This prospectus supplement
(the “Supplement”) updates and supplements certain information contained in our prospectus, dated August 21, 2020 (the
“Prospectus”), which forms a part of the Registration Statement on Form S-1 (Registration No. 333-244982) (the “Registration
Statement”). This Supplement is not complete without, and may not be delivered or used except in connection with, the Prospectus.
The Prospectus relates to the registration of an aggregate of 12,500,000 Ordinary Shares, par value NIS 0.10 (the “Ordinary
Shares”) of On Track Innovations Ltd. (the “Company”), for resale by certain of our shareholders identified in
the Prospectus.
Our business and an
investment in our securities involve a high degree of risk. See “Risk Factors” beginning on page 3 of the Prospectus
for a discussion of information that you should consider before investing in our securities.
NEITHER THE SEC NOR
ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS SUPPLEMENT OR THE ACCOMPANYING
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
PART
I - FINANCIAL INFORMATION
Item
1. Financial Statements.
ON
TRACK INNOVATIONS LTD. AND ITS SUBSIDIARIES
INTERIM
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
As
of September 30, 2020
(Unaudited)
On Track Innovations Ltd.
and its Subsidiaries
Interim Unaudited Condensed Consolidated Financial Statements as of September 30, 2020
|
Contents
On Track Innovations
Ltd.
and its Subsidiaries
Interim Unaudited Condensed Consolidated Balance Sheets
|
US dollars in thousands except share and per share data
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
2,578
|
|
|
$
|
2,543
|
|
Short-term investments
|
|
|
605
|
|
|
|
2,305
|
|
Trade receivables (net of allowance for doubtful accounts of $818 and $612 as of September 30, 2020 and December 31, 2019, respectively)
|
|
|
2,824
|
|
|
|
2,430
|
|
Other receivables and prepaid expenses
|
|
|
1,181
|
|
|
|
1,822
|
|
Inventories
|
|
|
3,380
|
|
|
|
3,332
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
10,568
|
|
|
|
12,432
|
|
|
|
|
|
|
|
|
|
|
Long-term restricted deposit for employee benefits
|
|
|
477
|
|
|
|
477
|
|
|
|
|
|
|
|
|
|
|
Severance pay deposits
|
|
|
384
|
|
|
|
383
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net
|
|
|
3,728
|
|
|
|
3,694
|
|
|
|
|
|
|
|
|
|
|
Intangible assets, net
|
|
|
721
|
|
|
|
733
|
|
|
|
|
|
|
|
|
|
|
Right-of-use assets due to operating leases
|
|
|
3,689
|
|
|
|
2,134
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
19,567
|
|
|
$
|
19,853
|
|
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 and per share data
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
Liabilities and Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Liabilities
|
|
|
|
|
|
|
Short-term bank credit and loans and current maturities of long-term bank loans
|
|
$
|
2,708
|
|
|
$
|
2,478
|
|
Trade payables
|
|
|
4,263
|
|
|
|
4,126
|
|
Other current liabilities
|
|
|
2,539
|
|
|
|
3,054
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
$
|
9,510
|
|
|
$
|
9,658
|
|
|
|
|
|
|
|
|
|
|
Long-Term Liabilities
|
|
|
|
|
|
|
|
|
Long-term loans, net of current maturities
|
|
|
740
|
|
|
|
22
|
|
Long-term liabilities due to operating leases, net of current maturities
|
|
|
2,802
|
|
|
|
1,483
|
|
Accrued severance pay
|
|
|
906
|
|
|
|
884
|
|
Deferred tax liability
|
|
|
299
|
|
|
|
416
|
|
Total long-term liabilities
|
|
|
4,747
|
|
|
|
2,805
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities
|
|
|
14,257
|
|
|
|
12,463
|
|
|
|
|
|
|
|
|
|
|
Commitments and Contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
|
|
|
|
|
|
|
|
|
Shareholders’ Equity
|
|
|
|
|
|
|
|
|
Ordinary shares of NIS 0.1 par value: Authorized – 100,000,000 and 50,000,000 shares as of September 30, 2020 and December 31, 2019, respectively; issued: 55,003,076 and 47,963,076 shares as of September 30, 2020 and December 31, 2019, respectively; outstanding: 53,824,377 and 46,784,377 shares as of September 30, 2020, and December 31, 2019, respectively
|
|
|
1,423
|
|
|
|
1,226
|
|
Additional paid-in capital
|
|
|
227,183
|
|
|
|
225,970
|
|
Treasury shares at cost - 1,178,699 shares as of September 30, 2020 and December 31, 2019
|
|
|
(2,000
|
)
|
|
|
(2,000
|
)
|
Accumulated other comprehensive loss
|
|
|
(1,051
|
)
|
|
|
(974
|
)
|
Accumulated deficit
|
|
|
(220,245
|
)
|
|
|
(216,832
|
)
|
Total Equity
|
|
|
5,310
|
|
|
|
7,390
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities and Equity
|
|
$
|
19,567
|
|
|
$
|
19,853
|
|
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
months ended
September 30,
|
|
|
Nine
months ended
September 30,
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
|
|
$
|
2,868
|
|
|
$
|
2,631
|
|
|
$
|
10,262
|
|
|
$
|
7,286
|
|
Licensing and
transaction fees
|
|
|
769
|
|
|
|
1,234
|
|
|
|
2,679
|
|
|
|
3,708
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
3,637
|
|
|
|
3,865
|
|
|
|
12,941
|
|
|
|
10,994
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales
|
|
|
2,142
|
|
|
|
2,161
|
|
|
|
7,380
|
|
|
|
5,273
|
|
Total cost of
revenues
|
|
|
2,142
|
|
|
|
2,161
|
|
|
|
7,380
|
|
|
|
5,273
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
profit
|
|
|
1,495
|
|
|
|
1,704
|
|
|
|
5,561
|
|
|
|
5,721
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
841
|
|
|
|
840
|
|
|
|
2,643
|
|
|
|
2,528
|
|
Selling and marketing
|
|
|
1,215
|
|
|
|
1,193
|
|
|
|
3,570
|
|
|
|
3,798
|
|
General and administrative
|
|
|
958
|
|
|
|
1,070
|
|
|
|
2,690
|
|
|
|
3,081
|
|
Other gain, net
|
|
|
-
|
|
|
|
(335
|
)
|
|
|
-
|
|
|
|
(335
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
operating expenses
|
|
|
3,014
|
|
|
|
2,768
|
|
|
|
8,903
|
|
|
|
9,072
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss from
continuing operations
|
|
|
(1,519
|
)
|
|
|
(1,064
|
)
|
|
|
(3,342
|
)
|
|
|
(3,351
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial expenses,
net
|
|
|
(80
|
)
|
|
|
(93
|
)
|
|
|
(35
|
)
|
|
|
(199
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing
operations before taxes on income
|
|
|
(1,599
|
)
|
|
|
(1,157
|
)
|
|
|
(3,377
|
)
|
|
|
(3,550
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax benefits
(expenses)
|
|
|
60
|
|
|
|
(17
|
)
|
|
|
89
|
|
|
|
(25
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing
operations
|
|
|
(1,539
|
)
|
|
|
(1,174
|
)
|
|
|
(3,288
|
)
|
|
|
(3,575
|
)
|
Loss
from discontinued operations
|
|
|
(82
|
)
|
|
|
(36
|
)
|
|
|
(125
|
)
|
|
|
(279
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
(1,621
|
)
|
|
|
(1,210
|
)
|
|
|
(3,413
|
)
|
|
|
(3,854
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
and diluted net loss attributable to shareholders per ordinary share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
From continuing operations
|
|
|
(0.03
|
)
|
|
|
(0.03
|
)
|
|
|
(0.07
|
)
|
|
|
(0.09
|
)
|
From discontinued
operations
|
|
|
(*
|
)
|
|
|
(*
|
)
|
|
|
(*
|
)
|
|
|
(*
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(0.03
|
)
|
|
$
|
(0.03
|
)
|
|
$
|
(0.07
|
)
|
|
$
|
(0.09
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average
number of ordinary shares used in computing basic and diluted net loss per ordinary share
|
|
|
53,824,377
|
|
|
|
41,324,377
|
|
|
|
51,448,903
|
|
|
|
41,306,575
|
|
*
|
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 Loss
|
US dollars in thousands
|
|
Three months ended
September 30,
|
|
|
Nine months ended
September 30,
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(1,621
|
)
|
|
$
|
(1,210
|
)
|
|
$
|
(3,413
|
)
|
|
$
|
(3,854
|
)
|
Foreign currency translation adjustments
|
|
|
76
|
|
|
|
(254
|
)
|
|
|
(77
|
)
|
|
|
(216
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive loss
|
|
$
|
(1,545
|
)
|
|
$
|
(1,464
|
)
|
|
$
|
(3,490
|
)
|
|
$
|
(4,070
|
)
|
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 number of shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
Treasury
|
|
|
other
|
|
|
|
|
|
|
|
|
|
Number of
|
|
|
Share
|
|
|
paid-in
|
|
|
Shares
|
|
|
comprehensive
|
|
|
Accumulated
|
|
|
Total
|
|
|
|
Shares issued
|
|
|
capital
|
|
|
capital
|
|
|
(at cost)
|
|
|
Income (loss)
|
|
|
deficit
|
|
|
equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of June 30, 2019
|
|
|
42,503,076
|
|
|
$
|
1,069
|
|
|
$
|
225,111
|
|
|
$
|
(2,000
|
)
|
|
$
|
(918
|
)
|
|
$
|
(213,587
|
)
|
|
$
|
9,675
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes during the three months period ended September 30, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation
|
|
|
-
|
|
|
|
-
|
|
|
|
6
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
6
|
|
Foreign currency translation adjustments
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(254
|
)
|
|
|
-
|
|
|
|
(254
|
)
|
Net loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,210
|
)
|
|
|
(1,210
|
)
|
Balance as of September 30, 2019
|
|
|
42,503,076
|
|
|
$
|
1,069
|
|
|
$
|
225,117
|
|
|
$
|
(2,000
|
)
|
|
$
|
(1,172
|
)
|
|
$
|
(214,797
|
)
|
|
$
|
8,217
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of June 30, 2020
|
|
|
55,003,076
|
|
|
$
|
1,423
|
|
|
$
|
227,170
|
|
|
$
|
(2,000
|
)
|
|
$
|
(1,127
|
)
|
|
$
|
(218,624
|
)
|
|
$
|
6,842
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes during the three months period ended September 30, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation
|
|
|
-
|
|
|
|
-
|
|
|
|
13
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
13
|
|
Foreign currency translation adjustments
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
76
|
|
|
|
-
|
|
|
|
76
|
|
Net loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,621
|
)
|
|
|
(1,621
|
)
|
Balance as of September 30, 2020
|
|
|
55,003,076
|
|
|
$
|
1,423
|
|
|
$
|
227,183
|
|
|
$
|
(2,000
|
)
|
|
$
|
(1,051
|
)
|
|
$
|
(220,245
|
)
|
|
$
|
5,310
|
|
On Track Innovations Ltd.
and its Subsidiaries
Interim Unaudited Condensed Consolidated Statements of Changes in Equity
|
US dollars in thousands except number of shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
Treasury
|
|
|
other
|
|
|
|
|
|
|
|
|
|
Number of
|
|
|
Share
|
|
|
paid-in
|
|
|
Shares
|
|
|
comprehensive
|
|
|
Accumulated
|
|
|
Total
|
|
|
|
Shares issued
|
|
|
capital
|
|
|
capital
|
|
|
(at cost)
|
|
|
Income (loss)
|
|
|
deficit
|
|
|
equity
|
|
|
|
|
|
Balance as of December 31, 2018
|
|
|
42,473,076
|
|
|
$
|
1,068
|
|
|
$
|
225,022
|
|
|
$
|
(2,000
|
)
|
|
$
|
(956
|
)
|
|
$
|
(210,943
|
)
|
|
$
|
12,191
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes during the nine month period ended September 30, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation
|
|
|
30,000
|
(*)
|
|
|
1
|
|
|
|
95
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
96
|
|
Foreign currency translation adjustments
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(216
|
)
|
|
|
-
|
|
|
|
(216
|
)
|
Net loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(3,854
|
)
|
|
|
(3,854
|
)
|
Balance as of September 30, 2019
|
|
|
42,503,076
|
|
|
$
|
1,069
|
|
|
$
|
225,117
|
|
|
$
|
(2,000
|
)
|
|
$
|
(1,172
|
)
|
|
$
|
(214,797
|
)
|
|
$
|
8,217
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2019
|
|
|
47,963,076
|
|
|
$
|
1,226
|
|
|
$
|
225,970
|
|
|
$
|
(2,000
|
)
|
|
$
|
(974
|
)
|
|
$
|
(216,832
|
)
|
|
$
|
7,390
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes during the nine month period ended September 30, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of shares, net of issuance costs of $39
|
|
|
7,040,000
|
(**)
|
|
|
197
|
|
|
|
1,172
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,369
|
|
Stock-based compensation
|
|
|
-
|
|
|
|
-
|
|
|
|
41
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
41
|
|
Foreign currency translation adjustments
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(77
|
)
|
|
|
-
|
|
|
|
(77
|
)
|
Net loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(3,413
|
)
|
|
|
(3,413
|
)
|
Balance as of September 30, 2020
|
|
|
55,003,076
|
|
|
$
|
1,423
|
|
|
$
|
227,183
|
|
|
$
|
(2,000
|
)
|
|
$
|
(1,051
|
)
|
|
$
|
(220,245
|
)
|
|
$
|
5,310
|
|
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
|
|
Nine months ended
September 30,
|
|
|
|
2020
|
|
|
2019
|
|
Cash flows from continuing operating activities
|
|
|
|
|
|
|
Net loss from continuing operations
|
|
$
|
(3,288
|
)
|
|
$
|
(3,575
|
)
|
Adjustments required to reconcile net loss to net cash used in provided by continuing operating activities:
|
|
|
|
|
|
|
|
|
Stock-based compensation related to options and shares issued to employees and others
|
|
|
41
|
|
|
|
96
|
|
Accrued interest and linkage differences, net
|
|
|
(102
|
)
|
|
|
(48
|
)
|
Depreciation and amortization
|
|
|
924
|
|
|
|
951
|
|
Deferred tax benefits, net
|
|
|
(107
|
)
|
|
|
(25
|
)
|
Gain on sale of property and equipment
|
|
|
-
|
|
|
|
(328
|
)
|
|
|
|
|
|
|
|
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Change in accrued severance pay, net
|
|
|
21
|
|
|
|
66
|
|
(Increase) decrease in trade receivables, net
|
|
|
(401
|
)
|
|
|
1,576
|
|
Decrease in other receivables and prepaid expenses
|
|
|
610
|
|
|
|
395
|
|
Increase in inventories
|
|
|
(48
|
)
|
|
|
(879
|
)
|
Increase in trade payables
|
|
|
204
|
|
|
|
506
|
|
Decrease in other current liabilities
|
|
|
(244
|
)
|
|
|
(585
|
)
|
Net cash used in continuing operating activities
|
|
|
(2,390
|
)
|
|
|
(1,850
|
)
|
|
|
|
|
|
|
|
|
|
Cash flows from continuing investing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of property and equipment and intangible assets
|
|
|
(994
|
)
|
|
|
(589
|
)
|
Proceeds from sale of property and equipment
|
|
|
-
|
|
|
|
1,102
|
|
Change in short-term investments, net
|
|
|
1,715
|
|
|
|
(978
|
)
|
Proceeds from restricted deposit for employee benefits
|
|
|
-
|
|
|
|
10
|
|
Net cash provided by (used in) continuing investing activities
|
|
|
721
|
|
|
|
(455
|
)
|
|
|
|
|
|
|
|
|
|
Cash flows from continuing financing activities
|
|
|
|
|
|
|
|
|
Increase in short-term bank credit, net
|
|
|
161
|
|
|
|
2,636
|
|
Proceeds from long-term bank loans
|
|
|
799
|
|
|
|
-
|
|
Repayment of long-term bank loans
|
|
|
(8
|
)
|
|
|
(261
|
)
|
Proceeds from issuance of shares, net of issuance costs
|
|
|
1,369
|
|
|
|
-
|
|
Net cash provided by continuing financing activities
|
|
|
2,321
|
|
|
|
2,375
|
|
|
|
|
|
|
|
|
|
|
Cash flows from discontinued operations
|
|
|
|
|
|
|
|
|
Net cash used in discontinued operating activities
|
|
|
(572
|
)
|
|
|
(1,397
|
)
|
|
|
|
|
|
|
|
|
|
Total net cash used in discontinued operations
|
|
|
(572
|
)
|
|
|
(1,397
|
)
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash and cash equivalents
|
|
|
(45
|
)
|
|
|
(277
|
)
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in cash, cash equivalents and restricted cash
|
|
|
35
|
|
|
|
(1,604
|
)
|
|
|
|
|
|
|
|
|
|
Cash, cash equivalents and restricted cash - beginning of the period
|
|
|
2,648
|
|
|
|
5,105
|
|
|
|
|
|
|
|
|
|
|
Cash, cash equivalents and restricted cash - end of the period
|
|
$
|
2,683
|
|
|
$
|
3,501
|
|
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
|
|
Nine months ended
September 30,
|
|
|
|
2020
|
|
|
2019
|
|
Supplementary cash flows activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid during the period for:
|
|
|
|
|
|
|
Interest paid
|
|
$
|
64
|
|
|
$
|
44
|
|
Income taxes paid
|
|
$
|
41
|
|
|
$
|
187
|
|
Income tax refund received
|
|
$
|
83
|
|
|
|
-
|
|
Supplemental disclosures of non-cash flow information:
|
|
|
|
|
|
|
|
|
Payables due to purchase of property and equipment and intangible assets
|
|
$
|
92
|
|
|
$
|
-
|
|
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, NIS and Euro in thousands, except share and per
share data
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.
The Company’s ordinary shares
are listed for trading on the OTCQX market (formerly listed on the Nasdaq Capital Market until October 31, 2019).
At September 30, 2020, the Company
operates in two operating segments: (a) Retail and Mass Transit Ticketing, and (b) Petroleum. See Note 11. During December 2018,
the Company sold its medical smart cards operation – see Note 1C(2).
|
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, 2019.
In the opinion of management,
all adjustments considered necessary for a fair statement, consisting of normal recurring adjustments, have been included. Operating
results for the nine month period and the three month period ended September 30, 2020 are not necessarily indicative of the results
that may be expected for the year ending December 31, 2020.
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 relating to its Smart ID division, for a total purchase price of $10,000 in cash and an additional $12,500 subject to
performance-based milestones. 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, NIS and Euro in thousands, except share and
per share data
Note 1 - Organization and Basis of Presentation
(cont’d)
|
C.
|
Divestiture of operations (cont’d)
|
On April 20, 2016, the
purchaser of the Smart ID division, SuperCom Ltd. (“SuperCom”), and the Company entered into a settlement
agreement resolving certain litigation between SuperCom and the Company pursuant to which SuperCom paid the Company $2,050
and agreed to pay the Company up to $1,500 in accordance with and subject to a certain earn-out mechanism. In November 2017,
the Company commenced an arbitration procedure with SuperCom, in which the Company claims that additional earn-out payments
have not been paid to the Company. SuperCom raised claims against the Company during the arbitration for material damages. An
arbitration decision was issued on December 24, 2018 in the Company’s favor and denied SuperCom’s claims. The
arbitrator ordered SuperCom to disclose the financial information regarding the earn-out payments that the Company is
entitled to receive, and to pay the Company accordingly, or otherwise pay the Company approximately $1,300 that reflects the
maximum earn-out amount that has not yet been paid to the Company by SuperCom. The arbitration verdict was approved as a
court’s verdict in June 2019, but SuperCom failed to disclose the financial information in the way it should have done
according to the arbitration decision. Therefore, in December 2019 the Company submitted a complementary claim to the
arbitrator, asking for a final award that includes a final payment by SuperCom (as opposed to merely disclosing information). A hearing in this procedure took place on August 18, 2020, and
the parties are now submitting written summaries, to be followed by an arbitration verdict.
The Company
records the earn-out payments only when the consideration is determined to be realizable. The Company did not record or receive
any contingent consideration during the nine months ended September 30, 2020 and 2019.
|
2.
|
In December 2018, the Company completed the sale of its medical smart cards operation (“Medismart”)
(formerly part of the Company’s “Other segment”) to Smart Applications International Limited for a total price
of $2,750. The Company has determined that the sale of the Medismart business qualifies as a discontinued operation. 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.
|
|
3.
|
The Company divested its interest in the SmartID division and its Medismart activity, and presented
these activities as discontinued operations.
|
Set forth below are the results
of the discontinued operations:
|
|
Three months ended
September 30,
|
|
|
Nine months ended
September 30,
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
Revenues
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Expenses
|
|
|
(82
|
)
|
|
|
(36
|
)
|
|
|
(125
|
)
|
|
|
(279
|
)
|
Net loss from discontinued operations
|
|
|
(82
|
)
|
|
|
(36
|
)
|
|
|
(125
|
)
|
|
|
(279
|
)
|
On Track Innovations Ltd.
and Subsidiaries
Notes to the Interim
Unaudited Condensed Consolidated Financial Statements
US dollars, NIS and Euro in thousands, except share and per
share data
Note 1 - Organization and Basis of Presentation
(cont’d)
|
D.
|
Liquidity and Capital Resources
|
The Company has had recurring
losses and has an accumulated deficit as of September 30, 2020 of $220,245. The Company also has a payable balance on its short-term
loan of $2,708 as of September 30, 2020 that is due within the next 12 months.
Since inception, the
Company’s principal sources of liquidity have been revenues, proceeds from sales of equity securities, borrowings from
banks and government, cash from the exercise of options and warrants as well as proceeds from the divestiture of parts of the
Company’s businesses. The Company had cash, cash equivalents and short-term investments representing bank deposits of
$3,183 (of which an amount of $105 has been pledged as security for certain items) as of September 30, 2020. The recent deterioration in the pandemic situation in Poland
has led to an almost complete stop to the Company’s Mass Transit Ticketing sales business, negatively impacting the Company’s
cash flow. Based on the projected cash flows and the Company’s cash balances as of September 30, 2020, the Company’s
management is of the opinion that without further fund raising or other increase in its cash, the Company will not have sufficient
resources to enable it to continue its operations for a period of at least the next 12 months. As a result, there is a substantial
doubt regarding the Company’s ability to continue as a going concern. The Company’s management has taken cost reduction
steps, including material reductions in the salaries of its management and employees. The Company is attempting to raise additional
funds and to increase its cash. While the Company’s management believes in its ability to raise additional funds and increase
its cash, there can be no assurances to that effect. The financial statements do not include any adjustments relating to the recoverability
and classification of recorded assets and the amounts and classification of liabilities that might be necessary should the Company
be unable to continue as a going concern.
As disclosed in Note 10A, during the first half of 2020 the
Company received funds in a total amount of $1,408 in consideration for the issuance of 7,040,000 ordinary shares, all in accordance
with the terms and provisions of the Agreement (as defined in Note 10A below).
In connection with the outbreak
of the Corona Virus (COVID-19) (“COVID-19”), the Company has taken steps to protect its workforce in Israel, the United
States, Poland, South Africa and elsewhere. Such steps include work from home where possible, minimizing face-to-face meetings
and utilizing video conference as much as possible, social distancing at facilities and elimination of all international travel.
The Company continues to comply with all local health directives.
So far, the main direct
impact of the COVID-19 pandemic has been a decrease in the Company’s revenues derived from Mass Transit Ticketing sales
in the Polish market. The revenues from this operation, that were relatively stable during the year preceding the COVID-19
outbreak, decreased by approximately $1,600 in the nine month period ended September 30, 2020, compared to the nine month
period ended September 30, 2019, mainly due to the lockdown and other restrictions and consequences of the COVID-19 as
started in March 2020. This impact is expected to continue for the foreseeable future. In addition, recently, as a result of
COVID-19, some of the Company’s customers have delayed issuance of orders in the Company’s pipeline and cancelled
a few other orders, which reduced its pipeline. As a response to this effect, the Company has taken steps to reduce some
costs that are not essential under the current circumstances.
Another impact of COVID-19 has
been on product delivery, where components’ procurement lead time is longer and a shortage in components has grown as the
duration of the COVID-19 pandemic has continued. As long as the COVID-19 pandemic continues, the components’ lead time may
be longer than normal and shortage in components may continue or get worse. Therefore, the Company maintains a comprehensive network
of world-wide suppliers.
On Track Innovations Ltd.
and Subsidiaries
Notes to the Interim
Unaudited Condensed Consolidated Financial Statements
US dollars, NIS and Euro in thousands, except share and per
share data
Note 1 - Organization and Basis of Presentation
(cont’d)
|
D.
|
Liquidity
and Capital Resources (cont’d)
|
Regarding the Company’s
Petroleum activity, due to the extended lockdown in South Africa during the second quarter of 2020, some of the sales that were
planned to occur by the end of June 2020 were postponed to the second half of 2020 and therefore caused a decrease in the revenues
of the Petroleum segment in the nine month period ended September 30, 2020, compared to the nine month period ended September 30,
2019.
As for the Company’s Retail
activity, the Company has seen a higher interest from a growing number of potential customers and partners as they forecasted that
the need for the Company’s products will grow, yet execution of closing is still slow due to the current business environment.
It is difficult to predict what
other impacts the COVID-19 pandemic may have on the Company.
Regarding a consent that the Company’s
Polish subsidiary received to postpone the maturity date of a secured bank loan, and a long-term loan that it received as part
of the Polish government assistance and regulations introduced in relation to the COVID-19, see Note 5.
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, 2019.
Recently Accounting Pronouncements
|
1.
|
In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards
Update (“ASU”) 2016-13, Financial Instruments - Credit Losses (Topic 326). The main objective of this ASU is to provide
financial statement users with more decision-useful information about the expected credit losses on financial instruments and other
commitments to extend credit held by a reporting entity at each reporting date. To achieve this objective, the amendments in this
ASU replace the incurred loss impairment methodology in current GAAP with a methodology that reflects expected credit losses and
requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. The amendments
affect entities holding financial assets and net investment in leases that are not accounted for at fair value through net income.
The amendments affect loans, debt securities, trade receivables, net investments in leases, off-balance-sheet credit exposures,
reinsurance receivables, and any other financial assets not excluded from the scope that have the contractual right to receive
cash. ASU 2016-13 is effective for the Company for fiscal years beginning after December 15, 2022, including interim periods within
those fiscal years. Early adoption is permitted for fiscal years beginning after December 15, 2018. The Company currently does
not expect the adoption of this accounting standard to have a material impact on its consolidated financial statements.
|
|
2.
|
In December 2019, the FASB issued ASU 2019-12, Income
Taxes (Topic 740): Simplifying the Accounting for Income Taxes (ASU 2019-12), which simplifies the accounting for
income taxes. This ASU, among other things, removes the exception to the incremental approach for intraperiod allocation of tax
expense when a company has a loss from continuing operations and income from other items that are not included in continuing operations,
such as income from discontinued operations, or income recorded in other comprehensive income. The general rule under Accounting
Standards Update (“ASC”) 740-20-45-7 is that the tax effect of pretax income or loss from continuing operations should
be determined by a computation that does not consider the tax effects of items that are not included in continuing operations.
Previously, companies could consider the impact on a loss from continuing operations of items in discontinued operations or other
comprehensive income. However, under the amended guidance, companies should not consider the effect of items outside of continuing
operations in calculating the tax effect on continuing operations. The new standard is effective for fiscal years, and interim
periods within those fiscal years, beginning after December 15, 2020. Early adoption is permitted, with the amendments to
be applied on a retrospective, modified retrospective or prospective basis, depending on the specific amendment. The Company is
currently evaluating the impact of adopting this guidance.
|
On Track Innovations
Ltd.
and Subsidiaries
Notes
to the Interim Unaudited Condensed Consolidated Financial Statements
US dollars, NIS and Euro in thousands, except share and per
share data
Note 3 - Other Receivables and Prepaid
Expenses
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
Government institutions
|
|
$
|
239
|
|
|
$
|
414
|
|
Prepaid expenses
|
|
|
173
|
|
|
|
224
|
|
Receivables under contractual obligations to be transferred to others (*)
|
|
|
274
|
|
|
|
330
|
|
Supplier advances
|
|
|
267
|
|
|
|
544
|
|
Other receivables
|
|
|
228
|
|
|
|
310
|
|
|
|
$
|
1,181
|
|
|
$
|
1,822
|
|
|
(*)
|
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
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
Employees and related expenses
|
|
$
|
661
|
|
|
$
|
613
|
|
Accrued expenses
|
|
|
789
|
|
|
|
887
|
|
Customer advances
|
|
|
84
|
|
|
|
111
|
|
Short-term liabilities due to operating leases and current maturities
|
|
|
867
|
|
|
|
686
|
|
Other current liabilities
|
|
|
138
|
|
|
|
(*)757
|
|
|
|
$
|
2,539
|
|
|
$
|
3,054
|
|
On Track Innovations Ltd.
and Subsidiaries
Notes to the Interim
Unaudited Condensed Consolidated Financial Statements
US dollars, NIS and Euro in thousands, except share and per
share data
Note 5 - Short-term and long-term bank loans
On May 11, 2020, based on Polish government
regulations introduced in relation to the COVID-19 pandemic, ASEC S.A. (Spolka Akcyjna), the Polish subsidiary of the Company
(hereinafter – “ASEC”), received the consent of PKO Bank Polski, a Polish bank (hereinafter – “the
Lender”), to postpone the maturity date of a secured loan, provided to ASEC in May 2019, in the amount of $2,000, by six
months to November 22, 2020, instead of May 23, 2020, as the loan agreement provided. On November 16, 2020, following ASEC’s
request, ASEC received the consent of the Lender to further postpone the maturity date of the loan to December 22, 2020. The loan
will be payable in full on maturity (with the option of early repayment by ASEC) and the interest of 1-month LIBOR plus 1.8% is
paid on a monthly basis. The loan is secured by certain assets of ASEC. The loan agreement includes customary events of default,
including, among others, failures to repay any amounts due to the Lender, breaches or defaults under the terms of the agreement,
etc. If an event of default occurs, the Lender may reduce the amount of the loan, demand additional security or terminate the
agreement. This loan is presented as a short-term bank loan within ‘current liabilities’.
As part of an additional Polish government
assistance, in June 2020 ASEC received a long-term loan through another Polish bank in an amount of approximately $800, out of
which approximately $100 is presented as a current maturity of long-term bank loan within ‘current liabilities’ and
approximately $700 is presented as a long-term bank loan within ‘long-term liabilities’ The loan will be repaid in
24 monthly equal installments starting in July 2021. Depending on some scenarios, such as average number of employees and financial
results, a portion of the loan may be forgiven. This loan is denominated in Polish Zloty and does not bear interest. In the event
of breach by ASEC of any of the obligations, as mentioned in the loan agreement, the bank may terminate such agreement. In such
a case, the long-term loan shall become due and payable within 14 business days from receipt of the notice of termination.
Note 6 - Leases
The Company leases a limited number of
assets, mainly offices and cars for use in its operations. The Company adopted the accounting standard ASC 842, “Leases”,
and all the related amendments on January 1, 2019 and used the effective date as Company’s date of initial application.
As of September 30, 2020, right-of-use
assets due to operating leases are $3,689 (as of December 31, 2019 - $2,134) and the liabilities due to operating leases are $3,669
(as of December 31, 2019 - $2,169), out of which $2,802 are classified as long-term liabilities and $867 are classified as current
liabilities (see Note 4).
The right-of-use assets and the liabilities
due to operating leases as of September 30, 2020, include assets and liabilities in the amount of $1,696 and $1,704, respectively,
that derive from the lease commencement of the headquarters office in Yokneam, Israel (in lieu of the previous leased headquarters
building in Rosh Pina) in January 2020. The operating lease period of this office is five years (excluding the extension-period,
as mentioned in the agreement). The total annual rent expenses of this building, including management fees and excluding construction
costs-reimbursement payments, is approximately NIS 595 ($173) during the lease period and approximately NIS 654 ($190) during the
extension-period, if extended. The construction costs-reimbursement payments are approximately NIS 2,913 ($847), out of which 50%
will be paid during the lease period. If the Company leases this office during the extension-period of five years, the rest of
the 50% costs-reimbursement payments will be paid during the extension-period. Otherwise, the rest of the 50% costs-reimbursement
payments will be paid at the end of 2024.
On Track Innovations Ltd.
and Subsidiaries
Notes to the Interim
Unaudited Condensed Consolidated Financial Statements
US dollars, NIS and Euro in thousands, except share and per
share data
Note
6 - Leases (cont’d)
The Company includes renewal options that
it is reasonably certain to exercise in the measurement of the lease liabilities. The remaining operating lease periods of the
leases range from less than one year to ten years as of September 30, 2020. The weighted average remaining lease term is 3.1 years
as of September 30, 2020.
The following is a schedule of the maturities
of operating lease liabilities for the next five years as of September 30, 2020, and thereafter, as were taken into account in
the calculation of the operating lease liabilities as of September 30, 2020:
Remainder of 2020
|
|
$
|
276
|
|
2021
|
|
|
1,052
|
|
2022
|
|
|
832
|
|
2023
|
|
|
522
|
|
2024
|
|
|
343
|
|
Thereafter
|
|
|
1,234
|
|
Total leases payments
|
|
|
4,259
|
|
Less - discount
|
|
|
590
|
|
Operating lease liabilities
|
|
$
|
3,669
|
|
As of September 30, 2020, the weighted
average discount rate of the operating leases is approximately 5%.
Operating lease costs and cash paid during
the nine months ended September 30, 2020 and 2019, for amounts included in the measurement of the lease liabilities were approximately
$823 and $602, respectively. Operating lease costs and cash paid during the three months ended September 30, 2020 and 2019, for
amounts included in the measurement of the lease liabilities were approximately $285 and $236, respectively. Operating lease costs
include fixed payments and variable payments that depend on an index or rate. There are no other significant variable lease payments.
The Company does not have any material
leases, individually or in the aggregate, classified as a finance leasing arrangement.
Note 7 - Commitments and Contingencies
A. Legal claims
|
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, plus expenses and legal fees, as well as a right to receive additional information from the Company
regarding an additional engagement period in Tanzania and a right to possibly receive additional amounts from the Company, if at
all, according to the information that will be provided. The arbitration decision had been appealed and the appeal was denied
on June 17, 2018. In order to collect the award, Merwell filed a motion against the Company and the Nazareth District Court issued a
judgment requiring the Company to pay Merwell an amount of NIS 5,080 (approximately $1,370) that was paid by the Company on January
8, 2019.
|
On Track Innovations Ltd.
and Subsidiaries
Notes to the Interim
Unaudited Condensed Consolidated Financial Statements
US dollars, NIS and Euro in thousands, except share and per
share data
Note 7 - Commitments and
Contingencies (cont’d)
As mentioned above, based on
the agreement with SuperCom from April 2016 (which was granted an effect of a court judgment), SuperCom is liable for all the costs
and liabilities arising out of this claim. Since SuperCom failed to pay the Company the amounts due, in February 2019 the Company
initiated an arbitration process to collect from SuperCom, the amount paid to Merwell, as well as any complementary amounts, as
may be ordered in the future.
Despite the fact that, based on
the assessment of the Company’s external legal counsel, the likelihood to succeed in the arbitration process (or other legal
procedure in that matter) is high, the Company did not record an indemnification asset as of September 30, 2020 and December
31, 2019, in accordance with accounting standard ASC 450, “Contingencies”.
|
2.
|
On June 12, 2019, Merwell submitted a complementary claim against the Company in arbitration, with
respect to the additional financial details that Merwell claims that the Company was ordered to provide according to the arbitration
verdict from February 21, 2016, and additional payments that Merwell claims that the Company is obligated to pay Merwell. The said
financial details refer to the quantity of smart driving licenses that Merwell claims were issued in the later period of a project
in Tanzania in which Merwell claims to have provided services to the Company. Merwell claims that despite the Company’s failure
to provide the details, Merwell obtained the details independently from other sources, and they indicate that the Company is obligated
to pay Merwell an additional amount of approximately $1,618, and there might be additional amounts to be claimed in the future,
as additional information might be found from time to time. On March 4, 2020, the Company submitted a response to this complementary
claim, rejecting Merwell’s claims. On September 16, 2020, Merwell filed a request to amend the additional amount claimed
from approximately $1,618 to approximately $3,012. As mentioned above, the Company is conducting in parallel a separate arbitration
process against SuperCom in that matter, as the Company deems SuperCom to be liable for all the costs and liabilities arising out
of this claim. Based on the assessment of the Company’s external legal counsel, given the preliminary stage of the procedure, it
is difficult, at this point, to estimate the chances of Merwell’s claims for a complementary arbitration verdict.
|
|
3.
|
In October 2013, a financial claim was filed against the Company and its then French subsidiary,
Parx France (in this paragraph, together, the “Defendants”), in the Commercial Court of Paris, France (in this paragraph,
the “Court”). The sum of the claim is €1,500 (approximately $1,755) 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. On October 25, 2017, the Court issued its ruling
in this matter dismissing all claims against the Company, but ordering Parx France to pay the plaintiff €50 ($58) plus interest
in damages plus another approximately €5 ($6) in other fees and penalties. The Company offered to pay the amounts mentioned
above to the plaintiff in consideration for not filing future appeals. The plaintiff rejected this offer and filed an appeal against
Parx France and the Company claiming the sum of €503 ($588) plus interest and expenses. On November 7, 2019, the Company’s
external legal counsel concluded that the appeal was inadmissible, and that it believed that the opposing claims would be dismissed.
The appeal hearing is scheduled for April 21, 2021. Based on the assessment of the Company’s external legal counsel, the Company’s
management is of the opinion that the chances of the appeal being approved against the Company are low.
|
On Track Innovations Ltd.
and Subsidiaries
Notes to the Interim
Unaudited Condensed Consolidated Financial Statements
US dollars, NIS and Euro in thousands, except share and per
share data
Note 7 - Commitments and
Contingencies (cont’d)
|
4.
|
In July 2019, the Company received a request (the “Request”), to allow a petitioner
to submit a class action, which concerns the petitioner’s claims that, inter alia, through the EasyPark card, drivers are permitted
to exceed the quota of permitted hours in accordance with the instructions of various local authorities in Israel. The Request
was submitted against a company incorporated by the buyer of the assets (including the parking activity) of the Israeli subsidiaries
of the Company (the “Company’s Subsidiaries”) and against two other companies that operate technological means
for payment for public parking spaces scattered throughout the cities. Since the majority of potential claims against the Company’s
Subsidiaries relate to the period following the sale of the Company’s Subsidiaries’ assets, including the parking activity,
it appears that the Company’s exposure through this channel is limited. Furthermore, even if payment will be required, the buyer
would be liable for the majority of such payment. Therefore the Company will not participate in such procedure at this stage. Based
on the assessment of the Company’s external legal counsel, the Company’s management is of the opinion that the exposure of
the Company is low.
|
|
5.
|
During the year ended December 31, 2017, the Company recorded income of approximately $1,600 based
on a judgment issued by the Israeli Central District Court regarding the Company’s lawsuit against Harel Insurance Company
Ltd. (“Harel”) for damages incurred by the Company due to flooding in a subcontractor’s manufacturing site in
2011. The judgment determined that this amount of $1,600, net be awarded to cover the Company’s damages. On October 10, 2017,
Harel submitted its appeal of the judgment to the Israeli Supreme Court as well as a request for stay of judgment.
|
On January 26, 2020, Harel and
the Company agreed to the offer of the Israeli Supreme Court, as made by way of settlement in which the Company will pay back to
Harel the sum of NIS 1,907 (approximately $553) in three monthly equal installments starting February 26, 2020. Accordingly, the
Company recorded loss of $71 and $482 within the net loss from continuing operations and within the net loss from discontinued
operations, respectively, in the fourth quarter of 2019. As of September 30, 2020, the Company paid all the settlement amount.
|
6.
|
Regarding an additional legal claim, see Note 1C(1).
|
As of September 30, 2020, the Company
has granted performance guarantees in the sum of $505. The expiration dates of these
guarantees range from January 2021 to May 2024.
On Track Innovations Ltd.
and Subsidiaries
Notes to the Interim
Unaudited Condensed Consolidated Financial Statements
US dollars, NIS and Euro in thousands, except share and per
share data
Note 8 - Revenues
Disaggregation of revenue
The following tables disaggregate the Company’s
revenue by major source based on categories that depict its nature and timing as reviewed by management for the three months ended
September 30, 2020 and 2019:
|
|
Three months ended
|
|
|
|
September 30, 2020
|
|
|
|
Retail and
Mass Transit
Ticketing
|
|
|
Petroleum
|
|
|
Total
|
|
Cashless payment products (A)
|
|
$
|
1,999
|
|
|
$
|
-
|
|
|
$
|
1,999
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Complete cashless payment solutions (B):
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales of products (B1)
|
|
|
103
|
|
|
|
529
|
|
|
|
632
|
|
Licensing fees, transaction fees and services (B2)
|
|
|
779
|
|
|
|
227
|
|
|
|
1,006
|
|
|
|
|
882
|
|
|
|
756
|
|
|
|
1,638
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
2,881
|
|
|
$
|
756
|
|
|
$
|
3,637
|
|
|
|
Three months ended
|
|
|
|
September 30, 2019
|
|
|
|
Retail and
Mass Transit
Ticketing
|
|
|
Petroleum
|
|
|
Total
|
|
Cashless payment products (A)
|
|
$
|
1,697
|
|
|
$
|
-
|
|
|
$
|
1,697
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Complete cashless payment solutions (B):
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales of products (B1)
|
|
|
49
|
|
|
|
603
|
|
|
|
652
|
|
Licensing fees, transaction fees and services (B2)
|
|
|
1,189
|
|
|
|
327
|
|
|
|
1,516
|
|
|
|
|
1,238
|
|
|
|
930
|
|
|
|
2,168
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
2,935
|
|
|
$
|
930
|
|
|
$
|
3,865
|
|
On Track Innovations Ltd.
and Subsidiaries
Notes to the Interim
Unaudited Condensed Consolidated Financial Statements
US dollars, NIS and Euro in thousands, except share and per
share data
Note 8 - Revenues (cont’d)
Disaggregation of revenue (cont’d)
The following tables disaggregate the Company’s revenue by major source based on categories that depict its nature and timing as reviewed
by management for the nine months ended September 30, 2020 and 2019:
|
|
Nine months ended
|
|
|
|
September 30, 2020
|
|
|
|
Retail and
Mass Transit
Ticketing
|
|
|
Petroleum
|
|
|
Total
|
|
Cashless payment products (A)
|
|
$
|
6,311
|
|
|
$
|
-
|
|
|
$
|
6,311
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Complete cashless payment solutions (B):
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales of products (B1)
|
|
|
2,216
|
|
|
|
1,404
|
|
|
|
3,620
|
|
Licensing fees, transaction fees and services (B2)
|
|
|
2,379
|
|
|
|
631
|
|
|
|
3,010
|
|
|
|
|
4,595
|
|
|
|
2,035
|
|
|
|
6,630
|
|
Total revenues
|
|
$
|
10,906
|
|
|
$
|
2,035
|
|
|
$
|
12,941
|
|
|
|
Nine months ended
|
|
|
|
September 30, 2019
|
|
|
|
Retail and
Mass Transit
Ticketing
|
|
|
Petroleum
|
|
|
Total
|
|
Cashless payment products (A)
|
|
$
|
4,437
|
|
|
$
|
-
|
|
|
$
|
4,437
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Complete cashless payment solutions (B):
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales of products (B1)
|
|
|
646
|
|
|
|
1,439
|
|
|
|
2,085
|
|
Licensing fees, transaction fees and services (B2)
|
|
|
3,522
|
|
|
|
950
|
|
|
|
4,472
|
|
|
|
|
4,168
|
|
|
|
2,389
|
|
|
|
6,557
|
|
Total revenues
|
|
$
|
8,605
|
|
|
$
|
2,389
|
|
|
$
|
10,994
|
|
On
Track Innovations Ltd.
and
Subsidiaries
Notes
to the Interim Unaudited Condensed Consolidated Financial Statements
US
dollars, NIS and Euro in thousands, except share and per share data
Note
8 - Revenues (cont’d)
Disaggregation
of revenue (cont’d)
Performance
obligations
Below
is a listing of performance obligations for the Company’s main revenue streams:
|
A.
|
Cashless
payment products –
|
The
performance obligation is the selling of contactless payment products. Most of those products are Near Field Communication (NFC)
readers. For such sales the performance obligation, transfer of control and revenue recognition occur when the products are delivered.
|
B.
|
Complete
cashless payment solutions –
|
The
complete solution includes selling of products and complementary services, as follows:
|
●
|
Selling
of contactless payment products (see A above) together with payment gateways and machine-to-machine
controllers.
|
|
●
|
Selling
of petroleum payment solutions including site and vehicle equipment.
|
For
such sales, the performance obligation, transfer of control and revenue recognition occur when the products are delivered.
|
2.
|
Licensing
fees, transaction fees and services -
|
The
types of arrangements and their main performance obligations are as follows:
|
●
|
To
provide terminal management system licensing for software that is responsible for remote
terminal management and cloud-based software licensing which provide data insights. For
such services, the revenue recognition occurs as the services are rendered since the
performance obligation is satisfied over time.
|
|
●
|
To
enable loading and sale of electronic contactless and paper cards. For such transaction
fees, the revenue recognition occurs on the transaction date.
|
|
●
|
To
provide technical and customer services for products. For such services, the performance
obligation is satisfied over time and therefore revenue recognition occurs as the services
are rendered.
|
The
Company includes a warranty in connection with certain contracts with customers, which are not considered to be separate performance
obligations. The cost to the Company of this warranty is insignificant.
Contract
balances
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
Trade receivables, net of allowance for doubtful accounts
|
|
$
|
2,824
|
|
|
$
|
2,430
|
|
Customer advances
|
|
$
|
84
|
|
|
$
|
111
|
|
Accounts
receivable are recognized when the right to consideration becomes unconditional based upon contractual billing schedules.
Transaction
price and variable consideration
The
transaction price is the amount of consideration to which the Company expects to be entitled in exchange for transferring goods
or services to a customer, excluding amounts collected on behalf of third parties. In certain arrangements with variable consideration,
revenue is recognized over time as it is mainly attributed to ongoing services provided.
On
Track Innovations Ltd.
and
Subsidiaries
Notes
to the Interim Unaudited Condensed Consolidated Financial Statements
US
dollars, NIS and Euro in thousands, except share and per share data
Note 9 - 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.
|
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, determined that the carrying amounts of cash and cash equivalents,
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. Regarding the long-term loan that does not bear any interest (see Note 5), taking into account the
schedule of its maturities, its amount and the relatively current low market rates, the difference between its carrying amount
and its fair value is insignificant.
As
of September 30, 2020, the Company held approximately $605 of short-term bank deposits (as of December 31, 2019, $2,305). As of
September 30, 2020 and December 31, 2019, short-term deposit in the amount of $105 has been pledged as security in respect of
guarantees granted and cannot be pledged to others or withdrawn without the consent of the bank.
On
Track Innovations Ltd.
and
Subsidiaries
Notes
to the Interim Unaudited Condensed Consolidated Financial Statements
US
dollars, NIS and Euro in thousands, except share and per share data
Note
10 - Equity
On
December 23, 2019, the Company entered into a share purchase agreement (hereinafter – the “Agreement”) with
Jerry L Ivy, Jr. Descendants Trust (hereinafter - “Ivy”) and two other investors (collectively together with Ivy –
“Investors”). The Agreement relates to a private placement of an aggregate of up to 12,500,000 ordinary shares of
the Company for aggregate gross proceeds to the Company of up to $2,500.
As
part of this Agreement, in December 2019 and January 2020, the Company issued 5,460,000 and 1,040,000 ordinary shares, respectively,
for aggregate gross proceed of $1,092 and $208, respectively. The issuance costs were approximately $111 during the second half
of 2019. The issuance costs in the three months ended March 31, 2020 were $8. Under the terms of the Agreement and following the
issuance of those shares, the Company appointed one representative to its Board of Directors, designated by Ivy. Also, pursuant
to the Agreement, Ivy has a right to purchase any future equity securities offered by the Company, except with respect to certain
exempt issuances as set forth in the Agreement.
The
issuance of the remaining 6,000,000 ordinary shares (hereinafter – the “Subsequent Closing”) for aggregate gross
proceeds of $1,200 took place in April 2020, following the approval by the Company’s shareholders on April 14, 2020, of
the resolutions detailed below, that were required for the consummation of the Subsequent Closing under the Agreement and the
applicable law: (i) an increase in the number of the ordinary shares authorized for issuance from 50,000,000 to 100,000,000; (ii)
the issuance of the ordinary shares to Ivy following which Ivy will hold 25% or more of the total voting rights at general meetings
of the shareholders of the Company; and (iii) the election of the representative designated by Ivy to the Company’s Board
of Directors.
The
issuance costs in the three months ended June 30, 2020 were $31. There are no issuance costs in the three months ended September
30, 2020.
In
addition, pursuant to the terms of the Agreement, on May 5, 2020, after the consummation of the Subsequent Closing, the Company’s
Board of Directors appointed an additional representative designated by Ivy. The appointment of such designee shall remain valid
through the next general meeting of the Company’s shareholders or as set forth in the Articles of Association of the Company.
On
Track Innovations Ltd.
and
Subsidiaries
Notes
to the Interim Unaudited Condensed Consolidated Financial Statements
US
dollars, NIS and Euro in thousands, except share and per share data
Note
10 - Equity (cont’d)
|
|
Nine months ended
September 30,
|
|
|
|
2020
|
|
|
2019
|
|
Expected dividend yield
|
|
|
0
|
%
|
|
|
0
|
%
|
|
|
|
|
|
|
|
|
|
Expected volatility
|
|
|
107
|
%
|
|
|
79
|
%
|
|
|
|
|
|
|
|
|
|
Risk-free interest rate
|
|
|
0.36
|
%
|
|
|
2.07
|
%
|
|
|
|
|
|
|
|
|
|
Expected life - in years
|
|
|
2.49
|
|
|
|
2.44
|
|
|
1.
|
Dividend
yield of zero percent for all periods.
|
|
2.
|
Expected
average volatility represents a weighted average standard deviation rate for the price
of the Company’s ordinary shares on Nasdaq and on the OTCQX market, as applicable.
|
|
3.
|
Risk-free
interest rate is based on the U.S. Treasury yield curve in effect at the time of grant.
|
|
4.
|
Estimated
expected lives are based on historical grants data.
|
The
Company’s options activity (including options to non-employees) and options outstanding and options exercisable as of December
31, 2019 and September 30, 2020, are summarized in the following table:
|
|
Number of
options
outstanding
|
|
|
Weighted
average exercise
price per share
|
|
Outstanding – December 31, 2019
|
|
|
809,000
|
|
|
$
|
0.93
|
|
|
|
|
|
|
|
|
|
|
Options granted
|
|
|
814,000
|
|
|
|
0.24
|
|
Options expired or forfeited
|
|
|
(106,500
|
)
|
|
|
0.81
|
|
Outstanding – September 30, 2020
|
|
|
1,516,500
|
|
|
|
0.57
|
|
|
|
|
|
|
|
|
|
|
Exercisable as of:
|
|
|
|
|
|
|
|
|
December 31, 2019
|
|
|
505,657
|
|
|
$
|
1.06
|
|
September 30, 2020
|
|
|
518,990
|
|
|
$
|
1.00
|
|
The
weighted average fair value of options granted during the nine months ended September 30, 2020 and during the nine months ended
September 30, 2019 is $0.12 and $0.2, respectively, per option. The aggregate intrinsic value of outstanding options as of September
30, 2020 and December 31, 2019 is approximately $113 and zero, respectively. The aggregate intrinsic value of exercisable options
as of September 30, 2020 and December 31, 2019 is zero.
On
Track Innovations Ltd.
and
Subsidiaries
Notes
to the Interim Unaudited Condensed Consolidated Financial Statements
US
dollars, NIS and Euro in thousands, except share and per share data
Note
10 - Equity (cont’d)
B.
|
Stock
option plans (cont’d)
|
The
following table summarizes information about options outstanding and exercisable (including options to non-employees) as of September
30, 2020:
|
|
Options outstanding
|
|
|
Options exercisable
|
|
|
|
Number
|
|
|
Weighted
|
|
|
|
|
|
Number
|
|
|
Weighted
|
|
|
|
|
|
|
Outstanding
|
|
|
average
|
|
|
Weighted
|
|
|
Outstanding
|
|
|
average
|
|
|
Weighted
|
|
|
|
as of
|
|
|
remaining
|
|
|
Average
|
|
|
As of
|
|
|
remaining
|
|
|
Average
|
|
Range of
|
|
September 30,
|
|
|
contractual
|
|
|
Exercise
|
|
|
September 30,
|
|
|
contractual
|
|
|
Exercise
|
|
exercise price ($)
|
|
2020
|
|
|
life (years)
|
|
|
Price
|
|
|
2020
|
|
|
life (years)
|
|
|
Price
|
|
0.28-0.90
|
|
|
1,090,500
|
|
|
|
4.02
|
|
|
|
0.34
|
|
|
|
149,328
|
|
|
|
1.77
|
|
|
|
0.67
|
|
1.07-1.68
|
|
|
426,000
|
|
|
|
1.45
|
|
|
|
1.14
|
|
|
|
369,662
|
|
|
|
1.35
|
|
|
|
1.13
|
|
|
|
|
1,516,500
|
|
|
|
3.30
|
|
|
|
|
|
|
|
518,990
|
|
|
|
1.47
|
|
|
|
|
|
As
of September 30, 2020, there was approximately $126 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 1.36 years.
During
the three months ended September 30, 2020 and September 30, 2019, the Company recorded stock-based compensation expenses in the
amount of $13 and $6, respectively, in accordance with ASC 718, “Compensation-Stock Compensation”.
During
the nine months ended September 30, 2020 and September 30, 2019, the Company recorded stock-based compensation expenses in the
amount of $41 and $96, respectively, in accordance with ASC 718, “Compensation-Stock Compensation”.
C.
|
Stock
options and warrants in the amounts of 1,516,500 and 1,262,331 outstanding as of September
30, 2020 and 2019, respectively, have been excluded from the calculation of the diluted
net loss per ordinary share because all such securities have an anti-dilutive effect
for all periods presented.
|
D.
|
Shares
to non-employees
|
There
were no grants to non-employees during the nine months ended September 30, 2020. During the nine months ended September 30,
2019, the Company granted 30,000 ordinary shares to its consultants. The expenses that are recognized due to those grants are
immaterial and are presented within ’stock-based compensation’ in the statement of changes in equity for the nine
months ended September 30, 2019.
On
Track Innovations Ltd.
and
Subsidiaries
Notes
to the Interim Unaudited Condensed Consolidated Financial Statements
US
dollars, NIS and Euro in thousands, except share and per share data
Note
11 - 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.
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 September 30, 2020
|
|
|
|
Petroleum
|
|
|
Retail and
Mass Transit
Ticketing
|
|
|
Consolidated
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
755
|
|
|
$
|
2,882
|
|
|
$
|
3,637
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reportable segment gross profit *
|
|
|
309
|
|
|
|
1,393
|
|
|
|
1,702
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation of reportable segment gross profit to gross profit for the period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
|
|
|
|
|
|
|
|
(207
|
)
|
Stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit for the period in the consolidated financial statement
|
|
|
|
|
|
|
|
|
|
$
|
1,494
|
|
|
|
Three months ended September 30, 2019
|
|
|
|
Petroleum
|
|
|
Retail and Mass Transit Ticketing
|
|
|
Consolidated
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
929
|
|
|
$
|
2,936
|
|
|
$
|
3,865
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reportable segment gross profit *
|
|
|
310
|
|
|
|
1,585
|
|
|
|
1,895
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation of reportable segment gross profit to gross profit for the period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
|
|
|
|
|
|
|
|
(190
|
)
|
Stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit for the period in the consolidated financial statement
|
|
|
|
|
|
|
|
|
|
$
|
1,704
|
|
On
Track Innovations Ltd.
and
Subsidiaries
Notes
to the Interim Unaudited Condensed Consolidated Financial Statements
US
dollars, NIS and Euro in thousands, except share and per share data
Note
11 - Operating segments (cont’d)
|
|
Nine months ended September 30, 2020
|
|
|
|
Petroleum
|
|
|
Retail and Mass Transit Ticketing
|
|
|
Consolidated
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
2,035
|
|
|
$
|
10,906
|
|
|
$
|
12,941
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reportable segment gross profit *
|
|
|
896
|
|
|
|
5,248
|
|
|
|
6,144
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation of reportable segment gross profit to gross profit for the period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
|
|
|
|
|
|
|
|
(582
|
)
|
Stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
(3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit for the period in the consolidated financial statement
|
|
|
|
|
|
|
|
|
|
$
|
5,559
|
|
|
|
Nine months ended September 30, 2019
|
|
|
|
|
|
|
Retail and
|
|
|
|
|
|
|
|
|
|
Mass Transit
|
|
|
|
|
|
|
Petroleum
|
|
|
Ticketing
|
|
|
Consolidated
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
2,388
|
|
|
$
|
8,606
|
|
|
$
|
10,994
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reportable segment gross profit *
|
|
|
1,106
|
|
|
|
5,206
|
|
|
|
6,312
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation of reportable segment gross profit to gross profit for the period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
|
|
|
|
|
|
|
|
(588
|
)
|
Stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
(3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit for the period in the consolidated financial statement
|
|
|
|
|
|
|
|
|
|
$
|
5,721
|
|
|
*
|
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 ability to continue as a going concern and any efforts that we may undertake
to support our future operations, service our debt obligations and to further execute our business plans;
|
|
●
|
any
impact of the Corona Virus, or COVID-19, pandemic on our business and cash flow, including
timing of receipt of orders and payment from our customers, continued decrease in the
Mass Transit Ticketing activity in Poland;
|
|
●
|
future
sources of revenue, ongoing relationships with current and future business partners,
distributors, suppliers, customers, end-user customers and resellers;
|
|
●
|
future
costs and expenses and adequacy of capital resources;
|
|
●
|
our
expectations regarding our short-term and long-term capital requirements and satisfaction
thereof;
|
|
●
|
our
outlook for the coming months; and
|
|
●
|
information
with respect to any other plans and strategies for our business.
|
The
factors discussed herein, and in those risk factors expressed below and 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” below and in Part I, Item 1A of our Annual Report on Form
10-K for the fiscal year ended December 31, 2019 filed with the 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, 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 herein.
Overview
We
are a fintech pioneer and a leading developer of cutting-edge secure cashless payment solutions providing global enterprises with
innovative technology for three decades. We operate in two main segments: (1) Retail and Mass Transit Ticketing; and (2) Petroleum.
Our
vision is to strengthen our global presence with innovative solutions and provide our customers with the best possible support
in superior service and reliable advanced products.
Our
intellectual property, or IP, portfolio includes registered patents and patent applications worldwide. Since our incorporation
in 1990, we have built an international reputation for reliability and innovation, deploying many solutions for unattended retail,
mass transit, banking, Internet of Payment Things and the petroleum management industries.
We
operate a global network of regional offices, distributors and partners to support various solutions deployed across the globe.
We
focus on our core business of providing innovative cashless payment solutions based, among other things, on our innovative contactless
NFC technology.
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 and our Annual Report on Form 10-K for the fiscal
year ended December 31, 2019 filed with the SEC.
Results
of Operations
Discontinued
operations. In December 2018, we completed the sale of our MediSmart activities (most of which is attributed to our former
“Other” segment) to Smart Applications International Limited. 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 flow 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 September 30, 2020, compared to the three months ended September 30, 2019
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 September 30, 2020
and September 30, 2019, the revenues that we derived from sales and licensing and transaction fees were as follows (in thousands):
|
|
Three
months ended
September
30,
|
|
|
2020
|
|
2019
|
Sales
|
|
$
|
2,868
|
|
|
$
|
2,631
|
|
Licensing and transaction fees
|
|
$
|
769
|
|
|
$
|
1,234
|
|
Total revenues
|
|
$
|
3,637
|
|
|
$
|
3,865
|
|
Sales.
Sales increased by $237,000, or 9%, in the three months ended September 30, 2020, compared to the three months ended September
30, 2019. The increase is mainly attributed to an increase in sales in Europe, partially offset by a decrease in sales in the
United States and a decrease in sales of Petroleum products 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 September 30, 2020,
compared to the three months ended September 30, 2019, decreased by $465,000, or 38%. The decrease is mainly attributed to a decrease
in Mass Transit Ticketing sales in the Polish market as a result of the impact of the COVID-19 pandemic. Such decrease in Mass
Transit Ticketing sales compared to 2019 is expected to continue for the foreseeable future.
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 September
30, 2020 and September 30, 2019:
Three months ended September 30,
|
|
Africa
|
|
Europe
|
|
APAC
|
|
Americas
|
2020
|
|
$
|
410
|
|
|
|
11
|
%
|
|
$
|
1,916
|
|
|
|
53
|
%
|
|
$
|
256
|
|
|
|
7
|
%
|
|
$
|
1,055
|
|
|
|
29
|
%
|
2019
|
|
$
|
492
|
|
|
|
13
|
%
|
|
$
|
1,714
|
|
|
|
44
|
%
|
|
$
|
214
|
|
|
|
6
|
%
|
|
$
|
1,445
|
|
|
|
37
|
%
|
Our
revenues from sales in Africa decreased by $82,000, or 17%, in the three months ended September 30, 2020, compared to the three
months ended September 30, 2019, mainly due to a decrease in sales of Petroleum products.
Our
revenues from sales in Europe increased by $202,000, or 12%, in the three months ended September 30, 2020, compared to the three
months ended September 30, 2019, mainly due to an increase of Retail sales, partially offset by a decrease in Mass Transit Ticketing
sales in the Polish market as a result of the impact of the COVID-19 pandemic. Such decrease in Mass Transit Ticketing sales compared
to 2019 is expected to continue for the foreseeable future.
Our
revenues from sales in Asia-Pacific region, or APAC, increased by $42,000, or 20%, in the three months ended September 30, 2020,
compared to the three months ended September 30, 2019, mainly due to an increase in Retail sales.
Our
revenues from sales in the Americas decreased by $390,000, or 27%, in the three months ended September 30, 2020, compared to the
three months ended September 30, 2019, mainly due to a decrease in Retail sales to the United States 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 September 30, 2020 and September 30, 2019:
Three months ended September 30,
|
|
Retail and Mass
Transit Ticketing
|
|
Petroleum
|
2020
|
|
$
|
2,881
|
|
|
|
79
|
%
|
|
$
|
756
|
|
|
|
21
|
%
|
2019
|
|
$
|
2,935
|
|
|
|
76
|
%
|
|
$
|
930
|
|
|
|
24
|
%
|
Our
revenues from Retail and Mass Transit Ticketing in the three months ended September 30, 2020, decreased by $54,000, or 2%, compared
to the three months ended September 30, 2019, mainly attributed to a decrease in Mass Transit Ticketing sales in the Polish market
as a result of the impact of the COVID-19 pandemic and a decrease in Retail sales in the United States, partially offset by an
increase in Retail sales in Europe.
Our
revenues in the three months ended September 30, 2020, from Petroleum decreased by $174,000, or 19%, compared to the three months
ended September 30, 2019, mainly due to a decrease in sales of Petroleum products in Africa and the Americas.
Cost
of Revenues and Gross Margin
Our
cost of revenues, presented by gross profit and gross margin percentage, in the three months ended September 30, 2020 and September
30, 2019, were as follows (dollar amounts in thousands):
|
|
Three months ended
September 30,
|
Cost of revenues
|
|
2020
|
|
2019
|
|
|
|
|
|
Cost of sales
|
|
$
|
2,142
|
|
|
$
|
2,161
|
|
Gross profit
|
|
$
|
1,495
|
|
|
$
|
1,704
|
|
Gross margin percentage
|
|
|
41
|
%
|
|
|
44
|
%
|
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. Our cost of sales in the three months ended September 30, 2020 compared to
the three months ended September 30, 2019, remained consistent.
Gross
margin. The decrease in gross margin in the three months ended September 30, 2020, compared to the three months ended September
30, 2019, is mainly attributed to a change in our revenue mix and attributed to the decrease in Mass Transit Ticketing sales in
the Polish market as a result of the impact of COVID-19, partially offset by an inventory adjustment in South Africa in the third
quarter of 2019.
Operating
expenses
Our
operating expenses in the three months ended September 30, 2020 and September 30, 2019, were as follows (in thousands):
|
|
Three months ended
September 30,
|
Operating expenses
|
|
2020
|
|
2019
|
Research and Development
|
|
$
|
841
|
|
|
$
|
840
|
|
Selling and Marketing
|
|
$
|
1,215
|
|
|
$
|
1,193
|
|
General and Administrative
|
|
$
|
958
|
|
|
$
|
1,070
|
|
Other gain, net
|
|
$
|
-
|
|
|
$
|
(335
|
)
|
Total operating expenses
|
|
$
|
3,014
|
|
|
$
|
2,768
|
|
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. Our research and development in the three months ended
September 30, 2020, compared to the three months ended September 30, 2019, remained consistent.
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. Our selling and marketing expenses in the three months
ended September 30, 2020, compared to the three months ended September 30, 2019, remained consistent.
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 and insurance. The decrease of $112,000, or 10%, in the three months ended September 30,
2020, compared to the three months ended September 30, 2019, is primarily attributed to a decrease in employment expenses.
Other
gain, net. Our other gain, net, in the third quarter of 2019 is primarily attributed to a capital gain from the sale
of a building by our South African subsidiary.
Financing
expenses, net
Our
financing expenses, net, in the three months ended September 30, 2020 and September 30, 2019, were as follows (in thousands):
|
|
Three months ended
September 30,
|
|
|
2020
|
|
2019
|
Financing expenses, net
|
|
$
|
(80
|
)
|
|
$
|
(93
|
)
|
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 financing expenses, net, remained
consistent.
Income
tax benefits (expenses)
Our
income tax benefits (expenses) in the three months ended September 30, 2020 and September 30, 2019, were as follows (in thousands):
|
|
Three months ended
September 30,
|
|
|
2020
|
|
2019
|
Income tax benefits (expenses)
|
|
$
|
60
|
|
|
$
|
(17
|
)
|
The
change in our tax benefits (expenses) of $77,000 in the three months ended September 30, 2020, compared to the three months ended
September 30, 2019, derives mainly from deferred tax benefits in the Polish subsidiary in the third quarter of 2020.
Net
loss from continuing operations
Our
net loss from continuing operations in the three months ended September 30, 2020 and September 30, 2019, was as follows
(in thousands):
|
|
Three
months ended
September
30,
|
|
|
2020
|
|
2019
|
Net loss from continuing operations
|
|
$
|
(1,539
|
)
|
|
$
|
(1,174
|
)
|
The
increase in the net loss from continuing operations of $365,000, or 31%, in the three months ended September 30, 2020, compared
to the three months ended September 30, 2019, is primarily attributed to a capital gain from the sale of a building by our South
African subsidiary in the third quarter of 2019 and a decrease in the gross profit, partially offset by a decrease in the general
and administrative expenses and a change in income tax benefits (expenses), as described above.
Net
loss from discontinued operations
Our
net loss from discontinued operations in the three months ended September 30, 2020 and September 30, 2019, was as follows (in
thousands):
|
|
Three
months ended
September
30,
|
|
|
2020
|
|
2019
|
Net loss from discontinued operations
|
|
$
|
(82
|
)
|
|
$
|
(36
|
)
|
The
results from these operations for the reporting periods are presented in the statements of operations as discontinued operations
separately from continuing operations. The increase of $46,000, or 128%, in the net loss from discontinued operations in the three
months ended September 30, 2020, compared to the three months ended September 30, 2019, is mainly due to an increase in expenses
relating to legal proceedings.
Net
loss
Our
net loss in the three months ended September 30, 2020 and September 30, 2019, was as follows (in thousands):
|
|
Three
months ended
September
30,
|
|
|
2020
|
|
2019
|
Net loss
|
|
$
|
(1,621
|
)
|
|
$
|
(1,210
|
)
|
The
increase in net loss of $411,000, or 34%, in the three months ended September 30, 2020, compared to the three months ended September
30, 2019, is primarily attributed to a capital gain from the sale of a building by our South African subsidiary in the third quarter
of 2019 and a decrease in the gross profit, partially offset by a decrease in the general and administrative expenses and a change
in income tax benefits (expenses), as described above.
Nine
months ended September 30, 2020, compared to the nine months ended September 30, 2019
Sources
of Revenue
During
the nine months ended September 30, 2020 and September 30, 2019, the revenues that we derived from sales and licensing and transaction
fees were as follows (in thousands):
|
|
Nine
months ended
September
30,
|
|
|
2020
|
|
2019
|
Sales
|
|
$
|
10,262
|
|
|
$
|
7,286
|
|
Licensing and transaction fees
|
|
$
|
2,679
|
|
|
$
|
3,708
|
|
Total revenues
|
|
$
|
12,941
|
|
|
$
|
10,994
|
|
Sales.
Sales increased by $3.0 million, or 41%, in the nine months ended September 30, 2020, compared to the nine months ended September
30, 2019. The increase is mainly attributed to an increase in Retail sales in APAC, the United States and Europe.
Licensing
and transaction fees. Our licensing and transaction fees in the nine months ended September 30, 2020, compared to the nine
months ended September 30, 2019, decreased by $1.0 million, or 28%. The decrease is mainly attributed to a decrease in Mass Transit
Ticketing sales in the Polish market as a result of the impact of the COVID-19 pandemic, partially offset by an increase in our
licensing and transaction fees in Europe. The decrease in Mass Transit Ticketing sales compared to 2019 is expected to continue
for the foreseeable future as a result of the impact of the COVID-19 pandemic.
We
have historically derived revenues from different geographical areas. The following table sets forth our revenues (in thousands)
and as a percentage of revenues in different geographical areas, in the nine months ended September 30, 2020 and September 30,
2019:
Nine months ended September 30,
|
|
Africa
|
|
Europe
|
|
APAC
|
|
Americas
|
2020
|
|
$
|
1,164
|
|
|
|
9
|
%
|
|
$
|
6,026
|
|
|
|
47
|
%
|
|
$
|
2,131
|
|
|
|
16
|
%
|
|
$
|
3,620
|
|
|
|
28
|
%
|
2019
|
|
$
|
1,527
|
|
|
|
14
|
%
|
|
$
|
5,632
|
|
|
|
51
|
%
|
|
$
|
881
|
|
|
|
8
|
%
|
|
$
|
2,954
|
|
|
|
27
|
%
|
Our
revenues from sales in Africa decreased by $363,000, or 24%, in the nine months ended September 30, 2020, compared to the nine
months ended September 30, 2019, mainly due to a decrease in sales of Petroleum products due to some sales that were planned to
occur at the second quarter of 2020 and were postponed to the second half of 2020 as a result of the extended lockdown in South
Africa due to the COVID-19 pandemic.
Our
revenues from sales in Europe increased by $394,000, or 7%, in the nine months ended September 30, 2020, compared to the nine
months ended September 30, 2019, mainly due to an increase in Retail sales, partially offset by a decrease in Mass Transit Ticketing
sales in the Polish market as a result of the impact of COVID-19.
Our
revenues from sales in APAC increased by $1.3 million, or 142%, in the nine months ended September 30, 2020, compared to the nine
months ended September 30, 2019, mainly due to an increase in Retail sales to the APAC market.
Our
revenues from sales in the Americas increased by $666,000, or 23%, in the nine months ended September 30, 2020, compared to the
nine months ended September 30, 2019, mainly due to an increase in Retail sales to the United States 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 (in thousands) and as a percentage of revenues by segments, during the nine months ended
September 30, 2020 and September 30, 2019:
Nine months ended September 30,
|
|
Retail and Mass
Transit Ticketing
|
|
Petroleum
|
2020
|
|
$
|
10,906
|
|
|
|
84
|
%
|
|
$
|
2,035
|
|
|
|
16
|
%
|
2019
|
|
$
|
8,605
|
|
|
|
78
|
%
|
|
$
|
2,389
|
|
|
|
22
|
%
|
Our
revenues from Retail and Mass Transit Ticketing in the nine months ended September 30, 2020, increased by $2.3 million, or 27%,
compared to the nine months ended September 30, 2019, mainly attributed to an increase in Retail sales in APAC, the United States
and Europe, partially offset by a decrease in Mass Transit Ticketing sales in the Polish market as a result of the impact of COVID-19.
Our
revenues in the nine months ended September 30, 2020, from Petroleum decreased by $354,000, or 15%, compared to the nine months
ended September 30, 2019, mainly due to some sales that were planned to occur at the second quarter of 2020 and were postponed
to the second half of 2020 as a result of the extended lockdown in South Africa.
Cost
of Revenues and Gross Margin
Our
cost of revenues, presented by gross profit and gross margin percentage, in the nine months ended September 30, 2020 and September
30, 2019, were as follows (in thousands):
|
|
Nine months ended
September 30,
|
Cost of revenues
|
|
2020
|
|
2019
|
|
|
|
|
|
Cost of sales
|
|
$
|
7,380
|
|
|
$
|
5,273
|
|
Gross profit
|
|
$
|
5,561
|
|
|
$
|
5,721
|
|
Gross margin percentage
|
|
|
43
|
%
|
|
|
52
|
%
|
Cost
of sales. The increase of $2.1 million, or 40%, in the nine months ended September 30, 2020, compared to the nine months
ended September 30, 2019, resulted primarily from an increase in revenues mainly attributed to the increase in Retail sales in
APAC, the United States and in Europe.
Gross
margin. The decrease in gross margin percentage in the nine months ended September 30, 2020, compared to the nine months ended
September 30, 2019, is mainly attributed to a change in our revenue mix and attributed to the decrease in Mass Transit Ticketing
sales in the Polish market as a result of the impact of COVID-19.
Operating
expenses
Our
operating expenses in the nine months ended September 30, 2020 and September 30, 2019, were as follows (in thousands):
|
|
Nine months ended
September 30,
|
|
Operating expenses
|
|
2020
|
|
|
2019
|
|
Research and Development
|
|
$
|
2,643
|
|
|
$
|
2,528
|
|
Selling and Marketing
|
|
$
|
3,570
|
|
|
$
|
3,798
|
|
General and Administrative
|
|
$
|
2,690
|
|
|
$
|
3,081
|
|
Other gain, net
|
|
$
|
-
|
|
|
$
|
(335
|
)
|
Total operating expenses
|
|
$
|
8,903
|
|
|
$
|
9,072
|
|
Research
and development. The increase of $115,000, or 5%, in the nine months ended September 30, 2020, compared to the nine months
ended September 30, 2019, is primarily attributed to an increase in subcontracting expenses.
Selling
and marketing. The decrease of $228,000, or 6%, in the nine months ended September 30, 2020, compared to the nine months ended
September 30, 2019, is primarily attributed to a decrease in marketing and advertising expenses and a decrease in exhibition and
traveling expenses as a result of the impact of COVID-19.
General
and administrative. The decrease of $391,000, or 13%, in the nine months ended September 30, 2020, compared to the nine
months ended September 30, 2019, is primarily attributed to a decrease in salaries and other related employment expenses.
Other
gain, net. The change of $335,000 in the nine months ended September 30, 2020, compared to the nine months ended September
30, 2019, is mainly due to a capital gain from the sale of a building by our South African subsidiary in the third quarter of
2019.
Financing
expenses, net
Our
financing expenses, net, in the nine months ended September 30, 2020 and September 30, 2019, were as follows (in thousands):
|
|
Nine months ended
September 30,
|
|
|
|
2020
|
|
|
2019
|
|
Financing expenses, net
|
|
$
|
(35
|
)
|
|
$
|
(199
|
)
|
The
decrease of financing expenses, net, in the nine months ended September 30, 2020, compared to the nine months ended September
30, 2019, of $164,000, or 82%, is mainly due to an exchange rate differential.
Income
tax benefits (expenses)
Our
income tax benefits (expenses) in the nine months ended September 30, 2020 and September 30, 2019, were as follows (in thousands):
|
|
Nine
months ended
September 30,
|
|
|
|
2020
|
|
|
2019
|
|
Income tax benefits (expenses)
|
|
$
|
89
|
|
|
$
|
(25
|
)
|
The
change in our tax benefits (expenses) of $114,000 in the nine months ended September 30, 2020, compared to the three months ended
September 30, 2019, derives mainly from deferred tax benefits in the Polish subsidiary in 2020.
Net
loss from continuing operations
Our
net loss from continuing operations in the nine months ended September 30, 2020 and September 30, 2019, was as follows
(in thousands):
|
|
Nine
months ended
September
30,
|
|
|
|
2020
|
|
|
2019
|
|
Net loss from continuing operations
|
|
$
|
(3,288
|
)
|
|
$
|
(3,575
|
)
|
The
decrease in net loss from continuing operations of $287,000, or 8%, in the nine months ended September 30, 2020, compared
to the nine months ended September 30, 2019, is primarily attributed to a decrease in operating expenses, a decrease in financial
expenses, net, and a change in income tax benefits (expenses), partially offset by a decrease in a gross profit, as described
above.
Net
loss from discontinued operations
Our
net loss from discontinued operations in the nine months ended September 30, 2020 and September 30, 2019, was as follows (in thousands):
|
|
Nine
months ended
September
30,
|
|
|
|
2020
|
|
|
2019
|
|
Net loss from discontinued operations
|
|
$
|
(125
|
)
|
|
$
|
(279
|
)
|
Our
net losses from discontinued operations for the reporting periods are presented in the statements of operations as discontinued
operations separately from continuing operations. The decrease in the net loss from discontinued operations of $154,000, or 55%,
in the nine months ended September 30, 2020, compared to the nine months ended September 30, 2019, is mainly due to a decrease
in expenses relating to legal proceedings.
Net
loss
Our
net loss in the nine months ended September 30, 2020 and September 30, 2019, was as follows (in thousands):
|
|
Nine
months ended
September
30,
|
|
|
|
2020
|
|
|
2019
|
|
Net loss
|
|
$
|
(3,413
|
)
|
|
$
|
(3,854
|
)
|
The
decrease in net loss of $441,000, or 11% in the nine months ended September 30, 2020, compared to the nine months ended September
30, 2019, is primarily attributed to a decrease in operating expenses, a decrease in financial expenses, net, a change in income
tax benefits (expenses) and a decrease in loss from discontinued operations, partially offset by a decrease in a gross profit,
as described above.
Liquidity
and Capital Resources
Our
principal sources of liquidity since our inception have been revenues, proceeds from sales of equity securities, borrowings from
banks and government, cash from the exercise of options and warrants and proceeds from the divestiture of part of our businesses.
As of September 30, 2020, we had cash, cash equivalents and short-term investments representing bank deposits of $3.2 million
(of which an amount of $105,000 has been pledged as security for certain items). The recent deterioration in the pandemic situation
in Poland has led to an almost complete stop to our Mass Transit Ticketing sales business, negatively impacting our cash flow.
Based on the projected cash flows and our cash balances as of September 30, 2020, our management is of the opinion that without
further fund raising or other increase in our cash, we will not have sufficient resources to enable us to continue our operations
for a period of at least the next 12 months. As a result, there is a substantial doubt regarding our ability to continue as a
going concern. Our management has taken cost reduction steps, including material reductions
in the salaries of our management and employees. We are attempting to raise additional funds and to increase our cash.
While we believe in our ability to raise additional funds and increase our cash, there can be no assurances to that effect.
On
December 23, 2019, we entered into a share purchase agreement, or the Agreement, with Jerry L Ivy, Jr. Descendants Trust, or Ivy,
and two other investors, or collectively together with Ivy, the Investors. The Agreement relates to a private placement of an
aggregate of up to 12,500,000 of our ordinary shares for aggregate gross proceeds to us of up to $2,500,000.
As
part of this Agreement, in December 2019 and January 2020, we issued 5,460,000 and 1,040,000 ordinary shares, respectively, for
aggregate gross proceed of $1,092,000 and $208,000 respectively. Under the term of the Agreement and following the issuance of
those shares, we appointed one representative to our Board of Directors, designated by Ivy. Also, pursuant to the Agreement, Ivy
has a right to purchase any future equity securities offered by us, except with respect to certain exempt issuances as set forth
in the Agreement.
The
issuance of the remaining 6,000,000 ordinary shares, or the Subsequent Closing, for aggregate gross proceeds of $1,200,000 took
place in April 2020, following the approval by our shareholders on April 14, 2020. We expect that we will need to raise additional
funds in order to finance our growth and to satisfy our working capital needs.
In
connection with the outbreak of the COVID-19 pandemic, we have taken steps to protect our workforce in Israel, the United States,
Poland, South Africa and elsewhere. Such steps include work from home where possible, minimizing face-to-face meetings and utilizing
video conference as much as possible, social distancing at facilities and elimination of all international travel. We continue
to comply with all local health directives.
So
far, the most significant direct impact of the COVID-19 pandemic has been a decrease
in our revenues derived from Mass Transit Ticketing sales in the Polish market. The revenues from this operation, that were relatively
stable during the year preceding the COVID-19 outbreak, decreased by approximately $1.6 million in the nine months ended September
30, 2020, compared to nine months ended September 30, 2019, mainly due to the lockdown and other restrictions and consequences
of the COVID-19 as started in March 2020. This impact is expected to continue for the foreseeable future. In addition, recently,
as a result of COVID-19, some of our customers have delayed issuance of orders in our pipeline and cancelled a few other orders,
which reduced our pipeline. As a response to the effect of COVID-19, we have
taken steps to reduce some costs that are not essential under the current circumstances. and most recently we took additional
steps to reduce our cash expenses, including voluntary reduction of salaries to our management and employees.
Another
impact of COVID-19 has been on product delivery, where components’ procurement lead time is longer and a shortage in components
has grown as the duration of the COVID-19 pandemic has continued. As long as the COVID-19 pandemic continues, the components’
lead time may be longer than normal and shortage in components may continue or get worse. Therefore, we maintain a comprehensive
network of world-wide suppliers.
Due
to the extended lockdown in South Africa in the second quarter of 2020, some of the sales that were planned to occur at the second
quarter of 2020 were postponed to the second half of 2020 and therefore caused a decrease in the revenues derived from the Petroleum
segment in the nine month period ended September 30, 2020, compared to the nine month period ended September 30, 2019.
As
for our Retail activity, we have seen a higher interest from a growing number of potential customers and partners as they forecasted
that the need for our products will grow, yet execution of closings is still slow due to the current business environment.
It
is difficult to predict what additional impacts the COVID-19 pandemic may have on us.
In
addition, on May 11, 2020, based on Polish government regulations
introduced in relation to the COVID-19 pandemic, ASEC S.A. (Spolka Akcyjna), a wholly-owned Polish subsidiary of the Company, or
the Subsidiary, received the consent of PKO Bank Polski, a Polish bank, or the Lender, to postpone the maturity date of a secured
loan, provided to the Subsidiary in May 2019 and reported then, in the amount of $2,000,000, by six months, to November 22, 2020,
instead of May 23, 2020, as the loan agreement provided. On November 16, 2020, following the Subsidiary’s request, the Subsidiary
received the consent of the Lender to further postpone the maturity date of the loan to December 22, 2020. The loan will be payable
in full on maturity (with the option of early repayment by the Subsidiary) and the interest of 1-month LIBOR plus 1.8% is paid
on a monthly basis. The loan is secured by certain assets of the Subsidiary. The loan agreement includes customary events of default,
including, among others, failures to repay any amounts due to the Lender, breaches or defaults under the terms of the loan agreement,
etc. If an event of default occurs, the Lender may reduce the amount of the loan, demand an additional security or terminate the
agreement.
As
part of an additional Polish government assistance, the Subsidiary received a long-term loan in an amount of approximately $800,000
through another Polish bank in June 2020. Depending on some scenarios, such as average number of employees and financial results,
a portion of the loan may be forgiven. The loan will be repaid in 24 monthly equal installments starting in July 2021. This loan
is denominated in Polish Zloty and does not bear interest. In the event of breach by the Subsidiary of any of the obligations,
as described in the loan agreement, the bank may terminate such agreement. In such a case, the long-term loan shall become due
and payable within 14 business days from receipt of the termination notice.
Our
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 $105,000 have been pledged as security in respect of credit lines received from a bank. Such deposits
cannot be pledged to others or withdrawn without the consent of the bank.
As
of September 30, 2020, we granted guarantees to third parties including performance guarantees in the sum of $505,000. The expiration dates of the guarantees range from January 2021 to May 2024.
Operating
activities related to continuing operations
For
the nine months ended September 30, 2020, net cash used in continuing operating activities was $2.4 million, primarily due to
a $401,000 increase in trade receivables, a $244,000 decrease in other current liabilities, $107,000 of deferred tax benefits,
net, $102,000 of accrued interest and linkage differences income, net, and a $48,000 increase in inventory, partially offset by
$924,000 of depreciation and amortization expenses, a $610,000 decrease in other receivables and prepaid expenses, a $204,000
increase in trade payables, $41,000 of expenses due to stock-based compensation issued to employees and a $21,000 change in accrued
severance pay, net.
For
the nine months ended September 30, 2019, net cash used in continuing operating activities was $1.9 million, primarily due to
a $879,000 increase in inventory, a $585,000 decrease in other current liabilities, a $328,000 gain on sale of property and equipment,
$48,000 of accrued interest and linkage differences income, net and $25,000 of deferred tax benefits, net, partially offset by
a $1.6 million decrease in trade receivables, $951,000 of depreciation and amortization expenses, a $506,000 increase in trade
payables, a $395,000 decrease in other receivables and prepaid expenses, $96,000 of expenses due to stock-based compensation and
a $66,000 change in accrued severance pay, net.
Operating
activities related to discontinued operations
For
the nine months ended September 30, 2020, net cash used in discontinued operating activities was $572,000, mainly related to reduction
in the amount we were entitled to receive in connection with our lawsuit against Harel Insurance Company Ltd.
For
the nine months ended September 30, 2019, net cash used in discontinued operating activities was $1.4 million, mainly related
to the dispute regarding Merwell Inc. related to the SmartID division.
Investing
and financing activities related to continuing operations
For
the nine months ended September 30, 2020, net cash provided by continuing investing activities was $721,000, mainly due to a $1.7
million change in short-term investments, net, partially offset by $994,000 of purchases of property and equipment and intangible
assets.
For
the nine months ended September 30, 2019, net cash used in continuing investing activities was $455,000, mainly due to $978,000
in proceeds of short-term investments, net, and $589,000 of purchases of property and equipment and intangible assets, partially
offset by $1.1 million in proceeds from the sale of property and equipment and $10,000 in proceeds from restricted deposits for
employee benefits.
For
the nine months ended September 30, 2020, net cash provided by continuing financing activities was $2.3 million, mainly due to
$1.4 million in proceeds from issuance of shares, net of issuance costs, $799,000 in proceeds from long-term bank loans and a
$161,000 increase in short-term bank credit, net, partially offset by a repayment of $8,000 of long-term bank loans.
For
the nine months ended September 30, 2019, net cash provided by continuing financing activities was $2.4 million, mainly due to
a $2.6 million increase in short-term bank credit, net, partially offset by a repayment of $261,000 of long-term bank loans.
In
addition, on May 24, 2019, the Subsidiary entered into a loan agreement, or the Agreement, with PKO Bank Polski, a Polish bank,
or the Lender. The Agreement provides that the Lender will grant an overdraft facility to the Subsidiary in the amount of $2,000,000,
or the Loan Commitment. On May 24, 2019, the Lender loaned to the Subsidiary the full amount of the Loan Commitment, secured by
certain assets of the Subsidiary, or the Secured Loan. The Secured Loan was scheduled to mature on May 23, 2020. On May 11, 2020,
based on Polish government regulations introduced in relation to the COVID-19 pandemic, the Subsidiary received the consent of
the Lender to postpone the maturity date of the Loan Commitment by six months to November 22, 2020 instead of May 23, 2020. On
November 16, 2020, following the Subsidiary’s request, the Subsidiary received the consent of the Lender to further postpone
the maturity date of the Secured Loan to December 22, 2020. The Secured Loan is payable in full on maturity (with the option of
early repayment from the Subsidiary side) and the interest is paid on a monthly basis. The Secured Loan bears interest at an annual
interest rate based on 1-month LIBOR plus a margin of 1.8%. The Agreement includes customary
events of default, including, among others, failures to repay any amounts due to the Lender, breaches or defaults under the terms
of the Agreement, etc. If an event of default occurs, the Lender may reduce the amount of the Secured Loan, demand an additional
security or terminate the Agreement.
Investing
and financing activities related to discontinued operations
We
had no cash flows provided by or used in discontinued investing or financing activities in the nine months ended September 30,
2020 and September 30, 2019.
Off
Balance Sheet Arrangements
We
have no off-balance sheet arrangements.
Item
4. Controls and Procedures.
Evaluation
of Disclosure Controls and Procedures - Our management, including our Chief Executive Officer, or CEO, and Chief Financial
Officer, or CFO, are responsible for establishing and maintaining our disclosure controls and procedures (within the meaning of
Rule 13a-15(e) of the Securities Exchange Act of 1934, as amended, or Exchange Act). These controls and procedures are designed
to ensure that information required to be disclosed in the reports that we file under the Exchange Act is recorded, processed,
summarized and reported within the time periods specified in the rules and forms of the SEC and that such information was made
known to our management, including our CEO and CFO, by others within the Company, as appropriate to allow timely decisions regarding
required disclosure. We evaluated these disclosure controls and procedures under the supervision of our CEO and CFO as of September
30, 2020. Based upon that evaluation, our management, including our CEO and CFO, concluded that our disclosure controls and procedures
are effective as of such date.
Changes in Internal
Control Over Financial Reporting - There has been no change in our internal control over financial reporting during the
quarter ended September 30, 2020 that has materially affected, or is reasonably likely to materially affect, our internal control
over financial reporting.