Item
1. Financial Statements.
ON
TRACK INNOVATIONS LTD. AND ITS SUBSIDIARIES
INTERIM
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
As
of June 30, 2018
(Unaudited)
On
Track Innovations Ltd.
and
its Subsidiaries
Interim
Unaudited Condensed Consolidated Financial Statements as of June 30, 2018
Contents
|
Page
|
|
|
Interim
Unaudited Condensed Consolidated Balance Sheets
|
F-2
- F-3
|
|
|
Interim
Unaudited Condensed Consolidated Statements of Operations
|
F-4
|
|
|
Interim
Unaudited Condensed Consolidated Statements of Comprehensive Income (Loss)
|
F-5
|
|
|
Interim
Unaudited Condensed Consolidated Statements of Changes in Equity
|
F-6
|
|
|
Interim
Unaudited Condensed Consolidated Statements of Cash Flows
|
F-7
|
|
|
Notes
to the Interim Unaudited Condensed Consolidated Financial Statements
|
F-8 - F
-22
|
On
Track Innovations Ltd.
and
its Subsidiaries
Interim
Unaudited Condensed Consolidated Balance Sheets
US
dollars in thousands except share data
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2018
|
|
|
2017
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
6,592
|
|
|
$
|
6,742
|
|
Short-term investments
|
|
|
2,161
|
|
|
|
3,331
|
|
Trade receivables (net of allowance for doubtful accounts of $550 and $568 as of June 30, 2018 and December 31, 2017, respectively)
|
|
|
5,536
|
|
|
|
5,827
|
|
Other receivables and prepaid expenses
|
|
|
2,168
|
|
|
|
1,563
|
|
Inventories
|
|
|
3,313
|
|
|
|
3,009
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
19,770
|
|
|
|
20,472
|
|
|
|
|
|
|
|
|
|
|
Long-term restricted deposit for employees benefit
|
|
|
473
|
|
|
|
498
|
|
|
|
|
|
|
|
|
|
|
Severance pay deposits
|
|
|
384
|
|
|
|
405
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net
|
|
|
5,401
|
|
|
|
5,859
|
|
|
|
|
|
|
|
|
|
|
Intangible assets, net
|
|
|
313
|
|
|
|
336
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
26,341
|
|
|
$
|
27,570
|
|
The
accompanying notes are an integral part of these interim unaudited condensed consolidated financial statements.
On
Track Innovations Ltd.
and
its Subsidiaries
Interim
Unaudited Condensed Consolidated Balance Sheets
US
dollars in thousands except share data
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2018
|
|
|
2017
|
|
Liabilities and Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Liabilities
|
|
|
|
|
|
|
Short-term bank credit and current maturities of long-term bank loans
|
|
$
|
3,974
|
|
|
$
|
4,181
|
|
Trade payables
|
|
|
6,418
|
|
|
|
6,264
|
|
Other current liabilities
|
|
|
2,441
|
|
|
|
2,421
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
12,833
|
|
|
|
12,866
|
|
|
|
|
|
|
|
|
|
|
Long-Term Liabilities
|
|
|
|
|
|
|
|
|
Long-term loans, net of current maturities
|
|
|
477
|
|
|
|
814
|
|
Accrued severance pay
|
|
|
890
|
|
|
|
939
|
|
Deferred tax liability
|
|
|
408
|
|
|
|
500
|
|
Total long-term liabilities
|
|
|
1,775
|
|
|
|
2,253
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities
|
|
|
14,608
|
|
|
|
15,119
|
|
|
|
|
|
|
|
|
|
|
Commitments and Contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ordinary shares of NIS 0.1 par value; Authorized: 50,000,000 shares as of June 30, 2018 and December 31, 2017; issued: 42,473,076 and 42,353,077 shares as of June 30, 2018 and December 31, 2017, respectively; outstanding: 41,294,377 and 41,174,378 shares as of June 30, 2018, and December 31, 2017, respectively
|
|
|
1,068
|
|
|
|
1,064
|
|
Additional paid-in capital
|
|
|
224,903
|
|
|
|
224,758
|
|
Treasury shares at cost - 1,178,699 shares as of June 30, 2018 and December 31, 2017
|
|
|
(2,000
|
)
|
|
|
(2,000
|
)
|
Accumulated other comprehensive loss
|
|
|
(945
|
)
|
|
|
(691
|
)
|
Accumulated deficit
|
|
|
(211,293
|
)
|
|
|
(210,680
|
)
|
Total Equity
|
|
|
11,733
|
|
|
|
12,451
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities and Equity
|
|
$
|
26,341
|
|
|
$
|
27,570
|
|
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
June 30,
|
|
|
Six months ended
June 30,
|
|
|
|
2018
|
|
|
2017
|
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
|
|
$
|
4,656
|
|
|
$
|
5,646
|
|
|
$
|
9,137
|
|
|
$
|
8,426
|
|
Licensing and transaction fees
|
|
|
1,498
|
|
|
|
1,300
|
|
|
|
2,879
|
|
|
|
2,540
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
6,154
|
|
|
|
6,946
|
|
|
|
12,016
|
|
|
|
10,966
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales
|
|
|
2,973
|
|
|
|
3,476
|
|
|
|
5,727
|
|
|
|
5,276
|
|
Total cost of revenues
|
|
|
2,973
|
|
|
|
3,476
|
|
|
|
5,727
|
|
|
|
5,276
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
3,181
|
|
|
|
3,470
|
|
|
|
6,289
|
|
|
|
5,690
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
815
|
|
|
|
889
|
|
|
|
1,645
|
|
|
|
1,591
|
|
Selling and marketing
|
|
|
1,463
|
|
|
|
1,492
|
|
|
|
3,108
|
|
|
|
2,834
|
|
General and administrative
|
|
|
1,065
|
|
|
|
939
|
|
|
|
1,972
|
|
|
|
1,795
|
|
Total operating expenses
|
|
|
3,343
|
|
|
|
3,320
|
|
|
|
6,725
|
|
|
|
6,220
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating (loss) income from continuing operations
|
|
|
(162
|
)
|
|
|
150
|
|
|
|
(436
|
)
|
|
|
(530
|
)
|
Financial expenses, net
|
|
|
(95
|
)
|
|
|
(39
|
)
|
|
|
(127
|
)
|
|
|
(110
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income from continuing operations before taxes on income
|
|
|
(257
|
)
|
|
|
111
|
|
|
|
(563
|
)
|
|
|
(640
|
)
|
Income tax
|
|
|
27
|
|
|
|
(25
|
)
|
|
|
38
|
|
|
|
(56
|
)
|
Net (loss) income from continuing operations
|
|
|
(230
|
)
|
|
|
86
|
|
|
|
(525
|
)
|
|
|
(696
|
)
|
Net (loss) income from discontinued operations
|
|
|
(50
|
)
|
|
|
7
|
|
|
|
(88
|
)
|
|
|
(76
|
)
|
Net (loss) income
|
|
$
|
(280
|
)
|
|
$
|
93
|
|
|
$
|
(613
|
)
|
|
$
|
(772
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted net loss attributable to shareholders per ordinary share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
From continuing operations
|
|
|
(0.01
|
)
|
|
|
*
|
|
|
|
(0.01
|
)
|
|
|
(0.02
|
)
|
From discontinued operations
|
|
|
*
|
|
|
|
*
|
|
|
|
*
|
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(0.01
|
)
|
|
$
|
*
|
|
|
$
|
(0.01
|
)
|
|
$
|
(0.02
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of ordinary shares used in computing basic and diluted net income (loss) per ordinary share
|
|
|
41,271,644
|
|
|
|
41,095,788
|
|
|
|
41,243,169
|
|
|
|
41,087,729
|
|
*
|
Less than $0.01 per ordinary share.
|
The
accompanying notes are an integral part of these interim unaudited condensed consolidated financial statements.
On
Track Innovations Ltd.
and
its Subsidiaries
Interim
Unaudited Condensed Consolidated Statements of Comprehensive Income (Loss)
US
dollars in thousands
|
|
Three months ended
June 30,
|
|
|
Six months ended
June 30,
|
|
|
|
2018
|
|
|
2017
|
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive (loss) income:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
$
|
(280
|
)
|
|
$
|
93
|
|
|
$
|
(613
|
)
|
|
$
|
(772
|
)
|
Foreign currency translation adjustments
|
|
|
(312
|
)
|
|
|
177
|
|
|
|
(254
|
)
|
|
|
332
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive (loss) income
|
|
$
|
(592
|
)
|
|
$
|
270
|
|
|
$
|
(867
|
)
|
|
$
|
(440
|
)
|
The
accompanying notes are an integral part of these interim unaudited condensed consolidated financial statements.
On
Track Innovations Ltd.
and
its Subsidiaries
Interim
Unaudited Condensed Consolidated Statements of Changes in Equity
US
dollars in thousands except for number of shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
Number of
|
|
|
|
|
|
Additional
|
|
|
Treasury
|
|
|
other
|
|
|
|
|
|
|
|
|
|
Shares
|
|
|
Share
|
|
|
paid-in
|
|
|
Shares
|
|
|
comprehensive
|
|
|
Accumulated
|
|
|
Total
|
|
|
|
issued
|
|
|
capital
|
|
|
capital
|
|
|
(at cost)
|
|
|
Income (loss)
|
|
|
deficit
|
|
|
equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2016
|
|
|
42,243,075
|
|
|
$
|
1,061
|
|
|
$
|
224,415
|
|
|
$
|
(2,000
|
)
|
|
$
|
(1,236
|
)
|
|
$
|
(210,082
|
)
|
|
$
|
12,158
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes during the six month period
ended June 30, 2017:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation
|
|
|
30,000
|
(**)
|
|
|
1
|
|
|
|
173
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
174
|
|
Foreign currency translation adjustments
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
332
|
|
|
|
-
|
|
|
|
332
|
|
Exercise of options
|
|
|
15,002
|
|
|
|
(*)
|
|
|
|
15
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
15
|
|
Net loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(772
|
)
|
|
|
(772
|
)
|
Balance as of June 30, 2017
|
|
|
42,288,077
|
|
|
$
|
1,062
|
|
|
$
|
224,603
|
|
|
$
|
(2,000
|
)
|
|
$
|
(904
|
)
|
|
$
|
(210,854
|
)
|
|
$
|
11,907
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2017
|
|
|
42,353,077
|
|
|
$
|
1,064
|
|
|
$
|
224,758
|
|
|
$
|
(2,000
|
)
|
|
$
|
(691
|
)
|
|
$
|
(210,680
|
)
|
|
$
|
12,451
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes during the six month period
ended June 30, 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation
|
|
|
80,000
|
(**)
|
|
|
3
|
|
|
|
112
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
115
|
|
Foreign currency translation adjustments
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(254
|
)
|
|
|
-
|
|
|
|
(254
|
)
|
Exercise of options
|
|
|
39,999
|
|
|
|
1
|
|
|
|
33
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
34
|
|
Net loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(613
|
)
|
|
|
(613
|
)
|
Balance as of June 30, 2018
|
|
|
42,473,076
|
|
|
$
|
1,068
|
|
|
$
|
224,903
|
|
|
$
|
(2,000
|
)
|
|
$
|
(945
|
)
|
|
$
|
(211,293
|
)
|
|
$
|
11,733
|
|
The
accompanying notes are an integral part of these interim unaudited condensed consolidated financial statements.
On
Track Innovations Ltd.
and
its Subsidiaries
Interim
Unaudited Condensed Consolidated Statements of Cash Flows
US
dollars in thousands
|
|
Six months ended June 30,
|
|
|
|
2018
|
|
|
2017
|
|
Cash flows from continuing operating activities
|
|
|
|
|
|
|
Net loss from continuing operations
|
|
$
|
(525
|
)
|
|
$
|
(696
|
)
|
Adjustments required to reconcile net loss to net cash used in continuing operating activities:
|
|
|
|
|
|
|
|
|
Stock-based compensation related to options issued to employees and others
|
|
|
115
|
|
|
|
174
|
|
Accrued interest and linkage differences, net
|
|
|
7
|
|
|
|
(47
|
)
|
Depreciation and amortization
|
|
|
680
|
|
|
|
583
|
|
Deferred tax, net
|
|
|
(54
|
)
|
|
|
21
|
|
Gain on sale of fixed assets
|
|
|
(17
|
)
|
|
|
(7
|
)
|
|
|
|
|
|
|
|
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Accrued severance pay, net
|
|
|
(28
|
)
|
|
|
74
|
|
Decrease (increase) in trade receivables, net
|
|
|
963
|
|
|
|
(1,151
|
)
|
(Increase) decrease in other receivables and prepaid expenses
|
|
|
(658
|
)
|
|
|
90
|
|
Increase in inventories
|
|
|
(344
|
)
|
|
|
(47
|
)
|
Increase (decrease) in trade payables
|
|
|
445
|
|
|
|
(396
|
)
|
Decrease in other current liabilities
|
|
|
(650
|
)
|
|
|
(855
|
)
|
Net cash used in continuing operating activities
|
|
|
(66
|
)
|
|
|
(2,257
|
)
|
|
|
|
|
|
|
|
|
|
Cash flows from continuing investing activities
|
|
|
|
|
|
|
|
|
Purchase of property and equipment, net
|
|
|
(414
|
)
|
|
|
(98
|
)
|
Change in short-term investments, net
|
|
|
1,173
|
|
|
|
2,500
|
|
Investment in capitalized product costs
|
|
|
(87
|
)
|
|
|
(157
|
)
|
Proceeds from restricted deposit for employee benefits
|
|
|
-
|
|
|
|
44
|
|
Proceeds from sale of fixed assets
|
|
|
17
|
|
|
|
12
|
|
Net cash provided by continuing investing activities
|
|
|
689
|
|
|
|
2,301
|
|
|
|
|
|
|
|
|
|
|
Cash flows from continuing financing activities
|
|
|
|
|
|
|
|
|
(Decrease) increase in short-term bank credit, net
|
|
|
(80
|
)
|
|
|
213
|
|
Repayment of long-term bank loans
|
|
|
(348
|
)
|
|
|
(374
|
)
|
Proceeds from exercise of options
|
|
|
34
|
|
|
|
15
|
|
Net cash used in continuing financing activities
|
|
|
(394
|
)
|
|
|
(146
|
)
|
|
|
|
|
|
|
|
|
|
Cash flows from discontinued operations
|
|
|
|
|
|
|
|
|
Net cash used in discontinued operating activities
|
|
|
(107
|
)
|
|
|
(71
|
)
|
|
|
|
|
|
|
|
|
|
Total net cash used in discontinued operations
|
|
|
(107
|
)
|
|
|
(71
|
)
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash and cash equivalents
|
|
|
(288
|
)
|
|
|
463
|
|
|
|
|
|
|
|
|
|
|
(Decrease) increase in cash, cash equivalents and restricted cash
|
|
|
(166
|
)
|
|
|
290
|
|
Cash, cash equivalents and restricted cash-beginning of the period
|
|
|
7,799
|
|
|
|
(*)7,500
|
|
|
|
|
|
|
|
|
|
|
Cash, cash equivalents and restricted cash-end of the period
|
|
$
|
7,633
|
|
|
$
|
(*)7,790
|
|
(*)
Reclassified to conform with the current period presentation, see Note 2A.
Supplementary cash flows activities:
|
|
|
|
|
|
|
Cash paid during the period for:
|
|
|
|
|
|
|
Interest paid
|
|
$
|
82
|
|
|
$
|
74
|
|
Income taxes paid
|
|
$
|
-
|
|
|
$
|
30
|
|
The
accompanying notes are an integral part of these interim unaudited condensed consolidated financial statements.
On
Track Innovations Ltd.
and
Subsidiaries
Notes
to the Interim Unaudited Condensed Consolidated Financial Statements
US
dollars in thousands
Note
1 – Organization and Basis of Presentation
|
A.
|
Description
of business
|
On
Track Innovations Ltd. (the “Company”) was founded in 1990, in Israel. The Company and its subsidiaries (together
the “Group”) are principally engaged in the field of design and development of cashless payment solutions. The Company’s
shares are listed for trading on the Nasdaq Capital Market.
The
Company operates in two operating segments: (a) Retail and Mass Transit Ticketing, and (b) Petroleum. In addition to the two operating
segments, certain products for the medical industry and other secure smart card solutions are classified under “Other”
in segment analysis appearing in Note 10.
|
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, 2017.
In
the opinion of management, all adjustments considered necessary for a fair presentation, consisting of normal recurring adjustments,
have been included. Operating results for the six month period ended June 30, 2018 are not necessarily indicative of the results
that may be expected for the year ending December 31, 2018.
Use
of Estimates:
The
preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect
the assets, liabilities, revenue, costs, expenses and accumulated other comprehensive income/(loss) that are reported in the Interim
Consolidated Financial Statements and accompanying disclosures. These estimates are based on management’s best knowledge
of current events, historical experience, actions that the Company may undertake in the future and on various other assumptions
that are believed to be reasonable under the circumstances. As a result, actual results may be different from these estimates.
|
C.
|
Divestiture
of operations
|
|
1.
|
In
December 2013, the Company completed the sale of certain assets, subsidiaries and intellectual
property (“IP”) relating to its Smart ID division, 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 in thousands
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 has raised issues against the Company during the arbitration for material damages.
The evidence in the arbitration were heard on March 6, 2018, and by the end of September 2018 the parties are expected to complete
the submission of their written summaries, after which a verdict will be given by the arbitrator. According to legal advice, the
Company has good claims with respect to the issues that are included in the arbitration. 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 six months ended June 30, 2018 and 2017.
|
2.
|
On
September 14, 2016, the Company completed the sale of certain assets and IP related to its former parking segment to Atrinet Ltd.
and its affiliated entities for a non-material amount. The Company has determined that the sale of the parking business qualifies
as a discontinued operation. Accordingly, the results and the cash flows of these operations for all reporting periods are presented
in the statements of operations and in the statements of cash flows, respectively, as discontinued operations separately from
continuing operations.
|
Note
2 – Significant Accounting Policies
Except
as described 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, 2017
.
|
A.
|
Recently
Adopted Accounting Pronouncements
|
|
1.
|
Restricted
Cash and Cash Equivalents in Statement of Cash Flows
|
In
December 2016, the
Financial Accounting Standards
Board (“FASB”) issued Accounting Standards Update (“ASU”)
2016-18, Statement
of Cash Flows (Topic 230): Restricted Cash, which requires amounts generally described as restricted cash and restricted cash
equivalents to be included within cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts
shown in the statement of cash flows.
The
Company has adopted ASU 2016-18 commencing from January 1, 2018. The Company has applied the guidance retrospectively to
all periods presented.
On
Track Innovations Ltd.
and
Subsidiaries
Notes
to the Interim Unaudited Condensed Consolidated Financial Statements
US
dollars in thousands
Note
2 – Significant Accounting Policies (cont’d)
|
A.
|
Recently
Adopted Accounting Pronouncements (cont’d)
|
The
following table provides a reconciliation of cash, cash equivalents, and restricted cash and cash equivalents reported within
the accompanying consolidated balance sheets that sum to the total of the same such amounts presented in the accompanying consolidated
statements of cash flows:
|
|
June 30
|
|
|
December 31
|
|
|
|
2018
|
|
|
2017
|
|
|
2017
|
|
|
2016
|
|
Cash and cash equivalents
|
|
$
|
6,592
|
|
|
$
|
6,242
|
|
|
$
|
6,742
|
|
|
$
|
5,952
|
|
Restricted cash and cash equivalents (*)
|
|
|
1,041
|
|
|
|
1,548
|
|
|
|
1,057
|
|
|
|
1,548
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cash, cash equivalents, and restricted cash and cash equivalents presented in the statements of cash flows
|
|
$
|
7,633
|
|
|
$
|
7,790
|
|
|
$
|
7,799
|
|
|
$
|
7,500
|
|
|
(*)
|
The
restricted cash and cash equivalents are included in short-term investments in the accompanying consolidated balance sheets.
|
In
May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers. The standard provides companies with a single
model for use in accounting for revenue arising from contracts with customers and supersedes previous revenue recognition guidance,
including industry-specific revenue guidance. The standard requires entities to follow a five step process: (1) identify the contract(s)
with a customer, (2) identify the performance obligations in the contract, (3) determine the transaction price, (4) allocate the
transaction price to the performance obligations in the contract, and (5) recognize revenue when (or as) the entity satisfies
a performance obligation. Revenues are recognized when control of the promised goods or services is transferred to the customers,
in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods or services.
The
Company has
adopted ASU 2014-09 commencing from
January 1, 2018 on a modified retrospective basis.
The Company did not have a cumulative
adjustment to retained earnings or an impact on its revenue recognition policies or on its consolidated financial statements as
a result of the adoption of the new standard. The new standard requires the Company to provide more robust disclosures than required
by previous guidance – see also Note 6.
In addition,
when the Company has an unconditional right to receive proceeds before the performance obligation was fulfilled, it is now required
to record receivables against contract liabilities – See Note 6 and Note 4.
On
Track Innovations Ltd.
and
Subsidiaries
Notes
to the Interim Unaudited Condensed Consolidated Financial Statements
US
dollars in thousands
Note
2 – Significant Accounting Policies (cont’d)
|
B.
|
Recent
Accounting Pronouncements
|
|
1.
|
In
June 2018, the FASB issued ASU 2018-07, Compensation – Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based
Payment Accounting. ASU 2018-07 expands the scope of Topic 718 to include share-based payment transactions for acquiring goods
and services from nonemployees. The guidance is intended to align the accounting for such payments to nonemployees with the existing
requirements for share-based payments granted to employees. ASU 2018-07 is effective for fiscal years beginning after December 15,
2018 and is to be adopted through a cumulative-effect adjustment to retained earnings as of January 1, 2019 for then outstanding
share-based payments to nonemployees. The Company does not expect that the adoption of ASU 2018-07 will have a material impact
on the Company’s results of operations and financial condition.
|
|
2.
|
In
February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), which supersedes ASC
840, Leases. This ASU requires lessees to recognize a right-of-use asset and lease liability
on the balance sheet for most leases, whereas currently only financing-type lease liabilities
(capital leases) are recognized on the balance sheet. In addition, the definition of
a lease has been revised with respect to when an arrangement conveys the right to control
the use of the identified asset under the arrangement, which may result in changes to
the classification of an arrangement as a lease. The ASU does not significantly change
the lessees’ recognition, measurement and presentation of expenses and cash flows
from the previous accounting standard. Lessors’ accounting under the ASU is largely
unchanged from the previous accounting standard. The ASU expands the disclosure requirements
of lease arrangements. Under current guidance, lessees and lessors will use a modified
retrospective transition approach, which requires application of the new guidance at
the beginning of the earliest comparative period presented in the year of adoption. The
guidance is effective for interim and annual reporting periods beginning after December
15, 2018, with early adoption permitted. The Company currently expects to adopt this
standard on January 1, 2019 and continues to evaluate the impact of this new standard
on its financial position, results of operations and cash flows. The Company continues
the process of identifying and categorizing its lease contracts and evaluating its current
business processes and systems.
|
In
connection with other recent accounting pronouncements that the Company has not yet implemented and the Company’s assessment
of the impacts they will have on the ongoing financial reporting, see Note 2W(4) in the Company’s Annual Report on Form
10-K for the year ended December 31, 2017.
On Track Innovations Ltd.
and Subsidiaries
Notes
to the Interim Unaudited Condensed Consolidated Financial Statements
US
dollars in thousands
Note
3 – Other Receivables and Prepaid Expenses
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
Government institutions
|
|
$
|
296
|
|
|
$
|
263
|
|
Prepaid expenses
|
|
|
171
|
|
|
|
381
|
|
Supplier advances
|
|
|
1,280
|
|
|
|
122
|
|
Receivables under contractual obligations to be transferred to others *
|
|
|
240
|
|
|
|
446
|
|
Other receivables
|
|
|
181
|
|
|
|
351
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,168
|
|
|
$
|
1,563
|
|
|
*
|
The
Company’s subsidiary in Poland is required to collect certain fees that are to be transferred to local authorities.
|
Note
4 – Other Current Liabilities
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
Employees and related expenses
|
|
$
|
749
|
|
|
$
|
1,073
|
|
Accrued expenses
|
|
|
775
|
|
|
|
1,054
|
|
Customer advances
|
|
|
-
|
|
|
|
178
|
|
Contract liability
|
|
|
833
|
|
|
|
-
|
|
Other current liabilities
|
|
|
84
|
|
|
|
116
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,441
|
|
|
$
|
2,421
|
|
On
Track Innovations Ltd.
and Subsidiaries
Notes
to the Interim Unaudited Condensed Consolidated Financial Statements
US
dollars in thousands
Note
5 – Commitments and Contingencies
|
1.
|
In
June 2013, prior to the Company’s divestiture of its SmartID division, Merwell Inc. (“Merwell”)
filed a claim against the Company before an agreed-upon arbitrator alleging breach of
contract in connection with certain commissions claimed to be owed to Merwell with respect
to the division’s activities in Tanzania. These activities, along with all other
activities of the SmartID division, were later assigned to and assumed by SuperCom in
its purchase of the division. SuperCom undertook to indemnify the Company and hold it
harmless against any liabilities the Company may incur in connection with Merwell’s
consulting agreement and the arbitration. An arbitration decision was issued on February
21, 2016, awarding Merwell approximately $855 for outstanding commissions. The arbitration
decision had been appealed and the appeal was denied. As mentioned above, based on the
agreement with SuperCom, SuperCom is liable for the costs and liabilities arising out
of this claim. Therefore, the financial statements do not include any provision for this
claim.
|
|
2.
|
On
October 3, 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 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 plus interest in damages plus another approximately €5
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. The plaintiff filed an appeal against Parx France but not against the
Company.
|
As
of June 30, 2018, the Company has granted performance guarantees and guarantees to secure customer advances in the sum of $325.
The expiration dates of these guarantees range from October 2018 to June 2019.
On
Track Innovations Ltd.
and
Subsidiaries
Notes
to the Interim Unaudited Condensed Consolidated Financial Statements
US
dollars in thousands
Note
6 – Revenues
Disaggregation
of revenue
The
following tables disaggregates the Company’s revenue by major source based on categories that depict its nature and timing
as reviewed by management for the six months and the three months ended June 30, 2018:
|
|
Six months ended June 30,
2018
|
|
|
|
Retail and
Mass Transit
Ticketing
|
|
|
Petroleum
|
|
|
Other
|
|
|
Total
|
|
Cashless payment products (A)
|
|
$
|
4,637
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
4,637
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Complete cashless payment solutions (B):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales of products (B1)
|
|
|
1,360
|
|
|
|
1,947
|
|
|
|
-
|
|
|
|
3,307
|
|
Licensing fees, transaction fees and services (B2)
|
|
|
2,569
|
|
|
|
678
|
|
|
|
-
|
|
|
|
3,247
|
|
|
|
|
3,929
|
|
|
|
2,625
|
|
|
|
-
|
|
|
|
6,554
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Medical and access control smart cards (C):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales of products (C1)
|
|
|
-
|
|
|
|
-
|
|
|
|
604
|
|
|
|
604
|
|
Licensing fees, transaction fees and services (C2)
|
|
|
-
|
|
|
|
-
|
|
|
|
221
|
|
|
|
221
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
825
|
|
|
|
825
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
8,566
|
|
|
$
|
2,625
|
|
|
$
|
825
|
|
|
$
|
12,016
|
|
|
|
Three months ended June 30,
2018
|
|
|
|
Retail and
Mass Transit
Ticketing
|
|
|
Petroleum
|
|
|
Other
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cashless payment products (A)
|
|
$
|
2,372
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
2,372
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Complete cashless payment solutions (B):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales of products (B1)
|
|
|
333
|
|
|
|
1,353
|
|
|
|
-
|
|
|
|
1,686
|
|
Licensing fees, transaction fees and services (B2)
|
|
|
1,330
|
|
|
|
330
|
|
|
|
-
|
|
|
|
1,660
|
|
|
|
|
1,663
|
|
|
|
1,683
|
|
|
|
-
|
|
|
|
3,346
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Medical and access control smart cards (C):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales of products (C1)
|
|
|
-
|
|
|
|
-
|
|
|
|
325
|
|
|
|
325
|
|
Licensing fees, transaction fees and services (C2)
|
|
|
-
|
|
|
|
-
|
|
|
|
111
|
|
|
|
111
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
436
|
|
|
|
436
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
4,035
|
|
|
$
|
1,683
|
|
|
$
|
436
|
|
|
$
|
6,154
|
|
On
Track Innovations Ltd.
and
Subsidiaries
Notes
to the Interim Unaudited Condensed Consolidated Financial Statements
US
dollars in thousands
Note
6 – Revenues (cont’d)
Performance
obligations
Below
is a listing of performance obligations for our 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 occurs 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 occurs 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.
|
On
Track Innovations Ltd.
and
Subsidiaries
Notes
to the Interim Unaudited Condensed Consolidated Financial Statements
US
dollars in thousands
Note
6 – Revenues (cont’d)
Performance
obligations (cont’d)
Below
is a listing of performance obligations for our main revenue streams (cont’d):
|
C.
|
Medical
and access control smart cards –
|
The
performance obligation is the selling of readers and smart electronic cards for the purposes of human identifying. For such sales
the performance obligation, transfer of control and revenue recognition occurs when the products are delivered.
|
2.
|
Licensing
fees, transaction fees and services –
|
The
main performance obligation is to provide technical support. For such transaction fees that are based on actual usage, revenue
recognition occurs only when usage occurs.
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,
|
|
|
|
2018
|
|
|
2017
|
|
Trade receivables, net of allowance for doubtful accounts
|
|
$
|
5,536
|
|
|
$
|
5,827
|
|
Contract liability
|
|
$
|
833
|
|
|
|
-
|
|
Customer advances
|
|
$
|
-
|
|
|
$
|
178
|
|
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 mainly is attributed to ongoing services provided. An immaterial amount which is related
to the product is not recognized upon delivery since it is not probable that a significant reversal in the amount of cumulative
revenue recognized will not occur when the uncertainty associated with the variable consideration is subsequently resolved.
On
Track Innovations Ltd.
and
Subsidiaries
Notes
to the Interim Unaudited Condensed Consolidated Financial Statements
US
dollars in thousands
Note
7 – Discontinued operations
As
described in Note 1C, the Company divested its interest in the SmartID division and its parking segment, and presented these activities
as discontinued operations.
Set
forth below are the results of the discontinued operations:
|
|
Three months ended
June 30,
|
|
|
Six months ended
June 30,
|
|
|
|
2018
|
|
|
2017
|
|
|
2018
|
|
|
2017
|
|
Expenses
|
|
|
(50
|
)
|
|
|
-
|
|
|
|
(101
|
)
|
|
|
(83
|
)
|
Other income, net
|
|
|
-
|
|
|
|
7
|
|
|
|
13
|
|
|
|
7
|
|
Net (loss) income from discontinued operations
|
|
|
(50
|
)
|
|
|
7
|
|
|
|
(88
|
)
|
|
|
(76
|
)
|
Note
8 – Fair Value of Financial Instruments
The
Company’s financial instruments consist mainly of cash and cash equivalents, short-term interest bearing investments, accounts
receivable, restricted deposits for employee benefits, accounts payable and short-term and long-term loans.
Fair
value for the measurement of financial assets and liabilities is defined as the price that would be received to sell an asset
or paid to transfer a liability in an orderly transaction between market participants at the measurement date. As such, fair value
is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an
asset or liability. The Company utilizes a valuation hierarchy for disclosure of the inputs for fair value measurement. This hierarchy
prioritizes the inputs into three broad levels as follows:
|
●
|
Level 1
Inputs: Unadjusted quoted prices in active markets for identical assets or liabilities accessible to the reporting entity
at the measurement date.
|
|
●
|
Level 2
Inputs: Other than quoted prices included in Level 1 inputs that are observable for the asset or liability, either directly
or indirectly, for substantially the full term of the asset or liability.
|
|
●
|
Level 3
Inputs: Unobservable inputs for the asset or liability used to measure fair value to the extent that observable inputs are
not available, thereby allowing for situations in which there is little, if any, market activity for the asset or liability
at measurement date.
|
On
Track Innovations Ltd.
and
Subsidiaries
Notes
to the Interim Unaudited Condensed Consolidated Financial Statements
US
dollars in thousands
Note
8 – Fair Value of Financial Instruments (cont’d)
By
distinguishing between inputs that are observable in the market place, and therefore more objective, and those that are unobservable
and therefore more subjective, the hierarchy is designed to indicate the relative reliability of the fair value measurements.
A financial asset or liability’s classification within the hierarchy is determined based on the lowest level input that is significant
to the fair value measurement.
The
Company, in estimating fair value for financial instruments, 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.
As
of June 30, 2018, the Company held approximately $2,161 of short-term bank deposits (as of December 31, 2017, $3,331). As of June
30, 2018 and December 31, 2017, short-term deposits in the amount of $1,041 and $1,057, respectively, have been pledged as security
in respect of guarantees granted in respect of performance guarantees, loans and credit lines received from a bank and cannot
be pledged to others or withdrawn without the consent of the bank.
Note
9 – Equity
During
each of the six-month periods ended June 30, 2018 and June 30, 2017, 100,000 options were granted. The vesting period for the
options is three years. The exercise prices for the options that were granted during the six months ended June 30, 2018 and June
30, 2017, are $1.33 and $1.58, 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, 2018 and June 30, 2017 was estimated on the date
of grant, using the Black-Scholes model and the following assumptions:
|
|
Six months ended June 30,
|
|
|
|
2018
|
|
|
2017
|
|
Expected dividend yield
|
|
|
0
|
%
|
|
|
0
|
%
|
Expected volatility
|
|
|
80
|
%
|
|
|
74
|
%
|
Risk-free interest rate
|
|
|
1.92
|
%
|
|
|
1.35
|
%
|
Expected life - in years
|
|
|
2.33
|
|
|
|
3.5
|
|
On
Track Innovations Ltd.
and
Subsidiaries
Notes
to the Interim Unaudited Condensed Consolidated Financial Statements
US
dollars in thousands
Note
9 – Equity (cont’d)
|
A.
|
Stock
option plans (cont’d)
|
|
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.
|
|
|
|
|
3.
|
Risk-free
interest rate is based on the U.S. Treasury yield curve in effect at the time of grant.
|
|
|
|
|
4.
|
For
options granted during the six months ended June 30, 2018- estimated expected lives are
based on historical grants data. For the six months ended June 30, 2017 estimated expected
lives are according to the simplified method.
|
The
Company’s options activity (including options to non-employees) during the six months ended June 30, 2018 and options outstanding
and options exercisable as of December 31, 2017 and June 30, 2018, are summarized in the following table:
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
average
|
|
|
|
Number of
|
|
|
exercise
|
|
|
|
options
|
|
|
price per
|
|
|
|
outstanding
|
|
|
share
|
|
|
|
|
|
|
|
|
Outstanding – December 31, 2017
|
|
|
1,495,000
|
|
|
$
|
1.27
|
|
|
|
|
|
|
|
|
|
|
Options granted
|
|
|
100,000
|
|
|
|
1.33
|
|
Options expired or forfeited
|
|
|
(139,668
|
)
|
|
|
1.2
|
|
Options exercised
|
|
|
(39,999
|
)
|
|
|
0.86
|
|
Outstanding – June 30, 2018
|
|
|
1,415,333
|
|
|
|
1.29
|
|
|
|
|
|
|
|
|
|
|
Exercisable as of:
|
|
|
|
|
|
|
|
|
December 31, 2017
|
|
|
681,321
|
|
|
$
|
1.45
|
|
June 30, 2018
|
|
|
659,988
|
|
|
$
|
1.44
|
|
The
weighted average fair value of options granted during the six months ended June 30, 2018 and during the six months ended June
30, 2017 is $0.65 and $0.93, respectively, per option. The aggregate intrinsic value of outstanding options as of June 30, 2018
and December 31, 2017 is approximately $208 and $448, respectively. The aggregate intrinsic value of exercisable options as of
June 30, 2018 and December 31, 2017 is approximately $128 and $206, respectively.
On
Track Innovations Ltd.
and
Subsidiaries
Notes
to the Interim Unaudited Condensed Consolidated Financial Statements
US
dollars in thousands
Note
9 – Equity (cont’d)
|
A.
|
Stock
option plans (cont’d)
|
The
following table summarizes information about options outstanding and exercisable (including options to non-employees) as of June
30, 2018:
|
|
Options
outstanding
|
|
|
Options
exercisable
|
|
|
|
Number
|
|
|
Weighted
|
|
|
|
|
|
Number
|
|
|
Weighted
|
|
|
|
|
|
|
Outstanding
|
|
|
average
|
|
|
Weighted
|
|
|
Outstanding
|
|
|
average
|
|
|
Weighted
|
|
|
|
as
of
|
|
|
remaining
|
|
|
Average
|
|
|
As
of
|
|
|
remaining
|
|
|
Average
|
|
|
|
June
30,
|
|
|
contractual
|
|
|
Exercise
|
|
|
June
30,
|
|
|
contractual
|
|
|
Exercise
|
|
Range
of exercise price ($)
|
|
2018
|
|
|
life
(years)
|
|
|
Price
|
|
|
2018
|
|
|
life
(years)
|
|
|
Price
|
|
0.44- 0.90
|
|
|
420,000
|
|
|
|
2.48
|
|
|
$
|
0.74
|
|
|
|
276,667
|
|
|
|
2.49
|
|
|
$
|
0.74
|
|
1.07-1.68
|
|
|
765,333
|
|
|
|
3.75
|
|
|
|
1.24
|
|
|
|
163,321
|
|
|
|
2.68
|
|
|
|
1.26
|
|
2.32-2.36
|
|
|
190,000
|
|
|
|
0.86
|
|
|
|
2.35
|
|
|
|
190,000
|
|
|
|
0.86
|
|
|
|
2.35
|
|
3.03
|
|
|
40,000
|
|
|
|
1.23
|
|
|
$
|
3.03
|
|
|
|
30,000
|
|
|
|
1.23
|
|
|
$
|
3.03
|
|
|
|
|
1,415,333
|
|
|
|
2.91
|
|
|
|
|
|
|
|
659,988
|
|
|
|
2.01
|
|
|
|
|
|
As
of June 30, 2018, there was approximately $299 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 1.26 years.
During
the six months ended June 30, 2018 and June 30, 2017, the Company recorded stock-based compensation expenses in the amount of
$115 and $174, respectively, in accordance with ASC 718, “Compensation-Stock Compensation.”
|
1.
|
During
the six months ended June 30, 2018, no warrants expired or were exercised into ordinary
shares.
|
|
|
|
|
2.
|
As
of June 30, 2018, there are remaining 40,000 outstanding warrants issued to one of the
Company’s consultants during 2016 with a per share exercise price of $0.95. The
warrants expire during 2019.
|
|
C.
|
Stock
options and warrants in the amounts of 1,455,333 and 1,448,500 outstanding as of the
six months ended June 30, 2018 and 2017, 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
|
During
the six months ended June 30, 2018 and June 30, 2017, the Company granted 80,000 and 30,000 ordinary shares, respectively, to
its consultants. The expenses that are recognized due to this grant are immaterial and are presented within ’stock-based
compensation’ in the statement of changes in equity for the six months ended June 30, 2018 and June 30, 2017.
On
Track Innovations Ltd.
and
Subsidiaries
Notes
to the Interim Unaudited Condensed Consolidated Financial Statements
US
dollars in thousands
Note
10 – Operating segments
For
the purposes of allocating resources and assessing performance in order to improve profitability, the Company’s chief operating
decision maker (“CODM”) examines two segments which are the Company’s strategic business units: (1) Retail and Mass
Transit Ticketing; and (2) Petroleum. In addition to its two reportable segments, certain products for the medical industry and
other secure smart card solutions are classified under the Company’s “Other” segment.
Information
regarding the results of each reportable segment is included below based on the internal management reports that are reviewed
by the CODM.
|
|
Three months ended June 30, 2018
|
|
|
|
Retail and
Mass Transit
Ticketing
|
|
|
Petroleum
|
|
|
Other
|
|
|
Consolidated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
4,035
|
|
|
$
|
1,683
|
|
|
$
|
436
|
|
|
$
|
6,154
|
|
Reportable segment gross profit *
|
|
|
2,211
|
|
|
|
766
|
|
|
|
415
|
|
|
|
3,392
|
|
Reconciliation of reportable segment gross profit to gross profit for the period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(210
|
)
|
Stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1
|
)
|
Gross profit for the period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
3,181
|
|
|
|
Three months ended June 30, 2017
|
|
|
|
Retail and
Mass Transit
Ticketing
|
|
|
Petroleum
|
|
|
Other
|
|
|
Consolidated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
4,682
|
|
|
$
|
1,910
|
|
|
$
|
354
|
|
|
$
|
6,946
|
|
Reportable segment gross profit *
|
|
|
2,568
|
|
|
|
889
|
|
|
|
211
|
|
|
|
3,668
|
|
Reconciliation of reportable segment gross profit to gross profit for the period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(199
|
)
|
Stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
Gross profit for the period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
3,470
|
|
On
Track Innovations Ltd.
and
Subsidiaries
Notes
to the Interim Unaudited Condensed Consolidated Financial Statements
US
dollars in thousands
Note
10 – Operating segments (cont’d)
|
|
Six months ended June 30, 2018
|
|
|
|
Retail and
Mass Transit
Ticketing
|
|
|
Petroleum
|
|
|
Other
|
|
|
Consolidated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
8,566
|
|
|
$
|
2,625
|
|
|
$
|
825
|
|
|
$
|
12,016
|
|
Reportable segment gross profit *
|
|
|
4,749
|
|
|
|
1,318
|
|
|
|
648
|
|
|
|
6,715
|
|
Reconciliation of reportable segment gross profit to gross profit for the period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(424
|
)
|
Stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2
|
)
|
Gross profit for the period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
6,289
|
|
|
|
Six months ended June 30, 2017
|
|
|
|
Retail and
Mass Transit Ticketing
|
|
|
Petroleum
|
|
|
Other
|
|
|
Consolidated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
7,423
|
|
|
$
|
2,728
|
|
|
$
|
815
|
|
|
$
|
10,966
|
|
Reportable segment gross profit *
|
|
|
4,209
|
|
|
|
1,396
|
|
|
|
469
|
|
|
|
6,074
|
|
Reconciliation of reportable segment gross profit to gross profit for the period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(383
|
)
|
Stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1
|
)
|
Gross profit for the period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
5,690
|
|
*
Gross profit as reviewed by the CODM, represents gross profit, adjusted to exclude depreciation and stock-based compensation.
Item
2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Forward
- Looking Statements
The
statements contained in this Quarterly Report on Form 10-Q, or Quarterly Report, that are not historical facts are “forward-looking
statements” within the meaning of the Private Securities Litigation Reform Act of 1995 and other federal securities laws.
Such forward-looking statements may be identified by, among other things, the use of forward-looking terminology such as “believes,”
“intends,” “plans”, “expects,” “may,” “will,” “should,”
or “anticipates” or the negative thereof or other variations thereon or comparable terminology, and similar expressions
are intended to identify forward-looking statements. We remind readers that forward-looking statements are merely predictions
and therefore are inherently subject to uncertainties and other factors and involve known and unknown risks that could cause the
actual results, performance, levels of activity, or our achievements, or industry results, to be materially different from any
actual future results, performance, levels of activity, or our achievements, or industry results, expressed or implied by such
forward-looking statements. Such forward-looking statements may appear in this Item 2 “Management’s Discussion and
Analysis of Financial Condition and Results of Operations” as well as elsewhere in this Quarterly Report and include, among
other statements, statements regarding the following:
●
|
our
expectations regarding the growth of the near-field communication, or NFC, market;
|
●
|
the
expected development and potential benefits from our existing or future products or our
intellectual property, or IP;
|
●
|
increased
generation of revenues from licensing, transaction fees and/or other arrangements;
|
●
|
future
sources of revenue, ongoing relationships with current and future business partners,
distributors, suppliers, customers, end-user customers and resellers;
|
●
|
our
intention to generate additional recurring revenues, licensing and transaction fees;
|
●
|
future
costs and expenses and adequacy of capital resources;
|
●
|
our
intention to continue to expand our market presence via strategic partnerships around
the globe;
|
●
|
our
expectations that revenues from our business will grow in the next years, and the expected
reasons for that growth;
|
●
|
our
expectations regarding our short-term and long-term capital requirements;
|
●
|
our
intention to continue to invest in research and development;
|
●
|
our
outlook for the coming months;
|
●
|
information
with respect to any other plans and strategies for our business; and
|
●
|
our
development of capabilities to implement Bitcoin acceptance and other cryptocurrency
and our intention to become Bitcoin and other cryptocurrency acceptable in transactions
via NFC, Bluetooth or QR code.
|
The
factors discussed herein, including those risk factors expressed from time to time in our press releases or filings with the Securities
and Exchange Commission, or the SEC, could cause actual results and developments to be materially different from those expressed
in or implied by such statements. Readers are cautioned not to place undue reliance on these forward-looking statements, which
speak and are made only as of the date of this filing.
Our
business and operations are subject to substantial risks, which increase the uncertainty inherent in the forward-looking statements
contained in this Quarterly Report. Except as required by law, we undertake no obligation to release publicly the result of any
revision to these forward-looking statements that may be made to reflect events or circumstances after the date hereof or to reflect
the occurrence of unanticipated events. Further information on potential factors that could affect our business is described among
others under the heading “Risk Factors” in Part I, Item 1A of our Annual Report on Form 10-K for the fiscal year ended
December 31, 2017 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 over two decades. We operate in two main segments: (1) Retail and Mass Transit Ticketing; and (2) Petroleum.
In addition to our two reportable segments, certain products for the medical industry and other secure smart card solutions are
classified under “Other” in segment analysis appearing in this Quarterly Report.
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.
OTI
continually strives to discover the technology of the future and keep abreast of new developments in the fintech marketplace.
At this time, we are trying to develop Bitcoin capability in the crypto-currency marketplace and we intend to become Bitcoin acceptable
in transactions via NFC, Bluetooth or QR code.
Our
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,
medical smart card, Internet of Payment Things, or IoPT, 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 contactless
NFC technology. We continue to focus our efforts to further develop new and unique product solutions, including by the introduction
of our new products and solutions for the unattended payment market and IoPT 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.
Results
of Operations
Discontinued
operations
. In September 2016 we completed the sale of certain assets and IP related to our parking business. In December
2013, we completed the sale of certain assets, certain subsidiaries and IP directly related to our SmartID division. The results
from such operations and the cash flows for the reporting periods are presented in the statements of operations and in the statements
of cash flows, respectively, as discontinued operations separately from continuing operations. All the data in this Quarterly
Report that are derived from our financial statements, unless otherwise specified, exclude the results of those discontinued operations.
Three
months ended June 30, 2018, compared to the three months ended June 30, 2017
Sources
of Revenue
We
have historically derived a substantial majority of our revenues from the sale of our products, including both complete systems
and original equipment manufacturer components and also less significantly, from engineering services, customer services and technical
support. In addition, we generate revenues from licensing and transaction fees. During the three months ended June 30, 2018 and
June 30, 2017, the revenues that we derived from sales and licensing and transaction fees were as follows (in thousands):
|
|
Three months ended
June 30,
|
|
|
|
2018
|
|
|
2017
|
|
Sales
|
|
$
|
4,656
|
|
|
$
|
5,646
|
|
Licensing and transaction fees
|
|
$
|
1,498
|
|
|
$
|
1,300
|
|
Total revenues
|
|
$
|
6,154
|
|
|
$
|
6,946
|
|
Sales.
Sales decreased by $990,000, or 18%, in the three months ended June 30, 2018, compared to the three months ended June 30,
2017. The decrease is mainly attributed to a decrease in Retail and Mass Transit Ticketing segment sales in the Japanese market
and a decrease in Petroleum segment sales in Africa, partially offset by an increase in sales of readers in United States.
Licensing
and transaction fees.
Licensing and transaction fees include single and periodic payments for distribution rights for our
products as well as licensing our IP rights to third parties. Transaction fees are paid by customers based on the volume of transactions
processed by systems that contain our products. Our licensing and transaction fees in the three months ended June 30, 2018, compared
to the three months ended June 30, 2017, increased by $198,000, or 15%. The increase is mainly attributed to an increase in licensing
and transaction fees related to our otiMetry solution in Europe and Japan.
We
have historically derived revenues from different geographical areas. The following table sets forth our revenues, by dollar amount
(in thousands) and as a percentage of quarterly revenues in different geographical areas, in the three months ended June 30, 2018
and June 30, 2017:
Three months ended June 30,
|
|
Africa
|
|
|
Europe
|
|
|
APAC
|
|
|
Americas
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2018
|
|
$
|
1,120
|
|
|
|
18
|
%
|
|
$
|
2,122
|
|
|
|
35
|
%
|
|
$
|
182
|
|
|
|
3
|
%
|
|
$
|
2,730
|
|
|
|
44
|
%
|
2017
|
|
$
|
1,567
|
|
|
|
22
|
%
|
|
$
|
1,706
|
|
|
|
25
|
%
|
|
$
|
1,399
|
|
|
|
20
|
%
|
|
$
|
2,274
|
|
|
|
33
|
%
|
Our
revenues from sales in Africa decreased by $447,000, or 29%, in the three months ended June 30, 2018, compared to the three months
ended June 30, 2017, mainly due to a decrease in sales of petroleum products, partially offset by an increase of our MediSmart
products.
Our
revenues from sales in Europe increased by $416,000, or 24%, in the three months ended June 30, 2018, compared to the three months
ended June 30, 2017, mainly due to an increase in our sales of readers and by an increase of our otiMetry solution.
Our
revenues from sales in the Asia-Pacific region, or APAC, decreased by $1.2 million, or 87%, in the three months ended June 30,
2018, compared to the three months ended June 30, 2017, mainly due to a decrease in sales to the Japanese market.
Our
revenues from sales in Americas increased by $456,000, or 20%, in the three months ended June 30, 2018, compared to the three
months ended June 30, 2017, mainly due to an increase in sales of Petroleum products to the North American market.
Our
revenues derived from outside the United States are primarily received in currencies other than the U.S. dollar and accordingly
have a varying impact upon our total revenues as a result of fluctuations in exchange rates.
The
following table sets forth our revenues by dollar amount (in thousands) and as a percentage of revenues by segments, during the
three months ended June 30, 2018 and June 30, 2017:
Three months ended June 30,
|
|
Retail and Mass Transit Ticketing
|
|
|
Petroleum
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
2018
|
|
$
|
4,035
|
|
|
|
66
|
%
|
|
$
|
1,683
|
|
|
|
27
|
%
|
|
$
|
436
|
|
|
|
7
|
%
|
2017
|
|
$
|
4,682
|
|
|
|
67
|
%
|
|
$
|
1,910
|
|
|
|
28
|
%
|
|
$
|
354
|
|
|
|
5
|
%
|
Our
revenues from Retail and Mass Transit Ticketing in the three months ended June 30, 2018 decreased by $647,000, or 14%, compared
to the three months ended June 30, 2017, mainly due to a decrease in sales in the Japanese market partially offset by an increase
in sales of readers in the United States and Europe.
Our
revenues in the three months ended June 30, 2018 from Petroleum decreased by $227,000, or 12%, compared to the three months ended
June 30, 2017, mainly due to a decrease in sales of Petroleum products in Africa partially offset by an increase in sales of Petroleum
products in North America.
Our
revenues in the three months ended June 30, 2018 from our Other segment increased by $82,000, or 23%, compared to the three months
ended June 30, 2017, mainly due to an increase in sales of MediSmart products in East Africa.
Cost
of Revenues and Gross Margin
Our
cost of revenues, presented by gross profit and gross margin percentage, in the three months ended June 30, 2018 and June 30,
2017 were as follows (dollar amounts in thousands):
|
|
Three months ended
June 30,
|
|
|
|
2018
|
|
|
2017
|
|
Cost of sales
|
|
$
|
2,973
|
|
|
$
|
3,476
|
|
Gross profit
|
|
$
|
3,181
|
|
|
$
|
3,470
|
|
Gross margin percentage
|
|
|
52
|
%
|
|
|
50
|
%
|
Cost of sales.
Cost
of sales consists primarily of materials, as well as salaries, fees to subcontractors and related costs of our technical staff
that assemble our products. The decrease of $503,000, or 14%, in the three months ended June 30, 2018, compared to the three months
ended June 30, 2017, resulted primarily from a decrease in our revenues.
Gross
margin.
The increase in gross margin in the three months ended June 30, 2018, compared to the three months ended June 30,
2017, is mainly attributed to a change in our revenue mix.
Operating
expenses
Our
operating expenses in the three months ended June 30, 2018 and June 30, 2017 were as follows (in thousands):
Operating expenses
|
|
Three months ended
June 30,
|
|
|
|
2018
|
|
|
2017
|
|
Research and development
|
|
$
|
815
|
|
|
$
|
889
|
|
Selling and marketing
|
|
$
|
1,463
|
|
|
$
|
1,492
|
|
General and administrative
|
|
$
|
1,065
|
|
|
$
|
939
|
|
Total operating expenses
|
|
$
|
3,343
|
|
|
$
|
3,320
|
|
Research
and development.
Our research and development expenses consist primarily of the salaries and related expenses of our research
and development staff, as well as subcontracting expenses. The decrease of $74,000, or 8%, in the three months ended June 30,
2018, compared to the three months ended June 30, 2017, is primarily attributed to a decrease in research and development employment
expenses.
Selling
and marketing.
Our selling and marketing expenses consist primarily of salaries and substantially all of the expenses of our
sales and marketing subsidiaries and offices in the United States, South Africa and Europe, as well as expenses related to advertising,
professional expenses and participation in exhibitions and tradeshows. Our selling and marketing expenses, in the three months
ended June 30, 2018, compared to the three months ended June 30, 2017, 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, insurance and provision for doubtful accounts. The increase of $126,000, or 13%, in the three months ended June 30,
2018, compared to the three months ended June 30, 2017, is primarily attributed to an increase in general and administrative employment
expenses.
Financing
expenses, net
Our
financing expenses, net, in the three months ended June 30, 2018 and June 30, 2017 were as follows (in thousands):
|
|
Three months ended
June 30,
|
|
|
|
2018
|
|
|
2017
|
|
Financing expenses, net
|
|
$
|
(95
|
)
|
|
$
|
(39
|
)
|
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 increase in financing expenses,
net in the three months ended June 30, 2018, compared to the three months ended June 30, 2017, of $56,000, or 145%, is mainly
due to an exchange rate differential.
Net
income (loss) from continuing operations
Our
net income (loss) from continuing operations in the three months ended June 30, 2018 and June 30, 2017 was as follows (in thousands):
|
|
Three months ended
June 30,
|
|
|
|
2018
|
|
|
2017
|
|
Net income (loss) from continuing operations
|
|
$
|
(230
|
)
|
|
$
|
86
|
|
The decrease of $316,000, in
the three months ended June 30, 2018, compared to the three months ended June 30, 2017, is primarily due a decrease in our
sales and
a decrease in our gross profit.
Net
profit (loss) from discontinued operations
Our
net profit (loss) from discontinued operations in the three months ended June 30, 2018 and June 30, 2017 was as follows (in thousands):
|
|
Three months ended
June 30,
|
|
|
|
2018
|
|
|
2017
|
|
Net profit (loss) from discontinued operations
|
|
$
|
(50
|
)
|
|
$
|
7
|
|
The
results from these operations for the reporting periods are presented in the statements of operations as discontinued operations
separately from continuing operations.
The
decrease of $57,000 in the three months ended June 30, 2018, compared to the
three months ended June 30, 2017, is mainly due to an increase in expenses related to the SmartID divestiture.
Net
income (loss)
Our
net income (loss) in the three months ended June 30, 2018 and June 30, 2017 was as follows (in thousands):
|
|
Three months ended
June 30,
|
|
|
|
2018
|
|
|
2017
|
|
Net income (loss)
|
|
$
|
(280
|
)
|
|
$
|
93
|
|
The
decrease in net income (loss) of $373,000, in the three months ended June 30, 2018, compared to the three months ended June 30,
2017, is primarily due to a decrease in our revenues and gross profit and an increase in net loss from discontinued operations.
Six
months ended June 30, 2018, compared to the six months ended June 30, 2017
Sources
of Revenue
During
the six months ended June 30, 2018 and June 30, 2017, the revenues that we derived from sales and licensing and transaction fees
were as follows (in thousands):
|
|
Six months ended
June 30,
|
|
|
|
2018
|
|
|
2017
|
|
Sales
|
|
$
|
9,137
|
|
|
$
|
8,426
|
|
Licensing and transaction fees
|
|
$
|
2,879
|
|
|
$
|
2,540
|
|
Total revenues
|
|
$
|
12,016
|
|
|
$
|
10,966
|
|
Sales.
Sales increased by $711,000 or 8%, in the six months ended June 30, 2018, compared to the six months ended June 30, 2017. The
increase is mainly attributed to an increase in Retail and Mass Transit Ticketing segment sales in the United States, partially
offset by a decrease in sales in the Japanese market.
Licensing
and transaction fees.
Our licensing and transaction fees in the six months ended June 30, 2018, compared to the six months
ended June 30, 2017, increased by $339,000, or 13%. The increase is mainly attributed to licensing and transaction fees related
to our otiMetry solution in Europe and Japan.
The
following table sets forth our revenues, by dollar amount (in thousands) and as a percentage of revenues in different geographical
areas, in the six months ended June 30, 2018 and June 30, 2017:
Six months ended June 30,
|
|
Africa
|
|
|
Europe
|
|
|
APAC
|
|
|
Americas
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2018
|
|
$
|
2,006
|
|
|
|
17
|
%
|
|
$
|
3,796
|
|
|
|
32
|
%
|
|
$
|
1,246
|
|
|
|
10
|
%
|
|
$
|
4,968
|
|
|
|
41
|
%
|
2017
|
|
$
|
2,353
|
|
|
|
21
|
%
|
|
$
|
3,934
|
|
|
|
36
|
%
|
|
$
|
1,734
|
|
|
|
16
|
%
|
|
$
|
2,945
|
|
|
|
27
|
%
|
Our
revenues from sales in Africa decreased by $347,000, or 15%, in the six months ended June 30, 2018, compared to the six months
ended June 30, 2017, mainly due to a decrease in sales of our petroleum products, partially offset by an increase in sales of
MediSmart products.
Our
revenues from sales in Europe decreased by $138,000, or 3%, in the six months ended June 30, 2018, compared to the six months
ended June 30, 2017, mainly due to a decrease in sales of readers.
Our
revenues from sales in APAC decreased by $488,000 or 28%, in the six months ended June 30, 2018, compared to the six months ended
June 30, 2017, mainly due to a decrease in sales in the Japanese market.
Our
revenues from sales in Americas increased by $2 million, or 69%, in the six months ended June 30, 2018, compared to the six months
ended June 30, 2017, mainly due to an increase in sales of readers to the U.S. market and an increase in sales of Petroleum products
in North America.
Our
revenues derived from outside the United States are primarily received in currencies other than the U.S. dollar and accordingly
have a varying impact upon our total revenues as a result of fluctuations in exchange rates.
The
following table sets forth our revenues by dollar amount (in thousands) and as a percentage of revenues by segments, during the
six months ended June 30, 2018 and June 30, 2017:
Six months ended June 30,
|
|
Retail and Mass Transit Ticketing
|
|
|
Petroleum
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
2018
|
|
$
|
8,566
|
|
|
|
71
|
%
|
|
$
|
2,625
|
|
|
|
22
|
%
|
|
$
|
825
|
|
|
|
7
|
%
|
2017
|
|
$
|
7,423
|
|
|
|
68
|
%
|
|
$
|
2,728
|
|
|
|
25
|
%
|
|
$
|
815
|
|
|
|
7
|
%
|
Our
revenues from Retail and Mass Transit Ticketing in the six months ended June 30, 2018 increased by $1.1 million, or 15%, compared
to the six months ended June 30, 2017, mainly due to an increase in sales of readers in the United States, partially offset by
a decrease in sales to the Japanese market and a decrease in sales of readers in the European market.
Our
revenues in the six months ended June 30, 2018 from Petroleum decreased by $103,000, or 4%, compared to the six months ended June
30, 2017, mainly due to a decrease in sales of Petroleum products in Africa, partially offset by an increase in sales of Petroleum
products in North America.
Our
revenues in the six months ended June 30, 2018, from our Other segment remained consistent.
Cost
of Revenues and Gross Margin
Our
cost of revenues, presented by gross profit and gross margin percentage, in the six months ended June 30, 2018 and June 30, 2017
were as follows (dollar amounts in thousands):
|
|
Six months ended
June 30,
|
|
|
|
2018
|
|
|
2017
|
|
Cost of sales
|
|
$
|
5,727
|
|
|
$
|
5,276
|
|
Gross profit
|
|
$
|
6,289
|
|
|
$
|
5,690
|
|
Gross margin percentage
|
|
|
52
|
%
|
|
|
52
|
%
|
Cost
of sales.
The increase of $451,000, or 9%, in the six months ended June 30, 2018, compared to the six months ended June 30,
2017, resulted primarily from an increase in our revenues.
Gross
margin.
Our gross margin in the six months ended June 30, 2018, compared to the six months ended June 30, 2017, remained consistent.
Operating
expenses
Our
operating expenses in the six months ended June 30, 2018 and June 30, 2017 were as follows (in thousands):
Operating expenses
|
|
Six months ended
June 30,
|
|
|
|
2018
|
|
|
2017
|
|
Research and development
|
|
$
|
1,645
|
|
|
$
|
1,591
|
|
Selling and marketing
|
|
$
|
3,108
|
|
|
$
|
2,834
|
|
General and administrative
|
|
$
|
1,972
|
|
|
$
|
1,795
|
|
Total operating expenses
|
|
$
|
6,725
|
|
|
$
|
6,220
|
|
Research
and development.
Our research and development expenses, in the six months ended June 30, 2018, compared to the six months
ended June 30, 2017, remained consistent.
Selling
and marketing.
The increase of $274,000, or 10%, in the six months ended June 30, 2018, compared to the six months ended June
30, 2017, is primarily attributed to an increase in the number of selling and marketing employees.
General
and administrative.
The increase of $177,000, or 10%, in the six months ended June 30, 2018, compared to the six months ended
June 30, 2017, is primarily attributed to an increase in general and administrative employment expenses.
Financing
expenses, net
Our
financing expenses, net, in the six months ended June 30, 2018 and June 30, 2017 were as follows (in thousands):
|
|
Six months ended
June 30,
|
|
|
|
2018
|
|
|
2017
|
|
Financing expenses, net
|
|
$
|
(127
|
)
|
|
$
|
(110
|
)
|
Our
financing expenses, net in the six months ended June 30, 2018, compared to the six months ended June 30, 2017, remained consistent.
Net
loss from continuing operations
Our
net loss from continuing operations in the six months ended June 30, 2018 and June 30, 2017 was as follows (in thousands):
|
|
Six months ended
June 30,
|
|
|
|
2018
|
|
|
2017
|
|
Net loss from continuing operations
|
|
$
|
(525
|
)
|
|
$
|
(696
|
)
|
The
decrease of $171,000, or 25%, in the six months ended June 30, 2018, compared to the six months ended June 30, 2017, is primarily
due an increase in our sales and an increase in our gross profit partially offset by an increase in our operating expenses, as
described above.
Net
loss from discontinued operations
Our
net loss from discontinued operations in the six months ended June 30, 2018 and June 30, 2017 was as follows (in thousands):
|
|
Six months ended
June 30,
|
|
|
|
2018
|
|
|
2017
|
|
Net loss from discontinued operations
|
|
$
|
(88
|
)
|
|
$
|
(76
|
)
|
Our
net loss from discontinued operations in the six months ended June 30, 2018, compared to the six months ended June 30, 2017,
remained consistent.
Net
loss
Our
net loss in the six months ended June 30, 2018 and June 30, 2017 was as follows (in thousands):
|
|
Six months ended
June 30,
|
|
|
|
2018
|
|
|
2017
|
|
Net loss
|
|
$
|
(613
|
)
|
|
$
|
(772
|
)
|
The
decrease in net loss of $159,000, in the six months ended June 30, 2018, compared to the six months ended June 30, 2017, is primarily
due an increase in our sales and an increase in our gross profit partially offset by an increase in our operating expenses, as
described above.
Liquidity
and Capital Resources
Our
principal sources of liquidity since our inception have been sales of equity securities, borrowings from banks, cash from the
exercise of options and warrants and proceeds from divestiture of part of our businesses. As of June 30, 2018, we had cash, cash
equivalents and short-term investments representing bank deposits of $8.8 million (of which an amount of $1.0 million has been
pledged as security in respect of performance guarantees granted to third parties, loans and credit lines received from a bank),
and $10.1 million as of December 31, 2017 (of which an amount of $1.0 million had then been pledged as security in respect of
performance guarantees granted to third parties, loans and credit lines received from a bank). We believe that we have sufficient
capital resources to fund our operations for at least the next 12 months. We adhere to an investment policy which is intended
to enable the Company to avoid being classified as a “passive foreign investment company,” or PFIC, under United States
law. That said, we cannot provide complete assurance that PFIC status will be avoided in the future. In addition, our investment
policy requires investment in high-quality investment-grade securities. As of June 30, 2018, our long-term bank loans are denominated
in the following currencies: Polish Zloty ($484,000, with maturity dates ranging from 2018 through 2019) and South African Rand
($532,000, with maturity dates ranging from 2018 through 2023). As of June 30, 2018, these loans bear interest at rates ranging
from 3.14%-10.00% per annum.
Our
composition of long-term loans as of June 30, 2018, was as follows (in thousands):
|
|
June 30,
2018
|
|
Long-term loans
|
|
$
|
1,016
|
|
Less - current maturities
|
|
|
539
|
|
|
|
$
|
477
|
|
Our
composition of short-term loans, bank credit and current maturities of long-term loans as of June 30, 2018 was as follows (in
thousands):
|
|
June 30,
2018
|
|
|
|
Interest rate
|
|
|
|
|
In U.S. dollars
|
|
|
5.04
|
%
|
|
$
|
1,629
|
|
In Polish Zloty
|
|
|
3.14
|
%
|
|
|
1,064
|
|
In NIS
|
|
|
3.60
|
%
|
|
|
742
|
|
|
|
|
|
|
|
|
3,435
|
|
Current maturities of long-term loans
|
|
|
|
|
|
|
539
|
|
|
|
|
|
|
|
$
|
3,974
|
|
Our
and certain of our subsidiaries’ manufacturing facilities and certain equipment have been pledged as security in respect
of a loan received from a bank. Our short term deposits in the amount of $1 million have been pledged as security in respect of
guarantees granted to third parties, loans and credit lines received from a bank. Such deposits cannot be pledged to others or
withdrawn without the consent of the bank.
As
of June 30, 2018, we granted guarantees to third parties including performance guarantees and guarantees to secure customer advances
in the sum of $325,000. The expiration dates of the guarantees range from October 2018 to June 2019.
Operating
activities related to continuing operations
For the six months ended
June 30, 2018, net cash used in continuing operating activities was $66,000 primarily due to a $658,000 increase in other receivables
and prepaid expenses, a $650,000 decrease in other current liabilities, a $525,000 net loss from continuing operations, a $344,000
increase in inventories, a $54,000 decrease in deferred tax liability, a $28,000 decrease in accrued severance pay, net and a
$17,000 gain on sale of fixed assets, partially offset by $963,000 decrease in trade receivables, $680,000 of depreciation and
amortization, a $445,000 increase in trade payables, $115,000 expense due to stock based compensation issued to employees and
a $7,000 of accrued interest and linkage differences, net.
For
the six months ended June 30, 2017, net cash used in continuing operating activities was $2.3 million primarily due to a $1.2
million increase in trade receivables, a $855,000 decrease in other current liabilities, a $696,000 net loss from continuing operations,
a $396,000 decrease in trade payables, a $47,000 increase in inventory, a $47,000 increase in accrued interest and a $7,000 gain
on sale of fixed assets, partially offset by $583,000 of depreciation and amortization, a $174,000 expense due to stock based
compensation issued to employees, a $90,000 decrease in other receivables and prepaid expenses, a $74,000 increase in accrued
severance pay and a $21,000 increase in deferred tax liability.
Operating
activities related to discontinued operations
For
the six months ended June 30, 2018, net cash used in discontinued operating activities was $107,000, related to our previous parking
business and SmartID division.
For
the six months ended June 30, 2017, net cash used in discontinued operating activities was $71,000, related to our previous parking
business and SmartID division.
Investing
and financing activities related to continuing operations
For
the six months ended June 30, 2018, net cash provided by continuing investing activities was $689,000, mainly due to a $1.2 million
change in short-term investments, net, and $17,000 in proceeds from the sale of fixed assets, partially offset by $414,000 of
purchase of property and equipment, net and $87,000 investment in capitalized product costs.
For
the six months ended June 30, 2017, net cash provided by continuing investing activities was $2.3 million, mainly due to a $2.5
million change in short-term investments, net, $44,000 in proceeds from restricted deposit for employee benefits and $12,000 in
proceeds from the sale of fixed assets, partially offset by a $157,000 investment in capitalized product costs and $98,000 of
purchases of property and equipment.
For
the six months ended June 30, 2018, net cash used in continuing financing activities was $394,000, mainly due to a $348,000 repayment
of long-term bank loans and a $80,000 decrease in short-term bank credit partially offset by $34,000 of proceeds from exercises
of options.
For
the six months ended June 30, 2017, net cash used in continuing financing activities was $146,000, mainly due to a $374,000 repayment
of long-term bank loans, partially offset by a $213,000 increase in short-term bank credit, net and $15,000 of proceeds from exercises
of options and warrants.
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 six months ended June 30, 2018
and June 30, 2017
Off
Balance Sheet Arrangements
We
have no off-balance sheet arrangements.