The transactions will substantially increase OTI's capacity to manufacture smart cards, inlays for smart cards & electronic passports, and machinery for the fabrication of such products. We anticipate that the increased capacity will enable us to meet the rollouts and rapidly growing demand for our payments and ID products. As a result, OTI expects to realize increase in gross margins.

In the first transaction, OTI purchased 100% of Pioneer Oriental International, Ltd. ("POI"), a Hong Kong-based manufacturer of smart cards, inlays for smart cards & electronic passports, and machinery for the fabrication of such products. The second transaction was for the acquisition of 71.5% interest in e-Pilot Group Ltd., a Hong Kong-based manufacturer of inlays for smart cards & electronic passports and smart cards. In consideration for these acquisitions, OTI issued an aggregate of 93,013 of its ordinary shares.

Following its acquisition by OTI, POI acquired substantially all of the assets of Pioneer Oriental Engineering Ltd. ("POE"), a Hong Kong-based producer of smart cards, inlays for smart cards & electronic passports, and machinery for the fabrication of such products. The purchase price that POI paid consisted of 137,208 newly issued OTI ordinary shares.

As a fourth stage, OTI is establishing a company in which OTI holds 60%, that will manufacture contactless smart cards, inlays for cards and electronic passports, and machinery for the fabrication of these products.

OTI is currently in the process of integrating the newly acquired companies into its global operations and bringing them into conformity with its operational, quality control and financial reporting standards. OTI anticipates that, as a result of the acquisitions described above, its production capacity will increase to as much as 6 million units per month by the second half of 2006.

In commenting on these acquisitions, Oded Bashan, President & CEO of OTI, stated that, "The growing demand for our products has resulted in a strategic decision to take greater control of the manufacturing process, enabling us to ensure our ability to meet this demand on a timely and stable basis and to improve our gross margins. The transactions that we announce today represent the implementation of this strategy. Such transactions also enable us to provide both ourselves and unrelated third parties with unique machinery for the production of cards, inlays for cards and electronic passports. We will, if necessary be able to quickly build local manufacturing capabilities according to specific project requirements."