Thank you, Operator. Welcome to On Track Innovations’ 2019 third quarter conference call.

I would like to thank management for hosting this call. With us on the call today from OTI is Mr.

Assaf Cohen, interim CEO and company CFO. Assaf will use this forum to provide some of the recent key highlights and review OTI’s financial performance for the 2019 third quarter.

Following the prepared remarks, we will go to investors’ submitted questions and Assaf will provide the answers to those questions. Please be advised that certain information discussed on this call will contain forward-looking statements.

This can be identified by the use of terms such as may, will, expect, believe, intend, plan, and other comparable terms, for example, and in addition to what is mentioned in the company’s results press release. OTI is using forward-looking statements when it discloses, among others, OTI’s belief that there is significant potential in Japan and OTI’s expectations for success in 2020 onwards in Japan, increases in sales and improvements, launching new products to the market, recovery in the U.S., the timing of the impact of OTI’s new TRIO-IQ solution and its sales, growing recurring revenue, OTI’s expectations that in 2020 onwards the difficulties will be behind it, and its expectations to complete its recovery during 2020 and onwards and its strong pipeline for 2020.

While forward-looking statements reflect good faith belief and best judgment based on current information, they are not guarantees of future performance. They are subject to known and unknown uncertainties and risk factors, including those detailed from time to time in the company’s filings with the SEC.

OTI assumes no obligation to update any forward-looking statements information which speak of their respective dates. The full Safe Harbor provisions as set forth in the press release we discussed last Wednesday, which are available on OTI’s website at investors.otiglobal.com.

With that, I would now like to hand over the call to the company’s interim CEO and continuing CFO, Assaf Cohen. Assaf, please go ahead.

Thank you Gavriel. Welcome all and thank you for joining us today.

As you all know, OTI has been transitioning over the past few months and has undergone search for a new CEO. In the interim, I was appointed the interim CEO.

Accordingly, during this time we changed the format of the conference call with the prepared remarks being pre-recorded. In addition, we are taking questions from investors via email.

Following my prepared remarks, I will provide the answers to the questions submitted. I would like to start by summarizing some of the key events of the quarter and more recently.

The most significant event has been announcement last Wednesday of the appointment of Yehuda Holtzman as new CEO of OTI. The appointment will be effective from December 1, 2019.

Yehuda brings to us a very strong sales background and has previously worked with companies which have demonstrated very strong success in growing sales, increasing their profitability, and ultimately realizing significant shareholder value. The board believes that Yehuda’s background is ideal for OTI and will enable us to execute the company’s strategy and bring us to our next stage.

We look forward to Yehuda joining the OTI family in the coming weeks, and you will have an opportunity to hear from him in our next investor conference call. Now to the summary of the quarter’s results.

Our revenues in the third quarter amounted to $3.9 million, slightly below those of the prior quarter which were at $4.1 million but still well ahead those of the first quarter of this year, where we faced an impact from the U.S. tariff on Chinese manufactured products.

The positive aspect of our results and in line with our long-term strategy is that the recurring portion of our revenues continues its growth trend has been more than a third of our revenue year-to-date compared with 23% in the same period last year. In October, we announced an order for 5,000 contactless readers for the smart ATM market; in fact, during this year to date, we have delivered more than 20,000 advanced contactless readers to the important markets.

These orders continue to be won based on our leading technological capabilities and its demonstration of the highest level of security. Russia remains an important market for us.

With our [indiscernible] certification during the first nine months of 2019, we have delivered more than 8,000 advanced systems to the ticketing sales check-out system for the Russian market. In mid-June, we received a purchase order for 1,000 cashless payment systems from Japan via our partner, Billing Systems Corporation, a leading regional payment service provider.

This order gives us substantial runway to continue our growth together with our strategic partner, and we continue to broaden our footprint in the vast Japanese untended retail market and we already have more than 11,000 OTI systems operational in the Japanese market. With a potential of 6 million units country-wide, the total size of the Japanese electronic vending machine market is very significant for us.

Now I would like to cover the financial results. Last Wednesday, we issued the results of the third quarter of the 2019 in a press release.

A copy of the release is available in the Investor Relations section of our website. As usual, I will be covering some non-GAAP metrics, including adjusted EBITDA from continuing operations.

We believe this provides a good understanding of our ongoing performance. Please see the earnings release on our website for further details about this non-GAAP metric, including a reconciliation of adjusted EBITDA to our comparable GAAP results.

In addition, as you know, we announced the sale of MediSmart in December 2018. The results of MediSmart are therefore included as discontinued operations and all the prior period information has been reclassified to conform with the current period’s presentation.

Revenues in the third quarter of 2019 were $3.9 million. This is compared with $6.1 million in the third quarter of last year and $4.1 million in the prior quarter.

In terms of the breakdown of where revenues were derived in the third quarter of 2019, retail and mass transit ticketing revenues were $3 million or 76% of total revenues, and petroleum revenues were $0.9 million or 24% of total revenues. Looking at geographic breakdown in the third quarter of 2019, the Americas accounted for $1.5 million or 37%, Europe was $1.7 million or 44%, Africa was $0.5 million or 13%, and APAC was $0.2 million or 6%.

Recurring revenues in the third quarter of the year were $1.2 million or 32% of revenue versus $1.3 million or 22% last year. Gross margin in the third quarter was 44% compared to the 53% reported in Q3 last year and 58% in the prior quarter.

The reason for the lower level of gross margin was due to a product mix sold in the quarter and inventory adjustments. In the third quarter operating expenses, including a gain of $0.3 million related to the sale of the building by OTI’s South Africa subsidiary, were significantly reduced to $2.8 million.

This is compared to $3.5 million in the third quarter of last year and $3.2 million in the prior quarter. Net loss in the quarter was $1.2 million.

This is compared to $184,000 loss in the third quarter of last year and $899,000 loss in the prior quarter. Now turning to our non-GAAP results, adjusted EBITDA in the third quarter of 2019 was a loss of $1.1 million compared with an adjusted EBITDA of $181,000 in the third quarter of last year and adjusted EBITDA loss of $442,000 in the prior quarter.

Looking at our balance sheet, as of September 30, 2019, cash, cash equivalents and short-term investments totaled $5.3 million. Short and long term debt was $2.6 million.

At year-end 2018, we had $5.9 million in cash, cash equivalent and short-term investments and $0.3 million in debt. Now we will respond to your questions.

Gavriel, please go ahead.

Our first question is from Ariel Lipschitz [ph]. The sales recorded so far in the Japanese market have been disappointing.

Please comment on the type of obstacles OTI is facing there.

We already have more than 11,000 OTI systems operational in the Japanese market. With a potential of 6 million units country-wide, the total size of the Japanese electronic vending machine market is very significant for us with significant potential.

Realizing that potential is taking much longer than we would have liked and the sales process is long, we believe that we will have more success in 2020 onwards and will increase deployment of our solutions, and an important role that the new CEO will have early on is to grow our sales in Japan.

OTI Poland took a $2 million loan in the summer of 2019. Can you comment on the rationale for that loan?

This was mainly to strengthen our balance sheet and increase our cash position, which currently stands at $5.3 million. It is also to provide more working capital for our sales operation in the region, and we see potential for increases in sales there in the near term.

Beyond the Japanese market, what are the main difficulties OTI is facing in realizing an increased level of sales?

2019 sales have indeed been slower than we would have liked. As you know, at the start of the year we faced significantly lower sales due to the tariffs placed by the U.S.

on Chinese imports, where our products were made at that time. Furthermore, the lack of a full-time CEO who should be focused on customers and growing sales also has impacted us; however, looking ahead I do expect to see improvements.

In our payment and mass transit segments, we are focusing on strategic markets of the U.S. market but also pushing deeper into the European and the Japanese markets as well.

During 2020, we hope to see an increase in sales in those markets with primary focus on the U.S. market, which is definitely a key growth engine.

I believe that a new and fresh CEO at the helm of OTI will [indiscernible] the process forward.

Overall, what do you see as main priorities for improved performance during the next six to 12 months?

Increasing top line results by recovering our sales operations and engaging with strategic accounts as well. Again, this will be a key priority for our new CEO.

Additionally, launching new products to the market, including our state-of-the-art TRIO-IQ solution, should give us a push and increase sales in the coming quarters as well.

Please comment on the manufacturing and supply chain situation at the new facility in the Philippines.

As you all know, by the end of the first quarter of 2019, we had successfully completed the process of shifting our production out of China to another manufacturing zone, the Philippines, where there is no impact from U.S. tariffs on imports.

During the second quarter of 2019 onwards, we started our recovery in our sales in the U.S. market.

We believe that the recovery in the U.S. market will be completed by 2020.

Our next questions are from Tony Facicello [ph] from Manulife Securities. Prior to his departure, former CEO Shlomi Cohen mentioned that the OTI TRIO-IQ presentation at the NAMA Show in Las Vegas received excellent feedback.

He also mentioned that it would be ready for distribution at the end of Q3. Has this technology hit the market yet?

Do we expect to see any significant sales with respect to this product in the last quarter of 2019?

The real impact of our new TRIO-IQ solution on our sales is expected to take place during 2020.

In August 2016, OTI received a letter of intent from a major Japanese retailer to purchase 10,000 FeliCa certified contactless readers and telemetry systems. To date this remains the only major order from the Japanese market.

Considering the opportunity in this market, what has been the major obstacle that OTI is facing in successfully penetrating this opportunity? Going forward, is there a strategy in place to improve penetration and market share in this area?

As I mentioned earlier, the Japanese market is a strategic market for the company and we are working constantly to increase our deployment in this market. With a drive from a new CEO, we hope to increase penetration in this market during 2020 and onwards.

Recurring revenues have been at the $1.2 million area in the last four quarters. Is the game plan to work towards improving these numbers by remaining focused on selling the full service package?

Our strategy of transitioning from a pure product company to a solution company that utilizes software in the cloud is ongoing. While the process is a long one, we have been increasing the portion of our sales which are recurring revenue, and our goal is to gradually grow this portion over the coming quarters and years by selling this type of full solution with a recurring element.

Our next set of questions are from Bruce Geller. Bruce asks, why were revenues weak considering management originally touted expectations for a return to revenue growth this year?

2019 turned out to be a transition year which started with challenging events, such as impact from U.S. tariffs on imports and then continuing with the management change.

We believe that in 2020 onwards, the difficulties will be behind us, the company will see a sales recovery, and our focus for 2020 is both on improving top and bottom line results.

In the past, weak revenues were cited due to changeovers in manufacturing locations. With behind the company, why was there no catch-up benefit?

There has been a clear improvement from revenues in Q1, even though Q3 was weaker than those of Q2. Recovery in the U.S.

market already started in Q2 and has continued into Q3 2019, and we believe we will continue to improve and complete our recovery during 2020 onwards.

What does the backlog look like? What does the bidding pipeline look like?

What are the opportunities right now?

We don’t publish the backlog figures, but we believe the company will have strong pipelines for 2020, including having higher recurring revenue portion, which will positively impact on our top line and our margin as well.

Why were gross margins down when recurring revenues was 32% this year versus only 22% last year?

This change is mainly attributed to inventory adjustments and to a change in our revenue mix.

Why does the company remain public? Is the board making a concerted effort to sell the company and capitalize on the value of its technological expertise and patents?

We believe remaining public offers benefits to our shareholders at this time. The board has worked intensively recently to recruit a new CEO, which was completed last Wednesday.

His mandate is to take actions to promote the company’s business in order to maximize the value of shareholders.

Our next questions are from Ramona Dacosta [ph]. What are the priorities for turning the business around into cash flow positive?

Our goal is to increase top line results by recovering our sales operation and engaging with strategic accounts as well.

When do you expect to return to NASDAQ?

Currently we are in the OTCQX market, which is the highest tier in OTC other than the OTCQX Premier. The OTC offers ample trading opportunities to investors and is the right place for companies of our size.

Right now, we don’t have intention to return to NASDAQ until our share price and market cap returns to much higher levels. In general, we will continue to work in order to maximize the value of our shareholders, which we believe will come about as the business revenue and the profitability recovers.

Are the board of directors considering an M&A, going private, or other potential avenues to realize shareholder value?

I can’t give guidance, but I can say that the board is working intensively on promoting the company’s business and maximizing the value of our shareholders.

Thank you. That concludes the question and answer session.

Assaf, please make your concluding statements.

On behalf of OTI, I would like to thank you for your continued interest and long-term support of our businesses. I look forward to speaking with you next quarter and updating you on our progress.

Thank you.