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 March 31,September 30, 2019
☐ 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) |
Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
None |
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 preceding 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 every Interactive Data File required to be submitted 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 registrant was required to submit 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,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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 ☒
Securities registered pursuant to Section 12(b) of the Act:
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 41,294,37741,324,377 Ordinary Shares outstanding as of May 9,November 5, 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 | 14 | ||
Part II - Other Information | ||||
Item 1. | Legal Proceedings | 15 | ||
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 16 | ||
Item 5. | Other Information | 16 | ||
Item 6. | 16 | |||
17 |
i
PART I - FINANCIAL INFORMATION
ON TRACK INNOVATIONS LTD. AND ITS SUBSIDIARIES
INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
As of March 31,September 30, 2019
(Unaudited)
1
On Track Innovations Ltd.
and its Subsidiaries
Interim Unaudited Condensed Consolidated Financial Statements as of March 31,September 30, 2019
Contents
On Track Innovations Ltd.
and its Subsidiaries
Interim Unaudited Condensed Consolidated Balance Sheets
F-1
US dollars in thousands except share and per share data
September 30, | December 31, | |||||||
2019 | 2018 | |||||||
Assets | ||||||||
Current assets | ||||||||
Cash and cash equivalents | $ | 3,396 | $ | 4,827 | ||||
Short-term investments | 1,905 | 1,078 | ||||||
Trade receivables (net of allowance for doubtful accounts of $558 and $555 as of September 30, 2019 and December 31, 2018, respectively) | 2,469 | 4,530 | ||||||
Other receivables and prepaid expenses | 1,602 | 2,060 | ||||||
Inventories | 4,366 | 3,527 | ||||||
Total current assets | 13,738 | 16,022 | ||||||
Long-term restricted deposit for employees benefit | 473 | 451 | ||||||
Severance pay deposits | 404 | 375 | ||||||
Property, plant and equipment, net | 3,693 | 5,033 | ||||||
Intangible assets, net | 246 | 241 | ||||||
Right-of-use assets | 1,930 | - | ||||||
Total Assets | $ | 20,484 | $ | 22,122 |
The accompanying notes are an integral part of these interim unaudited condensed consolidated financial statements.
On Track Innovations Ltd.
and its Subsidiaries
Interim Unaudited Condensed Consolidated Balance Sheets
US dollars in thousands except share and per share data
March 31 | December 31 | |||||||
2019 | 2018 | |||||||
Assets | ||||||||
Current assets | ||||||||
Cash and cash equivalents | $ | 4,014 | $ | 4,827 | ||||
Short-term investments | 905 | 1,078 | ||||||
Trade receivables (net of allowance for doubtful accounts of $560 and 555 as of March 31, 2019 and December 31, 2018, respectively) | 2,707 | 4,530 | ||||||
Other receivables and prepaid expenses | 1,789 | 2,060 | ||||||
Inventories | 3,964 | 3,527 | ||||||
Asset held for sale | 772 | - | ||||||
Total current assets | 14,151 | 16,022 | ||||||
Long-term restricted deposit for employees benefit | 454 | 451 | ||||||
Severance pay deposits | 387 | 375 | ||||||
Property, plant and equipment, net | 4,013 | 5,033 | ||||||
Intangible assets, net | 241 | 241 | ||||||
Right-of-use assets | 1,381 | - | ||||||
Total Assets | $ | 20,627 | $ | 22,122 |
September 30, | December 31, | |||||||
2019 | 2018 | |||||||
Liabilities and Equity | ||||||||
Current Liabilities | ||||||||
Short-term bank credit and current maturities of long-term bank loans | $ | 2,553 | $ | 260 | ||||
Trade payables | 4,857 | 4,712 | ||||||
Other current liabilities | 2,286 | 3,622 | ||||||
Total current liabilities | 9,696 | 8,594 | ||||||
Long-Term Liabilities | ||||||||
Long-term loans, net of current maturities | 26 | 39 | ||||||
Long-term liabilities due to operating leases, net of current maturities | 1,204 | - | ||||||
Accrued severance pay | 948 | 853 | ||||||
Deferred tax liability | 393 | 445 | ||||||
Total long-term liabilities | 2,571 | 1,337 | ||||||
Total Liabilities | 12,267 | 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, 2019 and December 31, 2018; issued: 42,503,076 and 42,473,076 shares as of September 30, 2019 and December 31, 2018, respectively; outstanding: 41,324,377 and 41,294,377 shares as of September 30, 2019, and December 31, 2018, respectively | 1,069 | 1,068 | ||||||
Additional paid-in capital | 225,117 | 225,022 | ||||||
Treasury shares at cost - 1,178,699 shares as of September 30, 2019 and December 31, 2018 | (2,000 | ) | (2,000 | ) | ||||
Accumulated other comprehensive loss | (1,172 | ) | (956 | ) | ||||
Accumulated deficit | (214,797 | ) | (210,943 | ) | ||||
Total Equity | 8,217 | 12,191 | ||||||
Total Liabilities and Equity | $ | 20,484 | $ | 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
US dollars in thousands except share data
March 31 | December 31 | |||||||
2019 | 2018 | |||||||
Liabilities and Equity | ||||||||
Current Liabilities | ||||||||
Short-term bank credit and current maturities of long-term bank loans | $ | 518 | $ | 260 | ||||
Trade payables | 4,937 | 4,712 | ||||||
Other current liabilities | 2,534 | 3,622 | ||||||
Total current liabilities | $ | 7,989 | $ | 8,594 | ||||
Long-Term Liabilities | ||||||||
Long-term loans, net of current maturities | 32 | 39 | ||||||
Long-term liabilities due to operating leases, net of current maturities | 857 | - | ||||||
Accrued severance pay | 894 | 853 | ||||||
Deferred tax liability | 426 | 445 | ||||||
Total long-term liabilities | 2,209 | 1,337 | ||||||
Total Liabilities | 10,198 | 9,931 | ||||||
Commitments and Contingencies, see note 6 | ||||||||
Equity | ||||||||
Ordinary shares of NIS 0.1 par value: Authorized – 50,000,000 shares as of March 31, 2019 and December 31, 2018; issued: 42,473,076 shares as of March 31, 2019 and December 31, 2018; outstanding: 41,294,377 shares as of March 31, 2019 and December 31, 2018 | 1,068 | 1,068 | ||||||
Additional paid-in capital | 225,068 | 225,022 | ||||||
Treasury shares at cost - 1,178,699 shares as of March 31, 2019 and December 31, 2018 | (2,000 | ) | (2,000 | ) | ||||
Accumulated other comprehensive loss | (1,019 | ) | (956 | ) | ||||
Accumulated deficit | (212,688 | ) | (210,943 | ) | ||||
Total Equity | 10,429 | 12,191 | ||||||
Total Liabilities and Equity | $ | 20,627 | $ | 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
US dollars in thousands except share and per share data
Three months ended September 30, | Nine months ended September 30, | |||||||||||||||||||||||
Three months ended March 31 | 2019 | *2018 | 2019 | *2018 | ||||||||||||||||||||
2019 | *2018 | |||||||||||||||||||||||
Revenues | ||||||||||||||||||||||||
Sales | $ | 1,722 | $ | 4,241 | $ | 2,631 | $ | 4,760 | $ | 7,286 | $ | 13,353 | ||||||||||||
Licensing and transaction fees | 1,291 | 1,271 | 1,234 | 1,339 | 3,708 | 3,997 | ||||||||||||||||||
Total revenues | 3,013 | 5,512 | 3,865 | 6,099 | 10,994 | 17,350 | ||||||||||||||||||
Cost of revenues | ||||||||||||||||||||||||
Cost of sales | 1,370 | 2,632 | 2,161 | 2,870 | 5,273 | 8,351 | ||||||||||||||||||
Total cost of revenues | 1,370 | 2,632 | 2,161 | 2,870 | 5,273 | 8,351 | ||||||||||||||||||
Gross profit | 1,643 | 2,880 | 1,704 | 3,229 | 5,721 | 8,999 | ||||||||||||||||||
Operating expenses | ||||||||||||||||||||||||
Research and development | 871 | 820 | 840 | 765 | 2,528 | 2,391 | ||||||||||||||||||
Selling and marketing | 1,285 | 1,645 | 1,193 | 1,591 | 3,798 | 4,700 | ||||||||||||||||||
General and administrative | 965 | 907 | 1,070 | 1,099 | 3,081 | 3,001 | ||||||||||||||||||
Other (gain) expenses, net | (335 | ) | - | (335 | ) | 70 | ||||||||||||||||||
Total operating expenses | 3,121 | 3,372 | 2,768 | 3,455 | 9,072 | 10,162 | ||||||||||||||||||
Operating loss from continuing operations | (1,478 | ) | (492 | ) | (1,064 | ) | (226 | ) | (3,351 | ) | (1,163 | ) | ||||||||||||
Financial expenses, net | (69 | ) | (32 | ) | (93 | ) | (2 | ) | (199 | ) | (129 | ) | ||||||||||||
Loss from continuing operations before taxes on income | (1,547 | ) | (524 | ) | (1,157 | ) | (228 | ) | (3,550 | ) | (1,292 | ) | ||||||||||||
Income tax (expenses) benefit, net | (17 | ) | 2 | (25 | ) | 267 | ||||||||||||||||||
Income tax (expenses) benefits | (5 | ) | 124 | |||||||||||||||||||||
Loss from continuing operations | (1,552 | ) | (400 | ) | ||||||||||||||||||||
(Loss) income from discontinued operations | (193 | ) | 67 | |||||||||||||||||||||
Net loss from continuing operations | (1,174 | ) | (226 | ) | (3,575 | ) | (1,025 | ) | ||||||||||||||||
Net (loss) income from discontinued operations | (36 | ) | 42 | (279 | ) | 228 | ||||||||||||||||||
Net loss | $ | (1,745 | ) | $ | (333 | ) | (1,210 | ) | (184 | ) | (3,854 | ) | (797 | ) | ||||||||||
Basic and diluted net loss attributable to shareholders per ordinary share | ||||||||||||||||||||||||
Basic and diluted net (loss) income attributable to shareholders per ordinary share | ||||||||||||||||||||||||
From continuing operations | $ | (0.04 | ) | $ | (0.01 | ) | (0.03 | ) | (** | ) | (0.09 | ) | (0.02 | ) | ||||||||||
From discontinued operations | $ | ** | $ | ** | (** | ) | (** | ) | (** | ) | (** | ) | ||||||||||||
$ | (0.04 | ) | $ | (0.01 | ) | |||||||||||||||||||
Weighted average number of ordinary shares used in computing basic and diluted net loss per ordinary share | 41,294,377 | 41,214,378 | ||||||||||||||||||||||
$ | (0.03 | ) | $ | (** | ) | $ | (0.09 | ) | $ | (0.02 | ) | |||||||||||||
Weighted average number of ordinary shares used in computing basic and diluted net (loss) income per ordinary share | 41,324,377 | 41,294,377 | 41,306,575 | 41,260,426 |
* | 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.
statements
F-4
On Track Innovations Ltd.
and its Subsidiaries
Interim Unaudited Condensed Consolidated Statements of Comprehensive Loss(Loss) Income
US dollars in thousands
Three months ended March 31 | ||||||||
2019 | 2018 | |||||||
Total comprehensive loss: | ||||||||
Net loss | $ | (1,745 | ) | $ | (333 | ) | ||
Foreign currency translation adjustments | (63 | ) | 58 | |||||
Total comprehensive loss | $ | (1,808 | ) | $ | (275 | ) |
Three months ended September 30, | Nine months ended September 30, | |||||||||||||||
2019 | 2018 | 2019 | 2018 | |||||||||||||
Total comprehensive (loss) income: | ||||||||||||||||
Net (loss) income | $ | (1,210 | ) | $ | (184 | ) | $ | (3,854 | ) | $ | (797 | ) | ||||
Foreign currency translation adjustments | (254 | ) | 44 | (216 | ) | (210 | ) | |||||||||
Total comprehensive (loss) income | $ | (1,464 | ) | $ | (140 | ) | $ | (4,070 | ) | $ | (1,007 | ) |
The accompanying notes are an integral part of these interim unaudited condensed consolidated financial statements.
On Track Innovations Ltd.
and its Subsidiaries
Interim Unaudited Condensed Consolidated Statements of Changes in Equity
F-5
US dollars in thousands except number of shares
Accumulated | ||||||||||||||||||||||||||||
Additional | Treasury | other | ||||||||||||||||||||||||||
Number of | Share | paid-in | Shares | comprehensive | Accumulated | Total | ||||||||||||||||||||||
Shares issued | capital | capital | (at cost) | Income (loss) | deficit | equity | ||||||||||||||||||||||
Balance as of June 30, 2018 | 42,473,076 | $ | 1,068 | $ | 224,903 | $ | (2,000 | ) | $ | (945 | ) | $ | (211,293 | ) | $ | 11,733 | ||||||||||||
Changes during the three months period ended September 30, 2018: | ||||||||||||||||||||||||||||
Stock-based compensation | - | - | 65 | - | - | - | 65 | |||||||||||||||||||||
Exercise of options | - | - | - | - | - | - | - | |||||||||||||||||||||
Foreign currency translation adjustments | - | - | - | - | 44 | - | 44 | |||||||||||||||||||||
Net loss | - | - | - | - | - | (184 | ) | (184 | ) | |||||||||||||||||||
Balance as of September 30, 2018 | 42,473,076 | $ | 1,068 | $ | 224,968 | $ | (2,000 | ) | $ | (901 | ) | $ | (211,477 | ) | $ | 11,658 | ||||||||||||
Balance as of June 30, 2019 | 42,503,076 | $ | 1,069 | $ | 225,111 | $ | (2,000 | ) | $ | (918 | ) | $ | (213,587 | ) | $ | 9,675 | ||||||||||||
Changes during the three months period ended September 30, 2019: | ||||||||||||||||||||||||||||
Stock-based compensation | - | - | 6 | - | - | - | 6 | |||||||||||||||||||||
Foreign currency translation adjustments | - | - | - | - | (254 | ) | - | (254 | ) | |||||||||||||||||||
Net loss | - | - | - | - | - | (1,210 | ) | (1,210 | ) | |||||||||||||||||||
Balance as of September 30, 2019 | 42,503,076 | $ | 1,069 | $ | 225,117 | $ | (2,000 | ) | $ | (1,172 | ) | $ | (214,797 | ) | $ | 8,217 |
(*) | See Note 10D. |
On Track Innovations Ltd.
and its Subsidiaries
Interim Unaudited Condensed Consolidated Statements of Changes in Equity
US dollars in thousands except number of shares
Accumulated | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Additional | Treasury | other | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Number of | Share | paid-in | Shares | comprehensive | Accumulated | Total | ||||||||||||||||||||||||||||||||||||||||||||||||||
Number of Shares | Share | Additional paid-in | Treasury Shares | Accumulated other comprehensive | Accumulated | Total | Shares issued | capital | capital | (at cost) | Income (loss) | deficit | equity | |||||||||||||||||||||||||||||||||||||||||||
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 | 42,353,077 | $ | 1,064 | $ | 224,758 | $ | (2,000 | ) | $ | (691 | ) | $ | (210,680 | ) | $ | 12,451 | ||||||||||||||||||||||||
Changes during the three month period ended March 31, 2018: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Changes during the nine month period ended September 30, 2018: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Stock-based compensation | 80,000 | (*) | 3 | 177 | - | - | - | 180 | ||||||||||||||||||||||||||||||||||||||||||||||||
Exercise of options | 39,999 | 1 | 33 | - | - | - | 34 | |||||||||||||||||||||||||||||||||||||||||||||||||
Foreign currency translation adjustments | - | - | - | - | (210 | ) | - | (210 | ) | |||||||||||||||||||||||||||||||||||||||||||||||
Net loss | - | - | - | - | - | (797 | ) | (797 | ) | |||||||||||||||||||||||||||||||||||||||||||||||
Balance as of September 30, 2018 | 42,473,076 | $ | 1,068 | $ | 224,968 | $ | (2,000 | ) | $ | (901 | ) | $ | (211,477 | ) | $ | 11,658 | ||||||||||||||||||||||||||||||||||||||||
Balance as of December 31, 2018 | 42,473,076 | $ | 1,068 | $ | 225,022 | $ | (2,000 | ) | $ | (956 | ) | $ | (210,943 | ) | $ | 12,191 | ||||||||||||||||||||||||||||||||||||||||
Changes during the nine month period ended September 30, 2019: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Stock-based compensation | - | - | 53 | - | - | - | 53 | 30,000 | (*) | 1 | 95 | - | - | - | 96 | |||||||||||||||||||||||||||||||||||||||||
Foreign currency translation adjustments | - | - | - | - | 58 | - | 58 | - | - | - | - | (216 | ) | - | (216 | ) | ||||||||||||||||||||||||||||||||||||||||
Net loss | - | - | - | - | - | (333 | ) | (333 | ) | - | - | - | - | - | (3,854 | ) | (3,854 | ) | ||||||||||||||||||||||||||||||||||||||
Balance as of March 31, 2018 | 42,353,077 | $ | 1,064 | $ | 224,811 | $ | (2,000 | ) | $ | (633 | ) | $ | (211,013 | ) | $ | 12,229 | ||||||||||||||||||||||||||||||||||||||||
Balance as of December 31, 2018 | 42,473,076 | $ | 1,068 | $ | 225,022 | $ | (2,000 | ) | $ | (956 | ) | $ | (210,943 | ) | $ | 12,191 | ||||||||||||||||||||||||||||||||||||||||
Changes during the three month period ended March 31, 2019: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Stock-based compensation | - | - | 46 | - | - | - | 46 | |||||||||||||||||||||||||||||||||||||||||||||||||
Foreign currency translation adjustments | - | - | - | - | (63 | ) | - | (63 | ) | |||||||||||||||||||||||||||||||||||||||||||||||
Net loss | - | - | - | - | - | (1,745 | ) | (1,745 | ) | |||||||||||||||||||||||||||||||||||||||||||||||
Balance as of March 31, 2019 | 42,473,076 | $ | 1,068 | $ | 225,068 | $ | (2,000 | ) | $ | (1,019 | ) | $ | (212,688 | ) | $ | 10,429 | ||||||||||||||||||||||||||||||||||||||||
Balance as of September 30, 2019 | 42,503,076 | $ | 1,069 | $ | 225,117 | $ | (2,000 | ) | $ | (1,172 | ) | $ | (214,797 | ) | $ | 8,217 |
(*) | 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 Cash Flows
US dollars in thousands
Three months ended March 31 | Nine months ended September 30, | |||||||||||||||
2019 | *2018 | 2019 | *2018 | |||||||||||||
Cash flows from continuing operating activities | ||||||||||||||||
Net loss from continuing operations | $ | (1,552 | ) | $ | (400 | ) | $ | (3,575 | ) | $ | (1,025 | ) | ||||
Adjustments required to reconcile net loss to net cash provided by continuing operating activities: | ||||||||||||||||
Stock-based compensation related to options issued to employees and others | 46 | 53 | ||||||||||||||
Gain on sale of property and equipment, net | (2 | ) | - | |||||||||||||
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 | 96 | 180 | ||||||||||||||
Depreciation and amortization | 951 | 978 | ||||||||||||||
Deferred tax, net | (25 | ) | (360 | ) | ||||||||||||
Gain on sale of property and equipment | (328 | ) | (25 | ) | ||||||||||||
Accrued interest and linkage differences, net | (12 | ) | 14 | (48 | ) | - | ||||||||||
Depreciation and amortization | 320 | 335 | ||||||||||||||
Deferred tax benefits, net | (10 | ) | (124 | ) | ||||||||||||
Changes in operating assets and liabilities: | ||||||||||||||||
Accrued severance pay, net | 29 | (3 | ) | 66 | (19 | ) | ||||||||||
Decrease in trade receivables, net | 1,323 | 886 | 1,576 | 1,377 | ||||||||||||
Decrease in other receivables and prepaid expenses | 264 | 33 | ||||||||||||||
Decrease (increase) in other receivables and prepaid expenses | 395 | (255 | ) | |||||||||||||
Increase in inventories | (457 | ) | (35 | ) | (879 | ) | (381 | ) | ||||||||
Increase (decrease) in trade payables | 423 | (117 | ) | 506 | (263 | ) | ||||||||||
Decrease in other current liabilities | (186 | ) | (51 | ) | (585 | ) | (151 | ) | ||||||||
Net cash provided by continuing operating activities | 186 | 591 | ||||||||||||||
Net cash (used in) provided by continuing operating activities | (1,850 | ) | 56 | |||||||||||||
Cash flows from continuing investing activities | ||||||||||||||||
Purchase of property and equipment | (115 | ) | (322 | ) | (433 | ) | (467 | ) | ||||||||
Proceeds from sale of property, plant and equipment | 10 | - | ||||||||||||||
Proceeds from sale of property and equipment | 1,102 | 52 | ||||||||||||||
Change in short-term investments, net | 6 | 1,164 | (978 | ) | 1,195 | |||||||||||
Proceeds from restricted deposit for employee benefits | 10 | - | ||||||||||||||
Investment in capitalized certification costs | (48 | ) | (13 | ) | (156 | ) | (92 | ) | ||||||||
Proceeds from restricted deposit for employees benefit | 10 | 8 | ||||||||||||||
Net cash (used in) provided by continuing investing activities | (137 | ) | 829 | (455 | ) | 696 | ||||||||||
Cash flows from continuing financing activities | ||||||||||||||||
Increase in short-term bank credit, net | 372 | 33 | ||||||||||||||
Increase (decrease) in short-term bank credit, net | 2,636 | (3,449 | ) | |||||||||||||
Repayment of long-term bank loans | (119 | ) | (144 | ) | (261 | ) | (979 | ) | ||||||||
Proceeds from exercise of options and warrants | - | 34 | ||||||||||||||
Net cash provided by (used in) continuing financing activities | 253 | (111 | ) | 2,375 | (4,394 | ) | ||||||||||
Cash flows from discontinued operations | ||||||||||||||||
Net cash (used in) provided by discontinued operating activities | (1,231 | ) | 244 | (1,397 | ) | 836 | ||||||||||
Total net cash (used in) provided by discontinued operations | (1,231 | ) | 244 | (1,397 | ) | 836 | ||||||||||
Effect of exchange rate changes on cash and cash equivalents | (57 | ) | 63 | (277 | ) | (187 | ) | |||||||||
Increase in cash, cash equivalents and restricted cash | (986 | ) | 1,616 | |||||||||||||
Decrease in cash, cash equivalents and restricted cash | (1,604 | ) | (2,993 | ) | ||||||||||||
Cash, cash equivalents and restricted cash - beginning of the period | 5,105 | 7,799 | 5,105 | 7,799 | ||||||||||||
Cash, cash equivalents and restricted cash - end of the period | $ | 4,119 | $ | 9,415 | $ | 3,501 | $ | 4,806 |
* Reclassified to conform with the current period presentation, see Note 1C(2).
(*) | Reclassified to conform with the current period presentation, see Note 1C(2). |
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 Cash Flows (cont’d)
US dollars in thousands
Three months ended March 31 | Nine months ended September 30, | |||||||||||||||
2019 | 2018 | 2019 | 2018 | |||||||||||||
Supplementary cash flows activities: | ||||||||||||||||
Cash paid during the period for: | ||||||||||||||||
Interest paid | $ | 4 | $ | 41 | $ | 44 | $ | 112 | ||||||||
Income taxes paid | $ | 69 | $ | - | $ | 187 | $ | 43 |
The accompanying notes are an integral part of these interim unaudited condensed consolidated financial statements.
F-8
On Track Innovations Ltd.
and Subsidiaries
Notes to the Interim Unaudited Condensed Consolidated Financial Statements
US dollars in thousands (except per share amounts)
Note 1 -– Organization and Basis of Presentation
A. | Description of business |
On Track Innovations Ltd. (the “Company”) was founded in 1990, in Israel. The Company and its subsidiaries (together, the “Group”) are principally engaged in the field of design and development of cashless payment solutions.
The Company’s ordinary shares are listed for trading on the Nasdaq Capital MarketOTCQX market (formerly listed on the Nasdaq GlobalCapital Market until April 13, 2016)October 30, 2019).
At March 31,September 30, 2019, the Company operates in two operating segments: (a) Retail and Mass Transit Ticketing, and (b) Petroleum. See Note 11. During 2018, the Company sold its medical smart cards operation – see Note 1C(2).
B. | Interim Unaudited Financial Information |
The accompanying unaudited consolidated financial statements of the Company have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and with the instructions to Form 10-Q. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements and therefore should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2018.
In the opinion of management, all adjustments considered necessary for a fair statement, consisting of normal recurring adjustments, have been included. Operating results for the threenine month period ended March 31,September 30, 2019 are not necessarily indicative of the results that may be expected for the year ending December 31, 2019.
Use of Estimates:
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the assets, liabilities, revenue, costs, expenses and accumulated other comprehensive income/(loss) that are reported in the Interim Consolidated Financial Statements and accompanying disclosures. These estimates are based on management’s best knowledge of current events, historical experience, actions that the Company may undertake in the future and on various other assumptions that are believed to be reasonable under the circumstances. As a result, actual results may be different from these estimates.
F-9
On Track Innovations Ltd.
and Subsidiaries
Notes to the Interim Unaudited Condensed Consolidated Financial Statements
US dollars in thousands
Note 1 - Organization and Basis of Presentation (cont’d)
C. | Divestiture of operations |
1. | In December 2013, the Company completed the sale of certain assets, subsidiaries and intellectual property (“IP”) relating to its Smart ID division, for a total purchase price of $10,000 in cash and an additional $12,500 subject to performance-based milestones. Accordingly, the results and the cash flows of this operation for all reporting periods are presented in the statements of operations and in the statements of cash flows, respectively, as discontinued operations separately from continuing operations. |
On Track Innovations Ltd.
and Subsidiaries
Notes to the Interim Unaudited Condensed Consolidated Financial Statements
US dollars in thousands (except per share amounts)
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'sSuperCom’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. On February 7, 2019, SuperCom filed an application toAs of the District Court in Tel Aviv to canceldate hereof, the said arbitration decisionverdict has been validated as a court verdict, and the Company submitted a responseis currently taking actions to the application on March 19, 2019.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 threenine months ended March 31,September 30, 2019 and 2018.
2. | In December 2018, the Company completed the sale of its medical smart cards operation (“Medismart”) (formerly part of the Company’s “Other segment”) to Smart Applications International Limited |
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 by ASEC) 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 3.8% in total. The agreement includes customary events of default, including, among others, failures to repay any amounts due to the Lender, breaches or defaults under the terms of the agreement, etc. If an event of default occurs, the Lender may reduce the amount of the Secured Loan, demand an additional security or terminate the agreement. |
On Track Innovations Ltd.
and Subsidiaries
Notes to the Interim Unaudited Condensed Consolidated Financial Statements
US dollars in thousands (except per share amounts)
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 |
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)
In March 2019, OTI Petrosmart (Pty), Ltd., the South African subsidiary (hereinafter – “Petrosmart”), entered into an agreement pursuant to which Petrosmart |
The Company does not record right-of-use assetsasset and operating lease liabilitiesliability regarding those buildings,the building in Yokne’am (Israel), as mentioned above, in its consolidated financial statements as of March 31,September 30, 2019, due to the fact that the commencement date of the lease periodsperiod is subsequent to the balance sheet date – see also Note 2A. The Company isexpects an increase of approximately $1,600 in the process of determining the final terms of those leases, including the commencement date ofright-of-use assets and in the lease periods, and evaluating their impactliabilities on the consolidated financial statements.first-time-recognition in this lease.
Note 2 -– Significant Accounting Policies
Except as described below,these interim unaudited condensed consolidated financial statements have been prepared according to the same accounting policies as those discussed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018.2018.
A. | Recently Adopted Accounting Pronouncements |
In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-02, Leases (Topic 842), which supersedes Accounting Standards Codification (“ASC”) 840, Leases. This ASU requires lessees to recognize a right-of-use asset and lease liability on the balance sheet for most leases, whereas until December 31, 2018, only financing-type lease liabilities (capital leases) were recognized on the balance sheet. Right-of-use assets represent company’s right to use an underlying asset for the lease term and lease liabilities represent company’s obligation to make lease payments arising from the lease. Operating and finance lease right-of-use assets and liabilities are recognized at the commencement date based on the present value of lease payments over the lease term. The Company uses its incremental borrowing rate based on the information available at the commencement date to determine the present value of the lease payments.
On Track Innovations Ltd.
and Subsidiaries
Notes to the Interim Unaudited Condensed Consolidated Financial Statements
US dollars in thousands (except per share amounts)
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.
F-11
On Track Innovations Ltd.
and Subsidiaries
Notes to the Interim Unaudited Condensed Consolidated Financial Statements
US dollars in thousands
Note 2 - Significant Accounting Policies (cont’d)
The Company has adopted ASU 2016-02 commencing from January 1, 2019, under the effective date method. method.In accordance with the effective date method, comparative periods are not restated, and the Company needs to record a cumulative-effect adjustment withinits 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 March 31,September 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 (except per share amounts)
Note 3 -– Other Receivables and Prepaid Expenses
March 31 | December 31 | |||||||||||||||
2019 | 2018 | September 30, | December 31, | |||||||||||||
2019 | 2018 | |||||||||||||||
Government institutions | $ | 304 | $ | 387 | $ | 234 | $ | 387 | ||||||||
Prepaid expenses | 251 | 226 | 165 | 226 | ||||||||||||
Receivables under contractual obligations to be transferred to others * | 283 | 349 | ||||||||||||||
Suppliers advance | 828 | 932 | ||||||||||||||
Supplier advances | 502 | 932 | ||||||||||||||
Receivables under contractual obligations to be transferred to others (*) | 427 | 349 | ||||||||||||||
Other receivables | 123 | 166 | 274 | 166 | ||||||||||||
$ | 1,789 | $ | 2,060 | $ | 1,602 | $ | 2,060 |
The Company’s subsidiary in Poland is required to collect certain fees that are to be transferred to local authorities. |
Note 4 -– Other Current Liabilities
March 31 | December 31 | September 30, | December 31, | |||||||||||||
2019 | 2018 | 2019 | 2018 | |||||||||||||
Employees and related expenses | $ | 1,072 | $ | 1,042 | $ | 637 | $ | 1,042 | ||||||||
Accrued expenses | 753 | 921 | 682 | 921 | ||||||||||||
Customer advances | 60 | 141 | 110 | 141 | ||||||||||||
Short-term liabilities due to operating leases and current maturities ** | 531 | - | 732 | - | ||||||||||||
Other current liabilities | 118 | *1,518 | 125 | *1,518 | ||||||||||||
$ | 2,534 | $ | 3,622 | $ | 2,286 | $ | 3,622 |
* | See Note 6A(1). |
** | See Note 2A. |
F-13
On Track Innovations Ltd.
and Subsidiaries
Notes to the Interim Unaudited Condensed Consolidated Financial Statements
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’sCompany’s date of initial application.
As of March 31,September 30, 2019, right-of-use assets due to operating leases are $1,381 (as$1,930)as of January 1, 2019 - $1,572) and the liabilities due to operating leases are $1,388$1,936 (as of January 1, 2019 - $1,572), out of which $857$1,204 are classified as long-term liabilities and $531$732 are classified as current liabilities.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 March 31,September 30, 2019. The weighted average remaining lease term is 2.62.3 years as of March 31,September 30, 2019.
F-14
On Track Innovations Ltd.
and Subsidiaries
Notes to the Interim Unaudited Condensed Consolidated Financial Statements
US dollars in thousands (except per share amounts)
Note 5 – Leases (cont’d)
The following is a schedule of the maturities of operating lease liabilities for the next five years as of March 31,September 30, 2019, and thereafter:thereafter, as were taken into account in the calculation of the operating lease liabilities as of September 30, 2019:
Remainder of 2019 | $ | 393 | $ | 233 | ||||
2020 | 346 | 661 | ||||||
2021 | 274 | 511 | ||||||
2022 | 159 | 362 | ||||||
2023 | 137 | 184 | ||||||
Thereafter | 152 | 140 | ||||||
Total leases payments | 1,461 | 2,091 | ||||||
Less - discount | 73 | 155 | ||||||
Operating lease liabilities | $ | 1,388 | $ | 1,936 |
As of March 31,September 30, 2019, the weighted average discount rate of the operating leases is approximately 4.1%5.3%.
Operating lease costs and cash paid for amounts included in the measurement of the lease liabilities were approximately $180$236 and $602 during the three months and the nine months ended March 31, 2019.September 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: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-14F-15
On Track Innovations Ltd.
and Subsidiaries
Notes to the Interim Unaudited Condensed Consolidated Financial Statements
US dollars in thousands (except per share amounts)
Note 6 -– Commitments and Contingencies
A. | Legal claims |
1. | In June 2013, prior to the |
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 March 31,September 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, but only in court, since the relevant data is held by SuperCom, who is not a party to the arbitration agreement with Merwell, but issued the licenses in the relevant period and therefore is a necessary party to the dispute. The Company filed an application to the arbitrator, and on August 8, 2019, the arbitrator determined that the Company’s procedural claims should be heard and determined in court. Following that decision, on September 8, 2019, the Company filed a petition to the Tel-Aviv District Court, asking it to order that Merwell’s claims in the complementary procedure will be heard in court and not in arbitration. On October 22, 2019, Merwell submitted its response to the court. As of the date of this report, a hearing in the petition has not yet scheduled. Based on the assessment of the Company’s external legal counsel, given the preliminary stage of the procedure, it is difficult, at this point, to estimate the chances of Merwell’s claims for a complementary arbitration verdict. |
On Track Innovations Ltd.
and Subsidiaries
Notes to the Interim Unaudited Condensed Consolidated Financial Statements
US dollars in thousands (except per share amounts)
Note 6 – Commitments and Contingencies (cont’d)
A. | Legal claims (cont’d) |
3. | In October 2013, a financial claim was filed against the Company and its then French subsidiary, Parx France (in this paragraph, together, the “Defendants”), in the Commercial Court of Paris, France (in this paragraph, the “Court”). The sum of the claim is €1,500 (approximately |
4. | In July, 2019, the Company received a request(the “Request”), to allow a petitioner to submit a class action, which concerns the petitioner’s claims that, inter alia, through the EasyPark card, drivers are permitted to exceed the quota of permitted hours in accordance with the instructions of various local authorities in Israel. The Request was submitted against a company (the “Buyer’s Company”) incorporated by the buyer of the assets (including the parking activity) of the Israeli subsidiaries of the Company (the “Company’s Subsidiaries”) and against two other companies that operate technological means for payment for public parking spaces scattered throughout the cities. Since the majority of potential claims against the Company’s Subsidiaries relate to the period following the sale of the Company’s Subsidiaries’ assets, including the parking activity, it appears that the Company’s exposure through this channel is limited. Furthermore, even if payment will be required, the buyer would be liable for the majority of such payment. Therefore the Company will not participate in such procedure at this stage. Based on the assessment of the Company’s external legal counsel, the exposure of the Company cannot be assessed at this point. |
B. | Guarantees |
As of March 31,September 30, 2019, the Company has granted performance guarantees and guarantees to secure customer advances in the sum of $271.$387. The expiration dates of the guarantees range from April 20192020 to June 2019.
September 2021.
F-15
On Track Innovations Ltd.
and Subsidiaries
Notes to the Interim Unaudited Condensed Consolidated Financial Statements
US dollars in thousands (except per share amounts)
Note 7 -– Revenues
Disaggregation of revenue
The following tables disaggregates the Company’s revenue by major source based on categories that depict its nature and timing as reviewed by management for the nine months and the three months ended March 31,September 30, 2019 and 2018::
Three months ended March 31 | ||||||||||||||||||||||||
2019 | Nine months ended September 30,2019 | |||||||||||||||||||||||
Retail | Petroleum | Total | Retail and Mass Transit Ticketing | Petroleum | Total | |||||||||||||||||||
Cashless payment products (A) | $ | 839 | $ | - | $ | 839 | $ | 4,437 | $ | - | $ | 4,437 | ||||||||||||
Complete cashless payment solutions (B): | ||||||||||||||||||||||||
Sales of products (B1) | 137 | 505 | 642 | 646 | 1,439 | 2,085 | ||||||||||||||||||
Licensing fees, transaction fees and services (B2) | 1,217 | 315 | 1,532 | 3,522 | 950 | 4,472 | ||||||||||||||||||
1,354 | 820 | 2,174 | 4,168 | 2,389 | 6,557 | |||||||||||||||||||
Total revenues | $ | 2,193 | $ | 820 | $ | 3,013 | $ | 8,605 | $ | 2,389 | $ | 10,994 |
Three months ended March 31 | ||||||||||||||||||||||||
2018* | Nine months ended September 30,2018* | |||||||||||||||||||||||
Retail | Petroleum | Total | Retail and Mass Transit Ticketing | Petroleum | Total | |||||||||||||||||||
Cashless payment products (A) | $ | 2,304 | $ | - | $ | 2,304 | $ | 6,710 | $ | - | $ | 6,710 | ||||||||||||
Complete cashless payment solutions (B): | ||||||||||||||||||||||||
Sales of products (B1) | 1,027 | 594 | 1,621 | 2,880 | 2,882 | 5,762 | ||||||||||||||||||
Licensing fees, transaction fees and services (B2) | 1,239 | 348 | 1,587 | 3,817 | 1,061 | 4,878 | ||||||||||||||||||
2,266 | 942 | 3,208 | 6,697 | 3,943 | 10,640 | |||||||||||||||||||
Total revenues | $ | 4,570 | $ | 942 | $ | 5,512 | $ | 13,407 | $ | 3,943 | $ | 17,350 |
* | 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 (except per share amounts)
Note 7 – Revenues (cont’d)
Disaggregation of revenue(cont’d)
Three months ended September 30,2019 | ||||||||||||
Retail and Mass Transit Ticketing | Petroleum | Total | ||||||||||
Cashless payment products (A) | $ | 1,697 | $ | - | $ | 1,697 | ||||||
�� | ||||||||||||
Complete cashless payment solutions (B): | ||||||||||||
Sales of products (B1) | 49 | 603 | 652 | |||||||||
Licensing fees, transaction fees and services (B2) | 1,189 | 327 | 1,516 | |||||||||
1,238 | 930 | 2,168 | ||||||||||
Total revenues | $ | 2,935 | $ | 930 | $ | 3,865 |
Three months ended September 30,2018* | ||||||||||||
Retail and Mass Transit Ticketing | Petroleum | Total | ||||||||||
Cashless payment products (A) | $ | 2,013 | $ | - | $ | 2,013 | ||||||
Complete cashless payment solutions (B): | ||||||||||||
Sales of products (B1) | 1,520 | 935 | 2,455 | |||||||||
Licensing fees, transaction fees and services (B2) | 1,248 | 383 | 1,631 | |||||||||
2,768 | 1,318 | 4,086 | ||||||||||
Total revenues | $ | 4,781 | $ | 1,318 | $ | 6,099 |
* | 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 (except per share amounts)
Note 7 – Revenues (cont’d)
Performance obligations
Below is a listing of performance obligations for the Company’s main revenue streams:
A. | Cashless payment products – |
The performance obligation is the selling of contactless payment products. Most of those products are Near Field Communication (NFC) readers. For such sales the performance obligation, transfer of control and revenue recognition occur when the products are delivered.
F-16
On Track Innovations Ltd.
and Subsidiaries
Notes toBelow is a listing of performance obligations for the Interim Unaudited Condensed Consolidated Financial Statements
US dollars in thousands
Note 7 - RevenuesCompany’s main revenue streams (cont’d)
Performance obligations (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.
On Track Innovations Ltd.
and Subsidiaries
Notes to the Interim Unaudited Condensed Consolidated Financial Statements
US dollars in thousands (except per share amounts)
Note 7 – Revenues (cont’d)
Performance obligations(cont’d)
Contract balances
March 31 | December 31 | September 30, | December 31, | |||||||||||||
2019 | 2018 | 2019 | 2018 | |||||||||||||
Trade receivables, net of allowance for doubtful accounts | $ | 2,707 | $ | 4,530 | $ | 2,469 | $ | 4,530 | ||||||||
Customer advances | $ | 60 | $ | 141 | $ | 110 | $ | 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-17
On Track Innovations Ltd.
and Subsidiaries
Notes to the Interim Unaudited Condensed Consolidated Financial Statements
US dollars in thousands (except per share amounts)
Note 8 -– Discontinued operations
As described in Note 1C, the Company divested its interest in the SmartID division and its Medismart activity, and presented these activities as discontinued operations.
Set forth below are the results of the discontinued operations:
Three months ended March 31 | Three months ended September 30, | Nine months ended September 30, | ||||||||||||||||||||||
2019 | *2018 | 2019 | *2018 | 2019 | *2018 | |||||||||||||||||||
Revenues | $ | - | $ | 363 | $ | - | $ | 374 | $ | - | $ | 1,139 | ||||||||||||
Expenses | (193 | ) | (296 | ) | (36 | ) | (332 | ) | (279 | ) | (924 | ) | ||||||||||||
Net (loss) income from discontinued operations | $ | (193 | ) | $ | 67 | |||||||||||||||||||
Other income, net | - | - | - | 13 | ||||||||||||||||||||
Net (loss) profit from discontinued operations | (36 | ) | 42 | (279 | ) | 228 |
* | Reclassified to conform with the current period presentation, see Note 1C(2). |
Note 9 -– Fair Value of Financial Instruments
The Company'sCompany’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. |
On Track Innovations Ltd.
and Subsidiaries
Notes to the Interim Unaudited Condensed Consolidated Financial Statements
US dollars in thousands (except per share amounts)
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'sliability’s classification within the hierarchy is determined based on the lowest level input that is significant to the fair value measurement.
The Company, in estimating fair value for financial instruments, determined that the carrying amounts of cash and cash equivalents, trade receivables, short and long termshort-term bank loanscredit 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 March 31,September 30, 2019, the Company held approximately $905$1,905 of short-term bank deposits (as of December 31, 2018, - $1,078). As of March 31,September 30, 2019 and December 31, 2018, short-term deposits in the amount of $105 and $278, respectively, have been pledged as security in respect of guarantees granted in respect of performance guarantees, loans and credit lines received from a bank and cannot be pledged to others or withdrawn without the consent of the bank.
F-18
On Track Innovations Ltd.
and Subsidiaries
Notes to the Interim Unaudited Condensed Consolidated Financial Statements
US dollars in thousands
Note 10 -– Equity
A. | Stock option plans |
During each of the three-monthnine-month periods ended March 31,September 30, 2019 and March 31,September 30, 2018, 230,000 and 100,000 options were granted.granted, respectively. The vesting period for the options is three years. The exercise prices for the options that were granted during the threenine months ended March 31,September 30, 2019 and March 31,September 30, 2018, are $0.7$0.55 and $1.33, respectively. Those options expire up to five years after the date of grant. Any options which are forfeited or cancelled before expiration become available for future grants under the Company’s option plan. The fair value of each option granted to employees during the threenine months ended March 31,September 30, 2019 and March 31,September 30, 2018 was estimated on the date of grant, using the Black-Scholes model and the following assumptions:
Three months ended March 31 | Nine months ended September 30, | |||||||||||||||
2019 | 2018 | 2019 | 2018 | |||||||||||||
Expected dividend yield | 0 | % | 0 | % | 0 | % | 0 | % | ||||||||
Expected volatility | 79 | % | 80 | % | 79 | % | 80 | % | ||||||||
Risk-free interest rate | 2.47 | % | 1.92 | % | 2.07 | % | 1.92 | % | ||||||||
Expected life - in years | 2.44 | 2.33 | 2.44 | 2.33 |
On Track Innovations Ltd.
and Subsidiaries
Notes to the Interim Unaudited Condensed Consolidated Financial Statements
US dollars in thousands (except per share amounts)
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 |
3. | Risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant. |
4. | Estimated expected lives are based on historical grants data. |
The Company’s options activity (including options to non-employees) during the nine months ended September 30, 2019 and options outstanding and options exercisable as of December 31, 2018 and March 31,September 30, 2019, are summarized in the following table:
Number of options outstanding | Weighted average exercise price per share | Number of options outstanding | Weighted average exercise price per share | |||||||||||||
Outstanding – December 31, 2018 | 1,461,000 | $ | 1.24 | 1,461,000 | $ | 1.24 | ||||||||||
Options granted | 100,000 | 0.70 | 230,000 | 0.55 | ||||||||||||
Options expired or forfeited | (5,334 | ) | 1.21 | (468,669 | ) | 1.68 | ||||||||||
Outstanding – March 31, 2019 | 1,555,666 | 1.20 | ||||||||||||||
Outstanding – September 30, 2019 | 1,222,331 | 0.94 | ||||||||||||||
Exercisable as of: | ||||||||||||||||
December 31, 2018 | 855,642 | $ | 1.32 | 855,642 | $ | 1.32 | ||||||||||
March 31, 2019 | 985,642 | $ | 1.29 | |||||||||||||
September 30, 2019 | 760,978 | $ | 0.96 |
The weighted average fair value of options granted during the nine months ended September 30, 2019 and during the nine months ended September 30, 2018 is $0.2 and $0.65, respectively, per option. The aggregate intrinsic value of outstanding options as of September 30, 2019 and December 31, 2018 is approximately zero and $6, respectively. The aggregate intrinsic value of exercisable options as of September 30, 2019 and December 31, 2018 is approximately zero and $4, respectively.
F-19
On Track Innovations Ltd.
and Subsidiaries
Notes to the Interim Unaudited Condensed Consolidated Financial Statements
US dollars in thousands (except per share amounts)
Note 10 -– Equity (cont’d)
A. | Stock option plans (cont’d) |
The weighted average fair value of options granted during the three months ended March 31, 2019 and during the three months ended March 31, 2018 is $0.25 and $0.65, respectively, per option. The aggregate intrinsic value of outstanding options as of March 31, 2019 and December 31, 2018 is approximately $8 and $6, respectively. The aggregate intrinsic value of exercisable options as of March 31, 2019 and December 31, 2018 is approximately $8 and $4, respectively.
The following table summarizes information about options outstanding and exercisable (including options to non-employees) as of March 31,September 30, 2019:
Options outstanding | Options Exercisable | ||||||||||||||||||||||||
Range ofexercise price ($) | Number outstanding as of March 31, 2019 | Weighted average remaining contractual life (years) | Weighted Average Exercise Price ($) | Number Outstanding as of March 31, 2019 | Weighted average remaining contractual life (years) | Weighted Average Exercise Price ($) | |||||||||||||||||||
0.44-0.90 | 644,000 | 2.77 | 0.75 | 420,000 | 1.73 | 0.74 | |||||||||||||||||||
1.07-1.68 | 701,666 | 3.17 | 1.23 | 355,642 | 2.99 | 1.23 | |||||||||||||||||||
2.32-2.36 | 170,000 | 0.13 | 2.35 | 170,000 | 0.13 | 2.35 | |||||||||||||||||||
3.03 | 40,000 | 0.48 | 3.03 | 40,000 | 0.48 | 3.03 | |||||||||||||||||||
1,555,666 | 2.60 | 985,642 | 1.86 |
Options outstanding | Options exercisable | |||||||||||||||||||||||
Number | Weighted | Number | Weighted | |||||||||||||||||||||
Outstanding | average | Weighted | Outstanding | average | Weighted | |||||||||||||||||||
as of | remaining | Average | As of | remaining | Average | |||||||||||||||||||
Range of | September 30, | contractual | Exercise | September 30, | contractual | Exercise | ||||||||||||||||||
exercise price ($) | 2019 | life (years) | Price | 2019 | life (years) | Price | ||||||||||||||||||
0.44- 0.90 | 643,000 | 1.78 | $ | 0.69 | 420,000 | 0.31 | $ | 0.74 | ||||||||||||||||
1.07-1.68 | 579,331 | 2.2 | $ | 1.21 | 340,978 | 1.75 | $ | 1.24 | ||||||||||||||||
1,222,331 | 1.98 | 760,978 | 0.96 |
As of March 31,September 30, 2019, there was approximately $236$114 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 1.181.05 years.
During the three months ended March 31,September 30, 2019 and March 31,September 30, 2018, the Company recorded stock-based compensation expenses in the amount of $46$6 and $53,$65, respectively, in accordance with ASC 718, “Compensation-Stock Compensation.”
During the nine months ended September 30, 2019 and September 30, 2018, the Company recorded stock-based compensation expenses in the amount of $96 and $180, respectively, in accordance with ASC 718, “Compensation-Stock Compensation.”
B. | Warrants |
1. | During the |
2. | As of |
C. | Stock options and warrants in the amounts of |
F-20
D. | Shares to non-employees |
During the nine months ended September 30, 2019 and September 30, 2018, the Company issued 30,000 and 80,000 ordinary shares, respectively, to its consultants. The expenses that are recognized due to those grants are immaterial and are presented within ‘stock-based compensation’ in the statement of changes in equity for the nine months ended September 30, 2019 and September 30, 2018.
On Track Innovations Ltd.
and Subsidiaries
Notes to the Interim Unaudited Condensed Consolidated Financial Statements
US dollars in thousands (except per share amounts)
Note 11 -– Operating segments
For the purposes of allocating resources and assessing performance in order to improve profitability, the Company'sCompany’s chief operating decision maker (“CODM”) examines two segments which are the Company'sCompany’s strategic business units: (1) Retail and Mass Transit Ticketing; and (2) Petroleum.
Information regarding the results of each reportable segment is included below based on the internal management reports that are reviewed by the CODM.
Three months ended March 31, 2019 | Three months ended September 30,2019 | |||||||||||||||||||||||
Retail | Petroleum | Total | Petroleum | Retail and Mass Transit Ticketing | Consolidated | |||||||||||||||||||
Revenues | $ | 2,193 | $ | 820 | $ | 3,013 | $ | 929 | $ | 2,936 | $ | 3,865 | ||||||||||||
Reportable segment gross profit * | 1,498 | 346 | 1,844 | 310 | 1,585 | 1,895 | ||||||||||||||||||
Reconciliation of reportable segment gross profit to gross profit for the period | ||||||||||||||||||||||||
Depreciation | (200 | ) | (190 | ) | ||||||||||||||||||||
Stock-based compensation | (1 | ) | (1 | ) | ||||||||||||||||||||
Gross profit for the period in the consolidated financial statement | $ | 1,643 | $ | 1,704 |
Three months ended March 31, 2018** | Three months ended September 30,2018 ** | |||||||||||||||||||||||
Retail | Petroleum | Total | Petroleum | Retail and Mass Transit Ticketing | Consolidated | |||||||||||||||||||
Revenues | $ | 4,570 | $ | 942 | $ | 5,512 | $ | 1,317 | $ | 4,782 | $ | 6,099 | ||||||||||||
Reportable segment gross profit * | 2,543 | 552 | 3,095 | 682 | 2,750 | 3,432 | ||||||||||||||||||
Reconciliation of reportable segment gross profit to gross profit for the period | ||||||||||||||||||||||||
Depreciation | (214 | ) | (202 | ) | ||||||||||||||||||||
Stock-based compensation | (1 | ) | (1 | ) | ||||||||||||||||||||
Gross profit for the period in the consolidated financial statement | $ | 2,880 | $ | 3,229 |
F-26
On Track Innovations Ltd.
and Subsidiaries
Notes to the Interim Unaudited Condensed Consolidated Financial Statements
US dollars in thousands (except per share amounts)
Note 11 – Operating segments (cont’d)
Nine months ended September 30,2019 | ||||||||||||
Petroleum | Retail and Mass Transit Ticketing | Consolidated | ||||||||||
Revenues | $ | 2,388 | $ | 8,606 | $ | 10,994 | ||||||
Reportable segment gross profit * | 1,106 | 5,206 | 6,312 | |||||||||
Reconciliation of reportable segment gross profit to profit for the period | ||||||||||||
Depreciation | (588 | ) | ||||||||||
Stock-based compensation | (3 | ) | ||||||||||
Gross profit for the period in the consolidated financial statement | $ | 5,721 |
Nine months ended September 30,2018 ** | ||||||||||||
Petroleum | Retail and Mass Transit Ticketing | Consolidated | ||||||||||
Revenues | $ | 3,942 | $ | 13,408 | $ | 17,350 | ||||||
Reportable segment gross profit * | 2,000 | 7,628 | 9,628 | |||||||||
Reconciliation of reportable segment gross profit to profit for the period | ||||||||||||
Depreciation | (626 | ) | ||||||||||
Stock-based compensation | (3 | ) | ||||||||||
Gross profit for the period in the consolidated financial statement | $ | 8,999 |
* | Gross profit as reviewed by the CODM, represents gross profit, adjusted to exclude depreciation and stock-based |
** | Reclassified to conform with the current period presentation, see Note 1C(2). |
F-21F-27
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Forward - Looking Statements
The statements contained in this Quarterly Report on Form 10-Q, or Quarterly Report, that are not historical facts are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 and other federal securities laws. Such forward-looking statements may be identified by, among other things, the use of forward-looking terminology such as “believes,” “intends,” “plans”, “expects,” “may,” “will,” “should,” or “anticipates” or the negative thereof or other variations thereon or comparable terminology, and similar expressions are intended to identify forward-looking statements. We remind readers that forward-looking statements are merely predictions and therefore are inherently subject to uncertainties and other factors and involve known and unknown risks that could cause the actual results, performance, levels of activity, or our achievements, or industry results, to be materially different from any actual future results, performance, levels of activity, or our achievements, or industry results, expressed or implied by such forward-looking statements. Such forward-looking statements may appear in this Item 2 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” as well as elsewhere in this Quarterly Report and include, among other statements, statements regarding the following:
● |
the expected development and potential benefits from our existing or future products or our intellectual property, or IP; |
● |
● | 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 leadership team; |
● | our outlook for the coming months; and |
● | information with respect to any other plans and strategies for our |
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, 2018 filed with the SEC. Readers are also urged to carefully review and consider the various disclosures we have made in that report.
As used in this Quarterly Report, the terms “we”, “us”, “our”, “the Company”, and “OTI” mean On Track Innovations Ltd. and our subsidiaries, unless otherwise indicated or as otherwise required by the context.
All figures in this Quarterly Report are stated in United States dollars, unless otherwise specified 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 almost three decades. We operate in two main segments: (1) Retail and Mass Transit Ticketing; and (2) Petroleum. As a result of the closing of the MediSmart Transaction in December 2018, we no longer report our “Other” segment.
Our field-proven suite of cashless payment solutions is based on an extensive IP portfolio including registered patents and patent applications worldwide. Since our incorporation in 1990, we have built an international reputation internationally for reliability and innovation, deploying a large number of solutions for the unattended retail, mass transit, banking, medical and petroleum industries.
We operate a global network of regional offices and distributors to support various solutions deployed across the globe.
RESULTS OF OPERATIONS – THREE MONTHS ENDED MARCH 31, 2019 COMPARED TO THREE MONTHS ENDED MARCH 31, 2018
This discussion and analysis should be read in conjunction with our interim condensed consolidated financial statements and notes thereto contained in “Item 1. Financial Statements” of this Quarterly Report and our Annual Report on Form 10-K for the fiscal year ended December 31, 2018 filed with the SEC.
Results of Operations
Discontinued operations. In December 2013, we completed the sale of certain assets, certain subsidiaries and IP directly related to our SmartID division. The results from such operations and the cash flows for the reporting periods are presented in the statements of operations and in the statements of cash flows, respectively, as discontinued operations separately from continuing operations. All the data in this Quarterly Report that are derived from our financial statements, unless otherwise specified, exclude the results of those discontinued operations.
In December 2018, we completed the sale of our medical smart card’s operation, or Medismart, (formerly part of the Company’s “Other segment”) to Smart Applications International Limited, or Smart, for a total price of $2.75 million. We have determined that the sale of the Medismart business qualifies as a discontinued operation. Accordingly, the results and the cash flows of this operation for all reporting periods are presented in the statements of operations and in the statements of cash flows, respectively, as discontinued operations separately from continuing operations. [All
All the data in this Quarterly Report that are derived from our financial statements, unless otherwise specified, exclude the results of those discontinued operations.]
Three months ended September 30, 2019, compared to the three months ended September 30, 2018
3
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 March 31,September 30, 2019 and March 31,September 30, 2018, the revenues that we derived from sales and licensing and transaction fees were as follows (in thousands):
Three months ended March 31, | Three months ended September 30, | |||||||||||||||
2019 | 2018 | 2019 | 2018 | |||||||||||||
Sales | $ | 1,722 | $ | 4,241 | $ | 2,631 | $ | 4,760 | ||||||||
Licensing and transaction fees | $ | 1,291 | $ | 1,271 | $ | 1,234 | $ | 1,339 | ||||||||
Total revenues | $ | 3,013 | $ | 5,512 | $ | 3,865 | $ | 6,099 | ||||||||
Sales.Sales decreased by $2.5$2.1 million, or 59%45%, in the three months ended March 31,September 30, 2019, compared to the three months ended March 31,September 30, 2018. The decrease is mainly attributed to a decrease in Retail and Mass Transit Ticketing segment sales of our products in Japan and sales of readers in Europe and to a decrease in Petroleum products in the United States, and Japan. partially offset by an increase in sales of readers in the United States.
Licensing and transaction fees. Licensing and transaction fees include single and periodic payments for distribution rights for our products 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 remained consistent.in the three months ended September 30, 2019, compared to the three months ended September 30, 2018, decreased by $105,000, or 8%. The decrease is mainly attributed to a decrease in our licensing and transaction fees in Europe.
We have historically derived revenues from different geographical areas. The following table sets forth our revenues, by dollar amount (in thousands) and as a percentage of quarterly revenues in different geographical areas, forin the three months ended March 31,September 30, 2019 and March 31,September 30, 2018:
Three months ended March 31, | Americas | Europe | Africa | APAC | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Three months ended September 30, | Africa | Europe | APAC | Americas | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2019 | $ | 641 | 21 | % | $ | 1,646 | 55 | % | $ | 573 | 19 | % | $ | 153 | 5 | % | $ | 492 | 13 | % | $ | 1,714 | 44 | % | $ | 214 | 6 | % | $ | 1,445 | 37 | % | ||||||||||||||||||||||||||||||||
2018 | $ | 2,238 | 41 | % | $ | 1,674 | 30 | % | $ | 536 | 10 | % | $ | 1,064 | 19 | % | $ | 618 | 10 | % | $ | 2,517 | 41 | % | $ | 1,548 | 26 | % | $ | 1,416 | 23 | % |
Our revenues from sales in AmericasAfrica decreased by $1.6 million,$126,000, or 71%20%, in the three months ended March 31,September 30, 2019, compared to the three months ended March 31,September 30, 2018, mainly due to a decrease in sales of readers to the U.S. market.Petroleum products.
Our revenues from sales in Europe decreased by $803,000, or 32%, in the three months ended March 31,September 30, 2019, compared to the three months ended March 31,September 30, 2018, remained consistent.mainly due to a decrease of sales of readers and to a lesser extent to a decrease of licensing and transaction fees.
Our revenues from sales in Africa increasedAsia-Pacific region, or APAC, decreased by $37,000,$1.3 million, or 7%86%, in the three months ended March 31,September 30, 2019, compared to the three months ended March 31, 2018, mainly due to an increase in sales of Petroleum products.
4
Our revenues from sales in the Asia-Pacific region, or APAC, decreased by $911,000, or 86%, in the three months ended March 31, 2019, compared to the three months ended March 31,September 30, 2018, mainly due to a decrease in sales of our Uno Plus and GoBox products in Japan.
Our revenues from sales in Americas in the three months ended September 30, 2019, compared to the three months ended September 30, 2018, remained consistent mainly due to an increase in sales of readers in our Retail and Mass Transit Ticketing segment offset by a decrease in Petroleum products.
Our revenues derived from outside the United States are primarily received in currencies other than the U.S. dollar and accordingly have a varying impact upon our total revenues as a result of fluctuations in exchange rates.
The following table sets forth our revenues by dollar amount (in thousands) and as a percentage of revenues by segments, forduring the three months ended March 31,September 30, 2019 and March 31,September 30, 2018:
Three months ended March 31, | Retail and Mass Transit Ticketing | Petroleum | ||||||||||||||||||||||||||||||
Three months ended September 30, | Retail and Mass Transit Ticketing | Petroleum | ||||||||||||||||||||||||||||||
2019 | $ | 2,193 | 73 | % | $ | 820 | 27 | % | $ | 2,935 | 76 | % | $ | 930 | 24 | % | ||||||||||||||||
2018 | $ | 4,570 | 83 | % | $ | 942 | 17 | % | $ | 4,781 | 78 | % | $ | 1,318 | 22 | % |
Our revenues from Retail and Mass Transit Ticketing in the three months ended March 31,September 30, 2019, decreased by $2.4$1.8 million, or 52%39%, compared to the three months ended March 31,September 30, 2018, mainly attributed to a decrease in sales of readers in United StatesJapan and due a decrease in sales of readers in Europe, partially offset by an increase in sales of readers in the Japanese market.United States.
Our revenues in the three months ended March 31,September 30, 2019, from Petroleum decreased by $122,000,$389,000, or 13%30%, compared to the three months ended March 31,September 30, 2018, mainly due to a decrease in sales of Petroleum products in Asia.the United States.
Cost of Revenues and Gross Margin
Our cost of revenues, presented by gross profit and gross margin percentage, forin the three months ended March 31,September 30, 2019 and March 31,September 30, 2018, were as follows (dollar amounts in thousands):
Cost of Revenues | Three months ended March 31, | |||||||||||||||
Cost of revenues | Three months ended September 30, | |||||||||||||||
2019 | 2018 | |||||||||||||||
2019 | 2018 | |||||||||||||||
Cost of sales | $ | 1,370 | $ | 2,632 | $ | 2,161 | $ | 2,870 | ||||||||
Gross profit | $ | 1,643 | $ | 2,880 | $ | 1,704 | $ | 3,229 | ||||||||
Gross margin percentage | 55 | % | 52 | % | 44 | % | 53 | % |
Cost of sales.sales. Cost of sales consists primarily of materials, as well as salaries, fees to subcontractors and related costs of our technical staff that assemble our products. The decrease of $1.3 million,$709,000, or 48%25%, in the three months ended March 31,September 30, 2019, compared to the three months ended March 31,September 30, 2018, resulted primarily from thea decrease in revenues mainly attributed to the decrease in Retailsales and Mass Transit Ticketing segment sales in the United States and in Japan.as a result of inventory adjustments.
Gross margin. The increasedecrease in gross margin percentage in the three months ended March 31,September 30, 2019, compared to the three months ended March 31,September 30, 2018, is mainly attributed to inventory adjustments and to a change in our revenue mix.
5
Operating expenses
Our operating expenses forin the three months ended March 31,September 30, 2019 and March 31,September 30, 2018, were as follows (in thousands):
Operating expenses | Three months ended March 31, | Three months ended September 30, | ||||||||||||||
2019 | 2018 | 2019 | 2018 | |||||||||||||
Research and development | $ | 871 | $ | 820 | $ | 840 | $ | 765 | ||||||||
Selling and marketing | $ | 1,285 | $ | 1,645 | $ | 1,193 | $ | 1,591 | ||||||||
General and administrative | $ | 965 | $ | 907 | $ | 1,070 | $ | 1,099 | ||||||||
Other (gain) expenses, net | $ | (335 | ) | $ | - | |||||||||||
Total operating expenses | $ | 3,121 | $ | 3,372 | $ | 2,768 | $ | 3,455 |
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 $51,000,$75,000, or 6%10%, in the three months ended March 31,September 30, 2019, compared to the three months ended March 31,September 30, 2018, is primarily attributed to an increase in subcontractor expenses.
Selling and marketing. Our selling and marketing expenses consist primarily of salaries and substantially all of the expenses of our sales and marketing subsidiaries and offices in the United States, South Africa and Europe, as well as expenses related to advertising, professional expenses and participation in exhibitions and tradeshows. The decrease of $360,000,$399,000, or 22%25%, in the three months ended March 31,September 30, 2019, compared to the three months ended March 31,September 30, 2018, is primarily attributed to a decrease in employmentmarketing and advertising expenses and to a lesser extent to a decrease in marketing and advertisingemployment expenses.
General and administrative. Our general and administrative expenses consist primarily of salaries and related expenses of our executive management and financial and administrative staff. These expenses also include costs of our professional advisors (such as legal and accounting), office expenses insurance, provision for doubtful accounts and patent maintenance expenses which consist of professional advisors of our patents and other IP.insurance. Our general and administrative expenses in the three months ended March 31,September 30, 2019, compared to the three months ended March 31,September 30, 2018, increase of $58,000 or 6%, is primarily attributed due to an increase in professional expenses.a capital gain from the sale of a building by our South African subsidiary.
6Other (gain) expenses, net. Our other (gain) expenses, net, are primarily attributed to a capital gain from the sale of a building by our South African subsidiary.
Financing expenses, net
Our financing expenses, net, forin the three months ended March 31,September 30, 2019 and March 31,September 30, 2018, were as follows (in thousands):
Three months ended March 31, | ||||||||
2019 | 2018 | |||||||
Financing expenses, net | $ | (69 | ) | $ | (32 | ) |
Three months ended September 30, | ||||||||
2019 | 2018 | |||||||
Financing expenses, net | $ | (93 | ) | $ | (2 | ) |
Financing expenses net consist primarily of financing expense related to interest payable on bank loans, bank commissions and foreign exchange differentials, partially offset by financinglosses. Financing income related toconsists primarily of foreign exchange gains and interest earned on investments in short-term deposits. The increasedecrease in financing expenses, net of $37,000, or 116%, in the three months ended March 31,September 30, 2019, compared to the three months ended March 31,September 30, 2018, of $91,000, is mainly dueattributed to an exchange rate differential, partially offset by a decrease in interest expenses.differentials.
Net loss from continuing operations
Our net loss from continuing operations forin the three months ended March 31,September 30, 2019 and March 31,September 30, 2018, was as follows (in thousands):
Three months ended March 31, | ||||||||
2019 | 2018 | |||||||
Net loss from continuing operations | $ | (1,552 | ) | $ | (400 | ) |
Three months ended September 30, | ||||||||
2019 | 2018 | |||||||
Net loss from continuing operations | $ | (1,174 | ) | $ | (226 | ) |
The increasedecrease in ourthe net lossfrom continuing operations of $1.2 million, or 288%,$948,000, in the three months ended March 31,September 30, 2019, compared to the three months ended March 31,September 30, 2018, is mainly due to a decrease in our sales, and a decrease in our gross profit, partially offset by a decrease in our operating expenses, as described above.
Net loss(loss) income from discontinued operations
Our net loss(loss) income from discontinued operations forin the three months ended March 31,September 30, 2019 and March 31,September 30, 2018, was as follows (in thousands):
Three months ended March 31, | ||||||||
2019 | 2018 | |||||||
Net (loss) income from discontinued operations | $ | (193 | ) | $ | 67 |
Three months ended September 30, | ||||||||
2019 | 2018 | |||||||
Net (loss) income from discontinued operations | $ | (36 | ) | $ | 42 |
The results from these operations for the reporting periods are presented in the statements of operations as discontinued operations separately from continuing operations. The change of $78,000 in the three months ended September 30, 2019, compared to the three months ended September 30, 2018, is mainly due to income related to the MediSmart activity in 2018.
Net loss
Our net loss in the three months ended September 30, 2019 and September 30, 2018, was as follows (in thousands):
Three months ended September 30, | ||||||||
2019 | 2018 | |||||||
Net (loss) income | $ | (1,210 | ) | $ | (184 | ) |
The increase in net loss of $1.0 million in the three months ended September 30, 2019, compared to the three months ended September 30, 2018, is primarily due to a decrease in our sales, partially offset by a decrease in our operating expenses, as described above.
Nine months ended September 30, 2019, compared to the nine months ended September 30, 2018
Sources of Revenue
During the nine months ended September 30, 2019 and September 30, 2018, the revenues that we derived from sales and licensing and transaction fees were as follows (in thousands):
Nine months ended September 30, | ||||||||
2019 | 2018 | |||||||
Sales | $ | 7,286 | $ | 13,353 | ||||
Licensing and transaction fees | $ | 3,708 | $ | 3,997 | ||||
Total revenues | $ | 10,994 | $ | 17,350 |
Sales. Sales decreased by $6.0 million, or 45%, in the nine months ended September 30, 2019, compared to the nine months ended September 30, 2018. The decrease is mainly attributed to a decrease in sales of readers and Petroleum products in the United States and to sales in Japan.
Licensing and transaction fees. Our licensing and transaction fees in the nine months ended September 30, 2019, compared to the nine months ended September 30, 2018, decreased by $289,000, or 7%. The decrease is mainly attributed to a decrease in our licensing and transaction fees in Europe.
We have historically derived revenues from different geographical areas. The following table sets forth our revenues (in thousands) and as a percentage of revenues in different geographical areas, in the nine months ended September 30, 2019 and September 30, 2018:
Nine months ended September 30, | Africa | Europe | APAC | Americas | ||||||||||||||||||||||||||||
2019 | $ | 1,527 | 14 | % | $ | 5,633 | 51 | % | $ | 880 | 8 | % | $ | 2,954 | 27 | % | ||||||||||||||||
2018 | $ | 1,859 | 11 | % | $ | 6,313 | 36 | % | $ | 2,794 | 16 | % | $ | 6,384 | 37 | % |
Our revenues from sales in Africa decreased by $332,000, or 18%, in the nine months ended September 30, 2019, compared to the nine months ended September 30, 2018, mainly due to a decrease in sales of Petroleum products.
Our revenues from sales in Europe decreased by $680,000, or 11%, in the nine months ended September 30, 2019, compared to the nine months ended September 30, 2018, mainly due to a decrease in our licensing and transaction fees and to a lesser extent to a decrease in sales of readers.
Our revenues from sales in APAC decreased by $1.9 million, or 69%, in the nine months ended September 30, 2019, compared to the nine months ended September 30, 2018, mainly due to a decrease in sales in the Japanese market.
Our revenues from sales in Americas decreased by $3.4 million, or 54%, in the nine months ended September 30, 2019, compared to the nine months ended September 30, 2018, mainly due to a decrease in sales of readers to the U.S. market that we believe was derived from new tariffs that were presented by the U.S. administration on goods imported from China to the U.S. market and to a decrease in sales of Petroleum products in Americas. As a result of the above mentioned tariffs, we have relocated our production from China to the Philippines.
Our revenues derived from outside the United States are primarily received in currencies other than the U.S. dollar and accordingly have a varying impact upon our total revenues as a result of fluctuations in exchange rates.
The following table sets forth our revenues (in thousands) and as a percentage of revenues by segments, during the nine months ended September 30, 2019 and September 30, 2018:
Nine months ended September 30, | Retail and Mass Transit Ticketing | Petroleum | |||||||||||||||
2019 | $ | 8,605 | 78 | % | $ | 2,389 | 22 | % | |||||||||
2018 | $ | 13,407 | 77 | % | $ | 3,943 | 23 | % |
Our revenues from Retail and Mass Transit Ticketing in the nine months ended September 30, 2019, decreased by $4.8 million, or 36%, compared to the nine months ended September 30, 2018, mainly attributed to a decrease in sales of readers in the United States and a decrease in sales in Japan.
Our revenues in the nine months ended September 30, 2019, from Petroleum decreased by $1.6 million, or 39%, compared to the nine months ended September 30, 2018, mainly due to a decrease in Petroleum products in the United States.
Cost of Revenues and Gross Margin
Our cost of revenues, presented by gross profit and gross margin percentage, in the nine months ended September 30, 2019 and September 30, 2018, were as follows (in thousands):
Cost of revenues | Nine months ended September 30, | |||||||
2019 | 2018 | |||||||
Cost of sales | $ | 5,273 | $ | 8,351 | ||||
Gross profit | $ | 5,721 | $ | 8,999 | ||||
Gross margin percentage | 52 | % | 52 | % |
Cost of sales. The decrease of $3.1 million, or 37%, in the nine months ended September 30, 2019, compared to the nine months ended September 30, 2018, resulted primarily from a decrease in sales.
Gross margin.Our gross margin in the nine months ended September 30, 2019, compared to the nine months ended September 30, 2018, remained consistent.
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Operating expenses
Our operating expenses in the nine months ended September 30, 2019 and September 30, 2018, were as follows (in thousands):
Operating expenses | Nine months ended September 30, | |||||||
2019 | 2018 | |||||||
Research and development | $ | 2,528 | $ | 2,391 | ||||
Selling and marketing | $ | 3,798 | $ | 4,700 | ||||
General and administrative | $ | 3,081 | $ | 3,001 | ||||
Other (gain) expenses, net | $ | (335 | ) | $ | 70 | |||
Total operating expenses | $ | 9,072 | $ | 10,162 |
Research and development. The increase of $137,000, or 6%, in the nine months ended September 30, 2019, compared to the nine months ended September 30, 2018, is primarily attributed to an increase in subcontractor expenses, partially offset by a decrease in employment expenses.
Selling and marketing. The decrease of $902,000, or 19%, in the nine months ended September 30, 2019, compared to the nine months ended September 30, 2018, is primarily attributed to a decrease in employment expenses and to a lesser extent to a decrease in marketing and advertising expenses.
General and administrative. Our general and administrative expenses in the nine months ended September 30, 2019, compared to the nine months ended September 30, 2018, remained consistent.
Other (gain) expenses, net. The change of $405,000 in the nine months ended September 30, 2019, compared to the nine months ended September 30, 2018, is mainly due to a capital gain from the sale of a building by our South African subsidiary.
Financing expenses, net
Our financing expenses, net, in the nine months ended September 30, 2019 and September 30, 2018, were as follows (in thousands):
Nine months ended September 30, | ||||||||
2019 | 2018 | |||||||
Financing expenses, net | $ | (199 | ) | $ | (129 | ) |
The increase of financing expenses, net in the nine months ended September 30, 2019, compared to the nine months ended September 30, 2018, of $70,000, or 54%, is mainly attributed to exchange rate differentials, partially offset by a decrease in interest expenses of our short-term and long-term bank loans.
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Net loss from continuing operations
Our net lossfrom continuing operations in the nine months ended September 30, 2019 and September 30, 2018, was as follows (in thousands):
Nine months ended September 30, | ||||||||
2019 | 2018 | |||||||
Net loss from continuing operations | $ | (3,575 | ) | $ | (1,025 | ) |
The increase in net loss from continuing operations of $2.6 million, or 249%, in the nine months ended September 30, 2019, compared to the nine months ended September 30, 2018, is mainly due to a decrease in our sales, partially offset by a decrease in our operating expenses, as described above.
Net (loss) income from discontinued operations
Our net (loss) income from discontinued operations in the nine months ended September 30, 2019 and September 30, 2018, was as follows (in thousands):
Nine months ended September 30, | ||||||||
2019 | 2018 | |||||||
Net (loss) income from discontinued operations | $ | (279 | ) | $ | 228 |
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 $260,000$507,000 in the threenine months ended March 31,September 30, 2019, compared to the threenine months ended March 31,September 30, 2018 is mainly due to income relatedattributed to the MediSmart activity in 2018 and in a lesser amount expenses related to SmartID divestiture in 2019.
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Net lossincome
Our net loss forincome in the threenine months ended March 31,September 30, 2019 and March 31,September 30, 2018, was as follows (in thousands):
Three months ended March 31, | ||||||||
2019 | 2018 | |||||||
Net loss | $ | (1,745 | ) | $ | (333 | ) |
Nine months ended September 30, | |||||||
2019 | 2018 | ||||||
Net (loss) income | $ | (3,854) | $ | (797) |
The increase in net loss of $1.4$3.1 million, or 424%, in the threenine months ended March 31,September 30, 2019, compared to the threenine months ended March 31,September 30, 2018, is primarily due to a decrease in our sales a decrease in our gross profit and an increase in net loss from discontinued operations, partially offset by a decrease in our operating expenses, as described above.
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Liquidity and Capital Resources
Our principal sources of liquidity since our inception have been sales of our products and services, sales of equity securities, borrowings from banks, cash from the exercise of options and warrants and proceeds from divestiture of partparts of our businesses. As of March 31, 2019, weWe had cash, cash equivalents and short-term investments representing bank deposits of $4.9$5.3 million as of September 30, 2019 (of which an amount of $105,000 has been pledged as security in respect of performance guarantees granted to third parties, loans and credit lines received from a bank), and $5.9 million as of December 31, 2018 (of which an amount of $278,000 had then been pledged as security in respect of performance guarantees granted to third parties, loans and credit lines received from a bank). We believe that we have sufficient capital resources to fund our operations for at leastin the next 12 months. We are looking for additional resources of capital, including investment in our equity securities and loans, to finance our operations. As of March 31,September 30, 2019, our long-term bank loans are denominated in the following currencies: Polish Zloty ($138,000, with maturity dates during 2019) and South African Rand ($40,000,26,000, with maturity dates ranging from 2019 through 2023). As of March 31, 2019, these loans bear weighted average annual interest of 4.66%.
In March 2019, OTI Petrosmart (Pty), Ltd., our South African subsidiary, or Petrosmart, entered into an agreement pursuant to which Petrosmart willagreed to sell its head office in Cape Town, South Africa, to a third party for a consideration of Rand 15,500,000 (approximately $1,064,000)$1.1 million), that will be received on the date of the sale, and Petrosmart willagreed to lease back this building for its current operations. Subject to the fulfillment of certain conditions, theThe sale is expected to bewas completed, and the operating lease is expected to commence on July 1,commenced during the third quarter of 2019.
TheOur composition of our long-term loans as of March 31,September 30, 2019, was as follows (in thousands):
March 31, 2019 | September 30, 2019 | |||||||
Long-term loans | $ | 178 | $ | 34 | ||||
Less - current maturities | 146 | 8 | ||||||
$ | 32 | $ | 26 |
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. OurAs of September 30, 2019, our short-term deposits in the amount of $105,000 have been pledged as security in respect of guarantees granted to third parties, loans and credit lines received from a bank. Such deposits cannot be pledged to others or withdrawn without the consent of the bank.
As of March 31,September 30, 2019, we granted guarantees to third parties including performance guarantees and guarantees to secure customer advances in the sum of $271,000.$387,000. The expiration dates of the guarantees range from April 20192020 to June 2019.September 2021.
For the three months ended March 31, 2019, we had a positive cash flow from continuing operations of $186,000.
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Operating activities related to continuing operations
For the threenine months ended March 31,September 30, 2019, net cash provided byused in continuing operating activities was $186,000$1.9 million, primarily due to a $1.6 million net loss from continuing operations,$879,000 increase in inventory, a $1.3$585,000 decrease in other current liabilities, a $328,000 gain on sale of property and equipment, a $48,000 decrease in accrued interest and a $25,000 decrease in deferred tax liability, partially offset by a $1.6 million decrease in trade receivables, a $457,000 increase in inventory,$951,000 of depreciation expenses, a $423,000$506,000 increase in trade payables, a $320,000 of depreciation and amortization, a $264,000$395,000 decrease in other receivables and prepaid expenses, a $186,000 decrease in other current liabilities, a $46,000$96,000 expense due to stock basedstock-based compensation issued to employees and others, a $29,000 increase$66,000 change in accrued severance pay, a $12,000 decrease in accrued interest and linkage differences, a $10,000 decrease in deferred tax liability and a $2,000 gain on sale of property and equipment.net.
For the threenine months ended March 31,September 30, 2018, net cash provided by continuing operating activities was $591,000$56,000, primarily due to a $886,000$1.4 million decrease in trade receivables, a $400,000 net loss from continuing operations, a $335,000$978,000 of depreciation expenses and amortization, a $124,000$180,000 expense due to stock-based compensation issued to employees, partially offset by a $381,000 increase in inventory, a $360,000 decrease in deferred tax liability, a $117,000$263,000 decrease in trade receivables,payables, a $53,000 expense due to stock based compensation issued to employees and others, a $51,000 decrease in other current liabilities, $35,000$255,000 increase in inventory, a $33,000 decrease in other receivables and prepaid expenses, a $14,000 increase$151,000 decrease in accrued interestother current liabilities, a $25,000 gain on sale of property and linkage differences,equipment anda $3,000 increase$19,000 change in accrued severance pay.pay, net.
Operating activities related to discontinued operations
For the threenine months ended March 31,September 30, 2019, net cash used in discontinued operating activities was $1.2$1.4 million, mainly related to the dispute regarding Merwell Inc. related to the SmartID division.
For the threenine months ended March 31,September 30, 2018, net cash provided by discontinued operating activities was $244,000,$836,000, related to the Medismart activity.SmartID division and previous parking business.
Investing and financing activities related to continuing operations
For the threenine months ended March 31,September 30, 2019, net cash used in continuing investing activities was $137,000,$455,000, mainly due to $115,000$978,000 in proceeds of short-term investments, $433,000 of purchases of property and equipment and a $48,000$156,000 investment in capitalized product costs, partially offset by $10,000 in proceeds from restricted deposit for employee benefits, $10,000$1.1 million in proceeds from the sale of property and equipment and a $6,000 net change$10,000 in short-term investments.proceeds from restricted deposits for employee benefits.
For the threenine months ended March 31,September 30, 2018, net cash provided by continuing investing activities was $829,000,$696,000, mainly due to a $1.1$1.2 million net changeof short-term investments, $52,000 in short-term investments,proceeds from the sale of property and equipment and $8,000 in proceeds from restricted deposits for employee benefits, partially offset by $322,000 of$467,000 purchases of property and equipment and a $13,000$92,000 investment in capitalized product costs.
For the threenine months ended March 31,September 30, 2019, net cash provided by continuing financing activities was $253,000,$2.4 million, mainly due to a $372,000$2.6 million increase in short-term bank credit, net, partially offset by a $119,000 repayment of $261,000 of long-term bank loans.
For the threenine months ended March 31,September 30, 2018, net cash used in continuing financing activities was $111,000,$4.4 million, mainly due to a $144,000$3.4 million decrease in short-term bank credit and a repayment of $979,000 of long-term bank loans, partially offset by a $33,000 increase in short-term bank credit, net.proceeds of $34,000 from the exercise of options.
In addition, on May 24, 2019, ASEC S.A. (Spolka Akcyjna), or, the Subsidiary, a wholly-owned Polish subsidiary of the Company, entered into a loan agreement, or the Agreement, with PKO Bank Polski, a Polish bank, or the Lender. The Agreement provides that the Lender will grant an overdraft facility to the Subsidiary in the amount of $2,000,000, or the Loan Commitment. On May 24, 2019, or, the Lender loaned to the Subsidiary the full amount of the Loan Commitment, secured by certain assets of the Subsidiary, or the Secured Loan. The Secured Loan matures on May 23, 2020. The Secured Loan will be payable in full on maturity (with option of early repayment from the Subsidiary side) and the interest will be paid on a monthly basis. The Secured Loan bears interest at an annual interest rate based on 1-month LIBOR plus a margin of 1.8%, or currently approximately 3.8% in total. The Agreement includes customary events of default, including, among others, failures to repay any amounts due to the Lender, breaches or defaults under the terms of the Agreement, etc. If an event of default occurs, the Lender may reduce the amount of the Secured Loan, demand an additional security or terminate the Agreement.
Investing and financing activities related to discontinued operations
We had no cash flows provided by or used in discontinued investing or financing activities in the threenine months ended March 31,September 30, 2019 and March 31,September 30, 2018.
Off Balance Sheet Arrangements
We have no off balanceoff-balance sheet arrangements.
Item 4. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures -Our 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 (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 to ensure that information required to be disclosed in the reports that we file under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC and that such information was made known to our management, including our CEO and CFO, by others within the Company, as appropriate to allow timely decisions regarding required disclosure. We evaluated these disclosure controls and procedures under the supervision of our CEO and CFO as of March 31,September 30, 2019. Based upon that evaluation, our management, including our CEO and CFO, concluded that our disclosure controls and procedures are 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 quarter ended March 31,September 30, 2019 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
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In 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 cash and an additional $12,500,000 subject to performance-based milestones. On April 20, 2016, the purchaser of the Smart ID division, SuperCom Ltd., or SuperCom, and we entered into a settlement agreement resolving certain 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, or 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. On February 7, 2019, SuperCom filed an application toAs of the District Court in Tel Aviv to canceldate hereof, the said arbitration decisionverdict has been validated as a court verdict, and we submitted a responsethe Company is currently taking actions to the application on March 19, 2019.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 other 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 February 21, 2016, awarding Merwell $854,912 for outstanding commissions.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, or the Arbitration, to collect from SuperCom the amount paid to Merwell which SuperCom failed to pay.pay, and to assure that SuperCom will pay any additional amounts, if required in the future. On March 26, 2019, SuperCom filed a petition to the Tel-Aviv District Court, asking to order that the dispute will be conducted in Court and not in arbitration. On October 29, 2019, a hearing was conducted in court regarding SuperCom’s petition, and at the end of the hearing, following the court’s recommendation, SuperCom agreed to withdraw its petition. As a result, the court gave a verdict ordering that the Arbitration will continue. On the same day, the Company approached the arbitrator, asking to renew the Arbitration, and on October 30, 2019 the arbitrator scheduled a preliminary hearing.
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 $1,618,792. 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, but only in court, since the relevant data is held by SuperCom, who is not a party to the arbitration agreement with Merwell, but issued the licenses in the relevant period and therefore is a necessary party to the dispute. The Company filed an application to the arbitrator, and on August 8, 2019, the arbitrator determined that the Company’s procedural claims should be heard and determined in court. Following that decision, on September 8, 2019, the Company filed a petition to the Tel-Aviv District Court, asking it to order that Merwell’s claims in the complementary procedure will be heard in court and not in arbitration. On October 22, 2019, Merwell submitted its response to the court. As of the date of this report, a hearing in the petition has not yet scheduled.
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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
In February 2019, the Company issued to MZHCI LLC 30,000 Ordinary Shares of the Company for fully performed services provided to the Company. We issued these shares pursuant to an exemption from registration contained in Section 4(a)(2) of the Securities Act of 1933, as amended.
As reported on the Company’s Current Report on Form 8-K filed on September 30, 2019, the proposal to amend the Amended and Restated Compensation Policy of the Company, or the Compensation Policy, was not approved by the general meeting of shareholders of the Company, or the General Meeting, as the proposal did not receive the requisite majority required under the Israeli Companies Law, or the Companies Law. Notwithstanding the above, under the Companies Law, the board of directors of a company has the right to overrule the resolution of the general meeting of the company’s shareholders to not approve proposed changes to the company’s compensation policy, if certain conditions are being met. Accordingly, and pursuant to the Companies Law, on November 5, 2019, the Company’s board of directors, or the Board, approved the same proposed amendments to the Compensation Policy, as were included in the Company’s Definitive Proxy Statement filed on August 23, 2019. Prior to such approval, the Compensation Committee of the Company and thereafter the Board, discussed the suggested amendments to the Compensation Policy, and determined that notwithstanding the outcome of the General Meeting, the approval of the amendments to the Compensation Policy is in the Company’s best interest.
* Filed herewith.
** Furnished herewith.
* | Filed herewith. |
** | Furnished herewith. |
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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.
ON TRACK INNOVATIONS LTD. | ||||
By: | /s/ Assaf Cohen | |||
Assaf Cohen, Interim Chief Executive Officer and Chief Financial Officer | ||||
(Principal Executive Officer and Principal Financial and Accounting Officer) | ||||
Dated: |
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