Interim Unaudited Condensed
Consolidated Financial Statements as of June 30, 2021
The accompanying notes are an integral part of
these interim unaudited condensed consolidated financial statements.
The accompanying notes are an integral part of
these interim unaudited condensed consolidated financial statements.
The accompanying notes are an integral part of
these interim unaudited condensed consolidated financial statements.
The accompanying notes are an integral part of
these interim unaudited condensed consolidated financial statements.
The accompanying notes are an integral part of
these interim unaudited condensed consolidated financial statements.
The accompanying notes are an integral part of
these interim unaudited condensed consolidated financial statements.
The accompanying notes are an integral part of
these interim unaudited condensed consolidated financial statements.
The accompanying notes are an integral part of
these interim unaudited condensed consolidated financial statements.
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 quoted for trading on the OTCQX market (formerly listed on the Nasdaq Capital Market until October 31, 2019).
As of June 30, 2021, the Company operates
in two operating segments: (a) Retail, and (b) Petroleum (see Note 11). The Company completed the sale of its Mass Transit Ticketing operation
in April 2021 (see Note 1C(2)). The Company has determined that the Mass Transit Ticketing 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. In addition, the
sale of the Mass Transit Ticketing business qualified as held for sale as of December 31, 2020.
|
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, 2020.
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 six-month
period and the three-month period ended June 30, 2021 are not necessarily indicative of the results
that may be expected for the year ending December 31, 2021.
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 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.
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
|
|
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 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). On January 21, 2021, after conclusion of the evidence phase
in the arbitration, and after the Company already filed its summaries, SuperCom submitted new documents claiming that these include the
missing financial information. Following the submission of these documents, on February 9, 2021, the Company submitted an application
claiming that implementing the contractual sanction mechanism on the amounts presented in these documents testifies to the Company’s
entitlement to the maximum earn-out amount, and, therefore, the arbitrator is requested to order that the parties will complete their
summaries and then a verdict will be given. On March 8, 2021, the arbitrator accepted the Company’s application and on April 11,
2021, the Company submitted complementary summaries. Following an arbitration process between the Company and SuperCom, on August 10,
2021, the parties entered into a settlement agreement that concluded the legal proceedings with SuperCom. For further details see Notes
6A(1) and 6A(2).
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)
|
|
2.
|
On March 29, 2021 the Company entered into an agreement (the “Sale Agreement”) for the sale
of 100% of the issued and outstanding share capital of its wholly owned Polish subsidiary, ASEC S.A. (“ASEC”), with Vector
Software SP. Z O.O. (the “Buyer”). ASEC is headquartered in Krakow, Poland, and has been conducting the Company’s Mass
Transit Ticketing business in Europe.
|
The sale of ASEC was completed on April
21, 2021. The Company has determined that the Mass Transit Ticketing 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. In addition, assets and liabilities of
the Polish subsidiary and assets and liabilities related to the Mass Transit Ticketing operation that have not yet been actually sold
as of December 31, 2020, are presented as assets and liabilities held for sale in the balance sheets as of December 31, 2020.
The consideration for ASEC after reduction
of some working capital adjustments, as agreed in April 2021, is approximately $2,700, out of which: (i) approximately $2,100 was transferred
from the Buyer to ASEC at the end of March 2021 in order to repay Polish bank loans, out of which approximately $1,700 was repaid as of
March 31, 2021 and a loan of approximately $400 was repaid at the beginning of April 2021 and (ii) $600 was paid by the Buyer to the Company
in April 2021.
The Sale Agreement contains customary
representations and warranties, as well as covenants, including an undertaking the Company provided not to compete with the business of
ASEC for a period of five years after the closing and an undertaking to indemnify ASEC and the Buyer for certain damages. The Company’s
liability is limited to the purchase price actually paid by the Buyer.
|
D.
|
Liquidity and Capital Resources
|
The
Company has had recurring losses and cash outflows from operating activities. It has an accumulated deficit as of June 30, 2021 of
$228,848. As of June 30, 2021 the Company also has a payable balance on its short-term bank loans, that is due within the next 12
months, of $795 and a convertible short-term loan from shareholders, including accrued interest, of $1,661 (out of which, only
amounts of $77 is presented as a liability within ‘convertible short-term loan
from a controlling shareholder’), that, if not converted, would mature in December 2021 (see also Note 5).
Since
inception, the Company’s principal sources of liquidity have been revenues, proceeds from sales of equity securities (regarding
the issuance of shares during the last two years, see Note 10A), borrowings from banks, government and shareholders, including convertible
loans, proceeds 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 $2,564 (of which an amount of $105 has
been pledged as security for certain items) as of June 30, 2021.
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)
|
The
recent situation in Poland resulting from the coronavirus (“COVID-19”) pandemic, led to an almost complete stop to the Company’s
Mass Transit Ticketing sales business, which negatively impacted the Company’s cash flow. The revenues from this operation, that
were relatively stable during the year preceding the COVID-19 outbreak, decreased by $295 in the first quarter of 2021 compared to the
first quarter of 2020, mainly due to lockdowns and other restrictions and consequences of the COVID-19 as started in March 2020. On April
21, 2021, the Company completed the sale of ASEC, including its Mass Transit Ticketing activity, as mentioned in Note 1C(2). The results,
including the revenues, and the cash flows of the Mass Transit Ticketing 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.
The
Company’s management has been working on updating the Company’s strategy for the coming years in order to realize its potential,
resume its growth, and ultimately create shareholder value. The Company raised additional funds and increased its cash, cash equivalents
and short-term investments on May 19, 2021, as mentioned in Note 10A(2). Additionally, a portion of additional revenue the Company was hoping
to recognize in the second quarter has become backlogged due to a shortage in components, as further described below, and will be delivered
later in the year. Therefore, the Company believes that it has sufficient capital
resources to fund its operations for at least the next 12 months. In addition, the Company engaged an investment bank to explore strategic
options and is investing resources in this process.
In
connection with the outbreak of COVID-19, the Company has taken steps to protect its workforce in Israel, the United States, Poland, South
Africa and elsewhere. Such steps include working from home where possible, minimizing face-to-face meetings, utilizing video conference
as much as possible, social distancing at facilities and elimination of most international travel. The Company continues to comply with
all local health directives.
The
Company has continued to see an interest from new customers, 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.
While interest from current and new
customers is growing, which is reflected in an increasing rate of orders, a global shortage in components, which caused an increase in
components prices, freight cost and longer lead-time, has created a delay in fulfilling customers’ orders which impacted the Company’s
revenues and product gross margin, mainly in the Retail segment. As a response to this business environment, the Company encourages its
customers to provide their forecast for their demand and continues to maintain a comprehensive network of world-wide suppliers in order
to optimize its access to critical components. In addition, during last few months the Company purchased an amount of such components
to be used for sales later this year. As long as the COVID-19 pandemic continues, the components’ lead-time may be longer than normal
and the shortage in components may continue or get worse.
It
is difficult to predict what other impacts the COVID-19 pandemic may have on 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 1 - Organization and Basis of Presentation
(cont’d)
|
E.
|
Retroactively adjustment of basic and diluted net losses attributable to shareholders per ordinary share (the “EPS”) for previous
reporting periods
|
At the beginning of the second
quarter of 2021, the Company offered its shareholders to purchase additional ordinary shares as part of a rights offering (the
“Rights Offering”). The Rights Offering was concluded on May 19, 2021 by issuance of shares, as mentioned in Note
10A(2). The Rights Offering included an offer to all existing shareholders of the Company to purchase additional ordinary shares in
consideration for a lower exercise price than the quoted share price in the active market, reflects a bonus element that is somewhat
similar to a stock dividend. Therefore, basic and diluted ESP was adjusted retroactively for the bonus element for all periods
presented. In computing the adjustment factor to the EPS, the Theoretical ex-rights
fair value per share was computed by adding the aggregate fair value of the shares immediately prior to the exercise of the rights to
the proceeds from the exercise of the rights and dividing by the number of shares outstanding after the exercise of the rights. The resulting
adjusted factor was 1.069 and 1.071 for the three months and the six months ended June 30, 2020, respectively.
Note 2 – Significant Accounting Policies
Except as described in Note 2A below,
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, 2020.
|
A.
|
Recently Adopted Accounting Pronouncements
|
In December 2019, the Financial Accounting
Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2019-12, Income Taxes (Topic 740): Simplifying
the Accounting for Income Taxes, which simplifies the accounting for income taxes. This ASU, among other things, removes the exception
to the incremental approach for intra-period 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 Codification (“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 Company adopted ASU 2019-12
as of January 1, 2021. The adoption of this accounting standard did not have a material effect on our financial position, results of operations
and cash flows.
|
B.
|
Recent accounting pronouncements
|
|
1.
|
In June 2016, the FASB issued 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.
|
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 2 – Significant Accounting Policies
(cont’d)
|
B.
|
Recent accounting pronouncements (cont’d)
|
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 August 2020, the FASB issued ASU 2020-06, Debt—Debt with Conversion and Other Options (Subtopic
470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40). This pronouncement simplifies the
accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts
on an entity’s own equity. Specifically, the ASU simplifies accounting for convertible instruments by removing major separation
models required under current accounting standard. In addition, the ASU removes certain settlement conditions that are required for equity
contracts to qualify for it and simplifies the diluted earnings per share calculations in certain areas. This guidance is effective for
fiscal years, and interim periods within those fiscal years, beginning after December 15, 2021. Early adoption is permitted for annual
period beginning after December 15, 2020. The Company is currently evaluating the impact that this new guidance will have on its consolidated
financial statements.
|
Note 3 - Other Receivables and Prepaid Expenses
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2021
|
|
|
2020
|
|
Government institutions
|
|
$
|
75
|
|
|
$
|
104
|
|
Prepaid expenses
|
|
|
277
|
|
|
|
257
|
|
Supplier advances
|
|
|
730
|
|
|
|
227
|
|
Other current receivables
|
|
|
(*) 1,630
|
|
|
|
107
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,712
|
|
|
$
|
695
|
|
(*) See Note 6A(2).
Note 4 - Other Current Liabilities
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2021
|
|
|
2020
|
|
Employees and related expenses
|
|
$
|
795
|
|
|
$
|
516
|
|
Accrued expenses
|
|
|
882
|
|
|
|
811
|
|
Customer advances
|
|
|
76
|
|
|
|
142
|
|
Short-term liabilities due to operating leases and current maturities
|
|
|
720
|
|
|
|
762
|
|
Other current liabilities
|
|
|
(*) 1,797
|
|
|
|
52
|
|
|
|
$
|
4,270
|
|
|
$
|
2,283
|
|
(*) See Note 6A(2).
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 – Convertible short-term loan
from shareholders
On December 9, 2020, the Company entered into
a loan financing agreement (the “Loan Agreement”), with Jerry L. Ivy, Jr., Descendants’ Trust (“Ivy”, or
the “Lender”), the Company’s Controlling Shareholder (as such term is defined under the Israeli Companies Law, 5759-1999,
as amended (the “Companies Law”)). The Loan Agreement provides that the Lender will extend a loan to the Company in the amount
of up to $1,500 (the “Loan Amount”), payable in two tranches: one of $625 at the initial closing that took place on December
17, 2020, and the other of $875 at the second closing that took place on January 28, 2021. The amount lent under the Loan Agreement is
secured pursuant to a debenture by a first priority floating charge over all the Company’s tangible or intangible assets and other
property, the Company owns, subject only to certain permitted security interests, as set forth in Loan Agreement. The amount lent under
the Loan Agreement and all accrued interest was scheduled to mature on June 17, 2021 (the “Initial Maturity Date”), and was
to be payable in full on the Initial Maturity Date, provided that the maturity date could be extended by six months at the sole option
of Ivy. The amount lent bears interest on all outstanding principal at an interest rate of 8.0% per annum, (the “Interest”);
provided, however, that upon an extension of the maturity period beyond the Initial Maturity Date, the Interest will automatically increase,
effective as of the Initial Maturity Date, to the rate of 10.0% per annum. Also, in case of an extension of the Initial Maturity Date,
the accrued interest for the first six months for which the Loan Amount has been outstanding will be payable by the Company to the Lender
at the time of the extension, and the accrued Interest for the extension period was to be payable by the Company on the extended maturity
date. In addition, the Company may repay the amount lent, in whole and not in part, and any accrued Interest thereon, at any time prior
to the Initial Maturity Date (as it may be extended), in its sole discretion. On March 2, 2021, the Company obtained shareholders’
approval to the grant of a right to Ivy, pursuant to which, at any time prior to the repayment in full of the amount lent, together with
Interest accrued and all other amounts outstanding under the Agreement (the “Secured Amount”), Ivy will be entitled, at its
sole discretion, to demand to convert (the “Conversion Right”) the entire Secured Amount into the Company’s Ordinary
Shares, at a price per share equal to the lower of (a) $0.20 per share (subject to adjustment in the event of any bonus shares, combinations
or splits) and (b) a price per share reflecting a discount to the average closing bid price of an Ordinary Share over the 20 trading days
preceding the Initial Closing (the “Benchmark Price”) ($0.248), as follows: (i) if conversion occurs until March 17, 2021
(no later than three months after the initial closing), the conversion price per share will be $0.1984 (reflects discount of 20% of the
Benchmark Price); (ii) if conversion occurs between March 18, 2021, and June 17, 2021 (more than three months but no later than six months
after the initial closing), the conversion price per share will be $0.1736 (reflects discount of 30% of the Benchmark Price); (iii) if
conversion occurs after June 17, 2021 (more than six months after the initial closing (to the extent extended in accordance with the terms
of the Loan Agreement)), the conversion price per share will be $0.124 (reflects discount of 50% of the Benchmark Price); and (iv) if
conversion occurs upon an event of default, the conversion price per share will be $0.124 (reflects discount of 50% of the Benchmark Price).
Pursuant to the Loan Agreement, the Conversion
Right will become effective only following the approval thereof by the shareholders of the Company in accordance with the requirements
of the Companies Law, which approval applies to a controlling shareholder transaction that includes a private offering that may increase
the holdings of a controlling shareholder to and above 45% of the share capital of the Company, and will be deemed of no force or effect
at any time prior to obtaining such Shareholders' Approval, if at all. The Company obtained such shareholders’ approval on March
2, 2021.
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 Secured Amount shall immediately become due and payable, without the need for any notice by the
Lender.
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 - Convertible short-term loan from
shareholders (cont’d)
The Loan Agreement was subsequently amended to
allow for an additional lender (“the additional lender”) to lend $100 under the same terms as Ivy. Accordingly, the aggregate
gross amount the Company received under the Loan Agreement is $1,600, out of which $975 took place as part of the second closing on January
28, 2021.
On June 17, 2021, the Lender, being the
majority of the lenders, exercised its option to extend the Initial Maturity Date, and the parties entered into a notice of exercise
of option and agreement (the “Extension Agreement”), according to which the maturity date was extended until December
17, 2021 (the “Extended Maturity Date”). Pursuant to both the Loan Agreement and the Extension Agreement, the interest
rate automatically increased, effective as of the Initial Maturity Date, to the rate of 10.0% per annum (the “Extension
Interest”). Any payment of interest is subject to withholding of taxes at source and the interest rates mentioned above are
net of such withholding. The net amount of interest on the Loan Amount accrued through June 17, 2021 was approximately $55 (the
“Interest Debt”). Under the Extension Agreement, it was agreed that the Interest Debt shall be payable on the Extended
Maturity Date, while until then it shall be considered part of the Loan Amount and shall bear the Extension Interest rate. As of
June 30, 2021, the Secured Amount is $1,661. In the event of a conversion of the Loan Amount, the Interest Debt shall convert into
Ordinary Shares of the Company at the conversion price of $0.174 per share, and the remaining Secured Amount shall be converted at a
price per share of $0.124, as originally contemplated under the Loan Agreement.
In accordance with ASC 815-15-25, Derivatives
and Hedging, the conversion feature (“the conversion component”) was considered embedded derivative instrument. Since, as
described above, the conversion component was required to be approved by the shareholders of the Company, the conversion
component did not qualify for the scope exception
under ASC 815-10-15-74(a). Therefore, the conversion component is to be recorded separately from the loan component. The conversion component
is measured both initially and in subsequent periods until obtaining the shareholders’ approval of the Conversion Right, at fair
value, with changes in fair value charged to finance expenses, net.
The fair value of the conversion component at
the initial closing, December 17, 2020, was estimated using the Trinomial model based on the assumptions, as follows:
Expected volatility (%)
|
|
|
125.2
|
%
|
Risk-free interest rate (%)
|
|
|
0.09
|
%
|
Expected dividend yield
|
|
|
0
|
%
|
Contractual term (years)
|
|
|
0.500
|
|
Conversion price (US dollars per share)
|
|
|
0.124
|
|
Underlying Share price (US dollars per share)
|
|
|
0.220
|
|
Based on the Trinomial model, the fair value
of the conversion component of the initial closing was $617 as of December 17, 2020. Accordingly, the loan component at the initial closing
was $8 as of December 17, 2020.
There were no significant changes in the model
assumptions as of December 31, 2020, compared to the assumptions as of December 17, 2020, as mentioned above. Therefore, the conversion
component and the loan component were $617 and $8, respectively, as of December 31, 2020. Both components were presented as Convertible
short-term loan from a controlling shareholder within the short-term liabilities as of December 31, 2020.
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 - Convertible short-term loan from
shareholders (cont’d)
The fair value of the conversion component at
the second closing, January 28, 2021, was estimated using the Trinomial model based on the assumptions, as follows:
Expected volatility (%)
|
|
|
103.23
|
%
|
Risk-free interest rate (%)
|
|
|
0.075
|
%
|
Expected dividend yield
|
|
|
0
|
%
|
Contractual term (years)
|
|
|
0.386
|
|
Conversion price (US dollars per share)
|
|
|
0.124
|
|
Underlying Share price (US dollars per share)
|
|
|
0.240
|
|
Based on the Trinomial model, the entire proceeds
of the second closing in amount of $975 were allocated to the conversion component and the residual balance of the of the loan component
of the second closing is zero.
The table below summarizes the balances of the
conversion components and the loan components of the initial closing and the second closing, as follows:
|
|
Conversion component
|
|
|
Loan component
|
|
|
Total
|
|
Initial closing
|
|
$
|
617
|
|
|
$
|
8
|
|
|
$
|
625
|
|
Second closing
|
|
|
975
|
|
|
|
-
|
|
|
|
975
|
|
|
|
$
|
1,592
|
|
|
$
|
8
|
|
|
$
|
1,600
|
|
On March 2, 2021, the Company obtained shareholders’
approval of the Conversion Right. At this shareholders meeting date, the fair value of the conversion component of both the initial closing
and second closing was estimated using the Trinomial model based on the assumptions, as follows:
Expected volatility (%)
|
|
|
107.34
|
%
|
Risk-free interest rate (%)
|
|
|
0.044
|
%
|
Expected dividend yield
|
|
|
0
|
%
|
Contractual term (years)
|
|
|
0.296
|
|
Conversion price (US dollars per share)
|
|
|
0.124
|
|
Underlying Share price (US dollars per share)
|
|
|
0.390
|
|
The change in the fair value of the conversion
component is as follows:
|
|
Conversion component
|
|
Fair value before the shareholders’ approval date
|
|
$
|
1,592
|
|
Change in fair value (*)
|
|
|
1,974
|
|
Fair value at the shareholders’ approval date
|
|
$
|
3,566
|
|
(*)
|
This amount is recorded as loss from change in fair
value of embedded derivative as part of the financial expenses in the statements of operations
of the first quarter of 2021.
|
Following the shareholders’ approval of
the Conversion Right on March 2, 2021, the conversion component is qualifying for the scope exception under ASC 815-10-15-74(a). In accordance
with ASC 815-15-35-4, since the embedded conversion option in the convertible debt no longer meets the bifurcation criteria, the fair
value of the conversion component, in the amount of $3,566, was reclassified from short-term liability to shareholders equity at this
approval date.
The change in the balance of the Loan component
following the shareholders’ approval of the Conversion Right on March 2, 2021, is as follows:
|
|
Loan component
|
|
Balance as of March 2, 2021
|
|
$
|
8
|
|
Financial expenses
|
|
|
69
|
|
Balance as of June 30, 2021
|
|
$
|
77
|
|
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 - Commitments and Contingencies
|
1.
|
In June 2013, prior to the Company’s divestiture of its SmartID division, Merwell Inc. (“Merwell”) filed a claim against the Company before an agreed-upon arbitrator alleging breach of contract in connection with certain commissions claimed to be owed to Merwell with respect to the division’s activities in Tanzania. These activities, along with all other activities of the SmartID division, were later assigned to and assumed by SuperCom in its purchase of the division. SuperCom undertook to indemnify the Company and hold it harmless against any liability 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.
|
As mentioned above, based on the agreement
with SuperCom from April 2016 (which was granted an effect of a court judgment), SuperCom was 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.
Concurrently and subject to the fulfillment
of the arbitration process between the Company and SuperCom, on August 10, 2021, the parties entered into a settlement agreement that
concluded the legal proceedings with SuperCom. For further details see Notes 6A(2) below.
|
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 was 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. On August 10, 2021, the Company reached settlement
agreements with both Merwell and SuperCom. Both settlements are, as noted above, linked, as SuperCom was deemed liable for all costs and
expenses arising out of the claim made by Merwell. As part of the settlement with Merwell, the Company paid NIS 5,700 (approximately $1,766)
on August 10, 2021, and as part of the settlement with SuperCom (that concluded the legal proceedings, as mentioned in Notes 1C(1) and
6A above), the Company received NIS 5,128 (approximately $1,589) on August 10, 2021. The Financial Statements as of June 30, 2021, includes
a provision in amount of $1,766 within ‘other current liabilities’ and an asset in amount of $1,589 within ‘other current
receivables, in according to the settlements with Merwell and SuperCom, respectively. The loss of $177 that derives from those settlements
is presented within ‘loss from discontinued 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 6 - Commitments and Contingencies (cont’d)
|
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 $1,783) 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 ($59) plus interest in damages plus another approximately €5 ($6) in other fees and penalties. As, in accordance with the sale agreement signed between the Company and Parx France, the Company is liable and shall indemnify Parx France for any amount ruled against it as part of that claim, 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 ($598) 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 case was pleaded before the Court and the Court has provided a judgement, dated July 8, 2021, declaring that the appeal against the Company is null and void, and annulled the €50 ($59) damages pronounced by the previous court.
|
|
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 exposure of the Company
is 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 6 - Commitments and Contingencies (cont’d)
The Company has entered into several
research and development agreements, pursuant to which the Company received grants from the Israel Innovation Authority (“IIA”),
and is therefore obligated to pay royalties to the IIA at a rate of 3%-3.5% of its sales up to the amounts granted (linked to the U.S.
dollar with annual interest at LIBOR as of the date of approval, for programs approved from January 1, 1999 and thereafter). The total
amount of grants received as of June 30, 2021, net of royalties paid, was approximately $3,400 (including accrued interest). No grants
from the IIA were received during the six months ended June 30, 2021 and 2020.
There is a dispute between the Company
and the IIA in the amount of approximately NIS 3,600 ($1,104) including accrued interest (while the current debt to the IIA as presented
in the Company’s financial statements amounts to approximately $156) due to a claim of the IIA about miscalculations in the amount of
royalties paid by the Company and the revenues on which the Company must pay royalties. The Company has not yet completed its discussions
with the IIA and intends to exhaust all options in order to resolve this matter in a favorable manner. Management believes that, at the
current stage, it is more likely than not that a positive resolution will be applied to this dispute. Accordingly, no additional accrual
has been recorded in the financial statements in respect of this matter.
During the six months ended
June 30, 2021 and 2020, there were no royalty expenses.
As of June 30, 2021, the Company granted
a guarantee in an amount of $105, with an expiration date in 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 7 – Revenues
Disaggregation of revenue
The following tables disaggregate the Company’s
revenues by major source based on categories that depict its nature and timing as reviewed by management for the three months ended June
30, 2021 and 2020:
|
|
Three months ended June 30, 2021
|
|
|
|
Retail
|
|
|
Petroleum
|
|
|
Total
|
|
Cashless payment products (A)
|
|
$
|
1,170
|
|
|
$
|
-
|
|
|
$
|
1,170
|
|
Complete cashless payment solutions (B):
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales of products (B1)
|
|
|
807
|
|
|
|
409
|
|
|
|
1,216
|
|
SaaS and other services (B2)
|
|
|
202
|
|
|
|
263
|
|
|
|
465
|
|
|
|
|
1,009
|
|
|
|
672
|
|
|
|
1,681
|
|
Total revenues
|
|
$
|
2,179
|
|
|
$
|
672
|
|
|
$
|
2,851
|
|
|
|
Three months ended June 30, 2020(*)
|
|
|
|
Retail
|
|
|
Petroleum
|
|
|
Total
|
|
Cashless payment products (A)
|
|
$
|
1,701
|
|
|
$
|
-
|
|
|
$
|
1,701
|
|
Complete cashless payment solutions (B):
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales of products (B1)
|
|
|
1,651
|
|
|
|
304
|
|
|
|
1,955
|
|
SaaS and other services (B2)
|
|
|
204
|
|
|
|
177
|
|
|
|
381
|
|
|
|
|
1,855
|
|
|
|
481
|
|
|
|
2,336
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
3,556
|
|
|
$
|
481
|
|
|
$
|
4,037
|
|
(*)
|
Reclassified to conform with the current period presentation,
see Note 1C(2).
|
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 – Revenues (cont’d)
Disaggregation of revenue (cont’d)
The following tables disaggregate the Company’s
revenues by major source based on categories that depict its nature and timing as reviewed by management for the six months ended June
30, 2021 and 2020:
|
|
Six months ended June 30, 2021
|
|
|
|
Retail
|
|
|
Petroleum
|
|
|
Total
|
|
Cashless payment products (A)
|
|
$
|
2,694
|
|
|
$
|
-
|
|
|
$
|
2,694
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Complete cashless payment solutions (B):
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales of products (B1)
|
|
|
1,228
|
|
|
|
648
|
|
|
|
1,876
|
|
SaaS and other services (B2)
|
|
|
539
|
|
|
|
511
|
|
|
|
1,050
|
|
|
|
|
1,767
|
|
|
|
1,159
|
|
|
|
2,926
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
4,461
|
|
|
$
|
1,159
|
|
|
$
|
5,620
|
|
|
|
Six months ended June 30, (*)
2020
|
|
|
|
Retail
|
|
|
Petroleum
|
|
|
Total
|
|
Cashless payment products (A)
|
|
$
|
4,092
|
|
|
$
|
-
|
|
|
$
|
4,092
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Complete cashless payment solutions (B):
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales of products (B1)
|
|
|
1,930
|
|
|
|
875
|
|
|
|
2,805
|
|
SaaS and other services (B2)
|
|
|
403
|
|
|
|
404
|
|
|
|
807
|
|
|
|
|
2,333
|
|
|
|
1,279
|
|
|
|
3,612
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
6,425
|
|
|
$
|
1,279
|
|
|
$
|
7,704
|
|
(*)
|
Reclassified to conform with the current period presentation,
see Note 1C(2).
|
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 – Revenues (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.
|
SaaS and other 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
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
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2021
|
|
|
2020
|
|
Trade receivables, net of allowance for doubtful accounts
|
|
$
|
2,139
|
|
|
$
|
1,148
|
|
Customer advances
|
|
$
|
76
|
|
|
$
|
142
|
|
Trade receivable are recognized when the right
to consideration becomes unconditional based upon contractual billing schedules.
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 – Revenues (cont’d)
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.
Note 8 – Discontinued operations
As described in Note 1C, the Company divested
its interest in ASEC, including its Mass Transit Ticketing activity and the SmartID division and presented these activities as discontinued
operations.
Set forth below are the results of the discontinued
operations:
|
|
Three months ended June 30,
|
|
|
Six months ended June 30,
|
|
|
|
2021
|
|
|
(*)2020
|
|
|
2021
|
|
|
(*)2020
|
|
Revenues
|
|
$
|
-
|
|
|
$
|
817
|
|
|
$
|
488
|
|
|
$
|
1,600
|
|
Expenses
|
|
|
(275
|
)
|
|
|
(1,012
|
)
|
|
|
(1,152
|
)
|
|
|
(1,888
|
)
|
Other loss, net
|
|
|
(**)(922
|
)
|
|
|
-
|
|
|
|
(**)(951
|
)
|
|
|
-
|
|
Net loss from discontinued operations
|
|
$
|
(1,197
|
)
|
|
$
|
(195
|
)
|
|
$
|
(1,615
|
)
|
|
$
|
(288
|
)
|
(*)
|
Reclassified to conform with the current period presentation,
see Note 1C(2).
|
(**)
|
Mainly including net loss of $177 due to the legal proceedings, as mentioned in Note 6A(2), and loss of $746 due to transfer of the exchange differences on translation, as derived from ASEC, from other comprehensive loss to the statement of operations loss (see statements of comprehensive loss).
|
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 – Discontinued operations (cont’d)
The following table summarizes information about
assets and liabilities from discontinued operations held for sale as of December 31, 2020:
|
|
December 31,
|
|
|
|
2020
|
|
Assets held for sale from discontinued operations:
|
|
|
|
Current assets:
|
|
|
|
Cash and cash equivalents
|
|
$
|
1,017
|
|
Trade receivables, net of allowance for doubtful accounts of $42
|
|
|
409
|
|
Other receivables and prepaid expenses
|
|
|
454
|
|
Inventories
|
|
|
392
|
|
Property, plant and equipment, net
|
|
|
3,136
|
|
Intangible assets, net
|
|
|
370
|
|
Right-of-use assets due to operating leases
|
|
|
580
|
|
|
|
|
6,358
|
|
|
|
|
|
|
Liabilities held for sale from discontinued operations:
|
|
|
|
|
Current liabilities:
|
|
|
|
|
Short-term bank credit and current maturities of long-term loans
|
|
|
2,339
|
|
Trade payables
|
|
|
1,832
|
|
Other current liabilities
|
|
|
443
|
|
Long-term loans, net of current maturities (*)
|
|
|
642
|
|
Long-term liabilities due to operating leases, net of current maturities (*)
|
|
|
401
|
|
Deferred tax liability
|
|
|
172
|
|
|
|
|
5,829
|
|
(*)
|
Those liabilities were received for a long-term (more than
twelve months) in ASEC, but were presented as held for sale within the current assets as of December 31, 2020, because the Company has
determined that the sale of ASEC qualified as held for sale and as a discontinued operation as of December 31, 2020.
|
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. The
liabilities held for sale as of December 31, 2020, included a long-term loan, that did not bear any interest, but taking into account
the schedule of its maturities, its amount and the relatively low market rates, the difference between its carrying amount and its fair
value was insignificant.
As of June 30, 2021, the Company held approximately
$1,605 of short-term bank deposits (as of December 31, 2020 - $105). As of June 30, 2021 and December 31, 2020, a 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.
Derivatives
Embedded derivatives are separated from the host
contract and carried at fair value when (1) the embedded derivative possesses economic characteristics that are not clearly and closely
related to the economic characteristics of the host contract and (2) a separate, standalone instrument with the same terms would qualify
as a derivative instrument. The derivative is measured both initially and in subsequent periods at fair value, with changes in fair value
charged to financial expenses, net. As to embedded derivatives arising from the issuance of convertible debentures, see Note 5. Transaction
expenses related to the embedded derivatives are recognized as financial expenses at the date of the initial recognition.
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
|
1.
|
On December 23, 2019, the Company entered into a share purchase agreement (the “Agreement”) with 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 proceeds of $1,092
and $208, respectively. Under the term of the Agreement and following the issuance of those shares, the Company appointed one representative
to its Board of Directors (the “Board”), 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 (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 Board.
The issuance costs were approximately
$31, $8 and $111 during the three months ended June 30, 2020, March 31, 2020, and December 31, 2019, respectively.
In addition, pursuant to the terms
of the Agreement, on May 5, 2020, after the consummation of the Subsequent Closing, the Board 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.
|
2.
|
During the second quarter of 2021 the Company conducted a rights offering (the “Rights Offering”), under which the Company offered its shareholders the ability to exercise subscription rights and purchase, for every subscription right held by them as of April 14, 2021 (i.e. the record date), one Ordinary Share of the Company, at a purchase price of $0.174 per share.
|
The Rights Offering was concluded
on May 19, 2021 and was oversubscribed. Accordingly, the Company issued an aggregate of 18,965,516 Ordinary Shares (the
“Issued Shares”) for aggregate gross proceeds to the Company of $3,300. The Issued Shares included 10,869,304 shares
that were issued to Ivy and its affiliates, upon exercise of its basic subscription rights and over-subscription rights. Following
the Rights Offering, Ivy and its affiliates own 35.9% of issued and outstanding share capital as of June 30, 2021.
The issuance costs derived from the
Rights Offering were approximately $128.
|
3.
|
Ivy has an existing right to purchase
additional shares from the Company upon conversion of a convertible loan – See Note
5.
|
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)
During each of
the six month periods ended June 30, 2021 and June 30, 2020, 640,000 and 814,000 options were granted, respectively. The vesting period
for the options is three years. The average exercise prices for the options that were granted during the six months ended June 30, 2021
and June 30, 2020 are $0.23 and $0.24, respectively. Those options expire up to five years after the date of grant. Any options which
are forfeited or cancelled before expiration become available for future grants under the Company’s option plan. The fair value
of each option granted to employees during the six months ended June 30, 2021 and June 30, 2020 was estimated on the date of grant, using
the Black-Scholes model and the following assumptions:
|
|
Six months ended June 30,
|
|
|
|
2021
|
|
|
2020
|
|
Expected dividend yield
|
|
|
0
|
%
|
|
|
0
|
%
|
Expected volatility
|
|
|
113
|
%
|
|
|
107
|
%
|
Risk-free interest rate
|
|
|
0.17
|
%
|
|
|
0.36
|
%
|
Expected life - in years
|
|
|
2.50
|
|
|
|
2.49
|
|
|
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, 2020 and June 30, 2021, are summarized
in the following table:
|
|
Number of options outstanding
|
|
|
Weighted average exercise price per share
|
|
Outstanding – December 31, 2020
|
|
|
1,443,333
|
|
|
$
|
0.54
|
|
Options granted
|
|
|
640,000
|
|
|
|
0.23
|
|
Options expired or forfeited
|
|
|
(117,000
|
)
|
|
|
0.72
|
|
Outstanding – June 30, 2021
|
|
|
1,966,333
|
|
|
|
0.43
|
|
Exercisable as of:
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
|
681,330
|
|
|
$
|
0.83
|
|
June 30, 2021
|
|
|
714,346
|
|
|
$
|
0.74
|
|
The weighted
average fair value of options granted during the six months ended June 30, 2021 and during the six months ended June 30, 2020 is $0.14
and $0.12, respectively, per option. The aggregate intrinsic value of outstanding options as of June 30, 2021 and December 31, 2020 is
approximately $65 and $5, respectively. The aggregate intrinsic value of exercisable options as of June 30, 2021 and December 31, 2020
$12 and $2, respectively.
On Track Innovations Ltd.
and Subsidiaries
Notes to the Interim Unaudited
Condensed Consolidated Financial Statements
US dollars, NIS and Euro in thousands, except share and per share
data
Note 10 – Equity (cont’d)
|
B.
|
Stock option plans (cont’d)
|
The following table summarizes information
about options outstanding and exercisable (including options to non-employees) as of June 30, 2021:
|
|
Options outstanding
|
|
|
Options
exercisable
|
|
Range of exercise price ($)
|
|
Number Outstanding as of
June 30,
2020
|
|
|
Weighted average remaining contractual life (years)
|
|
|
Weighted Average Exercise Price
|
|
|
Number Outstanding As of
June 30,
2020
|
|
|
Weighted average remaining contractual life (years)
|
|
|
Weighted Average Exercise Price
|
|
0.20-0.90
|
|
|
1,610,333
|
|
|
|
3.95
|
|
|
|
0.27
|
|
|
|
358,346
|
|
|
|
3.45
|
|
|
|
0.35
|
|
1.07-1.22
|
|
|
356,000
|
|
|
|
0.85
|
|
|
|
1.13
|
|
|
|
356,000
|
|
|
|
0.85
|
|
|
|
1.13
|
|
|
|
|
1,966,333
|
|
|
|
3.39
|
|
|
|
|
|
|
|
714,346
|
|
|
|
2.16
|
|
|
|
|
|
As of June 30, 2021, there was approximately
$153 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 1.41 years.
During the three months ended June
30, 2021 and June 30, 2020, the Company recorded stock-based compensation expenses in the amount of $15 and $16, respectively, in accordance
with ASC 718, Compensation-Stock Compensation.
During the six months ended June 30,
2021 and June 30, 2020, the Company recorded stock-based compensation expenses in the amount of $29 and $28, respectively, in accordance
with ASC 718, Compensation-Stock Compensation.
|
C.
|
Stock options, including shares that Could derive from a convertible short-term loan from shareholders, as mentioned in Note 5, in the amounts of 15,217,536 and 1,593,000 outstanding as of June 30, 2021 and 2020, 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.
|
As for the newly adopted Equity Incentive Plan, as approved subsequent the balance sheet date, see Note
13.
|
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 (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 June 30, 2021
|
|
|
|
Retail
|
|
|
Petroleum
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
2,179
|
|
|
$
|
672
|
|
|
$
|
2,851
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reportable segment gross profit (**)
|
|
|
587
|
|
|
|
400
|
|
|
|
987
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation of reportable segment
|
|
|
|
|
|
|
|
|
|
|
|
|
gross profit to gross profit for the period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
|
|
|
|
|
|
|
|
(9
|
)
|
Stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit for the period in the consolidated financial statement
|
|
|
|
|
|
|
|
|
|
$
|
977
|
|
|
|
Three months ended June 30, 2020 (*)
|
|
|
|
Retail
|
|
|
Petroleum
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
3,556
|
|
|
$
|
481
|
|
|
$
|
4,037
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reportable segment gross profit (**)
|
|
|
1,425
|
|
|
|
264
|
|
|
|
1,689
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation of reportable segment
|
|
|
|
|
|
|
|
|
|
|
|
|
gross profit to gross profit for the period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
|
|
|
|
|
|
|
|
(9
|
)
|
Stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit for the period in the consolidated financial statement
|
|
|
|
|
|
|
|
|
|
$
|
1,679
|
|
(*)
|
Reclassified to conform with the current period presentation,
see Note 1C(2).
|
(**)
|
Gross profit as reviewed by the CODM, represents gross profit,
adjusted to exclude depreciation and stock-based compensation.
|
On Track Innovations Ltd.
and Subsidiaries
Notes to the Interim Unaudited
Condensed Consolidated Financial Statements
US dollars, NIS and Euro in thousands, except share and per share
data
Note 11 - Operating segments (cont’d)
|
|
Six months ended June 30, 2021
|
|
|
|
Retail
|
|
|
Petroleum
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
4,461
|
|
|
$
|
1,159
|
|
|
$
|
5,620
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reportable segment gross profit (**)
|
|
|
1,766
|
|
|
|
633
|
|
|
|
2,399
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation of reportable segment gross profit to gross profit for the period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
|
|
|
|
|
|
|
|
(17
|
)
|
Stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit for the period in the consolidated financial statement
|
|
|
|
|
|
|
|
|
|
$
|
2,380
|
|
|
|
Six months ended June 30, 2020 (*)
|
|
|
|
Retail
|
|
|
Petroleum
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
6,425
|
|
|
$
|
1,279
|
|
|
$
|
7,704
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reportable segment gross profit (**)
|
|
|
2,758
|
|
|
|
587
|
|
|
|
3,345
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation of reportable segment gross profit to gross profit for the period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
|
|
|
|
|
|
|
|
(18
|
)
|
Stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit for the period in the consolidated financial statement
|
|
|
|
|
|
|
|
|
|
$
|
3,325
|
|
(*)
|
Reclassified to conform with the current period presentation,
see Note 1C(2).
|
(**)
|
Gross profit as reviewed by the CODM, represents gross profit,
adjusted to exclude depreciation and stock-based compensation.
|
On Track Innovations Ltd.
and Subsidiaries
Notes to the Interim Unaudited
Condensed Consolidated Financial Statements
US dollars, NIS and Euro in thousands, except share and per share
data
Note 12 – Balances and transactions with related parties
Regarding balances and transactions with a related
party, Ivy, a controlling shareholder, during the reporting period, see Notes 5 and 10A.
Note 13 – Subsequent events
|
1.
|
On July 19, 2021, and July 23, 2021, each of the compensation committee of the Board (the “Committee”)
and the Board approved a new incentive plan (the “Equity Incentive Plan”), as mentioned in Note 10D, and further contingently
approved, subject to filing of the Equity Incentive Plan and signing of appropriate grant documents by the grantees, of grants of 3.9
million stock units (“RSU Awards”) to employees pursuant to the Equity Incentive Plan. The RSU Awards will vest over a three-year
vesting period, such that a 1/3 of the RSU Award shall vest each year. An RSU Award to the Company’s Chief Executive Officer is
subject, in addition to the conditions set forth above, to the approval of the amended compensation policy in the upcoming annual general
meeting of the shareholders of the Company.
|
The Company does not plan to issue any
additional securities under its 2001 Stock Option Plan. The company plans to offer employees that were granted with options, as part of
the 2001 Stock Option Plan, to forfeit their outstanding options, as mentioned in Note 10B, in exchange for grant of RSU to be granted
in accordance with the Equity Incentive Plan.
|
2.
|
Regarding settlement agreements with both Merwell and SuperCom, dated August 10, 2021, and its impact
on the Financial Statements as of June 30, 2021, see Note 6A(2).
|