Item 1. Financial Statements.
ON TRACK INNOVATIONS LTD. AND ITS SUBSIDIARIES
INTERIM CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
As of June 30, 2017
(Unaudited)
On
Track Innovations Ltd.
and
its Subsidiaries
Interim
Unaudited Condensed Consolidated Financial Statements as of June 30, 2017
Contents
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Page
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Interim Unaudited Condensed Consolidated Balance Sheets
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F-2 - F-3
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Interim Unaudited Condensed Consolidated Statements of Operations
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F-4
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Interim Unaudited Condensed Consolidated Statements of Comprehensive Income (Loss)
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F-5
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Interim Unaudited Condensed Consolidated Statements of Changes in Equity
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F-6
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Interim Unaudited Condensed Consolidated Statements of Cash Flows
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F-7 - F-8
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Notes to the Interim Unaudited Condensed Consolidated Financial Statements
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F-9 - F-17
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On
Track Innovations Ltd.
and
its Subsidiaries
Interim
Unaudited Condensed Consolidated Balance Sheets
US
dollars in thousands except share data
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2017
|
|
|
2016
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
6,242
|
|
|
$
|
5,952
|
|
Short-term investments
|
|
|
3,084
|
|
|
|
5,585
|
|
Trade receivables (net of allowance for doubtful
accounts of $694 and $720 as of June 30, 2017 and December 31, 2016, respectively)
|
|
|
6,843
|
|
|
|
5,620
|
|
Other receivables and prepaid expenses
|
|
|
1,554
|
|
|
|
1,638
|
|
Inventories
|
|
|
3,180
|
|
|
|
3,069
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
20,903
|
|
|
|
21,864
|
|
|
|
|
|
|
|
|
|
|
Long-term restricted deposit for employees benefit
|
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|
500
|
|
|
|
453
|
|
|
|
|
|
|
|
|
|
|
Severance pay deposits
|
|
|
355
|
|
|
|
322
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net
|
|
|
5,967
|
|
|
|
5,788
|
|
|
|
|
|
|
|
|
|
|
Intangible assets, net
|
|
|
351
|
|
|
|
278
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
28,076
|
|
|
$
|
28,705
|
|
The
accompanying notes are an integral part of these interim unaudited condensed consolidated financial statements.
On
Track Innovations Ltd.
and
its Subsidiaries
Interim
Unaudited Condensed Consolidated Balance Sheets
US
dollars in thousands except share data
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2017
|
|
|
2016
|
|
Liabilities and Equity
|
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|
|
|
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Current Liabilities
|
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Short-term bank credit and current maturities of long-term bank loans
|
|
$
|
4,663
|
|
|
$
|
4,369
|
|
Trade payables
|
|
|
7,104
|
|
|
|
6,957
|
|
Other current liabilities
|
|
|
1,991
|
|
|
|
2,822
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
13,758
|
|
|
|
14,148
|
|
|
|
|
|
|
|
|
|
|
Long-Term Liabilities
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|
|
|
|
|
|
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Long-term loans, net of current maturities
|
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|
1,041
|
|
|
|
1,215
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|
Accrued severance pay
|
|
|
918
|
|
|
|
811
|
|
Deferred tax liability
|
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|
452
|
|
|
|
373
|
|
Total long-term liabilities
|
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|
2,411
|
|
|
|
2,399
|
|
|
|
|
|
|
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Total Liabilities
|
|
|
16,169
|
|
|
|
16,547
|
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|
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Commitments and Contingencies
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Equity
|
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|
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Shareholders' Equity
|
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|
|
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|
Ordinary shares of NIS 0.1 par value: Authorized – 50,000,000 shares as of June 30, 2017 and December 31, 2016;
issued: 42,288,077 and 42,243,075 shares as of June 30, 2017 and December 31, 2016, respectively; outstanding:
41,109,378 and 41,064,376 shares as of June 30, 2017 and December 31, 2016, respectively
|
|
|
1,062
|
|
|
|
1,061
|
|
Additional paid-in capital
|
|
|
224,603
|
|
|
|
224,415
|
|
Treasury shares at cost - 1,178,699 shares as of June 30, 2017 and December 31, 2016
|
|
|
(2,000
|
)
|
|
|
(2,000
|
)
|
Accumulated other comprehensive loss
|
|
|
(904
|
)
|
|
|
(1,236
|
)
|
Accumulated deficit
|
|
|
(210,854
|
)
|
|
|
(210,082
|
)
|
Total Equity
|
|
|
11,907
|
|
|
|
12,158
|
|
|
|
|
|
|
|
|
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|
Total Liabilities and Equity
|
|
$
|
28,076
|
|
|
$
|
28,705
|
|
The
accompanying notes are an integral part of these interim unaudited condensed consolidated financial statements.
On
Track Innovations Ltd.
and
its Subsidiaries
Interim
Unaudited Condensed Consolidated Statements of Operations
US
dollars in thousands except share and per share data
|
|
Three Three months ended
June 30,
|
|
|
Six months ended
June 30,
|
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|
2017
|
|
|
2016*
|
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|
2017
|
|
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2016*
|
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Revenues
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|
|
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Sales
|
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$
|
5,646
|
|
|
$
|
3,584
|
|
|
$
|
8,426
|
|
|
$
|
6,946
|
|
Licensing and transaction fees
|
|
|
1,300
|
|
|
|
1,226
|
|
|
|
2,540
|
|
|
|
2,436
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
6,946
|
|
|
|
4,810
|
|
|
|
10,966
|
|
|
|
9,382
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Cost of revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales
|
|
|
3,476
|
|
|
|
2,360
|
|
|
|
5,276
|
|
|
|
4,609
|
|
Total cost of revenues
|
|
|
3,476
|
|
|
|
2,360
|
|
|
|
5,276
|
|
|
|
4,609
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
3,470
|
|
|
|
2,450
|
|
|
|
5,690
|
|
|
|
4,773
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
889
|
|
|
|
747
|
|
|
|
1,591
|
|
|
|
1,468
|
|
Selling and marketing
|
|
|
1,492
|
|
|
|
1,321
|
|
|
|
2,834
|
|
|
|
2,674
|
|
General and administrative
|
|
|
939
|
|
|
|
902
|
|
|
|
1,795
|
|
|
|
1,826
|
|
Total operating expenses
|
|
|
3,320
|
|
|
|
2,970
|
|
|
|
6,220
|
|
|
|
5,968
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss) from continuing operations
|
|
|
150
|
|
|
|
(520
|
)
|
|
|
(530
|
)
|
|
|
(1,195
|
)
|
Financial expenses, net
|
|
|
(39
|
)
|
|
|
(62
|
)
|
|
|
(110
|
)
|
|
|
(155
|
)
|
Income (loss) from continuing operations before taxes on income
|
|
|
111
|
|
|
|
(582
|
)
|
|
|
(640
|
)
|
|
|
(1,350
|
)
|
Income tax
|
|
|
(25
|
)
|
|
|
(16
|
)
|
|
|
(56
|
)
|
|
|
(32
|
)
|
Net income (loss) from continuing operations
|
|
|
86
|
|
|
|
(598
|
)
|
|
|
(696
|
)
|
|
|
(1,382
|
)
|
Net income (loss) from discontinued operations
|
|
|
7
|
|
|
|
1,947
|
|
|
|
(76
|
)
|
|
|
1,803
|
|
Net income (loss)
|
|
|
93
|
|
|
|
1,349
|
|
|
|
(772
|
)
|
|
|
421
|
|
Net (income) loss attributable to non-controlling interest
|
|
|
-
|
|
|
|
(36
|
)
|
|
|
-
|
|
|
|
27
|
|
Net income (loss) attributable to shareholders
|
|
$
|
93
|
|
|
$
|
1,313
|
|
|
$
|
(772
|
)
|
|
$
|
448
|
|
Basic and diluted net income (loss) attributable to shareholders per ordinary share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
From continuing operations
|
|
|
**
|
|
|
|
(0.02
|
)
|
|
|
(0.02
|
)
|
|
|
(0.03
|
)
|
From discontinued operations
|
|
|
**
|
|
|
|
0.05
|
|
|
|
**
|
|
|
|
0.04
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
**
|
|
|
$
|
0.03
|
|
|
$
|
(0.02
|
)
|
|
$
|
0.01
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of ordinary shares used in computing basic
and
diluted net income (loss) per ordinary share
|
|
|
41,095,788
|
|
|
|
40,896,863
|
|
|
|
41,087,729
|
|
|
|
40,885,668
|
|
* Reclassified to conform with the current period presentation, see Note 1C(2).
** Less
than $0.01 per ordinary share.
The
accompanying notes are an integral part of these interim unaudited condensed consolidated financial statements.
On
Track Innovations Ltd.
and
its Subsidiaries
Interim
Unaudited Condensed Consolidated Statements of Comprehensive Income (Loss)
US
dollars in thousands
|
|
Three
months ended
June 30,
|
|
|
Six months ended
June 30,
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
93
|
|
|
$
|
1,349
|
|
|
$
|
(772
|
)
|
|
$
|
421
|
|
Foreign currency translation adjustments
|
|
|
177
|
|
|
|
(190
|
)
|
|
|
332
|
|
|
|
(22
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income (loss)
|
|
$
|
270
|
|
|
$
|
1,159
|
|
|
$
|
(440
|
)
|
|
$
|
399
|
|
Comprehensive loss (income) attributable to the non-controlling interest
|
|
|
-
|
|
|
|
(36
|
)
|
|
|
-
|
|
|
|
27
|
|
Total comprehensive income (loss) attributable to shareholders
|
|
$
|
270
|
|
|
$
|
1,123
|
|
|
$
|
(440
|
)
|
|
$
|
426
|
|
The
accompanying notes are an integral part of these interim unaudited condensed consolidated financial statements.
On
Track Innovations Ltd.
and
its Subsidiaries
Interim
Unaudited Condensed Consolidated Statements of Changes in Equity
US
dollars in thousands except for number of shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
|
|
|
|
|
|
Additional
|
|
|
Treasury
|
|
|
other
|
|
|
|
|
|
Non
|
|
|
|
|
|
|
Shares
|
|
|
Share
|
|
|
paid-in
|
|
|
Shares
|
|
|
comprehensive
|
|
|
Accumulated
|
|
|
controlling
|
|
|
Total
|
|
|
|
issued
|
|
|
capital
|
|
|
capital
|
|
|
(at cost)
|
|
|
Income (loss)
|
|
|
deficit
|
|
|
interest
|
|
|
equity
|
|
Balance as of December 31, 2015
|
|
|
42,014,673
|
|
|
$
|
1,055
|
|
|
$
|
225,925
|
|
|
$
|
(2,000
|
)
|
|
$
|
(1,084
|
)
|
|
$
|
(209,254
|
)
|
|
$
|
(1,819
|
)
|
|
$
|
12,823
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes during the six month period ended June 30, 2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation related to options issued to employees
|
|
|
-
|
|
|
|
-
|
|
|
|
105
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
105
|
|
Foreign currency translation adjustments
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(22
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(22
|
)
|
Exercise of options and warrants
|
|
|
69,402
|
|
|
|
(*)
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(*)
|
|
Net income (loss)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
448
|
|
|
|
(27
|
)
|
|
|
421
|
|
Balance as of June 30, 2016
|
|
|
42,084,075
|
|
|
$
|
1,055
|
|
|
$
|
226,030
|
|
|
$
|
(2,000
|
)
|
|
$
|
(1,106
|
)
|
|
$
|
(208,806
|
)
|
|
$
|
(1,846
|
)
|
|
$
|
13,327
|
|
Balance as of December 31, 2016
|
|
|
42,243,075
|
|
|
$
|
1,061
|
|
|
$
|
224,415
|
|
|
$
|
(2,000
|
)
|
|
$
|
(1,236
|
)
|
|
$
|
(210,082
|
)
|
|
$
|
-
|
|
|
$
|
12,158
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes during the six month period ended June 30, 2017:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation
|
|
|
30,000(**)
|
|
|
|
1
|
|
|
|
173
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
174
|
|
Foreign currency translation adjustments
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
332
|
|
|
|
-
|
|
|
|
-
|
|
|
|
332
|
|
Exercise of options
|
|
|
15,002
|
|
|
|
(*)
|
|
|
|
15
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
15
|
|
Net loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(772
|
)
|
|
|
-
|
|
|
|
(772
|
)
|
Balance as of June 30, 2017
|
|
|
42,288,077
|
|
|
$
|
1,062
|
|
|
$
|
224,603
|
|
|
$
|
(2,000
|
)
|
|
$
|
(904
|
)
|
|
$
|
(210,854
|
)
|
|
$
|
-
|
|
|
$
|
11,907
|
|
(*) Less
than $1.
(**)
See Note 8C.
The
accompanying notes are an integral part of these interim unaudited condensed consolidated financial statements.
On
Track Innovations Ltd.
and
its Subsidiaries
Interim
Unaudited Condensed Consolidated Statements of Cash Flows
US
dollars in thousands
|
|
Six months ended
June 30,
|
|
|
|
2017
|
|
|
2016*
|
|
Cash flows from continuing operating activities
|
|
|
|
|
|
|
Net loss from continuing operations
|
|
$
|
(696
|
)
|
|
$
|
(1,382
|
)
|
Adjustments required to reconcile net loss to net cash used in continuing operating
activities:
|
|
|
|
|
|
|
|
|
Stock-based compensation related to options issued to
employees and others
|
|
|
174
|
|
|
|
105
|
|
Accrued interest and linkage differences, net
|
|
|
(47
|
)
|
|
|
55
|
|
Depreciation
|
|
|
583
|
|
|
|
617
|
|
Deferred tax, net
|
|
|
21
|
|
|
|
32
|
|
Gain on sale of fixed assets
|
|
|
(7
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Accrued severance pay, net
|
|
|
74
|
|
|
|
(151
|
)
|
Increase in trade receivables, net
|
|
|
(1,151
|
)
|
|
|
(1,115
|
)
|
Decrease in other receivables and prepaid expenses
|
|
|
90
|
|
|
|
215
|
|
(Increase) decrease in inventories
|
|
|
(47
|
)
|
|
|
590
|
|
(Decrease) increase in trade payables
|
|
|
(396
|
)
|
|
|
290
|
|
Decrease in other current liabilities
|
|
|
(855
|
)
|
|
|
(453
|
)
|
Net cash used in continuing operating activities
|
|
|
(2,257
|
)
|
|
|
(1,197
|
)
|
|
|
|
|
|
|
|
|
|
Cash flows from continuing investing activities
|
|
|
|
|
|
|
|
|
Purchase of property and equipment, net
|
|
|
(98
|
)
|
|
|
(139
|
)
|
Change in short-term investments, net
|
|
|
2,500
|
|
|
|
(884
|
)
|
Investment in capitalized product costs
|
|
|
(157
|
)
|
|
|
(98
|
)
|
Proceeds from restricted deposit for employee benefits
|
|
|
44
|
|
|
|
-
|
|
Advance payment from sale of property
|
|
|
-
|
|
|
|
396
|
|
Proceeds from sale of fixed assets
|
|
|
12
|
|
|
|
-
|
|
Net cash provided by (used in) continuing investing activities
|
|
|
2,301
|
|
|
|
(725
|
)
|
|
|
|
|
|
|
|
|
|
Cash flows from continuing financing activities
|
|
|
|
|
|
|
|
|
Increase in short-term bank credit, net
|
|
|
213
|
|
|
|
81
|
|
Proceeds from long-term bank loans
|
|
|
-
|
|
|
|
27
|
|
Repayment of long-term bank loans
|
|
|
(374
|
)
|
|
|
(538
|
)
|
Proceeds from exercise of options and warrants
|
|
|
15
|
|
|
|
**
|
|
Net cash used in continuing financing activities
|
|
|
(146
|
)
|
|
|
(430
|
)
|
|
|
|
|
|
|
|
|
|
Cash flows from discontinued operations
|
|
|
|
|
|
|
|
|
Net cash used in discontinued operating activities
|
|
|
(71
|
)
|
|
|
(214
|
)
|
Net cash provided by discontinued investing activities
|
|
|
-
|
|
|
|
1,949
|
|
|
|
|
|
|
|
|
|
|
Total net cash (used in) provided by discontinued operations
|
|
|
(71
|
)
|
|
|
1,735
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash and cash equivalents
|
|
|
463
|
|
|
|
(17
|
)
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in cash and cash equivalents
|
|
|
290
|
|
|
|
(634
|
)
|
Cash and cash equivalents at the beginning of the period
|
|
|
5,952
|
|
|
|
5,450
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at the end of the period
|
|
$
|
6,242
|
|
|
$
|
4,816
|
|
*
Reclassified to conform with the current period presentation, see Note 1C(2).
**
Less than $1.
The
accompanying notes are an integral part of these interim unaudited condensed consolidated financial statements.
On
Track Innovations Ltd.
and
its Subsidiaries
Interim
Unaudited Condensed Consolidated Statements of Cash Flows (cont’d)
US
dollars in thousands
|
|
Six months ended
June 30,
|
|
|
|
2017
|
|
|
2016
|
|
Supplementary cash flows activities:
|
|
|
|
|
|
|
Cash paid during the period for:
|
|
|
|
|
|
|
Interest paid
|
|
$
|
74
|
|
|
$
|
118
|
|
Income taxes paid
|
|
$
|
30
|
|
|
$
|
-
|
|
The
accompanying notes are an integral part of these interim unaudited condensed consolidated financial statements.
On
Track Innovations Ltd.
and
Subsidiaries
Notes
to the Interim Unaudited Condensed Consolidated Financial Statements
US
dollars in thousands
Note
1 - Organization and Basis of Presentation
A.
|
Description
of business
|
On
Track Innovations Ltd. (the “Company”) was founded in 1990, in Israel. The Company and its subsidiaries (together,
the “Group”) are principally engaged in the field of design and development of cashless payment solutions. During
the three month period ended June 30, 2017, we completed the liquidation of our wholly-owned subsidiaries, Softchip Israel Ltd.
and Softchip Technologies (3000) Ltd., and these entities are no longer part of the Group.
The
Company’s shares are listed for trading on the NASDAQ Capital Market (formerly listed on the NASDAQ Global Market until
April 13, 2016).
B.
|
Interim
Unaudited Financial Information
|
The
accompanying unaudited consolidated financial statements of the Company have been prepared in accordance with U.S. generally accepted
accounting principles (“GAAP”) for interim financial information and with the instructions to Form 10-Q. Accordingly,
they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements and therefore
should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2016.
In
the opinion of management, all adjustments considered necessary for a fair presentation, consisting of normal recurring adjustments,
have been included. Operating results for the six month period ended June 30, 2017 are not necessarily indicative of the results
that may be expected for the year ending December 31, 2017.
Use
of Estimates:
The
preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect
the assets, liabilities, revenue, costs, expenses and accumulated other comprehensive income/(loss) that are reported in the Interim
Consolidated Financial Statements and accompanying disclosures. These estimates are based on management’s best knowledge
of current events, historical experience, actions that the Company may undertake in the future and on various other assumptions
that are believed to be reasonable under the circumstances. As a result, actual results may be different from these estimates.
C.
|
Divestiture of operations
|
|
1.
|
In
December 2013, the Company completed the sale of certain assets, subsidiaries and intellectual
property (“IP”) relating to its Smart ID division to SuperCom Ltd. (“SuperCom”).
Accordingly, the results and the cash flows of this operation for all reporting periods
are presented in the statements of operations and in the statements of cash flows, respectively,
as discontinued operations separately from continuing operations.
|
On
Track Innovations Ltd.
and
Subsidiaries
Notes
to the Interim Unaudited Condensed Consolidated Financial Statements
US
dollars in thousands
Note
1 - Organization and Basis of Presentation (cont’d)
C.
|
Divestiture of operations (cont’d)
|
|
2.
|
On
September 14, 2016, the Company completed the sale of certain assets and IP related to
its former parking segment. The Company has determined that the sale qualifies as a discontinued
operation. Accordingly, the results and the cash flows of these operations for all reporting
periods are presented in the statements of operations and in the statements of cash flows,
respectively, as discontinued operations separately from continuing operations. All prior
periods’ information has been reclassified to conform to the current period’s
presentation.
|
Note
2 – Significant Accounting Policies
These
interim unaudited condensed consolidated financial statements have been prepared according to the same accounting policies as
those discussed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016.
Recent
accounting pronouncements
|
1.
|
In
May 2017, the Financial Accounting Standard Board issued Accounting Standards Update
(“ASU”) 2017-09, “Compensation - Stock Compensation (Topic 718): Scope
of Modification Accounting.” The ASU amends the scope of modification accounting
for share-based payment arrangements, provides guidance on the types of changes to the
terms or conditions of share-based payment awards to which an entity would be required
to apply modification accounting. The new guidance will allow companies to make certain
changes to awards without accounting for them as modifications. It does not change the
accounting for modifications. ASU 2017-09 is effective for all entities for annual reporting
periods beginning after December 15, 2017, with early adoption permitted, including adoption
in any interim period for which financial statements have not yet been issued. The Company
does not expect that the adoption of ASU 2017-09 will have a material impact on the Company's
results of operations and financial condition.
|
|
2.
|
In
connection with other recent accounting pronouncements and the Company’s assessment
of the impacts they will have on the ongoing financial reporting, see Note 2W in the
Company’s Annual Report on Form 10-K for the year ended December 31, 2016.
|
On
Track Innovations Ltd.
and
Subsidiaries
Notes
to the Interim Unaudited Condensed Consolidated Financial Statements
US
dollars in thousands
Note
3 - Other Receivables and Prepaid Expenses
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2017
|
|
|
2016
|
|
Government institutions
|
|
$
|
325
|
|
|
$
|
322
|
|
Prepaid expenses
|
|
|
660
|
|
|
|
526
|
|
Receivables under contractual obligations to be transferred to others *
|
|
|
174
|
|
|
|
346
|
|
Other receivables
|
|
|
395
|
|
|
|
444
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,554
|
|
|
$
|
1,638
|
|
*
|
The Company’s subsidiary in Poland is required
to collect certain fees that are to be transferred to local authorities.
|
Note
4 - Other Current Liabilities
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2017
|
|
|
2016
|
|
Employees and related expenses
|
|
$
|
584
|
|
|
$
|
1,011
|
|
Accrued expenses
|
|
|
1,042
|
|
|
|
1,473
|
|
Customer advances
|
|
|
213
|
|
|
|
249
|
|
Other current liabilities
|
|
|
152
|
|
|
|
89
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,991
|
|
|
$
|
2,822
|
|
Note
5 - Commitments and Contingencies
|
1.
|
In
June 2013, prior to the Company's divestiture of its SmartID division, Merwell Inc. (“Merwell”)
filed a claim against the Company before an agreed-upon arbitrator alleging breach of
contract in connection with certain commissions claimed to be owed to Merwell with respect
to the division’s activities in Tanzania. These activities, along with
all other activities of the SmartID division, were later assigned to and assumed by SuperCom
in its purchase of the division. SuperCom undertook to indemnify the Company and hold
it harmless against any liabilities the Company may incur in connection with Merwell’s
consulting agreement and the arbitration. An arbitration decision was issued on February
21, 2016, awarding Merwell approximately $855 for outstanding commissions. The arbitration
decision is being appealed and is thus not yet ripe for enforcement. As mentioned above,
based on the agreement with SuperCom, SuperCom is liable for the costs and liabilities
arising out of this claim. Therefore, the financial statements do not include any provision
for this claim.
|
On
Track Innovations Ltd.
and
Subsidiaries
Notes
to the Interim Unaudited Condensed Consolidated Financial Statements
US
dollars in thousands
Note
5 - Commitments and Contingencies (cont’d)
|
2.
|
On
October 3, 2013, a financial claim was filed against the Company and its then French
subsidiary, Parx France (referred to in this paragraph, collectively, as the “Defendants”),
in the Commercial Court of Paris, France. The sum of the claim is Euro 1,500 (approximately
$1,710), and is based on the allegation that the plaintiff sustained certain losses in
connection with Defendants not granting the plaintiff exclusive marketing rights to distribute
and operate the Defendants’ PIAF Parking System in Paris and the Ile of France.
The Company filed an initial memorandum of defense rejecting all the plaintiff’s
allegations and claims. A hearing in this matter is scheduled for September 19, 2017.
Based on the advice of counsel, the Company currently believes that it has no material
obligations to the plaintiff and that there is no need for a provision for the claim.
|
|
3.
|
On
March 1, 2017, a claim was filed in the U.S. District Court, Eastern District of Pennsylvania
against the Company and its U.S. subsidiary, OTI America Inc. by USA Technologies Inc.
(“USAT”). The claim asserts, among other things, that products sold by the
Company to USAT’s manufacturing subcontractor, Masterwork Electronics, Inc. (“Masterwork”),
fail to conform to promised specifications in that they do not include Apple Value Added
Services (“VAS”), an add-on feature to Apple Pay which was then not yet offered
by the Company. USAT seeks payment of $4,913 plus interest and costs, comprised of $729
to cover payment for alternative products, and $4,184 to cover costs of replacing the
allegedly non-conforming products already installed. The Company denies the claims asserted
by USAT and intends to defend the complaint vigorously. OTI America submitted its answer
to USAT’s complaint on April 24, 2017. The Company submitted its answer to USAT’s
complaint on May 8, 2017. Discovery in this proceeding is currently underway. A pre-trial
conference for this matter is scheduled for August 2, 2018 with trial dates to be set
thereafter. On March 3, 2017, the Company filed a lawsuit against Masterwork in the U.S.
District Court for the Northern District of California. The Company seeks payment of
$2,518 plus interest and costs as a result of Masterwork’s refusal to perform its
obligations in connection with a purchase order supplied by Masterwork to the Company,
based on Masterwork’s allegations that its customer, USAT, had apparently claimed
that the products do not include the VAS feature requested by USAT, though such feature
was not offered then by the Company and was not specified in the purchase order. The
products subject to USAT’s litigation mentioned above include the products subject
to the purchase order referred to in the Company’s claim against Masterwork. Masterwork
submitted its answer to the Company’s complaint on April 20, 2017. On May 26, 2017,
the Company amended its complaint to add USAT as a defendant, asserting claims against
USAT for tortious interference with contract. On June 3, 2017, Masterwork moved to transfer
the California matter to the U.S. District Court, Eastern District of Pennsylvania so
that it be consolidated with the above-described USAT litigation. Masterwork’s
request was granted on July 20, 2017, resulting in the transfer of this matter to the
Eastern District of Pennsylvania where it is expected to be consolidated with the USAT
litigation described above. Based on the advice of counsel, the Company currently believes
that it and OTI America have no obligations to USAT in connection with USAT’s claims
against the Company and OTI America and, similarly, that it has a meritorious claim against
Masterwork and USAT.
|
On
Track Innovations Ltd.
and
Subsidiaries
Notes
to the Interim Unaudited Condensed Consolidated Financial Statements
US
dollars in thousands
Note
5 - Commitments and Contingencies (cont’d)
As
of June 30, 2017, the Company has granted performance guarantees and guarantees to secure customer advances in the sum of $347.
The expiration dates of these guarantees range from October 2017 to June 2019.
Note
6 - Discontinued operations
As
described in Note 1C, the Company divested its interest in the SmartID division and its parking segment, and presented these activities
as discontinued operations.
Set
forth below are the results of the discontinued operations:
|
|
Three months ended
June 30,
|
|
|
Six months ended
June 30,
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
Revenues
|
|
|
-
|
|
|
|
279
|
|
|
|
-
|
|
|
|
584
|
|
Expenses
|
|
|
-
|
|
|
|
(471
|
)
|
|
|
(83
|
)
|
|
|
(920
|
)
|
Other income, net
|
|
|
7
|
|
|
|
2,139
|
|
|
|
7
|
|
|
|
2,139
|
|
Net profit (loss) from discontinued operations
|
|
|
7
|
|
|
|
1,947
|
|
|
|
(76
|
)
|
|
|
1,803
|
|
Note
7 - Fair Value of Financial Instruments
The
Company's financial instruments consist mainly of cash and cash equivalents, short-term interest bearing investments, accounts
receivable, restricted deposits for employee benefits, accounts payable and short-term and long-term loans.
Fair
value for the measurement of financial assets and liabilities is defined as the price that would be received to sell an asset
or paid to transfer a liability in an orderly transaction between market participants at the measurement date. As such, fair value
is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an
asset or liability. The Company utilizes a valuation hierarchy for disclosure of the inputs for fair value measurement. This hierarchy
prioritizes the inputs into three broad levels as follows:
|
●
|
Level 1
Inputs: Unadjusted quoted prices in active markets for identical assets or liabilities accessible to the reporting entity
at the measurement date.
|
|
●
|
Level 2
Inputs: Other than quoted prices included in Level 1 inputs that are observable for the asset or liability, either directly
or indirectly, for substantially the full term of the asset or liability.
|
|
●
|
Level 3
Inputs: Unobservable inputs for the asset or liability used to measure fair value to the extent that observable inputs are
not available, thereby allowing for situations in which there is little, if any, market activity for the asset or liability
at measurement date.
|
On
Track Innovations Ltd.
and
Subsidiaries
Notes
to the Interim Unaudited Condensed Consolidated Financial Statements
US
dollars in thousands
Note
7 - Fair Value of Financial Instruments (cont’d)
By
distinguishing between inputs that are observable in the market place, and therefore more objective, and those that are unobservable
and therefore more subjective, the hierarchy is designed to indicate the relative reliability of the fair value measurements.
A financial asset or liability's classification within the hierarchy is determined based on the lowest level input that is significant
to the fair value measurement.
The
Company, in estimating fair value for financial instruments, used the following methods and assumptions:
The
carrying amounts of cash and cash equivalents, short-term interest bearing investments, trade receivables, short-term bank credit
and trade payables are equivalent to, or approximate their fair value due to the short-term maturity of these instruments.
The
carrying amounts of variable interest rate long-term loans are equivalent or approximate to their fair value as they bear interest
at approximate market rates. As of June 30, 2017, the fair value of bank loans with fixed interest rates did not differ materially
from the carrying amount.
As
of June 30, 2017, the Company held approximately $3,084 of short-term bank deposits (as of December 31, 2016, $5,585). As of June
30, 2017 and December 31, 2016, short-term deposits in the amount of $1,548 have been pledged as security in respect of guarantees
granted in respect of performance guarantees, loans and credit lines received from a bank and cannot be pledged to others or withdrawn
without the consent of the bank.
Note
8 - Equity
During
the six months ended June 30, 2017 and June 30, 2016, 100,000 and 270,000 options were granted, respectively. The vesting period
for the options ranges from three years to four years. The exercise prices for the options range from $0.44 to $1.58. Those options
expire up to five years after the date of grant. Any options which are forfeited or cancelled before expiration become available
for future grants under the Company’s option plan.
The
fair value of each option granted to employees and non-employees during the six months ended June 30, 2017 and June 30, 2016,
was estimated on the date of grant, using the Black-Scholes model and the following assumptions:
|
1.
|
Dividend
yield of zero percent for all periods.
|
|
|
|
|
2.
|
Risk-free
interest rate of 1.35% and 1.18% for grants during the six months ended June 30, 2017
and June 30, 2016, respectively, based on U.S. Treasury yield curve in effect at the
time of grant.
|
|
3.
|
Estimated
expected lives of 3.50 and 3.56 years for grants during the six months ended June 30,
2017 and June 30, 2016, respectively, using the simplified method.
|
|
4.
|
Expected
average volatility of 74% and 72% for grants during the six months ended June 30, 2017
and June 30, 2016, respectively, which represent a weighted average standard deviation
rate for the price of the Company's Ordinary Shares on the NASDAQ Capital Market.
|
On
Track Innovations Ltd.
and
Subsidiaries
Notes
to the Interim Unaudited Condensed Consolidated Financial Statements
US
dollars in thousands
Note
8 - Equity (cont’d)
A.
|
Stock
option plans (cont’d)
|
The
Company’s options activity (including options to non-employees) during the six months ended June 30, 2017 and options outstanding
and options exercisable as of December 31, 2016 and June 30, 2017, are summarized in the following table:
|
|
|
|
|
|
Weighted
|
|
|
|
|
Number of
|
|
|
average exercise
|
|
|
|
|
options
outstanding
|
|
|
price per
share
|
|
|
Outstanding – December 31, 2016
|
|
|
1,604,836
|
|
|
$
|
1.36
|
|
|
|
|
|
|
|
|
|
|
|
|
Options granted
|
|
|
100,000
|
|
|
|
1.58
|
|
|
Options expired or forfeited
|
|
|
(281,334
|
)
|
|
|
1.91
|
|
|
Options exercised
|
|
|
(15,002
|
)
|
|
|
1.05
|
|
|
Outstanding – June 30, 2017
|
|
|
1,408,500
|
|
|
|
1.27
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable as of:
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
|
591,017
|
|
|
$
|
1.83
|
|
|
June 30, 2017
|
|
|
538,500
|
|
|
$
|
1.62
|
|
The
weighted average fair value of options granted during the six months ended June 30, 2017 and during the six months ended June
30, 2016 is $0.93 and $0.41, respectively, per option. The aggregate intrinsic value of outstanding options as of June 30, 2017
and December 31, 2016 is approximately $414 and $909, respectively. The aggregate intrinsic value of exercisable options as of
June 30, 2017 and December 31, 2016 is approximately $120 and $167, respectively.
The
following table summarizes information about options outstanding and exercisable (including options to non-employees) as of June
30, 2017:
|
|
|
Options outstanding
|
|
|
Options exercisable
|
|
|
|
|
Number
|
|
|
Weighted
|
|
|
|
|
|
Number
|
|
|
Weighted
|
|
|
|
|
|
|
|
Outstanding
|
|
|
average
|
|
|
Weighted
|
|
|
Outstanding
|
|
|
average
|
|
|
Weighted
|
|
|
|
|
as of
|
|
|
remaining
|
|
|
Average
|
|
|
As of
|
|
|
remaining
|
|
|
Average
|
|
|
Range of
|
|
June 30,
|
|
|
contractual
|
|
|
Exercise
|
|
|
June 30,
|
|
|
contractual
|
|
|
Exercise
|
|
|
exercise price
|
|
2017
|
|
|
life (years)
|
|
|
Price
|
|
|
2017
|
|
|
life (years)
|
|
|
Price
|
|
|
$ 0.44- $0.90
|
|
|
595,000
|
|
|
|
3.25
|
|
|
$
|
0.76
|
|
|
|
225,000
|
|
|
|
2.81
|
|
|
$
|
0.78
|
|
|
1.07-1.46
|
|
|
425,000
|
|
|
|
4.03
|
|
|
|
1.12
|
|
|
|
50,000
|
|
|
|
1.05
|
|
|
|
1.46
|
|
|
1.58-1.68
|
|
|
115,000
|
|
|
|
4.33
|
|
|
|
1.59
|
|
|
|
10,000
|
|
|
|
2.51
|
|
|
|
1.68
|
|
|
2.32-2.36
|
|
|
233,500
|
|
|
|
1.88
|
|
|
|
2.35
|
|
|
|
233,500
|
|
|
|
1.88
|
|
|
|
2.35
|
|
|
3.03
|
|
|
40,000
|
|
|
|
2.23
|
|
|
$
|
3.03
|
|
|
|
20,000
|
|
|
|
2.23
|
|
|
$
|
3.03
|
|
|
|
|
|
1,408,500
|
|
|
|
3.31
|
|
|
|
|
|
|
|
538,500
|
|
|
|
2.21
|
|
|
|
|
|
As
of June 30, 2017, there was approximately $408 of total unrecognized compensation cost related to non-vested stock-based compensation
arrangements. That cost is expected to be recognized over a weighted-average period of approximately 1.22 years.
On
Track Innovations Ltd.
and
Subsidiaries
Notes
to the Interim Unaudited Condensed Consolidated Financial Statements
US
dollars in thousands
Note
8 - Equity (cont’d)
|
A.
|
Stock
option plans (cont’d)
|
During
the six months ended June 30, 2017 and June 30, 2016, the Company recorded stock-based compensation expenses in the amount of
$174 and $105, respectively, in accordance with ASC 718 “Compensation-Stock Compensation.”
As
of June 30, 2017, there are remaining 40,000 outstanding warrants with a per share exercise price of $0.95. The warrants expire
during 2019.
|
C.
|
Shares
to non-employees
|
During
the six months ended June 30, 2017, the Company granted 30,000 ordinary shares to one of its consultants. The expenses that are
recognized due to this grant are immaterial and are presented within ‘stock-based compensation’ in the statement of
changes in equity for the six months ended June 30, 2017.
Note
9 - Operating segments
For
the purposes of allocating resources and assessing performance in order to improve profitability, the Company's chief operating
decision maker (“CODM”) examines two segments which are the Company's strategic business units: (1) Retail and Mass
Transit Ticketing; and (2) Petroleum. In addition to its two reportable segments, certain products for the medical industry and
other secure smart card solutions are classified under the Company’s “Other” segment.
Information
regarding the results of each reportable segment is included below based on the internal management reports that are reviewed
by the CODM.
|
|
Three months ended June 30, 2017
|
|
|
|
Retail and
Mass Transit
Ticketing
|
|
|
Petroleum
|
|
|
Other
|
|
|
Consolidated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
4,682
|
|
|
$
|
1,910
|
|
|
$
|
354
|
|
|
$
|
6,946
|
|
Reportable segment gross profit *
|
|
|
2,568
|
|
|
|
889
|
|
|
|
211
|
|
|
|
3,668
|
|
Reconciliation of reportable segment gross profit to gross profit for the period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(199
|
)
|
Stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
Gross profit for the period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
3,470
|
|
*
Gross profit as reviewed by the CODM, represents gross profit, adjusted to exclude depreciation and stock-based compensation.
On
Track Innovations Ltd.
and
Subsidiaries
Notes
to the Interim Unaudited Condensed Consolidated Financial Statements
US
dollars in thousands
Note
9 - Operating segments (cont’d)
|
|
Three months ended June 30, 2016
|
|
|
|
Retail and
Mass Transit
Ticketing
|
|
|
Petroleum
|
|
|
Other
|
|
|
Consolidated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
3,239
|
|
|
$
|
831
|
|
|
$
|
740
|
|
|
$
|
4,810
|
|
Reportable segment gross profit *
|
|
|
1,795
|
|
|
|
497
|
|
|
|
350
|
|
|
|
2,642
|
|
Reconciliation of reportable segment gross profit to gross profit for the period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(188
|
)
|
Stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4
|
)
|
Gross profit for the period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,450
|
|
|
|
Six months ended June 30, 2017
|
|
|
|
Retail and
Mass Transit
Ticketing
|
|
|
Petroleum
|
|
|
Other
|
|
|
Consolidated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
7,423
|
|
|
$
|
2,728
|
|
|
$
|
815
|
|
|
$
|
10,966
|
|
Reportable segment gross profit *
|
|
|
4,209
|
|
|
|
1,396
|
|
|
|
469
|
|
|
|
6,074
|
|
Reconciliation of reportable segment gross profit to gross profit for the period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(383
|
)
|
Stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1
|
)
|
Gross profit for the period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
5,690
|
|
|
|
Six months ended June 30, 2016
|
|
|
|
Retail and
Mass Transit Ticketing
|
|
|
Petroleum
|
|
|
Other
|
|
|
Consolidated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
6,138
|
|
|
$
|
1,940
|
|
|
$
|
1,304
|
|
|
$
|
9,382
|
|
Reportable segment gross profit *
|
|
|
3,310
|
|
|
|
1,198
|
|
|
|
642
|
|
|
|
5,150
|
|
Reconciliation of reportable segment gross profit to gross profit for the period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(377
|
)
|
Stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
Gross profit for the period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
4,773
|
|
*
Gross profit as reviewed by the CODM, represents gross profit, adjusted to exclude depreciation and stock-based compensation.
Item 2. Management’s Discussion and Analysis
of Financial Condition and Results of Operations.
Forward - Looking Statements
The statements contained
in this Quarterly Report on Form 10-Q, or Quarterly Report, that are not historical facts are “forward-looking statements”
within the meaning of the Private Securities Litigation Reform Act of 1995 and other federal securities laws. Such forward-looking
statements may be identified by, among other things, the use of forward-looking terminology such as “believes”, “intends”,
“plans”, “expects”, “may”, “will”, “should”, or “anticipates” or the
negative thereof or other variations thereon or comparable terminology, and similar expressions are intended to identify forward-looking
statements. We remind readers that forward-looking statements are merely predictions and therefore are inherently subject
to uncertainties and other factors and involve known and unknown risks that could cause the actual results, performance, levels
of activity, or our achievements, or industry results, to be materially different from any actual future results, performance,
levels of activity, or our achievements, or industry results, expressed or implied by such forward-looking statements. Such forward-looking
statements may appear in this Item 2 “Management’s Discussion and Analysis of Financial Condition and Results of Operations”
as well as elsewhere in this Quarterly Report and include, among other statements, statements regarding the following:
●
|
our expectations regarding the growth of the near-field communication, or NFC, market;
|
●
|
the expected development and potential benefits from our existing or future products or our intellectual property, or IP;
|
●
|
increased generation of revenues from licensing, transaction fees and/or other arrangements;
|
●
|
future sources of revenue, ongoing relationships with current and future business partners, distributors, suppliers, customers,
end-user customers and resellers;
|
●
|
our intention to generate additional recurring revenues, licensing and transaction fees;
|
●
|
future costs and expenses and adequacy of capital resources;
|
●
|
our intention to continue to expand our market presence via strategic partnerships around the globe;
|
●
|
our expectations that revenues from our business will grow in the next years, and the expected reasons for that growth;
|
●
|
our expectations regarding our short-term and long-term capital requirements;
|
●
|
our intention to continue to invest in research and development;
|
●
|
our outlook for the coming months; and
|
●
|
information with respect to any other plans and strategies for our business.
|
The factors discussed
herein, including those risk factors expressed from time to time in our press releases or filings with the Securities and Exchange
Commission, or the SEC, could cause actual results and developments to be materially different from those expressed in or implied
by such statements. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak and are
made only as of the date of this filing.
Our business and operations
are subject to substantial risks, which increase the uncertainty inherent in the forward-looking statements contained in this Quarterly
Report. Except as required by law, we undertake no obligation to release publicly the result of any revision to these forward-looking
statements that may be made to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated
events. Further information on potential factors that could affect our business is described among others under the heading “Risk
Factors” in Part I, Item 1A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2016 filed with SEC. Readers
are also urged to carefully review and consider the various disclosures we have made in that report.
As used in this Quarterly
Report, the terms “we”, “us”, “our”, “the Company”, and “OTI” mean On Track Innovations
Ltd. and our subsidiaries and affiliates, unless otherwise indicated or as otherwise required by the context.
All figures in this
Quarterly Report are stated in United States dollars, unless otherwise specified in.
Overview
We are a pioneer and
leading developer of cutting-edge secure cashless payment solutions, providing global enterprises with innovative technology for
over two decades. We currently operate in two main segments: (1) Retail and Mass Transit Ticketing; and (2) Petroleum (following
the divesture of our parking business as specified below). In addition to our two reportable segments, certain products for the
medical industry and other secure smart card solutions are classified under “Other” in segment analyses appearing in
this Quarterly Report.
Our field-proven suite
of cashless payment solutions is based on an extensive IP portfolio, including registered patents and patent applications worldwide.
Since our incorporation in 1990, we have built an international reputation for reliability and innovation, deploying a large number
of solutions for the unattended retail, mass transit, banking, medical and petroleum industries.
We operate a global
network of regional offices, distributors and partners to support various solutions deployed across the globe.
We focus our efforts
on our core business of providing innovative cashless payment solutions based among other things on our contactless NFC technology. To this end, and in line with our efforts to focus on our core business, in September 2016
we completed the sale of the operations, including our employees, as well as intellectual property directly related to our parking
business. We have increased our efforts to further develop existing and new products and solutions, including among others by
the introduction of our new products and solutions for the unattended payment market and Internet of Payment Things, or IoPT,
technology. We have also increased our sales and marketing activities and resources.
This discussion
and analysis should be read in conjunction with our interim condensed consolidated financial statements and notes thereto contained
in “Item 1. Financial Statements” of this Quarterly Report.
Results of Operations
Discontinued operations
.
In September 2016 we completed the sale of certain assets and IP related to our parking business. In December 2013, we completed
the sale of certain assets, certain subsidiaries and IP directly related to our SmartID division. The results from such operations
and the cash flows for the reporting periods are presented in the statements of operations and in the statements of cash flows,
respectively, as discontinued operations separately from continuing operations. All the data in this Quarterly Report that are
derived from our financial statements, unless otherwise specified, exclude the results of those discontinued operations.
Three
months ended June 30, 2017, compared to the three months ended June 30, 2016
Sources of Revenue
We have historically
derived a substantial majority of our revenues from the sale of our products, including both complete systems and original equipment
manufacturer components and also, less significantly, from engineering services, customer services and technical support. In addition,
we generate revenues from licensing and transaction fees. During the three months ended June 30, 2017 and June 30, 2016, the revenues
that we derived from sales and licensing and transaction fees were as follows (in thousands):
|
|
Three months ended
June 30,
|
|
|
|
2017
|
|
|
2016
|
|
Sales
|
|
$
|
5,646
|
|
|
$
|
3,584
|
|
Licensing and transaction fees
|
|
$
|
1,300
|
|
|
$
|
1,226
|
|
Total revenues
|
|
$
|
6,946
|
|
|
$
|
4,810
|
|
Sales.
Sales
increased by $2.1 million, or 58%, in the three months ended June 30, 2017, compared to the three months ended June 30, 2016. The
increase is mainly attributed to an increase in Retail and Mass Transit Ticketing segment sales in the Japanese market and an increase
in Petroleum segment sales in Africa.
Licensing and transaction
fees.
Licensing and transaction fees include single and periodic payments for distribution rights for our products as well
as licensing our IP rights to third parties. Transaction fees are paid by customers based on the volume of transactions processed
by systems that contain our products. Our licensing and transaction fees in the three months ended June 30, 2017, compared to the
three months ended June 30, 2016, increased by $74,000, or 6%. The increase is mainly attributed to an increase in licensing and
transaction fees related to our otiMetry solution in Europe and to an increase in mass transit transaction fees in Poland.
We have historically
derived revenues from different geographical areas. The following table sets forth our revenues, by dollar amount (in
thousands) and as a percentage of quarterly revenues in different geographical areas, in the three months ended June 30, 2017 and
June 30, 2016:
Three months ended
June 30,
|
|
Africa
|
|
|
Europe
|
|
|
APAC
|
|
|
Americas
|
|
2017
|
|
$
|
1,567
|
|
|
|
22
|
%
|
|
$
|
1,706
|
|
|
|
25
|
%
|
|
$
|
1,399
|
|
|
|
20
|
%
|
|
$
|
2,274
|
|
|
|
33
|
%
|
2016
|
|
$
|
1,131
|
|
|
|
24
|
%
|
|
$
|
1,463
|
|
|
|
30
|
%
|
|
$
|
133
|
|
|
|
3
|
%
|
|
$
|
2,083
|
|
|
|
43
|
%
|
Our revenues from
sales in Africa increased by $436,000, or 39%, in the three months ended June 30, 2017, compared to the three months ended June
30, 2016, mainly due to an increase in sales of petroleum products, partially offset by a decrease of our MediSmart products.
Our revenues from
sales in Europe increased by $243,000, or 17%, in the three months ended June 30, 2017, compared to the three months ended June
30, 2016, mainly due to an increase in Retail and Mass Transit Ticketing segment sales.
Our revenues from
sales in the Asia-Pacific region, or APAC, increased by $1.3 million, or 952%, in the three months ended June 30, 2017, compared
to the three months ended June 30, 2016, mainly due to our first deliveries to the Japanese market.
Our revenues from
sales in Americas increased by $191,000, or 9%, in the three months ended June 30, 2017, compared to the three months ended June
30, 2016, mainly due to an increase in sales of Petroleum products to the South American market partially offset by a decrease
in sales of readers to the U.S. market.
Our revenues derived
from outside the United States are primarily received in currencies other than the U.S. dollar and accordingly have a varying impact
upon our total revenues as a result of fluctuations in exchange rates.
The following table
sets forth our revenues by dollar amount (in thousands) and as a percentage of revenues by segments, during the three months ended
June 30, 2017 and June 30, 2016:
Three months ended
June 30,
|
|
Retail and Mass
Transit Ticketing
|
|
|
Petroleum
|
|
|
Other
|
|
2017
|
|
$
|
4,682
|
|
|
|
67
|
%
|
|
$
|
1,910
|
|
|
|
28
|
%
|
|
$
|
354
|
|
|
|
5
|
%
|
2016
|
|
$
|
3,239
|
|
|
|
67
|
%
|
|
$
|
831
|
|
|
|
17
|
%
|
|
$
|
740
|
|
|
|
16
|
%
|
Our revenues from
Retail and Mass Transit Ticketing in the three months ended June 30, 2017 increased by $1.4 million, or 45%, compared to the three
months ended June 30, 2016, mainly due to an increase in sales in the Japanese market partially offset by a decrease in sales of
readers in the United States.
Our revenues in the
three months ended June 30, 2017 from Petroleum increased by $1.1 million, or 130%, compared to the three months ended June 30,
2016, mainly due to an increase in Petroleum products in Africa and South America.
Our revenues in the
three months ended June 30, 2017, from our other segment decreased by $386,000, or 52%, compared to the three months ended June
30, 2016, mainly due to a decrease in sales of MediSmart products in East Africa.
Cost of Revenues and Gross Margin
Our cost of revenues,
presented by gross profit and gross margin percentage, in the three months ended June 30, 2017 and June 30, 2016, were as follows
(dollar amounts in thousands):
|
|
Three months ended June 30,
|
|
|
|
2017
|
|
|
2016
|
|
Cost of sales
|
|
$
|
3,476
|
|
|
$
|
2,360
|
|
Gross profit
|
|
$
|
3,470
|
|
|
$
|
2,450
|
|
Gross margin percentage
|
|
|
50
|
%
|
|
|
51
|
%
|
Cost of sales.
Cost
of sales consists primarily of materials, as well as salaries, fees to subcontractors and related costs of our technical
staff that assemble our products. The increase of $ 1.1 million, or 47%, in the three months ended June 30, 2017, compared to
the three months ended June 30, 2016, resulted primarily from an increase in our revenues.
Gross margin.
The decrease in gross margin in the three months ended June 30, 2017, compared to the three months ended June 30, 2016, is mainly
attributed to a change in our revenue mix.
Operating expenses
Our operating expenses
in the three months ended June 30, 2017 and June 30, 2016, were as follows (in thousands):
Operating expenses
|
|
Three months ended
June 30,
|
|
|
|
2017
|
|
|
2016
|
|
Research and development
|
|
$
|
889
|
|
|
$
|
747
|
|
Selling and marketing
|
|
$
|
1,492
|
|
|
$
|
1,321
|
|
General and administrative
|
|
$
|
939
|
|
|
$
|
902
|
|
Total operating expenses
|
|
$
|
3,320
|
|
|
$
|
2,970
|
|
Research and development.
Our
research and development expenses consist primarily of the salaries and related expenses of our research and development staff,
as well as subcontracting expenses. The increase of $142,000, or 19%, in the three months ended June 30, 2017, compared to
the three months ended June 30, 2016, is primarily attributed to an increase in the number of research and development employees
and to a lesser extent to an increase in subcontractor expenses.
Selling and marketing.
Our selling and marketing expenses consist primarily of salaries and substantially all of the expenses of our sales and marketing
subsidiaries and offices in the United States, South Africa and Europe, as well as expenses related to advertising, professional
expenses and participation in exhibitions and tradeshows. The increase of $171,000, or 13%, in the three months ended June
30, 2017, compared to the three months ended June 30, 2016, is primarily attributed to an increase in marketing and advertising
expenses and to a lesser extent to an increase in employment expenses of selling and marketing employees.
General and
administrative.
Our general and administrative expenses consist primarily of salaries and related expenses of
our executive management and financial and administrative staff. These expenses also include costs of our professional
advisors (such as legal and accounting), office expenses, insurance and provision for doubtful accounts. Our general
and administrative expenses, in the three months ended June 30, 2017, compared to the three months ended June 30, 2016,
remained consistent.
Financing expenses, net
Our financing expenses, net, in the three
months ended June 30, 2017 and June 30, 2016 were as follows (in thousands):
|
|
Three months ended
June 30,
|
|
|
|
2017
|
|
|
2016
|
|
Financing expenses, net
|
|
$
|
(39
|
)
|
|
$
|
(62
|
)
|
Financing expenses
consist primarily of interest payable on bank loans, bank commissions and foreign exchange losses. Financing income consists primarily
of foreign exchange gains and interest earned on investments in short-term deposits. The decrease in financing expenses, net in
the three months ended June 30, 2017, compared to the three months ended June 30, 2016, of $23,000, or 37%, is mainly attributed
to lower interest payable on bank loans.
Net income (loss) from continuing operations
Our net income (loss)
from
continuing operations in the three months ended June 30, 2017 and June 30, 2016, was as follows (in thousands):
|
|
Three months ended
June 30,
|
|
|
|
2017
|
|
|
2016
|
|
Net income (loss) from continuing operations
|
|
$
|
86
|
|
|
$
|
(598
|
)
|
The increase of $684,000, in
the three months ended June 30, 2017, compared to the three months ended June 30, 2016, is primarily due an increase in our
sales and an increase in our gross profit, partially offset by an increase in our operating expenses, as described above.
Net profit from discontinued operations
Our net profit from discontinued operations
in the three months ended June 30, 2017 and June 30, 2016, was as follows (in thousands):
|
|
Three months ended
June 30,
|
|
|
|
2017
|
|
|
2016
|
|
Net profit from discontinued operations
|
|
$
|
7
|
|
|
$
|
1,947
|
|
In September 2016,
we completed the sale of certain assets and IP related to our parking business. In December 2013, we completed the sale of certain
assets, certain subsidiaries and IP directly related to our SmartID division.
The results from these
operations for the reporting periods are presented in the statements of operations as discontinued operations separately from continuing
operations.
The decrease in net
profit from discontinued operations of $1.9 million in the three months ended June 30, 2017, compared to the three months ended
June 30, 2016, is mainly attributed to the $2.1 million settlement fee paid to us in May 2016, in connection with a litigation
with SuperCom Ltd. relating to the sale of our SmartID division.
Net income
Our net income in
the three months ended June 30, 2017 and June 30, 2016, was as follows (in thousands):
|
|
Three months ended
June 30,
|
|
|
|
2017
|
|
|
2016
|
|
Net income
|
|
$
|
93
|
|
|
$
|
1,349
|
|
The decrease in net
income of $1.3 million, in the three months ended June 30, 2017, compared to the three months ended June 30, 2016, is primarily due
to a decrease in net profit from discontinued operations partially offset by an increase in our gross profit.
Six
months ended June 30, 2017, compared to the six months ended June 30, 2016
Sources of Revenue
During the six months ended June 30, 2017
and June 30, 2016, the revenues that we derived from sales and licensing and transaction fees were as follows (in thousands):
|
|
Six
months ended
June 30,
|
|
|
|
2017
|
|
|
2016
|
|
Sales
|
|
$
|
8,426
|
|
|
$
|
6,946
|
|
Licensing and transaction fees
|
|
$
|
2,540
|
|
|
$
|
2,436
|
|
Total revenues
|
|
$
|
10,966
|
|
|
$
|
9,382
|
|
Sales.
Sales
increased by $1.5 million, or 21%, in the six months ended June 30, 2017, compared to the six months ended June 30, 2016. The increase
is mainly attributed to an increase in Retail and Mass Transit Ticketing segment sales in the Japanese market, an increase in Petroleum
segment sales in Africa and an increase in sales of readers and our otiMetry solution in Europe partially offset by a decrease
in sales of readers to the U.S. market.
Licensing and transaction
fees.
Our licensing and transaction fees in the six months ended June 30, 2017, compared to the six months ended June 30, 2016,
increased by $104,000, or 4%. The increase is mainly attributed to licensing and transaction fees related to our otiMetry solution
in Europe and to an increase in mass transit transaction fees in Poland.
The following table
sets forth our revenues, by dollar amount (in thousands) and as a percentage of revenues in different geographical areas, in the
six months ended June 30, 2017 and June 30, 2016:
Six months ended
June 30,
|
|
Africa
|
|
|
Europe
|
|
|
APAC
|
|
|
Americas
|
|
2017
|
|
$
|
2,353
|
|
|
|
21
|
%
|
|
$
|
3,934
|
|
|
|
36
|
%
|
|
$
|
1,734
|
|
|
|
16
|
%
|
|
$
|
2,945
|
|
|
|
27
|
%
|
2016
|
|
$
|
1,967
|
|
|
|
21
|
%
|
|
$
|
2,930
|
|
|
|
31
|
%
|
|
$
|
233
|
|
|
|
3
|
%
|
|
$
|
4,252
|
|
|
|
45
|
%
|
Our revenues from
sales in Africa increased by $386,000, or 20%, in the six months ended June 30, 2017, compared to the six months ended June 30,
2016, mainly due to an increase in sales of our petroleum products, partially offset by a decrease in sales of MediSmart products.
Our revenues from
sales in Europe increased by $1 million, or 34%, in the six months ended June 30, 2017, compared to the six months ended June 30,
2016, mainly due to an increase in our otiMetry solution in the European market.
Our revenues from
sales in APAC increased by $1.5 million, or 644%, in the six months ended June 30, 2017, compared to the six months ended June
30, 2016, mainly due to an increase in sales in the Japanese market.
Our revenues from
sales in Americas decreased by $1.3 million, or 31%, in the six months ended June 30, 2017, compared to the six months ended June
30, 2016, mainly due to a decrease in sales of readers to the U.S. market.
Our revenues derived
from outside the United States are primarily received in currencies other than the U.S. dollar and accordingly have a varying impact
upon our total revenues as a result of fluctuations in exchange rates.
The following table
sets forth our revenues by dollar amount (in thousands) and as a percentage of revenues by segments, during the six months ended
June 30, 2017 and June 30, 2016:
Six months ended
June 30,
|
|
Retail and Mass Transit Ticketing
|
|
|
Petroleum
|
|
|
Other
|
|
2017
|
|
$
|
7,423
|
|
|
|
68
|
%
|
|
$
|
2,728
|
|
|
|
25
|
%
|
|
$
|
815
|
|
|
|
7
|
%
|
2016
|
|
$
|
6,138
|
|
|
|
65
|
%
|
|
$
|
1,940
|
|
|
|
21
|
%
|
|
$
|
1,304
|
|
|
|
14
|
%
|
Our revenues from
Retail and Mass Transit Ticketing in the six months ended June 30, 2017 increased by $1.3 million, or 21%, compared to the six
months ended June 30, 2016, mainly due to an increase in sales in the Japanese market and an increase in readers and otiMetry solution
sales in the European market partially offset by a decrease in sales of readers in the United States.
Our revenues in the
six months ended June 30, 2017 from Petroleum increased by $788,000, or 41%, compared to the six months ended June 30, 2016, mainly
due to an increase in Petroleum products in Africa.
Our revenues in the
six months ended June 30, 2017, from our Other segment decreased by $489,000, or 38%, compared to the six months ended June 30,
2016, mainly due to a decrease in sales of MediSmart products in East Africa.
Cost of Revenues and Gross Margin
Our cost of revenues,
presented by gross profit and gross margin percentage, in the six months ended June 30, 2017 and June 30, 2016, were as follows
(dollar amounts in thousands):
|
|
Six months ended
June 30,
|
|
|
|
2017
|
|
|
2016
|
|
Cost of sales
|
|
$
|
5,276
|
|
|
$
|
4,609
|
|
Gross profit
|
|
$
|
5,690
|
|
|
$
|
4,773
|
|
Gross margin percentage
|
|
|
52
|
%
|
|
|
51
|
%
|
Cost of sales.
The
increase of $667,000, or 14%, in the six months ended June 30, 2017, compared to the six months ended June 30, 2016,
resulted primarily from an increase in our revenues.
Gross margin.
The increase in gross margin in the six months ended June 30, 2017, compared to the six months ended June 30, 2016, is mainly attributed
to a favorable change in our revenue mix.
Operating expenses
Our operating expenses
in the six months ended June 30, 2017 and June 30, 2016, were as follows (in thousands):
Operating expenses
|
|
Six months ended
June 30,
|
|
|
|
2017
|
|
|
2016
|
|
Research and development
|
|
$
|
1,591
|
|
|
$
|
1,468
|
|
Selling and marketing
|
|
$
|
2,834
|
|
|
$
|
2,674
|
|
General and administrative
|
|
$
|
1,795
|
|
|
$
|
1,826
|
|
Total operating expenses
|
|
$
|
6,220
|
|
|
$
|
5,968
|
|
Research and development.
The increase of $123,000, or 8%, in the six months ended June 30, 2017, compared to the six months ended June 30, 2016, is primarily
attributed to an increase in the number of research and development employees and to an increase in subcontractor expenses.
Selling and marketing.
The increase of $160,000, or 6%, in the six months ended June 30, 2017, compared to the six months ended June 30, 2016, is primarily
attributed to an increase in employment expenses of selling and marketing employees and to an increase in marketing and advertising
expenses.
General and administrative.
Our general and administrative expenses, in the six months ended June 30, 2017, compared to the six months ended June 30, 2016,
remained consistent.
Financing expenses, net
Our financing expenses, net, in the six
months ended June 30, 2017 and June 30, 2016, were as follows (in thousands):
|
|
Six months ended
June 30,
|
|
|
|
2017
|
|
|
2016
|
|
Financing expenses, net
|
|
$
|
(110
|
)
|
|
$
|
(155
|
)
|
The decrease of financing
income in the six months ended June 30, 2017, compared to the six months ended June 30, 2016, of $45,000, or 29%, is mainly due
to a decrease in financing expense related to interest payable on bank loans.
Net loss from continuing operations
Our net loss
from
continuing operations in the six months ended June 30, 2017 and June 30, 2016, was as follows (in thousands):
|
|
Six months ended
June 30,
|
|
|
|
2017
|
|
|
2016
|
|
Net loss from continuing operations
|
|
$
|
(696
|
)
|
|
$
|
(1,382
|
)
|
The decrease of $686,000,
or 50%, in the six months ended June 30, 2017, compared to the six months ended June 30, 2016, is primarily due an increase
in our sales and an increase in our gross profit partially offset by an increase in our operating expenses.
Net profit (loss) from discontinued
operations
Our net profit (loss) from discontinued
operations in the six months ended June 30, 2017 and June 30, 2016, was as follows (in thousands):
|
|
Six months ended
June 30,
|
|
|
|
2017
|
|
|
2016
|
|
Net profit (loss) from discontinued operations
|
|
$
|
(76
|
)
|
|
$
|
1,803
|
|
The decrease in net
profit (loss) from discontinued operations of $1.9 million in the six months ended June 30, 2017, compared to the six months ended
June 30, 2016, is mainly attributed to the $2.1 million settlement fee paid to us in May 2016, in connection with a litigation
with SuperCom Ltd. relating to the sale of our SmartID division.
Net income (loss)
Our net income (loss)
in the six months ended June 30, 2017 and June 30, 2016, was as follows (in thousands):
|
|
Six months ended
June 30,
|
|
|
|
2017
|
|
|
2016
|
|
Net income (loss)
|
|
$
|
(772
|
)
|
|
$
|
421
|
|
The decrease in
net income of $1.2 million, in the six months ended June 30, 2017, compared to the six months ended June 30, 2016, is
primarily due to a decrease in net profit from discontinued operations partially offset by a decrease in net loss from
continuing operations as described above.
Liquidity and Capital Resources
Our principal
sources of liquidity since our inception have been sales of equity securities, borrowings from banks, cash from the exercise of
options and warrants and proceeds from divestitures of parts of our businesses. We had cash, cash equivalents and short-term investments
representing bank deposits of $9.3 million as of June 30, 2017 (of which $1.5 million had then been pledged as a security in respect
of performance guarantees granted to third parties and guarantees to secure customer advances, loans and credit lines received
from a bank) and $11.5 million as of December 31, 2016 (of which $1.5 million had then been pledged as a security in respect of
performance guarantees granted to third parties, loans and credit lines received from a bank). We believe that we have sufficient
capital resources to fund our operations in the next 12 months. We adhere to an investment policy which is intended to enable
the Company to avoid being classified as a “passive foreign investment company,” or PFIC, under U.S. law. That said,
we cannot provide complete assurance that PFIC status will be avoided in the future. In addition, our investment policy requires
investment in high-quality investment-grade securities. As of June 30, 2017, our bank loans are denominated in the following currencies:
Polish Zloty ($964,000, with maturity dates ranging from 2017 through 2019) and South African Rand ($632,000, with maturity dates
ranging from 2017 through 2023). As of June 30, 2017, these loans bear interest at rates ranging from 3.2%-10.5% per annum.
Our composition
of long-term loans as of June 30, 2017, was as follows (in thousands):
|
|
June 30,
2017
|
|
Long-term loans
|
|
$
|
1,596
|
|
Less - current maturities
|
|
|
555
|
|
|
|
$
|
1,041
|
|
Our composition of
short-term loans, bank credit and current maturities of long-term loans as of June 30, 2017 was as follows (in thousands):
|
|
June 30,
2017
|
|
|
|
Interest rate
|
|
|
|
|
In U.S. dollars
|
|
|
5.28
|
%
|
|
$
|
2,262
|
|
In Polish Zloty
|
|
|
3.63
|
%
|
|
|
1,074
|
|
In NIS
|
|
|
4.35
|
%
|
|
|
772
|
|
|
|
|
|
|
|
|
4,108
|
|
Current maturities of long-term loans
|
|
|
|
|
|
|
555
|
|
|
|
|
|
|
|
$
|
4,663
|
|
Our and certain
of our subsidiaries’ manufacturing facilities and certain equipment have been pledged as security in respect of a loan received
from a bank. Our short term deposits in the amount of $1.5 million have been pledged as security in respect of guarantees granted
to third parties, loans and credit lines received from a bank. Such deposits cannot be pledged to others or withdrawn without the
consent of the bank.
As of June
30, 2017, we granted guarantees to third parties including performance guarantees and guarantees to secure customer advances in
the sum of $347,000. The expiration dates of the guarantees range from October 2017 to June 2019.
Operating activities related to continuing
operations
For the six months
ended June 30, 2017, net cash used in continuing operating activities was $2.3 million primarily due to a $1.2 million increase
in trade receivables, an $855,000 decrease in other current liabilities, a $696,000 net loss from continuing operations, a $396,000
decrease in trade payables, a $47,000 increase in inventory, a $47,000 increase in accrued interest and a $7,000 gain on sale of
fixed assets, partially offset by $583,000 of depreciation, a $174,000 expense due to stock based compensation issued to employees,
a $90,000 decrease in other receivables and prepaid expenses, a $74,000 increase in accrued severance pay and a $21,000 increase
in deferred tax liability.
For the six months
ended June 30, 2016, net cash used in continuing operating activities was $1.2 million, primarily due to a $1.4 million net loss
from continuing operations, a $1.1 million increase in trade receivables, a $453,000 decrease in other current liabilities, and
a $151,000 decrease in accrued severance pay, partially offset by a $617,000 of depreciation, a $590,000 decrease in inventory,
a $290,000 increase in trade payables, a $215,000 decrease in other receivables and prepaid expenses, a $105,000 expense due to
stock based compensation issued to employees, a $55,000 decrease in accrued interest and a $32,000 increase in deferred tax liability.
Operating activities related to discontinued
operations
For the six
months ended June 30, 2017, net cash used in discontinued operating activities was $71,000, related to our previous parking
business and SmartID division.
For the six months
ended June 30, 2016, net cash used in discontinued operating activities was $214,000, related to our previous parking business
and SmartID division.
Investing and financing activities related
to continuing operations
For the six months
ended June 30, 2017, net cash provided by continuing investing activities was $2.3 million, mainly due to a $2.5 million change
in short-term investments, net, $44,000 in proceeds from restricted deposit for employee benefits and $12,000 in proceeds from the
sale of fixed assets, partially offset by a $157,000 investment in capitalized product costs and $98,000 of purchases of property
and equipment.
For the six months
ended June 30, 2016, net cash used in continuing investing activities was $725,000, mainly due to an $884,000 change in short-term
investments, net, $139,000 of purchases of property and equipment and a $98,000 investment in capitalized product costs, partially
offset by $396,000 of advance payment from sale of property.
For the six months
ended June 30, 2017, net cash used in continuing financing activities was $146,000, mainly due to a $374,000 repayment of long-term
bank loans, partially offset by a $213,000 increase in short-term bank credit, net and $15,000 of proceeds from exercises of options
and warrants.
For the six months
ended June 30, 2016, net cash used in continuing financing activities was $430,000, mainly due to a $538,000 repayment of long-term
bank loans, partially offset by an $81,000 increase in short-term bank credit, net and $27,000 of proceeds from long-term bank
loans.
Investing and financing activities
related to discontinued operations
We had no cash flows
provided by or used in discontinued investing activities in the six months ended June 30, 2017.
For the six months
ended June 30, 2016, net cash provided by discontinued investing activities was $1.9 million, most of which was attributed to the
$2.1 million paid by SuperCom Ltd. to us under the terms of the settlement agreement with us.
We had no cash flows
provided by or used in discontinued financing activities in the six months ended June 30, 2017 and June 30, 2016.
Off Balance Sheet Arrangements
We have no off
balance sheet arrangements.