The accompanying notes are an integral part of these interim unaudited condensed consolidated financial statements.

~~The accompanying notes are an integral part of these interim unaudited condensed consolidated financial statements.~~

The accompanying notes are an integral part of these interim unaudited condensed consolidated financial ~~statements~~statements.

~~The accompanying notes are an integral part of these interim unaudited condensed consolidated financial statements.~~

~~F-5~~

~~On Track Innovations Ltd.~~

~~and its Subsidiaries~~

~~Interim Unaudited Condensed Consolidated Statements of Changes in Equity~~

~~US dollars in thousands except 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, 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

Balance as of June 30, 2020 55,003,076 $ 1,423 $ 227,170 $ (2,000 ) $ (1,127 ) $ (218,624 ) $ 6,842

Changes during the three months period ended September 30, 2020:

Stock-based compensation - - 13 - - - 13
Foreign currency translation adjustments - - - - 76 - 76
Net loss - - - - - (1,621 ) (1,621 )
Balance as of September 30, 2020 55,003,076 $ 1,423 $ 227,183 $ (2,000 ) $ (1,051 ) $ (220,245 ) $ 5,310

~~F-6~~

~~On Track Innovations Ltd.~~

~~and its Subsidiaries~~

~~Interim Unaudited Condensed Consolidated Statements of Changes in Equity~~

~~US dollars in thousands except number of shares~~

Accumulated
Additional Treasury other
Number of Share paid-in Shares comprehensive Accumulated Total
Shares issued capital capital (at cost) Income (loss) deficit equity

Balance as of December 31, 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 30,000 (*) 1 95 - - - 96
Foreign currency translation adjustments - - - - (216 ) - (216 )
Net loss - - - - - (3,854 ) (3,854 )
Balance as of September 30, 2019 42,503,076 $ 1,069 $ 225,117 $ (2,000 ) $ (1,172 ) $ (214,797 ) $ 8,217

Balance as of December 31, 2019 47,963,076 $ 1,226 $ 225,970 $ (2,000 ) $ (974 ) $ (216,832 ) $ 7,390

Changes during the nine month period ended September 30, 2020:
Issuance of shares, net of issuance costs of $39 7,040,000 (**) 197 1,172 - - - 1,369
Stock-based compensation - - 41 - - - 41
Foreign currency translation adjustments - - - - (77 ) - (77 )
Net loss - - - - - (3,413 ) (3,413 )
Balance as of September 30, 2020 55,003,076 $ 1,423 $ 227,183 $ (2,000 ) $ (1,051 ) $ (220,245 ) $ 5,310

(*)

~~See~~Reclassified to conform with the current period presentation, see Note ~~10D.~~

~~(**)~~

~~See Note 10A.~~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~~

Interim Unaudited Condensed Consolidated Statements of Changes in Equity

US dollars in thousands

Nine months ended
September 30,
2020 2019
Cash flows from continuing operating activities
Net loss from continuing operations $ (3,288 ) $ (3,575 )
Adjustments required to reconcile net loss to net cash used in provided by continuing operating activities:
Stock-based compensation related to options and shares issued to employees and others 41 96
Accrued interest and linkage differences, net (102 ) (48 )
Depreciation and amortization 924 951
Deferred tax benefits, net (107 ) (25 )
Gain on sale of property and equipment - (328 )

Changes in operating assets and liabilities:
Change in accrued severance pay, net 21 66
(Increase) decrease in trade receivables, net (401 ) 1,576
Decrease in other receivables and prepaid expenses 610 395
Increase in inventories (48 ) (879 )
Increase in trade payables 204 506
Decrease in other current liabilities (244 ) (585 )
Net cash used in continuing operating activities (2,390 ) (1,850 )

Cash flows from continuing investing activities

Purchase of property and equipment and intangible assets (994 ) (589 )
Proceeds from sale of property and equipment - 1,102
Change in short-term investments, net 1,715 (978 )
Proceeds from restricted deposit for employee benefits - 10
Net cash provided by (used in) continuing investing activities 721 (455 )

Cash flows from continuing financing activities
Increase in short-term bank credit, net 161 2,636
Proceeds from long-term bank loans 799 -
Repayment of long-term bank loans (8 ) (261 )
Proceeds from issuance of shares, net of issuance costs 1,369 -
Net cash provided by continuing financing activities 2,321 2,375

Cash flows from discontinued operations
Net cash used in discontinued operating activities (572 ) (1,397 )

Total net cash used in discontinued operations (572 ) (1,397 )

Effect of exchange rate changes on cash and cash equivalents (45 ) (277 )

Increase (decrease) in cash, cash equivalents and restricted cash 35 (1,604 )

Cash, cash equivalents and restricted cash - beginning of the period 2,648 5,105

Cash, cash equivalents and restricted cash - end of the period $ 2,683 $ 3,501

	Number of				Additional		Treasury			Accumulated other comprehensive
	Shares		Share		paid-in		Shares			Income			Accumulated			Total
	issued		capital		capital		(at cost)			(loss)			deficit			equity
Balance as of December 31, 2019		47,963,076	$	1,226	$	225,970	$	(2,000	)	$	(974	)	$	(216,832	)	$	7,390

Changes during the three month period ended March 31, 2020:

Issuance of shares, net of issuance costs of $8		1,040,000		30		170		-			-			-			200
Stock-based compensation		-		-		12		-			-			-			12
Foreign currency translation adjustments		-		-		-		-			(294	)		-			(294	)
Net loss		-		-		-		-			-			(669	)		(669	)
Balance as of March 31, 2020		49,003,076	$	1,256	$	226,152	$	(2,000	)	$	(1,268	)	$	(217,501	)	$	6,639

Balance as of December 31, 2020		55,003,076	$	1,423	$	227,209	$	(2,000	)	$	(961	)	$	(222,965	)	$	2,706

Changes during the three month period ended March 31, 2021:

Classification of embedded derivative from liability to equity (*)		-		-		3,566		-			-			-			3,566
Stock-based compensation		-		-		14		-			-			-			14
Foreign currency translation adjustments		-		-		-		-			(137	)		-			(137	)
Net loss		-		-		-		-			-			(3,161	)		(3,161	)
Balance as of March 31, 2021		55,003,076	$	1,423	$	230,789	$	(2,000	)	$	(1,098	)	$	(226,126	)	$	2,988

(*)

See Note 5

The accompanying notes are an integral part of these interim unaudited condensed consolidated financial statements.

~~F-8~~

On Track Innovations Ltd.

and its Subsidiaries

Interim Unaudited Condensed Consolidated Statements of Cash Flows ~~(cont’d)~~

US dollars in thousands

Nine months ended
September 30,
2020 2019
Supplementary cash flows activities:

Cash paid during the period for:
Interest paid $ 64 $ 44
Income taxes paid $ 41 $ 187
Income tax refund received $ 83 -
Supplemental disclosures of non-cash flow information:
Payables due to purchase of property and equipment and intangible assets $ 92 $ -

	Three months ended March 31
		2021			(*) 2020
Cash flows from continuing operating activities
Net loss from continuing operations	$	(2,743	)	$	(576	)
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		14			12
Accrued interest and linkage differences, net		(169	)		(156	)
Transaction expenses related to convertible short-term loan received from shareholders		10			-
Loss from change in fair value of embedded derivative		1,974			-
Depreciation and amortization		100			108
Deferred tax benefits, net		(13	)		(11	)
Changes in operating assets and liabilities:
Change in accrued severance pay, net		(13	)		(8	)
Increase in trade receivables, net		(764	)		(867	)
Decrease in other receivables and prepaid expenses		50			55
Decrease in inventories		110			386
(Decrease) increase in trade payables		(169	)		429
Increase in other current liabilities		152			596
Net cash used in continuing operating activities		(1,461	)		(32	)

Cash flows from continuing investing activities
Purchase of property and equipment and intangible assets		(29	)		(103	)
Change in short-term investments, net		-			1,509
Net cash (used in) provided by continuing investing activities		(29	)		1,406

Cash flows from continuing financing activities
(Decrease) increase in short-term bank credit, net		(1,160	)		111
Convertible short-term loan received from shareholders, net of transaction expenses		961			-
Repayment of long-term loans		(2	)		(5	)
Proceeds from issuance of shares, net of issuance costs		-			200
Net cash (used in) provided by continuing financing activities		(201	)		306

Net cash provided by (used in) discontinued operating activities		3			(1,434	)
Net cash provided by (used in) discontinued investing activities		2,091			(66	)
Net cash provided by discontinued financing activities		-			49
Total net cash provided by (used in) discontinued operations		2,094			(1,451	)

Effect of exchange rate changes on cash and cash equivalents		(98	)		(135	)

Increase in cash, cash equivalents and restricted cash		305			94
Cash, cash equivalents and restricted cash - beginning of the period (**)		2,499			2,648

Cash, cash equivalents and restricted cash - end of the period (**)	$	2,804		$	2,742

(*)

Reclassified to conform with the current period presentation, see Note 1C(2).

(**)

Including cash and cash equivalents from discontinued operations held for sale. See also Note 8.

The accompanying notes are an integral part of these interim unaudited condensed consolidated financial statements.

On Track Innovations Ltd.

~~F-9~~and its Subsidiaries

Interim Unaudited Condensed Consolidated Statements of Cash Flows (cont’d)

US dollars in thousands

	Three months ended March 31
	2021		2020
Supplementary cash flows activities:
Cash paid during the period for:
Interest paid	$	(*) 22	$	23
Income taxes paid	$	-	$	(**) 31
Income tax refund received	$	6	$	-

(*)

Including $7 that derives from discontinued operations.

(**)

Derives from discontinued operations.

Supplemental disclosures of non-cash flow information
Payables due to transaction expenses related to convertible short-term loan received from shareholders	$	38	$	-
Payables due to purchase of property and equipment and intangible assets	$	30	$	62
Payables due to purchase of property and equipment and intangible assets from discontinued operations - held for sale	$	-	$	(*) 112
Classification of embedded derivative from liability to equity	$	3,566	$	-

(*)

Derives from discontinued operations

The accompanying notes are an integral part of these interim unaudited condensed consolidated financial statements.

On Track Innovations Ltd.

and Subsidiaries

Notes to the Interim Unaudited Condensed Consolidated Financial Statements

US dollars,NIS and Euro in thousands, except share and per share data

Note 1 - Organization and Basis of Presentation

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~~quoted for trading on the OTCQX market (formerly listed on the Nasdaq Capital Market until October 31, 2019).

At ~~September 30, 2020,~~March 31, 2021, the Company operates in two operating segments: (a) Retail, and (b) Petroleum (see Note 11). The Company completed the sale of its Mass Transit Ticketing ~~and (b) Petroleum. See Note 11. During December 2018,~~operation in April 2021, subsequent to the ~~Company sold its medical smart cards operation – see~~balance sheet date (see Note 1C(2)). The Company has determined that the sale of the Mass Transit Ticketing business qualifies as held for sale and as a discontinued operation as of March 31, 2021 and December 31, 2020. 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

Interim Unaudited Financial Information

The accompanying unaudited consolidated financial statements of the Company have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and with the instructions to Form 10-Q. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements and therefore should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2019.~~2020.

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 ~~nine month period and the~~ three month period ended ~~September 30, 2020~~March 31, 2021 are not necessarily indicative of the results that may be expected for the year ending December 31, ~~2020.~~2021.

Use of ~~Estimates:~~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)~~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.

On Track Innovations Ltd.

and Subsidiaries

Notes to the Interim Unaudited Condensed Consolidated Financial Statements

US dollars,NIS and Euro in thousands, except share and per share data

Note 1 - Organization and Basis of Presentation (cont’d)

Divestiture of operations

In December 2013, the Company completed the sale of certain assets, subsidiaries and intellectual property relating to its Smart ID division, for a total purchase price of $10,000 in cash and an additional $12,500 subject to performance-based milestones. Accordingly, the results and the cash flows of this operation for all reporting periods are presented in the statements of operations and in the statements of cash flows, respectively, as discontinued operations separately from continuing operations.

~~F-10~~

~~On Track Innovations Ltd.~~

~~and Subsidiaries~~

~~Notes to the Interim Unaudited Condensed Consolidated Financial Statements~~

~~US dollars, NIS and Euro in thousands, except share and per share data~~

~~Note 1 - Organization and Basis of Presentation (cont’d)~~

~~Divestiture of operations (cont’d)~~

~~(Cont’d)~~

On April 20, 2016, the purchaser of the Smart ID division, SuperCom Ltd. (“SuperCom”), and the Company entered into a settlement agreement resolving certain litigation between SuperCom and the Company pursuant to which SuperCom paid the Company $2,050 and agreed to pay the Company up to $1,500 in accordance with and subject to a certain earn-out mechanism. In November 2017, the Company commenced an arbitration procedure with SuperCom, in which the Company claims that additional earn-out payments have not been paid to the Company. SuperCom raised claims against the Company during the arbitration for material damages. An arbitration decision was issued on December 24, 2018 in the Company’s favor and denied SuperCom’s claims. The arbitrator ordered SuperCom to disclose the financial information regarding the earn-out payments that the Company is entitled to receive, and to pay the Company accordingly, or otherwise pay the Company approximately $1,300 that reflects the maximum earn-out amount that has not yet been paid to the Company by SuperCom. The arbitration verdict was approved as a court’s verdict in June 2019, but SuperCom failed to disclose the financial information in the way it should have done according to the arbitration decision. Therefore, in December 2019 the Company submitted a complementary claim to the arbitrator, asking for a final award that includes a final payment by SuperCom (as opposed to merely disclosing information). ~~A hearing~~On January 21, 2021, after conclusion of the evidence phase in ~~this procedure took place~~the arbitration, and after the Company already filed its summaries, SuperCom submitted new documents claiming that these include the missing financial information. Following the submission of these documents, on ~~August 18, 2020,~~February 9, 2021, the Company submitted an application claiming that implementing the contractual sanction mechanism on the amounts presented in these documents testifies to the Company’s entitlement to the maximum earn-out amount, and, therefore, the arbitrator is requested to order that the parties ~~are~~will complete their summaries and then a verdict will be given. On March 8, 2021, the arbitrator accepted the Company’s application and on April 11, 2021, the Company submitted complementary summaries. The Company is now ~~submitting written~~awaiting the submission of SuperCom’s summaries, ~~to be followed by an arbitration verdict.~~following which the Company may submit a response summary.

The Company records the earn-out payments only when the consideration is determined to be realizable. The Company did not record or receive any contingent consideration during the ~~nine~~three months ended ~~September 30, 2020~~March 31, 2021 and ~~2019.~~2020.

In December 2018, the Company completed the sale of its medical smart cards operation (“Medismart”) (formerly part of the Company’s “Other segment”) to Smart Applications International Limited for a total price of $2,750. The Company has determined that the sale of the Medismart business qualifies as a discontinued operation. Accordingly, the results and the cash flows of this operation for all reporting periods are presented in the statements of operations and in the statements of cash flows, respectively, as discontinued operations separately from continuing operations.

~~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
September 30, Nine months ended
September 30,
2020 2019 2020 2019
Revenues $ - $ - $ - $ -
Expenses (82 ) (36 ) (125 ) (279 )
Net loss from discontinued operations (82 ) (36 ) (125 ) (279 )

~~F-11~~

On Track Innovations Ltd.

and Subsidiaries

Notes to the Interim Unaudited Condensed Consolidated Financial Statements

US dollars,NIS and Euro in thousands, except share and per share data

Note 1 - Organization and Basis of Presentation (cont’d)

D.C.

Divestiture of operations (cont’d)

On March 29, 2021 the Company entered into an agreement (the “Sale Agreement”) for the sale of 100% of the issued and outstanding share capital of its wholly owned Polish subsidiary, ASEC S.A. (“ASEC”), with Vector Software SP. Z O.O. (the “Buyer”). ASEC is headquartered in Krakow, Poland, and has been conducting the Company’s Mass Transit Ticketing business in Europe.

The sale of ASEC was completed on April 21, 2021. The Company has determined that the sale of the Mass Transit Ticketing business qualifies as held for sale and as a discontinued operation as of March 31, 2021 and December 31, 2020. 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. In addition, assets and liabilities of the Polish subsidiary and assets and liabilities related to the Mass Transit Ticketing operation that have not yet been actually sold as of March 31, 2021, are presented as assets and liabilities held for sale in the balance sheets as of March 31, 2021 and December 31, 2020.

The consideration for ASEC after reduction of some working capital adjustments, as agreed in April 2021, is approximately $2,700, out of which: (I) approximately $2,100 (the “First Installment”), was transferred from the Buyer to ASEC at the end of March 2021 in order to repay Polish bank loans, out of which approximately $1,700 was repaid as of March 31, 2021 and a loan of approximately $400 was repaid at the beginning of April 2021. The First Installment is presented as held for sale in the balance sheet as of March 31, 2021, and as cash provided by discontinued investing activities in the statements of cash flows for the three months ended March 31, 2021; and (II) $600 (the “Net Consideration”) was paid by the Buyer to the Company in April 2021 and increased the Company’s financial resources. As of March 31, 2021, the Company recognized a loss from impairment of assets in amount of $29 that reflects the difference between the book value of ASEC’s assets, net of liabilities, and the Net Consideration.

The Sale Agreement contains customary representations and warranties, as well as covenants, including an undertaking the Company provided not to compete with the business of ASEC for a period of five years after the closing and an undertaking to indemnify ASEC and the Buyer for certain damages. The Company’s liability is limited to the purchase price actually paid by the Buyer.

Liquidity and Capital Resources

The Company has had recurring losses and has an accumulated deficit as of ~~September 30, 2020~~March 31, 2021 of ~~$220,245.~~$226,126. The Company also has a payable balance on its short-term ~~loan of $2,708 as of September 30, 2020~~bank loans, that is due within the next 12 ~~months.~~months, of $1,109 and a convertible short-term loan from shareholders of $1,600 (out of which only an amount of $8 is presented as liability), that, if not converted, would mature in the second quarter of 2021 (see also Note 5) as of March 31, 2021. This amount does not include short-term loans held for sale.

Since inception, the Company’s principal sources of liquidity have been revenues, proceeds from sales of equity securities (regarding to the issuance of shares during last two years, see Note 10), borrowings from banks, government and ~~government, cash~~shareholders, including convertible loans, proceeds from the exercise of options and warrants as well as proceeds from the divestiture of parts of the Company’s businesses. The Company had cash, cash equivalents and short-term investments representing bank deposits of ~~$3,183~~$1,084 (of which an amount of $105 has been pledged as security for certain items), excluding cash and cash equivalents held for sale, as of ~~September 30, 2020.~~ March 31, 2021.

On Track Innovations Ltd.

and Subsidiaries

Notes to the Interim Unaudited Condensed Consolidated Financial Statements

US dollars,NIS and Euro in thousands, except share and per share data

Note 1 - Organization and Basis of Presentation (cont’d)

Liquidity and Capital Resources (cont’d)

The recent deterioration in the coronavirus (“COVID-19”) pandemic situation in Poland ~~has~~ led to an almost complete stop to the Company’s Mass Transit Ticketing sales business, which negatively ~~impacting~~impacted the Company’s cash ~~flow. Based on~~flow since March 2020. On April 21, 2021, subsequent to the ~~projected cash flows and the Company’s cash balances as of September 30, 2020, the Company’s management is of the opinion that without further fund raising or other increase in its cash,~~balance sheet date, the Company ~~will~~completed the sale of ASEC, including its Mass Transit Ticketing activity - see Note 1C(2). Further, in December 2020 and January 2021, the Company borrowed a loan, in two tranches aggregating $1,600, from its controlling shareholder and another shareholder that, if not ~~have sufficient resources to enable it to continue its operations for a period~~converted, would mature in the second quarter of ~~at least the next 12 months. As a result, there is a substantial doubt regarding the Company’s ability to continue as a going concern.~~ 2021.

The Company’s management has taken cost reduction steps, including material reductions in the salaries of its management and ~~employees.~~employees, and has been working for the past few months on updating the Company’s strategy for the coming years in order to realize its potential, resume its growth, and ultimately create shareholder value. The Company is attempting to raise additional funds and to increase its cash. ~~While~~The Company commenced a rights offering in April 2021, which expires in May 2021 – See Note 10B. Based on the commitment letter of the Company’s ~~management believes~~controlling shareholder pursuant to which it committed to exercise its basic subscription rights as part of the rights offering and its over-subscription privilege for up to approximately $2,800 in ~~its ability to raise additional funds and increase its cash, there can be no assurances to that effect. The financial statements do not include any adjustments relating~~the aggregate, subject, however, to the ~~recoverability and classification of recorded assets and the amounts and classification of liabilities that might be necessary should~~limitations as mentioned in Note 10B, the Company ~~be unable to continue as a going concern.~~

~~As disclosed in Note 10A, during the first half of 2020~~believes that the Company ~~received funds~~has sufficient capital resources to fund its operations for at least the next 12 months. In addition, the Company engaged an investment bank to explore strategic options and is investing resources in ~~a total amount of $1,408 in consideration for the issuance of 7,040,000 ordinary shares, all in accordance with the terms and provisions of the Agreement (as defined in Note 10A below).~~this process.

In connection with the outbreak of ~~the Corona Virus (COVID-19) (“COVID-19”),~~COVID-19, the Company has taken steps to protect its workforce in Israel, the United States, Poland, South Africa and elsewhere. Such steps include ~~work~~working from home where possible, minimizing face-to-face meetings, ~~and~~ utilizing video conference as much as possible, social distancing at facilities and elimination of all international travel. The Company continues to comply with all local health directives.

So far, the main direct impact of the COVID-19 pandemic ~~has been~~was a decrease in the Company’s revenues derived from Mass Transit Ticketing ~~sales~~activity in the Polish market. The revenues from this operation, that were relatively stable during the year preceding the COVID-19 outbreak, decreased by ~~approximately $1,600~~$295 in the ~~nine month period ended September 30, 2020,~~first quarter of 2021 compared to the ~~nine month period ended September 30, 2019,~~first quarter of 2020, mainly due to ~~the lockdown~~lockdowns and other restrictions and consequences of the COVID-19 as started in March 2020. ~~This impact is expected to continue for~~On April 21, 2021, the ~~foreseeable future. In addition, recently,~~Company sold ASEC, including its Mass Transit Ticketing activity, as ~~a result of COVID-19, some~~mentioned above. The results, including the revenues, and the cash flows of the ~~Company’s customers have delayed issuance of orders~~Mass Transit Ticketing operation for all reporting periods are presented in the ~~Company’s pipeline~~statements of operations and ~~cancelled a few other orders, which reduced its pipeline. As a response to this effect,~~in the ~~Company has taken steps to reduce some costs that are not essential under the current circumstances.~~statements of cash flows, respectively, as discontinued operations separately from continuing operations.

Another impact of COVID-19 has been on product delivery, where components’ procurement lead time is longer and a shortage in components has grown as the duration of the COVID-19 pandemic has continued. As long as the COVID-19 pandemic continues, the components’ lead time may be longer than normal and shortage in components may continue or get worse. Therefore, the Company maintains a comprehensive network of world-wide suppliers.

~~F-12~~

~~On Track Innovations Ltd.~~

~~and Subsidiaries~~

~~Notes to the Interim Unaudited Condensed Consolidated Financial Statements~~

~~US dollars, NIS and Euro in thousands, except share and per share data~~

~~Note 1 - Organization and Basis of Presentation (cont’d)~~

~~Liquidity and Capital Resources (cont’d)~~

Regarding the Company’s Petroleum activity, due to the extended lockdown in South Africa during the second quarter of 2020, some of the sales that were planned to occur by the end of June 2020 were postponed to the second half of 2020 and therefore caused a decrease in the revenues of the Petroleum segment in the nine month period ended September 30, 2020, compared to the nine month period ended September 30, 2019.

~~As for the Company’s Retail activity, the~~The Company has seen a higher interest from a growing number of potential customers and partners as they forecasted that the need for the Company’s products will grow, yet execution of closing is still slow due to the current business environment.

It is difficult to predict what other impacts the COVID-19 pandemic may have on the Company.

~~Regarding a consent that the Company’s Polish subsidiary received to postpone the maturity date of a secured bank loan,~~ On Track Innovations Ltd.

and ~~a long-term loan that it received as part of the Polish government assistance and regulations introduced in relation~~Subsidiaries

Notes to the ~~COVID-19, see Note 5.~~Interim Unaudited Condensed Consolidated Financial Statements

US dollars,NIS and Euro in thousands, except share and per share data

Note 2 – Significant Accounting Policies

~~These~~Except as described in Note 2A 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, ~~2019.~~

~~Recently Accounting Pronouncements~~2020.

1.A.

~~In June 2016,~~Recently Adopted Accounting Pronouncements

In December 2019, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, which simplifies the accounting for income taxes. This ASU, among other things, removes the exception to the incremental approach for intra-period allocation of tax expense when a company has a loss from continuing operations and income from other items that are not included in continuing operations, such as income from discontinued operations, or income recorded in other comprehensive income. The general rule under Accounting Standards Codification (“ASC”) 740-20-45-7 is that the tax effect of pretax income or loss from continuing operations should be determined by a computation that does not consider the tax effects of items that are not included in continuing operations. Previously, companies could consider the impact on a loss from continuing operations of items in discontinued operations or other comprehensive income. However, under the amended guidance, companies should not consider the effect of items outside of continuing operations in calculating the tax effect on continuing operations. The Company adopted ASU 2019-12 as of January 1, 2021. The adoption of this accounting standard did not have a material effect on our financial position, results of operations and cash flows.

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 the Company for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. Early adoption is permitted for fiscal years beginning after December 15, 2018. The Company currently does not expect the adoption of this accounting standard to have a material impact on its consolidated financial statements.

In ~~December 2019,~~August 2020, the FASB issued ASU ~~2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (ASU 2019-12), which~~2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40). This pronouncement simplifies the accounting for ~~income taxes. This~~certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts on an entity’s own equity. Specifically, the ASU ~~among other things,~~simplifies accounting for convertible instruments by removing major separation models required under current accounting standard. In addition, the ASU removes ~~the exception to the incremental approach for intraperiod allocation of tax expense when a company has a loss from continuing operations and income from other items~~certain settlement conditions that are ~~not included~~required for equity contracts to qualify for it and simplifies the diluted earnings per share calculations in continuing operations, such as income from discontinued operations, or income recorded in other comprehensive income. The general rule under Accounting Standards Update (“ASC”) 740-20-45-7 is that the tax effect of pretax income or loss from continuing operations should be determined by a computation that does not consider the tax effects of items that are not included in continuing operations. Previously, companies could consider the impact on a loss from continuing operations of items in discontinued operations or other comprehensive income. However, under the amendedcertain areas. This guidance ~~companies should not consider the effect of items outside of continuing operations in calculating the tax effect on continuing operations. The new standard~~ is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, ~~2020.~~2021. Early adoption is permitted ~~with the amendments to be applied on a retrospective, modified retrospective or prospective basis, depending on the specific amendment.~~for annual period beginning after December 15, 2020. The Company is currently evaluating the impact ~~of adopting~~that this ~~guidance.~~new guidance will have on its consolidated financial statements.

~~F-13~~

On Track Innovations Ltd.

and Subsidiaries

Notes to the Interim Unaudited Condensed Consolidated Financial Statements

US dollars,NIS and Euro in thousands, except share and per share data

Note 3 - Other Receivables and Prepaid Expenses

September 30, December 31,
2020 2019
Government institutions $ 239 $ 414
Prepaid expenses 173 224
Receivables under contractual obligations to be transferred to others (*) 274 330
Supplier advances 267 544
Other receivables 228 310
$ 1,181 $ 1,822

~~(*)~~

~~The Company’s subsidiary in Poland is required to collect certain fees that are to be transferred to local authorities.~~

	March 31		December 31
	2021		2020
Government institutions	$	43	$	104
Prepaid expenses		252		257
Suppliers advance		293		227
Other receivables		57		107
	$	645	$	695

Note 4 - Other Current Liabilities

	September 30,		December 31,		March 31		December 31
	2020		2019		2021		2020
Employees and related expenses	$	661	$	613	$	691	$	516
Accrued expenses		789		887		882		811
Customer advances		84		111		31		142
Short-term liabilities due to operating leases and current maturities		867		686		713		762
Other current liabilities		138		(*)757		30		52
	$	2,539	$	3,054	$	2,347	$	2,283

~~F-14~~

On Track Innovations Ltd.

and Subsidiaries

Notes to the Interim Unaudited Condensed Consolidated Financial Statements

US dollars,NIS and Euro in thousands, except share and per share data

Note 5 - ~~Short-term and long-term bank loans~~Convertible short-term loan from shareholders

On ~~May 11,~~December 9, 2020, ~~based on Polish government regulations introduced in relation~~the Company entered into a loan financing agreement (the “Loan Agreement”), with Jerry L. Ivy, Jr., Descendants’ Trust (“Ivy”, or the “Lender”), the Company’s Controlling Shareholder (as such term is defined under the Israeli Companies Law, 5759-1999, as amended (the “Companies Law”)). The Loan Agreement provides that the Lender will extend a loan to the ~~COVID-19 pandemic, ASEC S.A. (Spolka Akcyjna), the Polish subsidiary of the~~ Company ~~(hereinafter – “ASEC”), received the consent of PKO Bank Polski, a Polish bank (hereinafter – “the Lender”), to postpone the maturity date of a secured loan, provided to ASEC in May 2019,~~ in the amount of ~~$2,000,~~up to $1,500, payable in two tranches: one of $625 at the initial closing that took place on December 17, 2020, and the other of $875 at the second closing that took place on January 28, 2021. The amount lent under the Loan Agreement is secured pursuant to a debenture (the “Debenture”) by ~~six months~~a first priority floating charge over all the Company’s tangible or intangible assets and other property, the Company owns, subject only to ~~November 22, 2020, instead of May 23, 2020,~~certain permitted security interests, as set forth in Loan Agreement. The amount lent under the ~~loan agreement provided. On November 16, 2020, following ASEC’s request, ASEC received the consent of the Lender to further postpone the maturity date of the loan to December 22, 2020. The loan~~Loan Agreement and all accrued interest matures on June 17, 2021 (the “Maturity Date”), and will be payable in full on the Maturity Date, provided that the maturity ~~(with~~date can be extended by six months at the sole option of ~~early repayment~~Ivy. The amount lent bears interest on all outstanding principal at an interest rate of 8.0% per annum, or the Interest; provided, however, that upon an extension of the maturity period beyond the Maturity Date, the Interest will automatically increase, effective as of the Maturity Date, to the rate of 10.0% per annum. Also, in case of an extension of the Maturity Date, the accrued interest for the first six months for which the Loan Amount has been outstanding will be payable by ~~ASEC)~~the Company to the Lender at the time of the extension, and the ~~interest~~accrued Interest for the extension period will be payable by the Company on the extended maturity date. In addition, the Company may repay the amount lent, in whole and not in part, and any accrued Interest thereon, at any time prior to the Maturity Date (as it may be extended), in its sole discretion. On March 2, 2021, the Company obtained shareholders’ approval to the grant of ~~1-month LIBOR plus 1.8% is paid~~a right to Ivy, pursuant to which, at any time prior to the repayment in full of the amount lent, together with Interest accrued and all other amounts outstanding under the Agreement (the “Secured Amount”), Ivy will be entitled, at its sole discretion, to demand to convert (the “Conversion Right”) the entire Secured Amount into the Company’s Ordinary Shares, at a price per share equal to the lower of (a) $0.20 per share (subject to adjustment in the event of any bonus shares, combinations or splits) and (b) a price per share reflecting a discount to the average closing bid price of an Ordinary Share over the 20 trading days preceding the Initial Closing (the “Benchmark Price”) ($0.248), as follows: (i) if conversion occurs until March 17, 2021 (no later than three months after the initial closing), the conversion price per share will be $0.1984 (reflects discount of 20% of the Benchmark Price); (ii) if conversion occurs between March 18, 2021, and June 17, 2021 (more than three months but no later than six months after the initial closing), the conversion price per share will be $0.1736 (reflects discount of 30% of the Benchmark Price); (iii) if conversion occurs after June 17, 2021 (more than six months after the initial closing (to the extent extended in accordance with the terms of the Loan Agreement)), the conversion price per share will be $0.124 (reflects discount of 50% of the Benchmark Price); and (iv) if conversion occurs upon an event of default, the conversion price per share will be $0.124 (reflects discount of 50% of the Benchmark Price).

Pursuant to the Loan Agreement, the Conversion Right will become effective only following the approval thereof by the shareholders of the Company in accordance with the requirements of the Companies Law, which approval applies to a controlling shareholder transaction that includes a private offering that may increase the holdings of a controlling shareholder to and above 45% of the share capital of the Company, and will be deemed of no force or effect at any time prior to obtaining such Shareholders’ Approval, if at all. The Company obtained such shareholders’ approval on ~~a monthly basis.~~ March 2, 2021.

The ~~loan is secured by certain assets of ASEC. The loan agreement~~Loan Agreement includes customary events of default, including, among others, failures to repay any amounts due to the Lender, breaches or defaults under the terms of the ~~agreement,~~Agreement, etc. If an event of default occurs, the ~~Lender may reduce the amount of the loan, demand additional security or terminate the agreement. This loan is presented as a short-term bank loan within ‘current liabilities’.~~

As part of an additional Polish government assistance, in June 2020 ASEC received a long-term loan through another Polish bank in an amount of approximately $800, out of which approximately $100 is presented as a current maturity of long-term bank loan within ‘current liabilities’ and approximately $700 is presented as a long-term bank loan within ‘long-term liabilities’ The loan will be repaid in 24 monthly equal installments starting in July 2021. Depending on some scenarios, such as average number of employees and financial results, a portion of the loan may be forgiven. This loan is denominated in Polish Zloty and does not bear interest. In the event of breach by ASEC of any of the obligations, as mentioned in the loan agreement, the bank may terminate such agreement. In such a case, the long-term loanSecured Amount shall immediately become due and payable, ~~within 14 business days from receipt of~~without the need for any notice ~~of termination.~~

~~Note 6 - Leases~~by the Lender.

The Loan Agreement was subsequently amended to allow for an additional lender (“the additional lender”) to lend $100 under the same terms as Ivy. Accordingly, the aggregate gross amount the Company ~~leases a limited number of assets, mainly offices and cars for use in its operations. The Company adopted~~received under the ~~accounting standard ASC 842, “Leases”, and all the related amendments on January 1, 2019 and used the effective date as Company’s date of initial application.~~

As of September 30, 2020, right-of-use assets due to operating leases are $3,689 (as of December 31, 2019 - $2,134) and the liabilities due to operating leases are $3,669 (as of December 31, 2019 - $2,169),Loan Agreement is $1,600, out of which ~~$2,802 are classified~~$975 took place as ~~long-term liabilities and $867 are classified as current liabilities (see Note 4).~~part of the second closing on January 28, 2021.

The right-of-use assets and the liabilities due to operating leases as of September 30, 2020, include assets and liabilities in the amount of $1,696 and $1,704, respectively, that derive from the lease commencement of the headquarters office in Yokneam, Israel (in lieu of the previous leased headquarters building in Rosh Pina) in January 2020. The operating lease period of this office is five years (excluding the extension-period, as mentioned in the agreement). The total annual rent expenses of this building, including management fees and excluding construction costs-reimbursement payments, is approximately NIS 595 ($173) during the lease period and approximately NIS 654 ($190) during the extension-period, if extended. The construction costs-reimbursement payments are approximately NIS 2,913 ($847), out of which 50% will be paid during the lease period. If the Company leases this office during the extension-period of five years, the rest of the 50% costs-reimbursement payments will be paid during the extension-period. Otherwise, the rest of the 50% costs-reimbursement payments will be paid at the end of 2024.

~~F-15~~

On Track Innovations Ltd.

and Subsidiaries

Notes to the Interim Unaudited Condensed Consolidated Financial Statements

US dollars,NIS and Euro in thousands, except share and per share data

Note 65 - ~~Leases~~ Convertible short-term loan from shareholders (cont’d)~~(cont’d)~~

In accordance with ASC 815-15-25, Derivatives and Hedging, the conversion feature (“the conversion component”) was considered embedded derivative instrument. Since, as described above, the conversion component was required to be approved by the shareholders of the Company, the conversion component did not qualify for the scope exception under ASC 815-10-15-74(a). Therefore, the conversion component is to be recorded separately from the loan component. The conversion component is measured both initially and in subsequent periods until obtaining the shareholders’ approval of the Conversion Right, at fair value, with changes in fair value charged to finance expenses, net.

The ~~Company includes renewal options that it is reasonably certain to exercise~~fair value of the conversion component at the initial closing, December 17, 2020, was estimated using the Trinomial model based on the assumptions, as follows:

Expected volatility (%)	125.2	%
Risk-free interest rate (%)	0.09	%
Expected dividend yield	0	%
Contractual term (years)	0.500
Conversion price (US dollars per share)	0.124
Underlying Share price (US dollars per share)	0.220

Based on the Trinomial model, the fair value of the conversion component of the initial closing was $617 as of December 17, 2020. Accordingly, the loan component at the initial closing was $8 as of December 17, 2020.

There were no significant changes in the ~~measurement of the lease liabilities. The remaining operating lease periods of the leases range from less than one year to ten years~~model assumptions as of ~~September 30, 2020. The weighted average remaining lease term is 3.1 years~~December 31, 2020, compared to the assumptions as of ~~September 30,~~December 17, 2020, as mentioned above. Therefore, the conversion component and the loan component were $617 and $8, respectively, as of December 31, 2020. Both components were presented as Convertible short-term loan from a controlling shareholder within the short-term liabilities as of December 31, 2020.

The ~~following is a schedule~~fair value of the ~~maturities of operating lease liabilities for~~conversion component at the ~~next five years~~second closing, January 28, 2021, was estimated using the Trinomial model based on the assumptions, as ~~of September 30, 2020, and thereafter, as were taken into account in~~follows:

Expected volatility (%)	103.23	%
Risk-free interest rate (%)	0.075	%
Expected dividend yield	0	%
Contractual term (years)	0.386
Conversion price (US dollars per share)	0.124
Underlying Share price (US dollars per share)	0.240

Based on the ~~calculation~~Trinomial model, the entire proceeds of the ~~operating lease liabilities as~~second closing in amount of ~~September 30, 2020:~~

Remainder of 2020 $ 276
2021 1,052
2022 832
2023 522
2024 343
Thereafter 1,234
Total leases payments 4,259
Less - discount 590
Operating lease liabilities $ 3,669

~~As of September 30, 2020,~~$975 were allocated to the ~~weighted average discount rate~~conversion component and the residual balance of the ~~operating leases is approximately 5%.~~

~~Operating lease costs and cash paid during the nine months ended September 30, 2020 and 2019, for amounts included in the measurement~~ of the ~~lease liabilities were approximately $823 and $602, respectively. Operating lease costs and cash paid during the three months ended September 30, 2020 and 2019, for amounts included in the measurement~~loan component of the lease liabilities were approximately $285 and $236, 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.second closing is zero.

The table below summarizes the balances of the conversion components and the loan components of the initial closing and the second closing, as follows:

	Conversion component		Loan component		Total
Initial closing	$	617	$	8	$	625
Second closing		975		-		975
	$	1,592	$	8	$	1,600

On Track Innovations Ltd.

and Subsidiaries

Notes to the Interim Unaudited Condensed Consolidated Financial Statements

US dollars,NIS and Euro in thousands, except share and per share data

Note 5 - Convertible short-term loan from shareholders (cont’d)

On March 2, 2021, the Company ~~does not have any material leases, individually or~~obtained shareholders’ approval of the Conversion Right. At this shareholders meeting date, the fair value of the conversion component of both the initial closing and second closing was estimated using the Trinomial model based on the assumptions, as follows:

Expected volatility (%)	107.34	%
Risk-free interest rate (%)	0.044	%
Expected dividend yield	0	%
Contractual term (years)	0.296
Conversion price (US dollars per share)	0.124
Underlying Share price (US dollars per share)	0.390

The change in the ~~aggregate, classified~~fair value of the conversion component is as ~~a finance leasing arrangement.~~follows:

	Conversion component
Fair value before the shareholders’ approval date	$	1,592
Change in fair value (*)		1,974
Fair value at the shareholders’ approval date	$	3,566

(*)

This amount is recorded as loss from change in fair value of embedded derivative as part of the financial expenses in the statements of operations.

Following the shareholders’ approval of the Conversion Right on March 2, 2021, the conversion component is qualifying for the scope exception under ASC 815-10-15-74(a). In accordance with ASC 815-15-35-4, since the embedded conversion option in the convertible debt no longer meets the bifurcation criteria, the fair value of the conversion component, in the amount of $3,566, was reclassified from short-term liability to shareholders equity at this approval date.

Additional financial expenses derive from the convertible loan are summarized in the table, as follows:

	Three months ended
	March 31, 2021		December 31, 2020
Transaction expenses	$	10	$	90
Interest expenses (*)		26		2
	$	36	$	92

(*)

Including interest expenses of $25 and $2 to Ivy, the controlling shareholder, during the three months ended March 31, 2021, and December 31, 2020, respectively. The accrued interest expenses are included in ‘other current liabilities’.

On Track Innovations Ltd.

and Subsidiaries

Notes to the Interim Unaudited Condensed Consolidated Financial Statements

US dollars,NIS and Euro in thousands, except share and per share data

Note 76 - Commitments and Contingencies

~~A. Legal claims~~

Legal claims

In June 2013, prior to the Company’s divestiture of its SmartID division, Merwell Inc. (“Merwell”) filed a claim against the Company before an agreed-upon arbitrator alleging breach of contract in connection with certain commissions claimed to be owed to Merwell with respect to the division’s activities in Tanzania. These activities, along with all other activities of the SmartID division, were later assigned to and assumed by SuperCom in its purchase of the division. SuperCom undertook to indemnify the Company and hold it harmless against any liabilities the Company may incur in connection with Merwell’s consulting agreement and the arbitration. An arbitration decision was issued on February 21, 2016, awarding Merwell approximately $855 for outstanding commissions, plus expenses and legal fees, as well as a right to receive additional information from the Company regarding an additional engagement period in Tanzania and a right to possibly receive additional amounts from the Company, if at all, according to the information that will be provided. The arbitration decision had been appealed and the appeal was denied on June 17, 2018. In order to collect the award, Merwell filed a motion against the Company and the Nazareth District Court issued a judgment requiring the Company to pay Merwell an amount of NIS 5,080 (approximately $1,370) that was paid by the Company on January 8, 2019.

~~F-16~~

~~On Track Innovations Ltd.~~

~~and Subsidiaries~~

~~Notes to the Interim Unaudited Condensed Consolidated Financial Statements~~

~~US dollars, NIS and Euro in thousands, except share and per share data~~

~~Note 7 - Commitments and Contingencies (cont’d)~~

~~Legal claims (cont’d)~~

As mentioned above, based on the agreement with SuperCom from April 2016 (which was granted an effect of a court judgment), SuperCom is liable for all the costs and liabilities arising out of this claim. Since SuperCom failed to pay the Company the amounts due, in February 2019 the Company initiated an arbitration process to collect from SuperCom, the amount paid to Merwell, as well as any complementary amounts, as may be ordered in the future.

Despite the fact that, based on the assessment of the Company’s external legal counsel, the likelihood to succeed in the arbitration process (or other legal procedure in that matter) is high, the Company did not record an indemnification asset as of ~~September 30, 2020~~March 31, 2021, and December 31, ~~2019~~,2020, in accordance with accounting standard ASC 450, “Contingencies”.

On June 12, 2019, Merwell submitted a complementary claim against the Company in arbitration, with respect to the additional financial details that Merwell claims that the Company was ordered to provide according to the arbitration verdict from February 21, 2016, and additional payments that Merwell claims that the Company is obligated to pay Merwell. The said financial details refer to the quantity of smart driving licenses that Merwell claims were issued in the later period of a project in Tanzania in which Merwell claims to have provided services to the Company. Merwell claims that despite the Company’s failure to provide the details, Merwell obtained the details independently from other sources, and they indicate that the Company is obligated to pay Merwell an additional amount of approximately $1,618, and there might be additional amounts to be claimed in the future, as additional information might be found from time to time. On March 4, 2020, the Company submitted a response to this complementary claim, rejecting Merwell’s claims. On September 16, 2020, Merwell filed a request to amend the additional amount claimed from approximately $1,618 to approximately $3,012. On April 8, 2021, the arbitrator ordered the parties to submit their written testimonies – Merwell by May 8, 2021, and the Company by June 8, 2021. As mentioned above, the Company is conducting in parallel a separate arbitration process against SuperCom in that matter, as the Company deems SuperCom to be liable for all the costs and liabilities arising out of this claim. Based on the assessment of the Company’s external legal counsel, given the preliminary stage of the procedure, it is difficult, at this point, to estimate the chances of Merwell’s claims for a complementary arbitration verdict.

On Track Innovations Ltd.

and Subsidiaries

Notes to the Interim Unaudited Condensed Consolidated Financial Statements

US dollars,NIS and Euro in thousands, except share and per share data

Note 6 - Commitments and Contingencies (cont’d)

Legal claims (cont’d)

In October 2013, a financial claim was filed against the Company and its then French subsidiary, Parx France (in this paragraph, together, the “Defendants”), in the Commercial Court of Paris, France (in this paragraph, the “Court”). The sum of the claim is €1,500 (approximately ~~$1,755)~~$1,760) and is based on the allegation that the plaintiff sustained certain losses in connection with Defendants not granting the plaintiff exclusive marketing rights to distribute and operate the Defendants’ PIAF Parking System in Paris and the Ile of France. On October 25, 2017, the Court issued its ruling in this matter dismissing all claims against the Company but ordering Parx France to pay the plaintiff €50 ($~~58)~~59) plus interest in damages plus another approximately €5 ($6) in other fees and penalties. ~~The~~As, in accordance with the sale agreement signed between the Company and Parx France, the Company is liable and shall indemnify Parx France for any amount ruled against it as part of that claim, the Company offered to pay the amounts mentioned above to the plaintiff in consideration for not filing future appeals. The ~~plaintiff~~Plaintiff rejected this offer and filed an appeal against Parx France and the Company claiming the sum of €503 ($~~588)~~590) plus interest and expenses. On November 7, 2019, the Company’s external legal counsel concluded that the appeal was inadmissible, and that it believed that the opposing claims would be dismissed. The ~~appeal hearing~~case was pleaded before the Court and the Court is ~~scheduled for April 21,~~to provide its decision by July 1, 2021. Based on the assessment of the Company’s external legal counsel, the Company’s management is of the opinion that the chances of the appeal being approved against the Company are low.

~~F-17~~

~~On Track Innovations Ltd.~~

~~and Subsidiaries~~

~~Notes to the Interim Unaudited Condensed Consolidated Financial Statements~~

~~US dollars, NIS and Euro in thousands, except share and per share data~~

~~Note 7 - Commitments and Contingencies (cont’d)~~

~~Legal claims (cont’d)~~

In July 2019, the Company received a request (the “Request”), to allow a petitioner to submit a class action, which concerns the petitioner’s claims that, inter alia, through the EasyPark card, drivers are permitted to exceed the quota of permitted hours in accordance with the instructions of various local authorities in Israel. The Request was submitted against a company incorporated by the buyer of the assets (including the parking activity) of the Israeli subsidiaries of the Company (the “Company’s Subsidiaries”) and against two other companies that operate technological means for payment for public parking spaces scattered throughout the cities. Since the majority of potential claims against the Company’s Subsidiaries relate to the period following the sale of the Company’s Subsidiaries’ assets, including the parking activity, it appears that the Company’s exposure through this channel is limited. Furthermore, even if payment will be required, the buyer would be liable for the majority of such payment. Therefore, the Company will not participate in such procedure at this stage. Based on the assessment of the Company’s external legal counsel, the ~~Company’s management is of the opinion that the~~ exposure of the Company is low.

~~During~~The Company has been responding to a Subpoena from the ~~year ended December 31, 2017,~~Department of Justice and a document request from the Securities and Exchange Commission relating to an inquiry concerning a press release the Company ~~recorded income of approximately $1,600 based~~issued on ~~a judgment issued by~~December 18, 2017. The Company has produced the ~~Israeli Central District Court regarding~~requested documents, participated in voluntary interviews, and is otherwise cooperating with the ~~Company’s lawsuit against Harel Insurance Company Ltd. (“Harel”) for damages incurred by~~inquiry. At present, the Company ~~due to flooding in a subcontractor’s manufacturing site in 2011. The judgment determined that this amount~~has not been accused of ~~$1,600, net be awarded to cover~~any wrongdoing and it does not currently view the ~~Company’s damages. On October 10, 2017, Harel submitted its appeal of the judgment to the Israeli Supreme Court~~inquiry as ~~well as a request for stay of judgment~~.material.

On January 26, 2020, Harel and the Company agreed to the offer of the Israeli Supreme Court, as made by way of settlement in which the Company will pay back to Harel the sum of NIS 1,907 (approximately $553) in three monthly equal installments starting February 26, 2020. Accordingly, the Company recorded loss of $71 and $482 within the net loss from continuing operations and within the net loss from discontinued operations, respectively, in the fourth quarter of 2019. As of September 30, 2020, the Company paid all the settlement amount.

Regarding an additional legal ~~claim,~~claims, see Note 1C(1).

~~Guarantees~~

~~As of September 30, 2020, the Company has granted performance guarantees in the sum of $505. The expiration dates of these guarantees range from January 2021 to May 2024.~~

~~F-18~~

On Track Innovations Ltd.

and Subsidiaries

Notes to the Interim Unaudited Condensed Consolidated Financial Statements

US dollars,NIS and Euro in thousands, except share and per share data

Note 86 - ~~Revenues~~Commitments and Contingencies (cont’d)

Other contingency

The Company has entered into several research and development agreements, pursuant to which the Company received grants from the Israel Innovation Authority (“IIA”), and is therefore obligated to pay royalties to the IIA at a rate of 3%-3.5% of its sales up to the amounts granted (linked to the U.S. dollar with annual interest at LIBOR as of the date of approval, for programs approved from January 1, 1999 and thereafter). The total amount of grants received as of March 31, 2021, net of royalties paid, was approximately $3,400 (including accrued interest). No grants from the IIA were received during the three months ended March 31, 2021 and 2020.

There is a dispute between the Company and the IIA in the amount of approximately NIS 3,571 ($1,071) including accrued interest (while the current debt to the IIA as presented in the Company’s financial statements amounts to approximately $167) due to a claim of the IIA about miscalculations in the amount of royalties paid by the Company and the revenues on which the Company must pay royalties. The Company has not yet completed its discussions with the IIA and intends to exhaust all options in order to resolve this matter in a favorable manner. Management believes that, at the current stage, it is more likely than not that a positive resolution will be applied to this dispute. Accordingly, no additional accrual has been recorded in the financial statements in respect of this matter.

During the three months ended March 31, 2021 and 2020, there were no royalty expenses.

Guarantees

As of March 31, 2021, the Company granted a guarantee in amount of $105, with an expiration date in May 2024. In addition, as of March 31, 2021, the Company granted performance guarantees in amount of $278 related to the Mass Transit Ticketing activity. The expiration dates of those guarantees ranged from April 2021 to September 2021. Following the sale of ASEC (see Note 1C(2)), the Company is no longer subject to these guarantees in an amount of $278.

On Track Innovations Ltd.

and Subsidiaries

Notes to the Interim Unaudited Condensed Consolidated Financial Statements

US dollars,NIS and Euro in thousands, except share and per share data

Note 7 – Revenues

Disaggregation of revenue

The following tables disaggregate the Company’s revenue by major source based on categories that depict its nature and timing as reviewed by management for the three months ended ~~September 30, 2020~~March 31, 2021 and ~~2019:~~2020:

Three months ended
September 30, 2020
Retail and
Mass Transit
Ticketing Petroleum Total
Cashless payment products (A) $ 1,999 $ - $ 1,999

Complete cashless payment solutions (B):
Sales of products (B1) 103 529 632
Licensing fees, transaction fees and services (B2) 779 227 1,006
882 756 1,638

Total revenues $ 2,881 $ 756 $ 3,637

	Three months ended
	September 30, 2019						Three months ended March 31 2021
	Retail and Mass Transit Ticketing		Petroleum		Total		Retail		Petroleum		Total
Cashless payment products (A)	$	1,697	$	-	$	1,697	$	1,524	$	-	$	1,524

Complete cashless payment solutions (B):
Sales of products (B1)		49		603		652		421		239		660
Licensing fees, transaction fees and services (B2)		1,189		327		1,516
		1,238		930		2,168
SaaS and services (B2)								337		248		585
								758		487		1,245
Total revenues	$	2,935	$	930	$	3,865	$	2,282	$	487	$	2,769

	Three months ended March 31 (*) 2020
	Retail		Petroleum		Total
Cashless payment products (A)	$	2,391	$	-	$	2,391

Complete cashless payment solutions (B):
Sales of products (B1)		279		571		850
SaaS and other services (B2)		199		227		426
		478		798		1,276
Total revenues	$	2,869	$	798	$	3,667

~~F-19~~

~~On Track Innovations Ltd.~~

~~and Subsidiaries~~

~~Notes to the Interim Unaudited Condensed Consolidated Financial Statements~~

~~US dollars, NIS and Euro in thousands, except share and per share data~~

~~Note 8 - Revenues (cont’d)~~

~~Disaggregation of revenue (cont’d)~~

The following tables disaggregate the Company’s revenue by major source based on categories that depict its nature and timing as reviewed by management for the nine months ended September 30, 2020 and 2019:

Nine months ended
September 30, 2020
Retail and
Mass Transit
Ticketing Petroleum Total
Cashless payment products (A) $ 6,311 $ - $ 6,311

Complete cashless payment solutions (B):
Sales of products (B1) 2,216 1,404 3,620
Licensing fees, transaction fees and services (B2) 2,379 631 3,010
4,595 2,035 6,630
Total revenues $ 10,906 $ 2,035 $ 12,941

Nine months ended
September 30, 2019
Retail and
Mass Transit
Ticketing Petroleum Total
Cashless payment products (A) $ 4,437 $ - $ 4,437

Complete cashless payment solutions (B):
Sales of products (B1) 646 1,439 2,085
Licensing fees, transaction fees and services (B2) 3,522 950 4,472
4,168 2,389 6,557
Total revenues $ 8,605 $ 2,389 $ 10,994

~~F-20~~

~~On Track Innovations Ltd.~~

~~and Subsidiaries~~

~~Notes to the Interim Unaudited Condensed Consolidated Financial Statements~~

~~US dollars, NIS and Euro in thousands, except share and per share data~~

~~Note 8 - Revenues (cont’d)~~

~~Disaggregation of revenue (cont’d)~~

(*)

Reclassified to conform with the current period presentation, see Note 1C(2).

Performance obligations

Below is a listing of performance obligations for the Company’s main revenue streams:

Cashless payment products –

The performance obligation is the selling of contactless payment products. Most of those products are Near Field Communication (NFC) readers. For such sales the performance obligation, transfer of control and revenue recognition occur when the products are delivered.

On Track Innovations Ltd.

and Subsidiaries

Notes to the Interim Unaudited Condensed Consolidated Financial Statements

US dollars,NIS and Euro in thousands, except share and per share data

Note 7 – Revenues (cont’d)

Performance obligations (cont’d)

Complete cashless payment solutions –

The complete solution includes selling of products and complementary services, as follows:

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.

~~Licensing fees, transaction fees~~SaaS and other services -

The types of arrangements and their main performance obligations are as follows:

●

To provide terminal management system licensing for software that is responsible for remote terminal management and cloud-based software licensing which provide data insights. For such services, the revenue recognition occurs as the services are rendered since the performance obligation is satisfied over time.

●

~~To enable loading and sale of electronic contactless and paper cards. For such transaction fees, the revenue recognition occurs on the transaction date.~~

●

To provide technical and customer services for products. For such services, the performance obligation is satisfied over time and therefore revenue recognition occurs as the services are rendered.

The Company includes a warranty in connection with certain contracts with customers, which are not considered to be separate performance obligations. The cost to the Company of this warranty is insignificant.

Contract balances

	September 30,		December 31,		March 31		December 31
	2020		2019		2021		2020
Trade receivables, net of allowance for doubtful accounts	$	2,824	$	2,430	$	1,759	$	1,148
Customer advances	$	84	$	111	$	31	$	142

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 is mainly attributed to ongoing services provided.

~~F-21~~

On Track Innovations Ltd.

and Subsidiaries

Notes to the Interim Unaudited Condensed Consolidated Financial Statements

US dollars,NIS and Euro in thousands, except share and per share data

Note 8 – Discontinued operations

As described in Note 1C, the Company divested its interest in the Mass Transit Ticketing activity and the SmartID division and presented these activities as discontinued operations.

Set forth below are the results of the discontinued operations:

	Three months ended March 31
	2021			(*) 2020
Revenues	$	488		$	783
Expenses		(877	)		(876	)
Other loss, net		(29	)		-
Net loss from discontinued operations	$	(418	)	$	(93	)

(*)

Reclassified to conform with the current period presentation, see Note 1C(2).

The following table summarizes information about assets and liabilities from discontinued operations held for sale as of March 31, 2021 and December 31, 2020:

	March 31,		December 31,
	2021		2020
Assets held for sale from discontinued operations:
Current assets:
Cash and cash equivalents	$	1,720	$	1,017
Trade receivables, net of allowance for doubtful accounts of $42		348		409
Other receivables and prepaid expenses		544		454
Inventories		384		392
Property, plant and equipment, net of impairment of $29 (see Note 1C(2))		2,738		3,136
Intangible assets, net		326		370
Right-of-use assets due to operating leases		499		580
		6,559		6,358

Liabilities held for sale from discontinued operations:
Current liabilities:
Short-term bank credit and current maturities of long-term loans		583		2,339
Trade payables		1,846		1,832
Other current liabilities		2,503		443
Long-term loans, net of current maturities (*)		608		642
Long-term liabilities due to operating leases, net of current maturities (*)		341		401
Deferred tax liability		78		172
		5,959		5,829

(*)

Those liabilities were received for a long-term (more than twelve months) in ASEC, but are presented as held for sale within the current assets as of March 31, 2021, and December 31, 2020, because the Company has determined that the sale of ASEC qualifies as held for sale and as a discontinued operation as of those dates.

On Track Innovations Ltd.

and Subsidiaries

Notes to the Interim Unaudited Condensed Consolidated Financial Statements

US dollars,NIS and Euro in thousands, except share and per share data

Note 9 - Fair Value of Financial Instruments

The Company’s financial instruments consist mainly of cash and cash equivalents, short-term interest bearing investments, accounts receivable, restricted deposits for employee benefits, accounts payable and short-term and long-term loans.

Fair value for the measurement of financial assets and liabilities is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. The Company utilizes a valuation hierarchy for disclosure of the inputs for fair value measurement. This hierarchy prioritizes the inputs into three broad levels as follows:

●

Level 1 Inputs: Unadjusted quoted prices in active markets for identical assets or liabilities accessible to the reporting entity at the measurement date.

●

Level 2 Inputs: Other than quoted prices included in Level 1 inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the asset or liability.

●

Level 3 Inputs: Unobservable inputs for the asset or liability used to measure fair value to the extent that observable inputs are not available, thereby allowing for situations in which there is little, if any, market activity for the asset or liability at measurement date.

By distinguishing between inputs that are observable in the market place, and therefore more objective, and those that are unobservable and therefore more subjective, the hierarchy is designed to indicate the relative reliability of the fair value measurements. A financial asset or liability’s classification within the hierarchy is determined based on the lowest level input that is significant to the fair value measurement.

The Company, in estimating fair value for financial instruments, determined that the carrying amounts of cash and cash equivalents, trade receivables, short-term bank credit and trade payables are equivalent to, or approximate their fair value due to the short-term maturity of these instruments.

The carrying amounts of variable interest rate long-term loans are equivalent or approximate to their fair value as they bear interest at approximate market rates. ~~Regarding the~~The liabilities held for sale include a long-term loan, that does not bear any interest, ~~(see Note 5),~~but taking into account the schedule of its maturities, its amount and the relatively current low market rates, the difference between its carrying amount and its fair value is insignificant.

As of ~~September 30, 2020,~~March 31, 2021, the Company held approximately ~~$605~~$105 of short-term bank deposits (as of December 31, ~~2019, $2,305)~~2020 - $105). As of ~~September 30, 2020~~March 31, 2021, and December 31, ~~2019,~~2020, short-term ~~deposit~~deposits in the amount of $105 ~~has~~have been pledged as security in respect of guarantees granted and cannot be pledged to others or withdrawn without the consent of the bank.

Derivatives

Embedded derivatives are separated from the host contract and carried at fair value when (1) the embedded derivative possesses economic characteristics that are not clearly and closely related to the economic characteristics of the host contract and (2) a separate, standalone instrument with the same terms would qualify as a derivative instrument. The derivative is measured both initially and in subsequent periods at fair value, with changes in fair value charged to financial expenses, net. As to embedded derivatives arising from the issuance of convertible debentures, see Note 5. Transaction expenses related to the embedded derivatives are recognized as financial expenses at the date of the initial recognition.

~~F-22~~

On Track Innovations Ltd.

and Subsidiaries

Notes to the Interim Unaudited Condensed Consolidated Financial Statements

US dollars,NIS and Euro in thousands, except share and per share data

Note 10 -– Equity

Share capital

On December 23, 2019, the Company entered into a share purchase agreement ~~(hereinafter – the~~(the “Agreement”) with ~~Jerry L~~ Ivy ~~Jr. Descendants Trust (hereinafter - “Ivy”)~~ and two other investors (collectively together with Ivy – “Investors”). The Agreement relates to a private placement of an aggregate of up to 12,500,000 ordinary shares of the Company for aggregate gross proceeds to the Company of up to $2,500.

As part of this Agreement, in December 2019 and January 2020, the Company issued 5,460,000 and 1,040,000 ordinary shares, respectively, for aggregate gross ~~proceed~~proceeds of $1,092 and $208, respectively. ~~The issuance costs were approximately $111 during the second half of 2019. The issuance costs in the three months ended March 31, 2020 were $8.~~ Under the ~~terms~~term of the Agreement and following the issuance of those shares, the Company appointed one representative to its Board of Directors (the “Board”), designated by Ivy. Also, pursuant to the Agreement, Ivy has a right to purchase any future equity securities offered by the Company, except with respect to certain exempt issuances as set forth in the Agreement.

The issuance of the remaining 6,000,000 ordinary shares ~~(hereinafter – the~~(the “Subsequent Closing”) for aggregate gross proceeds of $1,200 took place in April 2020, following the approval by the Company’s shareholders on April 14, 2020, of the resolutions detailed below, that were required for the consummation of the Subsequent Closing under the Agreement and the applicable law: (i) an increase in the number of the ordinary shares authorized for issuance from 50,000,000 to 100,000,000; (ii) the issuance of the ordinary shares to Ivy following which Ivy will hold 25% or more of the total voting rights at general meetings of the shareholders of the Company; and (iii) the election of the representative designated by Ivy to the ~~Company’s Board of Directors.~~Board.

The issuance costs ~~in the three months ended June 30,~~were approximately $39 and $111 during 2020 ~~were $31. There are no~~and 2019, respectively. The issuance costs inwere approximately $8 during the ~~three months ended September 30,~~first quarter of 2020.

In addition, pursuant to the terms of the Agreement, on May 5, 2020, after the consummation of the Subsequent Closing, the ~~Company’s~~ Board ~~of Directors~~ appointed an additional representative designated by Ivy. The appointment of such designee shall remain valid through the next general meeting of the Company’s shareholders or as set forth in the Articles of Association of the Company.

Regarding a convertible loan that the Company received from Ivy in December 2020 and January 2021, see Note 5.

~~F-23~~

Rights Offering

We are currently conducting a rights offering (the “Rights Offering”), pursuant to a prospectus dated April 20, 2021, under which we are offering our shareholders the ability to exercise subscription rights and purchase, for every subscription right held by them as of April 14, 2021 (i.e. the record date), one ordinary share of the Company, at a purchase price of $0.174 per share, before the expiration of the Rights Offering, which is scheduled for May 19, 2021. In the event the Rights Offering will be fully subscribed for and exercised, the Company shall issue an amount of up to 18,965,517 ordinary shares for an aggregate amount of up to $3,300.

For the purpose of securing a full subscription, Ivy, the Company’s controlling shareholder, has provided a commitment letter pursuant to which it committed to fully exercise its right, while additionally requesting to exercise additional rights un-subscribed for, for up to approximately $2,825 in the aggregate, subject, however, to the limitation that such holdings, including any of its affiliates, will not exceed 45% or more of the Company’s issued and outstanding share capital after conclusion of the Rights Offering (the “Backstop Commitment”). Ivy will not receive any fee in connection with the Backstop Commitment. As of the date of this Form 10-Q, Ivy and its affiliates own approximately 28.4% of our issued and outstanding shares.

On Track Innovations Ltd.

and Subsidiaries

Notes to the Interim Unaudited Condensed Consolidated Financial Statements

US dollars,NIS and Euro in thousands, except share and per share data

Note 10 -– Equity (cont’d)

B.C.

Stock option plans

Nine months ended
September 30,
2020 2019
Expected dividend yield 0 % 0 %

Expected volatility 107 % 79 %

Risk-free interest rate 0.36 % 2.07 %

Expected life - in years 2.49 2.44

During each of the three-month periods ended March 31, 2021 and March 31, 2020, 632,500 and 204,000 options were granted, respectively. The vesting period for the options is three years. The average exercise prices for the options that were granted during the three months ended March 31, 2021 and March 31, 2020, are $0.23 and $0.28, 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 three months ended March 31, 2021 and March 31, 2020 was estimated on the date of grant, using the Black-Scholes model and the following assumptions:

	Three months ended March 31
	2021			2020
Expected dividend yield		0	%		0	%
Expected volatility (average)		113.48	%		102.45	%
Risk-free interest rate (average)		0.17	%		0.65	%
Expected life - in years		2.50			2.44

Dividend yield of zero percent for all periods.

Expected average volatility represents a weighted average standard deviation rate for the price of the Company’s ordinary shares on Nasdaq and on the OTCQX market, as applicable.

Risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant.

Estimated expected lives are based on historical grants data.

The Company’s options activity (including options to non-employees) and options outstanding and options exercisable as of December 31, ~~2019~~2020 and ~~September 30, 2020,~~March 31, 2021, are summarized in the following table:

Number of
options
outstanding Weighted
average exercise
price per share
Outstanding – December 31, 2019 809,000 $ 0.93

Options granted 814,000 0.24
Options expired or forfeited (106,500 ) 0.81
Outstanding – September 30, 2020 1,516,500 0.57

Exercisable as of:
December 31, 2019 505,657 $ 1.06
September 30, 2020 518,990 $ 1.00

	Number of options outstanding			Weighted average exercise price per share
Outstanding – December 31, 2020		1,443,333		$	0.54

Options granted		632,500			0.23
Options expired or forfeited		(114,665	)		0.72
Outstanding – March 31, 2021		1,961,168		$	0.43

Exercisable as of:
December 31, 2020		681,330		$	0.83
March 31, 2021		685,014		$	0.76

On Track Innovations Ltd.

and Subsidiaries

Notes to the Interim Unaudited Condensed Consolidated Financial Statements

US dollars,NIS and Euro in thousands, except share and per share data

Note 10 – Equity (cont’d)

Stock option plans (cont’d)

The weighted average fair value of options granted during the ~~nine~~three months ended ~~September 30, 2020~~March 31, 2021 and during the ~~nine~~three months ended ~~September 30, 2019~~March 31, 2020 is ~~$0.12~~$0.14 and ~~$0.2,~~$0.11, respectively, per option. The aggregate intrinsic value of outstanding options as of ~~September 30, 2020~~March 31, 2021 and December 31, ~~2019~~2020 is ~~approximately $113~~$222 and ~~zero,~~$5, respectively. The aggregate intrinsic value of exercisable options as of ~~September 30, 2020~~March 31, 2021 and December 31, ~~2019~~2020 is ~~zero.~~

~~F-24~~

~~On Track Innovations Ltd.~~

$36 and ~~Subsidiaries~~$2, respectively.

~~Notes to the Interim Unaudited Condensed Consolidated Financial Statements~~

~~US dollars, NIS and Euro in thousands, except share and per share data~~

~~Note 10 - Equity (cont’d)~~

B.	~~Stock option plans (cont’d)~~

The following table summarizes information about options outstanding and exercisable (including options to non-employees) as of ~~September 30, 2020:~~March 31, 2021:

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 ($) 2020 life (years) Price 2020 life (years) Price
0.28-0.90 1,090,500 4.02 0.34 149,328 1.77 0.67
1.07-1.68 426,000 1.45 1.14 369,662 1.35 1.13
1,516,500 3.30 518,990 1.47

	Options outstanding						Options Exercisable
	Number		Weighted				Number		Weighted
	outstanding		average		Weighted		Outstanding		average		Weighted
	as of		remaining		Average		as of		remaining		Average
	March 31,		contractual		Exercise		March 31,		contractual		Exercise
Range of exercise price ($)	2021		life (years)		Price ($)		2021		life (years)		Price ($)
0.20-0.90		1,605,168		4.20		0.28		329,014		3.72		0.35
1.07-1.22		356,000		1.11		1.13		356,000		1.11		1.13
		1,961,168		3.64				685,014		2.36

As of ~~September 30, 2020,~~March 31, 2021, there was approximately ~~$126~~$168 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 ~~1.36~~1.53 years.

During the three months ended ~~September 30,~~March 31, 2021, and March 31, 2020, ~~and September 30, 2019,~~ the Company recorded stock-based compensation expenses in the amount of ~~$13~~$14 and ~~$6,~~$12, respectively, in accordance with ASC 718, ~~“Compensation-Stock Compensation”.~~

During the nine months ended September 30, 2020 and September 30, 2019, the Company recorded stock-based compensation expenses in the amount of $41 and $96, respectively, in accordance with ASC 718, “Compensation-Stock Compensation”.Compensation-Stock Compensation.

C.D.

Stock options and warrants in the amounts of ~~1,516,500~~15,086,837 and ~~1,262,331~~1,008,000 outstanding as of ~~September 30,~~March 31, 2021 and 2020, ~~and 2019,~~ respectively, have been excluded from the calculation of the diluted net loss per ordinary share because all such securities have an anti-dilutive effect for all periods presented.

D.	~~Shares to non-employees~~

There were no grants to non-employees during the nine months ended September 30, 2020. During the nine months ended September 30, 2019, the Company granted 30,000 ordinary shares to its consultants. The expenses that are recognized due to those grants are immaterial and are presented within ’stock-based compensation’ in the statement of changes in equity for the nine months ended September 30, 2019.

~~F-25~~

On Track Innovations Ltd.

and Subsidiaries

Notes to the Interim Unaudited Condensed Consolidated Financial Statements

US dollars,NIS and Euro in thousands, except share and per share data

Note 11 - Operating segments

For the purposes of allocating resources and assessing performance in order to improve profitability, the Company’s chief operating decision maker (“CODM”) examines two segments which are the Company’s strategic business units: (1) Retail, and ~~Mass Transit Ticketing; and~~ (2) Petroleum.

Information regarding the results of each reportable segment is included below based on the internal management reports that are reviewed by the CODM.

	Three months ended September 30, 2020
	Petroleum		Retail and Mass Transit Ticketing		Consolidated			Three months ended March 31, 2021
								Retail		Petroleum		Total
Revenues	$	755	$	2,882	$	3,637		$	2,282	$	487	$	2,769
Reportable segment gross profit (**)									1,179		233		1,412

Reportable segment gross profit *		309		1,393		1,702

Reconciliation of reportable segment gross profit to gross profit for the period

Depreciation						(207	)
Reconciliation of reportable segment gross profit to gross profit for the period Depreciation													(8	)
Stock-based compensation						(1	)						(1	)

Gross profit for the period in the consolidated financial statement					$	1,494						$	1,403

Three months ended September 30, 2019
Petroleum Retail and Mass Transit Ticketing Consolidated

Revenues $ 929 $ 2,936 $ 3,865

Reportable segment gross profit * 310 1,585 1,895

Reconciliation of reportable segment gross profit to gross profit for the period

Depreciation (190 )
Stock-based compensation (1 )

Gross profit for the period in the consolidated financial statement $ 1,704

	Three months ended March 31, 2020 (*)
	Retail		Petroleum		Total
Revenues	$	2,869	$	798	$	3,667
Reportable segment gross profit (**)		1,333		323		1,656

Reconciliation of reportable segment gross profit to gross profit for the period Depreciation						(9	)
Stock-based compensation						(1	)
Gross profit for the period in the consolidated financial statement					$	1,646

~~F-26~~

~~On Track Innovations Ltd.~~

~~and Subsidiaries~~

~~Notes to the Interim Unaudited Condensed Consolidated Financial Statements~~

~~US dollars, NIS and Euro in thousands, except share and per share data~~

~~Note 11 - Operating segments (cont’d)~~

Nine months ended September 30, 2020
Petroleum Retail and Mass Transit Ticketing Consolidated

Revenues $ 2,035 $ 10,906 $ 12,941

Reportable segment gross profit * 896 5,248 6,144

Reconciliation of reportable segment gross profit to gross profit for the period

Depreciation (582 )
Stock-based compensation (3 )

Gross profit for the period in the consolidated financial statement $ 5,559

Nine months ended September 30, 2019
Retail and
Mass Transit
Petroleum 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 gross profit for the period

Depreciation (588 )
Stock-based compensation (3 )

Gross profit for the period in the consolidated financial statement $ 5,721

*(*)

Reclassified to conform with the current period presentation, see Note 1C(2).

(**)

Gross profit as reviewed by the CODM, represents gross profit, adjusted to exclude depreciation and stock-based ~~compensation.~~compensation.

~~F-27~~On Track Innovations Ltd.

and Subsidiaries

Notes to the Interim Unaudited Condensed Consolidated Financial Statements

US dollars,NIS and Euro in thousands, except share and per share data

Note 12 – Related party

Regarding transactions and balances with a related party, Ivy, a controlling shareholder, see Notes 5, 10A and 10B.

Note 13 – Subsequent events

Regarding to completion of the sale of ASEC, including its Mass Transit Ticketing operation on April 21, 2021, see Notes 1C(2) and 8.

Regarding of the Company’s rights offering in April 2021, see Note 10B.

Item~~Item~~ 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Forward - Looking Statements

The statements contained in this Quarterly Report on Form 10-Q, or Quarterly Report, that are not historical facts are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 and other federal securities laws. Such forward-looking statements may be identified by, among other things, the use of forward-looking terminology such as “believes,” “intends,” “plans”, “expects,” “may,” “will,” “should,” or “anticipates” or the negative thereof or other variations thereon or comparable terminology, and similar expressions are intended to identify forward-looking statements. We remind readers that forward-looking statements are merely predictions and therefore are inherently subject to uncertainties and other factors and involve known and unknown risks that could cause the actual results, performance, levels of activity, or our achievements, or industry results, to be materially different from any actual future results, performance, levels of activity, or our achievements, or industry results, expressed or implied by such forward-looking statements. Such forward-looking statements may appear in this Item 2 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” as well as elsewhere in this Quarterly Report and include, among other statements, statements regarding the following:

●

~~our ability to continue as a going concern and any efforts that we may undertake to support our future operations, service our debt obligations and to further execute our business plans;~~

●

any impact of the Corona Virus, or COVID-19, pandemic on our business and cash flow, including timing of receipt of orders and payment from our ~~customers, continued decrease in the Mass Transit Ticketing activity in Poland;~~customers;

●

future sources of revenue, ongoing relationships with current and future business partners, distributors, suppliers, customers, end-user customers and resellers;

●

future costs and expenses and adequacy of capital resources;

●

our expectations regarding our short-term and long-term capital requirements and satisfaction thereof;

●

the impact of ongoing litigation on our business;

●

the results of our pending rights offering;

●

our outlook for the coming months; and

●

information with respect to any other plans and strategies for our business.

The factors discussed herein, and in those risk factors expressed below and from time to time in our press releases or filings with the Securities and Exchange Commission, or the SEC, could cause actual results and developments to be materially different from those expressed in or implied by such statements. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak and are made only as of the date of this filing.

Our business and operations are subject to substantial risks, which increase the uncertainty inherent in the forward-looking statements contained in this Quarterly Report. Except as required by law, we undertake no obligation to release publicly the result of any revision to these forward-looking statements that may be made to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events. Further information on potential factors that could affect our business is described among others under the heading “Risk Factors” below and in Part I, Item 1A of our Annual Report on Form 10-K for the fiscal year ended December 31, ~~2019~~2020 filed with the SEC. Readers are also urged to carefully review and consider the various disclosures we have made in that report.

As used in this Quarterly Report, the terms “we”, “us”, “our”, “the Company”, and “OTI” mean On Track Innovations Ltd. and our subsidiaries, unless otherwise indicated or as otherwise required by the context.

All figures in this Quarterly Report are stated in United States dollars, unless otherwise specified herein.

Overview

We are a ~~fintech pioneer and a~~ leading developer of ~~cutting-edge secure cashless~~contactless payment solutions, Near Field Communication (NFC) technology based, for the unattended market. We have been a technology leader since 1990, providing ~~global enterprises~~systems, devices and services to operators and integrators with ~~innovative technology~~solutions and components that are simple to implement.

To date, we have deployed over one million payment solutions to our focused unattended markets: self-service kiosk, micro-markets and vending machines, entertainment and gaming, automated teller machines, Mass Transit Ticketing Validation and fuel payments.

We operate through regional offices, supporting clients and payment industry partners with its unique contactless payment solutions.

On April 21, 2021, we sold our Polish subsidiary, ASEC S.A., or ASEC, including our Mass Transit Ticketing activity in Poland. The consideration for ~~three decades. We~~the sale of ASEC was agreed to equal $3 million, of which approximately $2.1 million was used to repay Polish bank loans, and which was reduced by an agreed amount of approximately $300,000 due to working capital adjustments. Following this sale, we operate in two ~~main~~ segments: (1) Retail, ~~and Mass Transit Ticketing;~~ and (2) Petroleum.

~~Our vision is~~In addition, we engaged an investment bank to ~~strengthen our global presence with innovative solutions~~explore strategic options and ~~provide our customers with the best possible support~~are investing resources in ~~superior service and reliable advanced products.~~

Our intellectual property, or IP, portfolio includes registered patents and patent applications worldwide. Since our incorporation in 1990, we have built an international reputation for reliability and innovation, deploying many solutions for unattended retail, mass transit, banking, Internet of Payment Things and the petroleum management industries.

~~We operate a global network of regional offices, distributors and partners to support various solutions deployed across the globe.~~

~~We focus on our core business of providing innovative cashless payment solutions based, among other things, on our innovative contactless NFC technology.~~this process.

This discussion and analysis should be read in conjunction with our interim condensed consolidated financial statements and notes thereto contained in “Item 1. Financial Statements” of this Quarterly Report and our Annual Report on Form 10-K for the fiscal year ended December 31, ~~2019~~2020 filed with the SEC.

Results of Operations

Discontinued operations. In ~~December 2018,~~April 2021, we completed the sale of 100% of the issued and outstanding share capital of ASEC. ASEC is headquartered in Krakow, Poland and had been conducting our ~~MediSmart activities (most of which is~~Mass Transit Ticketing business in Poland (which was attributed to our ~~former “Other”~~“Retail and Mass Transit Ticketing” segment) ~~to Smart Applications International Limited.~~. In December 2013, we completed the sale of certain assets, certain subsidiaries and IP directly related to our SmartID division. ~~The~~Accordingly, the results and the cash flows from such operations ~~and the cash flow~~ for ~~the~~all reporting periods are presented in the statements of operations and in the statements of cash flows, respectively, as discontinued operations separately from continuing operations. All the data in this Quarterly Report that are derived from our financial statements, unless otherwise specified, exclude the results of those discontinued operations.

Three months ended ~~September 30, 2020,~~March 31, 2021, compared to the three months ended ~~September 30, 2019~~March 31, 2020

Sources of Revenue

We have historically derived a substantial majority of our revenues from the sale of our products, including both complete systems and original equipment manufacturer components and also less significantly, from engineering services, customer services and technical support. In addition, we ~~generate~~have derived revenues from ~~licensing and transaction fees.~~Software as a Service, or SaaS. During the three months ended ~~September 30,~~March 31, 2021 and March 31, 2020, ~~and September 30, 2019,~~ the revenues that we derived from ~~sales and licensing and transaction fees were~~those sources are presented in two separate line items, as follows (in thousands):

	Three months ended September 30,				Three months ended March 31,
	2020		2019		2021		2020
Sales	$	2,868	$	2,631	$	2,387	$	3,343
Licensing and transaction fees	$	769	$	1,234
SaaS					$	382	$	324
Total revenues	$	3,637	$	3,865	$	2,769	$	3,667

Sales. Sales ~~increased~~decreased by ~~$237,000,~~$1.0 million, or 9%29%, in the three months ended ~~September 30, 2020,~~March 31, 2021, compared to the three months ended ~~September 30, 2019.~~March 31, 2020. The decrease is mainly attributed to a decrease of Retail segment sales in the Americas, a decrease in sales of Petroleum products in Africa and the Americas and a decrease of Retail sales in Europe, partially offset by an increase in Retail segment sales in APAC.

SaaS. SaaS revenues include monthly payments for a set of different software applications such as Terminal Management Systems, Payment gateway, and other software applications for the Retail segment, and a separate set of applications for fuel management systems supporting the Petroleum segment. Our SaaS revenues increased by $58,000, or 18%, in the three months ended March 31, 2021, compared to the three months ended March 31, 2020. The increase is mainly attributed to an increase in ~~sales~~revenues in ~~Europe, partially offset by a decrease in sales in the United States and a decrease in sales of Petroleum products in Africa.~~

~~Licensing and transaction fees.~~ ~~Licensing and transaction fees include single and periodic payments for distribution rights for~~ our products as well as licensing our IP rights to third parties. Transaction fees are paid by customers based on the volume of transactions processed by systems that contain our products. Our licensing and transaction fees in the three months ended September 30, 2020, compared to the three months ended September 30, 2019, decreased by $465,000, or 38%. The decrease is mainly attributed to a decrease in Mass Transit Ticketing sales in the Polish market as a result of the impact of the COVID-19 pandemic. Such decrease in Mass Transit Ticketing sales compared to 2019 is expected to continue for the foreseeable future.Retail segment.

We have historically derived revenues from different geographical areas. The following table sets forth our revenues, by dollar amount (in thousands) and as a percentage of quarterly revenues in different geographical areas, in the three months ended ~~September 30, 2020~~March 31, 2021 and ~~September 30, 2019:~~March 31, 2020:

Three months ended September 30, Africa Europe APAC Americas
2020 $ 410 11 % $ 1,916 53 % $ 256 7 % $ 1,055 29 %
2019 $ 492 13 % $ 1,714 44 % $ 214 6 % $ 1,445 37 %

Three months ended March 31,	Americas				Europe				Africa				APAC
2021	$	873	32	%	$	914	33	%	$	368	13	%	$	614	22	%
2020	$	1,755	48	%	$	1,182	32	%	$	517	14	%	$	213	6	%

Our revenues from sales in Americas decreased by $882,000, or 50%, in the three months ended March 31, 2021, compared to the three months ended March 31, 2020, mainly due to a decrease in sales of readers to the U.S. market.

Our revenues from sales in Europe decreased by $268,000, or 23%, in the three months ended March 31, 2021, compared to the three months ended March 31, 2020, mainly due to a decrease in Retail sales.

Our revenues from sales in Africa decreased by ~~$82,000,~~$149,000, or ~~17%~~29%, in the three months ended ~~September 30, 2020,~~March 31, 2021, compared to the three months ended ~~September 30, 2019,~~March 31, 2020, mainly due to a decrease in sales of Petroleum products.

Our revenues from sales in ~~Europe~~the Asia-Pacific region, or APAC, increased by ~~$202,000,~~$401,000, or ~~12%~~188%, in the three months ended ~~September 30, 2020,~~March 31, 2021, compared to the three months ended September 30, 2019, mainly due to an increase of Retail sales, partially offset by a decrease in Mass Transit Ticketing sales in the Polish market as a result of the impact of the COVID-19 pandemic. Such decrease in Mass Transit Ticketing sales compared to 2019 is expected to continue for the foreseeable future.

~~Our revenues from sales in Asia-Pacific region, or APAC, increased by $42,000, or 20%, in the three months ended September 30,~~March 31, 2020, ~~compared to the three months ended September 30, 2019,~~ mainly due to an increase in Retail sales.

Our revenues from sales in the Americas decreased by $390,000, or 27%, in the three months ended September 30, 2020, compared to the three months ended September 30, 2019, mainly due to a decrease in Retail sales to the United States market.

Our revenues derived from outside the United States are primarily received in currencies other than the U.S. dollar and accordingly have a varying impact upon our total revenues as a result of fluctuations in exchange rates.

The following table sets forth our revenues by dollar amount (in thousands) and as a percentage of revenues by segments, during the three months ended ~~September 30, 2020~~March 31, 2021 and ~~September 30, 2019:~~March 31, 2020:

Three months ended September 30, Retail and Mass
Transit Ticketing Petroleum
2020 $ 2,881 79 % $ 756 21 %
2019 $ 2,935 76 % $ 930 24 %

Three months ended March 31,	Retail				Petroleum
2021	$	2,282	82	%	$	487	18	%
2020	$	2,869	78	%	$	798	22	%

Our revenues from Retail ~~and Mass Transit Ticketing~~ in the three months ended ~~September 30, 2020,~~March 31, 2021 decreased by ~~$54,000,~~$587,000, or 2%20%, compared to the three months ended ~~September 30, 2019,~~March 31, 2020, mainly attributed to a decrease ~~in Mass Transit Ticketing sales in the Polish market as a result~~ of ~~the impact of the COVID-19 pandemic and a decrease in Retail~~ sales in the United States and a decrease of sales in Europe, partially offset by an increase in ~~Retail~~ sales in ~~Europe.~~APAC.

Our revenues in the three months ended ~~September 30, 2020,~~March 31, 2021, from Petroleum decreased by ~~$174,000,~~$311,000, or ~~19%~~39%, compared to the three months ended ~~September 30, 2019,~~March 31, 2020, mainly due to a decrease in sales of Petroleum products in Africa and the Americas.

Cost of Revenues and Gross Margin

Our cost of revenues, presented by gross profit and gross margin percentage, infor the three months ended ~~September 30,~~March 31, 2021 and March 31, 2020, ~~and September 30, 2019,~~ were as follows (dollar amounts in thousands):

	Three months ended September 30,						Three months ended March 31,
Cost of revenues	2020			2019			2021			2020

Cost of sales	$	2,142		$	2,161		$	1,366		$	2,021
Gross profit	$	1,495		$	1,704		$	1,403		$	1,646
Gross margin percentage		41	%		44	%		51	%		45	%

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. ~~Our cost~~The decrease of ~~sales~~$655,000, or 32%, in the three months ended ~~September 30, 2020~~March 31, 2021, compared to the three months ended ~~September 30, 2019, remained consistent.~~March 31, 2020, resulted primarily from a decrease in sales.

Gross margin. The ~~decrease~~increase in gross margin percentage in the three months ended ~~September 30, 2020,~~March 31, 2021, compared to the three months ended ~~September 30, 2019,~~March 31, 2020, is mainly attributed to a change in our revenue mix, ~~and attributed to the decrease in Mass Transit Ticketing sales in the Polish market as a result~~including an increase of the ~~impact~~ratio of ~~COVID-19, partially offset by an inventory adjustment in South Africa in~~our SaaS revenues out of the ~~third quarter of 2019.~~total revenues.

Operating expenses

Our operating expenses infor the three months ended ~~September 30,~~March 31, 2021 and March 31, 2020, ~~and September 30, 2019,~~ were as follows (in thousands):

Three months ended
September 30,
Operating expenses 2020 2019
Research and Development $ 841 $ 840
Selling and Marketing $ 1,215 $ 1,193
General and Administrative $ 958 $ 1,070
Other gain, net $ - $ (335 )
Total operating expenses $ 3,014 $ 2,768

	Three months ended March 31,
Operating expenses	2021		2020
Research and development	$	838	$	893
Selling and marketing	$	605	$	698
General and administrative	$	746	$	802
Total operating expenses	$	2,189	$	2,393

Research and development. Our research and development expenses consist primarily of the salaries and related expenses of our research and development staff, as well as subcontracting expenses. ~~Our research and development~~The decrease of $55,000, or 6%, in the three months ended ~~September 30, 2020,~~March 31, 2021, compared to the three months ended ~~September 30, 2019, remained consistent.~~March 31, 2020, is primarily attributed to reductions in the salaries and a decrease in subcontracting expenses, partially offset by an increase derived from recruitment of new employees.

Selling and marketing. Our selling and marketing expenses consist primarily of salaries and substantially all of the expenses of our sales and marketing subsidiaries and offices in the United States, South Africa and Europe, as well as expenses related to advertising, professional expenses and participation in exhibitions and tradeshows. ~~Our selling and marketing expenses~~The decrease of $93,000, or 13%, in the three months ended ~~September 30, 2020,~~March 31, 2021, compared to the three months ended ~~September 30, 2019, remained consistent.~~March 31, 2020, is primarily attributed to a decrease in employment expenses, mainly due to reductions in salaries, and also less significantly decreases in exhibition and traveling expenses as a result of the impact of COVID-19.

General and administrative. Our general and administrative expenses consist primarily of salaries and related expenses of our executive management and financial and administrative staff. These expenses also include costs of our professional advisors (such as legal and accounting), office expenses and insurance. The decrease of ~~$112,000,~~$56,000, or ~~10%~~7%, in the three months ended ~~September 30, 2020,~~March 31, 2021, compared to the three months ended ~~September 30, 2019,~~March 31, 2020, is primarily attributed to a decrease in employment ~~expenses.~~expenses, mainly due to reductions in the salaries of our management and employees, and also less significantly decreases in traveling expenses as a result of the impact of COVID-19.

~~Other gain, net.~~ ~~Our other gain, net, in the third quarter of 2019 is primarily attributed to a capital gain from the sale of a building by our South African subsidiary.~~

Financing ~~expenses,~~(expenses) income, net

Our financing ~~expenses,~~(expenses) income, net, infor the three months ended ~~September 30,~~March 31, 2021 and March 31, 2020, ~~and September 30, 2019,~~ were as follows (in thousands):

Three months ended
September 30,
2020 2019
Financing expenses, net $ (80 ) $ (93 )

	Three months ended March 31,
	2021			2020
Loss from change in fair value of embedded derivative	$	(1,974	)	$	-
Other financial income, net	$	4		$	176
Financing (expenses) income, net	$	(1,970	)	$	176

Financing ~~expenses~~(expenses) income, net, consist primarily of financing expense related to interest payable on bank loans, bank commissions and ~~foreign exchange losses. Financing~~to a change in fair value of embedded derivative in the convertible short-term loan received from shareholders, also referred to as the Convertible Loan below, partially offset by financing income ~~consists primarily of foreign exchange gains and~~related to interest earned on investments in short-term ~~deposits.~~deposits and foreign exchange differentials. The change in total financing ~~expenses,~~(expenses) income, net, ~~remained consistent.~~

~~Income tax benefits (expenses)~~

~~Our income tax benefits (expenses)~~of $2.1 million in the three months ended ~~September 30, 2020 and September 30, 2019, were as follows (in thousands):~~

Three months ended
September 30,
2020 2019
Income tax benefits (expenses) $ 60 $ (17 )

~~The change in our tax benefits (expenses) of $77,000 in the three months ended September 30, 2020,~~March 31, 2021, compared to the three months ended ~~September 30, 2019, derives~~March 31, 2020, is mainly due to a loss from ~~deferred tax benefits~~change in the ~~Polish subsidiary~~fair value of embedded derivative of $2.0 million in the ~~third~~first quarter of ~~2020.~~2021 and to a much lesser degree from exchange rate differential.

Net loss from continuing operations

Our net loss from continuing operations infor the three months ended ~~September 30,~~March 31, 2021 and March 31, 2020, ~~and September 30, 2019,~~ was as follows (in thousands):

Three months ended
September 30,
2020 2019
Net loss from continuing operations $ (1,539 ) $ (1,174 )

	Three months ended March 31,
	2021			2020
Net loss from continuing operations	$	(2,743	)	$	(576	)

The increase in ~~the~~our net lossfrom continuing operations of ~~$365,000,~~$2.2 million, or ~~31%~~376%, in the three months ended ~~September 30, 2020,~~March 31, 2021, compared to the three months ended ~~September 30, 2019,~~March 31, 2020, is ~~primarily attributed~~mainly due to an increase in our financing expenses, net, due to a ~~capital gain~~loss from ~~the sale~~change in fair value of ~~a building by our South African subsidiary in the third quarter of 2019~~embedded derivative and a decrease in ~~the gross profit,~~our sales, partially offset by a decrease in ~~the general and administrative~~our operating expenses, ~~and a change in income tax benefits (expenses),~~ as described above.

Net loss from discontinued operations

Our net loss from discontinued operations infor the three months ended ~~September 30,~~March 31, 2021 and March 31, 2020, ~~and September 30, 2019,~~ was as follows (in thousands):

Three months ended
September 30,
2020 2019
Net loss from discontinued operations $ (82 ) $ (36 )

	Three months ended March 31,
	2021			2020
Net loss from discontinued operations	$	(418	)	$	(93	)

The results from ~~these operations~~the Mass Transit Ticketing activity and the SmartID activity for the reporting periods are presented in the statements of operations as discontinued operations separately from continuing operations. The increase ~~of $46,000, or 128%,~~ in the net loss from discontinued operations of $325,000, or 349%, in the three months ended ~~September 30, 2020,~~March 31, 2021, compared to the three months ended ~~September 30, 2019,~~March 31, 2020, is mainly due to an increase in ~~expenses relating to legal proceedings.~~loss from the Mass Transit Ticketing operation as a result of the impact of COVID-19. We completed the sale of this operation on April 21, 2021.

Net loss

Our net loss infor the three months ended ~~September 30,~~March 31, 2021 and March 31, 2020, ~~and September 30, 2019,~~ was as follows (in thousands):

Three months ended
September 30,
2020 2019
Net loss $ (1,621 ) $ (1,210 )

	Three months ended March 31,
	2021			2020
Net loss	$	(3,161	)	$	(669	)

The increase in net loss of ~~$411,000,~~$2.5 million, or ~~34%~~372%, in the three months ended ~~September 30, 2020,~~March 31, 2021, compared to the three months ended ~~September 30, 2019,~~March 31, 2020, is primarily attributed to a capital gain from the sale of a building by our South African subsidiary in the third quarter of 2019 and a decrease in the gross profit, partially offset by a decrease in the general and administrative expenses and a change in income tax benefits (expenses), as described above.

~~Nine months ended September 30, 2020, compared to the nine months ended September 30, 2019~~

~~Sources of Revenue~~

~~During the nine months ended September 30, 2020 and September 30, 2019, the revenues that we derived from sales and licensing and transaction fees were as follows (in thousands):~~

Nine months ended
September 30,
2020 2019
Sales $ 10,262 $ 7,286
Licensing and transaction fees $ 2,679 $ 3,708
Total revenues $ 12,941 $ 10,994

~~Sales~~. Sales increased by $3.0 million, or 41%, in the nine months ended September 30, 2020, compared to the nine months ended September 30, 2019. The increase is mainly attributed to an increase in Retail sales in APAC, the United States and Europe.

~~Licensing and transaction fees~~. Our licensing and transaction fees in the nine months ended September 30, 2020, compared to the nine months ended September 30, 2019, decreased by $1.0 million, or 28%. The decrease is mainly attributed to a decrease in Mass Transit Ticketing sales in the Polish market as a result of the impact of the COVID-19 pandemic, partially offset by an increase in our licensing and transaction fees in Europe. The decrease in Mass Transit Ticketing sales compared to 2019 is expected to continue for the foreseeable future as a result of the impact of the COVID-19 pandemic.

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, 2020 and September 30, 2019:

Nine months ended September 30, Africa Europe APAC Americas
2020 $ 1,164 9 % $ 6,026 47 % $ 2,131 16 % $ 3,620 28 %
2019 $ 1,527 14 % $ 5,632 51 % $ 881 8 % $ 2,954 27 %

Our revenues from sales in Africa decreased by $363,000, or 24%, in the nine months ended September 30, 2020, compared to the nine months ended September 30, 2019, mainly due to a decrease in sales of Petroleum products due to some sales that were planned to occur at the second quarter of 2020 and were postponed to the second half of 2020 as a result of the extended lockdown in South Africa due to the COVID-19 pandemic.

~~Our revenues from sales in Europe increased by $394,000, or 7%, in the nine months ended September 30, 2020, compared to the nine months ended September 30, 2019, mainly~~ due to an increase in ~~Retail sales, partially offset by~~our financing expenses, net, derived from loss from change in fair value of embedded derivative, a decrease in ~~Mass Transit Ticketing~~our sales ~~in the Polish market as a result of the impact of COVID-19.~~

~~Our revenues from sales in APAC increased by $1.3 million, or 142%, in the nine months ended September 30, 2020, compared to the nine months ended September 30, 2019, mainly due to~~and an increase in ~~Retail sales to the APAC market.~~

Our revenues from sales in the Americas increased by $666,000, or 23%, in the nine months ended September 30, 2020, compared to the nine months ended September 30, 2019, mainly due to an increase in Retail sales to the United States market.

~~The following table sets forth our revenues (in thousands) and as a percentage of revenues by segments, during the nine months ended September 30, 2020 and September 30, 2019:~~

Nine months ended September 30, Retail and Mass
Transit Ticketing Petroleum
2020 $ 10,906 84 % $ 2,035 16 %
2019 $ 8,605 78 % $ 2,389 22 %

Our revenues from Retail and Mass Transit Ticketing in the nine months ended September 30, 2020, increased by $2.3 million, or 27%, compared to the nine months ended September 30, 2019, mainly attributed to an increase in Retail sales in APAC, the United States and Europe, partially offset by a decrease in Mass Transit Ticketing sales in the Polish market as a result of the impact of COVID-19.

Our revenues in the nine months ended September 30, 2020, from Petroleum decreased by $354,000, or 15%, compared to the nine months ended September 30, 2019, mainly due to some sales that were planned to occur at the second quarter of 2020 and were postponed to the second half of 2020 as a result of the extended lockdown in South Africa.

~~Cost of Revenues and Gross Margin~~

~~Our cost of revenues, presented by gross profit and gross margin percentage, in the nine months ended September 30, 2020 and September 30, 2019, were as follows (in thousands):~~

Nine months ended
September 30,
Cost of revenues 2020 2019

Cost of sales $ 7,380 $ 5,273
Gross profit $ 5,561 $ 5,721
Gross margin percentage 43 % 52 %

~~Cost of sales.~~ The increase of $2.1 million, or 40%, in the nine months ended September 30, 2020, compared to the nine months ended September 30, 2019, resulted primarily from an increase in revenues mainly attributed to the increase in Retail sales in APAC, the United States and in Europe.

~~Gross margin.~~ The decrease in gross margin percentage in the nine months ended September 30, 2020, compared to the nine months ended September 30, 2019, is mainly attributed to a change in our revenue mix and attributed to the decrease in Mass Transit Ticketing sales in the Polish market as a result of the impact of COVID-19.

~~Operating expenses~~

~~Our operating expenses in the nine months ended September 30, 2020 and September 30, 2019, were as follows (in thousands):~~

Nine months ended
September 30,
Operating expenses 2020 2019
Research and Development $ 2,643 $ 2,528
Selling and Marketing $ 3,570 $ 3,798
General and Administrative $ 2,690 $ 3,081
Other gain, net $ - $ (335 )
Total operating expenses $ 8,903 $ 9,072

~~Research and development.~~ ~~The increase of $115,000, or 5%, in the nine months ended September 30, 2020, compared to the nine months ended September 30, 2019, is primarily attributed to an increase in subcontracting expenses.~~

~~Selling and marketing.~~ The decrease of $228,000, or 6%, in the nine months ended September 30, 2020, compared to the nine months ended September 30, 2019, is primarily attributed to a decrease in marketing and advertising expenses and a decrease in exhibition and traveling expenses as a result of the impact of COVID-19.

~~General and administrative.~~ The decrease of $391,000, or 13%, in the nine months ended September 30, 2020, compared to the nine months ended September 30, 2019, is primarily attributed to a decrease in salaries and other related employment expenses.

~~Other gain,~~ net. The change of $335,000 in the nine months ended September 30, 2020, compared to the nine months ended September 30, 2019, is mainly due to a capital gain from the sale of a building by our South African subsidiary in the third quarter of 2019.

~~Financing expenses, net~~

~~Our financing expenses, net, in the nine months ended September 30, 2020 and September 30, 2019, were as follows (in thousands):~~

Nine months ended
September 30,
2020 2019
Financing expenses, net $ (35 ) $ (199 )

The decrease of financing expenses, net, in the nine months ended September 30, 2020, compared to the nine months ended September 30, 2019, of $164,000, or 82%, is mainly due to an exchange rate differential.

~~Income tax benefits (expenses)~~

~~Our income tax benefits (expenses) in the nine months ended September 30, 2020 and September 30, 2019, were as follows (in thousands):~~

Nine months ended
September 30,
2020 2019
Income tax benefits (expenses) $ 89 $ (25 )

The change in our tax benefits (expenses) of $114,000 in the nine months ended September 30, 2020, compared to the three months ended September 30, 2019, derives mainly from deferred tax benefits in the Polish subsidiary in 2020.

~~Net loss from continuing operations~~

~~Our net lossfrom continuing operations in the nine months ended September 30, 2020 and September 30, 2019, was as follows (in thousands):~~

Nine months ended
September 30,

2020 2019
Net loss from continuing operations $ (3,288 ) $ (3,575 )

The decrease in net loss from continuing operations of $287,000, or 8%, in the nine months ended September 30, 2020, compared to the nine months ended September 30, 2019, is primarily attributed to a decrease in operating expenses, a decrease in financial expenses, net, and a change in income tax benefits (expenses), partially offset by a decrease in a gross profit, as described above.

~~Net loss from discontinued operations~~

~~Our net loss from discontinued operations in the nine months ended September 30, 2020 and September 30, 2019, was as follows (in thousands):~~

Nine months ended
September 30,

2020 2019
Net loss from discontinued operations $ (125 ) $ (279 )

Our net losses from discontinued operations for the reporting periods are presented in the statements of operations as discontinued operations separately from continuing operations. The decrease in the net loss from discontinued operations of $154,000, or 55%, in the nine months ended September 30, 2020, compared to the nine months ended September 30, 2019, is mainly due to a decrease in expenses relating to legal proceedings.

~~Net loss~~

~~Our net loss in the nine months ended September 30, 2020 and September 30, 2019, was as follows (in thousands):~~

Nine months ended
September 30,

2020 2019
Net loss $ (3,413 ) $ (3,854 )

The decrease in net loss of $441,000, or 11% in the nine months ended September 30, 2020, compared to the nine months ended September 30, 2019, is primarily attributed to a decrease in operating expenses, a decrease in financial expenses, net, a change in income tax benefits (expenses) and a decrease in loss from discontinued operations, partially offset by a decrease in ~~a gross profit,~~our operating expenses, as described above.

Liquidity and Capital Resources

Our principal sources of liquidity since our inception have been revenues, proceeds from sales of equity securities, borrowings from banks, governments and ~~government, cash~~shareholders, including convertible loans, proceeds from the exercise of options and warrants ~~and~~as well as proceeds from the divestiture of ~~part~~parts of our businesses. As of ~~September 30, 2020,~~March 31, 2021, we had cash, cash equivalents and short-term investments representing bank deposits of ~~$3.2~~$1.1 million (of which an amount of $105,000 has been pledged as security for certain items). , excluding cash and cash equivalents held for sale.

The recent deterioration in the COVID-19 pandemic situation in Poland ~~has~~ led to an almost complete stop to our Mass Transit Ticketing sales business, which negatively ~~impacting~~impacted our cash ~~flow. Based~~flow since March 2020. On April 21, 2021, we completed the sale of our wholly owned Polish subsidiary, ASEC, including our Mass Transit Ticketing activity.

In December 2020 and January 2021, we borrowed a loan, or the Convertible Loan, in two tranches aggregating $1.6 million, from Jerry Ivy, Jr. Descendants’ Trust, our controlling shareholder, and another shareholder that, if not converted, would mature on June 17, 2021. The Convertible Loan and accrued interest, may be converted, at the ~~projected cash flows~~discretion of our controlling shareholder into our ordinary shares at a conversion price of approximately $0.174 if converted on or before June 17, 2021 and our cash balances as of September 30, 2020, our management is of the opinion that without further fund raising or other increase in our cash, we will not have sufficient resources to enable us to continue our operations for a period of at least the next 12 months. As a result, there is a substantial doubt regarding our ability to continue as a going concern. $0.124 thereafter.

Our management has taken cost reduction steps, including material reductions in the salaries of our management and ~~employees.~~ employees, and has been working for the past few months on updating our strategy for the coming years in order to realize our potential and resume our growth, and ultimately create shareholder value. We are attempting to raise additional funds and to increase our cash. ~~While~~In April 2021, we ~~believe in our ability to raise additional funds and increase our cash, there can be no assurances to that effect.~~

~~On December 23, 2019, we entered into~~commenced a ~~share purchase agreement, or the Agreement,~~rights offering with ~~Jerry L Ivy, Jr. Descendants Trust, or Ivy, and two other investors, or collectively together with Ivy, the Investors. The Agreement relates to a private placement of~~ an aggregate price of up to ~~12,500,000~~$3.3 million (if fully subscribed) and a subscription price per share of $0.174. Our controlling shareholder, has provided a commitment letter pursuant to which it committed to exercise its basic subscription rights as part of the rights offering and its over-subscription privilege for up to approximately $2.8 million in the aggregate, subject, however, to the limitation that such holdings, including any of its affiliates, will not exceed 45% or more of our ~~ordinary shares for aggregate gross proceeds to us of up to $2,500,000.~~

~~As part of this Agreement, in December 2019~~issued and ~~January 2020, we issued 5,460,000 and 1,040,000 ordinary shares, respectively, for aggregate gross proceed of $1,092,000 and $208,000 respectively. Under the term~~outstanding share capital after conclusion of the ~~Agreement and following~~rights offering. The rights offering expires on May 19, 2021. Based on the ~~issuance~~commitment letter of ~~those shares,~~our controlling shareholder, we appointed one representative to our Board of Directors, designated by Ivy. Also, pursuant to the Agreement, Ivy has a right to purchase any future equity securities offered by us, except with respect to certain exempt issuances as set forth in the Agreement.

The issuance of the remaining 6,000,000 ordinary shares, or the Subsequent Closing, for aggregate gross proceeds of $1,200,000 took place in April 2020, following the approval by our shareholders on April 14, 2020. We expectbelieve that we ~~will need~~have sufficient capital resources to ~~raise additional funds~~fund our operations for at least the next 12 months. In addition, we engaged an investment bank to explore strategic options and are investing resources in ~~order to finance our growth and to satisfy our working capital needs.~~this process.

In connection with the outbreak of ~~the~~ COVID-19, ~~pandemic,~~ we have taken steps to protect our workforce in Israel, the United States, Poland, South Africa and elsewhere. Such steps include work from home where possible, minimizing face-to-face meetings and utilizing video conference as much as possible, social distancing at facilities and elimination of all international travel. We continue to comply with all local health directives.

So far, the ~~most significant~~ main direct impact of the COVID-19 pandemic ~~has been~~was a decrease in our revenues derived from Mass Transit Ticketing ~~sales~~activity in the Polish market. The revenues from this operation, that were relatively stable during the year preceding the COVID-19 outbreak, decreased by ~~approximately $1.6 million~~$295,000 in the ~~nine months ended September 30, 2020,~~first quarter of 2021 compared to ~~nine months ended September 30, 2019,~~the first quarter of 2020, mainly due to the lockdown and other restrictions and consequences of the COVID-19 as started in March 2020. ~~This impact is expected to continue~~On April 21, 2021, we completed the sale of ASEC, including our Mass Transit Ticketing activity, as mentioned above. The results, including the revenues, and the cash flows of the Mass Transit Ticketing 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. The consideration for the ~~foreseeable future. In addition, recently, as a result~~sale of ~~COVID-19, some~~ASEC was agreed to equal $3 million, of ~~our customers have delayed issuance of orders in our pipeline~~which approximately $2.1 million was used to repay Polish bank loans and ~~cancelled a few other orders, which~~was reduced our pipeline. As a response to the effect of COVID-19, we have taken steps to reduce some costs that are not essential under the current circumstances. and most recently we took additional steps to reduce our cash expenses, including voluntaryby an agreed upon reduction of ~~salaries to our management and employees.~~approximately $300,000 due working capital adjustments. Accordingly, we received net cash of $600,000 from the ASEC sale in April 2021.

Another impact of COVID-19 has been on product delivery, where components’ procurement lead time is longer and a shortage in components has grown as the duration of the COVID-19 pandemic has continued. As long as the COVID-19 pandemic continues, the components’ lead time may be longer than normal and the shortage in components may continue or get worse. Therefore, we maintain a comprehensive network of world-wide suppliers.

Due to the extended lockdown in South Africa in the second quarter of 2020, some of the sales that were planned to occur at the second quarter of 2020 were postponed to the second half of 2020 and therefore caused a decrease in the revenues derived from the Petroleum segment in the nine month period ended September 30, 2020, compared to the nine month period ended September 30, 2019.

~~As for our Retail activity, we~~We have seen a higher interest from a growing number of potential customers and partners as they forecasted that the need for our products will grow, yet execution of ~~closings~~closing is still slow due to the current business environment.

It is difficult to predict what ~~additional~~other impacts the COVID-19 pandemic may have on us.

In addition, on May 11, 2020, based on Polish government regulations introduced in relation to the COVID-19 pandemic, ASEC S.A. (Spolka Akcyjna), a wholly-owned Polish subsidiary of the Company, or the Subsidiary, received the consent of PKO Bank Polski, a Polish bank, or the Lender, to postpone the maturity date of a secured loan, provided to the Subsidiary in May 2019 and reported then, in the amount of $2,000,000, by six months, to November 22, 2020, instead of May 23, 2020, as the loan agreement provided. On November 16, 2020, following the Subsidiary’s request, the Subsidiary received the consent of the Lender to further postpone the maturity date of the loan to December 22, 2020. The loan will be payable in full on maturity (with the option of early repayment by the Subsidiary) and the interest of 1-month LIBOR plus 1.8% is paid on a monthly basis. The loan is secured by certain assets of the Subsidiary. The loan agreement includes customary events of default, including, among others, failures to repay any amounts due to the Lender, breaches or defaults under the terms of the loan agreement, etc. If an event of default occurs, the Lender may reduce the amount of the loan, demand an additional security or terminate the agreement.

As part of an additional Polish government assistance, the Subsidiary received a long-term loan in an amount of approximately $800,000 through another Polish bank in June 2020. Depending on some scenarios, such as average number of employees and financial results, a portion of the loan may be forgiven. The loan will be repaid in 24 monthly equal installments starting in July 2021. This loan is denominated in Polish Zloty and does not bear interest. In the event of breach by the Subsidiary of any of the obligations, as described in the loan agreement, the bank may terminate such agreement. In such a case, the long-term loan shall become due and payable within 14 business days from receipt of the termination notice.

Our manufacturing facilities and certain equipment have been pledged as security in respect of a loan received from a bank. Our short-term deposits in the amount of $105,000 have been pledged as security in respect of credit lines received from a bank. Such deposits cannot be pledged to others or withdrawn without the consent of the bank.

~~As of September 30, 2020, we granted guarantees to third parties including performance guarantees in the sum of $505,000. The expiration dates of the guarantees range from January 2021 to May 2024.~~

Operating activities related to continuing operations

For the ~~nine~~three months ended ~~September 30, 2020,~~March 31, 2021, net cash used in continuing operating activities was ~~$2.4~~$1.5 million primarily due to a ~~$401,000~~$2.7 million net loss from continuing operations, a $764,000 increase in trade receivables, a ~~$244,000~~$169,000 decrease in ~~other current liabilities, $107,000 of deferred tax benefits, net, $102,000 of~~trade payables, a $169,000 change in accrued interest and linkage differences, ~~income, net,~~$13,000 of deferred tax benefits and a ~~$48,000 increase~~$13,000 change in ~~inventory,~~accrued severance pay, partially offset by ~~$924,000~~a $2.0 million loss from change in fair value of embedded derivative, a $152,000 increase in other current liabilities, a $110,000 decrease in inventory, $100,000 of depreciation and amortization, ~~expenses,~~ a ~~$610,000~~$50,000 decrease in other receivables and prepaid expenses, ~~a $204,000 increase in trade payables, $41,000~~$14,000 of expenses due to stock-based compensation issued to employees and ~~a $21,000 change in accrued severance pay, net.~~others and $10,000 of transaction expenses related to the convertible short-term loan received from shareholders.

For the ~~nine~~three months ended ~~September 30, 2019,~~March 31, 2020, net cash used in continuing operating activities was ~~$1.9 million,~~$32,000 primarily due to a ~~$879,000~~$867,000 increase in ~~inventory,~~trade receivables, a ~~$585,000 decrease~~$576,000 net loss from continuing operations, a $156,000 change in accrued interest and linkage differences, $11,000 of deferred tax benefits and a $8,000 change in accrued severance pay, partially offset by a $596,000 increase in other current liabilities, a $328,000 gain on sale of property and equipment, $48,000 of accrued interest and linkage differences income, net and $25,000 of deferred tax benefits, net, partially offset by a $1.6 million decrease in trade receivables, $951,000 of depreciation and amortization expenses, a $506,000$429,000 increase in trade payables, a ~~$395,000~~$386,000 decrease in inventory, $108,000 of depreciation and amortization, a $55,000 decrease in other receivables and prepaid expenses ~~$96,000~~and a $12,000 of expenses due to stock-based compensation issued to employees and ~~a $66,000 change in accrued severance pay, net.~~others.

Operating activities related to discontinued operations

For the ~~nine~~three months ended ~~September 30, 2020,~~March 31, 2021, net cash ~~used in~~provided by discontinued operating activities was ~~$572,000,~~$3,000, mainly related to ~~reduction in~~ the ~~amount we~~Mass Transit Ticketing operations that were ~~entitled to receive in connection with our lawsuit against Harel Insurance Company Ltd.~~managed by ASEC.

For the ~~nine~~three months ended ~~September 30, 2019,~~March 31, 2020, net cash used in discontinued operating activities was $1.4 million, mainly related to the ~~dispute regarding Merwell Inc. related~~Mass Transit Ticketing operations that were managed by ASEC and to ~~the SmartID division.~~expenses derived from legal proceedings with Harel Insurance Company Ltd.

Investing and financing activities related to continuing operations

For the ~~nine~~three months ended ~~September 30,~~March 31, 2021, net cash used in continuing investing activities was $29,000, due to $29,000 of purchases of long-lived assets.

For the three months ended March 31, 2020, net cash provided by continuing investing activities was ~~$721,000, mainly~~$1.4 million, due to a ~~$1.7~~change of $1.5 million ~~change~~ in short-term investments, net, partially offset by ~~$994,000~~$103,000 of purchases of ~~property and equipment and intangible~~long-lived assets.

For the ~~nine~~three months ended ~~September 30, 2019,~~March 31, 2021, net cash used in continuing ~~investing~~financing activities was ~~$455,000, mainly~~$201,000, due to ~~$978,000~~a $1.2 million decrease in ~~proceeds of~~ short-term ~~investments,~~bank credit, net and ~~$589,000~~a $2,000 repayment of ~~purchases of property and equipment and intangible assets,~~long-term loans, partially offset by ~~$1.1 million in~~$961,000 proceeds from ~~the sale~~convertible short-term loan received from shareholders, net of ~~property and equipment and $10,000 in proceeds from restricted deposits for employee benefits.~~transaction expenses.

For the ~~nine~~three months ended ~~September 30,~~March 31, 2020, net cash provided by continuing financing activities was ~~$2.3 million,~~$306,000, mainly due to ~~$1.4 million in~~$200,000 of proceeds from issuance of shares, net of issuance costs, ~~$799,000 in proceeds from long-term bank loans~~ and a ~~$161,000~~$111,000 increase in short-term bank credit, net, partially offset by a $5,000 repayment of ~~$8,000 of~~ long-term ~~bank~~ loans.

For the nine months ended September 30, 2019, net cash provided by continuing financing activities was $2.4 million, mainly due to a $2.6 million increase in short-term bank credit, net, partially offset by a repayment of $261,000 of long-term bank loans.

In addition, on May 24, 2019, the Subsidiary 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, 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 was scheduled to mature on May 23, 2020. On May 11, 2020, based on Polish government regulations introduced in relation to the COVID-19 pandemic, the Subsidiary received the consent of the Lender to postpone the maturity date of the Loan Commitment by six months to November 22, 2020 instead of May 23, 2020. On November 16, 2020, following the Subsidiary’s request, the Subsidiary received the consent of the Lender to further postpone the maturity date of the Secured Loan to December 22, 2020. The Secured Loan is payable in full on maturity (with the option of early repayment from the Subsidiary side) and the interest is 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%. 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

For the three months ended March 31, 2021, net cash provided by discontinued investing activities was $2.1 million mainly related to the proceeds from the sale of ASEC that were received prior to the closing to repay certain debt in Poland.

For the three months ended March 31, 2020, net cash used in discontinued investing activities was $66,000, mainly related to the purchase of long-lived assets for the Mass Transit Ticketing operations.

We had no cash flows provided by or used in discontinued ~~investing or~~ financing activities in the ~~nine~~three months ended ~~September 30,~~March 31, 2021.

For the three months ended March 31, 2020, ~~and September 30, 2019.~~net cash provided by discontinued financing activities was $49,000, mainly related to an increase in short-term bank credit, net, for the Mass Transit Ticketing operations.

Off Balance Sheet Arrangements

We have no ~~off-balance~~off balance sheet arrangements.

Item 4. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures - Our management, including our 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 ~~September 30, 2020.~~March 31, 2021. 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 ~~September 30, 2020~~March 31, 2021 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II - OTHER INFORMATION

Item 1. Legal Proceedings.

For information with respect to legal proceedings to be disclosed under this Item, see ~~Notes 7A(1) and 7A(2)~~Note 6A to ~~our~~the consolidated Financial Statements included under Part I Item I1 in this Quarterly Report.

Item ~~1A. Risk Factors.~~

~~Our business faces many risks, a number~~2. Unregistered Sales of which are described under the caption “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2019. Other than as set forth below, there have been no material changes from the risk factors previously disclosed in such Annual Report. The risks described in such Annual ReportEquity Securities and ~~below may not be the only risks we face. Other risks~~Use of which we are not yet aware, or that we currently believe are not material, may also materially and adversely impact our business operations or financial results. If any of the events or circumstances described in the risk factors contained in our Annual Report on Form 10-K for the fiscal year ended December 31, 2019 or described below occurs, our business, financial condition or results of operations could be adversely impacted and the value of an investment in our securities could decline. Investors and prospective investors should consider the risks described in our Annual Report on Form 10-K for the fiscal year ended December 31, 2019 and below, and the information contained under the caption “Forward-Looking Statements” and elsewhere in this Quarterly Report on Form 10-Q before deciding whether to invest in our securities.

~~We face risks resulting from the recent outbreak of the COVID-19 pandemic, which could have a material adverse effect on our business and results of operations.~~Proceeds.

Our operations and business could be materially adversely affected by the recent outbreak of COVID-19. Our revenues from Mass Transit Ticketing sales in the Polish market decreased during the nine months ended September 30,In December 2020 and ~~are expected to continue to decrease~~January 2021, we borrowed a loan, in two tranches aggregating $1.6 million, from our controlling shareholder, and another shareholder that would mature on June 17, 2021. On March 2, 2021, our shareholders approved, as required under Israeli law, that such loan may be converted. Accordingly, such loan and accrued interest, may be converted, at the ~~foreseeable future compared to 2019. Additionally, recently, as a result of COVID-19, some~~discretion of our ~~customers have delayed issuance~~controlling shareholder into our ordinary shares at a conversion price of ~~orders in our pipeline~~approximately $0.174 if converted on or before June 17, 2021 and ~~cancelled a few other orders, which reduced our pipeline. In addition,~~$0.124 thereafter. We extended the ~~execution of transactions related~~loan, assuming it may be converted, pursuant to ~~our Retail activity is slow due to COVID-19 and there is no assurance that we will close any~~an exemption from registration under Section 4(a)(2) of the ~~potential transactions with customers and partners. Further, another impact~~Securities Act of ~~COVID-19 is on product delivery, where components’ procurement lead time is longer and a shortage in components has grown~~1933, as the duration of the COVID-19 pandemic has continued. As long as the COVID-19 pandemic continues, the components’ lead time may be longer than normal and shortages in component may continue or get worse. Although we maintain a comprehensive network of world-wide suppliers to handle such delays in delivery, we may still suffer delays. Additionally, some of our finance team members were in quarantine. Simultaneously, we are attempting to comply with rapidly changing restrictions, such as travel restrictions, curfews and others. In particular, following recommendations from the Israeli Ministry of Health and the Ministry of Finance, in March 2020, the Israeli prime minister announced restrictions under which businesses in the private sector must reduce their onsite workforce. Currently travel to and from work is still permitted; however, the authorities may place additional, more restrictive measures on businesses and individuals. Though we may still operate under such regulations, any additional actions taken by the Israeli government could further limit that ability, which may have a material adverse effect on our operations and financial results. A significant reduction in our workforce and our compliance with instructions imposed by Israeli authorities may harm our ability to continue operating our business and materially and adversely affect our operations and financial condition. Further, we cannot assure you that we will be designated an “essential business”, as defined under regulatory instructions, and moreover, we cannot foresee whether the Israeli authorities will impose further restrictive instructions, which if implemented may lead to significant changes.amended.

Authorities around the world have and may continue implementing similar restrictions on business and individuals in their jurisdictions. We are still assessing our business operations and system supports and the impact COVID-19 may have on our results and financial condition. To date, we have taken action to reduce our operating expenses in the short term, but there can be no assurance that this analysis or remedial measures will enable us to avoid part or all of any impact from the spread of COVID-19 or its consequences.

We do not have enough existing cash resources to fund our operations for the next twelve months and if we are unable to secure additional capital, we may be required to seek strategic alternatives, including but not limited to reducing or ceasing our operations.

Our principal sources of liquidity since our inception have been revenues, proceeds from sales of equity securities, borrowings from banks and government, cash from the exercise of options and warrants and proceeds from the divestiture of part of our businesses. As of September 30, 2020, we had cash, cash equivalents and short-term investments representing bank deposits of $3.2 million (of which an amount of $105,000 has been pledged as security for certain items). Based on the projected cash flows and our cash balances as of September 30, 2020, our management is of the opinion that without further fund raising or other increase in our cash, we will not have sufficient resources to enable us to continue our operations for a period of at least the next 12 months. As a result, there is a substantial doubt about our ability to continue as a going concern. We are attempting to raise additional funds and to increase our cash. While we believe in our ability to raise additional funds and increase our cash, there can be no assurances to that effect.

If additional financing is not available when required or is not available on acceptable terms, we may be unable to take advantage of business opportunities or respond to competitive pressures, which could have a material adverse effect on our revenue, results of operations and financial condition. To preserve our cash resources, we may be required to reorganize our operations. If we are unable to fund our operations without additional external financing and therefore cannot sustain future operations, we may be required to cease our operations and/or seek bankruptcy protection.

Item~~Item 5. Other Information.~~

~~On November 22, 2020, as part of the~~ ~~cost reduction steps taken by~~ ~~our~~ ~~management, our~~ ~~Board of Directors and Compensation Committee~~ ~~approved material reductions in the salaries of our management members and senior employees~~.

With respect to Mr. Yehuda Holtzman, our Chief Executive Officer, the Board of Directors and the Compensation Committee approved that, subject to the Company’s shareholders approval, effective November 1, 2020, Mr. Holtzman’s monthly gross salary is decreased for a period of one year from NIS 76,000 to NIS 58,520.

With respect to Mr. Assaf Cohen, our Chief Financial Officer, the Board of Directors and the Compensation Committee approved that effective November 1, 2020, Mr. Cohen’s monthly gross salary is decreased for a period of one year from NIS 45,000 to NIS 34,650.

Also on November 22, 2020, as part of our management’s efforts to reduce costs, four of our board members, Ms. Sandra Bjork Hardardottir, Mr. Leonid Berkovich, Ms. Donna Seidenberg Marks and Michael Shanahan, volunteered to reduce their compensation by 25%, such that the cash compensation paid to each of these directors effective November 22, 2020, shall be as follows: Annual compensation of NIS 36,833 (approximately $11,000), meeting participation fees of NIS 2,462 (approximately $740) per in-person meeting, meeting participation by telephone fees of NIS 1,478 (approximately $440) per meeting and NIS 1,232 (approximately $370) per written resolution. In addition, on November 22, 2020, our fifth director, William C. Anderson, volunteered to receive no compensation from the Company effective November 22, 2020. The reduction in the directors fees will be revisited in six months.

~~Item~~ 6. Exhibits.

3.1		Amended and Restated Articles of Incorporation, as amended on April 14, 2020 (incorporated by reference to the Company’s ~~Quarterly Report~~report on Form 10-Q ~~for~~filed with the ~~quarter ended March 31,~~SEC on May 12, 2020).

3.2		Memorandum of Association, as amended and restated after the April 14, 2020 amendment (incorporated by reference to the Company’s ~~Quarterly Report~~report on Form 10-Q ~~for~~filed with the ~~quarter ended March 31,~~SEC on May 12, 2020).

~~10.1~~31.1*		Addendum to Loan Agreement, dated November 16, 2020, by and between ASEC S.A. (Spolka Akcyjna) and PKO Bank Polski, a Polish bank. (translated from Polish) (incorporated by reference to the Company’s Current Report on Form 8-K filed on November 19, 2020).

31.1*		Rule 13a-14(a) Certification of Chief Executive Officer.

31.2*		Rule 13a-14(a) Certification of Chief Financial Officer.

32.1**		Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350.

32.2**		Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350.

101 *		The following materials from our Quarterly Report on Form 10-Q for the quarter ended ~~September 30, 2020~~March 31, 2021 formatted in XBRL (eXtensible Business Reporting Language): (i) the Interim Condensed Consolidated Balance Sheets, (ii) the Interim Condensed Consolidated Statements of Operations, (iii) the Interim Condensed Consolidated Statements of Comprehensive Loss, (iv) the Interim Condensed Statements of Changes in Equity, (v) the Interim Condensed Consolidated Statements of Cash Flows, and (vi) the Notes to Interim Condensed Consolidated Financial Statements, tagged as blocks of text and in detail.

Filed herewith.

Furnished herewith.

SIGNATURES

In accordance with the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

ON TRACK INNOVATIONS LTD.

By:	/s/ Yehuda Holtzman
		Yehuda Holtzman, Chief Executive Officer
		(Principal Executive Officer)
		Dated: ~~November 23, 2020~~May 13, 2021

By:	/s/ Assaf Cohen
		Assaf Cohen, Chief Financial Officer
	(Principal Financial and Accounting Officer)
		Dated: ~~November 23, 2020~~May 13, 2021

Israel		N/A
(State or other jurisdiction of of incorporation or organization)		(IRS Employer Identification No.)


Hatnufa 5, Yokneam Industrial Zone Box 372, Yokneam, Israel		2069200
(Address of principal executive offices)		(Zip Code)

Title of each class		Trading Symbol(s)		Name of each exchange on which registered
None

Large accelerated filer	☐	Accelerated filer	☐	Non-accelerated filer	☒	Smaller reporting company	☒
Emerging growth company	☐

	~~Page~~
	Page
Interim Unaudited Condensed Consolidated Balance Sheets		F-2 - F-3

Interim Unaudited Condensed Consolidated Statements of Operations		F-4

Interim Unaudited Condensed Consolidated Statements of Comprehensive Loss		F-5

Interim Unaudited Condensed Consolidated Statements of Changes in Equity		F-6 ~~- F-7~~

Interim Unaudited Condensed Consolidated Statements of Cash Flows	~~F-8~~	F-7 - ~~F-9~~F-8

Notes to the Interim Unaudited Condensed Consolidated Financial Statements	~~F-10~~	F-9 - ~~F-27~~F-29

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~~	15

~~Part II - Other Information~~

~~Item 1.~~	~~Legal Proceedings~~	16

~~Item 1A.~~	~~Risk Factors~~	16

Item 5.4.	~~Other Information~~Controls and Procedures	17	9

Part II - Other Information

Item 1.	Legal Proceedings		10

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		10

Item 6.	Exhibits	18	10

	~~Signature~~Signatures	19	11

	Three months ended September 30,						Nine months ended September 30,
	2020			2019			2020			2019

Revenues
Sales	$	2,868		$	2,631		$	10,262		$	7,286
Licensing and transaction fees		769			1,234			2,679			3,708

Total revenues		3,637			3,865			12,941			10,994

Cost of revenues
Cost of sales		2,142			2,161			7,380			5,273
Total cost of revenues		2,142			2,161			7,380			5,273

Gross profit		1,495			1,704			5,561			5,721
Operating expenses
Research and development		841			840			2,643			2,528
Selling and marketing		1,215			1,193			3,570			3,798
General and administrative		958			1,070			2,690			3,081
Other gain, net		-			(335	)		-			(335	)

Total operating expenses		3,014			2,768			8,903			9,072

Operating loss from continuing operations		(1,519	)		(1,064	)		(3,342	)		(3,351	)

Financial expenses, net		(80	)		(93	)		(35	)		(199	)

Loss from continuing operations before taxes on income		(1,599	)		(1,157	)		(3,377	)		(3,550	)

Income tax benefits (expenses)		60			(17	)		89			(25	)

Loss from continuing operations		(1,539	)		(1,174	)		(3,288	)		(3,575	)
Loss from discontinued operations		(82	)		(36	)		(125	)		(279	)

Net loss		(1,621	)		(1,210	)		(3,413	)		(3,854	)

Basic and diluted net loss attributable to shareholders per ordinary share
From continuing operations		(0.03	)		(0.03	)		(0.07	)		(0.09	)
From discontinued operations		(*	)		(*	)		(*	)		(*	)

	$	(0.03	)	$	(0.03	)	$	(0.07	)	$	(0.09	)

Weighted average number of ordinary shares used in computing basic and diluted net loss per ordinary share		53,824,377			41,324,377			51,448,903			41,306,575

Remainder of 2020	$	276
2021		1,052
2022		832
2023		522
2024		343
Thereafter		1,234
Total leases payments		4,259
Less - discount		590
Operating lease liabilities	$	3,669

	Three months ended
	September 30, 2020
	Retail and Mass Transit Ticketing		Petroleum		Total
Cashless payment products (A)	$	1,999	$	-	$	1,999

Complete cashless payment solutions (B):
Sales of products (B1)		103		529		632
Licensing fees, transaction fees and services (B2)		779		227		1,006
		882		756		1,638

Total revenues	$	2,881	$	756	$	3,637

	Nine months ended
	September 30, 2020
	Retail and Mass Transit Ticketing		Petroleum		Total
Cashless payment products (A)	$	6,311	$	-	$	6,311

Complete cashless payment solutions (B):
Sales of products (B1)		2,216		1,404		3,620
Licensing fees, transaction fees and services (B2)		2,379		631		3,010
		4,595		2,035		6,630
Total revenues	$	10,906	$	2,035	$	12,941

	Number of options outstanding			Weighted average exercise price per share
Outstanding – December 31, 2019		809,000		$	0.93

Options granted		814,000			0.24
Options expired or forfeited		(106,500	)		0.81
Outstanding – September 30, 2020		1,516,500			0.57

Exercisable as of:
December 31, 2019		505,657		$	1.06
September 30, 2020		518,990		$	1.00

	Three months ended September 30, 2019
	Petroleum		Retail and Mass Transit Ticketing		Consolidated

Revenues	$	929	$	2,936	$	3,865

Reportable segment gross profit *		310		1,585		1,895

Reconciliation of reportable segment gross profit to gross profit for the period

Depreciation						(190	)
Stock-based compensation						(1	)

Gross profit for the period in the consolidated financial statement					$	1,704

	Nine months ended September 30, 2020
	Petroleum		Retail and Mass Transit Ticketing		Consolidated

Revenues	$	2,035	$	10,906	$	12,941

Reportable segment gross profit *		896		5,248		6,144

Reconciliation of reportable segment gross profit to gross profit for the period

Depreciation						(582	)
Stock-based compensation						(3	)

Gross profit for the period in the consolidated financial statement					$	5,559

	Nine months ended September 30, 2019
			Retail and
			Mass Transit
	Petroleum		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 gross profit for the period

Depreciation						(588	)
Stock-based compensation						(3	)

Gross profit for the period in the consolidated financial statement					$	5,721

Three months ended September 30,	Africa				Europe				APAC				Americas
2020	$	410	11	%	$	1,916	53	%	$	256	7	%	$	1,055	29	%
2019	$	492	13	%	$	1,714	44	%	$	214	6	%	$	1,445	37	%

Three months ended September 30,	Retail and Mass Transit Ticketing				Petroleum
2020	$	2,881	79	%	$	756	21	%
2019	$	2,935	76	%	$	930	24	%

Nine months ended September 30,	Africa				Europe				APAC				Americas
2020	$	1,164	9	%	$	6,026	47	%	$	2,131	16	%	$	3,620	28	%
2019	$	1,527	14	%	$	5,632	51	%	$	881	8	%	$	2,954	27	%