UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One)
☒ QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31,September 30, 2021
☐ TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from
__________ to __________
Commission file number 000-49877
| ON TRACK INNOVATIONS LTD. |
| (Exact name of registrant as specified in its charter) |
| Israel | N/A | |
| (State or other jurisdiction of incorporation or organization) | (IRS Employer Identification No.) |
| Hatnufa 5, Yokneam Industrial Zone Box 372, Yokneam, Israel | 2069200 | |
| (Address of principal executive offices) | (Zip Code) |
Registrant’s telephone number, including area code: + 972-4-6868000
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
| None |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☐ | Accelerated filer | ☐ | Non-accelerated filer | ☒ | Smaller reporting company | ☒ |
| Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ☐ No ☒
Indicate the number of shares outstanding of each of the issuer’s classes of common stock as of the latest practicable date: 53,824,37772,789,893 Ordinary Shares outstanding as of May 10,November 9, 2021.
ON TRACK INNOVATIONS LTD.
TABLE OF CONTENTS
i
PART I - FINANCIAL INFORMATION
ON TRACK INNOVATIONS LTD. AND ITS SUBSIDIARIES
INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
As of March 31,September 30, 2021
(Unaudited)
1
On Track Innovations Ltd.
and its Subsidiaries
Interim Condensed Consolidated
Financial Statements
As of September 30, 2021
(Unaudited)
On Track Innovations Ltd.
and its Subsidiaries
| Interim Unaudited Condensed Consolidated Financial Statements as of |
Contents
F-1
On Track Innovations Ltd.
and its Subsidiaries
| Interim Unaudited Condensed Consolidated Balance Sheets |
Interim Unaudited Condensed Consolidated Balance Sheets
US dollars in thousands except share and per share data
| March 31 | December 31 | |||||||
| 2021 | 2020 | |||||||
| Assets | ||||||||
| Current assets | ||||||||
| Cash and cash equivalents | $ | 979 | $ | 1,377 | ||||
| Short-term investments | 105 | 105 | ||||||
| Trade receivables (net of allowance for doubtful accounts of $608 and $620 as of March 31, 2021 and December 31, 2020, respectively) | 1,759 | 1,148 | ||||||
| Other receivables and prepaid expenses | 645 | 695 | ||||||
| Inventories | 2,369 | 2,479 | ||||||
| Assets from discontinued operations - held for sale | 6,559 | 6,358 | ||||||
| Total current assets | 12,416 | 12,162 | ||||||
| Non-current assets | ||||||||
| Long term restricted deposit for employee benefits | 493 | 511 | �� | |||||
| Severance pay deposits | 396 | 411 | ||||||
| Property, plant and equipment, net | 715 | 752 | ||||||
| Intangible assets, net | 229 | 247 | ||||||
| Right-of-use assets due to operating leases | 2,723 | 2,903 | ||||||
| Total non-current assets | 4,556 | 4,824 | ||||||
| Total Assets | $ | 16,972 | $ | 16,986 | ||||
| September 30, | December 31, | |||||||
| 2021 | 2020 | |||||||
| Assets | ||||||||
| Current assets | ||||||||
| Cash and cash equivalents | $ | 1,253 | $ | 1,377 | ||||
| Short-term investments | - | 105 | ||||||
| Trade receivables (net of allowance for doubtful accounts of $610 and $620 as of September 30, 2021 and December 31, 2020, respectively) | 3,839 | 1,148 | ||||||
| Other receivables and prepaid expenses | 1,142 | 695 | ||||||
| Inventories | 3,223 | 2,479 | ||||||
| Assets from discontinued operations - held for sale | - | 6,358 | ||||||
| Total current assets | 9,457 | 12,162 | ||||||
| Non-current assets | ||||||||
| Restricted bank deposit | 105 | - | ||||||
| Long-term restricted deposit for employee benefits | 509 | 511 | ||||||
| Severance pay deposits | 410 | 411 | ||||||
| Property, plant and equipment, net | 702 | 752 | ||||||
| Intangible assets, net | 171 | 247 | ||||||
| Right-of-use assets due to operating leases | 2,304 | 2,903 | ||||||
| Total non-current assets | 4,201 | 4,824 | ||||||
| Total Assets | $ | 13,658 | $ | 16,986 | ||||
The accompanying notes are an integral part of these interim unaudited condensed consolidated financial statements.
F-2
On Track Innovations Ltd.
and its Subsidiaries
| Interim Unaudited Condensed Consolidated Balance Sheets |
Interim Unaudited Condensed Consolidated Balance Sheets
US dollars in thousands except share and per share data
| March 31 | December 31 | |||||||
| 2021 | 2020 | |||||||
| Liabilities and Equity | ||||||||
| Current Liabilities | ||||||||
| Short-term bank credit and current maturities of long-term bank loans | $ | 1,109 | $ | 542 | ||||
| Convertible short-term loan from a controlling shareholder | 8 | 625 | ||||||
| Trade payables | 1,507 | 1,667 | ||||||
| Other current liabilities | 2,347 | 2,283 | ||||||
| Liabilities from discontinued operations - held for sale | 5,959 | 5,829 | ||||||
| Total current liabilities | 10,930 | 10,946 | ||||||
| Long-Term Liabilities | ||||||||
| Long-term loans, net of current maturities | 8 | 14 | ||||||
| Long-term liabilities due to operating leases, net of current maturities | 2,097 | 2,343 | ||||||
| Accrued severance pay | 949 | 977 | ||||||
| Total long-term liabilities | 3,054 | 3,334 | ||||||
| Total Liabilities | 13,984 | 14,280 | ||||||
| Commitments and Contingencies, see note 6 | ||||||||
| Equity | ||||||||
| Ordinary shares of NIS 0.1 par value: Authorized – 100,000,000 shares as of March 31, 2021 and December 31, 2020; issued: 55,003,076 shares as of March 31, 2021 and December 31, 2020; outstanding: 53,824,377 shares as of March 31, 2021 and December 31, 2020 | 1,423 | 1,423 | ||||||
| Additional paid-in capital | 230,789 | 227,209 | ||||||
| Treasury shares at cost - 1,178,699 shares as of March 31, 2021 and December 31, 2020 | (2,000 | ) | (2,000 | ) | ||||
| Accumulated other comprehensive loss | (1,098 | ) | (961 | ) | ||||
| Accumulated deficit | (226,126 | ) | (222,965 | ) | ||||
| Total Equity | 2,988 | 2,706 | ||||||
| Total Liabilities and Equity | $ | 16,972 | $ | 16,986 | ||||
| September 30, | December 31, | |||||||
| 2021 | 2020 | |||||||
| Liabilities and Equity | ||||||||
| Current Liabilities | ||||||||
| Short-term bank credit and loans and current maturities of long-term bank loans | $ | 1,863 | $ | 542 | ||||
| Convertible short-term loan from shareholders, including a controlling shareholder (See note 5) | 422 | 625 | ||||||
| Trade payables | 3,410 | 1,667 | ||||||
| Other current liabilities | 2,519 | 2,283 | ||||||
| Liabilities from discontinued operations - held for sale | - | 5,829 | ||||||
| Total current liabilities | 8,214 | 10,946 | ||||||
| Long-Term Liabilities | ||||||||
| Long-term loans, net of current maturities | 24 | 14 | ||||||
| Long-term liabilities due to operating leases, net of current maturities | 1,708 | 2,343 | ||||||
| Accrued severance pay | 993 | 977 | ||||||
| Total long-term liabilities | 2,725 | 3,334 | ||||||
| Total Liabilities | 10,939 | 14,280 | ||||||
| Commitments and Contingencies | ||||||||
| Equity | ||||||||
| Shareholders’ Equity | ||||||||
| Ordinary shares of NIS 0.1 par value: Authorized – 100,000,000 shares as of September 30, 2021 and December 31, 2020; issued: 73,968,592 and 55,003,076 shares as of September 30, 2021 and December 31, 2020, respectively; outstanding: 72,789,893 and 53,824,377 shares as of September 30, 2021, and December 31, 2020, respectively | 2,008 | 1,423 | ||||||
| Additional paid-in capital | 233,406 | 227,209 | ||||||
| Treasury shares at cost - 1,178,699 shares as of September 30, 2021 and December 31, 2020 | (2,000 | ) | (2,000 | ) | ||||
| Accumulated other comprehensive loss | (332 | ) | (961 | ) | ||||
| Accumulated deficit | (230,363 | ) | (222,965 | ) | ||||
| Total Equity | 2,719 | 2,706 | ||||||
| Total Liabilities and Equity | $ | 13,658 | $ | 16,986 | ||||
The accompanying notes are an integral part of these interim unaudited condensed consolidated financial statements.
F-3
On Track Innovations Ltd.
and its Subsidiaries
| Interim Unaudited Condensed Consolidated Statements of Operations |
Interim Unaudited Condensed Consolidated Statements of Operations
US dollars in thousands except share and per share data
| Three months ended March 31 | ||||||||
2021 | (*) 2020 | |||||||
| Revenues | ||||||||
| Sales | $ | 2,387 | $ | 3,343 | ||||
| Software as a Service (“SaaS”) | 382 | 324 | ||||||
| Total revenues | 2,769 | 3,667 | ||||||
| Cost of revenues | ||||||||
| Cost of sales | 1,366 | 2,021 | ||||||
| Total cost of revenues | 1,366 | 2,021 | ||||||
| Gross profit | 1,403 | 1,646 | ||||||
| Operating expenses | ||||||||
| Research and development | 838 | 893 | ||||||
| Selling and marketing | 605 | 698 | ||||||
| General and administrative | 746 | 802 | ||||||
| Total operating expenses | 2,189 | 2,393 | ||||||
| Operating loss from continuing operations | (786 | ) | (747 | ) | ||||
| Loss from change in fair value of embedded derivative | (1,974 | ) | - | |||||
| Other financial income, net | 4 | 176 | ||||||
| Financial (expenses) income, net | (1,970 | ) | 176 | |||||
| Loss from continuing operations before taxes on income | (2,756 | ) | (571 | ) | ||||
| Income tax benefits (expenses), net | 13 | (5 | ) | |||||
| Loss from continuing operations | (2,743 | ) | (576 | ) | ||||
| Loss from discontinued operations | (418 | ) | (93 | ) | ||||
| Net loss | $ | (3,161 | ) | $ | (669 | ) | ||
| Basic and diluted net loss attributable to shareholders per ordinary share | ||||||||
| From continuing operations | $ | (0.05 | ) | $ | (0.01 | ) | ||
| From discontinued operations | $ | (0.01 | ) | $ | (** | ) | ||
| $ | (0.06 | ) | $ | (0.01 | ) | |||
| Weighted average number of ordinary shares used in computing basic and diluted net loss per ordinary share | 53,824,377 | 47,790,091 | ||||||
| Three months ended September 30, | Nine months ended September 30, | |||||||||||||||
| 2021 | (*) 2020 | 2021 | (*) 2020 | |||||||||||||
| Revenues | ||||||||||||||||
| Sales | $ | 4,632 | $ | 2,624 | $ | 9,465 | $ | 9,718 | ||||||||
| Software as a Service (“SaaS”) | 407 | 362 | 1,194 | 972 | ||||||||||||
| Total revenues | 5,039 | 2,986 | 10,659 | 10,690 | ||||||||||||
| Cost of revenues | ||||||||||||||||
| Cost of sales | 3,715 | 1,834 | 6,955 | 6,213 | ||||||||||||
| Total cost of revenues | 3,715 | 1,834 | 6,955 | 6,213 | ||||||||||||
| Gross profit | 1,324 | 1,152 | 3,704 | 4,477 | ||||||||||||
| Operating expenses | ||||||||||||||||
| Research and development | 946 | 839 | 2,684 | 2,635 | ||||||||||||
| Selling and marketing | 701 | 765 | 2,042 | 2,348 | ||||||||||||
| General and administrative | 764 | 799 | 2,245 | 2,299 | ||||||||||||
| Total operating expenses | 2,411 | 2,403 | 6,971 | 7,282 | ||||||||||||
| Operating loss from continuing operations | (1,087 | ) | (1,251 | ) | (3,267 | ) | (2,805 | ) | ||||||||
| Financial expenses derived from convertible short-term loan from shareholders | (345 | ) | - | (2,398 | ) | - | ||||||||||
| Other financial expenses, net | (112 | ) | (72 | ) | (160 | ) | (5 | ) | ||||||||
| Financial expenses, net | (457 | ) | (72 | ) | (2,558 | ) | (5 | ) | ||||||||
| Loss from continuing operations before taxes on income | (1,544 | ) | (1,323 | ) | (5,825 | ) | (2,810 | ) | ||||||||
| Income tax benefits (expenses) | - | 8 | 13 | (9 | ) | |||||||||||
| Loss from continuing operations | (1,544 | ) | (1,315 | ) | (5,812 | ) | (2,819 | ) | ||||||||
| Loss (income from discontinued operations) | 29 | (306 | ) | (1,586 | ) | (594 | ) | |||||||||
| Net loss | $ | (1,515 | ) | $ | (1,621 | ) | $ | (7,398 | ) | $ | (3,413 | ) | ||||
Basic and diluted net loss attributable to shareholders per ordinary share | ||||||||||||||||
| From continuing operations | (0.02 | ) | (0.02 | ) | (0.09 | ) | (0.05 | ) | ||||||||
| From discontinued operations | (** | ) | (0.01 | ) | (0.03 | ) | (0.01 | ) | ||||||||
| $ | (0.02 | ) | $ | (0.03 | ) | $ | (0.12 | ) | $ | (0.06 | ) | |||||
| Weighted average number of ordinary shares used in computing basic and diluted net loss per ordinary share | 72,789,893 | (***)57,470,208 | 63,133,458 | (***)55,059,647 | ||||||||||||
| (*) | Reclassified to conform with the current period presentation, see Note 1C(2). |
| (**) | Less than $0.01 per ordinary share. |
| (***) | Basic and diluted net losses attributable to shareholders per ordinary share for previous reporting periods were retroactively adjusted due to the completion of rights offering, see Note 1E. |
The accompanying notes are an integral part of these interim unaudited condensed consolidated financial statements
On Track Innovations Ltd.
and its Subsidiaries
| Interim Unaudited Condensed Consolidated Statements of Comprehensive Loss |
US dollars in thousands
| Three months ended September 30, | Nine months ended September 30, | |||||||||||||||
| 2021 | (*) 2020 | 2021 | (*) 2020 | |||||||||||||
| Total comprehensive loss: | ||||||||||||||||
| Net loss | $ | (1,515 | ) | $ | (1,621 | ) | $ | (7,398 | ) | $ | (3,413 | ) | ||||
| Exchange differences on translation released following sale of a subsidiary | - | - | 746 | - | ||||||||||||
| Exchange differences on translation of foreign continuing operations | 20 | 18 | (65 | ) | (13 | ) | ||||||||||
| Exchange differences on translation of foreign discontinued operations | - | 58 | (52 | ) | (64 | ) | ||||||||||
| Total comprehensive loss | $ | (1,495 | ) | $ | (1,545 | ) | $ | (6,769 | ) | $ | (3,490 | ) | ||||
| (*) | Reclassified to conform with the current period presentation, see Note 1C(2). |
The accompanying notes are an integral part of these interim unaudited condensed consolidated financial statements.
F-4
On Track Innovations Ltd.
and its Subsidiaries
| Interim Unaudited Condensed Consolidated Statements of Changes in Equity |
Interim Unaudited Condensed Consolidated Statements of Comprehensive Loss
US dollars in thousands except number of shares
Three months ended | ||||||||
2021 | (*) 2020 | |||||||
| Total comprehensive loss: | ||||||||
| Net loss | $ | (3,161 | ) | $ | (669 | ) | ||
| Exchange differences on translation of foreign continuing operations | (85 | ) | 18 | |||||
| Exchange differences on translation of foreign discontinued operations | (52 | ) | (312 | ) | ||||
| Total comprehensive loss | $ | (3,298 | ) | $ | (963 | ) | ||
| 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, 2020 | 55,003,076 | $ | 1,423 | $ | 227,170 | $ | (2,000 | ) | $ | (1,127 | ) | $ | (218,624 | ) | $ | 6,842 | ||||||||||||
| Changes during the three month period ended September 30, 2020: | ||||||||||||||||||||||||||||
| Stock-based compensation | - | - | 13 | - | - | - | 13 | |||||||||||||||||||||
| Exchange differences on 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 | ||||||||||||
| Balance as of June 30, 2021 | 73,968,592 | $ | 2,008 | $ | 233,391 | $ | (2,000 | ) | $ | (352 | ) | $ | (228,848 | ) | $ | 4,199 | ||||||||||||
| Changes during the three month period ended September 30, 2021: | ||||||||||||||||||||||||||||
| Stock-based compensation | - | - | 15 | - | - | - | 15 | |||||||||||||||||||||
| Exchange differences on translation adjustments | - | - | - | - | 20 | - | 20 | |||||||||||||||||||||
| Net loss | - | - | - | - | - | (1,515 | ) | (1,515 | ) | |||||||||||||||||||
| Balance as of September 30, 2021 | 73,968,592 | $ | 2,008 | $ | 233,406 | $ | (2,000 | ) | $ | (332 | ) | $ | (230,363 | ) | $ | 2,719 | ||||||||||||
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, 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 | |||||||||||||||||||||
| Exchange differences on 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 | ||||||||||||
| Balance as of December 31, 2020 | 55,003,076 | $ | 1,423 | $ | 227,209 | $ | (2,000 | ) | $ | (961 | ) | $ | (222,965 | ) | $ | 2,706 | ||||||||||||
| Changes during the nine month period ended September 30, 2021: | ||||||||||||||||||||||||||||
| Issuance of shares, net of issuance costs of $128 (*) | 18,965,516 | 585 | 2,587 | - | - | - | 3,172 | |||||||||||||||||||||
| Stock-based compensation | - | - | 44 | - | - | - | 44 | |||||||||||||||||||||
| Exchange differences on translation adjustments | - | - | - | - | (**)629 | - | 629 | |||||||||||||||||||||
| Classification of embedded derivative from liability to equity (***) | - | - | 3,566 | - | - | - | 3,566 | |||||||||||||||||||||
| Net loss | - | - | - | - | - | (7,398 | ) | (7,398 | ) | |||||||||||||||||||
| Balance as of September 30, 2021 | 73,968,592 | $ | 2,008 | $ | 233,406 | $ | (2,000 | ) | $ | (332 | ) | $ | (230,363 | ) | $ | 2,719 | ||||||||||||
| (*) |
| (**) | Including exchange differences on translation released following sale of a subsidiary in amount of $746. |
| (***) | See Note 5. |
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 Cash Flows |
Interim Unaudited Condensed Consolidated Statements of Changes in Equity
US dollars in thousands
| 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 | ||||||||||||
| Nine months ended September 30, | ||||||||
| 2021 | (*) 2020 | |||||||
| Cash flows from continuing operating activities | ||||||||
| Net loss from continuing operations | $ | (5,812 | ) | $ | (2,819 | ) | ||
| Adjustments required to reconcile net loss to net cash used in by continuing operating activities: | ||||||||
| Stock-based compensation related to options and shares issued to employees and others | 44 | 41 | ||||||
| Accrued interest and linkage differences, net | (110 | ) | (102 | ) | ||||
| Financial expenses derive from convertible short-term loan from shareholders | 2,398 | - | ||||||
| Depreciation and amortization | 290 | 314 | ||||||
| Deferred tax (benefits) expenses, net | (13 | ) | 9 | |||||
| Changes in operating assets and liabilities: | ||||||||
| Change in accrued severance pay, net | 17 | 21 | ||||||
| Increase in trade receivables, net | (2,848 | ) | (432 | ) | ||||
| (Increase) decrease in other receivables and prepaid expenses | (420 | ) | 306 | |||||
| (Increase) decrease in inventories | (750 | ) | 253 | |||||
| Increase in trade payables | 1,739 | 1,087 | ||||||
| Increase (decrease) in other current liabilities | 58 | (305 | ) | |||||
| Net cash used in continuing operating activities | (5,407 | ) | (1,627 | ) | ||||
| Cash flows from continuing investing activities | ||||||||
| Purchase of property and equipment and intangible assets | (206 | ) | (336 | ) | ||||
| Change in short-term investments, net | - | 1,715 | ||||||
| Net cash (used in) provided by continuing investing activities | (206 | ) | 1,379 | |||||
| Cash flows from continuing financing activities | ||||||||
| (Decrease) increase in short-term bank credit, net | (406 | ) | 70 | |||||
| Convertible short-term loan received from shareholders, net of transaction expenses | 923 | - | ||||||
| Long-term loan received | 18 | - | ||||||
| Repayment of long-term loans | (4 | ) | (8 | ) | ||||
| Proceeds from issuance of shares, net of issuance costs | 3,209 | 1,369 | ||||||
| Net cash provided by continuing financing activities | 3,740 | 1,431 | ||||||
| Cash flows from discontinued operations | ||||||||
| Net cash used in discontinued operating activities | (1,724 | ) | (1,335 | ) | ||||
| Net cash provided by (used in) discontinued investing activities | 2,926 | (658 | ) | |||||
| Net cash (used in) provided by discontinued financing activities | (380 | ) | 890 | |||||
| Total net cash provided by (used in) discontinued operations | 822 | (1,103 | ) | |||||
| Effect of exchange rate changes on cash and cash equivalents | (90 | ) | (45 | ) | ||||
| (Decrease) increase in cash, cash equivalents and restricted cash | (1,141 | ) | 35 | |||||
| Cash, cash equivalents and restricted cash - beginning of the period | (**)2,499 | (**)2,648 | ||||||
| Cash, cash equivalents and restricted cash - end of the period | $ | 1,358 | $ | (**)2,683 | ||||
The accompanying notes are an integral part of these interim unaudited condensed consolidated financial statements.
F-6
and its Subsidiaries
Interim Unaudited Condensed Consolidated Statements of Cash Flows
US dollars in thousands
Three months ended | ||||||||
| 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.
F-7
On Track Innovations Ltd.
and its Subsidiaries
| Interim Unaudited Condensed Consolidated Statements of Cash Flows (cont’d) |
Interim Unaudited Condensed Consolidated Statements of Cash Flows (cont’d)
US dollars in thousands
Three months ended | ||||||||
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 | $ | - | ||||
| Nine months ended September 30 | ||||||||
| 2021 | 2020 | |||||||
| Supplementary cash flows activities: | ||||||||
| Cash paid during the period for: | ||||||||
| Interest paid | $ | (*)69 | $ | 64 | ||||
| Income taxes paid | $ | - | $ | (**)41 | ||||
| Income tax refund received | $ | 6 | $ | 83 | ||||
| (*) | 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 | $ | - | ||||
| Supplemental disclosures of non-cash flow information | ||||||||
| Payables due to issuance costs | $ | 37 | $ | - | ||||
| Payables due to purchase of property and equipment and intangible assets | $ | - | $ | 23 | ||||
| Payables due to purchase of property and equipment and intangible assets from discontinued operations - held for sale | $ | - | $ | (*)69 | ||||
| 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.
F-8
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
| A. | Description of business |
On Track Innovations Ltd. (the “Company”) was founded in 1990, in Israel. The Company and its subsidiaries (together, the “Group”) are principally engaged in the field of design and development of cashless payment solutions.
The Company’s ordinary shares are quoted for trading on the OTCQX market (formerly listed on the Nasdaq Capital Market until October 31, 2019).
At March 31,As of September 30, 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 operation in April 2021 subsequent to the 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.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 operationsoperations. In addition, the sale of the Mass Transit Ticketing business qualified as held for sale as of December 31, 2020.
| B. | Interim Unaudited Financial Information |
The accompanying unaudited consolidated financial statements of the Company have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and with the instructions to Form 10-Q. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements and therefore should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 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 March 31,September 30, 2021 are not necessarily indicative of the results that may be expected for the year ending December 31, 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 loss that are reported in the Interim Consolidated Financial Statements and accompanying disclosures. These estimates are based on management’s best knowledge of current events, historical experience, actions that the Company may undertake in the future and on various other assumptions that are believed to be reasonable under the circumstances. As a result, actual results may be different from these estimates.
F-9
On Track Innovations Ltd.
and Subsidiaries
Notes to the Interim Unaudited Condensed Consolidated Financial Statements
US dollars,,NIS and Euro in thousands, except share and per share data
Note 1 - Organization and Basis of Presentation (cont’d)
| C. | Divestiture of operations |
| 1. | In December 2013, the Company completed the sale of certain assets, subsidiaries and intellectual property relating to its Smart ID division, for a total purchase price of $10,000 in cash and an additional $12,500 subject to performance-based milestones. Accordingly, the results and the cash flows of this operation for all reporting periods are presented in the statements of operations and in the statements of cash flows, respectively, as discontinued operations separately from continuing operations. |
On 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 claimsclaimed that additional earn-out payments havepayment was 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 iswas 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 haswas 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). On January 21, 2021, after conclusion of the evidence phase in 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 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 iswas requested to order that the parties 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 awaiting the submission of SuperCom’s summaries, following whichFollowing an arbitration process between the Company may submitand SuperCom, on August 10, 2021, the parties entered into a response summary.settlement agreement that concluded the legal proceedings with SuperCom. For further details see Notes 6A(1) and 6A(2).
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 three months ended March 31, 2021 and 2020.
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)
| C. | Divestiture of operations (cont’d) |
| 2. | 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 |
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.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. 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 MarchDecember 31, 2021,2020, 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)(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)(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.2021.
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.
| D. | Liquidity and Capital Resources |
The Company has had recurring losses and cash outflows from operating activities. It has an accumulated deficit as of March 31,September 30, 2021 of $226,126. The$230,363. As of September 30, 2021 the Company also has a payable balance on its short-term bank loans, that is due within the next 12 months, of $1,109$1,863 and a convertible short-term loan from shareholders, including a controlling shareholder , including accrued interest, of $1,600$1,702 (out of which, only an amount of $8$422 is presented as liability)a liability within ‘convertible short-term loan from shareholders, including a controlling shareholder’), that, if not converted, would mature in the second quarter ofDecember 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 the last two years, see Note 10)10A), borrowings from banks, government and 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 $1,084 (of which an amount of $105 has been pledged as security for certain items), excluding cash and cash equivalents held for sale,$1,253 as of March 31,September 30, 2021.
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. | Liquidity and Capital Resources (cont’d) |
The recent deteriorationsituation in Poland resulting from the coronavirus (“COVID-19”) pandemic, situation in Poland led to an almost complete stop to the Company’s Mass Transit Ticketing sales business, which negatively impacted the Company’s cash flow sinceflow. The revenues from this operation, that were relatively stable during the year preceding the COVID-19 outbreak, decreased by $295 in the first quarter of 2021 compared to the first quarter of 2020, mainly due to lockdowns and other restrictions and consequences of the COVID-19 pandemic as started in March 2020. On April 21, 2021, subsequent to the balance sheet date, the Company completed the sale of ASEC, including its Mass Transit Ticketing activity, - seeas mentioned in Note 1C(2). Further,The results, including the revenues, and the cash flows of the Mass Transit Ticketing operation for all reporting periods are presented in December 2020the statements of operations and Januaryin the statements of cash flows, respectively, as discontinued operations separately from continuing operations.
Since the extension of the date of the repayment of the Loan Amount on June 17, 2021 to Extended Maturity Date, the Company has been working with the Lead Lender, to either convert the Loan Amount to equity or further extend the repayment date of the Loan Amount in order to continue to advance the Company's goals and meet its projections. The Company is still working through this matter, but given the proximity to the Extended Maturity Date, the Company is uncertain regarding the likelihood of achieving of these two alternatives. Based on the projected cash flows and the Company’s cash balances as of September 30, 2021, the Company borrowed a loan, in two tranches aggregating $1,600, from its controlling shareholder and another shareholderbelieves that if not converted,the Loan Amount is paid in December and without further fund raising, it would mature inhave only sufficient funds to continue to operate its business until the secondend of the third quarter of 2021.
The Company’s management has taken cost reduction steps, including material reductions in2022, and we cannot assure that the salariesCompany will be able to continue its operations for a period of its management and employees, and has been working forat least the past few months on updatingnext 12 months. As a result, there is a substantial doubt regarding the Company’s strategy for the coming years in orderability to realize its potential, resume its growth, and ultimately create shareholder value.continue as a going concern. The Company is attempting to raise additional funds and in connection therewith, the Company is negotiating the terms of the Loan Agreement with the Lead Lender, that could address the Company’s projected cash needs. While the Company’s management believes in its ability to raise additional funds and increase its cash.cash, there can be no assurances to that effect. 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 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 the aggregate, subject, however,financial statements do not include any adjustments relating to the limitations as mentioned in Note 10B,recoverability and classification of recorded assets and the amounts and classification of liabilities that might be necessary should the Company believes that the Company has sufficient capital resourcesbe unable 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 this process.continue as a going concern.
In connection with the outbreak of COVID-19, the Company has taken steps to protect its workforce in Israel, the United States, Poland, South Africa and elsewhere. Such steps include working from home where possible, minimizing face-to-face meetings, utilizing video conference as much as possible, social distancing at facilities and elimination of allmost international travel. The Company continues to comply with all local health directives.
So far, the main direct impact of the COVID-19 pandemic was a decrease in the Company’s revenues derived from Mass Transit Ticketing activity in the Polish market. The revenues from this operation, that were relatively stable during the year preceding the COVID-19 outbreak, decreased by $295 in the first quarter of 2021 compared to the first quarter of 2020, mainly due to lockdowns and other restrictions and consequences of the COVID-19 as started in March 2020. On April 21, 2021, the Company sold ASEC, including its 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.
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.
The Company has seen a highercontinued to see an interest from a growing number ofnew customers, 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.
While interest from current and new customers is growing, which is reflected in an increasing rate of orders, a global shortage in components, which caused an increase in components prices, freight cost and longer lead-time, has created a delay in fulfilling customers’ orders which impacted the Company’s revenues and product gross margin, mainly in the Retail segment. As a response to this business environment, the Company encourages its customers to provide their forecast for their demand and continues to maintain a comprehensive network of world-wide suppliers in order to optimize its access to critical components. In addition, during last few months the Company purchased an amount of such components to be used for sales later this year. 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.
It is difficult to predict what other impacts the COVID-19 pandemic may have on the Company.
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)
| E. | Retroactively adjustment of basic and diluted net losses attributable to shareholders per ordinary share (the “EPS”) for previous reporting periods |
At the beginning of the second quarter of 2021, the Company offered its shareholders to purchase additional ordinary shares as part of a rights offering (the “Rights Offering”). The Rights Offering was concluded on May 19, 2021 by issuance of shares, as mentioned in Note 10A(2). The Rights Offering included an offer to all existing shareholders of the Company to purchase additional ordinary shares in consideration for a lower exercise price than the quoted share price in the active market, reflects a bonus element that is somewhat similar to a stock dividend. Therefore, basic and diluted EPS was adjusted retroactively for the bonus element for all periods presented. In computing the adjustment factor to the EPS, the Theoretical ex-rights fair value per share was computed by adding the aggregate fair value of the shares immediately prior to the exercise of the rights to the proceeds from the exercise of the rights and dividing by the number of shares outstanding after the exercise of the rights. The resulting adjusted factor was approximately 1.07 for the three months and the nine months ended September 30, 2020, respectively.
Note 2 –- Significant Accounting Policies
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, 2020.2020.
| A. | 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 ourthe Company’s financial position, results of operations and cash flows.
| B. | Recent accounting pronouncements |
| 1. | 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. |
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 2 - Significant Accounting Policies (cont’d)
| B. | Recent accounting pronouncements (cont’d) |
| 1. | (Cont’d) |
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.
| 2. | In August 2020, the FASB issued ASU 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 certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts on an entity’s own equity. Specifically, the ASU simplifies accounting for convertible instruments by removing major separation models required under current accounting standard. In addition, the ASU removes certain settlement conditions that are required for equity contracts to qualify for it and simplifies the diluted earnings per share calculations in certain areas. This guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2021. Early adoption is permitted for annual period beginning after December 15, 2020. The Company is currently evaluating the impact that this 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
| March 31 | December 31 | |||||||
2021 | 2020 | |||||||
| Government institutions | $ | 43 | $ | 104 | ||||
| Prepaid expenses | 252 | 257 | ||||||
| Suppliers advance | 293 | 227 | ||||||
| Other receivables | 57 | 107 | ||||||
| $ | 645 | $ | 695 | |||||
| September 30, | December 31, | |||||||
| 2021 | 2020 | |||||||
| Government institutions | $ | 9 | $ | 104 | ||||
| Prepaid expenses | 217 | 257 | ||||||
| Supplier advances | 848 | 227 | ||||||
| Other current receivables | 68 | 107 | ||||||
| $ | 1,142 | $ | 695 | |||||
Note 4 - Other Current Liabilities
| March 31 | December 31 | |||||||
| 2021 | 2020 | |||||||
| Employees and related expenses | $ | 691 | $ | 516 | ||||
| Accrued expenses | 882 | 811 | ||||||
| Customer advances | 31 | 142 | ||||||
| Short-term liabilities due to operating leases and current maturities | 713 | 762 | ||||||
| Other current liabilities | 30 | 52 | ||||||
| $ | 2,347 | $ | 2,283 | |||||
F-14
| September 30, | December 31, | |||||||
| 2021 | 2020 | |||||||
| Government institutions | $ | 137 | $ | 15 | ||||
| Employees and related expenses | 666 | 516 | ||||||
| Accrued expenses | 841 | 811 | ||||||
| Customer advances | 96 | 142 | ||||||
| Short-term liabilities due to operating leases and current maturities | 736 | 762 | ||||||
| Other current liabilities | 43 | 37 | ||||||
| $ | 2,519 | $ | 2,283 | |||||
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, including a controlling shareholder
On December 9, 2020, 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 Company in the amount of up to $1,500 (the “Loan Amount”), 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 a first priority floating charge over all the Company’s tangible or intangible assets and other property, the Company owns, subject only to certain permitted security interests, as set forth in Loan Agreement. The amount lent under the Loan Agreement and all accrued interest matureswas scheduled to mature on June 17, 2021 (the “Maturity“Initial Maturity Date”), and willwas to be payable in full on the Initial Maturity Date, provided that the maturity date cancould be extended by six months at the sole option of Ivy. The amount lent bears interest on all outstanding principal at an interest rate of 8.0% per annum, or the Interest;(the “Interest”); provided, however, that upon an extension of the maturity period beyond the Initial Maturity Date, the Interest will automatically increase, effective as of the Initial Maturity Date, to the rate of 10.0% per annum. Also, in case of an extension of the Initial Maturity Date, the accrued interest for the first six months for which the Loan Amount has been outstanding will be payable by the Company to the Lender at the time of the extension, and the accrued Interest for the extension period willwas to 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 Initial Maturity Date (as it may be extended), in its sole discretion. On March 2, 2021, the Company obtained shareholders’ approval to the grant of 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 Loan 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 March 2, 2021.
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 Secured Amount shall immediately become due and payable, without the need for any notice by the Lender.
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, including a controlling shareholder (cont’d)
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 received under the Loan Agreement is $1,600, out of which $975 took place as part of the second closing on January 28, 2021.
F-15
On June 17, 2021, the Lender, being the majority of the lenders, exercised its option to extend the Initial Maturity Date, and the parties entered into a notice of exercise of option and agreement (the “Extension Agreement”), according to which the maturity date was extended until December 17, 2021 (the “Extended Maturity Date”). Pursuant to both the Loan Agreement and the Extension Agreement, the interest rate automatically increased, effective as of the Initial Maturity Date, to the rate of 10.0% per annum (the “Extension Interest”). Any payment of interest is subject to withholding of taxes at source and the interest rates mentioned above are net of such withholding. The net amount of interest on the Loan Amount accrued through June 17, 2021 was approximately $55 (the “Interest Debt”). Under the Extension Agreement, it was agreed that the Interest Debt shall be payable on the Extended Maturity Date, while until then it shall be considered part of the Loan Amount and shall bear the Extension Interest rate. In the event of a conversion of the Loan Amount, the Interest Debt shall convert into Ordinary Shares of the Company at the conversion price of $0.174 per share, and the remaining Secured Amount shall be converted at a price per share of $0.124, as originally contemplated under the Loan Agreement. As of September 30, 2021, the Secured Amount is $1,702 , out of which $102 is accrued interest expenses.
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)
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 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 model assumptions as of December 31, 2020, compared to the assumptions as of 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.
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, including a controlling shareholder (cont’d)
The fair value of the conversion component at the second closing, January 28, 2021, was estimated using the Trinomial model based on the assumptions, as 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 Trinomial model, the entire proceeds of the second closing in amount of $975 were allocated to the conversion component and the residual balance of the of the loan component of the 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 | |||||||
| Conversion component | Loan component | Total | ||||||||||
| Initial closing | $ | 617 | $ | 8 | $ | 625 | ||||||
| Second closing | 975 | - | 975 | |||||||||
| $ | 1,592 | $ | 8 | $ | 1,600 | |||||||
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 5 - Convertible short-term loan from shareholders (cont’d)
On March 2, 2021, the Company 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 fair value of the conversion component is as 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 |
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 summarizedThe change in the table,balance of the Loan component following the shareholders’ approval of the Conversion Right on March 2, 2021, is as follows:
| Three months ended | ||||||||
| March 31, 2021 | December 31, 2020 | |||||||
| Transaction expenses | $ | 10 | $ | 90 | ||||
| Interest expenses (*) | 26 | 2 | ||||||
| $ | 36 | $ | 92 | |||||
| Loan component | ||||
| Balance as of March 2, 2021 | $ | 8 | ||
| Interest and amortization of debt discount and expense | 69 | |||
| Balance as of June 30, 2021 | 77 | |||
| Interest and amortization of debt discount and expense | 345 | |||
| Balance as of September 30, 2021 | $ | 422 |
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 6 - Commitments and Contingencies
A. 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 liability 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.
As mentioned above, based on the agreement with SuperCom from April 2016 (which was granted an effect of a court judgment), SuperCom iswas 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.
DespiteConcurrently and subject to the fact that, based on the assessmentfulfillment of the Company’s external legal counsel, the likelihood to succeed in the arbitration process (or other legal procedure in that matter) is high,between the Company did not record an indemnification asset as of March 31,and SuperCom, on August 10, 2021, and December 31, 2020, in accordancethe parties entered into a settlement agreement that concluded the legal proceedings with accounting standard ASC 450, “Contingencies”.SuperCom. For further details see Notes 6A(2) below.
| 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. |
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 6 - Commitments and Contingencies (cont’d)
| A. | 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 |
| 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 exposure of the Company is low. |
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 6 - Commitments and Contingencies (cont’d)
| B. | 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%-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,September 30, 2021, net of royalties paid, was approximately $3,400 (including accrued interest). No grants from the IIA were received during the threenine months ended March 31,September 30, 2021 and 2020.
There is a dispute between the Company and the IIA in the amount of approximately NIS 3,5713,600 ($1,071)1,115) including accrued interest (while the current debt to the IIA as presented in the Company’s financial statements amounts to approximately $167)$145) 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 threenine months ended March 31,September 30, 2021 and 2020, there were no royalty expenses.
| C. | Guarantees |
As of March 31,September 30, 2021, the Company granted a bank guarantee in an 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.
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 7 - Revenues
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 March 31,September 30, 2021 and 2020:
| Three months ended March 31 2021 | ||||||||||||
| Retail | Petroleum | Total | ||||||||||
| Cashless payment products (A) | $ | 1,524 | $ | - | $ | 1,524 | ||||||
| Complete cashless payment solutions (B): | ||||||||||||
| Sales of products (B1) | 421 | 239 | 660 | |||||||||
| SaaS and services (B2) | 337 | 248 | 585 | |||||||||
| 758 | 487 | 1,245 | ||||||||||
Total revenues | $ | 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 | ||||||
| Three months ended September 30, | ||||||||||||
| 2021 | ||||||||||||
| Retail | Petroleum | Total | ||||||||||
| Cashless payment products (A) | $ | 2,996 | $ | - | $ | 2,996 | ||||||
| Complete cashless payment solutions (B): | ||||||||||||
| Sales of products (B1) | 1,205 | 283 | 1,488 | |||||||||
| SaaS and other services (B2) | 313 | 242 | 555 | |||||||||
| 1,518 | 525 | 2,043 | ||||||||||
| Total revenues | $ | 4,514 | $ | 525 | $ | 5,039 | ||||||
| Three months ended September 30, | ||||||||||||
| 2020 (*) | ||||||||||||
| Retail | Petroleum | Total | ||||||||||
| Cashless payment products (A) | $ | 1,830 | $ | - | $ | 1,830 | ||||||
| Complete cashless payment solutions (B): | ||||||||||||
| Sales of products (B1) | 224 | 529 | 753 | |||||||||
| SaaS and other services (B2) | 176 | 227 | 403 | |||||||||
| 400 | 756 | 1,156 | ||||||||||
| Total revenues | $ | 2,230 | $ | 756 | $ | 2,986 | ||||||
| (*) | Reclassified to conform with the current period presentation, see Note 1C(2). |
Performance obligations
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)
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, 2021 and 2020:
| Nine months ended September 30, | ||||||||||||
| 2021 | ||||||||||||
| Retail | Petroleum | Total | ||||||||||
| Cashless payment products (A) | $ | 5,690 | $ | - | $ | 5,690 | ||||||
| Complete cashless payment solutions (B): | ||||||||||||
| Sales of products (B1) | 2,433 | 931 | 3,364 | |||||||||
| SaaS and other services (B2) | 852 | 753 | 1,605 | |||||||||
| 3,285 | 1,684 | 4,969 | ||||||||||
| Total revenues | $ | 8,975 | $ | 1,684 | $ | 10,659 | ||||||
| Nine months ended September 30, | ||||||||||||
| 2020 (*) | ||||||||||||
| Retail | Petroleum | Total | ||||||||||
| Cashless payment products (A) | $ | 5,922 | $ | - | $ | 5,922 | ||||||
| Complete cashless payment solutions (B): | ||||||||||||
| Sales of products (B1) | 2,154 | 1,404 | 3,558 | |||||||||
| SaaS and other services (B2) | 579 | 631 | 1,210 | |||||||||
| 2,733 | 2,035 | 4,768 | ||||||||||
| Total revenues | $ | 8,655 | $ | 2,035 | $ | 10,690 | ||||||
| (*) | Reclassified to conform with the current period presentation, see Note 1C(2). |
On Track Innovations Ltd.
and Subsidiaries
Notes to the Interim Unaudited Condensed Consolidated Financial Statements
US dollars, NIS and Euro in thousands, except share and per share data
Note 7 - Revenues (cont’d)
Disaggregation of revenue (cont’d)
Performance obligations
Below is a listing of performance obligations for the Company’s main revenue streams:
| A. | Cashless payment products – |
The performance obligation is the selling of contactless payment products. Most of those products are Near Field Communication (NFC) readers. For such sales the performance obligation, transfer of control and revenue recognition occur when the products are delivered.
F-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 7 – Revenues (cont’d)
Performance obligations (cont’d)
| B. | Complete cashless payment solutions – |
The complete solution includes selling of products and complementary services, as follows:
| 1. | Sales of products – |
| ● | Selling of contactless payment products (see A above) together with payment gateways and machine-to-machine controllers. |
| ● | Selling of petroleum payment solutions including site and vehicle equipment. |
For such sales, the performance obligation, transfer of control and revenue recognition occur when the products are delivered.
| 2. | 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 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
| March 31 | December 31 | |||||||
| 2021 | 2020 | |||||||
| Trade receivables, net of allowance for doubtful accounts | $ | 1,759 | $ | 1,148 | ||||
| Customer advances | $ | 31 | $ | 142 | ||||
| September 30, | December 31, | |||||||
| 2021 | 2020 | |||||||
| Trade receivables, net of allowance for doubtful accounts | $ | 3,839 | $ | 1,148 | ||||
| Customer advances | $ | 96 | $ | 142 | ||||
AccountsTrade receivable are recognized when the right to consideration becomes unconditional based upon contractual billing schedules.
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)
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-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 8 – Discontinued operations
As described in Note 1C, the Company divested its interest in theASEC, including its 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 | ) | ||
Three months ended | Nine months ended September 30, | |||||||||||||||
| 2021 | (*) 2020 | 2021 | (*) 2020 | |||||||||||||
| Revenues | $ | - | $ | 651 | $ | 488 | $ | 2,251 | ||||||||
| Expenses | - | (957 | ) | (1,152 | ) | (2,845 | ) | |||||||||
| Other loss, net | 29 | - | (**)(922 | ) | - | |||||||||||
| Net (loss) income from discontinued operations | $ | 29 | $ | (306 | ) | $ | (1,586 | ) | $ | (594 | ) | |||||
| (*) | Reclassified to conform with the current period presentation, see Note 1C(2). |
| (**) | Mainly including net loss of $177 due to the legal proceedings, as mentioned in Note 6A(2), and loss of $746 due to transfer of the exchange differences on translation, as derived from ASEC, from other comprehensive loss to the statement of operations loss (see statements of comprehensive loss). |
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 (cont’d)
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 | |||||||
| December 31, | ||||
| Assets held for sale from discontinued operations: | 2020 | |||
| Current assets: | ||||
| Cash and cash equivalents | $ | 1,017 | ||
| Trade receivables, net of allowance for doubtful accounts of $42 | 409 | |||
| Other receivables and prepaid expenses | 454 | |||
| Inventories | 392 | |||
| Property, plant and equipment, net | 3,136 | |||
| Intangible assets, net | 370 | |||
| Right-of-use assets due to operating leases | 580 | |||
| 6,358 | ||||
| Liabilities held for sale from discontinued operations: | ||||
| Current liabilities: | ||||
| Short-term bank credit and current maturities of long-term loans | 2,339 | |||
| Trade payables | 1,832 | |||
| Other current liabilities | 443 | |||
| Long-term loans, net of current maturities (*) | 642 | |||
| Long-term liabilities due to operating leases, net of current maturities (*) | 401 | |||
| Deferred tax liability | 172 | |||
| 5,829 | ||||
| (*) | Those liabilities were received for a long-term (more than twelve months) in ASEC, but |
F-23
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. The liabilities held for sale includeas of December 31, 2020, included a long-term loan, that doesdid not bear any interest, 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 iswas insignificant.
As of March 31,September 30, 2021, the Company held approximately $105 of short-term bank deposits (as of December 31, 2020 -2020- $105). As of March 31,September 30, 2021 and December 31, 2020, short-term depositsthis deposit in the amount of $105 havehas 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-24
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
Note 10 – Equity
| A. | Share capital |
On December 23, 2019, the Company entered into a share purchase agreement (the “Agreement”) with 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.
| 1. | On December 23, 2019, the Company entered into a share purchase agreement (the “Agreement”) with 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 proceeds of $1,092 and $208, respectively. Under the 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 (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 Board.
The issuance costs were approximately $39$31, $8 and $111 during the three months ended June 30, 2020, March 31, 2020, and December 31, 2019, respectively. The issuance costs were approximately $8 during the 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 Board 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.
We are currently conducting a rights offeringThe Rights Offering was concluded on May 19, 2021 and was oversubscribed. Accordingly, the Company issued an aggregate of 18,965,516 Ordinary Shares (the “Rights Offering”“Issued Shares”), pursuant for aggregate gross proceeds to a prospectus dated April 20, 2021, under which we are offering our shareholders the abilityCompany of $3,300. The Issued Shares included 10,869,304 shares that were issued to Ivy and its affiliates, upon exercise of its basic 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 ofover-subscription rights. Following the Rights Offering, which is scheduled for May 19, 2021. In the event the Rights Offering will be fully subscribed forIvy 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 moreown 35.9% of the Company’s issued and outstanding share capital after conclusionas of September 30, 2021.
The issuance costs derived from 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 ownwere approximately 28.4% of our issued and outstanding shares.$128.
| 3. | Two shareholders, including Ivy, have an existing right to purchase additional shares from the Company upon conversion of a convertible loan – See Note 5. |
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 10 –- Equity (cont’d)
| Stock option plans |
During each of the three-monthnine month periods ended March 31,September 30, 2021 and March 31,September 30, 2020, 632,500670,000 and 204,000814,000 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 threenine months ended March 31,September 30, 2021 and March 31,September 30, 2020 are $0.23 and $0.28,$0.24, respectively. Those options expire up to five years after the date of grant. Any options which are forfeited or cancelled before expiration become available for future grants under the Company’s option plan. The fair value of each option granted to employees during the threenine months ended March 31,September 30, 2021 and March 31,September 30, 2020 was estimated on the date of grant, using the Black-Scholes model and the following assumptions:
Three months ended | ||||||||
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 | ||||||
| Nine months ended September 30, | ||||||||
| 2021 | 2020 | |||||||
| Expected dividend yield | 0 | % | 0 | % | ||||
| Expected volatility | 114 | % | 107 | % | ||||
| Risk-free interest rate | 0.18 | % | 0.36 | % | ||||
| Expected life - in years | 2.50 | 2.49 | ||||||
| 1. | Dividend yield of zero percent for all periods. |
| 2. | Expected average volatility represents a weighted average standard deviation rate for the price of the Company’s ordinary shares on Nasdaq and on the OTCQX market, as applicable. |
| 3. | Risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant. |
| 4. | Estimated expected lives are based on historical grants data. |
The Company’s options activity (including options to non-employees) and options outstanding and options exercisable as of December 31, 2020 and March 31,September 30, 2021, are summarized in the following table:
Number of | Weighted | |||||||
| 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 | |||||
| Number of | Weighted | |||||||
| options | average exercise | |||||||
| outstanding | price per share | |||||||
| Outstanding – December 31, 2020 | 1,443,333 | $ | 0.54 | |||||
| Options granted | 670,000 | 0.23 | ||||||
| Options expired or forfeited | (132,833 | ) | 0.74 | |||||
| Outstanding – September 30, 2021 | 1,980,500 | 0.42 | ||||||
| Exercisable as of: | ||||||||
| December 31, 2020 | 681,330 | $ | 0.83 | |||||
| September 30, 2021 | 734,346 | $ | 0.72 | |||||
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 10 – Equity (cont’d)
The weighted average fair value of options granted during the threenine months ended March 31,September 30, 2021 and during the threenine months ended March 31,September 30, 2020 is $0.14 and $0.11,$0.12, respectively, per option. The aggregate intrinsic value of outstanding options as of March 31,September 30, 2021 and December 31, 2020 is $222approximately $10 and $5, respectively. The aggregate intrinsic value of exercisable options as of March 31,September 30, 2021 and December 31, 2020 is $36$3 and $2, respectively.
On Track Innovations Ltd.
and Subsidiaries
Notes to the Interim Unaudited Condensed Consolidated Financial Statements
US dollars, NIS and Euro in thousands, except share and per share data
Note 10 - Equity (cont’d)
B. Stock option plans (cont’d)
The following table summarizes information about options outstanding and exercisable (including options to non-employees) as of March 31,September 30, 2021:
Options outstanding | Options Exercisable | ||||||||||||||||||||||||
| Number | Weighted | Number | Weighted | ||||||||||||||||||||||
| outstanding | average | Weighted | Outstanding | average | Weighted | ||||||||||||||||||||
| as of | remaining | Average | as of | remaining | Average | ||||||||||||||||||||
| March 31, | contractual | Exercise | March 31, | contractual | Exercise | ||||||||||||||||||||
| Range of exercise price ($) | 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 | ||||||||||||||||||||||
| 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($) | 2021 | life (years) | Price | 2021 | life (years) | Price | ||||||||||||||||||||
| 0.20-0.84 | 1,634,500 | 3.73 | 0.27 | 388,346 | 3.20 | 0.35 | ||||||||||||||||||||
| 1.07-1.22 | 346,000 | 0.62 | 1.14 | 346,000 | 0.62 | 1.14 | ||||||||||||||||||||
| 1,980,500 | 3.18 | 734,346 | 1.99 | |||||||||||||||||||||||
As of March 31,September 30, 2021, there was approximately $168$142 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 1.531.30 years.
During the three months ended March 31,September 30, 2021 and March 31,September 30, 2020, the Company recorded stock-based compensation expenses in the amount of $14$15 and $12,$13, respectively, in accordance with ASC 718, Compensation-Stock Compensation.“Compensation-Stock Compensation”.
During the nine months ended September 30, 2021 and September 30, 2020, the Company recorded stock-based compensation expenses in the amount of $44 and $41, respectively, in accordance with ASC 718, “Compensation-Stock Compensation”.
| Stock options, |
F-27
| D. | On July 19, 2021, and July 23, 2021, each of the compensation committee of the Board (the “Committee”) and the Board approved a new incentive plan (the “Equity Incentive Plan”). On September 22, 2021, the Board contingently approved, subject to filing of the Equity Incentive Plan with the Israeli Tax Authorities, the waiver of certain options and signing of appropriate grant documents by the grantees, grants of 4.4 million restricted shares (“RS Awards”) to employees pursuant to the Equity Incentive Plan. The RS Awards will vest over an up to three-year vesting period. An RS Award to the Company’s Chief Executive Officer, executive officers and to directors of the Company, is subject, in addition to the conditions set forth above, to the approval of the amended compensation policy in the upcoming annual general meeting of the shareholders of the Company. |
The Company does not plan to issue any additional securities under its 2001 Stock Option Plan. The company plans to offer employees that were granted options as part of the 2001 Stock Option Plan, the opportunity to forfeit their outstanding options, as mentioned in Note 10B, in exchange for the grant of restricted shares to be granted in accordance with the Equity Incentive Plan.
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 two2 segments which are the Company’s strategic business units: (1) Retail, and (2) Petroleum.
Information regarding the results of each reportable segment is included below based on the internal management reports that are reviewed by the CODM.
| Three months ended March 31, 2021 | ||||||||||||
| Retail | Petroleum | Total | ||||||||||
| Revenues | $ | 2,282 | $ | 487 | $ | 2,769 | ||||||
| Reportable segment gross profit (**) | 1,179 | 233 | 1,412 | |||||||||
| Reconciliation of reportable segment gross profit to gross profit for the period Depreciation | (8 | ) | ||||||||||
| Stock-based compensation | (1 | ) | ||||||||||
| Gross profit for the period in the consolidated financial statement | $ | 1,403 | ||||||||||
| 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 | ||||||||||
| Three months ended September 30, 2021 | ||||||||||||
| Retail | Petroleum | Total | ||||||||||
| Revenues | $ | 4,515 | $ | 524 | $ | 5,039 | ||||||
| Reportable segment gross profit (**) | 1,085 | 247 | 1,332 | |||||||||
| Reconciliation of reportable segment | ||||||||||||
| gross profit to gross profit for the period | ||||||||||||
| Depreciation | (7 | ) | ||||||||||
| Stock-based compensation | (1 | ) | ||||||||||
| Gross profit for the period in the consolidated financial statement | $ | 1,324 | ||||||||||
| Three months ended September 30, 2020 (*) | ||||||||||||
| Retail | Petroleum | Total | ||||||||||
| Revenues | $ | 2,231 | $ | 755 | $ | 2,986 | ||||||
| Reportable segment gross profit (**) | 852 | 309 | 1,161 | |||||||||
| Reconciliation of reportable segment | ||||||||||||
| gross profit to gross profit for the period | ||||||||||||
| Depreciation | (8 | ) | ||||||||||
| Stock-based compensation | (1 | ) | ||||||||||
| Gross profit for the period in the consolidated financial statement | $ | 1,152 | ||||||||||
| (*) | 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. |
F-28
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, 2021 | ||||||||||||
| Retail | Petroleum | Total | ||||||||||
| Revenues | $ | 8,976 | $ | 1,683 | $ | 10,659 | ||||||
| Reportable segment gross profit (**) | 2,851 | 880 | 3,731 | |||||||||
| Reconciliation of reportable segment | ||||||||||||
| gross profit to gross profit for the period | ||||||||||||
| Depreciation | (24 | ) | ||||||||||
| Stock-based compensation | (3 | ) | ||||||||||
| Gross profit for the period in the consolidated financial statement | $ | 3,704 | ||||||||||
| Nine months ended September 30, 2020 (*) | ||||||||||||
| Retail | Petroleum | Total | ||||||||||
| Revenues | $ | 8,655 | $ | 2,035 | $ | 10,690 | ||||||
| Reportable segment gross profit (**) | 3,610 | 896 | 4,506 | |||||||||
| Reconciliation of reportable segment | ||||||||||||
| gross profit to gross profit for the period | ||||||||||||
| �� | ||||||||||||
| Depreciation | (26 | ) | ||||||||||
| Stock-based compensation | (3 | ) | ||||||||||
| Gross profit for the period in the consolidated financial statement | $ | 4,477 | ||||||||||
| (*) | 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 |
Note 12 - Balances and transactions with related parties
Note 12 – Related party
Regarding transactionsbalances and balancestransactions with a related party, Ivy, a controlling shareholder, during the reporting period, see Notes 5 10A and 10B.10A.
Note 13 – Subsequent events
F-29
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.Item
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; |
| ● | the results of our negotiations with Mr. Ivy, the controlling shareholder of the Company, with respect to the terms of a loan agreement that would address our cash needs; |
| ● | any impact of the Corona Virus, or COVID-19, pandemic on our business and cash flow, including timing of receipt of orders, |
| ● | 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 global shortage in components and the related effects of an increase in components’ prices, freight cost and longer lead-times; |
| ● | our outlook for the coming months; and |
| ● |
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, 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.
2
Overview
We are a leading developer of contactless payment solutions, Near Field Communication (NFC) technology based, for the unattended market. We have been a technology leader since 1990, providing systems, devices and services to operators and integrators with 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 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 segments: (1) Retail, and (2) Petroleum.
In addition, we engaged an investment bank to explore strategic options and are investing resources in 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, 2020 filed with the SEC.
Results of Operations
Discontinued operations. In 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 Mass Transit Ticketing business in Poland (which was attributed to our “Retail and Mass Transit Ticketing” segment). In December 2013, we completed the sale of certain assets, certain subsidiaries and IP directly related to our SmartID division. Accordingly, the results and the cash flows from such operations for all reporting periods are presented in the statements of operations and in the statements of cash flows, respectively, as discontinued operations separately from continuing operations. 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 March 31,September 30, 2021, compared to the three months ended March 31,September 30, 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 have derived revenues from Software as a Service, or SaaS. During the three months ended March 31,September 30, 2021 and March 31,September 30, 2020, the revenues that we derived from those sources are presented in two separate line items,were as follows (in thousands):
Three months ended | ||||||||
| 2021 | 2020 | |||||||
| Sales | $ | 2,387 | $ | 3,343 | ||||
| SaaS | $ | 382 | $ | 324 | ||||
| Total revenues | $ | 2,769 | $ | 3,667 | ||||
Three months ended | ||||||||
| 2021 | 2020 | |||||||
| Sales | $ | 4,632 | $ | 2,624 | ||||
| SaaS | $ | 407 | $ | 362 | ||||
| Total revenues | $ | 5,039 | $ | 2,986 | ||||
3
Sales. Sales decreasedincreased by $1.0$2 million, or 29%77%, in the three months ended March 31,September 30, 2021, compared to the three months ended March 31,September 30, 2020. The decreaseincrease is mainly attributed to a decreasean increase of Retail segment sales in the Americas and to a decrease in sales of Petroleum products in Africa and the Americas and a decrease of Retail sales in Europe, partially offset bylesser degree to an increase inof Retail segment sales in APAC.the Asia-Pacific region, or APAC, partially offset by a decrease in Petroleum segment sales in Americas and Africa.
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,$45,000, or 18%12%, in the three months ended March 31,September 30, 2021, compared to the three months ended March 31,September 30, 2020. The increase is mainly attributed to an increase in revenues in both our segments, mainly in our 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 March 31,September 30, 2021 and March 31,September 30, 2020:
| 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 | % | |||||||||||||||||
| Three months ended September 30, | Americas | Europe | Africa | APAC | ||||||||||||||||||||||||||||
| 2021 | $ | 2,892 | 58 | % | $ | 1,324 | 26 | % | $ | 313 | 6 | % | $ | 510 | 10 | % | ||||||||||||||||
| 2020 | $ | 1,055 | 35 | % | $ | 1,265 | 42 | % | $ | 410 | 14 | % | $ | 256 | 9 | % | ||||||||||||||||
Our revenues from sales in Americas decreasedincreased by $882,000,$1.8 million, or 50%174%, in the three months ended March 31,September 30, 2021, compared to the three months ended March 31,September 30, 2020, mainly due to an increase in Retail segment sales, partially offset by a decrease in sales of readers to the U.S. market.Petroleum segment sales.
Our revenues from sales in Europe decreasedincreased by $268,000,$59,000, or 23%5%, in the three months ended March 31,September 30, 2021, compared to the three months ended March 31,September 30, 2020, mainly due to a decreasean increase in Retail sales.segment revenues.
Our revenues from sales in Africa decreased by $149,000,$97,000, or 29%24%, in the three months ended March 31,September 30, 2021, compared to the three months ended March 31,September 30, 2020, mainly due to a decrease in sales of Petroleum products.segment sales.
Our revenues from sales in the Asia-Pacific region, or APAC increased by $401,000,$254,000, or 188%99%, in the three months ended March 31,September 30, 2021, compared to the three months ended March 31,September 30, 2020, mainly due to an increase in Retail sales.segment revenues.
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 March 31,September 30, 2021 and March 31,September 30, 2020:
| Three months ended September 30, | Retail | Petroleum | ||||||||||||||
| 2021 | $ | 4,515 | 90 | % | $ | 524 | 10 | % | ||||||||
| 2020 | $ | 2,231 | 75 | % | $ | 755 | 25 | % | ||||||||
| Three months ended March 31, | Retail | Petroleum | ||||||||||||||
| 2021 | $ | 2,282 | 82 | % | $ | 487 | 18 | % | ||||||||
| 2020 | $ | 2,869 | 78 | % | $ | 798 | 22 | % | ||||||||
Our revenues from Retail in the three months ended March 31,September 30, 2021 decreasedincreased by $587,000,$2.3 million, or 20%102%, compared to the three months ended March 31,September 30, 2020, mainly attributed to a decrease ofan increase in Retail sales in the United StatesAmericas and to a decrease of sales in Europe, partially offset bylesser degree to an increase in sales in APAC.APAC market.
Our revenues from Petroleum in the three months ended March 31,September 30, 2021 from Petroleum decreased by $311,000,$231,000, or 39%31%, compared to the three months ended March 31,September 30, 2020, mainly due to a decrease in sales ofrevenues from the Petroleum productssegment in Africathe Americas and the Americas.
Africa.
4
Cost of Revenues and Gross Margin
Our cost of revenues, presented by gross profit and gross margin percentage, forin the three months ended March 31,September 30, 2021 and March 31,September 30, 2020 were as follows (dollar amounts in thousands):
| Three months ended March 31, | ||||||||
| Cost of revenues | 2021 | 2020 | ||||||
| Cost of sales | $ | 1,366 | $ | 2,021 | ||||
| Gross profit | $ | 1,403 | $ | 1,646 | ||||
| Gross margin percentage | 51 | % | 45 | % | ||||
| Cost of revenues | Three months ended September 30, | |||||||
| 2021 | 2020 | |||||||
| Cost of sales | $ | 3,715 | $ | 1,834 | ||||
| Gross profit | $ | 1,324 | $ | 1,152 | ||||
| Gross margin percentage | 26 | % | 39 | % | ||||
Cost of sales. Cost of sales consists primarily of materials, as well as salaries, fees to subcontractors, and related costs of our technical staff that assemble our products.products and freight expenses. The decreaseincrease of $655,000,$1.9 million, or 32%103%, in the three months ended March 31,September 30, 2021, compared to the three months ended March 31,September 30, 2020, resulted primarily from an increase in sales and an increase of components costs due to a decrease in sales.global components shortage as a result of the COVID-19 pandemic.
Gross margin. The increasedecrease in gross margin percentage in the three months ended March 31,September 30, 2021, compared to the three months ended March 31,September 30, 2020, is mainly attributed to a change in our revenue mix, including an increase of the ratiocomponents costs due to a global shortage of our SaaS revenues outcomponents as part of the total revenues.impact of the COVID-19 pandemic.
Operating expenses
Our operating expenses forin the three months ended March 31,September 30, 2021 and March 31,September 30, 2020 were as follows (in thousands):
| 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 | ||||
| Operating expenses | Three months ended September 30, | |||||||
| 2021 | 2020 | |||||||
| Research and development | $ | 946 | $ | 839 | ||||
| Selling and marketing | $ | 701 | $ | 765 | ||||
| General and administrative | $ | 764 | $ | 799 | ||||
| Total operating expenses | $ | 2,411 | $ | 2,403 | ||||
Research and development. Our research and development expenses consist primarily of the salaries and related expenses of our research and development staff, as well as subcontracting expenses. The decreaseincrease of $55,000,$107,000, or 6%13%, in the three months ended March 31,September 30, 2021, compared to the three months ended March 31,September 30, 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.employees and an increase in subcontracting expenses.
Selling and marketing. Our selling and marketing expenses consist primarily of salaries and substantially all of the expenses of our sales and marketing for the 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.tradeshows and a change in allowance for doubtful accounts. The decrease of $93,000,$64,000, or 13%8%, in the three months ended March 31,September 30, 2021, compared to the three months ended March 31,September 30, 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.professional expenses.
General and administrative. Our general and administrative expenses consist primarily of salaries and related expenses of our executive management and financial and administrative staff. These expenses also include costs of our professional advisors (such as legal and accounting), office expenses and insurance. The decrease of $56,000,$35,000, or 4%, in the three months ended September 30, 2021, compared to the three months ended September 30, 2020, is primarily attributed to a decrease in professional expenses.
Financing expenses, net
Our financing expenses, net, in the three months ended September 30, 2021 and September 30, 2020 were as follows (in thousands):
| Three months ended September 30, | ||||||||
| 2021 | 2020 | |||||||
| Financial expenses deriving from a convertible short-term loan from shareholders | $ | (345 | ) | $ | - | |||
| Other financial expenses, net | $ | (112 | ) | $ | (72 | ) | ||
| Financing expenses, net | $ | (457 | ) | $ | (72 | ) | ||
Financing expenses consist primarily of interest payable on loans, bank commissions, foreign exchange losses and financial expenses deriving from a convertible short-term loan, or the Loan, incurred in accordance with the terms of a loan financing agreement, as amended on January 26, 2021, or the Loan Agreement, we entered into with Jerry L. Ivy, Jr., Descendants’ Trust, or the Lead Lender, and another lender. Financing income consists primarily of foreign exchange gains and interest earned on investments in short-term deposits. The increase in financing expenses, net, of $385,000, or 535%, in the three months ended September 30, 2021, compared to the three months ended September 30, 2020, is mainly due to non-cash financial expenses derived from the Loan, and to a lesser degree from exchange rate differential.
Net loss from continuing operations
Our net lossfrom continuing operations in the three months ended September 30, 2021 and September 30, 2020 was as follows (in thousands):
| Three months ended September 30, | ||||||||
| 2021 | 2020 | |||||||
| Net loss from continuing operations | $ | (1,544 | ) | $ | (1,315 | ) | ||
The increase in the net loss from continuing operations of $229,000, or 17%, in the three months ended September 30, 2021, compared to the three months ended September 30, 2020, is mainly due to an increase in non-cash financing expenses derived from the Loan, partially offset by an increase in our gross profit, as described above.
Net income (loss) from discontinued operations
Our net income (loss) from discontinued operations in the three months ended September 30, 2021 and September 30, 2020 was as follows (in thousands):
| Three months ended September 30, | ||||||||
| 2021 | 2020 | |||||||
| Net income (loss) from discontinued operations | $ | 29 | $ | (306 | ) | |||
Our net income (loss) from discontinued operations for the reporting periods is presented in the statements of operations as discontinued operations separately from continuing operations. The change in the net income (loss) from discontinued operations of $335,000 in the three months ended September 30, 2021, compared to the three months ended September 30, 2020, is mainly due to the fact that in 2020, we suffered a loss from the Mass Transit Ticketing operations as a result of the impact of the COVID-19 pandemic, which was sold when we sold ASEC, including its Mass Transit Ticketing operation, in April 2021.
Net loss
Our net loss in the three months ended September 30, 2021 and September 30, 2020 was as follows (in thousands):
| Three months ended September 30, | ||||||||
| 2021 | 2020 | |||||||
| Net loss | $ | (1,515 | ) | $ | (1,621 | ) | ||
The decrease in net loss of $106,000 or 7%, in the three months ended March 31,September 30, 2021, compared to the three months ended March 31,September 30, 2020, is mainly due to an increase in our gross profit and a decrease in our loss from discontinued operations, partially offset by an increase in non-cash financing expenses derived from the Loan, as described above.
Nine months ended September 30, 2021 compared to nine months ended September 30, 2020
Sources of Revenue
During the nine months ended September 30, 2021 and September 30, 2020, our revenues were as follows (in thousands):
Nine months ended | ||||||||
| 2021 | 2020 | |||||||
| Sales | $ | 9,465 | $ | 9,718 | ||||
| SaaS | $ | 1,194 | $ | 972 | ||||
| Total revenues | $ | 10,659 | $ | 10,690 | ||||
Sales. Sales decreased by $253,000 million, or 3%, in the nine months ended September 30, 2021, compared to the nine months ended September 30, 2020. The decrease is mainly attributed to a decrease of Petroleum segment sales in Americas. The Retail segment sales remained consistent due to an increase of sales in Americas, offset by a decrease of sales in APAC and Europe.
SaaS. Our SaaS revenues increased by $222,000, or 23%, in the nine months ended September 30, 2021, compared to the nine months ended September 30, 2020. The increase is mainly attributed to an increase in revenues of both our Retail segment and our Petroleum segment.
The following table sets forth our revenues, by dollar amount (in thousands) and as a percentage of revenues in different geographical areas, in the nine months ended September 30, 2021 and September 30, 2020:
| Nine months ended September 30, | Americas | Europe | Africa | APAC | |||||||||||||||||||||||||||||
| 2021 | $ | 4,590 | 43 | % | $ | 3,411 | 32 | % | $ | 1,132 | 11 | % | $ | 1,526 | 14 | % | |||||||||||||||||
| 2020 | $ | 3,620 | 34 | % | $ | 3,775 | 35 | % | $ | 1,164 | 11 | % | $ | 2,131 | 20 | % | |||||||||||||||||
Our revenues from sales in the Americas increased by $970,000, or 27%, in the nine months ended September 30, 2021, compared to the nine months ended September 30, 2020, mainly due to an increase in Retail sales , partially offset by a decrease of Petroleum segment sales.
Our revenues from sales in Europe decreased by $364,000, or 10%, in the nine months ended September 30, 2021, compared to the nine months ended September 30, 2020, mainly due to a decrease in Retail sales.
Our revenues from sales in Africa decreased by $32,000, or 3%, in the nine months ended September 30, 2021, compared to the nine months ended September 30, 2020, mainly due to a decrease in Petroleum segment sales.
Our revenues from sales in APAC decreased by $605,000, or 28%, in the nine months ended September 30, 2021, compared to the nine months ended September 30, 2020, mainly due to a decrease in Retail sales.
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 nine months ended September 30, 2021 and September 30, 2020:
| Nine months ended September 30, | Retail | Petroleum | |||||||||||||||
| 2021 | $ | 8,976 | 84 | % | $ | 1,683 | 16 | % | |||||||||
| 2020 | $ | 8,655 | 81 | % | $ | 2,035 | 19 | % | |||||||||
Our revenues from Retail in the nine months ended September 30, 2021 increased by $320,000, or 4%, compared to the nine months ended September 30, 2020, mainly attributed to an increase in Retail sales in Americas and an increase in Retail SaaS, partially offset by a decrease in Retail sales in APAC and Europe.
Our revenues in the nine months ended September 30, 2021 from Petroleum decreased by $351,000, or 17%, compared to the nine months ended September 30, 2020, mainly due to a decrease in sales of Petroleum products in the Americas.
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, 2021 and September 30, 2020 were as follows (dollar amounts in thousands):
| Nine months ended September 30, | ||||||||
| 2021 | 2020 | |||||||
| Cost of sales | $ | 6,955 | $ | 6,213 | ||||
| Gross profit | $ | 3,704 | $ | 4,477 | ||||
| Gross margin percentage | 35 | % | 42 | % | ||||
Cost of sales. The increase of $742,000, or 12%, in the nine months ended September 30, 2021, compared to the nine months ended September 30, 2020, resulted primarily from an increase in components costs due to a global components shortage as part of the impact of the COVID-19 pandemic, partially offset by a decrease that derives from changes in our revenue mix.
Gross margin. The decrease of gross margin percentage in the nine months ended September 30, 2021, compared to the nine months ended September 30, 2020, is mainly attributed to an increase of components costs due to a global components shortage as part of the impact of the COVID-19 pandemic, partially offset by changes in our revenue mix.
Operating expenses
Our operating expenses in the nine months ended September 30, 2021 and September 30, 2020 were as follows (in thousands):
| Operating expenses | Nine months ended September 30, | |||||||
| 2021 | 2020 | |||||||
| Research and development | $ | 2,684 | $ | 2,635 | ||||
| Selling and marketing | $ | 2,042 | $ | 2,348 | ||||
| General and administrative | $ | 2,245 | $ | 2,299 | ||||
| Total operating expenses | $ | 6,971 | $ | 7,282 | ||||
Research and development. The increase of $49,000, or 2%, in the nine months ended September 30, 2021, compared to the nine months ended September 30, 2020, is primarily attributed to recruitment of new employees, partially offset by a decrease in subcontracting expenses.
Selling and marketing. The decrease of $306,000, or 13%, in the nine months ended September 30, 2021, compared to the nine months ended September 30, 2020, is primarily attributed to a decrease in employment expenses mainly due to reductionsand professional expenses.
General and administrative. The decrease of $54,000, or 2%, in the salaries of our management and employees, and also less significantly decreasesnine months ended September 30, 2021, compared to the nine months ended September 30, 2020, is primarily attributed to a decrease in travelingemployment expenses, as a result of the impact of COVID-19.
partially offset by an increase in professional expenses.
5
Financing (expenses) income,expenses, net
Our financing (expenses) income,expenses, net, forin the threenine months ended March 31,September 30, 2021 and March 31,September 30, 2020 were as follows (in thousands):
| 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 | |||
| Nine months ended September 30, | ||||||||
| 2021 | 2020 | |||||||
| Financial expenses derive from convertible short-term loan from shareholders | $ | (2,398 | ) | $ | - | |||
| Other financial expenses, net | $ | (160 | ) | $ | (5 | ) | ||
| Financing expenses, net | $ | (2,558 | ) | $ | (5 | ) | ||
Financing (expenses) income, net, consist primarily ofThe increase in financing expense related to interest payable on bank loans, bank commissions and to a change in fair value of embedded derivativeexpenses, net, in the convertible short-term loan received from shareholders, also referred to as the Convertible Loan below, partially offset by financing income related to interest earned on investments in short-term deposits and foreign exchange differentials. The change in total financing (expenses) income, net, of $2.1 million in the threenine months ended March 31,September 30, 2021, compared to the threenine months ended March 31,September 30, 2020, of $2.6 million, is mainly due to a lossnon-cash financial expenses derived from change in the fair value of embedded derivative of $2.0 million in the first quarter of 2021Loan, and to a much lesser degree from exchange rate differential.
Net loss from continuing operations
Our net loss from continuing operations forin the threenine months ended March 31,September 30, 2021 and March 31,September 30, 2020 was as follows (in thousands):
| Three months ended March 31, | ||||||||
| 2021 | 2020 | |||||||
| Net loss from continuing operations | $ | (2,743 | ) | $ | (576 | ) | ||
| Nine months ended September 30, | ||||||||
| 2021 | 2020 | |||||||
| Net loss from continuing operations | $ | (5,812 | ) | $ | (2,819 | ) | ||
The increase in our net lossfrom continuing operations of $2.2$3.0 million, or 376%106%, in the threenine months ended March 31,September 30, 2021, compared to the threenine months ended March 31,September 30, 2020, is mainly due to an increase in ournon-cash financing expenses net,relating to the Loan, and to a lesser degree due to a loss from change in fair value of embedded derivative and a decrease in our sales,gross profit that resulted primarily from an increase in components costs which derives from a global components shortage as part of the impact of the COVID-19 pandemic, partially offset by a decrease in our operating expenses, as described above.expenses.
Net loss from discontinued operations
Our net loss from discontinued operations forin the threenine months ended March 31,September 30, 2021 and March 31,September 30, 2020 was as follows (in thousands):
| Three months ended March 31, | ||||||||
| 2021 | 2020 | |||||||
| Net loss from discontinued operations | $ | (418 | ) | $ | (93 | ) | ||
| Nine months ended September 30, | ||||||||
| 2021 | 2020 | |||||||
| Net loss from discontinued operations | $ | (1,586 | ) | $ | (594 | ) | ||
The resultsOur net loss from the Mass Transit Ticketing activity and the SmartID activitydiscontinued operations for the reporting periods are presented in the statements of operations as discontinued operations separately from continuing operations. The increase in the net loss from discontinued operations of $325,000,$1.0 million, or 349%167%, in the threenine months ended March 31,September 30, 2021, compared to the threenine months ended March 31,September 30, 2020, is mainly due to classification in an amount of $746,000 of exchange differences on translation from other comprehensive loss to net loss from discontinued operations due to completion of sale of ASEC in the nine months ended on September 30, 2021, and net expenses relating to the settlement of the litigation processes with Merwell Inc. and SuperCom Ltd.
Net loss
Our net loss in the nine months ended September 30, 2021 and September 30, 2020 was as follows (in thousands):
| Nine months ended September 30, | ||||||||
| 2021 | 2020 | |||||||
| Net loss | $ | (7,398 | ) | $ | (3,413 | ) | ||
The increase in net loss of $4.0 million, or 117%, in the nine months ended September 30, 2021, compared to the nine months ended September 30, 2020, is mainly due to an increase in non-cash financing expenses derived from the Loan, an increase in loss from the Mass Transit Ticketing operationdiscontinued operations and to a lesser degree due to a decrease in gross profit that resulted primarily from an increase in components costs derived from a global components shortage as a resultpart of the impact of COVID-19. We completed the sale of this operation on April 21, 2021.
6
Net loss
Our net loss for the three months ended March 31, 2021 and March 31, 2020, was as follows (in thousands):
| Three months ended March 31, | ||||||||
| 2021 | 2020 | |||||||
| Net loss | $ | (3,161 | ) | $ | (669 | ) | ||
The increase in net loss of $2.5 million, or 372%, in the three months ended March 31, 2021, compared to the three months ended March 31, 2020, is primarily due to an increase in our financing expenses, net, derived from loss from change in fair value of embedded derivative, a decrease in our sales and an increase in net loss from discontinued operations,COVID-19 pandemic, partially offset by a decrease in our operating expenses, as described above.expenses.
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 shareholders, including convertible loans, proceeds from the exercise of options and warrants as well as proceeds from the divestiture of parts of our businesses. We have had recurring losses and cash outflows from operating activities. As of March 31,September 30, 2021, we had cash cash equivalents and short-term investments representing bank deposits of $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.of $1.3 million.
The recent deteriorationsituation in Poland resulting from the COVID-19 pandemic situation in Poland led to an almost complete stop to our Mass Transit Ticketing sales business, which negatively impacted our cash 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 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 $0.124 thereafter.
Our management has taken cost reduction steps, including material reductions in the salaries of our management and 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. In April 2021, we commenced a rights offering with an aggregate price of up to $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 issued and outstanding share capital after conclusion of the rights offering. The rights offering expires on May 19, 2021. Based on the commitment letter of our controlling shareholder, we believe that we have sufficient capital resources to 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 this process.
In connection with the outbreak of COVID-19, 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 main direct impact of the COVID-19 pandemic was a decrease in our revenues derived from Mass Transit Ticketing activity in the Polish market. The revenues from this operation, that were relatively stable during the year preceding the COVID-19 outbreak, decreased by $295,000 in the first quarter of 2021 compared to the first quarter of 2020, mainly due to the lockdown and other restrictions and consequences of the COVID-19 as started in March 2020. 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 sale of ASEC was agreed to equal $3 million, of which approximately $2.1 million was used to repay Polish bank loans and was reduced by an agreed upon reduction of approximately $300,000 due to working capital adjustments. Accordingly,
We raised additional funds and increased our cash, cash equivalents and long-term investments in a gross amount of $3.3 million by closing a rights offering, or the Rights Offering, on May, 19, 2021, under which we received net cashoffered our existing shareholders to purchase additional ordinary shares in consideration for a lower exercise price than the quoted share price in the active market, reflecting a bonus element that is somewhat similar to a stock dividend. The Rights Offering was oversubscribed and generated $3.3 million in gross proceeds. The issuance costs derived for the Rights Offering were approximately $128,000. As part of $600,000 from the ASEC sale in April 2021.
Rights Offering we issued an aggregate of 18,965,516 shares for $0.174 per share.
7
Another impactOn December 9, 2020, and January 2021, we entered into the Loan Agreement, with the Lead Lender who is our controlling shareholder. The Loan Agreement was amended on January 26, 2021, to allow for an additional lender to join the Lead Lender and lend an additional $100,000 and provides that the Lead Lender and the additional lender will extend us a loan in the aggregate amount of COVID-19up to $1,600,000, or the Loan Amount. The Loan Agreement, before it was amended, was further described in the Current Report on Form 8-K filed by the Company on December 15, 2020. The Loan Agreement provides, among other things, that the Loan Amount and all accrued interest, or the Secured Amount, matures upon the lapse of six months following the initial closing, i.e., on June 17, 2021, or the Maturity Date, and will be payable in full on the Maturity Date, provided that the maturity date can be extended, in respect of the Loan Amount, at the sole option of the majority of the lenders. On June 17, 2021, the Lead Lender, being the majority of the lenders, exercised its option to extend the maturity date, and the parties entered into a notice of exercise of option and agreement, or the Extension Agreement, according to which the maturity date was extended until December 17, 2021, or the Extended Maturity Date, and the Extended Maturity Period, as applicable. The Loan Amount has been bearing interest on product delivery, where components’ procurement lead timeall outstanding principal at an interest rate of 8.0% per annum. The net amount of interest on the Loan Amount accrued through June 17, 2021 was $54,849, or the Interest Debt. Pursuant to the Extension Agreement, the interest rate will automatically increase, effective as of the Maturity Date, to the rate of 10.0% per annum, or the Extension Interest. Any payment of interest is longersubject to withholding of taxes at source and the interest rates mentioned above are net of such withholding. Under the Extension Agreement, it was agreed that the Interest Debt shall be payable on the Extended Maturity Date, while until then it shall be considered part of the Loan Amount and shall bear the Extension Interest rate. In the event of a shortageconversion of the Loan amount, the Interest Debt shall convert into our ordinary shares at the conversion price of $0.174 per share, and the remaining Secured Amount shall be converted at a price per share of $0.124, as originally contemplated under the Loan Agreement. As of September 30, 2021, the Secured Amount was $1,702,455, out of which $102,455 were accrued interest expenses.
Since the extension of the date of repayment of the Loan Amount from June 17, 2021 to the Extended Maturity Date, we have been working with the Lead Lender, to either convert the Loan Amount to equity or further extend the repayment date of the Loan Amount in components has grownorder to continue to advance our goals and meet our projections. We are still working through this matter, but given the proximity to the Extended Maturity Date, we are uncertain regarding the likelihood of achieving either of these two alternatives. We believe that if the Loan Amount is paid in December without further fund raising or other increase 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. We are attempting to raise additional funds and to increase our cash by negotiating with the durationLead Lender, that would address our cash needs. While our management believes in our ability to raise additional funds and increase our cash, there can be no assurances to that effect.
In connection with the outbreak of the COVID-19 pandemic, has continued. As longwe have taken steps to protect our workforce in Israel, the United States, Poland, South Africa and elsewhere. Such steps have included working from home where possible, minimizing face-to-face meetings, utilizing video conference as the COVID-19 pandemic continues, the components’ lead time may be longer than normalmuch as possible, social distancing at facilities and the shortage in components mayelimination of most international travel. We continue or get worse. Therefore, we maintain a comprehensive network of world-wide suppliers.to comply with all local health directives.
We have seen a highercontinued to see an interest from a growing number ofnew customers, potential customers and partners as they forecasted that the need for our products will grow, yet execution of closing is still slow due to the current business environment.
While interest from current and new customers is growing, which is reflected in an increasing rate of orders, a global shortage in components, which caused an increase in components’ prices, freight cost and longer lead-times, has created a delay in fulfilling customers’ orders, which impacted our revenues and product gross margin, mainly in the Retail segment. As a response to this business environment, we encourage our customers to provide their forecast for their demand and continue to maintain a comprehensive network of worldwide suppliers in order to optimize our access to critical components. In addition, we recently purchased an amount of such components to be used for sales later this year and in the beginning of 2022. As long as the COVID-19 pandemic continues, the components’ lead-time may be longer than normal and the global shortage in components may continue or get worse.
It is difficult to predict what other impacts the COVID-19 pandemic may have on us.
Operating activities related to continuing operations
For the threenine months ended March 31,September 30, 2021, net cash used in continuing operating activities was $1.5$5.4 million, primarily due to a $2.7$5.8 million net loss from continuing operations, a $764,000$2.8 million increase in trade receivables, a $169,000 decrease$750,000 increase in trade payables,inventories, a $169,000$420,000 increase in other receivables and prepaid expenses, a $110,000 change in accrued interest and linkage differences and $13,000 of deferred tax benefits, and a $13,000 change in accrued severance pay,net, partially offset by $2.4 million of financial expenses derived from the Loan, a $2.0$1.7 million loss from changeincrease in fair valuetrade payables, $290,000 of embedded derivative,depreciation and amortization, a $152,000$58,000 increase in other current liabilities, a $110,000 decrease in inventory, $100,000 of depreciation and amortization, a $50,000 decrease in other receivables and prepaid expenses, $14,000$44,000 of expenses due to stock-based compensation issued to employees and others, and $10,000 of transaction expenses related to the convertible short-term loan received from shareholders.a $17,000 change in accrued severance pay, net.
For the threenine months ended March 31,September 30, 2020, net cash used in continuing operating activities was $32,000$1.6 million, primarily due to a $867,000 increase in trade receivables, a $576,000$2.8 million net loss from continuing operations, a $156,000$432,000 million increase in trade payables, a $305,000 decrease in other current liabilities, and a $102,000 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 $429,000$1.1 million increase in trade payables, a $386,000 decrease in inventory, $108,000receivables, $314,000 of depreciation and amortization, a $55,000$306,000 decrease in other receivables and prepaid expenses, and a $12,000$253,000 decrease in inventories, net, $41,000 of expenses due to stock-basedstock based compensation issued to employees, net, a $21,000 change in accrued severance pay, net, and others.$9,000 of deferred tax expenses,
Operating activities related to discontinued operations
For the threenine months ended March 31,September 30, 2021, net cash provided byused in discontinued operating activities was $3,000,$1.7 million, mainly related to the Mass Transit Ticketing operations that were managed by ASEC.a payment of $1.8 million to Merwell Inc., as part of a settlement agreement.
For the threenine months ended March 31,September 30, 2020, net cash used in discontinued operating activities was $1.4$1.3 million, mainly related to the Mass Transit Ticketing operationsoperation that werewas managed by ASEC and to expenses derived from legal proceedings with Harel Insurance Company Ltd.
Investing and financing activities related to continuing operations
For the threenine months ended March 31,September 30, 2021, net cash used in continuing investing activities was $29,000, due to $29,000$206,000 of purchases of long-livedproperty and equipment and intangible assets.
For the threenine months ended March 31,September 30, 2020, net cash provided by continuing investing activities was $1.4 million, mainly due to a $1.7 million change of $1.5 million in short-term investments, net, partially offset by $103,000$336,000 of purchases of long-livedproperty and equipment and intangible assets.
For the threenine months ended March 31,September 30, 2021, net cash used inprovided by continuing financing activities was $201,000,$3.7 million, mainly due to a $1.2$3.2 million decrease in short-term bank credit, net and a $2,000 repayment of long-term loans, partially offset by $961,000 proceeds from issuance of shares as a result of the Rights Offering, net of issuance costs, a $923,000 convertible short-term loan received from shareholders, net of transaction expenses.expenses, and a $18,000 long-term loan received, partially offset by a $406,000 decrease in short-term bank credit and loans, net, and a $4,000 repayment of long-term bank loans.
For the threenine months ended March 31,September 30, 2020, net cash provided by continuing financing activities was $306,000,$1.4 million, mainly due to $200,000$1.4 million of proceeds from issuance of shares, net of issuance costs, and a $111,000$70,000 increase in short-term bank credit and loans, net, partially offset by a $5,000$8,000 of repayment of long-term bank loans.
8
Investing and financing activities related to discontinued operations
For the threenine months ended March 31,September 30, 2021, net cash provided by discontinued investing activities was $2.1$2.9 million, mainly related to the proceeds$1.6 million derived from a settlement with SuperCom Ltd., including earn-out consideration, and $2.7 million consideration for the sale of ASEC, that were received prior topartially offset by cash and cash equivalents as held by ASEC at the closing to repay certain debt in Poland.date of its sale.
For the threenine months ended March 31,September 30, 2020, net cash used in discontinued investing activities was $66,000, mainly$658,000, related to the purchase of long-lived assets for the Mass Transit Ticketing operations.
We had noFor the nine months ended September 30, 2021, net cash flows provided by or used in discontinued financing activities inwas $380,000, related to repayment of short-term bank loan, for the threeMass Transit Ticketing operations.
For the nine months ended March 31, 2021.
For the three months ended March 31,September 30, 2020, net cash provided by discontinued financing activities was $49,000, mainly$890,000, related to an increase in short-termproceeds from long-term bank credit, net,loan for the Mass Transit Ticketing operations.
Off Balance Sheet Arrangements
We have no 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 March 31,September 30, 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 March 31,September 30, 2021 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
9
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
ForOur business faces many risks, a number of which are described under the caption “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2020. 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 Report and below may not be the only risks we face. Other risks 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, 2020 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, 2020 and below, and the information with respect to legal proceedings to be disclosedcontained under this Item, see Note 6A to the consolidated Financial Statements included under Part I Item 1caption “Forward-Looking Statements” and elsewhere in this Quarterly Report.Report on Form 10-Q before deciding whether to invest in our securities.
Item 2. Unregistered SalesWe face risks due to a global shortage in the components required for the supply of Equity Securitiesour products.
As part of the different impacts of the COVID 19 pandemic, there has been a global shortage in various components, including in the components required for the supply of our products, which has led to an increase in the prices of such components, in freight cost and Useto a longer lead-times. Such shortage has made it harder for us to be able to fulfill orders made by customers, which impacted on our revenues and product gross margin, mainly in the retail segment. In order to mitigate the risk, we encourage our customers to provide a forecast to their demand and continue to maintain a comprehensive network of Proceeds.worldwide suppliers in order to optimize our access to critical components. In addition, during last few months we have purchased a larger amount of such components to be used for sales later this year. However, these measures may not be sufficient to mitigate the aforementioned risks, and if the shortage continues, or even worsens, this may adversely impact our business. As long as the COVID-19 pandemic continues, the components’ lead-time may be longer than normal and shortage in components may continue or become greater which would adversely affect our business.
In December 2020
We do not have enough cash resources to fund our operations for the next twelve months and Januaryif 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, our shareholders and government, cash from the exercise of options and warrants and proceeds from the divestiture of part of our businesses. As of September 30, 2021, we borrowedhad cash, cash equivalents and short-term investments representing bank deposits of $1.3 million. Based on the projected cash flows and our cash balances as of September 30, 2021, 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 loan,period of at least the next 12 months. As a result, there is substantial doubt about our ability to continue as a going concern. We are attempting to raise additional funds and to increase our cash and in two tranches aggregating $1.6 million, fromconnection therewith are negotiating with our controlling shareholder, and another shareholderMr. Jerry Ivy, the terms of a loan agreement that would matureaddress our cash needs. 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 June 17, 2021. On March 2, 2021, our shareholders approved, as required under Israeli law, that such loanacceptable terms, we may be converted. Accordingly, such loanunable 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 accrued interest,financial condition. To preserve our cash resources, we may be converted, at the discretion ofrequired to reorganize our controlling shareholder intooperations. If we are unable to fund our ordinary shares at a conversion price of approximately $0.174 if converted on or before June 17, 2021operations without additional external financing and $0.124 thereafter. We extended the loan, assuming ittherefore cannot sustain future operations, we may be converted, pursuantrequired to an exemption from registration under Section 4(a)(2) of the Securities Act of 1933, as amended.cease our operations and/or seek bankruptcy protection.
Item
Item 6. Exhibits.
| 3.1 | ||
| 3.2 | ||
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. | |
| The following materials from our Quarterly Report on Form 10-Q for the quarter ended | ||
| 104* | Cover Page Interactive Data File––the cover page interactive data file does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. |
| * | Filed herewith. |
| ** | Furnished herewith. |
10
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.
16
iso4217:USD xbrli:shares | ||||||||||||||||||||||||||||||||||||||