Item 1.
Financial Statements.
ON
TRACK INNOVATIONS LTD. AND ITS SUBSIDIARIES
INTERIM
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
As
of September 30, 2018
(Unaudited)
On
Track Innovations Ltd.
and
its Subsidiaries
Interim
Unaudited Condensed Consolidated Financial Statements as of September 30, 2018
Contents
|
Page
|
|
|
Interim Unaudited
Condensed Consolidated Balance Sheets
|
F-2 - F-3
|
|
|
Interim Unaudited
Condensed Consolidated Statements of Operations
|
F-4
|
|
|
Interim Unaudited
Condensed Consolidated Statements of Comprehensive Income (Loss)
|
F-5
|
|
|
Interim Unaudited
Condensed Consolidated Statements of Changes in Equity
|
F-6
|
|
|
Interim Unaudited
Condensed Consolidated Statements of Cash Flows
|
F-7 - F-8
|
|
|
Notes to
the Interim Unaudited Condensed Consolidated Financial Statements
|
F-9 - F-24
|
On
Track Innovations Ltd.
and
its Subsidiaries
Interim
Unaudited Condensed Consolidated Balance Sheets
US
dollars in thousands except share and per share data
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2018
|
|
|
2017
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
4,514
|
|
|
$
|
6,742
|
|
Short-term investments
|
|
|
1,391
|
|
|
|
3,331
|
|
Trade receivables (net of allowance for doubtful accounts of $619 and $568 as of September 30, 2018 and December 31,
2017, respectively)
|
|
|
4,026
|
|
|
|
5,827
|
|
Other receivables and prepaid expenses
|
|
|
2,676
|
|
|
|
1,563
|
|
Inventories
|
|
|
3,356
|
|
|
|
3,009
|
|
Total current assets
|
|
|
15,963
|
|
|
|
20,472
|
|
|
|
|
|
|
|
|
|
|
Long-term restricted deposit for employees benefit
|
|
|
468
|
|
|
|
498
|
|
|
|
|
|
|
|
|
|
|
Severance pay deposits
|
|
|
358
|
|
|
|
405
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net
|
|
|
5,246
|
|
|
|
5,859
|
|
|
|
|
|
|
|
|
|
|
Intangible assets, net
|
|
|
264
|
|
|
|
336
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
22,299
|
|
|
$
|
27,570
|
|
The
accompanying notes are an integral part of these interim unaudited condensed consolidated financial statements.
On
Track Innovations Ltd.
and
its Subsidiaries
Interim
Unaudited Condensed Consolidated Balance Sheets
US
dollars in thousands except share and per share data
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2018
|
|
|
2017
|
|
Liabilities and Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Liabilities
|
|
|
|
|
|
|
Short-term bank credit and current maturities of long-term bank loans
|
|
$
|
504
|
|
|
$
|
4,181
|
|
Trade payables
|
|
|
6,670
|
|
|
|
6,264
|
|
Other current liabilities
|
|
|
2,133
|
|
|
|
2,421
|
|
Total current liabilities
|
|
|
9,307
|
|
|
|
12,866
|
|
|
|
|
|
|
|
|
|
|
Long-Term Liabilities
|
|
|
|
|
|
|
|
|
Long-term loans, net of current maturities
|
|
|
8
|
|
|
|
814
|
|
Accrued severance pay
|
|
|
874
|
|
|
|
939
|
|
Deferred tax liability
|
|
|
452
|
|
|
|
500
|
|
Total long-term liabilities
|
|
|
1,334
|
|
|
|
2,253
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities
|
|
|
10,641
|
|
|
|
15,119
|
|
|
|
|
|
|
|
|
|
|
Commitments and Contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
|
|
|
|
|
|
|
|
|
Shareholders’ Equity
|
|
|
|
|
|
|
|
|
Ordinary shares of NIS 0.1 par value:
Authorized:
50,000,000 shares as of September 30, 2018 and December 31, 2017; issued: 42,473,076 and 42,353,077 shares as of
September 30, 2018 and December 31, 2017, respectively; outstanding: 41,294,377 and 41,174,378 shares as of September 30,
2018 and December 31, 2017, respectively
|
|
|
1,068
|
|
|
|
1,064
|
|
Additional paid-in capital
|
|
|
224,968
|
|
|
|
224,758
|
|
Treasury shares at cost - 1,178,699 shares as of September 30, 2018 and December 31, 2017
|
|
|
(2,000
|
)
|
|
|
(2,000
|
)
|
Accumulated other comprehensive loss
|
|
|
(901
|
)
|
|
|
(691
|
)
|
Accumulated deficit
|
|
|
(211,477
|
)
|
|
|
(210,680
|
)
|
Total Equity
|
|
|
11,658
|
|
|
|
12,451
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities and Equity
|
|
$
|
22,299
|
|
|
$
|
27,570
|
|
The
accompanying notes are an integral part of these interim unaudited condensed consolidated financial statements.
On
Track Innovations Ltd.
and
its Subsidiaries
Interim
Unaudited Condensed Consolidated Statements of Operations
US
dollars in thousands except share and per share data
|
|
Three months ended
September 30,
|
|
|
Nine months ended
September 30,
|
|
|
|
2018
|
|
|
2017
|
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
|
|
$
|
5,020
|
|
|
$
|
3,445
|
|
|
$
|
14,157
|
|
|
$
|
11,871
|
|
Licensing and transaction fees
|
|
|
1,453
|
|
|
|
1,225
|
|
|
|
4,332
|
|
|
|
3,765
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
6,473
|
|
|
|
4,670
|
|
|
|
18,489
|
|
|
|
15,636
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales
|
|
|
3,051
|
|
|
|
2,192
|
|
|
|
8,778
|
|
|
|
7,468
|
|
Total cost of revenues
|
|
|
3,051
|
|
|
|
2,192
|
|
|
|
8,778
|
|
|
|
7,468
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
3,422
|
|
|
|
2,478
|
|
|
|
9,711
|
|
|
|
8,168
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
777
|
|
|
|
823
|
|
|
|
2,422
|
|
|
|
2,414
|
|
Selling and marketing
|
|
|
1,592
|
|
|
|
1,332
|
|
|
|
4,700
|
|
|
|
4,166
|
|
General and administrative
|
|
|
1,098
|
|
|
|
758
|
|
|
|
3,070
|
|
|
|
2,553
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
3,467
|
|
|
|
2,913
|
|
|
|
10,192
|
|
|
|
9,133
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss from continuing operations
|
|
|
(45
|
)
|
|
|
(435
|
)
|
|
|
(481
|
)
|
|
|
(965
|
)
|
Financial expenses, net
|
|
|
(2
|
)
|
|
|
(126
|
)
|
|
|
(129
|
)
|
|
|
(236
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations before taxes on income
|
|
|
(47
|
)
|
|
|
(561
|
)
|
|
|
(610
|
)
|
|
|
(1,201
|
)
|
Income tax
|
|
|
(111
|
)
|
|
|
(12
|
)
|
|
|
(73
|
)
|
|
|
(68
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss from continuing operations
|
|
|
(158
|
)
|
|
|
(573
|
)
|
|
|
(683
|
)
|
|
|
(1,269
|
)
|
Net (loss) income from discontinued operations
|
|
|
(26
|
)
|
|
|
1,441
|
|
|
|
(114
|
)
|
|
|
1,365
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
|
(184
|
)
|
|
|
868
|
|
|
|
(797
|
)
|
|
|
96
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
and diluted net gain (loss) attributable to shareholders per ordinary share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
From continuing operations
|
|
|
(*
|
)
|
|
|
(0.01
|
)
|
|
|
(0.02
|
)
|
|
|
(0.03
|
)
|
From discontinued operations
|
|
|
(*
|
)
|
|
|
0.03
|
|
|
|
(*)
|
|
|
|
0.03
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(*
|
)
|
|
$
|
0.02
|
|
|
$
|
(0.02
|
)
|
|
$
|
(*
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of ordinary shares used in
computing basic and diluted net (loss) income per ordinary share
|
|
|
41,294,377
|
|
|
|
41,122,965
|
|
|
|
41,260,426
|
|
|
|
41,099,603
|
|
(*)
Less than $0.01 per ordinary share.
The
accompanying notes are an integral part of these interim unaudited condensed consolidated financial statements.
On
Track Innovations Ltd.
and
its Subsidiaries
Interim
Unaudited Condensed Consolidated Statements of Comprehensive Income (Loss)
US
dollars in thousands
|
|
Three months ended
September 30,
|
|
|
Nine months ended
September 30,
|
|
|
|
2018
|
|
|
2017
|
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive (loss) income:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
$
|
(184
|
)
|
|
$
|
868
|
|
|
$
|
(797
|
)
|
|
$
|
96
|
|
Foreign currency translation adjustments
|
|
|
44
|
|
|
|
28
|
|
|
|
(210
|
)
|
|
|
360
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive (loss) income
|
|
$
|
(140
|
)
|
|
$
|
896
|
|
|
$
|
(1,007
|
)
|
|
$
|
456
|
|
The
accompanying notes are an integral part of these interim unaudited condensed consolidated financial statements.
On
Track Innovations Ltd.
and
its Subsidiaries
Interim
Unaudited Condensed Consolidated Statements of Changes in Equity
US
dollars in thousands except number of shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
Treasury
|
|
|
other
|
|
|
|
|
|
|
|
|
|
Number of
|
|
|
Share
|
|
|
paid-in
|
|
|
Shares
|
|
|
comprehensive
|
|
|
Accumulated
|
|
|
Total
|
|
|
|
Shares issued
|
|
|
capital
|
|
|
capital
|
|
|
(at cost)
|
|
|
Income (loss)
|
|
|
deficit
|
|
|
equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2016
|
|
|
42,243,075
|
|
|
$
|
1,061
|
|
|
$
|
224,415
|
|
|
$
|
(2,000
|
)
|
|
$
|
(1,236
|
)
|
|
$
|
(210,082
|
)
|
|
$
|
12,158
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes during the nine month period ended September 30, 2017:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation
|
|
|
45,000
|
(**)
|
|
|
2
|
|
|
|
236
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
238
|
|
Exercise of options
|
|
|
25,002
|
|
|
|
(*)
|
|
|
|
25
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
25
|
|
Foreign currency translation adjustments
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
360
|
|
|
|
-
|
|
|
|
360
|
|
Net income
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
96
|
|
|
|
96
|
|
Balance as of September 30, 2017
|
|
|
42,313,077
|
|
|
$
|
1,063
|
|
|
$
|
224,676
|
|
|
$
|
(2,000
|
)
|
|
$
|
(876
|
)
|
|
$
|
(209,986
|
)
|
|
$
|
12,877
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2017
|
|
|
42,353,077
|
|
|
$
|
1,064
|
|
|
$
|
224,758
|
|
|
$
|
(2,000
|
)
|
|
$
|
(691
|
)
|
|
$
|
(210,680
|
)
|
|
$
|
12,451
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes during the nine month period ended September 30, 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation
|
|
|
80,000
|
(**)
|
|
|
3
|
|
|
|
177
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
180
|
|
Exercise of options
|
|
|
39,999
|
|
|
|
1
|
|
|
|
33
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
34
|
|
Foreign currency translation adjustments
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(210
|
)
|
|
|
-
|
|
|
|
(210
|
)
|
Net loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(797
|
)
|
|
|
(797
|
)
|
Balance as of September 30, 2018
|
|
|
42,473,076
|
|
|
$
|
1,068
|
|
|
$
|
224,968
|
|
|
$
|
(2,000
|
)
|
|
$
|
(901
|
)
|
|
$
|
(211,477
|
)
|
|
$
|
11,658
|
|
The
accompanying notes are an integral part of these interim unaudited condensed consolidated financial statements.
On
Track Innovations Ltd.
and
its Subsidiaries
Interim
Unaudited Condensed Consolidated Statements of Cash Flows
US
dollars in thousands
|
|
Nine months ended
September 30,
|
|
|
|
2018
|
|
|
2017
|
|
Cash flows from continuing operating activities
|
|
|
|
|
|
|
Net loss from continuing operations
|
|
$
|
(683
|
)
|
|
$
|
(1,269
|
)
|
Adjustments required to reconcile net loss to
|
|
|
|
|
|
|
|
|
net cash used in continuing operating activities:
|
|
|
|
|
|
|
|
|
Stock-based compensation related to options and shares issued to employees and others
|
|
|
180
|
|
|
|
238
|
|
Depreciation and amortization
|
|
|
978
|
|
|
|
878
|
|
Deferred tax, net
|
|
|
(20
|
)
|
|
|
37
|
|
Gain on sale of property and equipment
|
|
|
(25
|
)
|
|
|
(9
|
)
|
Accrued interest and linkage differences, net
|
|
|
-
|
|
|
|
(41
|
)
|
|
|
|
|
|
|
|
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Accrued severance pay, net
|
|
|
(19
|
)
|
|
|
72
|
|
Decrease in trade receivables, net
|
|
|
1,744
|
|
|
|
187
|
|
Increase in other receivables and prepaid expenses
|
|
|
(1,162
|
)
|
|
|
(435
|
)
|
Increase in inventories
|
|
|
(381
|
)
|
|
|
(710
|
)
|
Increase (decrease) in trade payables
|
|
|
668
|
|
|
|
(611
|
)
|
Decrease in other current liabilities
|
|
|
(273
|
)
|
|
|
(777
|
)
|
Net cash provided by (used in) continuing operating activities
|
|
|
1,007
|
|
|
|
(2,440
|
)
|
|
|
|
|
|
|
|
|
|
Cash flows from continuing investing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of property and equipment
|
|
|
(467
|
)
|
|
|
(160
|
)
|
Proceeds from sale of property and equipment
|
|
|
52
|
|
|
|
14
|
|
Change in short-term investments, net
|
|
|
1,195
|
|
|
|
2,917
|
|
Investment in capitalized certification costs
|
|
|
(92
|
)
|
|
|
(185
|
)
|
Proceeds from restricted deposit for employees benefit
|
|
|
8
|
|
|
|
44
|
|
Net cash provided by continuing investing activities
|
|
|
696
|
|
|
|
2,630
|
|
|
|
|
|
|
|
|
|
|
Cash flows from continuing financing activities
|
|
|
|
|
|
|
|
|
Decrease in short-term bank credit, net
|
|
|
(3,449
|
)
|
|
|
(72
|
)
|
Repayment of long-term bank loans
|
|
|
(979
|
)
|
|
|
(469
|
)
|
Proceeds from exercise of options and warrants
|
|
|
34
|
|
|
|
25
|
|
Net cash used in continuing financing activities
|
|
|
(4,394
|
)
|
|
|
(516
|
)
|
|
|
|
|
|
|
|
|
|
Cash flows from discontinued operations
|
|
|
|
|
|
|
|
|
Net cash used in discontinued operating activities
|
|
|
(115
|
)
|
|
|
(86
|
)
|
Total net cash used in discontinued operations
|
|
|
(115
|
)
|
|
|
(86
|
)
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash and cash equivalents
|
|
|
(187
|
)
|
|
|
460
|
|
|
|
|
|
|
|
|
|
|
(Decrease) increase in cash, cash equivalents and restricted cash
|
|
|
(2,993
|
)
|
|
|
48
|
|
|
|
|
|
|
|
|
|
|
Cash, cash equivalents and restricted cash - beginning of the period
|
|
|
7,799
|
|
|
|
(*)7,500
|
|
|
|
|
|
|
|
|
|
|
Cash, cash equivalents and restricted cash - end of the period
|
|
$
|
4,806
|
|
|
$
|
(*)7,548
|
|
|
(*)
|
Reclassified
to conform with the current period presentation, see Note 2A(1).
|
The
accompanying notes are an integral part of these interim unaudited condensed consolidated financial statements.
On
Track Innovations Ltd.
and
its Subsidiaries
Interim
Unaudited Condensed Consolidated Statements of Cash Flows (cont’d)
US
dollars in thousands
|
|
Nine months ended
September 30,
|
|
|
|
2018
|
|
|
2017
|
|
Supplementary cash flows activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid during the period for:
|
|
|
|
|
|
|
Interest paid
|
|
$
|
112
|
|
|
$
|
140
|
|
Income taxes paid
|
|
$
|
43
|
|
|
$
|
31
|
|
The
accompanying notes are an integral part of these interim unaudited condensed consolidated financial statements.
On
Track Innovations Ltd.
and
Subsidiaries
Notes
to the Interim Unaudited Condensed Consolidated Financial Statements
US
dollars in thousands
Note
1 - Organization and Basis of Presentation
|
A.
|
Description
of business
|
On
Track Innovations Ltd. (the “Company”) was founded in 1990, in Israel. The Company and its subsidiaries (together
the “Group”) are principally engaged in the field of design and development of cashless payment solutions. The Company’s
shares are listed for trading on the Nasdaq Capital Market.
The
Company operates in two operating segments: (a) Retail and Mass Transit Ticketing, and (b) Petroleum. In addition to the two operating
segments, certain products for the medical industry and other secure smart card solutions are classified under “Other”
in segment analysis appearing in Note 10.
|
B.
|
Interim
Unaudited Financial Information
|
The
accompanying unaudited consolidated financial statements of the Company have been prepared in accordance with U.S. generally accepted
accounting principles (“GAAP”) for interim financial information and with the instructions to Form 10-Q. Accordingly,
they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements and therefore
should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2017.
In
the opinion of management, all adjustments considered necessary for a fair presentation, consisting of normal recurring adjustments,
have been included. Operating results for the nine-month period ended September 30, 2018 are not necessarily indicative of the
results that may be expected for the year ending December 31, 2018.
Use
of Estimates:
The
preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect
the assets, liabilities, revenue, costs, expenses and accumulated other comprehensive income/(loss) that are reported in the Interim
Consolidated Financial Statements and accompanying disclosures. These estimates are based on management’s best knowledge
of current events, historical experience, actions that the Company may undertake in the future and on various other assumptions
that are believed to be reasonable under the circumstances. As a result, actual results may be different from these estimates.
|
C.
|
Divestiture
of operations
|
|
1.
|
In
December 2013, the Company completed the sale of certain assets, subsidiaries and intellectual
property (“IP”) relating to its Smart ID division, for a total purchase price
of $10,000 in cash and an additional $12,500 subject to performance-based milestones.
Accordingly, the results and the cash flows of this operation for all reporting periods
are presented in the statements of operations and in the statements of cash flows, respectively,
as discontinued operations separately from continuing operations.
|
On
Track Innovations Ltd.
and
Subsidiaries
Notes
to the Interim Unaudited Condensed Consolidated Financial Statements
US
dollars in thousands
Note
1 - Organization and Basis of Presentation (cont’d)
|
C.
|
Divestiture
of operations (cont’d)
|
On
April 20, 2016, the purchaser of the Smart ID division, SuperCom Ltd. (“SuperCom”), and the Company entered
into a settlement agreement resolving certain litigation between SuperCom and the Company pursuant to which SuperCom paid
the Company $2,050 and agreed to pay the Company up to $1,500 in accordance with and subject to a certain earn-out mechanism.
In November 2017, the Company commenced an arbitration procedure with SuperCom, in which the Company claims that
additional earn-out payments have not been paid to the Company. SuperCom raised issues against the Company during the
arbitration for material damages. The evidence in the arbitration were heard on March 6, 2018, and in the coming weeks the
parties are expected to complete the submission of their written summaries, after which a decision will be given by the
arbitrator. According to legal advice, the Company has good claims with respect to the issues that are included in the
arbitration and the chances that the Company will be required to compensate SuperCom are low. The Company records the
earn-out payments only when the consideration is determined to be realizable. The Company did not record or receive any
contingent consideration during the nine months ended September 30, 2018 and 2017.
|
2.
|
On
September 14, 2016, the Company completed the sale of certain assets and IP related to its former parking segment to Atrinet Ltd.
and its affiliated entities for a non-material amount. The Company has determined that the sale of the parking business qualifies
as a discontinued operation. Accordingly, the results and the cash flows of these operations for all reporting periods are presented
in the statements of operations and in the statements of cash flows, respectively, as discontinued operations separately from
continuing operations.
|
|
D.
|
Event
in the reporting period
|
In
accordance with management’s intention to reduce the size of the Company’s external loans and accompanying credit
costs, during the third quarter of 2018, the Company significantly reduced the volume of the Company’s loans from
banks.
Note
2 – Significant Accounting Policies
Except
as described below, these interim unaudited condensed consolidated financial statements have been prepared according to the same
accounting policies as those discussed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2017.
|
A.
|
Recently
Adopted Accounting Pronouncements
|
|
1.
|
Restricted
Cash and Cash Equivalents in Statement of Cash Flows
|
In
December 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”)
2016-18, Statement of Cash Flows (Topic 230): Restricted Cash, which requires amounts generally described as restricted cash
and restricted cash equivalents to be included within cash and cash equivalents when reconciling the beginning-of-period and end-of-period
total amounts shown in the statement of cash flows. The Company has adopted ASU 2016-18 commencing from January 1, 2018.
The Company has applied the guidance retrospectively to all periods presented.
On
Track Innovations Ltd.
and
Subsidiaries
Notes
to the Interim Unaudited Condensed Consolidated Financial Statements
US
dollars in thousands
Note
2 – Significant Accounting Policies (cont’d)
|
A.
|
Recently
Adopted Accounting Pronouncements (cont’d)
|
|
1.
|
Restricted
Cash and Cash Equivalents in Statement of Cash Flows (cont’d)
|
The
following table provides a reconciliation of cash, cash equivalents, and restricted cash and cash equivalents reported within
the accompanying consolidated balance sheets that sum to the total of the same such amounts presented in the accompanying consolidated
statements of cash flows:
|
|
|
September 30,
|
|
|
December 31,
|
|
|
|
|
2018
|
|
|
2017
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
4,514
|
|
|
$
|
6,000
|
|
|
$
|
6,742
|
|
|
$
|
5,952
|
|
|
Restricted cash and cash equivalents (*)
|
|
|
292
|
|
|
|
1,548
|
|
|
|
1,057
|
|
|
|
1,548
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cash, cash equivalents, and restricted cash and cash equivalents
presented in the statements of cash flows
|
|
$
|
4,806
|
|
|
$
|
7,548
|
|
|
$
|
7,799
|
|
|
$
|
7,500
|
|
|
(*)
|
The
restricted cash and cash equivalents are included in short-term investments in the accompanying consolidated balance sheets.
|
In
May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers. The standard provides companies with a single
model for use in accounting for revenue arising from contracts with customers and supersedes previous revenue recognition guidance,
including industry-specific revenue guidance. The standard requires entities to follow a five step process: (1) identify the contract(s)
with a customer, (2) identify the performance obligations in the contract, (3) determine the transaction price, (4) allocate the
transaction price to the performance obligations in the contract, and (5) recognize revenue when (or as) the entity satisfies
a performance obligation. Revenues are recognized when control of the promised goods or services is transferred to the customers,
in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods or services.
The
Company has adopted ASU 2014-09 commencing from January 1, 2018 on a modified retrospective basis.
The
Company did not have a cumulative adjustment to retained earnings or an impact on its revenue recognition policies or on its consolidated
financial statements as a result of the adoption of the new standard. The new standard requires the Company to provide more robust
disclosures than required by previous guidance – see also Note 6. In addition, when the Company has an unconditional right
to receive proceeds before the performance obligation was fulfilled, it is now required to record receivables against contract
liabilities.
On
Track Innovations Ltd.
and
Subsidiaries
Notes
to the Interim Unaudited Condensed Consolidated Financial Statements
US
dollars in thousands
Note
2 – Significant Accounting Policies (cont’d)
|
B.
|
Recent
Accounting Pronouncements
|
|
1.
|
In
June 2018, the FASB issued ASU 2018-07, Compensation – Stock Compensation (Topic
718): Improvements to Nonemployee Share-Based Payment Accounting. ASU 2018-07 expands
the scope of Topic 718 to include share-based payment transactions for acquiring goods
and services from nonemployees. The guidance is intended to align the accounting for
such payments to nonemployees with the existing requirements for share-based payments
granted to employees. ASU 2018-07 is effective for fiscal years beginning after December 15,
2018 and is to be adopted through a cumulative-effect adjustment to retained earnings
as of January 1, 2019 for then outstanding share-based payments to nonemployees.
The Company does not expect that the adoption of ASU 2018-07 will have a material impact
on the Company’s results of operations and financial condition.
|
|
2.
|
In
February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), which supersedes ASC
840, Leases. This ASU requires lessees to recognize a right-of-use asset and lease liability
on the balance sheet for most leases, whereas currently only financing-type lease liabilities
(capital leases) are recognized on the balance sheet. In addition, the definition of
a lease has been revised with respect to when an arrangement conveys the right to control
the use of the identified asset under the arrangement, which may result in changes to
the classification of an arrangement as a lease. The ASU does not significantly change
the lessees’ recognition, measurement and presentation of expenses and cash flows
from the previous accounting standard. Lessors’ accounting under the ASU is largely
unchanged from the previous accounting standard. The ASU expands the disclosure requirements
of lease arrangements. Under current guidance, lessees and lessors will use a modified
retrospective transition approach, which requires application of the new guidance at
the beginning of the earliest comparative period presented in the year of adoption. The
guidance is effective for interim and annual reporting periods beginning after December
15, 2018, with early adoption permitted. The Company currently expects to adopt this
standard on January 1, 2019 and continues to evaluate the impact of this new standard
on its financial position, results of operations and cash flows. The Company continues
the process of identifying and categorizing its lease contracts and evaluating its current
business processes and systems.
|
In
connection with other recent accounting pronouncements that the Company has not yet implemented and the Company’s assessment
of the impacts they will have on the ongoing financial reporting, see Note 2W(4) in the Company’s Annual Report on Form
10-K for the year ended December 31, 2017.
On
Track Innovations Ltd.
and Subsidiaries
Notes
to the Interim Unaudited Condensed Consolidated Financial Statements
US
dollars in thousands
Note
3 - Other Receivables and Prepaid Expenses
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2018
|
|
|
2017
|
|
Government institutions
|
|
$
|
399
|
|
|
$
|
263
|
|
Prepaid expenses
|
|
|
181
|
|
|
|
381
|
|
Supplier advances
|
|
|
1,519
|
|
|
|
122
|
|
Receivables under contractual obligations to be transferred to others (*)
|
|
|
361
|
|
|
|
446
|
|
Other receivables
|
|
|
216
|
|
|
|
351
|
|
|
|
$
|
2,676
|
|
|
$
|
1,563
|
|
|
(*)
|
The
Company’s subsidiary in Poland is required to collect certain fees that are to
be transferred to local authorities.
|
Note
4 - Other Current Liabilities
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2018
|
|
|
2017
|
|
Employees and related expenses
|
|
$
|
1,119
|
|
|
$
|
1,073
|
|
Accrued expenses
|
|
|
804
|
|
|
|
1,054
|
|
Customer advances
|
|
|
58
|
|
|
|
178
|
|
Other current liabilities
|
|
|
152
|
|
|
|
116
|
|
|
|
$
|
2,133
|
|
|
$
|
2,421
|
|
On Track Innovations Ltd.
and Subsidiaries
Notes to the Interim
Unaudited Condensed Consolidated Financial Statements
US dollars in thousands
Note 5 - Commitments and Contingencies
|
1.
|
In June 2013, prior to the Company’s divestiture of its SmartID division, Merwell Inc.
(“Merwell”) filed a claim against the Company before an agreed-upon arbitrator alleging breach of contract in
connection with certain commissions claimed to be owed to Merwell with respect to the division’s activities in
Tanzania. These activities, along with all other activities of the SmartID division, were later assigned to and
assumed by SuperCom in its purchase of the division. SuperCom undertook to indemnify the Company and hold it harmless
against any liabilities the Company may incur in connection
with Merwell’s consulting agreement and the arbitration. An
arbitration decision was issued on February 21, 2016, awarding Merwell approximately $855 for outstanding
commissions. The arbitration decision was appealed and the appeal was denied, and currently the awarded amount is
approximately $1,050. To date SuperCom has failed to make the payment. However, as mentioned above, based on the
agreement with SuperCom (which was granted an effect of a court judgement), SuperCom is liable for all the costs and
liabilities arising out of this claim. Therefore, the
financial statements do not include any provision for this
claim.
|
|
2.
|
On October 3, 2013, a financial claim was filed against the Company and its then French
subsidiary, Parx France (in this paragraph, together, the “Defendants”), in the Commercial Court of Paris,
France (in this paragraph, the
“Court”). The sum of the claim is €1,500 ($1,743) and is based on the allegation
that the plaintiff sustained certain losses in connection with Defendants not granting the plaintiff exclusive marketing
rights to distribute and operate the Defendants’ PIAF Parking System in Paris and the Ile of France. On October 25,
2017, the Court issued its ruling in this matter dismissing all claims against the Company but ordering Parx France to
pay the plaintiff €50 ($58) plus interest in damages plus another approximately €5 ($6) in other fees and
penalties. The Company offered to pay the amounts mentioned above to the plaintiff in consideration for not filing future
appeals. The plaintiff rejected this offer and filed an appeal against Parx France and the Company claiming the sum of
€503 ($584) plus interest and expenses.
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.
|
As of September 30, 2018, the
Company has granted performance guarantees and guarantees to secure customer advances in the sum of $365. The expiration dates
of the guarantees range from October 2018 to June 2019.
On Track
Innovations Ltd.
and Subsidiaries
Notes to the Interim
Unaudited Condensed Consolidated Financial Statements
US dollars in thousands
Note 6 – Revenues
Disaggregation of revenue
The following tables disaggregates the
Company’s revenue by major source based on categories that depict its nature and timing as reviewed by management for the
nine months and the three months ended September 30, 2018
:
|
|
Nine
months ended September 30
,
2018
|
|
|
|
Retail
and
Mass
Transit
Ticketing
|
|
|
Petroleum
|
|
|
Other
|
|
|
Total
|
|
Cashless
payment products (A)
|
|
$
|
6,668
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
6,668
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Complete cashless payment
solutions (B):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales of products (B1)
|
|
|
2,820
|
|
|
|
2,881
|
|
|
|
-
|
|
|
|
5,701
|
|
Licensing
fees, transaction fees and services (B2)
|
|
|
3,818
|
|
|
|
1,061
|
|
|
|
-
|
|
|
|
4,879
|
|
|
|
|
6,638
|
|
|
|
3,942
|
|
|
|
-
|
|
|
|
10,580
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Medical and access
control smart cards (C):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales of products (C1)
|
|
|
-
|
|
|
|
-
|
|
|
|
906
|
|
|
|
906
|
|
Licensing
fees, transaction fees and services (C2)
|
|
|
-
|
|
|
|
-
|
|
|
|
335
|
|
|
|
335
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,241
|
|
|
|
1,241
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
revenues
|
|
$
|
13,306
|
|
|
$
|
3,942
|
|
|
$
|
1,241
|
|
|
$
|
18,489
|
|
On Track Innovations Ltd.
and Subsidiaries
Notes to the Interim
Unaudited Condensed Consolidated Financial Statements
US dollars in thousands
Note 6 – Revenues (cont’d)
Disaggregation of revenue (cont’d)
|
|
Three
months ended September 30, 2018
|
|
|
|
Retail and
Mass Transit
Ticketing
|
|
|
Petroleum
|
|
|
Other
|
|
|
Total
|
|
Cashless payment products (A)
|
|
$
|
2,031
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
2,031
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Complete cashless payment solutions (B):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales of products (B1)
|
|
|
1,460
|
|
|
|
934
|
|
|
|
-
|
|
|
|
2,394
|
|
Licensing fees, transaction fees and services (B2)
|
|
|
1,249
|
|
|
|
383
|
|
|
|
-
|
|
|
|
1,632
|
|
|
|
|
2,709
|
|
|
|
1,317
|
|
|
|
-
|
|
|
|
4,026
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Medical and access control smart cards (C):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales of products (C1)
|
|
|
-
|
|
|
|
-
|
|
|
|
302
|
|
|
|
302
|
|
Licensing fees, transaction fees and services (C2)
|
|
|
-
|
|
|
|
-
|
|
|
|
114
|
|
|
|
114
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
416
|
|
|
|
416
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
4,740
|
|
|
$
|
1,317
|
|
|
$
|
416
|
|
|
$
|
6,473
|
|
Performance obligations
Below is a listing of performance obligations for our main revenue
streams:
|
A.
|
Cashless payment products –
|
The performance obligation is
the selling of contactless payment products. Most of those products are Near Field Communication (NFC) readers. For such sales
the performance obligation, transfer of control and revenue recognition occurs when the products are delivered.
On Track Innovations Ltd.
and Subsidiaries
Notes to the Interim
Unaudited Condensed Consolidated Financial Statements
US dollars in thousands
Note 6 – Revenues (cont’d)
Performance obligations
(cont’d)
Below is a listing of performance obligations for our main revenue
streams (cont’d):
|
B.
|
Complete cashless payment solutions –
|
The complete solution includes
selling of products and complementary services, as follows:
|
●
|
Selling of contactless payment products (see A above)
together with payment gateways and machine-to-machine controllers.
|
|
●
|
Selling of petroleum payment solutions including site
and vehicle equipment.
|
For such sales, the performance
obligation, transfer of control and revenue recognition occurs when the products are delivered.
|
2.
|
Licensing fees, transaction fees and services -
|
The types of arrangements and
their main performance obligations are as follows:
|
●
|
To provide terminal management system licensing for
software that is responsible for remote terminal management and cloud-based software licensing which provide data insights. For
such services, the revenue recognition occurs as the services are rendered since the performance obligation is satisfied over
time.
|
|
●
|
To enable loading and sale of electronic contactless
and paper cards. For such transaction fees the revenue recognition occurs on the transaction date.
|
|
●
|
To provide technical and customer services for products.
For such services, the performance obligation is satisfied over time and therefore revenue recognition occurs as the services
are rendered.
|
On Track Innovations Ltd.
and Subsidiaries
Notes to the Interim
Unaudited Condensed Consolidated Financial Statements
US dollars in thousands
Note 6 – Revenues (cont’d)
Performance obligations
(cont’d)
Below is a listing of performance obligations for our main revenue
streams (cont’d):
|
C.
|
Medical and access control smart cards –
|
The performance obligation is
the selling of readers and smart electronic cards for the purposes of human identifying. For such sales the performance obligation,
transfer of control and revenue recognition occurs when the products are delivered.
|
2.
|
Licensing fees, transaction fees and services –
|
The main performance obligation
is to provide technical support. For such transaction fees that are based on actual usage, revenue recognition occurs only when
usage occurs.
The Company includes a warranty in connection
with certain contracts with customers, which are not considered to be separate performance obligations. The cost to the Company
of this warranty is insignificant.
Contract balances
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2018
|
|
|
2017
|
|
Trade receivables, net of allowance for doubtful accounts
|
|
$
|
4,026
|
|
|
$
|
5,827
|
|
Customer advances
|
|
$
|
58
|
|
|
$
|
178
|
|
Accounts receivable are recognized when
the right to consideration becomes unconditional based upon contractual billing schedules.
Transaction price and variable consideration
The transaction price is the amount of
consideration to which the Company expects to be entitled in exchange for transferring goods or services to a customer, excluding
amounts collected on behalf of third parties. In certain arrangements with variable consideration, revenue is recognized over time
as it mainly is attributed to ongoing services provided. An immaterial amount which is related to the product is not recognized
upon delivery since it is not probable that a significant reversal in the amount of cumulative revenue recognized will not occur
when the uncertainty associated with the variable consideration is subsequently resolved.
On Track Innovations Ltd.
and Subsidiaries
Notes to the Interim
Unaudited Condensed Consolidated Financial Statements
US dollars in thousands
Note 7 – Discontinued operations
As described in Note 1C, the Company divested
its interest in the SmartID division and its parking segment, and presented these activities as discontinued operations.
Set forth below are the results of the
discontinued operations:
|
|
Three months ended
September 30,
|
|
|
Nine months ended
September 30,
|
|
|
|
2018
|
|
|
2017
|
|
|
2018
|
|
|
2017
|
|
Expenses
|
|
|
(26
|
)
|
|
|
(11
|
)
|
|
|
(127
|
)
|
|
|
(94
|
)
|
Other income, net
|
|
|
-
|
|
|
|
(*) 1,452
|
|
|
|
13
|
|
|
|
(*) 1,459
|
|
Net profit (loss) from discontinued operations
|
|
|
(26
|
)
|
|
|
1,441
|
|
|
|
(114
|
)
|
|
|
1,365
|
|
(*) On August 23, 2017, a judgment was
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. The judgment determined that
an 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 October 30, 2017, the Court denied
the requested stay. Based on the advice of counsel, the Company currently believes that there are sufficient grounds on which to
uphold the District Court’s ruling and, as such, Harel’s appeal will be denied. The appeal hearing is scheduled for
May 29, 2019.
Note 8 - Fair Value of Financial Instruments
The Company’s financial instruments consist
mainly of cash and cash equivalents, short-term interest bearing investments, accounts receivable, restricted deposits for employee
benefits, accounts payable and short-term and long-term loans.
Fair value for the measurement of financial
assets and liabilities is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date. As such, fair value is a market-based measurement that should
be determined based on assumptions that market participants would use in pricing an asset or liability. The Company utilizes a
valuation hierarchy for disclosure of the inputs for fair value measurement. This hierarchy prioritizes the inputs into three broad
levels as follows:
|
●
|
Level 1 Inputs: Unadjusted quoted prices in active
markets for identical assets or liabilities accessible to the reporting entity at the measurement date.
|
|
●
|
Level 2 Inputs: Other than quoted prices included
in Level 1 inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full
term of the asset or liability.
|
|
●
|
Level 3 Inputs: Unobservable inputs for the asset
or liability used to measure fair value to the extent that observable inputs are not available, thereby allowing for situations
in which there is little, if any, market activity for the asset or liability at measurement date.
|
On Track Innovations Ltd.
and Subsidiaries
Notes to the Interim
Unaudited Condensed Consolidated Financial Statements
US dollars in thousands
Note 8 - Fair Value of Financial Instruments
(cont’d)
By distinguishing between inputs that are
observable in the market place, and therefore more objective, and those that are unobservable and therefore more subjective, the
hierarchy is designed to indicate the relative reliability of the fair value measurements. A financial asset or liability’s classification
within the hierarchy is determined based on the lowest level input that is significant to the fair value measurement.
The Company, in estimating fair value for
financial instruments, determined that the carrying amounts of cash and cash equivalents, trade receivables, short-term bank credit
and trade payables are equivalent to, or approximate their fair value due to the short-term maturity of these instruments.
The carrying amounts of variable interest
rate long-term loans are equivalent or approximate to their fair value as they bear interest at approximate market rates.
As of September 30, 2018, the Company held
approximately $1,391 of short-term bank deposits (as of December 31, 2017, $3,331). As of September 30, 2018 and December 31, 2017,
short-term deposits in the amount of $292 and $1,057, respectively, have been pledged as security in respect of guarantees granted
in respect of performance guarantees, loans and credit lines received from a bank and cannot be pledged to others or withdrawn
without the consent of the bank.
Note 9 – Equity
During each
of the nine-month periods ended September 30, 2018 and September 30, 2017, 100,000 options were granted. The vesting period for
the options is three years. The exercise prices for the options that were granted during the nine months ended September 30, 2018
and September 30, 2017, are $1.33 and $1.58, respectively. Those options expire up to five years after the date of grant. Any options
which are forfeited or cancelled before expiration become available for future grants under the Company’s option plan. The
fair value of each option granted to employees during the nine months ended September 30, 2018 and September 30, 2017 was estimated
on the date of grant, using the Black-Scholes model and the following assumptions:
|
|
|
Nine months ended
September 30,
|
|
|
|
|
2018
|
|
|
2017
|
|
|
Expected dividend yield
|
|
|
0
|
%
|
|
|
0
|
%
|
|
Expected volatility
|
|
|
80
|
%
|
|
|
74
|
%
|
|
Risk-free interest rate
|
|
|
1.92
|
%
|
|
|
1.35
|
%
|
|
Expected life - in years
|
|
|
2.33
|
|
|
|
3.5
|
|
On Track Innovations Ltd.
and Subsidiaries
Notes to the Interim
Unaudited Condensed Consolidated Financial Statements
US dollars in thousands
Note 9 – Equity (cont’d)
|
A.
|
Stock option plans (cont’d)
|
|
1.
|
Dividend yield of zero percent for all periods.
|
|
2.
|
Expected average volatility represents a weighted average
standard deviation rate for the price of the Company’s ordinary shares on Nasdaq.
|
|
3.
|
Risk-free interest rate is based on the U.S. Treasury
yield curve in effect at the time of grant.
|
|
4.
|
For options granted during the nine months ended September
30, 2018 - estimated expected lives are based on historical grants data. For the nine months ended September 30, 2017 estimated
expected lives are according to the simplified method.
|
The Company’s options
activity (including options to non-employees) during the nine months ended September 30, 2018 and options outstanding and options
exercisable as of December 31, 2017 and September 30, 2018, are summarized in the following table:
|
|
|
Number of
|
|
|
Weighted
|
|
|
|
|
options
|
|
|
average exercise
|
|
|
|
|
outstanding
|
|
|
price per share
|
|
|
Outstanding – December 31, 2017
|
|
|
1,495,000
|
|
|
$
|
1.27
|
|
|
|
|
|
|
|
|
|
|
|
|
Options granted
|
|
|
100,000
|
|
|
|
1.33
|
|
|
Options expired or forfeited
|
|
|
(196,335
|
)
|
|
|
1.25
|
|
|
Options exercised
|
|
|
(39,999
|
)
|
|
|
0.86
|
|
|
Outstanding – September 30, 2018
|
|
|
1,358,666
|
|
|
|
1.29
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable as of:
|
|
|
|
|
|
|
|
|
|
December 31, 2017
|
|
|
681,321
|
|
|
$
|
1.45
|
|
|
September 30, 2018
|
|
|
696,655
|
|
|
$
|
1.39
|
|
The weighted
average fair value of options granted during the nine months ended September 30, 2018 and during the nine months ended September
30, 2017 is $0.65 and $0.93, respectively, per option. The aggregate intrinsic value of outstanding options as of September 30,
2018 and December 31, 2017 is approximately $105 and $448, respectively. The aggregate intrinsic value of exercisable options as
of September 30, 2018 and December 31, 2017 is approximately $85 and $206, respectively.
On Track Innovations Ltd.
and Subsidiaries
Notes to the Interim
Unaudited Condensed Consolidated Financial Statements
US dollars in thousands
Note 9 – Equity (cont’d)
|
A.
|
Stock option plans (cont’d)
|
The following table summarizes
information about options outstanding and exercisable (including options to non-employees) as of September 30, 2018:
|
|
|
Options outstanding
|
|
|
Options exercisable
|
|
|
|
|
Number
|
|
|
Weighted
|
|
|
|
|
|
Number
|
|
|
Weighted
|
|
|
|
|
|
|
|
Outstanding
|
|
|
average
|
|
|
Weighted
|
|
|
Outstanding
|
|
|
average
|
|
|
Weighted
|
|
|
|
|
as of
|
|
|
remaining
|
|
|
Average
|
|
|
As of
|
|
|
remaining
|
|
|
Average
|
|
|
Range of
|
|
September 30,
|
|
|
contractual
|
|
|
Exercise
|
|
|
September 30,
|
|
|
contractual
|
|
|
Exercise
|
|
|
exercise price ($)
|
|
2018
|
|
|
life (years)
|
|
|
Price
|
|
|
2018
|
|
|
life (years)
|
|
|
Price
|
|
|
0.44- 0.90
|
|
|
420,000
|
|
|
|
2.23
|
|
|
$
|
0.74
|
|
|
|
343,333
|
|
|
|
2.21
|
|
|
$
|
0.74
|
|
|
1.07-1.68
|
|
|
713,666
|
|
|
|
3.65
|
|
|
|
1.23
|
|
|
|
128,322
|
|
|
|
2.99
|
|
|
|
1.23
|
|
|
2.32-2.36
|
|
|
185,000
|
|
|
|
0.59
|
|
|
|
2.35
|
|
|
|
185,000
|
|
|
|
0.59
|
|
|
|
2.35
|
|
|
3.03
|
|
|
40,000
|
|
|
|
0.98
|
|
|
$
|
3.03
|
|
|
|
40,000
|
|
|
|
0.98
|
|
|
$
|
3.03
|
|
|
|
|
|
1,358,666
|
|
|
|
2.72
|
|
|
|
|
|
|
|
696,655
|
|
|
|
1.85
|
|
|
|
|
|
As of September 30, 2018, there
was approximately $247 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 1.2 years.
During the nine months ended
September 30, 2018 and September 30, 2017, the Company recorded stock-based compensation expenses in the amount of $180 and $238,
respectively, in accordance with ASC 718, “Compensation-Stock Compensation.”
|
1.
|
During the nine months ended September 30, 2018, no
warrants expired or were exercised into ordinary shares.
|
|
2.
|
As of September 30, 2018, there are remaining 40,000
outstanding warrants issued to one of the Company’s consultants during 2016 with a per share exercise price of $0.95. The
warrants expire during 2019.
|
|
C.
|
Stock options and warrants in the amounts of 1,398,666
and 1,433,500 outstanding as of the nine months ended September 30, 2018 and 2017, respectively, have been excluded from the calculation
of the diluted net loss from continuing operations per ordinary share because all such securities have an anti-dilutive effect
for all periods presented.
|
|
D.
|
Shares to non-employees
|
During the nine months ended
September 30, 2018 and September 30, 2017, the Company issued 80,000 and 45,000 ordinary shares, respectively, to its consultants.
The expenses that are recognized due to those grants are immaterial and are presented within ’stock-based compensation’
in the statement of changes in equity for the nine months ended September 30, 2018 and September 30, 2017.
On Track Innovations Ltd.
and Subsidiaries
Notes to the Interim
Unaudited Condensed Consolidated Financial Statements
US dollars in thousands
Note 10 - Operating segments
For the purposes of allocating resources
and assessing performance in order to improve profitability, the Company’s chief operating decision maker (“CODM”)
examines two segments which are the Company’s strategic business units: (1) Retail and Mass Transit Ticketing; and (2) Petroleum.
In addition to its two reportable segments, certain products for the medical industry and other secure smart card solutions are
classified under the Company’s “Other” segment.
Information regarding the results of each
reportable segment is included below based on the internal management reports that are reviewed by the CODM.
|
|
Three months ended September 30,
2018
|
|
|
|
Petroleum
|
|
|
Retail and
Mass Transit
Ticketing
|
|
|
Other
|
|
|
Consolidated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
1,317
|
|
|
$
|
4,740
|
|
|
$
|
416
|
|
|
$
|
6,473
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reportable segment gross profit (*)
|
|
|
682
|
|
|
|
2,706
|
|
|
|
237
|
|
|
|
3,625
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation of reportable segment gross profit to gross profit for the period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(202
|
)
|
Stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit for the period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
3,422
|
|
|
|
Three months ended September 30,
2017
|
|
|
|
Petroleum
|
|
|
Retail and
Mass Transit
Ticketing
|
|
|
Other
|
|
|
Consolidated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
917
|
|
|
$
|
3,231
|
|
|
$
|
522
|
|
|
$
|
4,670
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reportable segment gross profit (*)
|
|
|
493
|
|
|
|
1,859
|
|
|
|
325
|
|
|
|
2,677
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation of reportable segment gross profit to gross profit for the period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(199
|
)
|
Stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit for the period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,478
|
|
On Track Innovations Ltd.
and Subsidiaries
Notes to the Interim
Unaudited Condensed Consolidated Financial Statements
US dollars in thousands
Note 10 - Operating segments (cont’d)
|
|
Nine months ended September 30,
2018
|
|
|
|
Petroleum
|
|
|
Retail and
Mass Transit
Ticketing
|
|
|
Other
|
|
|
Consolidated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
3,942
|
|
|
$
|
13,306
|
|
|
$
|
1,241
|
|
|
$
|
18,489
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reportable segment gross profit (*)
|
|
|
2,000
|
|
|
|
7,455
|
|
|
|
885
|
|
|
|
10,340
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation of reportable segment gross profit to profit for the period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(626
|
)
|
Stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit for the period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
9,711
|
|
|
|
Nine months ended September 30,
2017
|
|
|
|
Petroleum
|
|
|
Retail and
Mass Transit
Ticketing
|
|
|
Other
|
|
|
Consolidated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
3,645
|
|
|
$
|
10,654
|
|
|
$
|
1,337
|
|
|
$
|
15,636
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reportable segment gross profit (*)
|
|
|
1,889
|
|
|
|
6,068
|
|
|
|
794
|
|
|
|
8,751
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation of reportable segment gross profit to profit for the period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(582
|
)
|
Stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit for the period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
8,168
|
|
(*) Gross profit as reviewed by the CODM, represents gross profit,
adjusted to exclude depreciation and stock-based compensation.
Item
2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Forward
- Looking Statements
The
statements contained in this Quarterly Report on Form 10-Q, or Quarterly Report, that are not historical facts are “forward-looking
statements” within the meaning of the Private Securities Litigation Reform Act of 1995 and other federal securities laws.
Such forward-looking statements may be identified by, among other things, the use of forward-looking terminology such as “believes,”
“intends,” “plans”, “expects,” “may,” “will,” “should,”
or “anticipates” or the negative thereof or other variations thereon or comparable terminology, and similar expressions
are intended to identify forward-looking statements. We remind readers that forward-looking statements are merely predictions
and therefore are inherently subject to uncertainties and other factors and involve known and unknown risks that could cause the
actual results, performance, levels of activity, or our achievements, or industry results, to be materially different from any
actual future results, performance, levels of activity, or our achievements, or industry results, expressed or implied by such
forward-looking statements. Such forward-looking statements may appear in this Item 2 “Management’s Discussion and
Analysis of Financial Condition and Results of Operations” as well as elsewhere in this Quarterly Report and include, among
other statements, statements regarding the following:
●
|
our
expectations regarding the growth of the near-field communication, or NFC, market;
|
●
|
the
expected development and potential benefits from our existing or future products or our
intellectual property, or IP;
|
●
|
increased
generation of revenues from licensing, transaction fees and/or other arrangements;
|
●
|
future
sources of revenue, ongoing relationships with current and future business partners,
distributors, suppliers, customers, end-user customers and resellers;
|
●
|
our
intention to generate additional recurring revenues, licensing and transaction fees;
|
●
|
future
costs and expenses and adequacy of capital resources;
|
●
|
our
intention to continue to expand our market presence via strategic partnerships around
the globe;
|
●
|
our
expectations that revenues from our business will grow in the next years, and the expected
reasons for that growth;
|
●
|
our
expectations regarding our short-term and long-term capital requirements;
|
●
|
our
intention to continue to invest in research and development;
|
●
|
our
outlook for the coming months;
|
●
|
information
with respect to any other plans and strategies for our business; and
|
●
|
our
development of capabilities to implement Bitcoin acceptance and other cryptocurrency
and our intention to become Bitcoin and other cryptocurrency acceptable in transactions
via NFC, Bluetooth or QR code.
|
The
factors discussed herein, including those risk factors expressed from time to time in our press releases or filings with the Securities
and Exchange Commission, or the SEC, could cause actual results and developments to be materially different from those expressed
in or implied by such statements. Readers are cautioned not to place undue reliance on these forward-looking statements, which
speak and are made only as of the date of this filing.
Our
business and operations are subject to substantial risks, which increase the uncertainty inherent in the forward-looking statements
contained in this Quarterly Report. Except as required by law, we undertake no obligation to release publicly the result
of any revision to these forward-looking statements that may be made to reflect events or circumstances after the date hereof
or to reflect the occurrence of unanticipated events. Further information on potential factors that could affect our business
is described among others under the heading “Risk Factors” in Part I, Item 1A of our Annual Report on Form 10-K for
the fiscal year ended December 31, 2017 filed with the SEC. Readers are also urged to carefully review and consider the various
disclosures we have made in that report.
As
used in this Quarterly Report, the terms “we”, “us”, “our”, “the Company”, and “OTI”
mean On Track Innovations Ltd. and our subsidiaries, unless otherwise indicated or as otherwise required by the context.
All
figures in this Quarterly Report are stated in United States dollars, unless otherwise specified herein.
Overview
We
are a fintech pioneer and a leading developer of cutting-edge secure cashless payment solutions providing global enterprises with
innovative technology for over two decades. We operate in two main segments: (1) Retail and Mass Transit Ticketing; and (2) Petroleum.
In addition to our two reportable segments, certain products for the medical industry and other secure smart card solutions are
classified under “Other” in segment analysis appearing in this Quarterly Report.
Our
vision is to strengthen our global presence with innovative solutions and provide our customers with the best possible support
in superior service and reliable advanced products.
OTI
continually strives to discover the technology of the future and keep abreast of new developments in the fintech marketplace.
At this time, we are trying to develop Bitcoin capability in the crypto-currency marketplace and we intend to become Bitcoin acceptable
in transactions via NFC, Bluetooth or QR code.
Our
IP portfolio includes registered patents and patent applications worldwide. Since our incorporation in 1990, we have built an
international reputation for reliability and innovation, deploying many solutions for unattended retail, mass transit, banking,
medical smart card, Internet of Payment Things, or IoPT, and the petroleum management industries.
We
operate a global network of regional offices, distributors and partners to support various solutions deployed across the globe.
We focus on our core business of providing innovative cashless payment solutions based, among other things, on our contactless
NFC technology. We continue to focus our efforts to further develop new and unique product solutions, including by the introduction
of our new products and solutions for the unattended payment market and IoPT technology.
This
discussion and analysis should be read in conjunction with our interim condensed consolidated financial statements and notes thereto
contained in “Item 1. Financial Statements” of this Quarterly Report.
Results
of Operations
Discontinued
operations
. In September 2016, we completed the sale of certain assets and IP related to our parking business. In December
2013, we completed the sale of certain assets, certain subsidiaries and IP directly related to our SmartID division. The results
from such operations and the cash flows for the reporting periods are presented in the statements of operations and in the statements
of cash flows, respectively, as discontinued operations separately from continuing operations. All the data in this Quarterly
Report that are derived from our financial statements, unless otherwise specified, exclude the results of those discontinued operations.
Three
months ended September 30, 2018, compared to the three months ended September 30, 2017 Sources of Revenue
We
have historically derived a substantial majority of our revenues from the sale of our products, including both complete systems
and original equipment manufacturer components. In addition, we generate revenues from licensing and transaction fees, and also,
less significantly, from engineering services, customer services and technical support. During the three months ended September
30, 2018 and September 30, 2017, the revenues that we derived from sales and licensing and transaction fees were as follows (in
thousands):
|
|
Three
months ended
September 30,
|
|
|
|
2018
|
|
|
2017
|
|
Sales
|
|
$
|
5,020
|
|
|
$
|
3,445
|
|
Licensing and transaction fees
|
|
$
|
1,453
|
|
|
$
|
1,225
|
|
Total revenues
|
|
$
|
6,473
|
|
|
$
|
4,670
|
|
Sales.
Sales increased by $1.6 million, or 46%, in the three months ended September 30, 2018, compared to the three months ended
September 30, 2017. The increase is mainly attributed to an increase in Retail and Mass Transit Ticketing segment sales in Japan
and Europe and to an increase in Petroleum products in the United States, partially offset by a decrease in sales of readers in
the United States.
Licensing
and transaction fees
. Licensing and transaction fees include single and periodic payments for distribution rights for our
products. Transaction fees are paid by customers based on the volume of transactions processed by systems that contain our products.
Our licensing and transaction fees in the three months ended September 30, 2018, compared to the three months ended September
30, 2017, increased by $228,000, or 19%. This increase is mainly attributed to an increase in licensing and transaction fees related
to our otiMetry solution in Europe and Japan and to our Mass Transit Ticketing operation in Europe.
We
have historically derived revenues from different geographical areas. The following table sets forth our revenues (in
thousands) and as a percentage of revenues in different geographical areas, in the three months ended September 30, 2018 and September
30, 2017:
Three months ended September 30,
|
|
Africa
|
|
|
Europe
|
|
|
APAC
|
|
|
Americas
|
|
2018
|
|
$
|
992
|
|
|
|
15
|
%
|
|
$
|
2,517
|
|
|
|
39
|
%
|
|
$
|
1,548
|
|
|
|
24
|
%
|
|
$
|
1,416
|
|
|
|
22
|
%
|
2017
|
|
$
|
999
|
|
|
|
21
|
%
|
|
$
|
1,421
|
|
|
|
30
|
%
|
|
$
|
73
|
|
|
|
2
|
%
|
|
$
|
2,177
|
|
|
|
47
|
%
|
Our
revenues from sales in Africa in the three months ended September 30, 2018, compared to the three months ended September 30, 2017,
remained consistent.
Our
revenues from sales in Europe increased by $1.1 million, or 77%, in the three months ended September 30, 2018, compared to the
three months ended September 30, 2017, mainly due to an increase of sales of readers and licensing and transaction fees.
Our
revenues from sales in Asia-Pacific region, or APAC, increased by $1.5 million, or 2,020%, in the three months ended September
30, 2018, compared to the three months ended September 30, 2017, mainly due to an increase in sales of our Uno Plus and GoBox
products in Japan.
Our
revenues from sales in Americas decreased by $761,000, or 35%, in the three months ended September 30, 2018, compared to the three
months ended September 30, 2017, mainly due to a decrease in sales of readers, partially offset by an increase in Petroleum products.
Our
revenues derived from outside the United States, which are primarily received in currencies other than the U.S. dollar, will have
a varying impact upon our total revenues, as a result of fluctuations in such currencies’ exchange rates versus the U.S.
dollar.
The
following table sets forth our revenues (in thousands) and as a percentage of revenues by segments, during the three months ended
September 30, 2018 and September 30, 2017:
Three months ended
September 30,
|
|
Petroleum
|
|
|
Retail and Mass Transit Ticketing
|
|
|
Other
|
|
2018
|
|
$
|
1,317
|
|
|
|
20
|
%
|
|
$
|
4,740
|
|
|
|
73
|
%
|
|
$
|
416
|
|
|
|
7
|
%
|
2017
|
|
$
|
917
|
|
|
|
20
|
%
|
|
$
|
3,231
|
|
|
|
69
|
%
|
|
$
|
522
|
|
|
|
11
|
%
|
Our
revenues in the three months ended September 30, 2018, from Petroleum increased by $400,000, or 44%, compared to the three months
ended September 30, 2017, mainly due to an increase in sales of products to the U.S. market.
Our
revenues from Retail and Mass Transit Ticketing in the three months ended September 30, 2018, increased by $1.5 million, or 47%,
compared to the three months ended September 30, 2017, mainly due to an increase in sales in Japan and an increase in sales of
readers in Europe, partially offset by a decrease in sales of readers in the United States.
Our
revenues in the three months ended September 30, 2018, from our Other segment decreased by $106,000, or 20%, compared to the three
months ended September 30, 2017, mainly due to a decrease in sales of our MediSmart products in East Africa.
Cost
of Revenues and Gross Margin
Our
cost of revenues, presented by gross profit and gross margin percentage, in the three months ended September 30, 2018 and September
30, 2017, were as follows (in thousands):
Cost of revenues
|
|
Three months ended
September 30,
|
|
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
Cost of sales
|
|
$
|
3,051
|
|
|
$
|
2,192
|
|
Gross profit
|
|
$
|
3,422
|
|
|
$
|
2,478
|
|
Gross margin percentage
|
|
|
53
|
%
|
|
|
53
|
%
|
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 $859,000, or 39%, in the three months ended
September 30, 2018, compared to the three months ended September 30, 2017, resulted primarily from an increase in revenues.
Gross
margin.
Gross margin in the three months ended September 30, 2018, compared to the three months ended September 30, 2017,
remained consistent.
Operating
expenses
Our
operating expenses in the three months ended September 30, 2018 and September 30, 2017, were as follows (in thousands):
Operating expenses
|
|
Three months ended September
30,
|
|
|
|
2018
|
|
|
2017
|
|
Research and development
|
|
$
|
777
|
|
|
$
|
823
|
|
Selling and marketing
|
|
$
|
1,592
|
|
|
$
|
1,332
|
|
General and administrative
|
|
$
|
1,098
|
|
|
$
|
758
|
|
Total operating expenses
|
|
$
|
3,467
|
|
|
$
|
2,913
|
|
Research
and development.
Our research and development expenses consist primarily of the salaries and related expenses of
our research and development staff, as well as subcontracting expenses. The decrease of $46,000, or 6%, in the three months
ended September 30, 2018, compared to the three months ended September 30, 2017, is primarily attributed to a decrease in research
and development employment expenses.
Selling
and marketing.
Our selling and marketing expenses consist primarily of salaries and substantially all of the expenses
of our sales and marketing subsidiaries and offices in the United States, South Africa and Europe, as well as expenses related
to advertising, professional expenses and participation in exhibitions and tradeshows. The increase of $260,000, or 20%,
in the three months ended September 30, 2018, compared to the three months ended September 30, 2017, is primarily attributed to
an increase in the number of selling and marketing employees and to a lesser extent to an increase in marketing and advertising
expenses.
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 lawyers and accountants), office expenses, insurance, general and administrative expenses. The increase of $340,000,
or 45%, in the three months ended September 30, 2018, compared to the three months ended September 30, 2017, is primarily attributed
to income that we derived in 2017 from our lawsuit against Harel Insurance Company Ltd., or Harel for damages incurred by us due
to flooding in a subcontractor’s manufacturing site, and to an increase in general and administrative employment expenses,
partially offset by a decrease in professional expenses.
Financing
expenses, net
Our
financing expenses, net, in the three months ended September 30, 2018 and September 30, 2017, were as follows (in thousands):
|
|
Three months ended September
30,
|
|
|
|
2018
|
|
|
2017
|
|
Financing expenses, net
|
|
$
|
(2
|
)
|
|
$
|
(126
|
)
|
Financing
expenses consist primarily of interest payable on bank loans, bank commissions and foreign exchange losses. Financing income consists
primarily of foreign exchange gains and interest earned on investments in short-term deposits. The decrease in financing expenses,
net in the three months ended September 30, 2018, compared to the three months ended September 30, 2017, of $124,000, or 98%,
is mainly attributed to exchange rate differentials and to a decrease in interest expenses due to reduction of our short-term
and long-term bank loans.
Net
loss from continuing operations
Our
net loss
from continuing operations in the three months ended September 30, 2018 and September 30, 2017, was as follows
(in thousands):
|
|
Three
months ended
September
30,
|
|
|
|
2018
|
|
|
2017
|
|
Net loss from continuing operations
|
|
$
|
(158
|
)
|
|
$
|
(573
|
)
|
The
decrease in net loss from continuing operations of $415,000, in the three months ended September 30, 2018, compared to the three
months ended September 30, 2017 is due to an increase in our sales and an increase in our gross profit and decrease in financial
expenses, net, partially offset by an increase in our operating expenses.
Net
(loss) income from discontinued operations
Our
net (loss) income from discontinued operations in the three months ended September 30, 2018 and September 30, 2017, was as follows
(in thousands):
|
|
Three
months ended
September
30,
|
|
|
|
2018
|
|
|
2017
|
|
Net (loss) income from discontinued operations
|
|
$
|
(26
|
)
|
|
$
|
1,441
|
|
The
results from these operations for the reporting periods are presented in the statements of operations as discontinued operations
separately from continuing operations.
The
change of $1.5 million in net (loss) income from discontinued operations in the three months ended September 30, 2018, compared
to the three months ended September 30, 2017, is mainly attributed to $1.6 million net, recovered by us in 2017 pursuant to the
August 23, 2017 judgment of the Israeli Central District Court in a lawsuit against Harel for damages incurred by us due to flooding
in a subcontractor’s manufacturing site.
Net
(loss) income
Our
net (loss) income in the three months ended September 30, 2018 and September 30, 2017, was as follows (in thousands):
|
|
Three
months ended
September
30,
|
|
|
|
2018
|
|
|
2017
|
|
Net (loss) income
|
|
$
|
(184
|
)
|
|
$
|
868
|
|
The
change in net (loss) income of $1.1 million in the three months ended September 30, 2018, compared to the three months ended September
30, 2017, is due to a decrease in our loss from continuing operations, offset by net income from discontinued operations
in 2017, as described above.
Nine
months ended September 30, 2018, compared to the nine months ended September 30, 2017
Sources
of Revenue
During
the nine months ended September 30, 2018 and September 30, 2017, the revenues that we derived from sales and licensing and transaction
fees were as follows (in thousands):
|
|
Nine months ended
September 30,
|
|
|
|
2018
|
|
|
2017
|
|
Sales
|
|
$
|
14,157
|
|
|
$
|
11,871
|
|
Licensing and transaction fees
|
|
$
|
4,332
|
|
|
$
|
3,765
|
|
Total revenues
|
|
$
|
18,489
|
|
|
$
|
15,636
|
|
Sales
.
Sales increased by $2.3 million, or 19%, in the nine months ended September 30, 2018, compared to the nine months ended September
30, 2017. The increase is mainly attributed to an increase in Retail and Mass Transit Ticketing segment sales in Japan, Europe
and in the United States and to an increase in Petroleum products in the United States, partially offset by a decrease in Petroleum
product sales in Africa.
Licensing
and transaction fees
. Our licensing and transaction fees in the nine months ended September 30, 2018, compared to the nine
months ended September 30, 2017, increased by $567,000, or 15%. This increase is mainly attributed to an increase in licensing
and transaction fees related to our otiMetry solution in Europe and Japan and to our Mass Transit Ticketing operation in Europe.
We
have historically derived revenues from different geographical areas. The following table sets forth our revenues (in
thousands) and as a percentage of revenues in different geographical areas, in the nine months ended September 30, 2018 and September
30, 2017:
Nine months ended September 30,
|
|
Africa
|
|
|
Europe
|
|
|
APAC
|
|
|
Americas
|
|
2018
|
|
$
|
2,998
|
|
|
|
16
|
%
|
|
$
|
6,313
|
|
|
|
34
|
%
|
|
$
|
2,794
|
|
|
|
15
|
%
|
|
$
|
6,384
|
|
|
|
35
|
%
|
2017
|
|
$
|
3,352
|
|
|
|
21
|
%
|
|
$
|
5,355
|
|
|
|
34
|
%
|
|
$
|
1,807
|
|
|
|
12
|
%
|
|
$
|
5,122
|
|
|
|
33
|
%
|
Our
revenues from sales in Africa decreased by $354,000, or 11%, in the nine months ended September 30, 2018, compared to the nine
months ended September 30, 2017, mainly due to a decrease in sales of Petroleum products.
Our
revenues from sales in Europe increased by $958,000, or 18%, in the nine months ended September 30, 2018, compared to the nine
months ended September 30, 2017, mainly due to an increase of sales of readers and licensing and transaction fees.
Our
revenues from sales in APAC increased by $987,000, or 55%, in the nine months ended September 30, 2018, compared to the nine months
ended September 30, 2017, mainly due to an increase in sales in the Japanese market.
Our
revenues from sales in Americas increased by $1.3 million, or 25%, in the nine months ended September 30, 2018, compared to the
nine months ended September 30, 2017, mainly due to an increase in sales of Petroleum products and an increase in sales of readers
to the U.S. market.
Our
revenues derived from outside the United States, which are primarily received in currencies other than the U.S. dollar, will have
a varying impact upon our total revenues, as a result of fluctuations in such currencies’ exchange rates versus the U.S.
dollar.
The
following table sets forth our revenues (in thousands) and as a percentage of revenues by segments, during the nine months ended
September 30, 2018 and September 30, 2017:
Nine months ended
September 30,
|
|
Petroleum
|
|
|
Retail and Mass Transit Ticketing
|
|
|
Other
|
|
2018
|
|
$
|
3,942
|
|
|
|
21
|
%
|
|
$
|
13,306
|
|
|
|
72
|
%
|
|
$
|
1,241
|
|
|
|
7
|
%
|
2017
|
|
$
|
3,645
|
|
|
|
23
|
%
|
|
$
|
10,654
|
|
|
|
68
|
%
|
|
$
|
1,337
|
|
|
|
9
|
%
|
Our
revenues in the nine months ended September 30, 2018, from Petroleum increased by $297,000, or 8%, compared to the nine months
ended September 30, 2017, mainly due to an increase in sales of Petroleum products in the United States, partially offset by a
decrease in sales of Petroleum products in Africa.
Our
revenues from Retail and Mass Transit Ticketing in the nine months ended September 30, 2018, increased by $2.7 million, or 25%,
compared to the nine months ended September 30, 2017, mainly due to an increase in sales in Japan and an increase in sales of
readers in the United States and Europe.
Our
revenues in the nine months ended September 30, 2018, from our Other segment decreased by $96,000, or 7%, compared to the nine
months ended September 30, 2017, mainly due to a decrease in sales of access control products sales in Asia, partially offset
by an increase in sales of MediSmart products in Africa.
Cost
of Revenues and Gross Margin
Our
cost of revenues, presented by gross profit and gross margin percentage, in the nine months ended September 30, 2018 and September
30, 2017, were as follows (in thousands):
Cost of revenues
|
|
Nine months ended
September 30,
|
|
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
Cost of sales
|
|
$
|
8,778
|
|
|
$
|
7,468
|
|
Gross profit
|
|
$
|
9,711
|
|
|
$
|
8,168
|
|
Gross margin percentage
|
|
|
53
|
%
|
|
|
52
|
%
|
Cost
of sales.
The increase of $1,310,000, or 18%, in the nine months ended September 30, 2018, compared to the nine
months ended September 30, 2017, resulted primarily from an increase in our revenues.
Gross
margin.
Our increase in gross margin, in the nine months ended September 30, 2018, compared to the nine months ended September
30, 2017, is mainly attributed to a change in our revenue mix and an increase in sales.
Operating
expenses
Our
operating expenses in the nine months ended September 30, 2018 and September 30, 2017, were as follows (in thousands):
Operating expenses
|
|
Nine months ended
September 30,
|
|
|
|
2018
|
|
|
2017
|
|
Research and development
|
|
$
|
2,422
|
|
|
$
|
2,414
|
|
Selling and marketing
|
|
$
|
4,700
|
|
|
$
|
4,166
|
|
General and administrative
|
|
$
|
3,070
|
|
|
$
|
2,553
|
|
Total operating expenses
|
|
$
|
10,192
|
|
|
$
|
9,133
|
|
Research
and development.
Our research and development expenses in the nine months ended September 30, 2018, compared to the
nine months ended September 30, 2017, remained consistent.
Selling
and marketing.
The increase of $534,000, or 13%, in the nine months ended September 30, 2018, compared to the nine months
ended September 30, 2017, is primarily attributed to an increase in the number of selling and marketing employees and to a lesser
extent to an increase in marketing and advertising expenses.
General
and administrative.
The increase of $517,000, or 20%, in the nine months ended September 30, 2018, compared to the nine
months ended September 30, 2017, is primarily attributed to income that we derived in 2017 from our lawsuit against Harel for
damages incurred by us due to flooding in a subcontractor’s manufacturing site, and to an increase in general and administrative
employment expenses, partially offset by a decrease in professional expenses.
Financing
expenses, net
Our
financing expenses, net, in the nine months ended September 30, 2018 and September 30, 2017, were as follows (in thousands):
|
|
Nine months ended
September 30,
|
|
|
|
2018
|
|
|
2017
|
|
Financing expenses, net
|
|
$
|
(129
|
)
|
|
$
|
(236
|
)
|
The
decrease of financing expenses, net in the nine months ended September 30, 2018, compared to the nine months ended September 30,
2017, of $107,000, or 45%, is mainly attributed to exchange rate differentials and to a decrease in interest expenses due to reduction
of our short-term and long-term bank loans.
Net
loss from continuing operations
Our
net loss
from continuing operations in the nine months ended September 30, 2018 and September 30, 2017, was as follows
(in thousands):
|
|
Nine
months ended
September
30,
|
|
|
|
2018
|
|
|
2017
|
|
Net loss from continuing operations
|
|
$
|
(683
|
)
|
|
$
|
(1,269
|
)
|
The
decrease in net loss from continuing operations of $586,000, or 46%, in the nine months ended September 30, 2018, compared
to the nine months ended September 30, 2017, is primarily due to an increase in our sales and an increase in our gross profit
and a decrease in financial expenses, net, partially offset by an increase in our operating expenses.
Net
(loss) income from discontinued operations
Our
net (loss) income from discontinued operations in the nine months ended September 30, 2018 and September 30, 2017, was as follows
(in thousands):
|
|
Nine
months ended
September
30,
|
|
|
|
2018
|
|
|
2017
|
|
Net income from discontinued operations
|
|
$
|
(114
|
)
|
|
$
|
1,365
|
|
The
change of $1.5 million in net (loss) income from discontinued operations in the nine months ended September 30, 2018, compared
to the nine months ended September 30, 2017 is mainly attributed to $1.6 million net, recovered by us in 2017 pursuant to the
judgment of the Israeli Central District Court in a lawsuit against Harel.
Net
(loss) income
Our
net (loss) income in the nine months ended September 30, 2018 and September 30, 2017, was as follows (in thousands):
|
|
Nine
months ended
September
30,
|
|
|
|
2018
|
|
|
2017
|
|
Net (loss) income
|
|
$
|
(797
|
)
|
|
$
|
96
|
|
The
change in net (loss) income of $893,000 in the nine months ended September 30, 2018, compared to the nine months ended September
30, 2017, is due to a decrease in our loss from continuing operations, offset by net income from discontinued operations
in 2017, as described above.
Liquidity
and Capital Resources
Our
principal sources of liquidity since our inception have been sales of equity securities, borrowings from banks, cash from the
exercise of options and warrants and proceeds from divestitures of parts of our businesses. We had cash, cash equivalents and
short-term investments representing bank deposits of $5.9 million as of September 30, 2018 (of which an amount of $0.3 million
has been pledged to secure performance guarantees granted to third parties and guarantees to secure customer advances, loans and
credit lines received from a bank), and $10.1 million as of December 31, 2017 (of which an amount of $1.0 million had then been
pledged to secure performance guarantees granted to third parties and guarantees to secure customer advances, loans and credit
lines received from a bank). We believe that we have sufficient capital resources to fund our operations in the next
12 months. We adhere to an investment policy which is intended to enable the Company to avoid being classified as a “passive
foreign investment company,” or PFIC, under U.S. law. That said, we cannot provide complete assurance that PFIC status will
be avoided in the future. In addition, our investment policy requires investment in high-quality investment-grade securities.
As of September 30, 2018, our long-term bank loans are denominated in the following currencies: Polish Zloty ($377,000, with maturity
dates ranging from 2018 through 2019) and South African Rand ($14,000, with maturity dates ranging from 2018 through 2019). As
of September 30, 2018, these loans bear interest at average rate of 3.62% per annum.
Our
composition of long-term loans as of September 30, 2018, was as follows (in thousands):
|
|
September 30,
2018
|
|
Long-term loans
|
|
$
|
391
|
|
Less - current maturities
|
|
|
383
|
|
|
|
$
|
8
|
|
Our
composition of short-term loans, bank credit and current maturities of long-term loans as of September 30, 2018, were as follows
(in thousands):
|
|
September 30, 2018
|
|
|
|
Interest rate
|
|
|
|
|
In U.S. dollars
|
|
|
4.73
|
%
|
|
$
|
101
|
|
In NIS
|
|
|
4.7
|
%
|
|
|
20
|
|
|
|
|
|
|
|
|
121
|
|
Current maturities of long-term loans
|
|
|
|
|
|
|
383
|
|
|
|
|
|
|
|
$
|
504
|
|
Our
and certain of our subsidiaries’ manufacturing facilities and certain equipment have been pledged as security in respect
of a loan received from a bank. As of September 30, 2018, our short-term deposits in the amount of $292,000 have been pledged
as security in respect of guarantees granted to third parties, loans and credit lines received from a bank. Such deposits cannot
be pledged to others or withdrawn without the consent of the bank.
As
of September 30, 2018, we granted guarantees to third parties including performance guarantees and guarantees to secure customer
advances in the sum of $365,000. The expiration dates of the guarantees range from October 2018 to June 2019.
Operating
activities related to continuing operations
For
the nine months ended September 30, 2018, net cash provided by continuing operating activities was $1.0 million, primarily due
to a $1.7 million decrease in trade receivables, $978,000 of depreciation expenses, a $668,000 increase in trade payables and
a $180,000 expense due to stock-based compensation issued to employees, partially offset by a $1.2 million increase in other receivables
and prepaid expenses, a $683,000 net loss from continuing operations, a $381,000 increase in inventory, a $273,000 decrease in
other current liabilities, a $25,000 gain on sale of property and equipment, a $20,000 decrease in deferred tax liability and
a $19,000 change in accrued severance pay, net.
For
the nine months ended September 30, 2017, net cash used in continuing operating activities was $2.4 million, primarily due to
a $1.3 million net loss from continuing operations, a $777,000 decrease in other current liabilities, a $710,000 increase in inventory,
a $611,000 decrease in trade payables, a $435,000 increase in other receivables and prepaid expenses, a $41,000 decrease in accrued
interest and a $9,000 gain on sale of property and equipment, partially offset by depreciation expenses of $878,000, a $238,000
expense due to stock-based compensation issued to employees, a $187,000 decrease in trade receivables, a $72,000 increase in accrued
severance pay and a $37,000 deferred tax expense.
Operating
activities related to discontinued operations
For
the nine months ended September 30, 2018, net cash used in discontinued operating activities was $115,000, related to the SmartID
division and previous parking business.
For
the nine months ended September 30, 2017, net cash used in discontinued operating activities was $86,000, related to the SmartID
division and previous parking business.
Investing
and financing activities related to continuing operations
For
the nine months ended September 30, 2018, net cash provided by continuing investing activities was $696,000, mainly due to $1.2
million in proceeds of short-term investments, $52,000 in proceeds from the sale of property and equipment and $8,000 in proceeds
from restricted deposits for employee benefits partially offset by $467,000 of purchases of property and equipment and $92,000
investment in capitalized product costs.
For
the nine months ended September 30, 2017, net cash provided by continuing investing activities was $2.6 million, mainly due to
$2.9 million in proceeds of short-term investments, $44,000 in proceeds from restricted deposits for employee benefits and $14,000
in proceeds from the sale of property and equipment, partially offset by $185,000 investment in capitalized product costs and
$160,000 purchases of property and equipment.
For
the nine months ended September 30, 2018, net cash used in continuing financing activities was $4.4 million, mainly due to $3.4
million decrease in short-term bank credit and a repayment of $979,000 of long-term bank loans, partially offset by proceeds of
$34,000 from the exercise of options.
For
the nine months ended September 30, 2017, net cash used in continuing financing activities was $516,000, mainly due to a repayment
of $469,000 of long-term bank loans and a $72,000 decrease in short-term bank credit, partially offset by proceeds of $25,000
from the exercise of options.
Investing
and financing activities related to discontinued operations
We
had no cash flows provided by or used in discontinued investing or financing activities in the nine months ended September 30,
2018 and September 30, 2017.
Off
Balance Sheet Arrangements
We
have no off balance sheet arrangements.