Item 1.
Financial Statements.
ON
TRACK INNOVATIONS LTD. AND ITS SUBSIDIARIES
INTERIM
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
As
of June 30, 2019
(Unaudited)
On
Track Innovations Ltd.
|
and
its Subsidiaries
|
|
Interim
Unaudited Condensed Consolidated Financial Statements as of June 30, 2019
|
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 Loss
|
F-5
|
|
|
Interim
Unaudited Condensed Consolidated Statements of Changes in Equity
|
F-6
|
|
|
Interim
Unaudited Condensed Consolidated Statements of Cash Flows
|
F-8
|
|
|
Notes
to the Interim Unaudited Condensed Consolidated Financial Statements
|
F-9
- F-25
|
On Track Innovations Ltd.
|
and its Subsidiaries
|
|
Interim Unaudited Condensed Consolidated
Balance Sheets
|
US
dollars in thousands except share data
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2019
|
|
|
2018
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
3,575
|
|
|
$
|
4,827
|
|
Short-term investments
|
|
|
2,105
|
|
|
|
1,078
|
|
Trade receivables (net of allowance for doubtful accounts of $564
and $555 as of June 30, 2019 and December 31, 2018, respectively)
|
|
|
2,793
|
|
|
|
4,530
|
|
Other receivables and prepaid expenses
|
|
|
1,457
|
|
|
|
2,060
|
|
Inventories
|
|
|
4,929
|
|
|
|
3,527
|
|
Asset held for sale
|
|
|
764
|
|
|
|
-
|
|
Total current assets
|
|
|
15,623
|
|
|
|
16,022
|
|
|
|
|
|
|
|
|
|
|
Long-term restricted deposit for employees benefit
|
|
|
463
|
|
|
|
451
|
|
|
|
|
|
|
|
|
|
|
Severance pay deposits
|
|
|
394
|
|
|
|
375
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net
|
|
|
3,981
|
|
|
|
5,033
|
|
|
|
|
|
|
|
|
|
|
Intangible assets, net
|
|
|
262
|
|
|
|
241
|
|
|
|
|
|
|
|
|
|
|
Right-of-use assets
|
|
|
1,696
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
22,419
|
|
|
$
|
22,122
|
|
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,
|
|
|
|
2019
|
|
|
2018
|
|
|
|
|
|
|
|
|
Liabilities and Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Liabilities
|
|
|
|
|
|
|
Short-term bank credit and current maturities of long-term
bank loans
|
|
$
|
2,811
|
|
|
$
|
260
|
|
Trade payables
|
|
|
5,226
|
|
|
|
4,712
|
|
Other current liabilities
|
|
|
2,248
|
|
|
|
3,622
|
|
Total current liabilities
|
|
|
10,285
|
|
|
|
8,594
|
|
|
|
|
|
|
|
|
|
|
Long-Term Liabilities
|
|
|
|
|
|
|
|
|
Long-term loans, net of current maturities
|
|
|
27
|
|
|
|
39
|
|
Long-term liabilities due to operating leases, net of current maturities
|
|
|
1,092
|
|
|
|
-
|
|
Accrued severance pay
|
|
|
916
|
|
|
|
853
|
|
Deferred tax liability
|
|
|
424
|
|
|
|
445
|
|
Total long-term liabilities
|
|
|
2,459
|
|
|
|
1,337
|
|
Total Liabilities
|
|
|
12,744
|
|
|
|
9,931
|
|
|
|
|
|
|
|
|
|
|
Commitments and Contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ordinary shares of NIS 0.1 par value; Authorized: 50,000,000 shares
as of June 30, 2019 and December 31, 2018; issued: 42,503,076 and 42,473,076 shares as of June 30, 2019 and December
31, 2018, respectively; outstanding: 41,324,377 and 41,294,377 shares as of June 30, 2019, and December 31, 2018, respectively
|
|
|
1,069
|
|
|
|
1,068
|
|
Additional paid-in capital
|
|
|
225,111
|
|
|
|
225,022
|
|
Treasury shares at cost - 1,178,699 shares as of June 30, 2019 and
December 31, 2018
|
|
|
(2,000
|
)
|
|
|
(2,000
|
)
|
Accumulated other comprehensive loss
|
|
|
(918
|
)
|
|
|
(956
|
)
|
Accumulated deficit
|
|
|
(213,587
|
)
|
|
|
(210,943
|
)
|
Total Equity
|
|
|
9,675
|
|
|
|
12,191
|
|
Total Liabilities and Equity
|
|
$
|
22,419
|
|
|
$
|
22,122
|
|
The
accompanying notes are an integral part of these interim unaudited condensed consolidated financial statements.
On
Track Innovations Ltd.
|
and
its Subsidiaries
|
|
Interim
Unaudited Condensed Consolidated Statements of Operations
|
US
dollars in thousands except share and per share data
|
|
Three months ended
June 30,
|
|
|
Six months ended
June 30,
|
|
|
|
2019
|
|
|
*
2018
|
|
|
2019
|
|
|
*
2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
|
|
$
|
2,933
|
|
|
$
|
4,352
|
|
|
$
|
4,655
|
|
|
$
|
8,593
|
|
Licensing and transaction fees
|
|
|
1,183
|
|
|
|
1,387
|
|
|
|
2,474
|
|
|
|
2,658
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
4,116
|
|
|
|
5,739
|
|
|
|
7,129
|
|
|
|
11,251
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales
|
|
|
1,742
|
|
|
|
2,849
|
|
|
|
3,112
|
|
|
|
5,481
|
|
Total cost of revenues
|
|
|
1,742
|
|
|
|
2,849
|
|
|
|
3,112
|
|
|
|
5,481
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
2,374
|
|
|
|
2,890
|
|
|
|
4,017
|
|
|
|
5,770
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
817
|
|
|
|
806
|
|
|
|
1,688
|
|
|
|
1,626
|
|
Selling and marketing
|
|
|
1,320
|
|
|
|
1,464
|
|
|
|
2,605
|
|
|
|
3,109
|
|
General and administrative
|
|
|
1,046
|
|
|
|
1,065
|
|
|
|
2,011
|
|
|
|
1,972
|
|
Total operating expenses
|
|
|
3,183
|
|
|
|
3,335
|
|
|
|
6,304
|
|
|
|
6,707
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss from continuing operations
|
|
|
(809
|
)
|
|
|
(445
|
)
|
|
|
(2,287
|
)
|
|
|
(937
|
)
|
Financial expenses, net
|
|
|
(37
|
)
|
|
|
(95
|
)
|
|
|
(106
|
)
|
|
|
(127
|
)
|
Loss from continuing operations before taxes on income
|
|
|
(846
|
)
|
|
|
(540
|
)
|
|
|
(2,393
|
)
|
|
|
(1,064
|
)
|
Income tax
|
|
|
(3
|
)
|
|
|
141
|
|
|
|
(8
|
)
|
|
|
265
|
|
Loss from continuing operations
|
|
|
(849
|
)
|
|
|
(399
|
)
|
|
|
(2,401
|
)
|
|
|
(799
|
)
|
Net (loss) income from discontinued operations
|
|
|
(50
|
)
|
|
|
119
|
|
|
|
(243
|
)
|
|
|
186
|
|
Net loss
|
|
$
|
(899
|
)
|
|
$
|
(280
|
)
|
|
$
|
(2,644
|
)
|
|
$
|
(613
|
)
|
Basic and diluted net (loss)
income attributable to shareholders per ordinary share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
From continuing operations
|
|
|
(0.02
|
)
|
|
|
(0.01
|
)
|
|
|
(0.06
|
)
|
|
|
(0.02
|
)
|
From discontinued operations
|
|
|
**
|
|
|
|
**
|
|
|
|
**
|
|
|
|
0.01
|
|
|
|
$
|
(0.02
|
)
|
|
$
|
(0.01
|
)
|
|
$
|
(0.06
|
)
|
|
$
|
(0.01
|
)
|
Weighted average number
of ordinary shares used in computing basic and diluted net (loss) income per ordinary share
|
|
|
41,300,641
|
|
|
|
41,271,644
|
|
|
|
41,297,526
|
|
|
|
41,243,169
|
|
|
*
|
Reclassified
to conform with the current period presentation, see Note 1C(2).
|
|
**
|
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,
|
|
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
Total comprehensive loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(899
|
)
|
|
$
|
(280
|
)
|
|
$
|
(2,644
|
)
|
|
$
|
(613
|
)
|
Foreign currency translation adjustments
|
|
|
101
|
|
|
|
(312
|
)
|
|
|
38
|
|
|
|
(254
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive loss
|
|
$
|
(798
|
)
|
|
$
|
(592
|
)
|
|
$
|
(2,606
|
)
|
|
$
|
(867
|
)
|
The
accompanying notes are an integral part of these interim unaudited condensed consolidated financial statements.
On
Track Innovations Ltd.
|
and
its Subsidiaries
|
|
Interim
Unaudited Condensed Consolidated Statements of Changes in Equity
|
US
dollars in thousands except for number of shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
Number of
|
|
|
|
|
|
Additional
|
|
|
Treasury
|
|
|
other
|
|
|
|
|
|
|
|
|
|
Shares
|
|
|
Share
|
|
|
paid-in
|
|
|
Shares
|
|
|
comprehensive
|
|
|
Accumulated
|
|
|
Total
|
|
|
|
issued
|
|
|
capital
|
|
|
capital
|
|
|
(at cost)
|
|
|
Income (loss)
|
|
|
deficit
|
|
|
equity
|
|
Balance as of March 31, 2018
|
|
|
42,353,077
|
|
|
$
|
1,064
|
|
|
$
|
224,811
|
|
|
$
|
(2,000
|
)
|
|
$
|
(633
|
)
|
|
$
|
(211,013
|
)
|
|
$
|
12,229
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes during the three months period ended
June 30, 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation
|
|
|
80,000
|
(*)
|
|
|
3
|
|
|
|
59
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
62
|
|
Exercise of options
|
|
|
39,999
|
|
|
|
1
|
|
|
|
33
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
34
|
|
Foreign currency translation adjustments
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(312
|
)
|
|
|
-
|
|
|
|
(312
|
)
|
Net loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(280
|
)
|
|
|
(280
|
)
|
Balance as of June 30, 2018
|
|
|
42,473,076
|
|
|
$
|
1,068
|
|
|
$
|
224,903
|
|
|
$
|
(2,000
|
)
|
|
$
|
(945
|
)
|
|
$
|
(211,293
|
)
|
|
$
|
11,733
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
(*)
See Note 10D.
The
accompanying notes are an integral part of these interim unaudited condensed consolidated financial statements.
On
Track Innovations Ltd.
|
and
its Subsidiaries
|
|
Interim
Unaudited Condensed Consolidated Statements of Changes in Equity
|
US
dollars in thousands except for number of shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
Number of
|
|
|
|
|
|
Additional
|
|
|
Treasury
|
|
|
other
|
|
|
|
|
|
|
|
|
|
Shares
|
|
|
Share
|
|
|
paid-in
|
|
|
Shares
|
|
|
comprehensive
|
|
|
Accumulated
|
|
|
Total
|
|
|
|
issued
|
|
|
capital
|
|
|
capital
|
|
|
(at cost)
|
|
|
Income (loss)
|
|
|
deficit
|
|
|
equity
|
|
Balance as of December
31, 2017
|
|
|
42,353,077
|
|
|
$
|
1,064
|
|
|
$
|
224,758
|
|
|
$
|
(2,000
|
)
|
|
$
|
(691
|
)
|
|
$
|
(210,680
|
)
|
|
$
|
12,451
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes during the six months period ended June
30, 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation
|
|
|
80,000
|
(*)
|
|
|
3
|
|
|
|
112
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
115
|
|
Exercise of options
|
|
|
39,999
|
|
|
|
1
|
|
|
|
33
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
34
|
|
Foreign currency translation adjustments
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(254
|
)
|
|
|
-
|
|
|
|
(254
|
)
|
Net loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(613
|
)
|
|
|
(613
|
)
|
Balance as of June 30, 2018
|
|
|
42,473,076
|
|
|
$
|
1,068
|
|
|
$
|
224,903
|
|
|
$
|
(2,000
|
)
|
|
$
|
(945
|
)
|
|
$
|
(211,293
|
)
|
|
$
|
11,733
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
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,
|
|
|
|
2019
|
|
|
*2018
|
|
Cash flows from continuing operating activities
|
|
|
|
|
|
|
Net loss from continuing operations
|
|
$
|
(2,401
|
)
|
|
$
|
(799
|
)
|
Adjustments required to reconcile net loss to net cash used in continuing operating activities:
|
|
|
|
|
|
|
|
|
Stock-based compensation related to options issued to employees and others
|
|
|
90
|
|
|
|
115
|
|
Accrued interest and linkage differences, net
|
|
|
(18
|
)
|
|
|
7
|
|
Depreciation and amortization
|
|
|
643
|
|
|
|
680
|
|
Deferred tax benefits, net
|
|
|
(24
|
)
|
|
|
(281
|
)
|
Gain on sale of fixed assets
|
|
|
(2
|
)
|
|
|
(17
|
)
|
|
|
|
|
|
|
|
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Accrued severance pay, net
|
|
|
44
|
|
|
|
(28
|
)
|
Decrease in trade receivables, net
|
|
|
1,254
|
|
|
|
1,051
|
|
Decrease in other receivables and prepaid expenses
|
|
|
597
|
|
|
|
249
|
|
Increase in inventories
|
|
|
(1,405
|
)
|
|
|
(344
|
)
|
Increase (decrease) in trade payables
|
|
|
585
|
|
|
|
(567
|
)
|
Decrease in other current liabilities
|
|
|
(540
|
)
|
|
|
(528
|
)
|
Net cash used in continuing operating activities
|
|
|
(1,177
|
)
|
|
|
(462
|
)
|
|
|
|
|
|
|
|
|
|
Cash flows from continuing investing activities
|
|
|
|
|
|
|
|
|
Purchase of property and equipment
|
|
|
(221
|
)
|
|
|
(414
|
)
|
Change in short-term investments, net
|
|
|
(1,190
|
)
|
|
|
1,173
|
|
Investment in capitalized product costs
|
|
|
(120
|
)
|
|
|
(87
|
)
|
Proceeds from restricted deposit for employee benefits
|
|
|
10
|
|
|
|
-
|
|
Proceeds from sale of fixed assets
|
|
|
10
|
|
|
|
17
|
|
Net cash (used in) provided by continuing investing activities
|
|
|
(1,511
|
)
|
|
|
689
|
|
|
|
|
|
|
|
|
|
|
Cash flows from continuing financing activities
|
|
|
|
|
|
|
|
|
Increase (decrease) in short-term bank credit, net
|
|
|
2,747
|
|
|
|
(80
|
)
|
Repayment of long-term bank loans
|
|
|
(233
|
)
|
|
|
(348
|
)
|
Proceeds from exercise of options
|
|
|
-
|
|
|
|
34
|
|
Net cash provided by (used in) continuing financing activities
|
|
|
2,514
|
|
|
|
(394
|
)
|
|
|
|
|
|
|
|
|
|
Cash flows from discontinued operations
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by discontinued operating activities
|
|
|
(1,304
|
)
|
|
|
289
|
|
Total net cash (used in) provided by discontinued
operations
|
|
|
(1,304
|
)
|
|
|
289
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash and cash equivalents
|
|
|
53
|
|
|
|
(288
|
)
|
|
|
|
|
|
|
|
|
|
Decrease in cash, cash equivalents and restricted cash
|
|
|
(1,425
|
)
|
|
|
(166
|
)
|
Cash, cash equivalents and restricted cash-beginning
of the period
|
|
|
5,105
|
|
|
|
7,799
|
|
|
|
|
|
|
|
|
|
|
Cash, cash equivalents and restricted cash-end of
the period
|
|
$
|
3,680
|
|
|
$
|
7,633
|
|
|
(*)
|
Reclassified
to conform with the current period presentation, see Note 1C(2).
|
Supplementary
cash flows activities:
Cash paid during the period for:
|
|
|
|
|
|
|
Interest paid
|
|
$
|
19
|
|
|
$
|
82
|
|
Income taxes paid
|
|
$
|
173
|
|
|
$
|
-
|
|
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 ordinary
shares are listed for trading on the Nasdaq Capital Market (formerly listed on the Nasdaq Global Market until April 13, 2016).
At June 30, 2019, the Company
operates in two operating segments: (a) Retail and Mass Transit Ticketing, and (b) Petroleum. See Note 11. During 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, 2018.
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 ended June 30, 2019 are not necessarily indicative of the results that may be expected for the
year ending December 31, 2019.
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 procedure. 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 the maximum earn-out amount, which equals $1,500 minus the earn-out amounts that were already paid by SuperCom to
the Company. As of the date hereof, the said arbitration verdict has been validated as a court verdict, and the Company is currently
taking actions to enforce it.
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, 2019 and 2018.
|
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 ("Smart") 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 (see also Note 8). All
prior periods’ information has been reclassified to conform with the current period’s
presentation.
|
|
D.
|
Events
in the reporting period
|
|
1.
|
On May 24, 2019, ASEC S.A. (Spolka Akcyjna), the Polish subsidiary of the
Company (hereinafter – “ASEC”), entered into a loan agreement with PKO Bank Polski, a Polish bank (hereinafter
– “the Lender”). The agreement provides that the Lender will grant an overdraft facility to ASEC in the amount
of $2,000. On May 24, 2019 the Lender loaned to ASEC the full amount of the loan, secured by certain assets of ASEC (hereinafter
– “the Secured Loan”). The Secured Loan matures on May 23, 2020. The loan will be payable in full on maturity
(with option of early repayment from ASEC side) and the interest will be paid on a monthly basis. The Secured Loan bears interest
at an annual interest rate based on 1-month LIBOR plus a margin of 1.8%, or currently approximately 4.2% in total. The agreement
includes customary events of default, including, among others, failures to repay any amounts due to the Lender, breaches or defaults
under the terms of the agreement, etc. If an event of default occurs, the Lender may reduce the amount of the Secured Loan, demand
an additional security or terminate the agreement.
|
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)
|
D.
|
Events
in the reporting period (cont’d)
|
|
2.
|
In January 2019, the Company signed agreements pursuant to which the Company
will lease offices in Yokne’am and in Rosh Pina, Israel (in lieu of the current leased headquarters building in Rosh Pina).
The operating lease periods of those buildings in Yokne’am and in Rosh Pina are five years and four years, respectively (excluding
the extension-periods, as mentioned in the agreements), and commence in the third quarter of 2019. The total annual rent expenses
of both offices, including management fees and excluding construction costs-reimbursement, are expected to be approximately NIS
650 ($180). The construction costs-reimbursement are expected to be approximately NIS 3,450 ($970) that will be paid during the
lease period.
|
|
3.
|
In
March 2019, OTI Petrosmart (Pty), Ltd., the South African subsidiary (hereinafter –
“Petrosmart”), entered into an agreement pursuant to which Petrosmart will
sell its head office in Cape Town, South Africa, to a third party for a consideration
of Rand 15,500 (approximately $1,100), that will be received on the date of the sale,
and Petrosmart will lease back this building for its current operations. Subject to the
fulfillment of certain conditions, the sale has been completed and the operating lease
has commenced during the third quarter of 2019. The leaseback period is three years.
The annual rent for the first year will be approximately Rand 1,800 (approximately $128)
and will be increased by 8.5% each year. Petrosmart has the right to extend the lease
by two years. As of June 30, 2019, this building’s book value is $764 and is presented
as asset held for sale within ‘current assets’.
|
The Company does not record
right-of-use assets and operating lease liabilities regarding the buildings in Yokne’am (Israel) and in Cape Town (South
Africa), as mentioned above, in its consolidated financial statements as of June 30, 2019, due to the fact that the commencement
date of the lease periods is subsequent to the balance sheet date – see also Note 2A. The Company expects an increase of
approximately $1,900 in the right-of-use assets and in the lease liabilities on the first-time-recognition in those leases.
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,
2018
.
|
A.
|
Recently
Adopted Accounting Pronouncements
|
In February 2016, the Financial
Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-02, Leases (Topic
842), which supersedes Accounting Standards Codification (“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 until December 31, 2018, only financing-type
lease liabilities (capital leases) were recognized on the balance sheet. Right-of-use assets represent company’s right to
use an underlying asset for the lease term and lease liabilities represent company’s obligation to make lease payments arising
from the lease. Operating and finance lease right-of-use assets and liabilities are recognized at the commencement date based
on the present value of lease payments over the lease term. The Company uses its incremental borrowing rate based on the information
available at the commencement date to determine the present value of the lease payments.
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)
|
In addition, the definition
of a lease in the ASU 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.
The Company has adopted ASU
2016-02 commencing from January 1, 2019, under the effective date method. In accordance with the effective date method, comparative
periods are not restated, and the Company needs to record a cumulative-effect adjustment within its accumulated deficit in the
equity on January 1, 2019, without reclassification of previous financial statements. The new standard provides a number of optional
practical expedients in transition. The Company elect the ‘package of practical expedients’, which permits the Company
not to reassess its prior conclusions regarding lease identification, lease classification and initial direct costs under the
new standard and also elect the practical expedient pertaining to the use-of hindsight. The new standard also provides practical
expedients for an entity’s ongoing accounting. The Company also elected the practical expedient to not separate lease and
non-lease components for all of the Company’s leases, other than leases of real estate. Additionally, following the adoption
of the new standard and in subsequent measurements, the Company applies the portfolio approach to account for the operating lease
right-of-use assets and liabilities for certain leases and incremental borrowing rates.
The Company did not have a
cumulative-effect adjustment to retained earnings as a result of the adoption of the new standard. The adoption of this
standard does not have a material impact on the results of operations and cash flows. See Note 5 for the impact on the
balance sheet as of June 30, 2019, and additional disclosures, as required by the new standard.
|
B.
|
Recent
accounting pronouncements
|
In
June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326). The main objective of this ASU
is to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments
and other commitments to extend credit held by a reporting entity at each reporting date. To achieve this objective, the amendments
in this ASU replace the incurred loss impairment methodology in current GAAP with a methodology that reflects expected credit
losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates.
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 fiscal years beginning after December 15, 2019, 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.
On Track Innovations Ltd.
|
and Subsidiaries
|
|
Notes to the Interim Unaudited Condensed
Consolidated Financial Statements
|
US dollars in thousands
Note 3 - Other Receivables and Prepaid
Expenses
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2019
|
|
|
2018
|
|
Government institutions
|
|
$
|
379
|
|
|
$
|
387
|
|
Prepaid expenses
|
|
|
192
|
|
|
|
226
|
|
Receivables under contractual obligations to be transferred to others *
|
|
|
225
|
|
|
|
349
|
|
Supplier advances
|
|
|
525
|
|
|
|
932
|
|
Other receivables
|
|
|
136
|
|
|
|
166
|
|
|
|
$
|
1,457
|
|
|
$
|
2,060
|
|
|
*
|
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,
|
|
|
|
2019
|
|
|
2018
|
|
Employees and related expenses
|
|
$
|
746
|
|
|
$
|
1,042
|
|
Accrued expenses
|
|
|
697
|
|
|
|
921
|
|
Customer advances
|
|
|
67
|
|
|
|
141
|
|
Short-term liabilities due to operating leases and current maturities **
|
|
|
618
|
|
|
|
-
|
|
Other current liabilities
|
|
|
120
|
|
|
|
*1,518
|
|
|
|
$
|
2,248
|
|
|
$
|
3,622
|
|
On Track Innovations Ltd.
|
and Subsidiaries
|
|
Notes to the Interim Unaudited Condensed
Consolidated Financial Statements
|
US dollars in thousands
Note 5 - Leases
The Company leases a limited number of
assets, mainly offices and cars for use in its operations. The Company adopted the new 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, 2019, right-of-use
assets due to operating leases are $1,696
)
as of January 1, 2019 - $1,572) and the liabilities due to operating leases
are $1,710 (as of January 1, 2019 - $1,572), out of which $1,092 are classified as long-term liabilities and $618 are
classified as current liabilities (see Note 4).
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 six years as of June 30, 2019. The weighted average remaining lease term is 2.5 years
as of June 30, 2019.
The following is a schedule of the maturities
of operating lease liabilities for the next five years as of June 30, 2019, and thereafter, as were taken into account in the
calculation of the operating lease liabilities as of June 30, 2019:
Remainder of 2019
|
|
$
|
346
|
|
2020
|
|
|
481
|
|
2021
|
|
|
404
|
|
2022
|
|
|
279
|
|
2023
|
|
|
178
|
|
Thereafter
|
|
|
150
|
|
Total leases payments
|
|
|
1,838
|
|
Less - discount
|
|
|
128
|
|
Operating lease liabilities
|
|
$
|
1,710
|
|
As of June 30, 2019, the weighted average
discount rate of the operating leases is approximately 4.3%.
Operating lease costs and cash paid for
amounts included in the measurement of the lease liabilities were approximately $186 and $366 during the three months and the
six months ended June 30, 2019, 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.
The following is a schedule of the maturities
of operating lease liabilities for the next five years as of December 31, 2018, and thereafter, based on agreements that were
signed as of December 31, 2018:
2019
|
|
$
|
523
|
|
2020
|
|
|
350
|
|
2021
|
|
|
277
|
|
2022
|
|
|
163
|
|
2023
|
|
|
140
|
|
Thereafter
|
|
|
156
|
|
Total leases payments
|
|
$
|
1,609
|
|
On Track Innovations Ltd.
|
and Subsidiaries
|
|
Notes to the Interim Unaudited Condensed
Consolidated Financial Statements
|
US dollars in thousands
Note 6 - Commitments and Contingencies
|
1.
|
In
June 2013, prior to the Company's divestiture of its SmartID division, Merwell Inc. (“Merwell”)
filed a claim against the Company before an agreed-upon arbitrator alleging breach of
contract in connection with certain commissions claimed to be owed to Merwell with respect
to the division’s activities in Tanzania. These activities, along with
all other activities of the SmartID division, were later assigned to and assumed by SuperCom
in its purchase of the division. SuperCom undertook to indemnify the Company and hold
it harmless against any 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 and ordering the Company to provide further financial details
that might result in additional payments to Merwell. 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 approximately 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. In the
first quarter of 2019, the Company initiated an arbitration process to collect from SuperCom,
the amount paid to Merwell, which SuperCom failed to pay as of the date hereof.
|
The consolidated financial
statements as of December 31, 2018, include a provision for the full amount paid. 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, 2019 and December 31, 2018, in
accordance with accounting standard ASC 450.
|
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 $1,619. The Company rejects the details that were presented by Merwell and their validity,
and also raised preliminary claims that this matter cannot be determined in arbitration.
|
On Track Innovations Ltd.
|
and Subsidiaries
|
|
Notes to the Interim Unaudited Condensed
Consolidated Financial Statements
|
US dollars in thousands
Note 6 - Commitments and Contingencies
(cont’d)
|
3.
|
In
October 2013, a financial claim was filed against the Company and its then French subsidiary,
Parx France (in this paragraph, together, the “Defendants”), in the Commercial
Court of Paris, France (in this paragraph, the “Court”). The sum of the claim
is €1,500 (approximately $1,708) 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 ($57) 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 ($573) plus interest and expenses. The Company will submit its answer to the
appeal by November 7, 2019, and the appeal hearing is scheduled for December 5, 2019.
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.
|
The
Company has recently received a request, or, 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 one of the Israeli subsidiaries of the Company and two other companies that operate
technological means for payment for public parking spaces scattered throughout the cities
and the scope of the claim attributed to the Company is not yet clear. The Company is
continuing to study the details of the Request in order to analyze its exposure.
|
As of June 30,
2019
,
the Company has granted performance guarantees and guarantees to secure customer advances in the sum of $349. The expiration dates
of these guarantees range from August 2019 to February 2021.
On Track Innovations Ltd.
|
and Subsidiaries
|
|
Notes to the Interim Unaudited Condensed
Consolidated Financial Statements
|
US dollars in thousands
Note 7 – 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, 2019 and 2018:
|
|
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
|
|
|
|
Three months ended June 30,
|
|
|
|
2018*
|
|
|
|
Retail
and
Mass
Transit
Ticketing
|
|
|
Petroleum
|
|
|
Total
|
|
Cashless payment products (A)
|
|
$
|
2,393
|
|
|
$
|
-
|
|
|
$
|
2,393
|
|
Complete cashless payment solutions (B):
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales of products (B1)
|
|
|
333
|
|
|
|
1,353
|
|
|
|
1,686
|
|
Licensing fees, transaction fees and services (B2)
|
|
|
1,330
|
|
|
|
330
|
|
|
|
1,660
|
|
|
|
|
1,663
|
|
|
|
1,683
|
|
|
|
3,346
|
|
Total revenues
|
|
$
|
4,056
|
|
|
$
|
1,683
|
|
|
$
|
5,739
|
|
|
*
|
Reclassified
to conform with the current period presentation, see Note 1C(2).
|
On Track Innovations Ltd.
|
and Subsidiaries
|
|
Notes to the Interim Unaudited Condensed
Consolidated Financial Statements
|
US dollars in thousands
Note 7 – 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, 2019 and 2018:
|
|
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
|
|
|
|
Six months ended June 30,
|
|
|
|
2018*
|
|
|
|
Retail
and
Mass
Transit
Ticketing
|
|
|
Petroleum
|
|
|
Total
|
|
Cashless payment products (A)
|
|
$
|
4,697
|
|
|
$
|
-
|
|
|
$
|
4,697
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Complete cashless payment solutions (B):
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales of products (B1)
|
|
|
1,360
|
|
|
|
1,947
|
|
|
|
3,307
|
|
Licensing fees, transaction fees and services (B2)
|
|
|
2,569
|
|
|
|
678
|
|
|
|
3,247
|
|
|
|
|
3,929
|
|
|
|
2,625
|
|
|
|
6,554
|
|
Total revenues
|
|
$
|
8,626
|
|
|
$
|
2,625
|
|
|
$
|
11,251
|
|
|
*
|
Reclassified
to conform with the current period presentation, see Note 1C(2).
|
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.
On Track Innovations Ltd.
|
and Subsidiaries
|
|
Notes to the Interim Unaudited Condensed Consolidated Financial
Statements
|
US dollars in thousands
Note 7 – Revenues (cont’d)
Performance obligations (cont’d)
Below is a listing of performance obligations for the Company’s
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 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,
|
|
|
|
2019
|
|
|
2018
|
|
Trade receivables, net of allowance for doubtful accounts
|
|
$
|
2,793
|
|
|
$
|
4,530
|
|
Customer advances
|
|
$
|
67
|
|
|
$
|
141
|
|
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 8 – 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,
|
|
|
|
2019
|
|
|
*
2018
|
|
|
2019
|
|
|
*
2018
|
|
Revenues
|
|
$
|
-
|
|
|
$
|
402
|
|
|
$
|
-
|
|
|
$
|
765
|
|
Expenses
|
|
|
(50
|
)
|
|
|
(296
|
)
|
|
|
(243
|
)
|
|
|
(592
|
)
|
Other income, net
|
|
|
-
|
|
|
|
13
|
|
|
|
-
|
|
|
|
13
|
|
Net (loss) income from discontinued operations
|
|
$
|
(50
|
)
|
|
$
|
119
|
|
|
$
|
(243
|
)
|
|
$
|
186
|
|
|
*
|
Reclassified
to conform with the current period presentation, see Note 1C(2).
|
Note 9 - Fair Value of Financial Instruments
The Company's financial instruments consist
mainly of cash and cash equivalents, short-term investments bearing interest, 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 9 - Fair Value of Financial Instruments
(cont’d)
By distinguishing between inputs that
are observable in the market place, and therefore more objective, and those that are unobservable and therefore more subjective,
the hierarchy is designed to indicate the relative reliability of the fair value measurements. A financial asset or liability's
classification within the hierarchy is determined based on the lowest level input that is significant to the fair value measurement.
The Company, in estimating fair value
for financial instruments, determined that the carrying amounts of cash and cash equivalents, trade receivables, short-term bank
credit and trade payables are equivalent to, or approximate their fair value due to the short-term maturity of these instruments.
The carrying amounts of variable interest
rate long-term loans are equivalent or approximate to their fair value as they bear interest at approximate market rates.
As of June 30, 2019, the Company held
approximately $2,105 of short-term bank deposits (as of December 31, 2018, $1,078). As of June 30, 2019 and December 31, 2018,
short-term deposits in the amount of $105 and $278, 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 10 – Equity
During each
of the six-month periods ended June 30, 2019 and June 30, 2018, 130,000 and 100,000 options were granted, respectively. The vesting
period for the options is three years. The exercise prices for the options that were granted during the six months ended June
30, 2019 and June 30, 2018 are $0.67 and $1.33, 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, 2019 and June 30, 2018 was estimated
on the date of grant, using the Black-Scholes model and the following assumptions:
|
|
Six months ended
June 30,
|
|
|
|
2019
|
|
|
2018
|
|
Expected dividend yield
|
|
|
0
|
%
|
|
|
0
|
%
|
Expected volatility
|
|
|
79
|
%
|
|
|
80
|
%
|
Risk-free interest rate
|
|
|
2.41
|
%
|
|
|
1.92
|
%
|
Expected life - in years
|
|
|
2.44
|
|
|
|
2.33
|
|
On Track Innovations Ltd.
|
and Subsidiaries
|
|
Notes to the Interim Unaudited Condensed Consolidated Financial
Statements
|
US dollars in thousands
Note 10 – 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.
|
Estimated
expected lives are based on historical grants data.
|
The Company’s options
activity (including options to non-employees) during the six months ended June 30, 2019 and options outstanding and options exercisable
as of December 31, 2018 and June 30, 2019, are summarized in the following table:
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
average
|
|
|
|
Number of
|
|
|
exercise
|
|
|
|
options
|
|
|
price per
|
|
|
|
outstanding
|
|
|
share
|
|
Outstanding – December 31, 2018
|
|
|
1,461,000
|
|
|
$
|
1.24
|
|
Options granted
|
|
|
130,000
|
|
|
|
0.67
|
|
Options expired or forfeited
|
|
|
(213,668
|
)
|
|
|
2.07
|
|
Outstanding – June 30, 2019
|
|
|
1,377,332
|
|
|
|
1.06
|
|
Exercisable as of:
|
|
|
|
|
|
|
|
|
December 31, 2018
|
|
|
855,642
|
|
|
$
|
1.32
|
|
June 30, 2019
|
|
|
806,310
|
|
|
$
|
1.07
|
|
The weighted
average fair value of options granted during the six months ended June 30, 2019 and during the six months ended June 30, 2018
is $0.24 and $0.65, respectively, per option. The aggregate intrinsic value of outstanding options as of June 30, 2019 and December
31, 2018 is approximately zero and $6, respectively. The aggregate intrinsic value of exercisable options as of June 30, 2019
and December 31, 2018 is approximately zero and $4, respectively.
On Track Innovations Ltd.
|
and Subsidiaries
|
|
Notes to the Interim Unaudited Condensed Consolidated Financial
Statements
|
US dollars in thousands
Note 10 – Equity (cont’d)
|
A.
|
Stock
option plans (cont’d)
|
The following table summarizes
information about options outstanding and exercisable (including options to non-employees) as of June 30,
2019
:
|
|
Options outstanding
|
|
Options exercisable
|
|
|
|
Number
|
|
|
Weighted
|
|
|
|
|
|
Number
|
|
|
Weighted
|
|
|
|
|
|
|
Outstanding
|
|
|
average
|
|
|
Weighted
|
|
|
Outstanding
|
|
|
average
|
|
|
Weighted
|
|
|
|
as of
|
|
|
remaining
|
|
|
Average
|
|
|
As of
|
|
|
remaining
|
|
|
Average
|
|
Range of
|
|
June 30,
|
|
|
contractual
|
|
|
Exercise
|
|
|
June 30,
|
|
|
contractual
|
|
|
Exercise
|
|
exercise price ($)
|
|
2019
|
|
|
life (years)
|
|
|
Price
|
|
|
2019
|
|
|
life (years)
|
|
|
Price
|
|
0.44- 0.90
|
|
|
651,000
|
|
|
|
2.56
|
|
|
$
|
0.74
|
|
|
|
420,000
|
|
|
|
1.48
|
|
|
$
|
0.74
|
|
1.07-1.68
|
|
|
686,332
|
|
|
|
2.93
|
|
|
|
1.24
|
|
|
|
346,310
|
|
|
|
2.73
|
|
|
|
1.24
|
|
3.03
|
|
|
40,000
|
|
|
|
0.23
|
|
|
$
|
3.03
|
|
|
|
40,000
|
|
|
|
0.23
|
|
|
$
|
3.03
|
|
|
|
1,377,332
|
|
|
|
2.67
|
|
|
|
|
|
|
|
806,310
|
|
|
|
1.96
|
|
|
|
|
|
As of June 30,
2019
,
there was approximately $205 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 1.08 years.
During the three months ended
June 30, 2019 and June 30, 2018, the Company recorded stock-based compensation expenses in the amount of $44 and $62, respectively,
in accordance with ASC 718, “Compensation-Stock Compensation.”
During the six months ended
June 30, 2019 and June 30, 2018, the Company recorded stock-based compensation expenses in the amount of $90 and $115, respectively,
in accordance with ASC 718, “Compensation-Stock Compensation.”
|
1.
|
During
the six months ended June 30, 2019, no warrants expired or were exercised into ordinary
shares.
|
|
2.
|
As
of June 30, 2019, 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 November 2019.
|
|
C.
|
Stock
options and warrants in the amounts of 1,417,332 and 1,455,333 outstanding as of the
six months ended June 30, 2019 and 2018, respectively, have been excluded from the calculation
of the diluted net loss per ordinary share because all such securities have an anti-dilutive
effect for all periods presented.
|
|
D.
|
Shares
to non-employees
|
During the six months ended
June 30, 2019 and June 30, 2018, the Company granted 30,000 and 80,000 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 six months ended June 30, 2019 and June 30, 2018.
On Track Innovations Ltd.
|
and Subsidiaries
|
|
Notes to the Interim Unaudited Condensed Consolidated Financial
Statements
|
US dollars in thousands
Note 11 - Operating segments
For the purposes of allocating resources
and assessing performance in order to improve profitability, the Company's chief operating decision maker (“CODM”)
examines two segments which are the Company's strategic business units: (1) Retail and Mass Transit Ticketing; and (2) Petroleum.
Information regarding the results of each
reportable segment is included below based on the internal management reports that are reviewed by the CODM.
|
|
Three months ended 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
|
|
|
|
Three months ended June 30,
2018 **
|
|
|
|
Retail
and
Mass
Transit
Ticketing
|
|
|
Petroleum
|
|
|
Total
|
|
Revenues
|
|
$
|
4,056
|
|
|
$
|
1,683
|
|
|
$
|
5,739
|
|
Reportable segment gross profit *
|
|
|
2,335
|
|
|
|
766
|
|
|
|
3,101
|
|
Reconciliation of reportable segment gross profit to gross profit for the period
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
|
|
|
|
|
|
|
|
(210
|
)
|
Stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
(1
|
)
|
Gross profit for the period in the consolidated financial
statement
|
|
|
|
|
|
|
|
|
|
$
|
2,890
|
|
On Track Innovations Ltd.
|
and Subsidiaries
|
|
Notes to the Interim Unaudited Condensed Consolidated Financial
Statements
|
US dollars in thousands
Note 11 - Operating segments (cont’d)
|
|
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
|
|
|
|
Six months ended June 30,
2018 **
|
|
|
|
Retail
and
Mass
Transit
Ticketing
|
|
|
Petroleum
|
|
|
Total
|
|
Revenues
|
|
$
|
8,626
|
|
|
$
|
2,625
|
|
|
$
|
11,251
|
|
Reportable segment gross profit *
|
|
|
4,878
|
|
|
|
1,318
|
|
|
|
6,196
|
|
Reconciliation of reportable segment gross profit to gross profit for the period
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
|
|
|
|
|
|
|
|
(424
|
)
|
Stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
(2
|
)
|
Gross profit for the period in the consolidated financial
statement
|
|
|
|
|
|
|
|
|
|
$
|
5,770
|
|
|
*
|
Gross
profit as reviewed by the CODM, represents gross profit, adjusted to exclude depreciation
and stock-based compensation.
|
|
**
|
Reclassified
to conform with the current period presentation, see Note 1C(2).
|
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:
|
●
|
the
expected development and potential benefits from our existing or future products or our
intellectual property, or IP;
|
|
●
|
changes
in 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
expectations regarding our short-term and long-term capital requirements;
|
|
●
|
our
intention to continue to invest in research and development;
|
|
●
|
changes
to our leadership team and composition of our Board of Directors;
and
|
|
●
|
information
with respect to any other plans and strategies for our business.
|
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, 2018 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 leading developer of cutting-edge secure cashless payment solutions providing global enterprises with
innovative technology for almost three decades. We operate in two main segments: (1) Retail and Mass Transit Ticketing; and (2)
Petroleum. As a result of the closing of the MediSmart Transaction in December 2018, we no longer report our “Other”
segment.
Our
field-proven suite of cashless payment solutions is based on an extensive IP portfolio including registered patents and patent
applications worldwide. Since our incorporation in 1990, we have built an international reputation for reliability and innovation,
deploying a large number of solutions for the unattended retail, mass transit, banking, medical and petroleum industries.
We
operate a global network of regional offices and distributors to support various solutions deployed across the globe.
RESULTS
OF OPERATIONS – THREE MONTHS ENDED JUNE 30, 2019 COMPARED TO THREE MONTHS ENDED JUNE 30, 2018
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, 2018 filed with the SEC.
Results
of Operations
Discontinued
operations
. 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.
In
December 2018, we completed the sale of our medical smart card's operation, or Medismart, (formerly part of the Company’s
“Other segment”) to Smart Applications International Limited, or Smart, for a total price of $2.75 million. We have
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. All the data in this Quarterly Report that
are derived from our financial statements, unless otherwise specified, exclude the results of those discontinued operations.
Sources
of Revenue
We
have historically derived a substantial majority of our revenues from the sale of our products, including both complete systems
and original equipment manufacturer components and also less significantly, from engineering services, customer services and technical
support. In addition, we generate revenues from licensing and transaction fees. During the three months ended June 30, 2019 and
June 30, 2018, the revenues that we derived from sales and licensing and transaction fees were as follows (in thousands):
|
|
Three
months ended
June
30,
|
|
|
|
2019
|
|
|
2018
|
|
Sales
|
|
$
|
2,933
|
|
|
$
|
4,352
|
|
Licensing and transaction fees
|
|
$
|
1,183
|
|
|
$
|
1,387
|
|
Total revenues
|
|
$
|
4,116
|
|
|
$
|
5,739
|
|
Sales.
Sales decreased by $1.4 million, or 33%, in the three months ended June 30, 2019, compared to the three months ended June
30, 2018. The decrease is mainly attributed to a decrease in sales of readers and Petroleum products in the United States partially
offset by an increase in sales in Japan.
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, 2019, compared
to the three months ended June 30, 2018, decreased by $204,000, or 15%. The decrease is mainly attributed to a decrease in our
licensing and transaction fees in Europe.
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, 2019 and June 30, 2018:
Three months ended June 30,
|
|
Africa
|
|
|
Europe
|
|
|
APAC
|
|
|
Americas
|
|
2019
|
|
$
|
500
|
|
|
|
12
|
%
|
|
$
|
2,272
|
|
|
|
55
|
%
|
|
$
|
475
|
|
|
|
12
|
%
|
|
$
|
869
|
|
|
|
21
|
%
|
2018
|
|
$
|
705
|
|
|
|
12
|
%
|
|
$
|
2,122
|
|
|
|
37
|
%
|
|
$
|
182
|
|
|
|
3
|
%
|
|
$
|
2,730
|
|
|
|
48
|
%
|
Our
revenues from sales in Africa decreased by $205,000, or 29%, in the three months ended June 30, 2019, compared to the three months
ended June 30, 2018, mainly due to a decrease in sales of Petroleum products.
Our
revenues from sales in Europe increased by $150,000, or 7%, in the three months ended June 30, 2019, compared to the three months
ended June 30, 2018, mainly due to an increase of sales of readers, partially offset by a decrease of licensing and transaction
fees.
Our
revenues from sales in the Asia-Pacific region, or APAC, increased by $293,000, or 161%, in the three months ended June 30, 2019,
compared to the three months ended June 30, 2018, mainly due to an increase in sales of our Uno Plus and GoBox products in Japan.
Our revenues from
sales in Americas decreased by $1.9 million or 68%, in the three months ended June 30, 2019, compared to the three months ended
June 30, 2018, mainly due to a decrease in sales of readers to the U.S. market that we believe was derived from new tariffs that
were presented by the U.S. administration on goods imported from China to the U.S. market and to a decrease in sales of Petroleum
products in Americas. As a result of the above mentioned tariffs, we have relocated our production from China to the Philippines.
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, 2019 and June 30, 2018:
Three months ended June 30,
|
|
Retail and Mass
Transit Ticketing
|
|
|
Petroleum
|
|
2019
|
|
$
|
3,477
|
|
|
|
84
|
%
|
|
$
|
639
|
|
|
|
16
|
%
|
2018
|
|
$
|
4,056
|
|
|
|
71
|
%
|
|
$
|
1,683
|
|
|
|
29
|
%
|
Our
revenues from Retail and Mass Transit Ticketing in the three months ended June 30, 2019 decreased by $579,000, or 14%, compared
to the three months ended June 30, 2018, mainly attributed to a decrease in sales of readers in the United States, partially offset
by an increase in sales of readers in Europe and an increase in sales in the Japanese market.
Our
revenues in the three months ended June 30, 2019 from Petroleum decreased by $1.0 million, or 62%, compared to the three months
ended June 30, 2018, mainly due to due to a decrease in sales of Petroleum products in Americas.
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, 2019 and June 30,
2018 were as follows (dollar amounts in thousands):
|
|
Three months ended
June 30,
|
|
|
|
2019
|
|
|
2018
|
|
Cost of sales
|
|
$
|
1,742
|
|
|
$
|
2,849
|
|
Gross profit
|
|
$
|
2,374
|
|
|
$
|
2,890
|
|
Gross margin percentage
|
|
|
58
|
%
|
|
|
50
|
%
|
Cost
of sales.
Cost of sales consists primarily of materials, as well as salaries, fees to subcontractors and related costs
of our technical staff that assemble our products. The decrease of $1.1 million, or 39%, in the three months ended June 30, 2019,
compared to the three months ended June 30, 2018, resulted primarily from a decrease in sales.
Gross
margin.
The increase in gross margin in the three months ended June 30, 2019, compared to the three months ended June 30,
2018, is mainly attributed to a change in our revenue mix.
Operating
expenses
Our
operating expenses in the three months ended June 30, 2019 and June 30, 2018 were as follows (in thousands):
Operating expenses
|
|
Three months ended
June 30,
|
|
|
|
2019
|
|
|
2018
|
|
Research and development
|
|
$
|
817
|
|
|
$
|
806
|
|
Selling and marketing
|
|
$
|
1,320
|
|
|
$
|
1,464
|
|
General and administrative
|
|
$
|
1,046
|
|
|
$
|
1,065
|
|
Total operating expenses
|
|
$
|
3,183
|
|
|
$
|
3,335
|
|
Research
and development.
Our research and development expenses consist primarily of the salaries and related expenses of our
research and development staff, as well as subcontracting expenses. Our research and development, in the three months ended
June 30, 2019, compared to the three months ended June 30, 2018, remained consistent.
Selling
and marketing.
Our selling and marketing expenses consist primarily of salaries and substantially all of the expenses of our
sales and marketing subsidiaries and offices in the United States, South Africa and Europe, as well as expenses related to advertising,
professional expenses and participation in exhibitions and tradeshows. The decrease of $144,000, or 10%, in the three months
ended June 30, 2019, compared to the three months ended June 30, 2018, is primarily attributed to a decrease in marketing and
advertising expenses and to a lesser extent to a decrease in employment 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 legal and accounting), office expenses and insurance. Our general and administrative expenses in the three months ended June
30, 2019, compared to the three months ended June 30, 2018, remained consistent.
Financing
expenses, net
Our
financing expenses, net, in the three months ended June 30, 2019 and June 30, 2018 were as follows (in thousands):
|
|
Three months ended
June 30,
|
|
|
|
2019
|
|
|
2018
|
|
Financing expenses, net
|
|
$
|
(37
|
)
|
|
$
|
(95
|
)
|
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 June 30, 2019, compared to the three months ended June 30, 2018, of $58,000, or 61%, is mainly due
to a decrease in interest expenses.
Net
loss from continuing operations
Our
net loss
from continuing operations in the three months ended June 30, 2019 and June 30, 2018 was as follows (in thousands):
|
|
Three months ended
June 30,
|
|
|
|
2019
|
|
|
2018
|
|
Net loss from continuing operations
|
|
$
|
(849
|
)
|
|
$
|
(399
|
)
|
The
increase in the net loss from continuing operations of $450,000, in the three months ended June 30, 2019, compared to the
three months ended June 30, 2019, is mainly due to a decrease in our sales, partially offset by a decrease in our operating expenses,
as described above.
Net
(loss) income from discontinued operations
Our
net (loss) income from discontinued operations in the three months ended June 30, 2019 and June 30, 2018 was as follows (in thousands):
|
|
Three months ended
June 30,
|
|
|
|
2019
|
|
|
2018
|
|
Net (loss) income from discontinued operations
|
|
$
|
(50
|
)
|
|
$
|
119
|
|
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 in the discontinued operations results of $169,000 in the three months ended
June 30, 2019, compared to the three months ended June 30, 2018, is mainly due to income related to the MediSmart activity in
2018.
Net
loss
Our
net loss in the three months ended June 30, 2019 and June 30, 2018 was as follows (in thousands):
|
|
Three months ended
June 30,
|
|
|
|
2019
|
|
|
2018
|
|
Net loss
|
|
$
|
(899
|
)
|
|
$
|
(280
|
)
|
The
increase in net loss of $619,000 or 221%, in the three months ended June 30, 2019, compared to the three months ended June 30,
2018, is primarily due to a decrease in our sales and an increase in net loss from discontinued operations , partially offset
by a decrease in our operating expenses, as described above.
RESULTS
OF OPERATIONS – SIX MONTHS ENDED JUNE 30, 2019 COMPARED TO SIX MONTHS ENDED JUNE 30, 2018
Sources
of Revenue
During
the six months ended June 30, 2019 and June 30, 2018, the revenues that we derived from sales and licensing and transaction fees
were as follows (in thousands):
|
|
Six
months ended
June
30,
|
|
|
|
2019
|
|
|
2018
|
|
Sales
|
|
$
|
4,655
|
|
|
$
|
8,593
|
|
Licensing and transaction fees
|
|
$
|
2,474
|
|
|
$
|
2,658
|
|
Total revenues
|
|
$
|
7,129
|
|
|
$
|
11,251
|
|
Sales.
Sales
decreased by $3.9 million or 46%, in the six months ended June 30, 2019, compared to the six months ended June 30, 2018. The decrease
is mainly attributed to a decrease in sales of readers and Petroleum products in the United States and to sales in Japan.
Licensing
and transaction fees.
Our licensing and transaction fees in the six months ended June 30, 2019, compared to the six months
ended June 30, 2018, decreased by $184,000, or 7%. The decrease is mainly attributed to a decrease in our licensing and transaction
fees in Europe.
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, 2019 and June 30, 2018:
Six months ended June 30,
|
|
Africa
|
|
|
Europe
|
|
|
APAC
|
|
|
Americas
|
|
2019
|
|
$
|
1,035
|
|
|
|
15
|
%
|
|
$
|
3,918
|
|
|
|
55
|
%
|
|
$
|
667
|
|
|
|
9
|
%
|
|
$
|
1,509
|
|
|
|
21
|
%
|
2018
|
|
$
|
1,241
|
|
|
|
11
|
%
|
|
$
|
3,796
|
|
|
|
34
|
%
|
|
$
|
1,246
|
|
|
|
11
|
%
|
|
$
|
4,968
|
|
|
|
44
|
%
|
Our
revenues from sales in Africa decreased by $206,000, or 17%, in the six months ended June 30, 2019, compared to the six months
ended June 30, 2018, mainly due to a decrease in sales of Petroleum products.
Our
revenues from sales in Europe increased by $122,000, or 3%, in the six months ended June 30, 2019, compared to the six months
ended June 30, 2018, mainly due to an increase of sales of readers, partially offset by a decrease of licensing and transaction
fees.
Our
revenues from sales in APAC decreased by $579,000 or 46%, in the six months ended June 30, 2019, compared to the six months ended
June 30, 2018, mainly due to a decrease in sales in the Japanese market.
Our revenues from
sales in Americas decreased by $3.4 million, or 70%, in the six months ended June 30, 2019, compared to the six months ended June
30, 2018, mainly due to a decrease in sales of readers to the U.S. market that we believe was derived from new tariffs that were
presented by the U.S. administration on goods imported from China to the U.S. market and to a decrease in sales of Petroleum products
in Americas. As a result of the above mentioned tariffs, we have relocated our production from China to the Philippines.
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, 2019 and June 30, 2018:
Six months ended June 30,
|
|
Retail and Mass
Transit Ticketing
|
|
|
Petroleum
|
|
2019
|
|
$
|
5,670
|
|
|
|
80
|
%
|
|
$
|
1,459
|
|
|
|
20
|
%
|
2018
|
|
$
|
8,626
|
|
|
|
77
|
%
|
|
$
|
2,625
|
|
|
|
23
|
%
|
Our
revenues from Retail and Mass Transit Ticketing in the six months ended June 30, 2019 decreased by $2.9 million, or 34%, compared
to the six months ended June 30, 2018, mainly attributed to a decrease in sales of readers in the United
States and a decrease in sales in Japan partially offset by an increase in sales of readers in Europe.
Our
revenues in the six months ended June 30, 2019 from Petroleum decreased by $1.2 million, or 45%, compared to the six months ended
June 30, 2018, mainly due to a decrease in sales of Petroleum products in Americas.
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, 2019 and June 30, 2018
were as follows (dollar amounts in thousands):
|
|
Six months ended
June 30,
|
|
|
|
2019
|
|
|
2018
|
|
Cost of sales
|
|
$
|
3,112
|
|
|
$
|
5,481
|
|
Gross profit
|
|
$
|
4,017
|
|
|
$
|
5,770
|
|
Gross margin percentage
|
|
|
56
|
%
|
|
|
51
|
%
|
Cost
of sales.
The decrease of $2.4 million, or 43%, in the six months ended June 30, 2019, compared to the six months ended
June 30, 2018, resulted primarily from a decrease in sales.
Gross
margin.
Our gross margin in the six months ended June 30, 2019, compared to the six months ended June 30, 2018, is mainly
attributed to a change in our revenue mix.
Operating
expenses
Our
operating expenses in the six months ended June 30, 2019 and June 30, 2018 were as follows (in thousands):
Operating expenses
|
|
Six months ended
June 30,
|
|
|
|
2019
|
|
|
2018
|
|
Research and development
|
|
$
|
1,688
|
|
|
$
|
1,626
|
|
Selling and marketing
|
|
$
|
2,605
|
|
|
$
|
3,109
|
|
General and administrative
|
|
$
|
2,011
|
|
|
$
|
1,972
|
|
Total operating expenses
|
|
$
|
6,304
|
|
|
$
|
6,707
|
|
Research
and development.
Our research and development expenses, in the six months ended June 30, 2019, compared to the six months
ended June 30, 2018, remained consistent.
Selling
and marketing.
The decrease of $504,000, or 16%, in the six months ended June 30, 2019, compared to the six months ended June
30, 2018, is primarily attributed to a decrease in employment expenses and to a lesser extent to a decrease in marketing and advertising
expenses.
General
and administrative.
Our general and administrative expenses, in the six months ended June 30, 2019, compared to the six months
ended June 30, 2018, remained consistent.
Financing
expenses, net
Our
financing expenses, net, in the six months ended June 30, 2019 and June 30, 2018 were as follows (in thousands):
|
|
Six months ended
June 30,
|
|
|
|
2019
|
|
|
2018
|
|
Financing expenses, net
|
|
$
|
(106
|
)
|
|
$
|
(127
|
)
|
The
decrease in financing expenses, net in the six months ended June 30, 2019, compared to the six months ended June 30, 2018, of
$21,000, or 17%, is mainly due to a decrease in interest expenses, partially offset by an exchange rate differential.
Net
loss from continuing operations
Our
net loss
from continuing operations in the six months ended June 30, 2019 and June 30, 2018 was as follows (in thousands):
|
|
Six months ended
June 30,
|
|
|
|
2019
|
|
|
2018
|
|
Net loss from continuing operations
|
|
$
|
(2,401
|
)
|
|
$
|
(799
|
)
|
The
increase in net loss from continuing operations of $1.6 million, or 200%, in the six months ended June 30, 2019, compared
to the six months ended June 30, 2018, is mainly due to a decrease in our sales, partially offset by a decrease in our operating
expenses, as described above.
Net
(loss) income from discontinued operations
Our
net (loss) income from discontinued operations in the six months ended June 30, 2019 and June 30, 2018 was as follows (in thousands):
|
|
Six months ended June 30,
|
|
|
|
2019
|
|
|
2018
|
|
Net (loss) income from discontinued operations
|
|
$
|
(243
|
)
|
|
$
|
186
|
|
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 in the discontinued operations results of $429,000 in the six months ended June
30, 2019, compared to the three months ended June 30, 2018, is mainly due to income related to the MediSmart activity in 2018
and in a lesser amount expenses related to SmartID divestiture in 2019.
Net
loss
Our
net loss in the six months ended June 30, 2019 and June 30, 2018 was as follows (in thousands):
|
|
Six months ended
June 30,
|
|
|
|
2019
|
|
|
2018
|
|
Net loss
|
|
$
|
(2,644
|
)
|
|
$
|
(613
|
)
|
The
increase in net loss of $2.0 million, in the six months ended June 30, 2019, compared to the six months ended June 30, 2018, is
primarily due to a decrease in our sales and an increase in net loss from discontinued operations, partially offset by a decrease
in our operating expenses, as described above.
Liquidity
and Capital Resources
Our
principal sources of liquidity since our inception have been sales of our products and services, sales of equity securities, borrowings
from banks, cash from the exercise of options and warrants and proceeds from divestiture of parts of our businesses. As of June
30, 2019, we had cash, cash equivalents and short-term investments representing bank deposits of $5.7 million (of which an amount
of $105,000 has been pledged as security in respect of performance guarantees granted to third parties, loans and credit lines
received from a bank), and $5.9 million as of December 31, 2018 (of which an amount of $278,000 had then been pledged as security
in respect of performance guarantees granted to third parties, loans and credit lines received from a bank). We believe that we
have sufficient capital resources to fund our operations for at least the next 12 months. As of June 30, 2019, our long-term bank
loans are denominated in the following currencies: Polish Zloty ($30,000, with maturity dates during 2019) and South African Rand
($35,000, with maturity dates ranging from 2019 through 2023).
In
March 2019, OTI Petrosmart (Pty), Ltd., our South African subsidiary, or Petrosmart, entered into an agreement pursuant to which
Petrosmart will sell its head office in Cape Town, South Africa, to a third party for a consideration of Rand 15,500,000 (approximately
$1.1 million), that will be received on the date of the sale, and Petrosmart will lease back this building for its current operations.
Subject to the fulfillment of certain conditions, the sale has been completed and the operating lease has commenced during the
third quarter of 2019.
Our
composition of long-term loans as of June 30, 2019, was as follows (in thousands):
|
|
June 30,
2019
|
|
Long-term loans
|
|
$
|
65
|
|
Less - current maturities
|
|
|
38
|
|
|
|
$
|
27
|
|
Our
and certain of our subsidiaries’ manufacturing facilities and certain equipment have been pledged as security in respect
of a loan received from a bank. Our short-term deposits in the amount of $105,000 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 June 30, 2019, we granted guarantees to third parties including performance guarantees and guarantees to secure customer advances
in the sum of $349,000. The expiration dates of the guarantees range from August 2019 to February 2021.
Operating
activities related to continuing operations
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, a $24,000 decrease
in deferred tax 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.
For the six months
ended June 30, 2018, net cash used in continuing operating activities was $462,000 primarily due to a $799,000 net loss from continuing
operations, a $567,000 decrease in trade payables, a $528,000 decrease in other current liabilities, a $344,000 increase in inventories,
a $281,000 decrease in deferred tax net, a $28,000 decrease in accrued severance pay, net, and a $17,000 gain on sale of fixed
assets, partially offset by a $1.1 million decrease in trade receivables, net, $680,000 of depreciation and amortization, a $249,000
decrease in other receivables and prepaid expenses, $115,000 of expenses due to stock based compensation issued to employees and
others and $7,000 of accrued interest and linkage differences, net.
Operating
activities related to discontinued operations
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. related to the SmartID division.
For
the six months ended June 30, 2018, net cash provided by discontinued operating activities was $289,000, mainly related to the
Medismart activity.
Investing
and financing activities related to continuing operations
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, $221,000 of purchases of property and equipment and a $120,000 investment in capitalized product costs,
partially offset by $10,000 in proceeds from the sale of fixed assets and $10,000 in proceeds from restricted deposit for employee
benefits.
For the six months
ended June 30, 2018, net cash provided by continuing investing activities was $689,000, mainly due to a $1.2 million change in
short-term investments, net, and $17,000 in proceeds from the sale of fixed assets, partially offset by $414,000 of purchases of
property and equipment and an $87,000 investment in capitalized product costs.
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, net, partially offset by $233,000 of repayments of long-term bank.
For the six months
ended June 30, 2018, net cash used in continuing financing activities was $394,000, mainly due to $348,000 of repayments of long-term
bank loans and an $80,000 decrease in short-term bank credit, partially offset by $34,000 of proceeds from exercises of options.
In addition, on May
24, 2019, ASEC S.A. (Spolka Akcyjna), or, the Subsidiary, a wholly-owned Polish subsidiary of the Company, entered into a loan
agreement, or the Agreement with PKO Bank Polski, a Polish bank, or the Lender. The Agreement provides that the Lender will grant
an overdraft facility to the Subsidiary in the amount of $2,000,000, or the Loan Commitment. On May 24, 2019, or, the Lender loaned
to the Subsidiary the full amount of the Loan Commitment, secured by certain assets of the Subsidiary, or the Secured Loan. The
Secured Loan matures on May 23, 2020. The Secured Loan will be payable in full on maturity (with option of early repayment from
the Subsidiary side) and the interest will be paid on a monthly basis. The Secured Loan bears interest at an annual interest rate
based on 1-month LIBOR plus a margin of 1.8%, or currently approximately 4.2% in total. The Agreement includes customary events
of default, including, among others, failures to repay any amounts due to the Lender, breaches or defaults under the terms of the
Agreement, etc. If an event of default occurs, the Lender may reduce the amount of the Secured Loan, demand an additional security
or terminate the Agreement.
Investing
and financing activities related to discontinued operations
We
had no cash flows provided by or used in discontinued investing or financing activities in the six months ended June 30, 2019
and June 30, 2018.
Off
Balance Sheet Arrangements
We
have no off-balance sheet arrangements.