UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One)
☒ QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended SeptemberJune 30, 20172019
☐ TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from
__________ to __________
Commission file number 000-49877
ON TRACK INNOVATIONS LTD. |
(Exact name of registrant as specified in its charter) |
Israel | N/A | |
(State or other jurisdiction of incorporation or organization) | (IRS Employer Identification No.) |
Z.H.R. Industrial Zone, P.O. Box 32, Rosh Pina, Israel |
(Address of principal executive offices) |
+ 972-4-6868000 |
(Registrant’s telephone number) |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the pastpreceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrationregistrant was required to submit and post such files).
Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”,filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer ☐ | Accelerated filer ☐ | Non-accelerated filer
| Smaller reporting company ☒ |
Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ☐ No ☒
StateSecurities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
Ordinary shares, par value NIS 0.10 per share | OTIV | Nasdaq Capital Market |
Indicate the number of shares outstanding of each of the issuer’s classes of common stock as of the latest practicable date: 41,134,37841,324,377 Ordinary Shares outstanding as of November 6, 2017.August 7, 2019.
ON TRACK INNOVATIONS LTD.
TABLE OF CONTENTS
Part I - Financial Information | ||||
Item 1. | Financial Statements | 1 | ||
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 2 | ||
Item 4. | Controls and Procedures | 13 | ||
Part II - Other Information | ||||
Item 1. | Legal Proceedings | |||
Item 5. | Other Information | |||
Item 6. | Exhibits | |||
Signatures |
i
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
ON TRACK INNOVATIONS LTD. AND ITS SUBSIDIARIES
INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
As of SeptemberJune 30, 20172019
(Unaudited)
1
On Track Innovations Ltd.
and its Subsidiaries
Interim Unaudited Condensed Consolidated Financial Statements as of September 30, 2017
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 | F-5 |
Interim Unaudited Condensed Consolidated Statements of Changes in Equity | F-6 |
Interim Unaudited Condensed Consolidated Statements of Cash Flows | |
Notes to the Interim Unaudited Condensed Consolidated Financial Statements | F-9 - |
F-1
On Track Innovations Ltd.
and its Subsidiaries
Interim Unaudited Condensed Consolidated Balance Sheets
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, | June 30, | December 31, | |||||||||||||
2017 | 2016 | 2019 | 2018 | |||||||||||||
Assets | ||||||||||||||||
Current assets | ||||||||||||||||
Cash and cash equivalents | $ | 6,000 | $ | 5,952 | $ | 3,575 | $ | 4,827 | ||||||||
Short-term investments | 2,667 | 5,585 | 2,105 | 1,078 | ||||||||||||
Trade receivables (net of allowance for doubtful accounts of $638 and $720 as of September 30, 2017 and December 31, 2016, respectively) | 5,470 | 5,620 | ||||||||||||||
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 | 3,963 | 1,638 | 1,457 | 2,060 | ||||||||||||
Inventories | 3,818 | 3,069 | 4,929 | 3,527 | ||||||||||||
Asset held for sale | 764 | - | ||||||||||||||
Total current assets | 21,918 | 21,864 | 15,623 | 16,022 | ||||||||||||
Long-term restricted deposit for employees benefit | 494 | 453 | 463 | 451 | ||||||||||||
Severance pay deposits | 353 | 322 | 394 | 375 | ||||||||||||
Property, plant and equipment, net | 5,824 | 5,788 | 3,981 | 5,033 | ||||||||||||
Intangible assets, net | 337 | 278 | 262 | 241 | ||||||||||||
Right-of-use assets | 1,696 | - | ||||||||||||||
Total Assets | $ | 28,926 | $ | 28,705 | $ | 22,419 | $ | 22,122 |
The accompanying notes are an integral part of these interim unaudited condensed consolidated financial statements.
F-2
On Track Innovations Ltd.
and its Subsidiaries
Interim Unaudited Condensed Consolidated Balance Sheets
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, | June 30, | December 31, | |||||||||||||
2017 | 2016 | 2019 | 2018 | |||||||||||||
Liabilities and Equity | ||||||||||||||||
Current Liabilities | ||||||||||||||||
Short-term bank credit and current maturities of long-term bank loans | $ | 4,389 | $ | 4,369 | $ | 2,811 | $ | 260 | ||||||||
Trade payables | 6,898 | 6,957 | 5,226 | 4,712 | ||||||||||||
Other current liabilities | 2,482 | 2,822 | 2,248 | 3,622 | ||||||||||||
Total current liabilities | 13,769 | 14,148 | 10,285 | 8,594 | ||||||||||||
Long-Term Liabilities | ||||||||||||||||
Long-term loans, net of current maturities | 889 | 1,215 | 27 | 39 | ||||||||||||
Long-term liabilities due to operating leases, net of current maturities | 1,092 | - | ||||||||||||||
Accrued severance pay | 914 | 811 | 916 | 853 | ||||||||||||
Deferred tax liability | 477 | 373 | 424 | 445 | ||||||||||||
Total long-term liabilities | 2,280 | 2,399 | 2,459 | 1,337 | ||||||||||||
Total Liabilities | 16,049 | 16,547 | 12,744 | 9,931 | ||||||||||||
Commitments and Contingencies | ||||||||||||||||
Equity | ||||||||||||||||
Shareholders' Equity | ||||||||||||||||
Ordinary shares of NIS 0.1 par value: Authorized: 50,000,000 shares as of September 30, 2017 and December 31, 2016; issued: 42,313,077 and 42,243,075 shares as of September 30, 2017 and December 31, 2016, respectively; outstanding: 41,134,378 and 41,064,376 shares as of September 30, 2017 and December 31, 2016, respectively | 1,063 | 1,061 | ||||||||||||||
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 | 224,676 | 224,415 | 225,111 | 225,022 | ||||||||||||
Treasury shares at cost - 1,178,699 shares as of September 30, 2017 and December 31, 2016 | (2,000 | ) | (2,000 | ) | ||||||||||||
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 | (876 | ) | (1,236 | ) | (918 | ) | (956 | ) | ||||||||
Accumulated deficit | (209,986 | ) | (210,082 | ) | (213,587 | ) | (210,943 | ) | ||||||||
Total Equity | 12,877 | 12,158 | 9,675 | 12,191 | ||||||||||||
Total Liabilities and Equity | $ | 28,926 | $ | 28,705 | $ | 22,419 | $ | 22,122 |
The accompanying notes are an integral part of these interim unaudited condensed consolidated financial statements.
F-3
On Track Innovations Ltd.
and its Subsidiaries
Interim Unaudited Condensed Consolidated Statements of Operations
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, | Three months ended June 30, | Six months ended June 30, | |||||||||||||||||||||||||||||
2017 | 2016 | 2017 | 2016 | 2019 | *2018 | 2019 | *2018 | |||||||||||||||||||||||||
Revenues | ||||||||||||||||||||||||||||||||
Sales | $ | 3,445 | $ | 3,463 | $ | 11,871 | $ | 10,409 | $ | 2,933 | $ | 4,352 | $ | 4,655 | $ | 8,593 | ||||||||||||||||
Licensing and transaction fees | 1,225 | 2,133 | 3,765 | 4,569 | 1,183 | 1,387 | 2,474 | 2,658 | ||||||||||||||||||||||||
Total revenues | 4,670 | 5,596 | 15,636 | 14,978 | 4,116 | 5,739 | 7,129 | 11,251 | ||||||||||||||||||||||||
Cost of revenues | ||||||||||||||||||||||||||||||||
Cost of sales | 2,192 | 2,557 | 7,468 | 7,167 | 1,742 | 2,849 | 3,112 | 5,481 | ||||||||||||||||||||||||
Total cost of revenues | 2,192 | 2,557 | 7,468 | 7,167 | 1,742 | 2,849 | 3,112 | 5,481 | ||||||||||||||||||||||||
Gross profit | 2,478 | 3,039 | 8,168 | 7,811 | 2,374 | 2,890 | 4,017 | 5,770 | ||||||||||||||||||||||||
Operating expenses | ||||||||||||||||||||||||||||||||
Research and development | 823 | 604 | 2,414 | 2,072 | 817 | 806 | 1,688 | 1,626 | ||||||||||||||||||||||||
Selling and marketing | 1,332 | 1,300 | 4,166 | 3,974 | 1,320 | 1,464 | 2,605 | 3,109 | ||||||||||||||||||||||||
General and administrative | 758 | 787 | 2,553 | 2,613 | 1,046 | 1,065 | 2,011 | 1,972 | ||||||||||||||||||||||||
Other expenses | - | 83 | - | 83 | ||||||||||||||||||||||||||||
Total operating expenses | 2,913 | 2,774 | 9,133 | 8,742 | 3,183 | 3,335 | 6,304 | 6,707 | ||||||||||||||||||||||||
Operating (loss) income from continuing operations | (435 | ) | 265 | (965 | ) | (931 | ) | |||||||||||||||||||||||||
Operating loss from continuing operations | (809 | ) | (445 | ) | (2,287 | ) | (937 | ) | ||||||||||||||||||||||||
Financial expenses, net | (126 | ) | (30 | ) | (236 | ) | (185 | ) | (37 | ) | (95 | ) | (106 | ) | (127 | ) | ||||||||||||||||
Profit (loss) from continuing operations before taxes on income | (561 | ) | 235 | (1,201 | ) | (1,116 | ) | |||||||||||||||||||||||||
Loss from continuing operations before taxes on income | (846 | ) | (540 | ) | (2,393 | ) | (1,064 | ) | ||||||||||||||||||||||||
Income tax | (12 | ) | (28 | ) | (68 | ) | (60 | ) | (3 | ) | 141 | (8 | ) | 265 | ||||||||||||||||||
Net (loss) income from continuing operations | (573 | ) | 207 | (1,269 | ) | (1,176 | ) | |||||||||||||||||||||||||
Net income (loss) from discontinued operations | 1,441 | (279 | ) | 1,365 | 1,525 | |||||||||||||||||||||||||||
Net income (loss) | 868 | (72 | ) | 96 | 349 | |||||||||||||||||||||||||||
Net loss attributable to noncontrolling interest | - | 5 | - | 32 | ||||||||||||||||||||||||||||
Net income (loss) attributable to shareholders | $ | 868 | $ | (67 | ) | $ | 96 | $ | 381 | |||||||||||||||||||||||
Basic and diluted net gain (loss) attributable to shareholders per ordinary share | ||||||||||||||||||||||||||||||||
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 | (0.01 | ) | 0.01 | (0.03 | ) | (0.03 | ) | (0.02 | ) | (0.01 | ) | (0.06 | ) | (0.02 | ) | |||||||||||||||||
From discontinued operations | 0.03 | (0.01 | ) | 0.03 | 0.04 | ** | ** | ** | 0.01 | |||||||||||||||||||||||
$ | 0.02 | $ | (* | ) | (* | ) | $ | 0.01 | $ | (0.02 | ) | $ | (0.01 | ) | $ | (0.06 | ) | $ | (0.01 | ) | ||||||||||||
Weighted average number of ordinary shares used in computing basic net (loss) income per ordinary share | 41,122,965 | 40,914,258 | 41,099,603 | 40,895,268 | ||||||||||||||||||||||||||||
Weighted average number of ordinary shares used in computing diluted net (loss) income per ordinary share | 41,122,965 | 41,667,258 | 41,099,603 | 40,895,268 | ||||||||||||||||||||||||||||
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.
F-4
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.
F-5
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.
F-6
On Track Innovations Ltd.
and its Subsidiaries
Interim Unaudited Condensed Consolidated Statements of Comprehensive Income (Loss)
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
Three months ended September 30, | Nine months ended September 30, | |||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
Total comprehensive income (loss): | ||||||||||||||||
Net income (loss) | $ | 868 | $ | (72 | ) | $ | 96 | $ | 349 | |||||||
Foreign currency translation adjustments | 28 | 110 | 360 | 88 | ||||||||||||
Total comprehensive income | $ | 896 | $ | 38 | $ | 456 | $ | 437 | ||||||||
Comprehensive loss attributable to the non-controlling interest | - | 5 | - | 32 | ||||||||||||
Total comprehensive income attributable to shareholders | $ | 896 | $ | 43 | $ | 456 | $ | 469 |
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 |
(*) | See Note 10D. |
The accompanying notes are an integral part of these interim unaudited condensed consolidated financial statements.
F-7
On Track Innovations Ltd.
and its Subsidiaries
Interim Unaudited Condensed Consolidated Statements of Changes in Equity
On Track Innovations Ltd. |
and its Subsidiaries |
Interim Unaudited Condensed Consolidated Statements of Cash Flows |
US dollars in thousands except number of shares
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 |
Accumulated other | ||||||||||||||||||||||||||||||||
Number of | Additional | Treasury | comprehensive | |||||||||||||||||||||||||||||
Shares | Share | paid-in | Shares | Income | Accumulated | Noncontrolling | Total | |||||||||||||||||||||||||
issued | capital | capital | (at cost) | (loss) | deficit | interest | equity | |||||||||||||||||||||||||
Balance as of December 31, 2015 | 42,014,673 | $ | 1,055 | $ | 225,925 | $ | (2,000 | ) | $ | (1,084 | ) | $ | (209,254 | ) | $ | (1,819 | ) | $ | 12,823 | |||||||||||||
Changes during the nine month period ended September 30, 2016: | ||||||||||||||||||||||||||||||||
Stock-based compensation | 15,000(** | ) | (* | ) | 174 | - | - | - | - | 174 | ||||||||||||||||||||||
Exercise of options and warrants | 90,402 | 2 | 35 | - | - | - | - | 37 | ||||||||||||||||||||||||
Increase in the ownership rate in subsidiaries (***) | - | - | (1,920 | ) | - | - | - | 1,851 | (69 | ) | ||||||||||||||||||||||
Foreign currency translation adjustments | - | - | - | - | 88 | - | - | 88 | ||||||||||||||||||||||||
Net income (loss) | - | - | - | - | - | 381 | (32 | ) | 349 | |||||||||||||||||||||||
Balance as of September 30, 2016 | 42,120,075 | $ | 1,057 | $ | 224,214 | $ | (2,000 | ) | $ | (996 | ) | $ | (208,873 | ) | $ | - | $ | 13,402 | ||||||||||||||
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 |
(*) | Reclassified to conform with the current period presentation, see Note 1C(2). |
(*) Less than $1.Supplementary cash flows activities:
(**) See Note 8C.
(***) See Note 1C(2).
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.
F-8
On Track Innovations Ltd.
and its Subsidiaries
Interim Unaudited Condensed Consolidated Statements of Cash Flows
On Track Innovations Ltd. |
and Subsidiaries |
Notes to the Interim Unaudited Condensed Consolidated Financial Statements |
US dollars in thousands
Nine months ended September 30, | ||||||||
2017 | 2016 | |||||||
Cash flows from continuing operating activities | ||||||||
Net loss from continuing operations | $ | (1,269 | ) | $ | (1,176 | ) | ||
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 | 238 | 174 | ||||||
Depreciation | 878 | 911 | ||||||
Deferred tax, net | 37 | 60 | ||||||
(Gain) loss on sale of property and equipment | (9 | ) | 83 | |||||
Accrued interest and linkage differences, net | (41 | ) | 19 | |||||
Changes in operating assets and liabilities: | ||||||||
Accrued severance pay, net | 72 | (152 | ) | |||||
Decrease (increase) in trade receivables, net | 187 | (1,376 | ) | |||||
(Increase) in other receivables and prepaid expenses | (435 | ) | (16 | ) | ||||
(Increase) decrease in inventories | (710 | ) | 246 | |||||
(Decrease) increase in trade payables | (611 | ) | 1,024 | |||||
(Decrease) in other current liabilities | (777 | ) | (408 | ) | ||||
Net cash used in continuing operating activities | (2,440 | ) | (611 | ) | ||||
Cash flows from continuing investing activities | ||||||||
Purchase of property and equipment | (160 | ) | (185 | ) | ||||
Proceeds from sale of property and equipment | 14 | 1,779 | ||||||
Change in short-term investments, net | 2,917 | (502 | ) | |||||
Investment in capitalized product costs | (185 | ) | (139 | ) | ||||
Proceeds from restricted deposit for employees benefit | 44 | 142 | ||||||
Net cash provided by continuing investing activities | 2,630 | 1,095 | ||||||
Cash flows from continuing financing activities | ||||||||
(Decrease) increase in short-term bank credit, net | (72 | ) | 287 | |||||
Proceeds from long-term bank loans | - | 27 | ||||||
Repayment of long-term bank loans | (469 | ) | (1,368 | ) | ||||
Proceeds from exercise of options and warrants | 25 | 37 | ||||||
Net cash used in continuing financing activities | (516 | ) | (1,017 | ) | ||||
Cash flows from discontinued operations | ||||||||
Net cash used in discontinued operating activities | (86 | ) | (183 | ) | ||||
Net cash provided by discontinued investing activities | - | 2,152 | ||||||
Total net cash (used in) provided by discontinued operations | (86 | ) | 1,969 | |||||
Effect of exchange rate changes on cash and cash equivalents | 460 | 51 | ||||||
Increase in cash and cash equivalents | 48 | 1,487 | ||||||
Cash and cash equivalents at the beginning of the period | 5,952 | 5,450 | ||||||
Cash and cash equivalents at the end of the period | $ | 6,000 | $ | 6,937 |
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, | ||||||||
2017 | 2016 | |||||||
Supplementary cash flows activities: | ||||||||
Cash paid during the period for: | ||||||||
Interest paid | $ | 140 | $ | 148 | ||||
Income taxes paid | $ | 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. During the nine-month period ended September 30, 2017, the Company completed the liquidation of its wholly-owned subsidiaries, Softchip Israel Ltd. and Softchip Technologies (3000) Ltd., and these entities are no longer part of the Group.
The Company’s ordinary shares are listed for trading on the NASDAQNasdaq Capital Market (formerly listed on the NASDAQNasdaq 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, 2016.2018.
In the opinion of management, all adjustments considered necessary for a fair presentation,statement, consisting of normal recurring adjustments, have been included. Operating results for the nine-monthsix month period ended SeptemberJune 30, 20172019 are not necessarily indicative of the results that may be expected for the year ending December 31, 2017.2019.
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 |
F-9
On Track Innovations Ltd.
and Subsidiaries
On Track Innovations Ltd. |
and Subsidiaries |
Notes to the Interim Unaudited Condensed Consolidated Financial Statements |
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. |
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. |
F-10
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
TheseExcept 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, 2016.
Recent accounting pronouncements2018.
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.
F-11
On Track Innovations Ltd.
and Subsidiaries
On Track Innovations Ltd. |
and Subsidiaries |
Notes to the Interim Unaudited Condensed Consolidated Financial Statements |
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.
F-12
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, | June 30, | December 31, | |||||||||||||
2017 | 2016 | 2019 | 2018 | |||||||||||||
Government institutions | $ | 476 | $ | 322 | $ | 379 | $ | 387 | ||||||||
Prepaid expenses | 412 | 526 | 192 | 226 | ||||||||||||
Receivables under contractual obligations to be transferred to others (*) | 383 | 346 | ||||||||||||||
Other receivables (see also Note 6). | 2,692 | 444 | ||||||||||||||
Receivables under contractual obligations to be transferred to others * | 225 | 349 | ||||||||||||||
Supplier advances | 525 | 932 | ||||||||||||||
Other receivables | 136 | 166 | ||||||||||||||
$ | 3,963 | $ | 1,638 | $ | 1,457 | $ | 2,060 |
(*) The Company’s subsidiary in Poland is required to collect certain fees that are to be transferred to local authorities.
* | 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, | June 30, | December 31, | |||||||||||||
2017 | 2016 | 2019 | 2018 | |||||||||||||
Employees and related expenses | $ | 592 | $ | 1,011 | $ | 746 | $ | 1,042 | ||||||||
Accrued expenses | 1,430 | 1,473 | 697 | 921 | ||||||||||||
Customer advances | 224 | 249 | 67 | 141 | ||||||||||||
Short-term liabilities due to operating leases and current maturities ** | 618 | - | ||||||||||||||
Other current liabilities | 236 | 89 | 120 | *1,518 | ||||||||||||
$ | 2,482 | $ | 2,822 | $ | 2,248 | $ | 3,622 |
See Note 6A(1). |
** | See Note 2A. |
F-13
On Track Innovations Ltd.
and Subsidiaries
On Track Innovations Ltd. |
and Subsidiaries |
Notes to the Interim Unaudited Condensed Consolidated Financial Statements |
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 |
F-14
On Track Innovations Ltd. |
and Subsidiaries |
Notes to the Interim Unaudited Condensed Consolidated Financial Statements |
US dollars in thousands
Note 56 - Commitments and Contingencies
A. | Legal claims |
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 |
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. |
F-15
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)
A. | Legal claims (cont'd) |
3. | In October |
On Track Innovations Ltd.
and Subsidiaries
Notes to the Interim Unaudited Condensed Consolidated Financial Statements
US dollars in thousands
Note 5 - Commitments and Contingencies (cont’d)
Guarantees |
As of SeptemberJune 30, 2017,2019, the Company has granted performance guarantees and guarantees to secure customer advances in the sum of $352.$349. The expiration dates of thethese guarantees range from October 2017August 2019 to February 2021.
F-16
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 2019.30, 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). |
F-17
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.
F-18
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:
1. | Sales of products – |
● | 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.
F-19
On Track Innovations Ltd. |
and Subsidiaries |
Notes to the Interim Unaudited Condensed Consolidated Financial Statements |
US dollars in thousands
Note 6 -8 – Discontinued operations
As described in Note 1C, the Company divested its interest in the SmartID division and its parking segment,Medismart activity, 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, | Three months ended June 30, | Six months ended June 30, | |||||||||||||||||||||||||||||
2017 | 2016 | 2017 | 2016 | 2019 | *2018 | 2019 | *2018 | |||||||||||||||||||||||||
Revenues | - | 184 | - | 768 | $ | - | $ | 402 | $ | - | $ | 765 | ||||||||||||||||||||
Expenses | (11 | ) | (327 | ) | (94 | ) | (1,246 | ) | (50 | ) | (296 | ) | (243 | ) | (592 | ) | ||||||||||||||||
Other (expenses) income, net | 1,452(* | ) | (136 | ) | 1,459(* | ) | 2,003 | |||||||||||||||||||||||||
Net profit (loss) from discontinued operations | 1,441 | (279 | ) | 1,365 | 1,525 | |||||||||||||||||||||||||||
Other income, net | - | 13 | - | 13 | ||||||||||||||||||||||||||||
Net (loss) income from discontinued operations | $ | (50 | ) | $ | 119 | $ | (243 | ) | $ | 186 |
(*) 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.
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 79 - Fair Value of Financial Instruments
The Company's financial instruments consist mainly of cash and cash equivalents, short-term interestinvestments bearing investments,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. |
F-20
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, useddetermined that the following methods and assumptions:
The carrying amounts of cash and cash equivalents, short-term interest bearing investments, 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, 2017, the fair value of bank loans with fixed interest rates did not differ materially from the carrying amount.
As of SeptemberJune 30, 2017,2019, the Company held approximately $2,667$2,105 of short-term bank deposits (as of December 31, 2016, $5,585)2018, $1,078). As of SeptemberJune 30, 20172019 and December 31, 2016,2018, short-term deposits in the amount of $1,548$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.
On Track Innovations Ltd.
and Subsidiaries
Notes to the Interim Unaudited Condensed Consolidated Financial Statements
US dollars in thousands
Note 8 -10 – Equity
A. | Stock option plans |
During each of the nine monthssix-month periods ended SeptemberJune 30, 20172019 and SeptemberJune 30, 2016,2018, 130,000 and 100,000 and 270,000 options were granted, respectively. The vesting period for the options ranges from one year to fouris three years. The exercise prices for the options range from $0.44 to $1.58.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 the 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 and non-employees during the ninesix months ended SeptemberJune 30, 20172019 and SeptemberJune 30, 2016,2018 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 |
F-21
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 |
Estimated expected lives |
The Company’s options activity (including options to non-employees) during the ninesix months ended SeptemberJune 30, 20172019 and options outstanding and options exercisable as of December 31, 20162018 and SeptemberJune 30, 2017,2019, are summarized in the following table:
Number of | Weighted average exercise | ||||||||
options | price per | ||||||||
outstanding | share | ||||||||
Outstanding – December 31, 2016 | 1,604,836 | $ | 1.36 | ||||||
Options granted | 100,000 | 1.58 | |||||||
Options expired or forfeited | (286,334 | ) | 1.89 | ||||||
Options exercised | (25,002 | ) | 0.92 | ||||||
Outstanding – September 30, 2017 | 1,393,500 | $ | 1.27 | ||||||
Exercisable as of: | |||||||||
December 31, 2016 | 591,017 | $ | 1.83 | ||||||
September 30, 2017 | 605,167 | $ | 1.57 |
On Track Innovations Ltd.
and Subsidiaries
Notes to the Interim Unaudited Condensed Consolidated Financial Statements
US dollars in thousands
Note 8 - Equity (cont’d)
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 ninesix months ended SeptemberJune 30, 20172019 and during the ninesix months ended SeptemberJune 30, 20162018 is $0.93$0.24 and $0.41,$0.65, respectively, per option. The aggregate intrinsic value of outstanding options as of SeptemberJune 30, 20172019 and December 31, 20162018 is approximately $465zero and $909,$6, respectively. The aggregate intrinsic value of exercisable options as of SeptemberJune 30, 20172019 and December 31, 20162018 is approximately $168zero and $166,$4, respectively.
F-22
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 SeptemberJune 30, 2017:2019:
Options outstanding | Options Exercisable | ||||||||||||||||||||||||||
Number | Weighted | Number | Weighted | ||||||||||||||||||||||||
outstanding | average | Weighted | Outstanding | average | Weighted | ||||||||||||||||||||||
Range of | as of | remaining | Average | As of | remaining | Average | |||||||||||||||||||||
exercise | September 30, | contractual | Exercise | September 30, | contractual | Exercise | |||||||||||||||||||||
price | 2017 | life (years) | Price | 2017 | life (years) | Price | |||||||||||||||||||||
$ | 0.44-0.90 | 585,000 | 3.05 | $ | 0.77 | 281,667 | 2.78 | $ | 0.77 | ||||||||||||||||||
1.07-1.46 | 420,000 | 3.77 | 1.12 | 50,000 | 0.80 | 1.46 | |||||||||||||||||||||
1.58-1.68 | 115,000 | 4.08 | 1.59 | 10,000 | 2.25 | 1.68 | |||||||||||||||||||||
2.32-2.36 | 233,500 | 1.59 | 2.35 | 233,500 | 1.59 | 2.35 | |||||||||||||||||||||
$ | 3.03 | 40,000 | 1.98 | $ | 3.03 | 30,000 | 1.98 | $ | 3.03 | ||||||||||||||||||
1,393,500 | 3.08 | 605,167 | 2.11 |
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 SeptemberJune 30, 2017,2019, there was approximately $354$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 1.1 year.1.08 years.
During the ninethree months ended SeptemberJune 30, 20172019 and SeptemberJune 30, 2016,2018, the Company recorded stock-based compensation expenses in the amount of $238$44 and $174,$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.”
B. | Warrants |
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 |
AsDuring 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 Septemberchanges in equity for the six months ended June 30, 2017, there are remaining 40,000 outstanding warrants with a per share exercise price of $0.95. The warrants expire during 2019.2019 and June 30, 2018.
F-23
On Track Innovations Ltd.
and Subsidiaries
On Track Innovations Ltd. |
and Subsidiaries |
Notes to the Interim Unaudited Condensed Consolidated Financial Statements |
Notes to the Interim Unaudited Condensed Consolidated Financial Statements
US dollars in thousands
Note 911 - 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, 2017 | ||||||||||||||||||||||||||||
Petroleum | Retail and Mass Transit Ticketing | Other | Consolidated | Three months ended June 30, 2019 | ||||||||||||||||||||||||
Retail and Mass Transit Ticketing | Petroleum | Total | ||||||||||||||||||||||||||
Revenues | $ | 917 | $ | 3,231 | $ | 522 | $ | 4,670 | $ | 3,477 | $ | 639 | $ | 4,116 | ||||||||||||||
Reportable segment gross profit (*) | 493 | 1,859 | 325 | 2,677 | ||||||||||||||||||||||||
Reportable segment gross profit * | 2,123 | 450 | 2,573 | |||||||||||||||||||||||||
Reconciliation of reportable segment gross profit to gross profit for the period | ||||||||||||||||||||||||||||
Depreciation | (199 | ) | (198 | ) | ||||||||||||||||||||||||
Stock-based compensation | - | (1 | ) | |||||||||||||||||||||||||
(*) Gross profit for the period | $ | 2,478 | ||||||||||||||||||||||||||
Gross profit for the period in the consolidated financial statement | $ | 2,374 |
Three months ended September 30, 2016 | ||||||||||||||||||||||||||||
Petroleum | Retail and Mass Transit Ticketing | Other | Consolidated | Three months ended June 30, 2018 ** | ||||||||||||||||||||||||
Retail and Mass Transit Ticketing | Petroleum | Total | ||||||||||||||||||||||||||
Revenues | $ | 1,056 | $ | 3,891(** | ) | $ | 649 | $ | 5,596 | $ | 4,056 | $ | 1,683 | $ | 5,739 | |||||||||||||
Reportable segment gross profit (*) | 638 | 2,238 | 326 | 3,202 | ||||||||||||||||||||||||
Reportable segment gross profit * | 2,335 | 766 | 3,101 | |||||||||||||||||||||||||
Reconciliation of reportable segment gross profit to gross profit for the period | ||||||||||||||||||||||||||||
Depreciation | (161 | ) | (210 | ) | ||||||||||||||||||||||||
Stock-based compensation | (2 | ) | (1 | ) | ||||||||||||||||||||||||
(*) Gross profit for the period | $ | 3,039 | ||||||||||||||||||||||||||
Gross profit for the period in the consolidated financial statement | $ | 2,890 |
F-24
On Track Innovations Ltd.
and Subsidiaries
On Track Innovations Ltd. |
and Subsidiaries |
Notes to the Interim Unaudited Condensed Consolidated Financial Statements |
Notes to the Interim Unaudited Condensed Consolidated Financial Statements
US dollars in thousands
Note 911 - Operating segments (cont’d)
Nine months ended September 30, 2017 | Six months ended June 30, 2019 | |||||||||||||||||||||||||||
Petroleum | Retail and Mass Transit Ticketing | Other | Consolidated | Retail and Mass Transit Ticketing | Petroleum | Total | ||||||||||||||||||||||
Revenues | $ | 3,645 | $ | 10,654 | $ | 1,337 | $ | 15,636 | $ | 5,670 | $ | 1,459 | $ | 7,129 | ||||||||||||||
Reportable segment gross profit (*) | 1,889 | 6,068 | 794 | 8,751 | ||||||||||||||||||||||||
Reconciliation of reportable segment gross profit to profit for the period | ||||||||||||||||||||||||||||
Reportable segment gross profit * | 3,621 | 796 | 4,417 | |||||||||||||||||||||||||
Reconciliation of reportable segment gross profit to gross profit for the period | ||||||||||||||||||||||||||||
Depreciation | (582 | ) | (398 | ) | ||||||||||||||||||||||||
Stock-based compensation | (1 | ) | (2 | ) | ||||||||||||||||||||||||
(*) Gross profit for the period | $ | 8,168 | ||||||||||||||||||||||||||
Gross profit for the period in the consolidated financial statement | $ | 4,017 |
Nine months ended September 30, 2016 | ||||||||||||||||||||||||||||
Petroleum | Retail and Mass Transit Ticketing | Other | Consolidated | Six months ended June 30, 2018 ** | ||||||||||||||||||||||||
Retail and Mass Transit Ticketing | Petroleum | Total | ||||||||||||||||||||||||||
Revenues | $ | 2,996 | $ | 10,029(** | ) | $ | 1,953 | $ | 14,978 | $ | 8,626 | $ | 2,625 | $ | 11,251 | |||||||||||||
Reportable segment gross profit (*) | 1,836 | 5,568 | 968 | 8,372 | ||||||||||||||||||||||||
Reconciliation of reportable segment gross profit to profit for the period | ||||||||||||||||||||||||||||
Reportable segment gross profit * | 4,878 | 1,318 | 6,196 | |||||||||||||||||||||||||
Reconciliation of reportable segment gross profit to gross profit for the period | ||||||||||||||||||||||||||||
Depreciation | (559 | ) | (424 | ) | ||||||||||||||||||||||||
Stock-based compensation | (2 | ) | (2 | ) | ||||||||||||||||||||||||
(*) Gross profit for the period | $ | 7,811 | ||||||||||||||||||||||||||
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.
* | Gross profit as reviewed by the CODM, represents gross profit, adjusted to exclude depreciation and stock-based compensation. |
(**) The revenues from retail and mass transit ticketing segment for the three months and nine months ended September 30, 2016 include revenues derived from a litigation settlement with a perpetual license agreement. Those revenues are presented within revenues from ‘licensing and transaction fees’ in the statements of operations.
** | Reclassified to conform with the current period presentation, see Note 1C(2). |
F-25
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"“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"“believes,” “intends,” “plans”, "intends", "plans", "expects", "may", "will", "should",“expects,” “may,” “will,” “should,” or "anticipates"“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; |
● |
● | 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 |
● | our intention to continue to invest in research and development; |
● | changes to our |
● | 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.
2
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, 20162018 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"“the Company”, and "OTI" mean On Track Innovations Ltd. and our subsidiaries, and affiliates, 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 in.herein.
Overview
We are a fintech pioneer and leading developer of cutting-edge secure cashless payment solutions providing global enterprises with innovative technology for over twoalmost three decades. We currently operate in two main segments: (1) Retail and Mass Transit Ticketing; and (2) Petroleum (followingPetroleum. As a result of the divestureclosing of the MediSmart Transaction in December 2018, we no longer report our parking business as specified below). 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 analyses appearing in this Quarterly Report.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 distributors and partnersdistributors to support various solutions deployed across the globe.
We focus our efforts on our core business of providing innovative cashless payment solutions based among other things on our contactless NFC technology. To this end, and in line with our efforts to focus on our core business, in September 2016 we completed the sale of the operations, including our employees, as well as IP directly related to our parking business. We have increased our efforts to further develop existing and new products and solutions, including among others by the introduction of our new products and solutions for the unattended payment market and Internet of Payment Things technology. We have also increased our sales and marketing activities and resources.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.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 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.
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.
3
Three months ended September 30, 2017, compared to the three months ended September 30, 2016
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,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 SeptemberJune 30, 20172019 and SeptemberJune 30, 2016,2018, the revenues that we derived from sales and licensing and transaction fees were as follows (in thousands):
Three months ended September 30, | Three months ended June 30, | |||||||||||||||
2017 | 2016 | 2019 | 2018 | |||||||||||||
Sales | $ | 3,445 | $ | 3,463 | $ | 2,933 | $ | 4,352 | ||||||||
Licensing and transaction fees | $ | 1,225 | $ | 2,133 | $ | 1,183 | $ | 1,387 | ||||||||
Total revenues | $ | 4,670 | $ | 5,596 | $ | 4,116 | $ | 5,739 |
Sales.Sales decreased by $1.4 million, or 33%, in the three months ended SeptemberJune 30, 2017,2019, compared to the three months ended SeptemberJune 30, 2016, remained consistent.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 feesfees.. Licensing and transaction fees include single and periodic payments for distribution rights for our products.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 SeptemberJune 30, 2017,2019, compared to the three months ended SeptemberJune 30, 2016,2018, decreased by $908,000,$204,000, or 43%15%. ThisThe decrease wasis mainly dueattributed to a decrease in our licensing of our IP rights to third partiesand transaction fees in the United States (including licenses granted pursuant to settlements of legal actions to enforce patent rights).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 SeptemberJune 30, 20172019 and SeptemberJune 30, 2016:2018:
Three months ended September 30, | Africa | Europe | APAC | Americas | ||||||||||||||||||||||||||||
2017 | $ | 999 | 21 | % | $ | 1,421 | 30 | % | $ | 73 | 2 | % | $ | 2,177 | 47 | % | ||||||||||||||||
2016 | $ | 1,081 | 19 | % | $ | 1,653 | 30 | % | $ | 289 | 5 | % | $ | 2,573 | 46 | % |
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 $82,000,$205,000, or 8%29%, in the three months ended SeptemberJune 30, 2017,2019, compared to the three months ended SeptemberJune 30, 2016,2018, mainly due to a decrease in sales of Petroleum products.
Our revenues from sales in Europe decreasedincreased by $232,000,$150,000, or 14%7%, in the three months ended SeptemberJune 30, 2017,2019, compared to the three months ended SeptemberJune 30, 2016,2018, mainly due to an increase of sales of readers, partially offset by a decrease in sales of Retaillicensing and Mass Transit Ticketing segment products.transaction fees.
Our revenues from sales in the Asia-Pacific region, or APAC, decreasedincreased by $216,000,$293,000, or 75%161%, in the three months ended SeptemberJune 30, 2017,2019, compared to the three months ended SeptemberJune 30, 2016,2018, mainly due to a decreasean increase in sales of access control products.our Uno Plus and GoBox products in Japan.
Our revenues from sales in Americas decreased by $396,000,$1.9 million or 15%68%, in the three months ended SeptemberJune 30, 2017,2019, compared to the three months ended SeptemberJune 30, 2016,2018, mainly due to a decrease in licensingsales of our intellectual property rightsreaders to third parties in the United States (including licenses granted pursuantU.S. market that we believe was derived from new tariffs that were presented by the U.S. administration on goods imported from China to settlements of legal actionsthe U.S. market and to enforce patent rights) partially offset by an increasea decrease in sales of readersPetroleum products in Americas. As a result of the United States.above mentioned tariffs, we have relocated our production from China to the Philippines.
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Our revenues derived from outside the United States which are primarily received in currencies other than the U.S. dollar willand accordingly have a varying impact upon our total revenues as a result of fluctuations in such currencies’ exchange rates versus the U.S. dollar.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 SeptemberJune 30, 20172019 and SeptemberJune 30, 2016:2018:
Three months ended September 30, | Petroleum | Retail and Mass Transit Ticketing | Other | |||||||||||||||||||||
2017 | $ | 917 | 20 | % | $ | 3,231 | 69 | % | $ | 522 | 11 | % | ||||||||||||
2016 | $ | 1,056 | 19 | % | $ | 3,891 | 69 | % | $ | 649 | 12 | % |
Our revenues in the three months ended September 30, 2017, from Petroleum decreased by $139,000, or 13%, compared to the three months ended September 30, 2016, mainly due to a decrease in sales of Petroleum products in Africa.
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 SeptemberJune 30, 2017,2019 decreased by $660,000,$579,000, or 17%14%, compared to the three months ended SeptemberJune 30, 2016,2018, mainly dueattributed to a decrease in licensingsales of our intellectual property rights to third partiesreaders in the United States, (including licenses granted pursuant to settlements of legal actions to enforce patent rights) partially offset by an increase in sales of readers in Europe and an increase in sales in the United States.Japanese market.
Our revenues in the three months ended SeptemberJune 30, 2017,2019 from our Other segmentPetroleum decreased by $127,000,$1.0 million, or 20%62%, compared to the three months ended SeptemberJune 30, 2016,2018, mainly due to due to a decrease in sales of access controlPetroleum products in APAC partially offset by an increase in sales of our MediSmart products in Africa.Americas.
Cost of Revenues and Gross Margin
Our cost of revenues, presented by gross profit and gross margin percentage, in the three months ended SeptemberJune 30, 20172019 and SeptemberJune 30, 2016,2018 were as follows (in(dollar amounts in thousands):
Cost of revenues | Three months ended September 30, | |||||||||||||||
2017 | 2016 | Three months ended June 30, | ||||||||||||||
2019 | 2018 | |||||||||||||||
Cost of sales | $ | 2,192 | $ | 2,557 | $ | 1,742 | $ | 2,849 | ||||||||
Gross profit | $ | 2,478 | $ | 3,039 | $ | 2,374 | $ | 2,890 | ||||||||
Gross margin percentage | 53% | 54% | 58 | % | 50 | % |
Cost of salessales.. 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 $365,000,$1.1 million, or 14%39%, in the three months ended SeptemberJune 30, 2017,2019, compared to the three months ended SeptemberJune 30, 2016,2018, resulted primarily from a decrease in revenues.sales.
Gross margin. The decreaseincrease in gross margin in the three months ended SeptemberJune 30, 2017,2019, compared to the three months ended SeptemberJune 30, 2016,2018, is mainly attributed to a change in our revenue mix and the decrease in sales.mix.
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Operating expenses
Our operating expenses in the three months ended SeptemberJune 30, 20172019 and SeptemberJune 30, 2016,2018 were as follows (in thousands):
Operating expenses | Three months ended September 30, | Three months ended June 30, | ||||||||||||||
2017 | 2016 | 2019 | 2018 | |||||||||||||
Research and development | $ | 823 | $ | 604 | $ | 817 | $ | 806 | ||||||||
Selling and marketing | $ | 1,332 | $ | 1,300 | $ | 1,320 | $ | 1,464 | ||||||||
General and administrative | $ | 758 | $ | 787 | $ | 1,046 | $ | 1,065 | ||||||||
Other expenses | $ | - | $ | 83 | ||||||||||||
Total operating expenses | $ | 2,913 | $ | 2,774 | $ | 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. The increase of $219,000, or 36%,Our research and development, in the three months ended SeptemberJune 30, 2017,2019, compared to the three months ended SeptemberJune 30, 2016, is primarily attributed to an increase in the number of research and development employees.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. Our selling and marketing expenses,The decrease of $144,000, or 10%, in the three months ended SeptemberJune 30, 2017,2019, compared to the three months ended SeptemberJune 30, 2016, remained consistent.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 lawyerslegal and accountants)accounting), office expenses insurance,and insurance. Our general and administrative expenses and provision for doubtful accounts. The decrease of $29,000, or 4%, in the three months ended SeptemberJune 30, 2017,2019, compared to the three months ended SeptemberJune 30, 2016, is primarily attributed to income from our lawsuit against Harel Insurance Company Ltd., or Harel, for damages incurred by us due to flooding in a subcontractor’s manufacturing site, partially offset by an increase in salaries and employees’ benefit and an increase in professional expenses.
Other expenses. Our other expenses in the three months ended September 30, 2016 consist a loss of $83 related to the sale of our headquarters building in Rosh Pina, Israel to a third party.2018, remained consistent.
Financing expenses, net
Our financing expenses, net, in the three months ended SeptemberJune 30, 20172019 and SeptemberJune 30, 2016,2018 were as follows (in thousands):
Three months ended September 30, | ||||||||
2017 | 2016 | |||||||
Financing expenses, net | $ | (126 | ) | $ | (30 | ) |
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 increasedecrease in financing expenses, net in the three months ended SeptemberJune 30, 2017,2019, compared to the three months ended SeptemberJune 30, 2016,2018, of $96,000,$58,000, or 320%61%, is mainly due to exchange rate differentials.a decrease in interest expenses.
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Net (loss) incomeloss from continuing operations
Our net (loss) incomeloss from continuing operations in the three months ended SeptemberJune 30, 20172019 and SeptemberJune 30, 2016,2018 was as follows (in thousands):
Three months ended September 30, | ||||||||
2017 | 2016 | |||||||
Net (loss) income from continuing operations | $ | (573 | ) | $ | 207 |
Three months ended June 30, | ||||||||
2019 | 2018 | |||||||
Net loss from continuing operations | $ | (849 | ) | $ | (399 | ) |
The changeincrease in the net loss from continuing operations of $780,000,$450,000, in the three months ended SeptemberJune 30, 2017,2019, compared to the three months ended SeptemberJune 30, 20162019, is mainly due to a decrease in our sales, partially offset by a decrease in our gross profit, an increase in our operating expenses, and an increase in financing expenses, net, as described above.
Net (loss) income (loss) from discontinued operations
Our net (loss) income (loss) from discontinued operations in the three months ended SeptemberJune 30, 20172019 and SeptemberJune 30, 2016,2018 was as follows (in thousands):
Three months ended September 30, | ||||||||
2017 | 2016 | |||||||
Net income (loss) from discontinued operations | $ | 1,441 | $ | (279 | ) |
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.
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 increasechange in net profit fromthe discontinued operations results of $1.7 million$169,000 in the three months ended SeptemberJune 30, 2017,2019, compared to the three months ended SeptemberJune 30, 2016,2018, is mainly attributeddue to $1.6 million net, recovered by us pursuantincome related to the August 23, 2017 judgment of the Israeli Central District CourtMediSmart activity in a lawsuit against Harel Insurance Company Ltd., or Harel for damages incurred by us due to flooding in a subcontractor’s manufacturing site. Appeal of this judgment by Harel is pending before the Israeli Supreme Court. 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.2018.
Net income (loss)loss
Our net income (loss)loss in the three months ended SeptemberJune 30, 20172019 and SeptemberJune 30, 2016,2018 was as follows (in thousands):
Three months ended September 30, | ||||||||
2017 | 2016 | |||||||
Net income (loss) | $ | 868 | $ | (72 | ) |
Three months ended June 30, | ||||||||
2019 | 2018 | |||||||
Net loss | $ | (899 | ) | $ | (280 | ) |
The increase in net income (loss)loss of $940,000$619,000 or 221%, in the three months ended SeptemberJune 30, 2017,2019, compared to the three months ended SeptemberJune 30, 2016,2018, is primarily due to a decrease in our sales and an increase in net incomeloss from discontinued operations which was, partially offset by a decrease in our revenues and gross profit, an increase in our operating expenses, and an increase in financing expenses, net as described above.
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Nine months ended SeptemberRESULTS OF OPERATIONS – SIX MONTHS ENDED JUNE 30, 2017, compared to the nine months ended September2019 COMPARED TO SIX MONTHS ENDED JUNE 30, 20162018
Sources of Revenue
During the ninesix months ended SeptemberJune 30, 20172019 and SeptemberJune 30, 2016,2018, the revenues that we derived from sales and licensing and transaction fees were as follows (in thousands):
Nine months ended September 30, | Six months ended June 30, | |||||||||||||||
2017 | 2016 | 2019 | 2018 | |||||||||||||
Sales | $ | 11,871 | $ | 10,409 | $ | 4,655 | $ | 8,593 | ||||||||
Licensing and transaction fees | $ | 3,765 | $ | 4,569 | $ | 2,474 | $ | 2,658 | ||||||||
Total revenues | $ | 15,636 | $ | 14,978 | $ | 7,129 | $ | 11,251 |
SalesSales.. Sales increaseddecreased by $1.5$3.9 million or 14%46%, in the ninesix months ended SeptemberJune 30, 2017,2019, compared to the ninesix months ended SeptemberJune 30, 2016.2018. The increasedecrease is mainly attributed to an increase in Retail and Mass Transit Ticketing segment sales in Japan, to an increase in Petroleum segment sales in Africa and to an increase in sales of our otiMetry solution in Europe partially offset by a decrease in sales of readers toand Petroleum products in the U.S. marketUnited States and to a decreasesales in our Other segment sales.Japan.
Licensing and transaction feesfees.. Our licensing and transaction fees in the ninesix months ended SeptemberJune 30, 2017,2019, compared to the ninesix months ended SeptemberJune 30, 2016,2018, decreased by $804,000,$184,000, or 18%7%. This wasThe decrease is mainly dueattributed to a decrease in our licensing of our intellectual property rights to third partiesand transaction fees in the United States (including licenses granted pursuant to settlements of legal actions to enforce patent rights).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 revenues in different geographical areas, in the ninesix months ended SeptemberJune 30, 20172019 and SeptemberJune 30, 2016:2018:
Nine months ended September 30, | Africa | Europe | APAC | Americas | ||||||||||||||||||||||||||||
2017 | $ | 3,352 | 21 | % | $ | 5,355 | 34 | % | $ | 1,807 | 12 | % | $ | 5,122 | 33 | % | ||||||||||||||||
2016 | $ | 3,048 | 20 | % | $ | 4,583 | 31 | % | $ | 522 | 3 | % | $ | 6,825 | 46 | % |
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 increaseddecreased by $304,000,$206,000, or 10%17%, in the ninesix months ended SeptemberJune 30, 2017,2019, compared to the ninesix months ended SeptemberJune 30, 2016,2018, mainly due to an increase in our sales in our Petroleum segment partially offset by a decrease in sales of our MediSmartPetroleum products.
Our revenues from sales in Europe increased by $772,000,$122,000, or 17%3%, in the ninesix months ended SeptemberJune 30, 2017,2019, compared to the ninesix months ended SeptemberJune 30, 2016,2018, mainly due to an increase inof sales in our Retailof readers, partially offset by a decrease of licensing and Mass Transit Ticketing segment and to an increase in our otiMetry solution in the European market.transaction fees.
Our revenues from sales in APAC increaseddecreased by $1.3 million,$579,000 or 246%46%, in the ninesix months ended SeptemberJune 30, 2017,2019, compared to the ninesix months ended SeptemberJune 30, 2016,2018, mainly due to an increasea decrease in our Uno Plus and GoBox productssales in Japan.the Japanese market.
Our revenues from sales in Americas decreased by $1.7$3.4 million, or 25%70%, in the ninesix months ended SeptemberJune 30, 2017,2019, compared to the ninesix months ended SeptemberJune 30, 2016,2018, 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 licensingto a decrease in sales of Petroleum products in Americas. As a result of the above mentioned tariffs, we have relocated our intellectual property rightsproduction from China to third parties in the United States (including licenses granted pursuant to settlements of legal actions to enforce patent rights).Philippines.
Our revenues derived from outside the United States which are primarily received in currencies other than the U.S. dollar willand accordingly have a varying impact upon our total revenues as a result of fluctuations in such currencies’ exchange rates versus the U.S. dollar.rates.
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The following table sets forth our revenues by dollar amount (in thousands) and as a percentage of revenues by segments, during the ninesix months ended SeptemberJune 30, 20172019 and SeptemberJune 30, 2016:2018:
Nine months ended September 30, | Petroleum | Retail and Mass Transit Ticketing | Other | |||||||||||||||||||||
2017 | $ | 3,645 | 23 | % | $ | 10,654 | 68 | % | $ | 1,337 | 9 | % | ||||||||||||
2016 | $ | 2,996 | 20 | % | $ | 10,029 | 67 | % | $ | 1,953 | 13 | % |
Our revenues in the nine months ended September 30, 2017, from Petroleum increased by $649,000, or 22%, compared to the nine months ended September 30, 2016 due to an increase in products sales in Africa.
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 ninesix months ended SeptemberJune 30, 2017, increased2019 decreased by $625,000,$2.9 million, or 6%34%, compared to the ninesix months ended SeptemberJune 30, 2016,2018, mainly dueattributed to an increase in sales in the Japanese market and an increase in readers and otiMetry solution sales in Europe partially offset by a decrease in sales of readers in the United States.States and a decrease in sales in Japan partially offset by an increase in sales of readers in Europe.
Our revenues in the ninesix months ended SeptemberJune 30, 2017,2019 from our Other segmentPetroleum decreased by $616,000,$1.2 million, or 32%45%, compared to the ninesix months ended SeptemberJune 30, 2016,2018, mainly due to a decrease in sales of MediSmartPetroleum products in East Africa.Americas.
Cost of Revenues and Gross Margin
Our cost of revenues, presented by gross profit and gross margin percentage, in the ninesix months ended SeptemberJune 30, 20172019 and SeptemberJune 30, 2016,2018 were as follows (in(dollar amounts in thousands):
Cost of revenues | Nine months ended September 30, | |||||||||||||||
2017 | 2016 | Six months ended June 30, | ||||||||||||||
2019 | 2018 | |||||||||||||||
Cost of sales | $ | 7,468 | $ | 7,167 | $ | 3,112 | $ | 5,481 | ||||||||
Gross profit | $ | 8,168 | $ | 7,811 | $ | 4,017 | $ | 5,770 | ||||||||
Gross margin percentage | 52% | 52% | 56 | % | 51 | % |
Cost of sales. The increasedecrease of $301,000,$2.4 million, or 4%43%, in the ninesix months ended SeptemberJune 30, 2017,2019, compared to the ninesix months ended SeptemberJune 30, 2016,2018, resulted primarily from an increasea decrease in revenues.sales.
Gross margin.Our gross margin in the ninesix months ended SeptemberJune 30, 2017,2019, compared to the ninesix months ended SeptemberJune 30, 2016, remained consistent.2018, is mainly attributed to a change in our revenue mix.
Operating expenses
Our operating expenses in the ninesix months ended SeptemberJune 30, 20172019 and SeptemberJune 30, 2016,2018 were as follows (in thousands):
Operating expenses | Nine months ended September 30, | |||||||
2017 | 2016 | |||||||
Research and development | $ | 2,414 | $ | 2,072 | ||||
Selling and marketing | $ | 4,166 | $ | 3,974 | ||||
General and administrative | $ | 2,553 | $ | 2,613 | ||||
Other expenses | $ | - | $ | 83 | ||||
Total operating expenses | $ | 9,133 | $ | 8,742 |
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. The increase of $342,000, or 17%,Our research and development expenses, in the ninesix months ended SeptemberJune 30, 2017,2019, compared to the ninesix months ended SeptemberJune 30, 2016, is primarily attributed to an increase in the number of research and development employees and to an increase in subcontractor expenses.2018, remained consistent.
Selling and marketing. The increasedecrease of $192,000,$504,000, or 5%16%, in the ninesix months ended SeptemberJune 30, 2017,2019, compared to the ninesix months ended SeptemberJune 30, 2016,2018, is primarily attributed to an increasea decrease in employment expenses of selling and marketing employees and to an increasea lesser extent to a decrease in marketing and advertising expenses.
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General and administrative. Our general and administrative expenses, in the ninesix months ended SeptemberJune 30, 2017,2019, compared to the ninesix months ended SeptemberJune 30, 2016,2018, remained consistent.
Other expenses. Our other expenses in the nine months ended September 30, 2016 consist a loss of $83 related to the sale of our headquarters building in Rosh Pina, Israel to a third party.
Financing expenses, net
Our financing expenses, net, in the ninesix months ended SeptemberJune 30, 20172019 and SeptemberJune 30, 2016,2018 were as follows (in thousands):
Nine months ended September 30, | ||||||||
2017 | 2016 | |||||||
Financing expenses, net | $ | (236 | ) | $ | (185 | ) |
Six months ended June 30, | ||||||||
2019 | 2018 | |||||||
Financing expenses, net | $ | (106 | ) | $ | (127 | ) |
The increase ofdecrease in financing expenses, net in the ninesix months ended SeptemberJune 30, 2017,2019, compared to the ninesix months ended SeptemberJune 30, 2016,2018, of $51,000,$21,000, or 28%17%, is mainly due to exchange rate differentials offset by an increase in interest earned on investments in short-term deposits, a decrease in interest expenses, on bank loans and a decrease in bank commissions.partially offset by an exchange rate differential.
Net loss from continuing operations
Our net loss from continuing operations in the ninesix months ended SeptemberJune 30, 20172019 and SeptemberJune 30, 2016,2018 was as follows (in thousands):
Nine months ended September 30, | ||||||||
2017 | 2016 | |||||||
Net loss from continuing operations | $ | (1,269 | ) | $ | (1,176 | ) |
Six months ended June 30, | ||||||||
2019 | 2018 | |||||||
Net loss from continuing operations | $ | (2,401 | ) | $ | (799 | ) |
The increase in net loss from continuing operations of $93,000,$1.6 million, or 8%200%, in the ninesix months ended SeptemberJune 30, 2017,2019, compared to the ninesix months ended SeptemberJune 30, 2016,2018, is primarilymainly due to an increasea decrease in our sales, partially offset by a decrease in our operating expenses, and an increase in financing expenses, net, offset by an increase in our revenues and gross profit as described above.
Net (loss) income from discontinued operations
Our net (loss) income from discontinued operations in the ninesix months ended SeptemberJune 30, 20172019 and SeptemberJune 30, 2016,2018 was as follows (in thousands):
Nine months ended September 30, | ||||||||
2017 | 2016 | |||||||
Net income from discontinued operations | $ | 1,365 | $ | 1,525 |
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.
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Net income from discontinued operations decreased by $160,000, or 10%. Net income from discontinued operations in the nine months ended September 30, 2016, included a $2.1 million settlement fee paid to us in May 2016, in connection with a litigation with SuperCom Ltd. relating to the sale of our SmartID division, partially offset by a loss from discontinued operations activity related to the sale of certain assets and IP of our previous parking business. Net income from discontinued operations in the nine months ended September 30, 2017, included a $1.6 million net, recovered by us 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. Appeal of this judgment by Harel is pending before the Israeli Supreme Court (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), partially offset by a loss from decreasing court bonds related to Harel.
Net incomeloss
Our net incomeloss in the ninesix months ended SeptemberJune 30, 20172019 and SeptemberJune 30, 2016,2018 was as follows (in thousands):
Nine months ended September 30, | ||||||||
2017 | 2016 | |||||||
Net income | $ | 96 | $ | 349 |
Six months ended June 30, | ||||||||
2019 | 2018 | |||||||
Net loss | $ | (2,644 | ) | $ | (613 | ) |
The decreaseincrease in net incomeloss of $253,000,$2.0 million, in the ninesix months ended SeptemberJune 30, 2017,2019, compared to the ninesix months ended SeptemberJune 30, 2016,2018, is primarily due to a decrease in our sales and an increase in operating expenses, an increase in financing expenses net and a decrease in net profitloss from discontinued operations, partially offset by an increasea decrease in revenues and gross profit,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 divestituresdivestiture of parts of our businesses. WeAs of June 30, 2019, we had cash, cash equivalents and short-term investments representing bank deposits of $8.7$5.7 million as of September 30, 2017 (of which an amount of $1.5 million$105,000 has been pledged to secureas security in respect of performance guarantees granted to third parties, and guarantees to secure customer advances, loans and credit lines received from a bank), and $11.5$5.9 million as of December 31, 20162018 (of which an amount of $1.5 million$278,000 had then been pledged to secureas security in respect of 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 infor at least the next 12 months. We adhere to an investment policy which is intended to enable the Company to avoid being classified as a “passive foreign investment company,” or PFIC, under 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 SeptemberJune 30, 2017,2019, our long-term bank loans are denominated in the following currencies: Polish Zloty ($856,000,30,000, with maturity dates during 2019) and South African Rand ($35,000, with maturity dates ranging from 20172019 through 2019) and2023).
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 ($597,000, with maturity dates ranging from 2017 through 2023). As15,500,000 (approximately $1.1 million), that will be received on the date of September 30, 2017, these loans bear interest at rates ranging from 3.2%-10.5% per annum.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 SeptemberJune 30, 2017,2019, was as follows (in thousands):
September 30, 2017 | ||||
Long-term loans | $ | 1,453 | ||
Less - current maturities | 564 | |||
$ | 889 |
Our composition of short-term loans, bank credit and current maturities of long-term loans as of September 30, 2017, were as follows (in thousands):
September 30, 2017 | ||||||||
Interest rate | ||||||||
In U.S. dollars | 4.21 | % | $ | 1,910 | ||||
In Polish Zloty | 3.63 | % | 1,082 | |||||
In NIS | 3.60 | % | 833 | |||||
3,825 | ||||||||
Current maturities of long-term loans | 564 | |||||||
$ | 4,389 |
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 termshort-term deposits in the amount of $1.5 million$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 SeptemberJune 30, 2017,2019, we granted guarantees to third parties including performance guarantees and guarantees to secure customer advances in the sum of $352,000.$349,000. The expiration dates of the guarantees range from October 2017August 2019 to June 2019.February 2021.
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Operating activities related to continuing operations
For the ninesix months ended SeptemberJune 30, 2017,2019, net cash used in continuing operating activities was $2,440,000,$1.2 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.
For the nine months ended September 30, 2016, net cash used in continuing operating activity was $611,000, primarily due to a $1.2$2.4 million net loss from continuing operations, a $1.4 million increase in trade receivables,inventories, a $408,000$540,000 decrease in other current liabilities, a $152,000$24,000 decrease in deferred tax net, $18,000 of accrued severance payinterest and linkage differences, net, and a $16,000 increase$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$1.1 million increasedecrease in trade payables,receivables, net, $680,000 of depreciation expenses of $911,000,and amortization, a $246,000$249,000 decrease in inventory, a $174,000 expenseother receivables and prepaid expenses, $115,000 of expenses due to stock-basedstock based compensation issued to employees a $83,000 loss on saleand others and $7,000 of property and equipment, a $60,000 deferred tax expense and a $19,000 accrued interest expense.and linkage differences, net.
Operating activities related to discontinued operations
For the ninesix months ended SeptemberJune 30, 2017,2019, net cash used in discontinued operating activities was $86,000,$1.3 million, mainly related to the dispute regarding Merwell Inc. related to the SmartID division and previous parking business.division.
For the ninesix months ended SeptemberJune 30, 2016,2018, net cash used inprovided by discontinued operating activities was $183,000,$289,000, mainly related to our SmartID division and previous parking business.the Medismart activity.
Investing and financing activities related to continuing operations
For the ninesix months ended SeptemberJune 30, 2017,2019, 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 $2.6 million,$689,000, mainly due to a $2,917,000 proceeds of$1.2 million change in short-term investments, a $44,000 in proceeds from restricted deposits for employee benefitsnet, and a $14,000$17,000 in proceeds from the sale of property and equipmentfixed assets, partially offset by a $185,000 investment in capitalized product costs and a $160,000 purchase$414,000 of property and equipment.
For the nine months ended September 30, 2016, net cash provided by continuing investing activities was $1.1 million, mainly due to a $1.8 million in proceeds from the salepurchases of property and equipment and a $142,000 in proceeds from restricted deposits for employee benefits, partially offset by a $502,000 purchase of short-term investments, a $185,000 purchase of property and equipment and a $139,000an $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 ninesix months ended SeptemberJune 30, 2017,2018, net cash used in continuing financing activities was $516,000,$394,000, mainly due to a repayment$348,000 of $469,000repayments of long-term bank loans and a $72,000an $80,000 decrease in short-term bank credit, partially offset by $34,000 of proceeds of $25,000 from the exerciseexercises of options.
ForIn addition, on May 24, 2019, ASEC S.A. (Spolka Akcyjna), or, the nine months ended September 30, 2016, net cash usedSubsidiary, 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 continuing financing activities was $1 million, mainlythe 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 a repaymentthe Lender, breaches or defaults under the terms of $1.4 millionthe Agreement, etc. If an event of long-term bank loans, partially offset by a $287,000 increase in short-term bank credit, proceedsdefault occurs, the Lender may reduce the amount of $37,000 from the exercise of options and warrants and proceeds of $27,000 from long-term bank loans.Secured Loan, demand an additional security or terminate the Agreement.
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Investing and financing activities related to discontinued operations
We had no cash flows provided by or used in discontinued investing activities in the nine months ended September 30, 2017.
For the nine months ended September 30, 2016, net cash provided by discontinued investing activities was $2.2 million, due to contingent consideration received related to the Smart ID division divestiture and consideration derived from the divestiture of our parking business.
We had no cash flows provided by or used in discontinued financing activities in the ninesix months ended SeptemberJune 30, 20172019 and SeptemberJune 30, 2016.2018.
Off Balance Sheet Arrangements
We have no off balanceoff-balance sheet arrangements.
Item 4. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures -We maintain a system ofOur management, including our Interim Chief Executive Officer, or CEO, and Chief Financial Officer, or CFO, are responsible for establishing and maintaining our disclosure controls and procedures that(within the meaning of Rule 13a-15(e) of the Securities Exchange Act of 1934, as amended, or Exchange Act). These controls and procedures are designed for the purposes of ensuringto ensure that information required to be disclosed in our SECthe reports that we file under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms of the SEC and that such information is accumulated and communicatedwas made known to our management, including our Chief Executive Officer, or CEO and our Chief Financial Officer, or CFO, by others within the Company, as appropriate to allow timely decisions regarding required disclosures.
As of the end of the period covered by this report, we carried out an evaluation,disclosure. We evaluated these disclosure controls and procedures under the supervision and with the participation of our CEO and our CFO as of the effectiveness of our disclosure controls and procedures as defined in Rule 13a-15(e) of the Securities Exchange Act of 1934, as amended.June 30, 2019. Based onupon that evaluation, our management, including our CEO and CFO, concluded that our disclosure controls and procedures are effective.effective as of such date.
Changes in Internal Control Over Financial Reporting - There has been no change in our internal control over financial reporting during the third quarter of fiscal 2017ended June 30, 2019 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
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PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
As previously reportedIn December 2013, we completed the sale of certain assets, subsidiaries and intellectual property, or IP, relating to our Smart ID division, for a total purchase price of $10,000,000 in our Annual Report on Form 10-K filed withcash and an additional $12,500,000 subject to performance-based milestones. On April 20, 2016, the SEC on March 28, 2017, on March 1, 2017, USA Technologies Inc.purchaser of the Smart ID division, SuperCom Ltd., or USAT, filed a claim against usSuperCom, and our U.S. subsidiary, OTI America Inc., or OTI America, in the U.S. District Court, Eastern District of Pennsylvania, hereafter referred to as the USAT Claim. The USAT Claim asserted, among other things, that products sold by us to USAT’s manufacturing subcontractor, Masterwork Electronics, Inc., or Masterwork, failed to conform to certain promised specifications. USAT sought payment of $4,912,600 plus interest and costs, comprised of $728,800 to cover payment for alternative products, and $4,183,800 to cover costs of replacing the allegedly non-conforming products already installed. As also previously reported in our Annual Report on Form 10-K filed with the SEC on March 28, 2017, on March 3, 2017, we filed a claim against Masterwork in the U.S. District Court for the Northern District of California, hereafter referred to as the OTI Claim. We sought payment of $2,518,000 plus interest and costs as a result of Masterwork’s refusal to perform its obligations in connection with a purchase order supplied by Masterwork to us, based on Masterwork’s allegations that its customer, USAT, had apparently claimed that the products are not conforming. On July 20, 2017, the OTI Claim was transferred to the Eastern District of Pennsylvania and on August 23, 2017, the USAT Claim and OTI Claim were consolidated into a single action. On November 1, 2017, all parties to these proceedings entered into a settlement agreement resolving their disputescertain litigation between SuperCom and us pursuant to which SuperCom paid us $2,050,000 and will agree to pay us up to $1,500,000 with and subject to a certain earn-out mechanism. In November 2017, we commenced an arbitration procedure with SuperCom, in which we claim that additional earn-out payments have not been paid to us. SuperCom has also raised claims against us during the arbitration procedure. An arbitration decision was issued on December 24, 2018 in our favor and denied SuperCom's claims. The Arbitrator ordered SuperCom to disclose the financial information regarding the earn-out payments that we are entitled to receive, and to pay us accordingly, dismissedor otherwise pay us the maximum earn-out amount, which equals $1,500,000, minus the earn-out amounts that were already paid by SuperCom to us. 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.
In June 2013, prior to our divestiture of our SmartID division, Merwell Inc., or Merwell, filed a claim against us 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 litigationother activities of the SmartID division were later assigned to and assumed by SuperCom Ltd., or SuperCom, in its purchase of the division. SuperCom undertook to indemnify us and hold us harmless against any liabilities we may incur in connection with Merwell’s consulting agreement and the arbitration. An arbitration decision was issued on November 1, 2017.February 21, 2016, awarding Merwell $854,912 for outstanding commissions and ordering the Company to provide further financial details that might result in additional payments to Merwell. The arbitration decision had been appealed by SuperCom (on behalf of the Company) but the appeal was denied. In order to collect the award, Merwell filed a motion against the Company and on January 7, 2019 the Nazareth District Court issued a judgment requiring the Company to pay Merwell an amount of NIS 5,078,581 (approximately $1,370,000). On January 8, 2019, we paid Merwell such amount. As mentioned above, based on the agreement with SuperCom (which was granted an effect of a court judgment), we deem SuperCom to be liable for all the costs and liabilities arising out of this claim. On February 17, 2019, we initiated an arbitration process to collect from SuperCom the amount paid to Merwell which SuperCom failed to pay.
On October 3, 2013,June 12, 2019, Merwell submitted a complementary claim against the Company in arbitration, with respect to the additional financial claimdetails that Merwell claims that the Company was filed against usordered to provide according to the arbitration verdict from February 21, 2016, and our then-subsidiary, Parx France (referredadditional payments that Merwell claims that the Company is obligated to in this paragraph, collectively, aspay Merwell. The said financial details refer to the Defendants),quantity of smart driving licenses that Merwell claims were issued in the Commercial Courtlater period of Paris, France.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 $1,618,792. The sumCompany rejects the details that were presented by Merwell and their validity, and also raised preliminary claims that this matter cannot be determined in arbitration.
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 €1,500,000 (approximately $1,773,000),not yet clear. The Company is continuing to study the details of the Request in order to analyze its exposure.
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Item 5. Other Information.
On August 13, 2019, the Company and Mr. Assaf Cohen, the Company's Chief Financial Officer and Interim Chief Executive Officer, agreed on certain amendments to Mr. Cohen's compensation terms.
With respect to Mr. Cohen's services as the Chief Financial Officer of the Company, as approved by the Board of Directors and the Compensation Committee, (i) effective August 1, 2019, Mr. Assaf Cohen's monthly gross salary is basedincreased from NIS 35,000 to NIS 45,000; (ii)effective August 1, 2019, the prior written notice that each of the Company and Mr. Cohen needs to serve to the other party in order to terminate Mr. Cohen's employment agreement as the Company'sChief Financial Officeris extended to six months (instead of three months); and (iii) effective August 13, 2019, Mr. Assaf Cohen is granted options to purchase up to 100,000 Ordinary Shares of the Company under the Company’s Amended and Restated 2001 Stock Option Plan, as amended to date, or the Plan, with an exercise price calculated according to the average closing price of the Company’s Ordinary Shares on Nasdaq during the allegation30 days prior to the date of grant. These options will vest over three years, commencing on August 13, 2019, where 1/3 of the options shall vest at the end of each year following the vesting commencement date, provided that at such vesting date, Mr. Cohen holds office as an executive and further subject to the terms of the Plan.
In connection with the appointment of Mr. Assaf Cohen as the Interim Chief Executive Officer of the Company, the Compensation Committee and the Board of Directors approved and recommended that the plaintiff sustained certain lossesCompany’s shareholders approve Mr. Assaf Cohen’s compensation terms as the Interim Chief Executive Officer, which include a lump sum bonus in the amount of NIS 100,000, for his services as the Company’s Interim Chief Executive Officer, and further determined that such terms are advisable and in the best interest of the Company. The above-mentioned bonus is subject to the Company's shareholders approval; therefore, in the Company's preliminary proxy statement, filed on August 13, 2019, in connection with Defendants not granting the plaintiff exclusive marketing rightscoming extraordinary general meeting of the Company's shareholders, one of the proposals on the agenda is to distribute and operate the Defendants’ PIAF Parking System in Paris and the Ile of France. On October 25, 2017, the Paris Commercial Court issued its ruling in this matter dismissing all claims against us but ordered Parx Franceapprove such bonus to pay the plaintiff €50,000 (plus interest) in damages plus another approximately €5,000 in other fees and penalties. Mr. Assaf Cohen.
Item 6. Exhibits.
* | Filed herewith. |
* Filed herewith.
** Furnished herewith.
** | Furnished herewith. |
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SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
ON TRACK INNOVATIONS LTD. | |||
By: | /s/ | ||
Assaf Cohen, Interim Chief Executive Officer and Chief Financial Officer | |||
(Principal Executive Officer | |||
Principal Financial and Accounting Officer) | |||
Dated: August 13, 2019 | |||
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