Item 1.
Financial Statements.
ON
TRACK INNOVATIONS LTD. AND ITS SUBSIDIARIES
INTERIM
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
As
of June 30, 2020
(Unaudited)
On
Track Innovations Ltd.
and
its Subsidiaries
Interim
Unaudited Condensed Consolidated Financial Statements as of June 30, 2020
Contents
On
Track Innovations Ltd.
and
its Subsidiaries
Interim
Unaudited Condensed Consolidated Balance Sheets
US
dollars in thousands except share data
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
3,368
|
|
|
$
|
2,543
|
|
Short-term investments
|
|
|
1,805
|
|
|
|
2,305
|
|
Trade receivables (net of allowance for doubtful accounts of $810 and $612 as of June 30, 2020 and December 31, 2019, respectively)
|
|
|
2,291
|
|
|
|
2,430
|
|
Other receivables and prepaid expenses
|
|
|
1,394
|
|
|
|
1,822
|
|
Inventories
|
|
|
3,147
|
|
|
|
3,332
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
12,005
|
|
|
|
12,432
|
|
|
|
|
|
|
|
|
|
|
Long term restricted deposit for employee benefits
|
|
|
474
|
|
|
|
477
|
|
|
|
|
|
|
|
|
|
|
Severance pay deposits
|
|
|
382
|
|
|
|
383
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net
|
|
|
3,434
|
|
|
|
3,694
|
|
|
|
|
|
|
|
|
|
|
Intangible assets, net
|
|
|
746
|
|
|
|
733
|
|
|
|
|
|
|
|
|
|
|
Right-of-use assets due
to operating leases
|
|
|
3,837
|
|
|
|
2,134
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
20,878
|
|
|
$
|
19,853
|
|
The
accompanying notes are an integral part of these interim unaudited condensed consolidated financial statements.
On
Track Innovations Ltd.
and
its Subsidiaries
Interim
Unaudited Condensed Consolidated Balance Sheets
US
dollars in thousands except share data
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
|
|
|
|
|
|
Liabilities and Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Liabilities
|
|
|
|
|
|
|
Short-term bank credit and loans and current maturities of long-term bank loans
|
|
$
|
2,478
|
|
|
$
|
2,478
|
|
Trade payables
|
|
|
4,086
|
|
|
|
4,126
|
|
Other current liabilities
|
|
|
2,474
|
|
|
|
3,054
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
$
|
9,038
|
|
|
$
|
9,658
|
|
|
|
|
|
|
|
|
|
|
Long-Term Liabilities
|
|
|
|
|
|
|
|
|
Long-term loans, net of current maturities
|
|
|
825
|
|
|
|
22
|
|
Long-term liabilities due to operating leases, net of current maturities
|
|
|
2,938
|
|
|
|
1,483
|
|
Accrued severance pay
|
|
|
894
|
|
|
|
884
|
|
Deferred tax liability
|
|
|
341
|
|
|
|
416
|
|
Total long-term liabilities
|
|
|
4,998
|
|
|
|
2,805
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities
|
|
|
14,036
|
|
|
|
12,463
|
|
|
|
|
|
|
|
|
|
|
Commitments and Contingencies, see Note 7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ordinary shares of NIS 0.1 par value: Authorized – 100,000,000 and 50,000,000 shares as of June 30, 2020 and December 31, 2019, respectively; issued: 55,003,076 and 47,963,076 shares as of June 30, 2020 and December 31, 2019, respectively; outstanding: 53,824,377 and 46,784,377 shares as of June 30, 2020 and December 31, 2019, respectively
|
|
|
1,423
|
|
|
|
1,226
|
|
Additional paid-in capital
|
|
|
227,170
|
|
|
|
225,970
|
|
Treasury shares at cost - 1,178,699 shares as of June 30, 2020 and December 31, 2019
|
|
|
(2,000
|
)
|
|
|
(2,000
|
)
|
Accumulated other comprehensive loss
|
|
|
(1,127
|
)
|
|
|
(974
|
)
|
Accumulated deficit
|
|
|
(218,624
|
)
|
|
|
(216,832
|
)
|
Total Equity
|
|
|
6,842
|
|
|
|
7,390
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities and Equity
|
|
$
|
20,878
|
|
|
$
|
19,853
|
|
The
accompanying notes are an integral part of these interim unaudited condensed consolidated financial statements.
On
Track Innovations Ltd.
and
its Subsidiaries
Interim
Unaudited Condensed Consolidated Statements of Operations
US
dollars in thousands except share and per share data
|
|
Three Three months ended
June 30,
|
|
|
Six months ended
June 30,
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
|
|
$
|
3,998
|
|
|
$
|
2,933
|
|
|
$
|
7,394
|
|
|
$
|
4,655
|
|
Licensing and transaction fees
|
|
|
855
|
|
|
|
1,183
|
|
|
|
1,910
|
|
|
|
2,474
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
4,853
|
|
|
|
4,116
|
|
|
|
9,304
|
|
|
|
7,129
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales
|
|
|
2,965
|
|
|
|
1,742
|
|
|
|
5,238
|
|
|
|
3,112
|
|
Total cost of revenues
|
|
|
2,965
|
|
|
|
1,742
|
|
|
|
5,238
|
|
|
|
3,112
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
1,888
|
|
|
|
2,374
|
|
|
|
4,066
|
|
|
|
4,017
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
904
|
|
|
|
817
|
|
|
|
1,802
|
|
|
|
1,688
|
|
Selling and marketing
|
|
|
1,193
|
|
|
|
1,320
|
|
|
|
2,355
|
|
|
|
2,605
|
|
General and administrative
|
|
|
775
|
|
|
|
1,046
|
|
|
|
1,732
|
|
|
|
2,011
|
|
Total operating expenses
|
|
|
2,872
|
|
|
|
3,183
|
|
|
|
5,889
|
|
|
|
6,304
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss from continuing operations
|
|
|
(984
|
)
|
|
|
(809
|
)
|
|
|
(1,823
|
)
|
|
|
(2,287
|
)
|
Financial (expenses) income, net
|
|
|
(123
|
)
|
|
|
(37
|
)
|
|
|
45
|
|
|
|
(106
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations before taxes on income
|
|
|
(1,107
|
)
|
|
|
(846
|
)
|
|
|
(1,778
|
)
|
|
|
(2,393
|
)
|
Income tax benefits (expenses)
|
|
|
16
|
|
|
|
(3
|
)
|
|
|
29
|
|
|
|
(8
|
)
|
Loss from continuing operations
|
|
|
(1,091
|
)
|
|
|
(849
|
)
|
|
|
(1,749
|
)
|
|
|
(2,401
|
)
|
Loss from discontinued operations
|
|
|
(32
|
)
|
|
|
(50
|
)
|
|
|
(43
|
)
|
|
|
(243
|
)
|
Net loss
|
|
$
|
(1,123
|
)
|
|
$
|
(899
|
)
|
|
$
|
(1,792
|
)
|
|
$
|
(2,644
|
)
|
Basic and diluted net loss attributable to shareholders per ordinary share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
From continuing operations
|
|
|
(0.02
|
)
|
|
|
(0.02
|
)
|
|
|
(0.04
|
)
|
|
|
(0.06
|
)
|
From discontinued operations
|
|
|
*
|
|
|
|
*
|
|
|
|
*
|
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(0.02
|
)
|
|
$
|
(0.02
|
)
|
|
$
|
(0.04
|
)
|
|
$
|
(0.06
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of ordinary shares used in computing basic and diluted net loss per ordinary share
|
|
|
52,706,135
|
|
|
|
41,300,641
|
|
|
|
50,248,113
|
|
|
|
41,297,526
|
|
|
*
|
Less
than $0.01 per ordinary share.
|
The
accompanying notes are an integral part of these interim unaudited condensed consolidated financial statements.
On
Track Innovations Ltd.
and
its Subsidiaries
Interim
Unaudited Condensed Consolidated Statements of Comprehensive Loss
US
dollars in thousands
|
|
Three months ended
June 30,
|
|
|
Six months ended
June 30,
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(1,123
|
)
|
|
$
|
(899
|
)
|
|
$
|
(1,792
|
)
|
|
$
|
(2,644
|
)
|
Foreign currency translation adjustments
|
|
|
141
|
|
|
|
101
|
|
|
|
(153
|
)
|
|
|
38
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive loss
|
|
$
|
(982
|
)
|
|
$
|
(798
|
)
|
|
$
|
(1,945
|
)
|
|
$
|
(2,606
|
)
|
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 other
|
|
|
|
|
|
|
|
|
|
Number of
|
|
|
|
|
|
Additional
|
|
|
Treasury
|
|
|
comprehensive
|
|
|
|
|
|
|
|
|
|
Shares
|
|
|
Share
|
|
|
paid-in
|
|
|
Shares
|
|
|
Income
|
|
|
Accumulated
|
|
|
Total
|
|
|
|
issued
|
|
|
capital
|
|
|
capital
|
|
|
(at cost)
|
|
|
(loss)
|
|
|
deficit
|
|
|
equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of March 31, 2019
|
|
|
42,473,076
|
|
|
$
|
1,068
|
|
|
$
|
225,068
|
|
|
$
|
(2,000
|
)
|
|
$
|
(1,019
|
)
|
|
$
|
(212,688
|
)
|
|
$
|
10,429
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes during the three months period ended June 30, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation
|
|
|
30,000
|
(*)
|
|
|
1
|
|
|
|
43
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
44
|
|
Foreign currency translation adjustments
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
101
|
|
|
|
-
|
|
|
|
101
|
|
Net loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(899
|
)
|
|
|
(899
|
)
|
Balance as of June 30, 2019
|
|
|
42,503,076
|
|
|
$
|
1,069
|
|
|
$
|
225,111
|
|
|
$
|
(2,000
|
)
|
|
$
|
(918
|
)
|
|
$
|
(213,587
|
)
|
|
$
|
9,675
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of March 31, 2020
|
|
|
49,003,076
|
|
|
$
|
1,256
|
|
|
$
|
226,152
|
|
|
$
|
(2,000
|
)
|
|
$
|
(1,268
|
)
|
|
$
|
(217,501
|
)
|
|
$
|
6,639
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes during the three months period ended June 30, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of shares, net of issuance costs of $31
|
|
|
6,000,000
|
(**)
|
|
|
167
|
|
|
|
1,002
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,169
|
|
Stock-based compensation
|
|
|
-
|
|
|
|
-
|
|
|
|
16
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
16
|
|
Foreign currency translation adjustments
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
141
|
|
|
|
-
|
|
|
|
141
|
|
Net loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,123
|
)
|
|
|
(1,123
|
)
|
Balance as of June 30, 2020
|
|
|
55,003,076
|
|
|
$
|
1,423
|
|
|
$
|
227,170
|
|
|
$
|
(2,000
|
)
|
|
$
|
(1,127
|
)
|
|
$
|
(218,624
|
)
|
|
$
|
6,842
|
|
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 other
|
|
|
|
|
|
|
|
|
|
Number of
|
|
|
|
|
|
Additional
|
|
|
Treasury
|
|
|
comprehensive
|
|
|
|
|
|
|
|
|
|
Shares
|
|
|
Share
|
|
|
paid-in
|
|
|
Shares
|
|
|
Income
|
|
|
Accumulated
|
|
|
Total
|
|
|
|
issued
|
|
|
capital
|
|
|
capital
|
|
|
(at cost)
|
|
|
(loss)
|
|
|
deficit
|
|
|
equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2018
|
|
|
42,473,076
|
|
|
$
|
1,068
|
|
|
$
|
225,022
|
|
|
$
|
(2,000
|
)
|
|
$
|
(956
|
)
|
|
$
|
(210,943
|
)
|
|
$
|
12,191
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes during the six months period ended June 30, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation
|
|
|
30,000
|
(*)
|
|
|
1
|
|
|
|
89
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
90
|
|
Foreign currency translation adjustments
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
38
|
|
|
|
-
|
|
|
|
38
|
|
Net loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(2,644
|
)
|
|
|
(2,644
|
)
|
Balance as of June 30, 2019
|
|
|
42,503,076
|
|
|
$
|
1,069
|
|
|
$
|
225,111
|
|
|
$
|
(2,000
|
)
|
|
$
|
(918
|
)
|
|
$
|
(213,587
|
)
|
|
$
|
9,675
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2019
|
|
|
47,963,076
|
|
|
$
|
1,226
|
|
|
$
|
225,970
|
|
|
$
|
(2,000
|
)
|
|
$
|
(974
|
)
|
|
$
|
(216,832
|
)
|
|
$
|
7,390
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes during the six months period ended June 30, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of shares, net of issuance costs of $39
|
|
|
7,040,000
|
(**)
|
|
|
197
|
|
|
|
1,172
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,369
|
|
Stock-based compensation
|
|
|
-
|
|
|
|
-
|
|
|
|
28
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
28
|
|
Foreign currency translation adjustments
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(153
|
)
|
|
|
-
|
|
|
|
(153
|
)
|
Net loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,792
|
)
|
|
|
(1,792
|
)
|
Balance as of June 30, 2020
|
|
|
55,003,076
|
|
|
$
|
1,423
|
|
|
$
|
227,170
|
|
|
$
|
(2,000
|
)
|
|
$
|
(1,127
|
)
|
|
$
|
(218,624
|
)
|
|
$
|
6,842
|
|
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,
|
|
|
|
2020
|
|
|
2019
|
|
|
|
|
|
|
|
|
Cash flows from continuing operating activities
|
|
|
|
|
|
|
Net loss from continuing operations
|
|
$
|
(1,749
|
)
|
|
$
|
(2,401
|
)
|
Adjustments required to reconcile net loss to net cash used in provided by continuing operating activities:
|
|
|
|
|
|
|
|
|
Stock-based compensation related to options issued to employees and others
|
|
|
28
|
|
|
|
90
|
|
Accrued interest and linkage differences, net
|
|
|
(162
|
)
|
|
|
(18
|
)
|
Depreciation and amortization
|
|
|
604
|
|
|
|
643
|
|
Deferred tax benefits, net
|
|
|
(58
|
)
|
|
|
(24
|
)
|
Gain on sale of fixed assets
|
|
|
-
|
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Change in accrued severance pay, net
|
|
|
11
|
|
|
|
44
|
|
Decrease in trade receivables, net
|
|
|
101
|
|
|
|
1,254
|
|
Decrease in other receivables and prepaid expenses
|
|
|
379
|
|
|
|
597
|
|
Decrease (increase) in inventories
|
|
|
174
|
|
|
|
(1,405
|
)
|
Increase in trade payables
|
|
|
110
|
|
|
|
585
|
|
Decrease in other current liabilities
|
|
|
(245
|
)
|
|
|
(540
|
)
|
Net cash used in continuing operating activities
|
|
|
(807
|
)
|
|
|
(1,177
|
)
|
|
|
|
|
|
|
|
|
|
Cash flows from continuing investing activities
|
|
|
|
|
|
|
|
|
Purchase of property and equipment and intangible assets
|
|
|
(490
|
)
|
|
|
(341
|
)
|
Change in short-term investments, net
|
|
|
511
|
|
|
|
(1,190
|
)
|
Proceeds from restricted deposit for employee benefits
|
|
|
-
|
|
|
|
10
|
|
Proceeds from sale of property and equipment
|
|
|
-
|
|
|
|
10
|
|
Net cash provided by (used in) continuing investing activities
|
|
|
21
|
|
|
|
(1,511
|
)
|
|
|
|
|
|
|
|
|
|
Cash flows from continuing financing activities
|
|
|
|
|
|
|
|
|
Increase in short-term bank credit and loans, net
|
|
|
62
|
|
|
|
2,747
|
|
Proceeds from long-term bank loans
|
|
|
799
|
|
|
|
-
|
|
Repayment of long-term bank loans
|
|
|
(7
|
)
|
|
|
(233
|
)
|
Proceeds from issuance of shares, net of issuance costs
|
|
|
1,369
|
|
|
|
-
|
|
Net cash provided by continuing financing activities
|
|
|
2,223
|
|
|
|
2,514
|
|
|
|
|
|
|
|
|
|
|
Cash flows from discontinued operations
|
|
|
|
|
|
|
|
|
Net cash used in discontinued operating activities
|
|
|
(526
|
)
|
|
|
(1,304
|
)
|
|
|
|
|
|
|
|
|
|
Total net cash used in discontinued operations
|
|
|
(526
|
)
|
|
|
(1,304
|
)
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash and cash equivalents
|
|
|
(86
|
)
|
|
|
53
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in cash, cash equivalents and restricted cash
|
|
|
825
|
|
|
|
(1,425
|
)
|
Cash, cash equivalents and restricted cash-beginning of the period
|
|
|
2,648
|
|
|
|
5,105
|
|
|
|
|
|
|
|
|
|
|
Cash, cash equivalents and restricted cash-end of the period
|
|
$
|
3,473
|
|
|
$
|
3,680
|
|
|
|
|
|
|
|
|
|
|
Supplementary cash flows activities:
|
|
|
|
|
|
|
|
|
Cash paid during the period for:
|
|
|
|
|
|
|
|
|
Interest paid
|
|
$
|
51
|
|
|
$
|
19
|
|
Income taxes paid
|
|
$
|
40
|
|
|
$
|
173
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures of non-cash flow information:
|
|
|
|
|
|
|
|
|
Payables due to purchase of property and equipment and intangible assets
|
|
$
|
87
|
|
|
$
|
-
|
|
The
accompanying notes are an integral part of these interim unaudited condensed consolidated financial statements.
On
Track Innovations Ltd.
and
Subsidiaries
Notes
to the Interim Unaudited Condensed Consolidated Financial Statements
US
dollars, NIS and Euro in thousands, except share and per share data
Note
1 - Organization and Basis of Presentation
|
A.
|
Description
of business
|
On
Track Innovations Ltd. (the “Company”) was founded in 1990, in Israel. The Company and its subsidiaries (together,
the “Group”) are principally engaged in the field of design and development of cashless payment solutions.
The
Company’s ordinary shares are listed for trading on the OTCQX market (formerly listed on the Nasdaq Capital Market until
October 31, 2019).
At
June 30, 2020, the Company operates in two operating segments: (a) Retail and Mass Transit Ticketing, and (b) Petroleum. See Note
12. During December 2018, the Company sold its medical smart cards operation – see Note 1C(2).
|
B.
|
Interim
Unaudited Financial Information
|
The
accompanying unaudited consolidated financial statements of the Company have been prepared in accordance with U.S. generally accepted
accounting principles (“GAAP”) for interim financial information and with the instructions to Form 10-Q. Accordingly,
they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements and therefore
should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2019.
In
the opinion of management, all adjustments considered necessary for a fair statement, consisting of normal recurring adjustments,
have been included. Operating results for the six month period and the three month period ended June 30, 2020 are not necessarily
indicative of the results that may be expected for the year ending December 31, 2020.
Use
of Estimates:
The
preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect
the assets, liabilities, revenue, costs, expenses and accumulated other comprehensive income/(loss) that are reported in the Interim
Consolidated Financial Statements and accompanying disclosures. These estimates are based on management’s best knowledge
of current events, historical experience, actions that the Company may undertake in the future and on various other assumptions
that are believed to be reasonable under the circumstances. As a result, actual results may be different from these estimates.
|
C.
|
Divestiture
of operations
|
|
1.
|
In
December 2013, the Company completed the sale of certain assets, subsidiaries and intellectual property relating to its Smart
ID division, for a total purchase price of $10,000 in cash and an additional $12,500 subject to performance-based milestones.
Accordingly, the results and the cash flows of this operation for all reporting periods are presented in the statements of operations
and in the statements of cash flows, respectively, as discontinued operations separately from continuing operations.
|
On
Track Innovations Ltd.
and
Subsidiaries
Notes
to the Interim Unaudited Condensed Consolidated Financial Statements
US
dollars, NIS and Euro in thousands, except share and per share data
Note
1 - Organization and Basis of Presentation (cont’d)
|
C.
|
Divestiture
of operations (cont’d)
|
On
April 20, 2016, the purchaser of the Smart ID division, SuperCom Ltd. (“SuperCom”), and the Company entered into a
settlement agreement resolving certain litigation between SuperCom and the Company pursuant to which SuperCom paid the Company
$2,050 and agreed to pay the Company up to $1,500 in accordance with and subject to a certain earn-out mechanism. In November
2017, the Company commenced an arbitration procedure with SuperCom, in which the Company claims that additional earn-out payments
have not been paid to the Company. SuperCom raised claims against the Company during the arbitration for material damages. The
evidence in the arbitration was heard on March 6, 2018, and an arbitration decision was issued on December 24, 2018 in the Company’s
favor and denied SuperCom’s claims. The arbitrator ordered SuperCom to disclose the financial information regarding the earn-out
payments that the Company is entitled to receive, and to pay the Company accordingly, or otherwise pay the Company approximately
$1,300 that reflects the maximum earn-out amount that has not yet been paid to the Company by SuperCom. The arbitration verdict
was approved as a court’s verdict in June 2019, but SuperCom failed to disclose the financial information in the way it
should have done according to the arbitration decision. Therefore, in December 2019 the Company submitted a complementary claim
to the arbitrator, asking for a final award that includes a final payment by SuperCom (as opposed to merely disclosing information).
A hearing in this procedure is scheduled for August 10, 2020.
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, 2020 and 2019.
|
2.
|
In
December 2018, the Company completed the sale of its medical smart cards operation (“Medismart”) (formerly part of
the Company’s “Other segment”) to Smart Applications International Limited for a total price of $2,750. The
Company has determined that the sale of the Medismart business qualifies as a discontinued operation. Accordingly, the results
and the cash flows of this operation for all reporting periods are presented in the statements of operations and in the statements
of cash flows, respectively, as discontinued operations separately from continuing operations.
|
|
D.
|
Liquidity
and Capital Resources
|
The
Company has had recurring losses and has an accumulated deficit as of June 30, 2020 of $218,624. The Company also has a payable
balance on its short-term loan of $2,478 as of June 30, 2020 that is due within the next 12 months.
Since
inception, the Company’s principal sources of liquidity have been revenues, proceeds from sales of equity securities, borrowings
from banks and government, cash from the exercise of options and warrants as well as proceeds from the divestiture of parts of
the Company’s businesses. The Company had cash, cash equivalents and short-term investments representing bank deposits of
$5,173 (of which an amount of $105 has been pledged as security for certain items) as of June 30, 2020. The Company believes that
it has sufficient capital resources to fund its operations for at least the next 12 months.
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)
|
Further,
as disclosed in Note 11A, during April 2020 the Company received funds in a total amount of $1,200 in consideration for the issuance
of 6,000,000 ordinary shares, all in accordance with the terms and provisions of the Agreement (as defined in Note 11A below).
In
connection with the outbreak of the Corona Virus (COVID-19) (“COVID-19”), the Company has taken steps to protect its
workforce in Israel, the United States, Poland, South Africa and elsewhere. Such steps include work from home where possible,
minimizing face-to-face meetings and utilizing video conference as much as possible, social distancing at facilities and elimination
of all international travel. The Company continues to comply with all local health directives.
So far, the main direct impact of the COVID-19 pandemic has been a decrease in the Company’s revenues derived
from Mass Transit Ticketing sales in the Polish market. The revenues from this operation, that were relatively stable during the
year preceding the COVID-19 outbreak, decreased by approximately $1,000 in the first half of 2020, compared to the first half
of 2019, mainly due to the lockdown and other restrictions and consequences of the COVID-19 as started in March 2020. This impact
is expected to continue for the foreseeable future. As a response to this effect, the Company has taken steps to reduce some costs
that are not essential under the current circumstances.
Another
impact of COVID-19 has been on product delivery, where components’ procurement lead time is longer and a shortage in components
has grown as the duration of the COVID-19 pandemic has continued. As long as the COVID-19 pandemic continues, the components’
lead time may be longer than normal and shortage in components may continue or get worse. Therefore, the Company maintains a comprehensive
network of world-wide suppliers.
Regarding
the Company’s Petroleum activity, due to the extended lockdown in South Africa, some of the sales that were planned to occur
at the second quarter of 2020 were postponed to the second half of 2020 and therefore caused a decrease in the revenues derived
from this segment compared to the second quarter of 2019.
As
for the Company’s Retail activity, the Company has seen a higher interest from a growing number of potential customers and
partners as they forecasted that the need for the Company’s products will grow, yet execution of closing is still slow due
to the current business environment.
It
is difficult to predict what other impacts the COVID-19 pandemic may have on the Company.
Regarding
a consent that the Company’s Polish subsidiary received to
postpone the maturity date of a secured bank loan, and a long-term loan that it received as
part of the Polish government assistance and regulations introduced in relation to the COVID-19, see Note 5.
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
These
interim unaudited condensed consolidated financial statements have been prepared according to the same accounting policies as
those discussed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019.
Recent
accounting pronouncements
|
1.
|
In
June 2016, the Financial Accounting Standards Board (“FASB”) issued
Accounting Standards Update (“ASU”) 2016-13, Financial Instruments -
Credit Losses (Topic 326). The main objective of this ASU is to provide financial statement users with more decision-useful information
about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at
each reporting date. To achieve this objective, the amendments in this ASU replace the incurred loss impairment methodology in
current GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable
and supportable information to inform credit loss estimates. The amendments affect entities holding financial assets and net investment
in leases that are not accounted for at fair value through net income. The amendments affect loans, debt securities, trade receivables,
net investments in leases, off-balance-sheet credit exposures, reinsurance receivables, and any other financial assets not excluded
from the scope that have the contractual right to receive cash. ASU 2016-13 is effective for the Company for fiscal years beginning
after December 15, 2022, including interim periods within those fiscal years. Early adoption is permitted for fiscal years beginning
after December 15, 2018. The Company currently does not expect the adoption of this accounting standard to have a material impact
on its consolidated financial statements.
|
|
2.
|
In
December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (ASU
2019-12), which simplifies the accounting for income taxes. This ASU, among other things, removes the exception to the incremental
approach for intraperiod allocation of tax expense when a company has a loss from continuing operations and income from other
items that are not included in continuing operations, such as income from discontinued operations, or income recorded in other
comprehensive income. The general rule under Accounting Standards Update (“ASC”) 740-20-45-7 is that the tax effect
of pretax income or loss from continuing operations should be determined by a computation that does not consider the tax effects
of items that are not included in continuing operations. Previously, companies could consider the impact on a loss from continuing
operations of items in discontinued operations or other comprehensive income. However, under the amended guidance, companies should
not consider the effect of items outside of continuing operations in calculating the tax effect on continuing operations. The
new standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020.
Early adoption is permitted, with the amendments to be applied on a retrospective, modified retrospective or prospective basis,
depending on the specific amendment. The Company is currently evaluating the impact of
adopting this guidance.
|
On
Track Innovations Ltd.
and
Subsidiaries
Notes
to the Interim Unaudited Condensed Consolidated Financial Statements
US
dollars, NIS and Euro in thousands, except share and per share data
Note
3 - Other Receivables and Prepaid Expenses
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
|
|
|
|
|
|
Government institutions
|
|
$
|
261
|
|
|
$
|
414
|
|
Prepaid expenses
|
|
|
230
|
|
|
|
224
|
|
Receivables under contractual obligations to be transferred to others (*)
|
|
|
144
|
|
|
|
330
|
|
Supplier advances
|
|
|
429
|
|
|
|
544
|
|
Other receivables
|
|
|
330
|
|
|
|
310
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,394
|
|
|
$
|
1,822
|
|
|
*
|
The
Company’s subsidiary in Poland is required to collect certain fees that are to be transferred to local authorities.
|
Note
4 - Other Current Liabilities
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
|
|
|
|
|
|
Employees and related expenses
|
|
$
|
602
|
|
|
$
|
613
|
|
Accrued expenses
|
|
|
813
|
|
|
|
887
|
|
Customer advances
|
|
|
109
|
|
|
|
111
|
|
Short-term liabilities due to operating leases and current maturities
|
|
|
847
|
|
|
|
686
|
|
Other current liabilities
|
|
|
103
|
|
|
|
757
|
(*)
|
|
|
$
|
2,474
|
|
|
$
|
3,054
|
|
Note
5 - Short-term and long-term bank loans
On
May 11, 2020, based on Polish government regulations introduced in relation to the COVID-19 pandemic, ASEC S.A. (Spolka Akcyjna),
the Polish subsidiary of the Company (hereinafter – “ASEC”), received the consent of PKO Bank Polski, a Polish
bank (hereinafter – “the Lender”), to postpone the maturity date of a secured loan, provided to ASEC in May
2019, in the amount of $2,000, by six months to November 22, 2020 instead of May 23, 2020, as the loan agreement provided.
The loan will be payable in full on maturity (with the option of early repayment by ASEC) and the interest of 1-month LIBOR plus
1.8% is paid on a monthly basis. The loan agreement includes customary events of default, including, among others, failures to
repay any amounts due to the Lender, breaches or defaults under the terms of the agreement, etc. If an event of default occurs,
the Lender may reduce the amount of the loan, demand additional security or terminate the agreement. This loan is presented as
a short-term bank loan within ‘current liabilities’. ASEC repaid approximately $156 of this loan during the first
half of 2020.
As
part of an additional Polish government assistance, ASEC received a long-term loan in an amount of approximately $800 through
an other Polish bank in June 2020. Depending on some scenarios, such as average number of employees and financial results,
a portion of the loan may be forgiven. The loan will be repaid in 24 monthly equal installments starting in July 2021. This loan
is denominated in Polish Zloty and does not bear interest. This loan is presented as a long-term bank loan within ‘long-term
liabilities’. In the event of breach by ASEC of any of the obligations, as mentioned in the loan agreement, the bank may
terminate such agreement. In such a case, the long-term loan shall become due and payable within 14 business days from receipt
of the notice of termination.
On
Track Innovations Ltd.
and
Subsidiaries
Notes
to the Interim Unaudited Condensed Consolidated Financial Statements
US
dollars, NIS and Euro in thousands, except share and per share data
Note
6 - Leases
The
Company leases a limited number of assets, mainly offices and cars for use in its operations. The Company adopted the accounting
standard ASC 842, “Leases”, and all the related amendments on January 1, 2019 and used the effective date as
Company’s date of initial application.
As
of June 30, 2020, right-of-use assets due to operating leases are $3,837 (as of December 31, 2019 - $2,134) and the liabilities
due to operating leases are $3,785 (as of December 31, 2019 - $2,169), out of which $2,938 are classified as long-term liabilities
and $847 are classified as current liabilities (see Note 4).
The
right-of-use assets and the liabilities due to operating leases as of June 30, 2020, include assets and liabilities in the amount
of $1,741 and $1,736, respectively, that derive from the lease commencement of the headquarters office in Yokne’am, Israel
(in lieu of the previous leased headquarters building in Rosh Pina) in January 2020. The operating lease period of this office
is five years (excluding the extension-period, as mentioned in the agreement). The total annual rent expenses of this building,
including management fees and excluding construction costs-reimbursement payments, is approximately NIS 595 ($172) during the
lease period and approximately NIS 654 ($189) during the extension-period, if extended. The construction costs-reimbursement payments
are approximately NIS 2,913 ($840), out of which 50% will be paid during the lease period. If the Company leases this office during
the extension-period of five years, the rest of the 50% costs-reimbursement payments will be paid during the extension-period.
Otherwise, the rest of the 50% costs-reimbursement payments will be paid at the end of 2024.
The
Company includes renewal options that it is reasonably certain to exercise in the measurement of the lease liabilities. The remaining
operating lease periods of the leases range from less than one year to ten years as of June 30, 2020. The weighted average remaining
lease term is 3.2 years as of June 30, 2020.
The
following is a schedule of the maturities of operating lease liabilities for the next five years as of June 30, 2020, and thereafter,
as were taken into account in the calculation of the operating lease liabilities as of June 30, 2020:
Remainder of 2020
|
|
$
|
538
|
|
2021
|
|
|
1,009
|
|
2022
|
|
|
783
|
|
2023
|
|
|
503
|
|
2024
|
|
|
338
|
|
Thereafter
|
|
|
1,225
|
|
Total leases payments
|
|
|
4,396
|
|
Less - discount
|
|
|
611
|
|
Operating lease liabilities
|
|
$
|
3,785
|
|
As
of June 30, 2020, the weighted average discount rate of the operating leases is approximately 5%.
Operating
lease costs and cash paid during the six months ended June 30, 2020 and 2019, for amounts included in the measurement of the lease
liabilities were approximately $538 and $366, respectively. Operating lease costs and cash paid during the three months ended
June 30, 2020 and 2019, for amounts included in the measurement of the lease liabilities were approximately $276 and $186, respectively.
Operating lease costs include fixed payments and variable payments that depend on an index or rate. There are no other significant
variable lease payments.
The
Company does not have any material leases, individually or in the aggregate, classified as a finance leasing arrangement.
On
Track Innovations Ltd.
and
Subsidiaries
Notes
to the Interim Unaudited Condensed Consolidated Financial Statements
US
dollars, NIS and Euro in thousands, except share and per share data
Note
7 - Commitments and Contingencies
|
1.
|
In
June 2013, prior to the Company’s divestiture of its SmartID division, Merwell Inc. (“Merwell”)
filed a claim against the Company before an agreed-upon arbitrator alleging breach of
contract in connection with certain commissions claimed to be owed to Merwell with respect
to the division’s activities in Tanzania. These activities, along with
all other activities of the SmartID division, were later assigned to and assumed by SuperCom
in its purchase of the division. SuperCom undertook to indemnify the Company and hold
it harmless against any liabilities the Company may incur in connection with Merwell’s
consulting agreement and the arbitration. An arbitration decision was issued on
February 21, 2016, awarding Merwell approximately $855 for outstanding commissions, plus
expenses and legal fees, as well as a right to receive additional information from the
Company regarding an additional engagement period in Tanzania and a right to possibly
receive additional amounts from the Company, if at all, according to the information
that will be provided. The arbitration decision had been appealed and the appeal
was denied on June 17, 2018. In order to collect the award, Merwell filed a motion against
the Company and the Nazareth District Court issued a judgment requiring the Company
to pay Merwell an amount of NIS 5,080 (approximately $1,370) that was paid by the Company
on January 8, 2019. As mentioned above, based on the agreement with SuperCom from April
2016 (which was granted an effect of a court judgment), SuperCom is liable for all the
costs and liabilities arising out of this claim. Since SuperCom failed to pay the Company
the amounts due, in February 2019 the Company initiated an arbitration process to collect
from SuperCom, the amount paid to Merwell, as well as any complementary amounts, as may
be ordered in the future.
|
Despite
the fact that, based on the assessment of the Company’s external legal counsel, the likelihood to succeed in the arbitration
process (or other legal procedure in that matter) is high, the Company did not record an indemnification asset as of June
30, 2020 and December 31, 2019, in accordance with accounting standard ASC 450, “Contingencies”.
|
2.
|
On
June 12, 2019, Merwell submitted a complementary claim against the Company in arbitration,
with respect to the additional financial details that Merwell claims that the Company
was ordered to provide according to the arbitration verdict from February 21, 2016, and
additional payments that Merwell claims that the Company is obligated to pay Merwell.
The said financial details refer to the quantity of smart driving licenses that Merwell
claims were issued in the later period of a project in Tanzania in which Merwell claims
to have provided services to the Company. Merwell claims that despite the Company’s
failure to provide the details, Merwell obtained the details independently from other
sources, and they indicate that the Company is obligated to pay Merwell an additional
amount of approximately $1,618, and there might be additional amounts to be claimed in
the future, as additional information might be found from time to time. On March 4, 2020,
the Company submitted a response to this complementary claim, rejecting Merwell’s
claims. As mentioned above, the Company is conducting in parallel a separate arbitration
process against SuperCom in that matter, as the Company deems SuperCom to be liable for
all the costs and liabilities arising out of this claim. Based on the assessment of the
Company’s external legal counsel, given the preliminary stage of the procedure, it is
difficult, at this point, to estimate the chances of Merwell’s claims for a complementary
arbitration verdict.
|
On
Track Innovations Ltd.
and
Subsidiaries
Notes
to the Interim Unaudited Condensed Consolidated Financial Statements
US
dollars, NIS and Euro in thousands, except share and per share data
Note
7 - Commitments and Contingencies (cont’d)
|
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 $1,680) 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 ($56) plus interest in damages plus another approximately €5
($6) in other fees and penalties. The Company offered to pay the amounts mentioned above
to the plaintiff in consideration for not filing future appeals. The plaintiff rejected
this offer and filed an appeal against Parx France and the Company claiming the sum of
€503 ($563) plus interest and expenses. On November 7, 2019, the Company’s
external legal counsel concluded that the appeal was inadmissible, and that it believed
that the opposing claims would be dismissed. The appeal hearing was scheduled for April
21, 2021. Based on the assessment of the Company’s external legal counsel, the Company’s
management is of the opinion that the chances of the appeal being approved against the
Company are low.
|
|
4.
|
In
July 2019, the Company received a request (the “Request”), to allow a petitioner
to submit a class action, which concerns the petitioner’s claims that, inter alia, through
the EasyPark card, drivers are permitted to exceed the quota of permitted hours in accordance
with the instructions of various local authorities in Israel. The Request was submitted
against a company incorporated by the buyer of the assets (including the parking activity)
of the Israeli subsidiaries of the Company (the “Company’s Subsidiaries”)
and against two other companies that operate technological means for payment for public
parking spaces scattered throughout the cities. Since the majority of potential claims
against the Company’s Subsidiaries relate to the period following the sale of the
Company’s Subsidiaries’ assets, including the parking activity, it appears
that the Company’s exposure through this channel is limited. Furthermore, even if payment
will be required, the buyer would be liable for the majority of such payment. Therefore
the Company will not participate in such procedure at this stage. Based on the assessment
of the Company’s external legal counsel, the Company’s management is of the opinion
that the exposure of the Company is low.
|
|
5.
|
During
the year ended December 31, 2017, the Company recorded income of approximately $1,600
based on a judgment issued by the Israeli Central District Court regarding the Company’s
lawsuit against Harel Insurance Company Ltd. (“Harel”) for damages incurred
by the Company due to flooding in a subcontractor’s manufacturing site in 2011.
The judgment determined that this amount of $1,600, net be awarded to cover the Company’s
damages. On October 10, 2017, Harel submitted its appeal of the judgment to the Israeli
Supreme Court as well as a request for stay of judgment.
|
On
Track Innovations Ltd.
and
Subsidiaries
Notes
to the Interim Unaudited Condensed Consolidated Financial Statements
US
dollars, NIS and Euro in thousands, except share and per share data
Note
7 - Commitments and Contingencies (cont’d)
On January 26, 2020, Harel and
the Company agreed to the offer of the Israeli Supreme Court, as made by way of settlement in which the Company will pay back to
Harel the sum of NIS 1,907 (approximately $553) in three monthly equal installments starting February 26, 2020. Accordingly, the
Company recorded loss of $71 and $482 within the net loss from continuing operations and within the net loss from discontinued
operations, respectively, in the fourth quarter of 2019. As of June 30, 2020, the Company paid all the settlement amount.
|
6.
|
Regarding an additional legal claim, see Note 1C(1).
|
As
of June 30, 2020, the Company has granted performance guarantees and guarantees to secure customer advances in the sum of $495.
The expiration dates of these guarantees range from January 2021 to September 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
8 - Revenues
Disaggregation
of revenue
The
following tables disaggregate the Company’s revenue by major source based on categories that depict its nature and timing
as reviewed by management for the three months ended June 30, 2020 and 2019:
|
|
Three months ended June 30,
|
|
|
|
2020
|
|
|
|
Retail and
Mass Transit
Ticketing
|
|
|
Petroleum
|
|
|
Total
|
|
Cashless payment products (A)
|
|
$
|
1,843
|
|
|
$
|
-
|
|
|
$
|
1,843
|
|
Complete cashless payment solutions (B):
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales of products (B1)
|
|
|
1,799
|
|
|
|
304
|
|
|
|
2,103
|
|
Licensing fees, transaction fees and services (B2)
|
|
|
730
|
|
|
|
177
|
|
|
|
907
|
|
|
|
|
2,529
|
|
|
|
481
|
|
|
|
3,010
|
|
Total revenues
|
|
$
|
4,372
|
|
|
$
|
481
|
|
|
$
|
4,853
|
|
|
|
Three months ended June 30,
|
|
|
|
2019
|
|
|
|
Retail and
Mass Transit
Ticketing
|
|
|
Petroleum
|
|
|
Total
|
|
Cashless payment products (A)
|
|
$
|
1,901
|
|
|
$
|
-
|
|
|
$
|
1,901
|
|
Complete cashless payment solutions (B):
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales of products (B1)
|
|
|
460
|
|
|
|
331
|
|
|
|
791
|
|
Licensing fees, transaction fees and services (B2)
|
|
|
1,116
|
|
|
|
308
|
|
|
|
1,424
|
|
|
|
|
1,576
|
|
|
|
639
|
|
|
|
2,215
|
|
Total revenues
|
|
$
|
3,477
|
|
|
$
|
639
|
|
|
$
|
4,116
|
|
On
Track Innovations Ltd.
and
Subsidiaries
Notes
to the Interim Unaudited Condensed Consolidated Financial Statements
US
dollars, NIS and Euro in thousands, except share and per share data
Note
8 - Revenues (cont’d)
Disaggregation
of revenue (cont’d)
The
following tables disaggregate the Company’s revenue by major source based on categories that depict its nature and timing
as reviewed by management for the six months ended June 30, 2020 and 2019:
|
|
Six months ended June 30,
|
|
|
|
2020
|
|
|
|
Retail and
Mass Transit
Ticketing
|
|
|
Petroleum
|
|
|
Total
|
|
Cashless payment products (A)
|
|
$
|
4,312
|
|
|
$
|
-
|
|
|
$
|
4,312
|
|
Complete cashless payment solutions (B):
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales of products (B1)
|
|
|
2,113
|
|
|
|
875
|
|
|
|
2,988
|
|
Licensing fees, transaction fees and services (B2)
|
|
|
1,600
|
|
|
|
404
|
|
|
|
2,004
|
|
|
|
|
3,713
|
|
|
|
1,279
|
|
|
|
4,992
|
|
Total revenues
|
|
$
|
8,025
|
|
|
$
|
1,279
|
|
|
$
|
9,304
|
|
|
|
Six months ended June 30,
|
|
|
|
2019
|
|
|
|
Retail and
Mass Transit
Ticketing
|
|
|
Petroleum
|
|
|
Total
|
|
Cashless payment products (A)
|
|
$
|
2,740
|
|
|
$
|
-
|
|
|
$
|
2,740
|
|
Complete cashless payment solutions (B):
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales of products (B1)
|
|
|
597
|
|
|
|
836
|
|
|
|
1,433
|
|
Licensing fees, transaction fees and services (B2)
|
|
|
2,333
|
|
|
|
623
|
|
|
|
2,956
|
|
|
|
|
2,930
|
|
|
|
1,459
|
|
|
|
4,389
|
|
Total revenues
|
|
$
|
5,670
|
|
|
$
|
1,459
|
|
|
$
|
7,129
|
|
On
Track Innovations Ltd.
and
Subsidiaries
Notes
to the Interim Unaudited Condensed Consolidated Financial Statements
US
dollars, NIS and Euro in thousands, except share and per share data
Note
8 - Revenues (cont’d)
Performance
obligations
Below
is a listing of performance obligations for the Company’s main revenue streams:
|
A.
|
Cashless
payment products –
|
The
performance obligation is the selling of contactless payment products. Most of those products are Near Field Communication (NFC)
readers. For such sales the performance obligation, transfer of control and revenue recognition occur when the products are delivered.
|
B.
|
Complete
cashless payment solutions –
|
The
complete solution includes selling of products and complementary services, as follows:
|
●
|
Selling
of contactless payment products (see A above) together with payment gateways and machine-to-machine
controllers.
|
|
●
|
Selling
of petroleum payment solutions including site and vehicle equipment.
|
For
such sales, the performance obligation, transfer of control and revenue recognition occur when the products are delivered.
|
2.
|
Licensing
fees, transaction fees and services -
|
The
types of arrangements and their main performance obligations are as follows:
|
●
|
To
provide terminal management system licensing for software that is responsible for remote
terminal management and cloud-based software licensing which provide data insights. For
such services, the revenue recognition occurs as the services are rendered since the
performance obligation is satisfied over time.
|
|
●
|
To
enable loading and sale of electronic contactless and paper cards. For such transaction
fees, the revenue recognition occurs on the transaction date.
|
|
●
|
To
provide technical and customer services for products. For such services, the performance
obligation is satisfied over time and therefore revenue recognition occurs as the services
are rendered.
|
The
Company includes a warranty in connection with certain contracts with customers, which are not considered to be separate performance
obligations. The cost to the Company of this warranty is insignificant.
Contract
balances
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
Trade receivables, net of allowance for doubtful accounts
|
|
$
|
2,291
|
|
|
$
|
2,430
|
|
Customer advances
|
|
$
|
109
|
|
|
$
|
111
|
|
Accounts
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
8 - 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
9 - Discontinued operations
As
described in Note 1C, the Company divested its interest in the SmartID division and its Medismart activity, and presented these
activities as discontinued operations.
Set
forth below are the results of the discontinued operations:
|
|
Three months ended
June 30,
|
|
|
Six months ended
June 30,
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
Revenues
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Expenses
|
|
|
(32
|
)
|
|
|
(50
|
)
|
|
|
(43
|
)
|
|
|
(243
|
)
|
Net loss from discontinued operations
|
|
$
|
(32
|
)
|
|
$
|
(50
|
)
|
|
$
|
(43
|
)
|
|
$
|
(243
|
)
|
Note
10 - 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.
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 - Fair Value of Financial Instruments (cont’d)
The
Company, in estimating fair value for financial instruments, determined that the carrying amounts of cash and cash equivalents,
trade receivables, short-term bank credit and trade payables are equivalent to, or approximate their fair value due to the short-term
maturity of these instruments.
The
carrying amounts of variable interest rate long-term loans are equivalent or approximate to their fair value as they bear interest
at approximate market rates. Regarding the long-term loan that does not bear any interest (see Note 5), taking into account the
schedule of its maturities, its amount and the relatively current low market rates, the difference between its carrying amount
and its fair value is insignificant.
As
of June 30, 2020, the Company held approximately $1,805 of short-term bank deposits (as of December 31, 2019, $2,305). As of June
30, 2020 and December 31, 2019, short-term deposit in the amount of $105 has been pledged as security in respect of guarantees
granted and cannot be pledged to others or withdrawn without the consent of the bank.
Note
11 - Equity
On
December 23, 2019, the Company entered into a share purchase agreement (hereinafter – the “Agreement”) with
Jerry L Ivy, Jr. Descendants Trust (hereinafter - “Ivy”) and two other investors (collectively together with Ivy –
“Investors”). The Agreement relates to a private placement of an aggregate of up to 12,500,000 ordinary shares of
the Company for aggregate gross proceeds to the Company of up to $2,500.
As
part of this Agreement, in December 2019 and January 2020, the Company issued 5,460,000 and 1,040,000 ordinary shares, respectively,
for aggregate gross proceed of $1,092 and $208, respectively. The issuance costs were approximately $111 during the second half
of 2019. The issuance costs in the three months ended March 31, 2020 were $8. Under the terms of the Agreement and following the
issuance of those shares, the Company appointed one representative to its Board of Directors, designated by Ivy. Also, pursuant
to the Agreement, Ivy has a right to purchase any future equity securities offered by the Company, except with respect to certain
exempt issuances as set forth in the Agreement.
The
issuance of the remaining 6,000,000 ordinary shares (hereinafter – the “Subsequent Closing”) for aggregate gross
proceeds of $1,200 took place in April 2020, following the approval by the Company’s shareholders on April 14, 2020, of
the resolutions detailed below, that were required for the consummation of the Subsequent Closing under the Agreement and the
applicable law: (i) an increase in the number of the ordinary shares authorized for issuance from 50,000,000 to 100,000,000; (ii)
the issuance of the ordinary shares to Ivy following which Ivy will hold 25% or more of the total voting rights at general meetings
of the shareholders of the Company; and (iii) the election of the representative designated by Ivy to the Company’s Board
of Directors.
The
issuance costs in the three months ended June 30, 2020 were $31.
In
addition, pursuant to the terms of the Agreement, on May 5, 2020, after the consummation of the Subsequent Closing, the Company’s
Board of Directors appointed an additional representative designated by Ivy. The appointment of such designee shall remain valid
through the next general meeting of the Company’s shareholders or as set forth in the Articles of Association of the Company.
On
Track Innovations Ltd.
and
Subsidiaries
Notes
to the Interim Unaudited Condensed Consolidated Financial Statements
US
dollars, NIS and Euro in thousands, except share and per share data
Note
11 - Equity (cont’d)
During
each of the six month periods ended June 30, 2020 and June 30, 2019, 814,000 and 130,000 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, 2020 and June 30, 2019 are $0.24 and $0.67, 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, 2020 and June 30, 2019 was
estimated on the date of grant, using the Black-Scholes model and the following assumptions:
|
|
Six months ended
June 30,
|
|
|
|
2020
|
|
|
2019
|
|
Expected dividend yield
|
|
|
0
|
%
|
|
|
0
|
%
|
Expected volatility
|
|
|
107
|
%
|
|
|
79
|
%
|
Risk-free interest rate
|
|
|
0.36
|
%
|
|
|
2.41
|
%
|
Expected life - in years
|
|
|
2.49
|
|
|
|
2.44
|
|
|
1.
|
Dividend
yield of zero percent for all periods.
|
|
2.
|
Expected
average volatility represents a weighted average standard deviation rate for the price
of the Company’s ordinary shares on Nasdaq and on the OTCQX market, as applicable.
|
|
3.
|
Risk-free
interest rate is based on the U.S. Treasury yield curve in effect at the time of grant.
|
|
4.
|
Estimated
expected lives are based on historical grants data.
|
The
Company’s options activity (including options to non-employees) and options outstanding and options exercisable as of December
31, 2019 and June 30, 2020, are summarized in the following table:
|
|
Number of
options
outstanding
|
|
|
Weighted
average exercise
price per share
|
|
Outstanding – December 31, 2019
|
|
|
809,000
|
|
|
$
|
0.93
|
|
Options granted
|
|
|
814,000
|
|
|
|
0.24
|
|
Options expired or forfeited
|
|
|
(30,000
|
)
|
|
|
0.86
|
|
Outstanding – June 30, 2020
|
|
|
1,593,000
|
|
|
|
0.58
|
|
Exercisable as of:
|
|
|
|
|
|
|
|
|
December 31, 2019
|
|
|
505,657
|
|
|
$
|
1.06
|
|
June 30, 2020
|
|
|
510,657
|
|
|
$
|
1.04
|
|
The
weighted average fair value of options granted during the six months ended June 30, 2020 and during the six months ended June
30, 2019 is $0.12 and $0.24, respectively, per option. The aggregate intrinsic value of outstanding options as of June 30, 2020
and December 31, 2019 is approximately $228 and zero, respectively. The aggregate intrinsic value of exercisable options as of
June 30, 2020 and December 31, 2019 is zero.
On
Track Innovations Ltd.
and
Subsidiaries
Notes
to the Interim Unaudited Condensed Consolidated Financial Statements
US
dollars, NIS and Euro in thousands, except share and per share data
Note
11 - Equity (cont’d)
|
B.
|
Stock
option plans (cont’d)
|
The
following table summarizes information about options outstanding and exercisable (including options to non-employees) as of June
30, 2020:
|
|
Options outstanding
|
|
|
Options exercisable
|
|
|
|
Number
|
|
|
Weighted
|
|
|
|
|
|
Number
|
|
|
Weighted
|
|
|
|
|
|
|
Outstanding
|
|
|
average
|
|
|
Weighted
|
|
|
Outstanding
|
|
|
average
|
|
|
Weighted
|
|
|
|
as of
|
|
|
remaining
|
|
|
Average
|
|
|
As of
|
|
|
remaining
|
|
|
Average
|
|
Range of
|
|
June 30,
|
|
|
contractual
|
|
|
Exercise
|
|
|
June 30,
|
|
|
contractual
|
|
|
Exercise
|
|
exercise price ($)
|
|
2020
|
|
|
life (years)
|
|
|
Price
|
|
|
2020
|
|
|
life (years)
|
|
|
Price
|
|
0.28-0.90
|
|
|
1,127,000
|
|
|
|
4.26
|
|
|
|
0.34
|
|
|
|
120,995
|
|
|
|
1.35
|
|
|
|
0.76
|
|
1.07-1.68
|
|
|
466,000
|
|
|
|
1.84
|
|
|
|
1.14
|
|
|
|
389,662
|
|
|
|
1.73
|
|
|
|
1.13
|
|
|
|
|
1,593,000
|
|
|
|
3.55
|
|
|
|
|
|
|
|
510,657
|
|
|
|
1.64
|
|
|
|
|
|
As
of June 30, 2020, 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, 2020 and June 30, 2019, the Company recorded stock-based compensation expenses in the amount of
$16 and $44, respectively, in accordance with ASC 718, “Compensation-Stock Compensation”.
During
the six months ended June 30, 2020 and June 30, 2019, the Company recorded stock-based compensation expenses in the amount of
$28 and $90, respectively, in accordance with ASC 718, “Compensation-Stock Compensation”.
|
C.
|
Stock
options and warrants in the amounts of 1,593,000 and 1,417,332 outstanding as of June 30, 2020 and 2019, respectively, have been
excluded from the calculation of the diluted net loss per ordinary share because all such securities have an anti-dilutive effect
for all periods presented.
|
|
D.
|
Shares
to non-employees
|
There
were no grants to non-employees during the six months ended June 30, 2020.
During
the six months ended June 30, 2019, the Company granted 30,000 ordinary shares to its consultants. The expenses that are recognized
due to those grants are immaterial and are presented within ‘stock-based compensation’ in the statement of changes
in equity for the six months ended June 30, 2019.
On
Track Innovations Ltd.
and
Subsidiaries
Notes
to the Interim Unaudited Condensed Consolidated Financial Statements
US
dollars, NIS and Euro in thousands, except share and per share data
Note
12 - Operating segments
For
the purposes of allocating resources and assessing performance in order to improve profitability, the Company’s chief operating
decision maker (“CODM”) examines two segments which are the Company’s strategic business units: (1) Retail and Mass
Transit Ticketing; and (2) Petroleum.
Information
regarding the results of each reportable segment is included below based on the internal management reports that are reviewed
by the CODM.
|
|
Three months ended June 30, 2020
|
|
|
|
Retail and
Mass Transit
Ticketing
|
|
|
Petroleum
|
|
|
Total
|
|
Revenues
|
|
$
|
4,372
|
|
|
$
|
481
|
|
|
$
|
4,853
|
|
Reportable segment gross profit *
|
|
|
1,812
|
|
|
|
264
|
|
|
|
2,076
|
|
Reconciliation of reportable segment gross profit to gross profit for the period
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
|
|
|
|
|
|
|
|
(187
|
)
|
Stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
(1
|
)
|
Gross profit for the period in the consolidated financial statement
|
|
|
|
|
|
|
|
|
|
$
|
1,888
|
|
|
|
Three months ended June 30, 2019
|
|
|
|
Retail and
Mass Transit
Ticketing
|
|
|
Petroleum
|
|
|
Total
|
|
Revenues
|
|
$
|
3,477
|
|
|
$
|
639
|
|
|
$
|
4,116
|
|
Reportable segment gross profit *
|
|
|
2,123
|
|
|
|
450
|
|
|
|
2,573
|
|
Reconciliation of reportable segment gross profit to gross profit for the period
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
|
|
|
|
|
|
|
|
(198
|
)
|
Stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
(1
|
)
|
Gross profit for the period in the consolidated financial statement
|
|
|
|
|
|
|
|
|
|
$
|
2,374
|
|
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 - Operating segments (cont’d)
|
|
Six months ended June 30, 2020
|
|
|
|
Retail and
Mass Transit
Ticketing
|
|
|
Petroleum
|
|
|
Total
|
|
Revenues
|
|
$
|
8,025
|
|
|
$
|
1,279
|
|
|
$
|
9,304
|
|
Reportable segment gross profit *
|
|
|
3,857
|
|
|
|
587
|
|
|
|
4,444
|
|
Reconciliation of reportable segment gross profit to gross profit for the period
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
|
|
|
|
|
|
|
|
(376
|
)
|
Stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
(2
|
)
|
Gross profit for the period in the consolidated financial statement
|
|
|
|
|
|
|
|
|
|
$
|
4,066
|
|
|
|
Six months ended June 30, 2019
|
|
|
|
Retail and
Mass Transit
Ticketing
|
|
|
Petroleum
|
|
|
Total
|
|
Revenues
|
|
$
|
5,670
|
|
|
$
|
1,459
|
|
|
$
|
7,129
|
|
Reportable segment gross profit *
|
|
|
3,621
|
|
|
|
796
|
|
|
|
4,417
|
|
Reconciliation of reportable segment gross profit to gross profit for the period
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
|
|
|
|
|
|
|
|
(398
|
)
|
Stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
(2
|
)
|
Gross profit for the period in the consolidated financial statement
|
|
|
|
|
|
|
|
|
|
$
|
4,017
|
|
|
*
|
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:
|
●
|
any
impact of the Corona Virus, or COVID-19, pandemic on our business, including continued decrease in the Mass Transit Ticketing
activity in Poland;
|
|
●
|
future
sources of revenue, ongoing relationships with current and future business partners, distributors, suppliers, customers, end-user
customers and resellers;
|
|
●
|
future
costs and expenses and adequacy of capital resources;
|
|
●
|
our
expectations regarding our short-term and long-term capital requirements and satisfaction thereof;
|
|
●
|
our
outlook for the coming months;
|
|
●
|
information
with respect to any other plans and strategies for our business; and
|
|
●
|
our
expectation to close transactions related to our Retail business with potential customers.
|
The
factors discussed herein, and in those risk factors expressed below and from time to time in our press releases or filings with
the Securities and Exchange Commission, or the SEC, could cause actual results and developments to be materially different from
those expressed in or implied by such statements. Readers are cautioned not to place undue reliance on these forward-looking statements,
which speak and are made only as of the date of this filing.
Our
business and operations are subject to substantial risks, which increase the uncertainty inherent in the forward-looking statements
contained in this Quarterly Report. Except as required by law, we undertake no obligation to release publicly the result
of any revision to these forward-looking statements that may be made to reflect events or circumstances after the date hereof
or to reflect the occurrence of unanticipated events. Further information on potential factors that could affect our business
is described among others under the heading “Risk Factors” below and in Part I, Item 1A of our Annual Report on Form
10-K for the fiscal year ended December 31, 2019 filed with the SEC. Readers are also urged to carefully review and consider
the various disclosures we have made in that report.
As
used in this Quarterly Report, the terms “we”, “us”, “our”, “the Company”, and “OTI”
mean On Track Innovations Ltd. and our subsidiaries, unless otherwise indicated or as otherwise required by the context.
All
figures in this Quarterly Report are stated in United States dollars, unless otherwise specified herein.
Overview
We
are a fintech pioneer and a leading developer of cutting-edge secure cashless payment solutions providing global enterprises with
innovative technology for three decades. We operate in two main segments: (1) Retail and Mass Transit Ticketing; and (2) Petroleum.
Our
vision is to strengthen our global presence with innovative solutions and provide our customers with the best possible support
in superior service and reliable advanced products.
Our
intellectual property, or IP, portfolio includes registered patents and patent applications worldwide. Since our incorporation
in 1990, we have built an international reputation for reliability and innovation, deploying many solutions for unattended retail,
mass transit, banking, Internet of Payment Things and the petroleum management industries.
We
operate a global network of regional offices, distributors and partners to support various solutions deployed across the globe.
We
focus on our core business of providing innovative cashless payment solutions based, among other things, on our innovative contactless
NFC technology.
This
discussion and analysis should be read in conjunction with our interim condensed consolidated financial statements and notes thereto
contained in “Item 1. Financial Statements” of this Quarterly Report and our Annual Report on Form 10-K for the fiscal
year ended December 31, 2019 filed with the SEC.
Results
of Operations
Discontinued
operations. In December 2018, we completed the sale of our MediSmart activities (most of which is attributed to our former
“Other” segment) to Smart Applications International Limited. In December 2013, we completed the sale of certain assets,
certain subsidiaries and IP directly related to our SmartID division. The results from such operations and the cash flow for the
reporting periods are presented in the statements of operations and in the statements of cash flows, respectively, as discontinued
operations separately from continuing operations. All the data in this Quarterly Report that are derived from our financial statements,
unless otherwise specified, exclude the results of those discontinued operations.
Three
months ended June 30, 2020, compared to the three months ended June 30, 2019
Sources
of Revenue
We
derive our revenues from the sale of our products, including both complete systems and original equipment manufacturer components,
licensing and transaction fees and also less significantly, from engineering services, customer services and technical support.
During the three months ended June 30, 2020 and June 30, 2019, the revenues that we derived from sales and licensing and transaction
fees were as follows (in thousands):
|
|
Three months ended
June 30,
|
|
|
|
2020
|
|
|
2019
|
|
Sales
|
|
$
|
3,998
|
|
|
$
|
2,933
|
|
Licensing and transaction fees
|
|
$
|
855
|
|
|
$
|
1,183
|
|
Total revenues
|
|
$
|
4,853
|
|
|
$
|
4,116
|
|
Sales. Sales
increased by $1,065,000, or 36%, in the three months ended June 30, 2020, compared to the three months ended June 30, 2019.
The increase is mainly attributed to an increase in sales in Asia-Pacific region, or APAC, and Europe, partially offset by a
decrease in sales of Petroleum products in Africa. Such decrease is attributed to certain sales that were planned to occur at
the second quarter of 2020 and were postponed to the second half of 2020 as a result of the extended lockdown in South
Africa.
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, 2020, compared to the three months ended June 30, 2019, decreased by $328,000, or 28%. The decrease is mainly
attributed to a decrease in Mass Transit Ticketing sales in the Polish market as a result of the impact of the COVID-19
pandemic that is expected to continue for the foreseeable future, partially offset by an increase in our licensing fees in Europe and the United States.
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, 2020 and June 30, 2019:
Three months ended June 30,
|
|
Africa
|
|
|
Europe
|
|
|
APAC
|
|
|
Americas
|
|
2020
|
|
$
|
237
|
|
|
|
5
|
%
|
|
$
|
2,144
|
|
|
|
44
|
%
|
|
$
|
1,662
|
|
|
|
34
|
%
|
|
$
|
810
|
|
|
|
17
|
%
|
2019
|
|
$
|
500
|
|
|
|
12
|
%
|
|
$
|
2,272
|
|
|
|
55
|
%
|
|
$
|
475
|
|
|
|
12
|
%
|
|
$
|
869
|
|
|
|
21
|
%
|
Our
revenues from sales in Africa decreased by $263,000, or 53%, in the three months ended June 30, 2020, compared to the three months
ended June 30, 2019, mainly due to a decrease in sales of Petroleum products due to certain sales that were planned to occur at
the second quarter of 2020 and were postponed to the second half of 2020 as a result of the extended lockdown in South Africa
due to the COVID-19 pandemic.
Our
revenues from sales in Europe decreased by $128,000, or 6%, in the three months ended June 30, 2020, compared to the three months
ended June 30, 2019, mainly due to a decrease in Mass Transit sales in the Polish market as a result of the impact of
COVID-19, partially offset by an increase in Retail sales.
Our
revenues from sales in APAC increased by $1.2 million, or 250%, in the three months ended June 30, 2020, compared to the three
months ended June 30, 2019, mainly due to an increase in Retail sales.
Our
revenues from sales in Americas in the three months ended June 30, 2020, compared to the three months ended June 30, 2019, remained
consistent.
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, 2020 and June 30, 2019:
Three months ended June 30,
|
|
Retail and Mass
Transit Ticketing
|
|
|
Petroleum
|
|
2020
|
|
$
|
4,372
|
|
|
|
90
|
%
|
|
$
|
481
|
|
|
|
10
|
%
|
2019
|
|
$
|
3,477
|
|
|
|
84
|
%
|
|
$
|
639
|
|
|
|
16
|
%
|
Our
revenues from Retail and Mass Transit Ticketing in the three months ended June 30, 2020 increased by $895,000, or 26%, compared
to the three months ended June 30, 2019, mainly attributed to an increase in Retail sales in the APAC and European markets, partially
offset by a decrease in Mass Transit Ticketing sales in the Polish market as a result of the impact of COVID-19.
Our
revenues from Petroleum in the three months ended June 30, 2020 decreased by $158,000, or 25%, compared to the three months ended
June 30, 2019, mainly due to some sales that were planned to occur at the second quarter of 2020 and were postponed to the second
half of 2020 as a result of the extended lockdown in South Africa due to the COVID-19 pandemic.
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, 2020 and June 30,
2019 were as follows (dollar amounts in thousands):
|
|
Three months ended
June 30,
|
|
Cost of revenues
|
|
2020
|
|
|
2019
|
|
Cost of sales
|
|
$
|
2,965
|
|
|
$
|
1,742
|
|
Gross profit
|
|
$
|
1,888
|
|
|
$
|
2,374
|
|
Gross margin percentage
|
|
|
39
|
%
|
|
|
58
|
%
|
Cost
of sales. Cost of sales consists primarily of materials, as well as salaries, fees to subcontractors and related costs
of our technical staff that assemble our products. The increase of $1.2 million, or 70%, in the three months ended June 30, 2020,
compared to the three months ended June 30, 2019, resulted primarily from the increase in revenues mainly attributed to the increase
in Retail sales in APAC and Europe.
Gross
margin. The decrease in gross margin in the three months ended June 30, 2020, compared to the three months ended June 30,
2019, is mainly attributed to a change in our revenue mix and attributed to the decrease in Mass Transit Ticketing sales in the
Polish market as a result of the impact of COVID-19.
Operating
expenses
Our
operating expenses in the three months ended June 30, 2020 and June 30, 2019 were as follows (in thousands):
|
|
Three months ended
June 30,
|
|
Operating expenses
|
|
2020
|
|
|
2019
|
|
Research and development
|
|
$
|
904
|
|
|
$
|
817
|
|
Selling and marketing
|
|
$
|
1,193
|
|
|
$
|
1,320
|
|
General and administrative
|
|
$
|
775
|
|
|
$
|
1,046
|
|
Total operating expenses
|
|
$
|
2,872
|
|
|
$
|
3,183
|
|
Research
and development. Our research and development expenses consist primarily of the salaries and related expenses of our
research and development staff, as well as subcontracting expenses. The increase of $87,000, or 11%, in the three months
ended June 30, 2020, compared to the three months ended June 30, 2019, is primarily attributed to an increase in subcontracting
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, participation in exhibitions and tradeshows and a change in allowance for doubtful accounts. The decrease
of $127,000, or 10%, in the three months ended June 30, 2020, compared to the three months ended June 30, 2019, is primarily attributed
to a decrease in marketing and advertising expenses, a decrease in employment expenses and a decrease in exhibition and traveling
as a result of the impact of COVID-19.
General
and administrative. Our general and administrative expenses consist primarily of salaries and related expenses of our
executive management and financial and administrative staff. These expenses also include costs of our professional advisors (such
as legal and accounting), office expenses and insurance. The decrease of $271,000, or 26%, in the three months ended June 30,
2020, compared to the three months ended June 30, 2019, is primarily attributed to a decrease in employment expenses.
Financing
expenses, net
Our
financing expenses, net, in the three months ended June 30, 2020 and June 30, 2019 were as follows (in thousands):
|
|
Three months ended
June 30,
|
|
|
|
2020
|
|
|
2019
|
|
Financing expenses, net
|
|
$
|
(123
|
)
|
|
$
|
(37
|
)
|
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, of $86,000, or 232%, in the three months ended June 30, 2020, compared to the three months ended June 30, 2019, is mainly
due to an exchange rate differential.
Net
loss from continuing operations
Our
net loss from continuing operations in the three months ended June 30, 2020 and June 30, 2019 was as follows (in thousands):
|
|
Three months ended
June 30,
|
|
|
|
2020
|
|
|
2019
|
|
Net loss from continuing operations
|
|
$
|
(1,091
|
)
|
|
$
|
(849
|
)
|
The
increase in the net loss from continuing operations of $242,000, or 29%, in the three months ended June 30, 2020, compared
to the three months ended June 30, 2019, is mainly due to an increase in our cost of sales and an increase in our financial expenses,
net, partially offset by an increase in our sales and a decrease in our operating expenses.
Net
loss from discontinued operations
Our
net loss from discontinued operations in the three months ended June 30, 2020 and June 30, 2019 was as follows (in thousands):
|
|
Three months ended
June 30,
|
|
|
|
2020
|
|
|
2019
|
|
Net loss from discontinued operations
|
|
$
|
(32
|
)
|
|
$
|
(50
|
)
|
Our
net losses from discontinued operations for the reporting periods are presented in the statements of operations as
discontinued operations separately from continuing operations. The decrease in the net loss from discontinued operations of $18,000, or 36%, in the three months ended June 30, 2020, compared to the three months ended June 30, 2019, is
mainly due to a decrease in expenses relating to legal proceedings.
Net
loss
Our
net loss in the three months ended June 30, 2020 and June 30, 2019 was as follows (in thousands):
|
|
Three months ended
June 30,
|
|
|
|
2020
|
|
|
2019
|
|
Net loss
|
|
$
|
(1,123
|
)
|
|
$
|
(899
|
)
|
The
increase in net loss of $224,000 or 25%, in the three months ended June 30, 2020, compared to the three months ended June 30,
2019, is mainly due to an increase in our cost of sales and an increase in our financial expenses, net, partially offset by an
increase in our sales and a decrease in our operating expenses.
Six
months ended June 30, 2020 compared to six months ended June 30, 2019
Sources
of Revenue
During
the six months ended June 30, 2020 and June 30, 2019, the revenues that we derived from sales and licensing and transaction fees
were as follows (in thousands):
|
|
Six months ended
June 30,
|
|
|
|
2020
|
|
|
2019
|
|
Sales
|
|
$
|
7,394
|
|
|
$
|
4,655
|
|
Licensing and transaction fees
|
|
$
|
1,910
|
|
|
$
|
2,474
|
|
Total revenues
|
|
$
|
9,304
|
|
|
$
|
7,129
|
|
Sales.
Sales increased by $2.7 million, or 59%, in the six months ended June 30, 2020, compared to the six months ended June 30,
2019. The increase is mainly attributed to an increase in Retail sales in APAC, the United States and Europe.
Licensing
and transaction fees. Our licensing and transaction fees in the six months ended June 30, 2020, compared to the six months
ended June 30, 2019, decreased by $564,000, or 23%, mainly attributed to a decrease in Mass Transit Ticketing sales in the Polish
market as a result of the impact of the COVID-19 pandemic, partially offset by an increase in our licensing fees
in Europe. The decrease in Mass Transit Ticketing sales compared to 2019 is expected to continue for the foreseeable future as
a result of the impact of the COVID-19 pandemic.
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, 2020 and June 30, 2019:
Six months ended June 30,
|
|
Africa
|
|
|
Europe
|
|
|
APAC
|
|
|
Americas
|
|
2020
|
|
$
|
754
|
|
|
|
8
|
%
|
|
$
|
4,110
|
|
|
|
44
|
%
|
|
$
|
1,875
|
|
|
|
20
|
%
|
|
$
|
2,565
|
|
|
|
28
|
%
|
2019
|
|
$
|
1,035
|
|
|
|
15
|
%
|
|
$
|
3,918
|
|
|
|
55
|
%
|
|
$
|
667
|
|
|
|
9
|
%
|
|
$
|
1,509
|
|
|
|
21
|
%
|
Our
revenues from sales in Africa decreased by $281,000, or 27%, in the six months ended June 30, 2020, compared to the six months
ended June 30, 2019, mainly due to a decrease in sales of Petroleum products due to some sales that were planned to occur at the
second quarter of 2020 and were postponed to the second half of 2020 as a result of the extended lockdown in South Africa due
to the COVID-19 pandemic.
Our
revenues from sales in Europe increased by $192,000, or 5%, in the six months ended June 30, 2020, compared to the six months
ended June 30, 2019, mainly due to an increase in Retail sales, partially offset by a decrease in Mass Transit sales
in the Polish market as a result of the impact of COVID-19.
Our
revenues from sales in APAC increased by $1.2 million, or 181%, in the six months ended June 30, 2020, compared to the six months
ended June 30, 2019, mainly due to an increase in Retail sales.
Our
revenues from sales in Americas increased by $1.1 million, or 70%, in the six months ended June 30, 2020, compared to the six
months ended June 30, 2019, mainly due to an increase in Retail sales to the U.S. market.
Our
revenues derived from outside the United States are primarily received in currencies other than the U.S. dollar and accordingly
have a varying impact upon our total revenues as a result of fluctuations in exchange rates.
The
following table sets forth our revenues by dollar amount (in thousands) and as a percentage of revenues by segments, during the
six months ended June 30, 2020 and June 30, 2019:
Six months ended June 30,
|
|
Retail and Mass
Transit Ticketing
|
|
|
Petroleum
|
|
2020
|
|
$
|
8,025
|
|
|
|
86
|
%
|
|
$
|
1,279
|
|
|
|
14
|
%
|
2019
|
|
$
|
5,670
|
|
|
|
80
|
%
|
|
$
|
1,459
|
|
|
|
20
|
%
|
Our
revenues from Retail and Mass Transit Ticketing in the six months ended June 30, 2020 increased by $2.4 million, or 42%, compared
to the six months ended June 30, 2019, mainly attributed to an increase in Retail sales in APAC, the United States and Europe,
partially offset by a decrease in Mass Transit Ticketing sales in the Polish market as a result of the impact of COVID-19.
Our
revenues in the six months ended June 30, 2020 from Petroleum decreased by $180,000, or 12%, compared to the six months ended
June 30, 2019, mainly due to some sales that were planned to occur at the second quarter of 2020 and were postponed to the second
half of 2020 as a result of the extended lockdown in South Africa.
Cost
of Revenues and Gross Margin
Our
cost of revenues, presented by gross profit and gross margin percentage, in the six months ended June 30, 2020 and June 30, 2019
were as follows (dollar amounts in thousands):
|
|
Six months ended
June 30,
|
|
|
|
2020
|
|
|
2019
|
|
Cost of sales
|
|
$
|
5,238
|
|
|
$
|
3,112
|
|
Gross profit
|
|
$
|
4,066
|
|
|
$
|
4,017
|
|
Gross margin percentage
|
|
|
44
|
%
|
|
|
56
|
%
|
Cost
of sales. The increase of $2.1 million, or 68%, in the six months ended June 30, 2020, compared to the six months ended
June 30, 2019, resulted primarily from an increase in revenues mainly attributed to the increase in Retail sales in APAC, the
United States and Europe.
Gross
margin. The decrease in gross margin percentage in the six months ended June 30, 2020, compared to the six months ended June
30, 2019, is mainly attributed to a change in our revenue mix and attributed to the decrease in Mass Transit Ticketing sales in
the Polish market as a result of the impact of COVID-19.
Operating
expenses
Our
operating expenses in the six months ended June 30, 2020 and June 30, 2019 were as follows (in thousands):
|
|
Six months ended
June 30,
|
|
Operating expenses
|
|
2020
|
|
|
2019
|
|
Research and development
|
|
$
|
1,802
|
|
|
$
|
1,688
|
|
Selling and marketing
|
|
$
|
2,355
|
|
|
$
|
2,605
|
|
General and administrative
|
|
$
|
1,732
|
|
|
$
|
2,011
|
|
Total operating expenses
|
|
$
|
5,889
|
|
|
$
|
6,304
|
|
Research
and development. The increase of $114,000, or 7%, in the six months ended June 30, 2020, compared to the six months ended
June 30, 2019, is primarily attributed to an increase in subcontracting expenses.
Selling
and marketing. The decrease of $250,000, or 10%, in the six months ended June 30, 2020, compared to the six months ended June
30, 2019, is primarily attributed to a decrease in marketing and advertising expenses, a decrease in employment expenses and a
decrease in exhibition and traveling as a result of the impact of COVID-19.
General
and administrative. The decrease of $279,000, or 14%, in the six months ended June 30, 2020, compared to the six months ended
June 30, 2019, is primarily attributed to a decrease in employment expenses.
Financing
income (expenses), net
Our
financing income (expenses), net, in the six months ended June 30, 2020 and June 30, 2019 were as follows (in thousands):
|
|
Six months ended
June 30,
|
|
|
|
2020
|
|
|
2019
|
|
Financing income (expenses), net
|
|
$
|
45
|
|
|
$
|
(106
|
)
|
The
change in financing income (expenses), net, in the six months ended June 30, 2020, compared to the six months ended
June 30, 2019, of $151,000, is mainly due to an exchange rate differential.
Net
loss from continuing operations
Our
net loss from continuing operations in the six months ended June 30, 2020 and June 30, 2019 was as follows (in thousands):
|
|
Six months ended
June 30,
|
|
|
|
2020
|
|
|
2019
|
|
Net loss from continuing operations
|
|
$
|
(1,749
|
)
|
|
$
|
(2,401
|
)
|
The
decrease in net loss from continuing operations of $652,000, or 27%, in the six months ended June 30, 2020, compared to the
six months ended June 30, 2019, is mainly due to an increase in our sales, a decrease in our operating expenses and a change in
our financing income (expenses), net, partially offset by an increase in cost of sales, as described above.
Net
loss from discontinued operations
Our
net loss from discontinued operations in the six months ended June 30, 2020 and June 30, 2019 was as follows (in thousands):
|
|
Six months ended
June 30,
|
|
|
|
2020
|
|
|
2019
|
|
Net loss from discontinued operations
|
|
$
|
(43
|
)
|
|
$
|
(243
|
)
|
Our
net losses from discontinued operations for the reporting periods are presented in the statements of operations as discontinued
operations separately from continuing operations. The decrease in the net loss from discontinued operations of $200,000, or 82%,
in the six months ended June 30, 2020, compared to the six months ended June 30, 2019, is mainly due to a decrease in expenses
relating to legal proceedings.
Net
loss
Our
net loss in the six months ended June 30, 2020 and June 30, 2019 was as follows (in thousands):
|
|
Six months ended
June 30,
|
|
|
|
2020
|
|
|
2019
|
|
Net loss
|
|
$
|
(1,792
|
)
|
|
$
|
(2,644
|
)
|
The
decrease in net loss of $852,000, or 32%, in the six months ended June 30, 2020, compared to the six months ended June 30, 2019,
is primarily due to an increase in our sales, a decrease in our operating expenses, a change in our financing income (expenses),
net, and a decrease in net loss from discontinued operations, partially offset by an increase in cost of sales, as described above.
Liquidity
and Capital Resources
Our
principal sources of liquidity since our inception have been revenues, proceeds from sales of equity securities, borrowings
from banks and government, cash from the exercise of options and warrants and proceeds from the divestiture of part of our businesses. As
of June 30, 2020, we had cash, cash equivalents and short-term investments representing bank deposits of $5.2 million (of
which an amount of $105,000 has been pledged as security for certain items). We believe that we have sufficient capital
resources to fund our operations for at least the next 12 months.
On
December 23, 2019, we entered into a share purchase agreement, or the Agreement, with Jerry L Ivy, Jr. Descendants Trust, or Ivy,
and two other investors, or collectively together with Ivy, the Investors. The Agreement relates to a private placement of an
aggregate of up to 12,500,000 of our ordinary shares for aggregate gross proceeds to us of up to $2,500,000.
As
part of this Agreement, in December 2019 and January 2020, we issued 5,460,000 and 1,040,000 ordinary shares, respectively, for
aggregate gross proceed of $1,092,000 and $208,000 respectively. Under the term of the Agreement and following the issuance of
those shares, we appointed one representative to our Board of Directors, designated by Ivy. Also, pursuant to the Agreement, Ivy
has a right to purchase any future equity securities offered by us, except with respect to certain exempt issuances as set forth
in the Agreement.
The
issuance of the remaining 6,000,000 ordinary shares, or the Subsequent Closing, for aggregate gross proceeds of $1,200,000 took
place in April 2020, following the approval by our shareholders on April 14, 2020. Following the Subsequent Closing Ivy designated
an additional candidate that our Board appointed as a director. Also, we undertook that following the Subsequent Closing, we
will file a registration statement with the SEC to register re-sales of the ordinary shares issued under the Agreement. We plan
to file such registration statement in the near future. We may need to raise additional funds in order to finance our
growth and to satisfy our working capital needs.
In
connection with the outbreak of the COVID-19 pandemic, we have taken steps to protect our workforce in Israel, the United States,
Poland, South Africa and elsewhere. Such steps include work from home where possible, minimizing face-to-face meetings and utilizing
video conference as much as possible, social distancing at facilities and elimination of all international travel. We continue
to comply with all local health directives.
So
far, the most significant direct impact of the COVID-19 pandemic has been a decrease
in our revenues derived from Mass Transit Ticketing sales in the Polish market. The revenues from this operation, that were relatively
stable during the year preceding the COVID-19 outbreak, decreased by approximately $1 million in the first half of 2020, compared
to the first half of 2019, mainly due to the lockdown and other restrictions and consequences of the COVID-19 as started in March
2020. This impact is expected to continue for the foreseeable future. As a response to this effect, we have taken steps to reduce
some costs that are not essential under the current circumstances.
Another
impact of COVID-19 has been on product delivery, where components’ procurement lead time is longer and a shortage in components
has grown as the duration of the COVID-19 pandemic has continued. As long as the COVID-19 pandemic continues, the components’
lead time may be longer than normal and shortage in components may continue or get worse. Therefore, we maintain a comprehensive
network of world-wide suppliers.
Due
to the extended lockdown in South Africa, some of the sales that were planned to occur at the second quarter of 2020 were postponed
to the second half of 2020 and therefore caused a decrease in the revenues derived from the Petroleum segment compared to the
second quarter of 2019.
As
for our Retail activity, we have seen a higher interest from a growing number of potential customers and partners as they forecasted
that the need for our products will grow, yet execution of closings is still slow due to the current business environment.
It
is difficult to predict what other impacts the COVID-19 pandemic may have on us.
In
addition, on May 11, 2020, based on Polish government regulations introduced in relation to the COVID-19 pandemic, ASEC S.A. (Spolka
Akcyjna), a wholly-owned Polish subsidiary of the Company, or the Subsidiary, received the consent of PKO Bank Polski, a Polish
bank, or the Lender, to postpone the maturity date of a secured loan, provided to the Subsidiary in May 2019 and reported then,
in the amount of $2,000,000, by six months, to November 22, 2020 instead of May 23, 2020, as the loan agreement provided. The
loan will be payable in full on maturity (with the option of early repayment by the Subsidiary) and the interest of 1-month LIBOR
plus 1.8% is paid on a monthly basis. The loan agreement includes customary events of default, including, among others, failures
to repay any amounts due to the Lender, breaches or defaults under the terms of the loan agreement, etc. If an event of default
occurs, the Lender may reduce the amount of the loan, demand an additional security or terminate the agreement. The Subsidiary
repaid approximately $156,000 of this loan during the first half of 2020.
As
part of an additional Polish government assistance, the Subsidiary received a long-term loan in an amount of approximately $800,000
through another Polish bank in June 2020. Depending on some scenarios, such as average number of employees and financial results,
a portion of the loan may be forgiven. The loan will be repaid in 24 monthly equal installments starting in July 2021. This loan
is denominated in Polish Zloty and does not bear interest. In the event of breach by the Subsidiary of any of the obligations,
as described in the loan agreement, the bank may terminate such agreement. In such a case, the long-term loan shall become due
and payable within 14 business days from receipt of the termination notice.
Our
manufacturing facilities and certain equipment have been pledged as security in respect of a loan received from a bank. Our short-term
deposits in the amount of $105,000 have been pledged as security in respect of credit lines received from a bank. Such deposits
cannot be pledged to others or withdrawn without the consent of the bank.
As
of June 30, 2020, we granted guarantees to third parties including performance guarantees and guarantees to secure customer advances
in the sum of $495,000. The expiration dates of the guarantees range from January 2021 to September 2021.
Operating
activities related to continuing operations
For
the six months ended June 30, 2020, net cash used in continuing operating activities was $807,000 primarily due to a $1.7 million
net loss from continuing operations, a $245,000 decrease in other current liabilities, $162,000 of accrued interest and linkage
differences and $58,000 of deferred tax benefits, net, partially offset by $604,000 of depreciation and amortization, a $379,000
decrease in other receivables and prepaid expenses, a $174,000 decrease in inventories, a $110,000 increase in trade payables,
a $101,000 decrease in trade receivables, net, $28,000 of expenses due to stock based compensation issued to employees and others
and a $11,000 increase in accrued severance pay, net.
For
the six months ended June 30, 2019, net cash used in continuing operating activities was $1.2 million primarily due to a $2.4
million net loss from continuing operations, a $1.4 million increase in inventories, a $540,000 decrease in other current liabilities,
$24,000 of deferred tax benefits, net, $18,000 of accrued interest and linkage differences, net, and a $2,000 gain on sale of
fixed assets, partially offset by a $1.3 million decrease in trade receivables, net, $643,000 of depreciation and amortization,
a $597,000 decrease in other receivables and prepaid expenses, a $585,000 increase in trade payables, $90,000 of expenses due
to stock based compensation issued to employees and others, and a $44,000 increase in accrued severance pay, net.
Operating
activities related to discontinued operations
For
the six months ended June 30, 2020, net cash used in discontinued operating activities was $526,000, mainly related to reduction
in the amount we were entitled to receive in connection with our lawsuit against Harel Insurance Company Ltd.
For
the six months ended June 30, 2019, net cash used in discontinued operating activities was $1.3 million, mainly related to the
dispute regarding Merwell Inc. in connection with the SmartID division.
Investing
and financing activities related to continuing operations
For
the six months ended June 30, 2020, net cash provided by continuing investing activities was $21,000, mainly due to a
$511,000 change in short-term investments, net, partially offset by $490,000 of purchases of property and equipment and
intangible assets.
For
the six months ended June 30, 2019, net cash used in continuing investing activities was $1.5 million, mainly due to a $1.2 million
change in short-term investments, net, and $341,000 of purchases of property and equipment and intangible assets, partially offset
by $10,000 in proceeds from the sale of fixed assets and $10,000 in proceeds from restricted deposits for employee benefits.
For
the six months ended June 30, 2020, net cash provided by continuing financing activities was $2.2 million, mainly due to $1.4
million in proceeds from issuance of shares, net of issuance costs, $799,000 in proceeds from long-term bank loans and a $62,000
increase in short-term bank credit and loans, net, partially offset by $7,000 of repayments of long-term bank loans.
For
the six months ended June 30, 2019, net cash provided by continuing financing activities was $2.5 million, mainly due to a $2.7
million increase in short-term bank credit and loans, net, partially offset by $233,000 of repayments of long-term bank loans.
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, 2020
and June 30, 2019.
Off
Balance Sheet Arrangements
We
have no off-balance sheet arrangements.