independent public accountants, as indicated in
their report with respect thereto, and are included herein in reliance upon the
authority of said firm as experts in accounting and auditing. We have been
unable to obtain AA's consent to the incorporation by reference into this
prospectus of AA's report with respect to our consolidated financial statements
as of and for the year ended December 31, 2001. AA has ceased conducting
operations. Accordingly, it is highly unlikely that you will be able to recover
damages from AA under Section 11 of the Securities Act for any untrue statements
of material fact contained in the financial statements audited by AA or any
omissions to state a material fact required to be stated therein or necessary to
make the statements therein not misleading.

ENFORCEABILITY OF CIVIL LIABILITIES

We are incorporated under the laws of the State of Israel. Service of
process upon our directors and executive officers and the Israeli experts named
in this prospectus, substantially all of whom reside outside the United States,
will be difficult to obtain within the United States. Furthermore, because
substantially all of our assets and the assets of these persons are located
outside the United States, any judgment obtained in the United States against us
or any of our directors and officers or the Israeli experts named in the
prospectus, will be difficult to collect outside those countries.

We have been informed by our legal counsel in Israel, Zysman Aharoni Gayer
& Co. Law Offices, that there is doubt as to the enforceability of civil
liabilities under the Securities Act and the Securities Exchange Act in original
actions instituted in Israel. However, subject to certain time limitations,
Israeli courts generally enforce a final executory judgment of a foreign court
in civil matters including judgments based upon the civil liability provisions
of the Securities Act and the Securities Exchange Act or the German securities
laws and including a monetary or compensatory judgment in a non-civil matter,
provided that:

o the judgments are obtained after due process before a court of
competent jurisdiction, according to the laws of the state in which
the judgment is given and the rules of private international law
currently prevailing in Israel;
o the foreign court is not prohibited by law from enforcing judgments of
Israeli courts;
o adequate service of process has been effected and the defendant has
had a reasonable opportunity to be heard and to present his evidence;
o the judgments and the enforcement of the civil liabilities are not
contrary to the law, public policy, security or sovereignty of the
State of Israel;
o the judgments were not obtained by fraud and do not conflict with any
other valid judgment in the same matter between the same parties;
o an action between the same parties in the same matter is not pending
in any Israeli court at the time the lawsuit is instituted in the
foreign court; and
o the obligations under the judgment are enforceable according to the
laws of the State of Israel.

We have irrevocably appointed OTI America, Inc. as our agent solely to
receive service of process in any action against us in any United States federal
court or the courts of the State of New York arising out of this offering.

Foreign judgments enforced by Israeli courts will be payable in Israeli
currency, which can then be converted into non-Israeli currency and transferred
out of Israel. The usual practice in an action before an Israeli court to
recover an amount in a non-Israeli currency is for the Israeli court to render
judgment for the equivalent amount in Israeli currency at the rate of exchange
in force on the date thereof, but the judgment debtor may make payment in
foreign currency. Pending collection, the amount of the judgment of an Israeli
court stated in Israeli currency ordinarily will be linked to the Israeli
consumer price index plus interest at the annual statutory rate set by Israeli
law prevailing at that time. Judgment creditors must bear the risk of
unfavorable exchange rate movement.

WHERE YOU CAN FIND MORE INFORMATION

We have filed a registration statement on Form F-3, including the exhibits
and schedules thereto, with the Securities and Exchange Commission, or SEC,
under the Securities Act, and the rules and regulations thereunder, for the
registration of the ordinary shares that are being offered by this prospectus.
This prospectus does not include all of the information contained in the
registration statement. You should refer to the registration statement and its
exhibits for additional information. Whenever we make reference in this
prospectus to any of our contracts, agreements or other documents, the
references are not necessarily complete and you should refer to the exhibits
attached to the registration statement for copies of the actual contract,
agreements or other document.

We are subject to the informational requirements of the Securities Exchange
Act, applicable to foreign private issuers. As a "foreign private issuer," we
are exempt from the rules under the Securities Exchange Act prescribing certain
disclosure and procedural requirements for proxy solicitations, and our
officers, directors and principal shareholders are exempt from the reporting and
"short-swing" profit recovery provisions contained in Section 16 of the
Securities Exchange Act, with respect to their purchases and sales of shares. In
addition, we are not required to file annual, quarterly and current reports and
financial statements with the SEC as frequently or as promptly as United States
companies whose securities are registered under the Securities Exchange Act.
However, we will file with the SEC, within 180 days after the end of each fiscal
year, an annual report on Form 20-F containing financial statements audited by
an independent accounting firm. We also furnish quarterly reports on Form 6-K
containing unaudited interim financial information for the first three quarters
of each fiscal year.

You may read and copy any document we file or furnish with the SEC at the
SEC's Public Reference Room at 450 Fifth Street, N.W., Washington, DC 20549. You
may also obtain copies of the documents at prescribed rates by writing to the
Public Reference Section of the SEC at 450 Fifth Street, NW, Washington, DC
20549. Please call the SEC at 1-800-SEC-0330 to obtain information on the
operation of the Public Reference Room. In addition, the SEC maintains an
Internet site that contains reports, proxy and information statements, and other
information regarding issuers that file electronically with the SEC. You can
review our SEC filings, including the registration statement by accessing the
SEC's Internet site at http://www.sec.gov.

Documents may also be inspected at the National Association of Securities
Dealers, Inc., 1735 K street, N.W., Washington D.C. 20006. In addition, under
German law, documents referred to in this prospectus, in so far as they relate
to us may be inspected during normal business hours at On Track Innovations
Ltd., Z.H.R. Industrial Zone, P.O. Box 32, Rosh Pina, Israel 12000.

INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE

The SEC allows us to "incorporate by reference" the information we file
with the SEC. This means that we can disclose important information to you by
referring to those documents. The information incorporated by reference is
considered to be part of this prospectus, and later information filed with the
SEC will update and supersede information previously filed. We incorporate by
reference the documents listed below:

o Our annual report on Form 20-F for the fiscal year ended December 31,
2003, filed with the SEC on April 2, 2003 (SEC File No. 0-49877);
o Our reports on Form 6-K furnished to the SEC on April 7, 2004, April
13, 2004, April 20, 2004, April 29, 2004, May 4, 2004 and May 20,
2004.
o The description of our ordinary shares contained in our registration
statement on Form 8-A filed with the SEC on June 19, 2002.

We also incorporate by reference all of our subsequent annual reports filed
with the SEC on Form 20-F and all of our subsequent reports on Form 6-K under
the Securities Act of 1934 submitted to the SEC that we specifically identify in
such form as being incorporated by reference into this prospectus.

As you read the above documents, you may find inconsistencies in
information from one document to another. If you find inconsistencies among the
documents, or between any of the documents and this prospectus, you should rely
on the statements made in the most recent document. All information appearing in
this prospectus is qualified in its entirety by the information and financial
statements, including the notes thereto, contained in the documents incorporated
by reference in this prospectus.

We will deliver to each person (including any beneficial owner) to whom
this prospectus has been delivered a copy of any or all of the information that
has been incorporated by reference into this prospectus but not delivered with
this prospectus. We will provide this information upon written or oral request,
and at no cost to the requester. Requests should be directed to On Track
Innovations Ltd., Z.H.R. Industrial Zone P.O. Box 32, Rosh-Pina 12000 Israel,
Attention: Investor Relations. Our phone number is +011-972-4-686-8000.

EXPENSES

We anticipate that our total expenses with respect to the registration
statement of which this prospectus is a part and the offering to be made hereby
will aggregate approximately $23,000, of which $2,650 is attributable to the SEC
registration fee, approximately $10,000 is attributable to legal fees and
approximately $10,000 is attributable to accounting fees.

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[LOGO OF ON TRACK INNOVATIONS LTD.]

2,162,944 ORDINARY SHARES

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PROSPECTUS

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June 21, 2004

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