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 June 30, 2021March 31, 2022
☐ 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 | ☐ |
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: 72,789,89375,775,393 Ordinary Shares outstanding as of August 9, 2021.May 11, 2022.
ON TRACK INNOVATIONS LTD.
TABLE OF CONTENTS
Part I - Financial Information | 1 | |||
Item 1. | Financial Statements | 1 | ||
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 2 | ||
Item 4. | Controls and Procedures | |||
Part II - Other Information | 11 | |||
Item 1. | Legal Proceedings | |||
Item 6. | Exhibits | |||
Signatures |
i
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
ON TRACK INNOVATIONS LTD. AND ITS SUBSIDIARIES
INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
As of June 30, 2021March 31, 2022
(Unaudited)
On Track Innovations Ltd.
and its Subsidiaries
Interim Condensed Consolidated
Financial Statements
As of June 30, 2021
(Unaudited)
1
On Track Innovations Ltd.
and its Subsidiaries
Interim Condensed Consolidated Financial Statements
As of March 31, 2022
(Unaudited)
On Track Innovations Ltd.
and its Subsidiaries
Interim Unaudited Condensed Consolidated Financial Statements as of June 30, 2021March 31, 2022
Contents
F-1
On Track Innovations Ltd.
and its Subsidiaries
Interim Unaudited Condensed Consolidated Balance Sheets
US dollars in thousands except share data
June 30, | December 31, | |||||||
2021 | 2020 | |||||||
Assets | ||||||||
Current assets | ||||||||
Cash and cash equivalents | $ | 959 | $ | 1,377 | ||||
Short-term investments | 1,605 | 105 | ||||||
Trade receivables (net of allowance for doubtful accounts of $609 and $620 as of June 30, 2021 and December 31, 2020, respectively) | 2,139 | 1,148 | ||||||
Other receivables and prepaid expenses | 2,712 | 695 | ||||||
Inventories | 2,742 | 2,479 | ||||||
Assets from discontinued operations - held for sale | - | 6,358 | ||||||
Total current assets | 10,157 | 12,162 | ||||||
Non-current assets | ||||||||
Long term restricted deposit for employee benefits | 504 | 511 | ||||||
Severance pay deposits | 406 | 411 | ||||||
Property, plant and equipment, net | 705 | 752 | ||||||
Intangible assets, net | 189 | 247 | ||||||
Right-of-use assets due to operating leases | 2,508 | 2,903 | ||||||
Total non-current assets | 4,312 | 4,824 | ||||||
Total Assets | $ | 14,469 | $ | 16,986 |
March 31 | December 31 | |||||||
2022 | 2021 | |||||||
Assets | ||||||||
Current assets | ||||||||
Cash and cash equivalents | $ | 1,750 | $ | 815 | ||||
Trade receivables (net of allowance for doubtful accounts of $613 and $614 as of March 31, 2022 and December 31, 2021, respectively) | 1,956 | 3,274 | ||||||
Other receivables and prepaid expenses | 1,561 | 1,159 | ||||||
Inventories | 3,394 | 3,200 | ||||||
Total current assets | 8,661 | 8,448 | ||||||
Non-current assets | ||||||||
Restricted bank deposit | - | 105 | ||||||
Long term restricted deposit for employee benefits | 518 | 529 | ||||||
Severance pay deposits | 475 | 485 | ||||||
Property, plant and equipment, net | 637 | 673 | ||||||
Intangible assets, net | 166 | 162 | ||||||
Right-of-use assets due to operating leases | 1,965 | 2,134 | ||||||
Total non-current assets | 3,761 | 4,088 | ||||||
Total Assets | $ | 12,422 | $ | 12,536 |
The accompanying notes are an integral part of these interim unaudited condensed consolidated financial statements.
F-2
On Track Innovations Ltd.
and its Subsidiaries
Interim Unaudited Condensed Consolidated Balance Sheets
US dollars in thousands except share data
June 30, | December 31, | March 31 | December 31 | |||||||||||||
2021 | 2020 | 2022 | 2021 | |||||||||||||
Liabilities and Equity | ||||||||||||||||
Current Liabilities | ||||||||||||||||
Short-term bank credit, short-term loans and current maturities of long-term bank loans | $ | 795 | $ | 542 | ||||||||||||
Convertible short-term loan from a controlling shareholder | 77 | 625 | ||||||||||||||
Short-term bank credit and current maturities of long-term bank loans | $ | 2,001 | $ | 2,095 | ||||||||||||
Convertible short-term loan from shareholders, including a controlling shareholder | - | 1,745 | ||||||||||||||
Convertible loan from Nayax Ltd. (“Nayax”) | 5,595 | - | ||||||||||||||
Trade payables | 2,212 | 1,667 | 2,212 | 4,657 | ||||||||||||
Other current liabilities | 4,270 | 2,283 | 2,464 | 2,832 | ||||||||||||
Liabilities from discontinued operations - held for sale | - | 5,829 | ||||||||||||||
Total current liabilities | $ | 7,354 | $ | 10,946 | 12,272 | 11,329 | ||||||||||
Long-Term Liabilities | ||||||||||||||||
Long-term loans, net of current maturities | 8 | 14 | 17 | 21 | ||||||||||||
Long-term liabilities due to operating leases, net of current maturities | 1,931 | 2,343 | 1,514 | 1,650 | ||||||||||||
Accrued severance pay | 977 | 977 | 1,044 | 1,038 | ||||||||||||
Total long-term liabilities | 2,916 | 3,334 | 2,575 | 2,709 | ||||||||||||
Total Liabilities | 10,270 | 14,280 | 14,847 | 14,038 | ||||||||||||
Commitments and Contingencies, see Note 6 | ||||||||||||||||
Commitments and Contingencies, see note 6 | ||||||||||||||||
Equity | ||||||||||||||||
Ordinary shares of NIS 0.1 par value: Authorized – 100,000,000 shares as of June 30, 2021 and December 31, 2020; issued: 73,968,592 and 55,003,076 shares as of June 30, 2021 and December 31, 2020, respectively; outstanding: 72,789,893 and 53,824,377 shares as of June 30, 2021 and December 31, 2020, respectively | 2,008 | 1,423 | ||||||||||||||
Ordinary shares of NIS 0.1 par value: Authorized – 120,000,000 shares as of March 31, 2022 and December 31, 2021; issued: 76,954,092 shares as of March 31, 2022 and December 31, 2021; outstanding: 72,789,893 shares as of March 31, 2022 and December 31, 2021 | 2,008 | 2,008 | ||||||||||||||
Additional paid-in capital | 233,391 | 227,209 | 233,498 | 233,462 | ||||||||||||
Treasury shares at cost - 1,178,699 shares as of June 30, 2021 and December 31, 2020 | (2,000 | ) | (2,000 | ) | ||||||||||||
Treasury shares at cost - 1,178,699 shares as of March 31, 2022 and December 31, 2021 | (2,000 | ) | (2,000 | ) | ||||||||||||
Accumulated other comprehensive loss | (352 | ) | (961 | ) | (347 | ) | (348 | ) | ||||||||
Accumulated deficit | (228,848 | ) | (222,965 | ) | (235,584 | ) | (234,624 | ) | ||||||||
Total Equity | 4,199 | 2,706 | (2,425 | ) | (1,502 | ) | ||||||||||
Total Liabilities and Equity | $ | 14,469 | $ | 16,986 | $ | 12,422 | $ | 12,536 |
The accompanying notes are an integral part of these interim unaudited condensed consolidated financial statements.
F-3
On Track Innovations Ltd.
and its Subsidiaries
Interim Unaudited Condensed Consolidated Statements of Operations
US dollars in thousands except share and per share data
Three months ended June 30, | Six months ended June 30, | |||||||||||||||
2021 | (*)2020 | 2021 | (*)2020 | |||||||||||||
Revenues | ||||||||||||||||
Sales | $ | 2,446 | $ | 3,751 | $ | 4,833 | $ | 7,094 | ||||||||
Software as a Service (“SaaS”) | 405 | 286 | 787 | 610 | ||||||||||||
Total revenues | 2,851 | 4,037 | 5,620 | 7,704 | ||||||||||||
Cost of revenues | ||||||||||||||||
Cost of sales | 1,874 | 2,358 | 3,240 | 4,379 | ||||||||||||
Total cost of revenues | 1,874 | 2,358 | 3,240 | 4,379 | ||||||||||||
Gross profit | 977 | 1,679 | 2,380 | 3,325 | ||||||||||||
Operating expenses | ||||||||||||||||
Research and development | 900 | 903 | 1,738 | 1,796 | ||||||||||||
Selling and marketing | 736 | 885 | 1,341 | 1,583 | ||||||||||||
General and administrative | 735 | 698 | 1,481 | 1,500 | ||||||||||||
Total operating expenses | 2,371 | 2,486 | 4,560 | 4,879 | ||||||||||||
Operating loss from continuing operations | (1,394 | ) | (807 | ) | (2,180 | ) | (1,554 | ) | ||||||||
Loss from change in fair value of embedded derivative | - | - | (1,974 | ) | - | |||||||||||
Other financial (expenses) income, net | (131 | ) | (109 | ) | (127 | ) | 67 | |||||||||
Financial (expenses) income, net | (131 | ) | (109 | ) | (2,101 | ) | 67 | |||||||||
Loss from continuing operations before taxes on income | (1,525 | ) | (916 | ) | (4,281 | ) | (1,487 | ) | ||||||||
Income tax benefits (expenses) | �� | - | (12 | ) | 13 | (17 | ) | |||||||||
Loss from continuing operations | (1,525 | ) | (928 | ) | (4,268 | ) | (1,504 | ) | ||||||||
Loss from discontinued operations | (1,197 | ) | (195 | ) | (1,615 | ) | (288 | ) | ||||||||
Net loss | $ | (2,722 | ) | $ | (1,123 | ) | $ | (5,883 | ) | $ | (1,792 | ) | ||||
Basic and diluted net loss attributable to shareholders per ordinary share (***) | ||||||||||||||||
From continuing operations | (0.02 | ) | (0.02 | ) | (0.07 | ) | (0.03 | ) | ||||||||
From discontinued operations | (0.02 | ) | (**) | (0.03 | ) | (0.01 | ) | |||||||||
$ | (0.04 | ) | $ | (0.02 | ) | $ | (0.10 | ) | $ | (0.04 | ) | |||||
Weighted average number of ordinary shares used in computing basic and diluted net loss per ordinary share | 62,577,692 | (***)56,335,759 | 58,225,215 | (***)53,840,138 |
|
Three months ended March 31 | ||||||||
2022 | 2021 | |||||||
Revenues | ||||||||
Sales | $ | 2,465 | $ | 2,387 | ||||
Software as a Service (“SaaS”) | 428 | 382 | ||||||
Total revenues | 2,893 | 2,769 | ||||||
Cost of revenues | ||||||||
Cost of sales | 1,543 | 1,366 | ||||||
Total cost of revenues | 1,543 | 1,366 | ||||||
Gross profit | 1,350 | 1,403 | ||||||
Operating expenses | ||||||||
Research and development | 731 | 838 | ||||||
Selling and marketing | 580 | 605 | ||||||
General and administrative | 853 | 746 | ||||||
Total operating expenses | 2,164 | 2,189 | ||||||
Operating loss from continuing operations | (814 | ) | (786 | ) | ||||
Loss from change in fair value of embedded derivative | - | (1,974 | ) | |||||
Other financial (expenses) income, net | (146 | ) | 4 | |||||
Financial (expenses) income, net | (146 | ) | (1,970 | ) | ||||
Loss from continuing operations before taxes on income | (960 | ) | (2,756 | ) | ||||
Income tax benefits, net | - | 13 | ||||||
Loss from continuing operations | (960 | ) | (2,743 | ) | ||||
Loss from discontinued operations | - | (418 | ) | |||||
Net loss | $ | (960 | ) | $ | (3,161 | ) | ||
Basic and diluted net loss attributable to shareholders per ordinary share | ||||||||
From continuing operations | $ | (0.01 | ) | $ | (0.05 | ) | ||
From discontinued operations | $ | (0.00 | ) | $ | (0.01 | ) | ||
$ | (0.01 | ) | $ | (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 |
The accompanying notes are an integral part of these interim unaudited condensed consolidated financial statements.
F-4
On Track Innovations Ltd.
and its Subsidiaries
Interim Unaudited Condensed Consolidated Statements of Comprehensive Loss
US dollars in thousands
Three months ended June 30, | Six months ended June 30, | Three months ended March 31 | ||||||||||||||||||||||
2021 | (*)2020 | 2021 | (*)2020 | 2022 | 2021 | |||||||||||||||||||
Total comprehensive loss: | ||||||||||||||||||||||||
Net loss | $ | (2,722 | ) | $ | (1,123 | ) | $ | (5,883 | ) | $ | (1,792 | ) | $ | (960 | ) | $ | (3,161 | ) | ||||||
Exchange differences on translation released following sale of a subsidiary | 746 | - | 746 | - | ||||||||||||||||||||
Exchange differences on translation of foreign continuing operations | - | (49 | ) | (85 | ) | (31 | ) | 1 | (85 | ) | ||||||||||||||
Exchange differences on translation of foreign discontinued operations | - | 190 | (52 | ) | (122 | ) | - | (52 | ) | |||||||||||||||
Total comprehensive loss | $ | (1,976 | ) | $ | (982 | ) | $ | (5,274 | ) | $ | (1,945 | ) | $ | (959 | ) | $ | (3,298 | ) |
The accompanying notes are an integral part of these interim unaudited condensed consolidated financial statements.
F-5
On Track Innovations Ltd.
and its Subsidiaries
Interim Unaudited Condensed Consolidated Statements of Changes in Equity
US dollars in thousands except for number of shares
Number of Shares issued | Share capital | Additional paid-in capital | Treasury Shares (at cost) | Accumulated other comprehensive Income (loss) | Accumulated deficit | Total equity | ||||||||||||||||||||||
Balance as of March 31, 2020 | 49,003,076 | $ | 1,256 | $ | 226,152 | $ | (2,000 | ) | $ | (1,268 | ) | $ | (217,501 | ) | $ | 6,639 | ||||||||||||
Changes during the three months period ended June 30, 2020: | ||||||||||||||||||||||||||||
Issuance of shares, net of issuance costs of $31 (*) | 6,000,000 | 167 | 1,002 | - | - | - | 1,169 | |||||||||||||||||||||
Stock-based compensation | - | - | 16 | - | - | - | 16 | |||||||||||||||||||||
Exchange differences on translation adjustments | - | - | - | - | 141 | - | 141 | |||||||||||||||||||||
Net loss | - | - | - | - | - | (1,123 | ) | (1,123 | ) | |||||||||||||||||||
Balance as of June 30, 2020 | 55,003,076 | $ | 1,423 | $ | 227,170 | $ | (2,000 | ) | $ | (1,127 | ) | $ | (218,624 | ) | $ | 6,842 | ||||||||||||
Balance as of March 31, 2021 | 55,003,076 | $ | 1,423 | $ | 230,789 | $ | (2,000 | ) | $ | (1,098 | ) | $ | (226,126 | ) | $ | 2,988 | ||||||||||||
Changes during the three months period ended June 30, 2021: | ||||||||||||||||||||||||||||
Issuance of shares, net of issuance costs of $128 (*) | 18,965,516 | 585 | 2,587 | - | - | - | 3,172 | |||||||||||||||||||||
Stock-based compensation | - | - | 15 | - | - | - | 15 | |||||||||||||||||||||
Exchange differences on translation released following sale of a subsidiary | - | - | - | - | 746 | - | 746 | |||||||||||||||||||||
Net loss | - | - | - | - | - | (2,722 | ) | (2,722 | ) | |||||||||||||||||||
Balance as of June 30, 2021 | 73,968,592 | $ | 2,008 | $ | 233,391 | $ | (2,000 | ) | $ | (352 | ) | $ | (228,848 | ) | $ | 4,199 |
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, 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 | ||||||||||||
Balance as of December 31, 2021 | 76,954,092 | $ | 2,008 | $ | 233,462 | $ | (2,000 | ) | $ | (348 | ) | $ | (234,624 | ) | $ | (1,502 | ) | |||||||||||
Changes during the three month period ended March 31, 2022: | ||||||||||||||||||||||||||||
Stock-based compensation | - | - | 36 | - | - | - | 36 | |||||||||||||||||||||
Foreign currency translation adjustments | - | - | - | - | 1 | - | 1 | |||||||||||||||||||||
Net loss | - | - | - | - | - | (960 | ) | (960 | ) | |||||||||||||||||||
Balance as of March 31, 2022 | 76,954,092 | $ | 2,008 | $ | 233,498 | $ | (2,000 | ) | $ | (347 | ) | $ | (235,584 | ) | $ | (2,425 | ) |
The accompanying notes are an integral part of these interim unaudited condensed consolidated financial statements.
F-6
On Track Innovations Ltd.
and its Subsidiaries
Interim Unaudited Condensed Consolidated Statements of Changes in EquityCash Flows
US dollars in thousands except for number of shares
Number of Shares issued | Share capital | Additional paid-in capital | Treasury Shares (at cost) | Accumulated other comprehensive Income (loss) | Accumulated deficit | Total equity | ||||||||||||||||||||||
Balance as of December 31, 2019 | 47,963,076 | $ | 1,226 | $ | 225,970 | $ | (2,000 | ) | $ | (974 | ) | $ | (216,832 | ) | $ | 7,390 | ||||||||||||
Changes during the six months period ended June 30, 2020: | ||||||||||||||||||||||||||||
Issuance of shares, net of issuance costs of $39 (*) | 7,040,000 | 197 | 1,172 | - | - | - | 1,369 | |||||||||||||||||||||
Stock-based compensation | - | - | 28 | - | - | - | 28 | |||||||||||||||||||||
Exchange differences on translation adjustments | - | - | - | - | (153 | ) | - | (153 | ) | |||||||||||||||||||
Net loss | - | - | - | - | - | (1,792 | ) | (1,792 | ) | |||||||||||||||||||
Balance as of June 30, 2020 | 55,003,076 | $ | 1,423 | $ | 227,170 | $ | (2,000 | ) | $ | (1,127 | ) | $ | (218,624 | ) | $ | 6,842 | ||||||||||||
Balance as of December 31, 2020 | 55,003,076 | $ | 1,423 | $ | 227,209 | $ | (2,000 | ) | $ | (961 | ) | $ | (222,965 | ) | $ | 2,706 | ||||||||||||
Changes during the six months period ended June 30, 2021: | ||||||||||||||||||||||||||||
Issuance of shares, net of issuance costs of $128 (*) | 18,965,516 | 585 | 2,587 | - | - | - | 3,172 | |||||||||||||||||||||
Stock-based compensation | - | - | 29 | - | - | - | 29 | |||||||||||||||||||||
Exchange differences on translation adjustments | - | - | - | - | (**)609 | - | 609 | |||||||||||||||||||||
Classification of embedded derivative from liability to equity (***) | - | - | 3,566 | - | - | - | 3,566 | |||||||||||||||||||||
Net loss | - | - | - | - | - | (5,883 | ) | (5,883 | ) | |||||||||||||||||||
Balance as of June 30, 2021 | 73,968,592 | $ | 2,008 | $ | 233,391 | $ | (2,000 | ) | $ | (352 | ) | $ | (228,848 | ) | $ | 4,199 |
Three months ended March 31 | ||||||||
2022 | 2021 | |||||||
Cash flows from continuing operating activities | ||||||||
Net loss from continuing operations | $ | (960 | ) | $ | (2,743 | ) | ||
Adjustments required to reconcile net loss to net cash provided by continuing operating activities: | ||||||||
Stock-based compensation related to options, restricted stock awards and shares issued to employees and others | 36 | 14 | ||||||
Accrued interest and linkage differences, net | (51 | ) | (169 | ) | ||||
Transaction expenses related to convertible loan received | 108 | 10 | ||||||
Loss from change in fair value of embedded derivative | - | 1,974 | ||||||
Depreciation and amortization | 83 | 100 | ||||||
Deferred tax benefits, net | - | (13 | ) | |||||
Changes in operating assets and liabilities: | ||||||||
Change in accrued severance pay, net | 16 | (13 | ) | |||||
Increase (decrease) in trade receivables, net | 1,310 | (764 | ) | |||||
Decrease (increase) in other receivables and prepaid expenses | (406 | ) | 50 | |||||
Decrease (increase) in inventories | (198 | ) | 110 | |||||
(Decrease) in trade payables | (2,435 | ) | (169 | ) | ||||
(Decrease) increase in other current liabilities | (269 | ) | 152 | |||||
Net cash used in continuing operating activities | (2,766 | ) | (1,461 | ) | ||||
Cash flows from continuing investing activities | ||||||||
Purchase of property and equipment and intangible assets | (59 | ) | (29 | ) | ||||
Net cash used in continuing investing activities | (59 | ) | (29 | ) | ||||
Cash flows from continuing financing activities | ||||||||
Increase in short-term bank credit | 2,000 | - | ||||||
Repayment of short-term bank credit | (2,054 | ) | (1,160 | ) | ||||
Repayment of convertible short-term loan received from shareholders, net of transaction expenses | (1,758 | ) | 961 | |||||
Convertible loan received from Nayax | 5,500 | - | ||||||
Repayment of long-term loans | (8 | ) | (2 | ) | ||||
Net cash provided by (used in) continuing financing activities | 3,680 | (201 | ) | |||||
Net cash (used in) provided by discontinued operating activities | (19 | ) | 3 | |||||
Net cash provided by discontinued investing activities | - | 2,091 | ||||||
Net cash provided by discontinued financing activities | - | - | ||||||
Total net cash (used in) provided by discontinued operations | (19 | ) | 2,094 | |||||
Effect of exchange rate changes on cash and cash equivalents | (5 | ) | (98 | ) | ||||
Increase in cash, cash equivalents and restricted cash | 830 | 305 | ||||||
Cash, cash equivalents and restricted cash - beginning of the period | 920 | 2,499 | ||||||
Cash, cash equivalents and restricted cash - end of the period | $ | 1,750 | $ | 2,804 |
The accompanying notes are an integral part of these interim unaudited condensed consolidated financial statements.
F-7
On Track Innovations Ltd.
and its Subsidiaries
Interim Unaudited Condensed Consolidated Statements of Cash Flows (cont’d)
US dollars in thousands
Six months ended June 30, | ||||||||
2021 | (*) 2020 | |||||||
Cash flows from continuing operating activities | ||||||||
Net loss from continuing operations | $ | (4,268 | ) | $ | (1,504 | ) | ||
Adjustments required to reconcile net loss to net cash used in provided by continuing operating activities: | ||||||||
Stock-based compensation related to options issued to employees and others | 29 | 28 | ||||||
Accrued interest and linkage differences, net | (55 | ) | (162 | ) | ||||
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 | 200 | 212 | ||||||
Deferred tax (benefits) expenses, net | (13 | ) | 17 | |||||
Changes in operating assets and liabilities: | ||||||||
Change in accrued severance pay, net | 5 | 11 | ||||||
(Increase) decrease in trade receivables, net | (1,143 | ) | 92 | |||||
Increase in other receivables and prepaid expenses | (416 | ) | (92 | ) | ||||
(Increase) decrease in inventories | (263 | ) | 380 | |||||
Increase in trade payables | 544 | 1,268 | ||||||
Increase (decrease) in other current liabilities | 173 | (283 | ) | |||||
Net cash used in continuing operating activities | (3,223 | ) | (33 | ) | ||||
Cash flows from continuing investing activities | ||||||||
Purchase of property and equipment and intangible assets | (137 | ) | (283 | ) | ||||
Change in short-term investments, net | (1,500 | ) | 511 | |||||
Net cash (used in) provided by continuing investing activities | (1,637 | ) | 228 | |||||
Cash flows from continuing financing activities | ||||||||
(Decrease) increase in short-term bank credit and loans, net | (1,474 | ) | 62 | |||||
Convertible short-term loan received from shareholders, net of transaction expenses | 923 | - | ||||||
Repayment of long-term bank loans | (2 | ) | (7 | ) | ||||
Proceeds from issuance of shares, net of issuance costs | 3.209 | 1,369 | ||||||
Net cash provided by continuing financing activities | 2,656 | 1,424 | ||||||
Cash flows from discontinued operations | ||||||||
Net cash used in discontinued operating activities | (91 | ) | (1,300 | ) | ||||
Net cash provided by (used in) discontinued investing activities | 1,338 | (207 | ) | |||||
Net cash (used in) provided by discontinued financing activities | (380 | ) | 799 | |||||
Total net cash provided by (used in) discontinued operations | 867 | (708 | ) | |||||
Effect of exchange rate changes on cash and cash equivalents | (98 | ) | (86 | ) | ||||
(Decrease) increase in cash, cash equivalents and restricted cash | (1,435 | ) | 825 | |||||
Cash, cash equivalents and restricted cash - beginning of the period | (**)2,499 | (**)2,648 | ||||||
Cash, cash equivalents and restricted cash - end of the period | $ | 1,064 | $ | (**)3,473 |
Three months ended March 31 | ||||||||
2022 | 2021 | |||||||
Supplementary cash flows activities: | ||||||||
Cash paid during the period for: | ||||||||
Interest paid | $ | 169 | $ | (*)22 | ||||
Income taxes paid | $ | 27 | $ | - | ||||
Income tax refund received | $ | - | $ | 6 |
(*) |
Including |
Supplemental disclosures of non-cash flow information | ||||||||
Payables due to transaction expenses related to convertible short-term loan received | $ | 95 | $ | 38 | ||||
Payables due to purchase of property and equipment and intangible assets | $ | - | $ | 30 | ||||
Classification of embedded derivative from liability to equity | $ | - | $ | 3,566 |
The accompanying notes are an integral part of these interim unaudited condensed consolidated financial statements.
F-8
On Track Innovations Ltd.
and its Subsidiaries
Interim Unaudited Condensed Consolidated Statements of Cash Flows
US dollars in thousands
Six months ended June 30 | ||||||||
2021 | 2020 | |||||||
Supplementary cash flows activities: | ||||||||
Cash paid during the period for: | ||||||||
Interest paid | $ | (*)55 | $ | 51 | ||||
Income taxes paid | $ | - | $ | (**)40 | ||||
Income tax refund received | $ | 6 | $ | - |
Supplemental disclosures of non-cash flow information | ||||||||
Payables due to issuance costs | $ | 37 | $ | - | ||||
Payables due to purchase of property and equipment and intangible assets | $ | - | $ | 12 | ||||
Payables due to purchase of property and equipment and intangible assets from discontinued operations - held for sale | $ | - | $ | (*)75 | ||||
Classification of embedded derivative from liability to equity | $ | 3,566 | $ | - |
The accompanying notes are an integral part of these interim unaudited condensed consolidated financial statements.
On Track Innovations Ltd.
and its 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).
AsOn January 10, 2022, the Company filed a petition (the “Petition”) with the Israeli county court of June 30, 2021,Nazareth, seeking protections from its creditors in accordance with the Israeli Insolvency and Economic Rehabilitation Law-2018, after the Company’s Board of Directors determined that the Company is insolvent from a cash flow perspective.
On January 19, 2022, the Company entered into a binding term sheet (the “Term Sheet”), with Nayax Ltd. (“Nayax”). The Term Sheet provides that the Company and Nayax will enter into a two-step transaction relating to (i) Nayax extending to the Company a senior secured convertible loan in amount of $5,500 (the “Nayax Loan”), and (ii) the purchase by Nayax of 100% of the Company’s share capital in consideration for $4,500. Consequently, to the entry into the Term Sheet, and at the Company’s request, the Israeli county court of Nazareth dismissed the Petition.
On January 27, 2022 (the “Effective Date”), the Company entered into a definitive agreement and debenture relating to the Nayax Loan (the “Nayax Loan Agreement”). On March 17, 2022, the Company entered into an Agreement and Plan of Merger, with Nayax and OTI Merger Sub Ltd., an |Israeli company, wholly owned by Nayax, (“Merger Sub”), pursuant to which Merger Sub will merge with and into the Company, with the Company surviving as a direct wholly-owned subsidiary of Nayax, in exchange for $4,500 in cash (the “Merger”).
On May 10, 2022, the Merger was approved by the shareholders of the Company. The completion of the Merger is further subject to the applicable waiting periods as follows: (i) the lapse of a 50-day waiting period counted as of the filing of the Merger proposal with the Israeli Registrar of Companies, which was filed on April 7, 2022, and (ii) the lapse of a 30-day waiting period counted as of the date of approval of the Merger by the shareholders (i.e., May 10, 2022), as well as the delivery of notifications to the creditors of the Company, and all in accordance with applicable law and the fulfillment of certain closing conditions.
At March 31, 2022, 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 (see Note 1C(2)). The Company has determined that the Mass Transit Ticketing business qualifies as a discontinued operation. Accordingly, the results and the cash flows of this operation for all reporting periods are presented in the statements of operations and in the statements of cash flows, respectively, as discontinued operations separately from continuing operations. 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, 2020.2021 that the Company filed with the U.S. Securities and Exchange Commission on April 13, 2022, as amended on April 15, 2022.
In the opinion of management, all adjustments considered necessary for a fair statement, consisting of normal recurring adjustments, have been included. Operating results for the six-month period and the three-month period ended June 30, 2021March 31, 2022 are not necessarily indicative of the results that may be expected for the year ending December 31, 2021.2022.
Use of Estimates:
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the assets, liabilities, revenue, costs, expenses and accumulated other comprehensive 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 its 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. | 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, 2022 of $233,498 and a shareholder’s deficit of $2,425. As of March 31, 2022 the Company also has a payable balance on its short-term bank loan, that is due within the next 12 months of $2,001 and a convertible short-term loan from Nayax including accrued interest, of $5,595. On January 10, 2022, the Company filed the Petition with the Court, seeking protections from its creditors in accordance with the Israeli Insolvency and Economic Rehabilitation Law-2018, after the Company’s Board of Directors determined that the Company is insolvent from a cash flow perspective. However, following the signing of the Term Sheet with Nayax, as mentioned in Note 1A, such Petition was dismissed. At the end of January 2022, the Company signed the Nayax Loan Agreement under which Nayax provided the Company with a loan in an amount of $5,500, as mentioned in Note 1A, and received the proceeds from this Nayax Loan. Consequently, all amounts due under the convertible loan from shareholders (including the Company’s controlling shareholder) and the bank loan, were paid in full. In addition, Nayax has provided the Company with a full guarantee for a $2,000 short-term loan provided to the Company by a bank at the end of February 2022, and additional guarantees to the Company’s suppliers and subcontractors to allow it to maintain its ongoing production and sale of its products. Subsequent to the balance sheet date, On April 26, 2022, Nayax extended an additional amount of $1,000 to the Company, which is added to the previous $5,500 loan and shall be subject to the provisions of the Nayax Loan.
In the event where the Merger, as mentioned in Note 1A, is not completed, under certain circumstances, the Company will be required to pay Nayax a termination fee of $1,500. Furthermore, non-completion of the Merger would be considered an “event of default” under the Nayax Loan Agreement, which can result in Nayax’s requirement for an immediate repayment of the Nayax Loan, or an increase of the annual interest on the Nayax Loan from 10% to 16% interest, at Nayax’s sole discretion. At any time after the earlier of (i) an event of default, as contemplated in the Nayax Loan Agreement, or (ii) the completion of the Merger Agreement, and prior to the repayment of the Nayax Loan which shall be due and payable in full by the Company on the second anniversary of the Effective Date, Nayax is entitled, at its sole discretion, to convert the Nayax Loan into ordinary shares of the Company at a price per share equal to $0.043. The Company will also be required to repay the bank loan provided with Nayax’s guarantee and would be exposed to a risk of not being able to conduct the Company’s business due to the loss of the guarantees provided by Nayax to the Company’s suppliers and subcontractors. Based on the projected cash flows and the Company’s cash balances as of March 31, 2022, the Company believes that without: (1) the completion of the Merger and increase of the Company’s cash by receiving additional loans from Nayax (at Nayax’s sole discretion) under the terms set under the Nayax Loan Agreement; or (2) other increase in the Company’s cash, the Company will not have sufficient resources to enable it to continue its operations for a period of at least the next 12 months from the date of this filing, and may need to commence insolvency proceedings. As a result, there is substantial doubt regarding the Company’s ability to continue as a going concern. The financial statements do not include any adjustments relating to the recoverability and classification of recorded assets and the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.
F-10
On Track Innovations Ltd.
and its 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. |
On April 20, 2016, the purchaser of the Smart ID division, SuperCom Ltd. (“SuperCom”), and the Company entered into a settlement agreement resolving certain litigation between SuperCom and the Company pursuant to which SuperCom paid the Company $2,050 and agreed to pay the Company up to $1,500 in accordance with and subject to a certain earn-out mechanism. In November 2017, the Company commenced an arbitration procedure with SuperCom, in which the Company claims that additional earn-out payments have not been paid to the Company. SuperCom raised claims against the Company during the arbitration for material damages. An arbitration decision was issued on December 24, 2018 in the Company’s favor and denied SuperCom’s claims. The arbitrator ordered SuperCom to disclose the financial information regarding the earn-out payments that the Company is entitled to receive, and to pay the Company accordingly, or otherwise pay the Company approximately $1,300 that reflects the maximum earn-out amount that has not yet been paid to the Company by SuperCom. The arbitration verdict was approved as a court’s verdict in June 2019, but SuperCom failed to disclose the financial information in the way it should have done according to the arbitration decision. Therefore, in December 2019 the Company submitted a complementary claim to the arbitrator, asking for a final award that includes a final payment by SuperCom (as opposed to merely disclosing information). 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 is 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. Following an arbitration process between the Company and SuperCom, on August 10, 2021, the parties entered into a settlement agreement that concluded the legal proceedings with SuperCom. For further details see Notes 6A(1) and 6A(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 1 - Organization and Basis of Presentation (cont’d)
The sale of ASEC was completed on April 21, 2021. The Company has determined that the Mass Transit Ticketing business qualifies as a discontinued operation. Accordingly, the results and the cash flows of this operation for all reporting periods are presented in the statements of operations and in the statements of cash flows, respectively, as discontinued operations separately from continuing operations. 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 December 31, 2020, are presented as assets and liabilities held for sale in the balance sheets as of December 31, 2020.
The consideration for ASEC after reduction of some working capital adjustments, as agreed in April 2021, is approximately $2,700, out of which: (i) approximately $2,100 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 and (ii) $600 was paid by the Buyer to the Company in April 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.
The Company has had recurring losses and cash outflows from operating activities. It has an accumulated deficit as of June 30, 2021 of $228,848. As of June 30, 2021 the Company also has a payable balance on its short-term bank loans, that is due within the next 12 months, of $795 and a convertible short-term loan from shareholders, including accrued interest, of $1,661 (out of which, only amounts of $77is presented as a liability within ‘convertible short-term loan from a controlling shareholder’), that, if not converted, would mature in December 2021 (see also Note 5).
Since inception, the Company’s principal sources of liquidity have been revenues, proceeds from sales of equity securities, (regarding the issuance of shares during the last two years, see Note 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 and cash equivalents and short-term investments representing bank deposits of $2,564 (of which an amount of $105 has been pledged as security for certain items)$1,750 as of June 30, 2021. March 31, 2022.
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)
The recentongoing situation in Poland resulting from the coronavirus (“COVID-19”) pandemic, led to an almost complete stop to the Company’s Mass Transit Ticketing sales business, which negatively impacted the Company’s cash flow. 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 completed the sale of its subsidiary ASEC S.A., including its Mass Transit Ticketing activity, as mentioned in Note 1C(2).activity. 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 Company’s management has been working on updating the Company’s strategy for the coming years in order to realize its potential, resume its growth, and ultimately create shareholder value. The Company raised additional funds and increased its cash, cash equivalents and short-term investments on May 19, 2021, as mentioned in Note 10A(2). Additionally, a portion of additional revenue the Company was hoping to recognize in the second quarter has become backlogged due to a shortage in components, as further described below, and will be delivered later in the year. Therefore, the Company believes that it has sufficient capital resources to fund its operations for at least the next 12 months. In addition, the Company engaged an investment bank to explore strategic options and is investing resources in this process.
In connection with the outbreak of the COVID-19 pandemic, the Company has taken steps to protect its workforce in Israel, South Africa, the United States, Poland, South Africa and elsewhere. Such steps include working from home where possible, minimizing face-to-face meetings, utilizing video conferenceconferencing as much as possible, social distancing at facilities and elimination of most international travel. The Company continues to comply with all local health directives.
The Company has continued to see an interest from new 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 adversely impacted the Company’s revenues and product gross margin, mainly in the Retail segment. As a response to this business environment, the Company encouragesencouraged its customers to provide theira forecast for their demand anddemand. The Company 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, and possibly also thereafter, the components’ lead-time may be longer than normal, and the shortage in components may continue or get worse.
It is difficult to predict with certainty what other impacts the COVID-19 pandemic may have on the Company.
F-11
On Track Innovations Ltd.
and its 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)
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 ESP 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 1.069 and 1.071 for the three months and the six months ended June 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, 2020.2021.
A. | Recently Adopted Accounting Pronouncements |
In December 2019,
1. | In August 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”)
F-12 On Track Innovations Ltd. and its 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
Note 4 - Other Current Liabilities
F-13
On Track Innovations Ltd. and its 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
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 $875 at the second closing that took place on January 28, 2021.
The Loan Agreement was On
On January 27, 2022, the Company entered into a The Loan is subject to Non-completion of the merger would be considered an “event of default” under the Nayax Loan Agreement, which can result in Nayax’s requirement for an immediate repayment of the Nayax Loan, or an increase of the annual interest on the Nayax Loan
Company a full guarantee for this loan. F-14
On Track Innovations Ltd. and its Subsidiaries Notes to the Interim Unaudited Condensed Consolidated Financial Statements US dollars, NIS and Euro in thousands, except share and per share data
Note 6 - Commitments and Contingencies
The Company has entered into several research and development agreements, pursuant to which the Company received grants from the Israel Innovation Authority (“IIA”), and is therefore obligated to pay royalties to the IIA at a rate of 3%-3.5% of its sales up to the amounts granted (linked to the U.S. dollar with annual interest at LIBOR as of the date of approval, for programs approved from January 1, 1999 and thereafter). The total amount of grants received as of There is a dispute between the Company and the IIA in the amount of approximately NIS 3,600 ($ During the
F-15
On Track Innovations Ltd. and its 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
Disaggregation of revenue The following tables disaggregate the Company’s
Performance obligations Below is a listing of performance obligations for the Company’s main revenue streams:
The performance obligation is the selling of contactless payment products. Most of those products are Near Field Communication (NFC) readers. For such sales the performance obligation, transfer of control and revenue recognition occur when the products are delivered. F-16
On Track Innovations Ltd. and its 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)
The complete solution includes selling of products and complementary services, as follows:
For such sales, the performance obligation, transfer of control and revenue recognition occur when the products are delivered.
The types of arrangements and their main performance obligations are as follows:
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
F-17
On Track Innovations Ltd. and its 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
Set forth below are the results of the discontinued operations:
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, long-term loans and 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:
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 and convertible loan from Nayax are equivalent or approximate to their fair value as they bear interest at approximate market rates.
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. F-18
On Track Innovations Ltd. and its 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
During each of the
The Company’s options activity (including options to non-employees) and options outstanding and options exercisable as of December 31,
F-19
On Track Innovations Ltd. and its 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
The weighted average fair value of options granted during the three months ended March 31, 2021 is $0.14 per option. The aggregate intrinsic value of outstanding options as of each of March 31, 2022 and December 31, 2021 is $0. The aggregate intrinsic value of exercisable options as of each of March 31, 2022 and December 31, 2021 is $0. The following table summarizes information about options outstanding and exercisable (including options to non-employees) as of
As of
On July 19, 2021, and September 22, 2021, each of the compensation committee of the Board (the “Committee”) and the Board approved a new incentive plan (the “Equity Incentive Plan”). In the fourth quarter of 2021, following the 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, the Company granted 2,985,500 restricted shares (“RSAs”) to employees pursuant to the Equity Incentive Plan with a concurrent cancelation of options granted to some executive officers in previous quarters. The RSAs will vest over an up to three-year vesting period. RSAs to the directors of the Company, had been subject, in addition to the conditions set forth above, to the approval of the amended compensation policy in the annual general meeting of the shareholders of the Company, which was occurred on December 2, 2021.
F-20 On Track Innovations Ltd. and its Subsidiaries Notes to the US dollars, NIS and Note 10 - Equity (cont’d)
The Company does not plan to issue any additional securities under its 2001 Stock Option Plan. The company granted RSAs, among others, to some executive officers in exchange for their agreement to forfeit their outstanding options that were granted under the
The Company’s RSA activity during 2022 and information as to RSAs outstanding and RSAs exercisable as of March 31, 2022 is summarized in the following table:
F-21 On Track Innovations Ltd. and its 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 grant date fair value of RSAs granted is $0.03 per RSA during 2021. The aggregate intrinsic value of outstanding options as of March 31, 2022 and December 31, 2021 is $273 and The following table summarizes information about RSAs outstanding and exercisable as of March 31, 2022:
As of March 31, 2022, there was $298 of total unrecognized compensation cost related to non-vested stock-based compensation
F-22
On Track Innovations Ltd. and its 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 - For the purposes of allocating resources and assessing performance in order to improve profitability, the Company’s chief operating decision maker (“CODM”) examines Information regarding the results of each reportable segment is included below based on the internal management reports that are reviewed by the CODM.
Note 12 Regarding Note 13
note 1(C). F-23
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Forward - Looking Statements
The statements contained in this Quarterly Report on Form 10-Q, or Quarterly Report, that are not historical facts are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 and other federal securities laws. Such forward-looking statements may be identified by, among other things, the use of forward-looking terminology such as “believes,” “intends,” “plans”, “expects,” “may,” “will,” “should,” or “anticipates” or the negative thereof or other variations thereon or comparable terminology, and similar expressions are intended to identify forward-looking statements. We remind readers that forward-looking statements are merely predictions and therefore are inherently subject to uncertainties and other factors and involve known and unknown risks that could cause the actual results, performance, levels of activity, or our achievements, or industry results, to be materially different from any actual future results, performance, levels of activity, or our achievements, or industry results, expressed or implied by such forward-looking statements. Such forward-looking statements may appear in this Item 2 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” as well as elsewhere in this Quarterly Report and include, among other statements, statements regarding the following:
The 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. 2
Our business and operations are subject to substantial risks, which increase the uncertainty inherent in the forward-looking statements contained in this Quarterly Report. Except as required by law, we undertake no obligation to release publicly the result of any revision to these forward-looking statements that may be made to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events. Further information on potential factors that could affect our business is described among others under the heading “Risk Factors” below and in Part I, Item 1A of our Annual Report on Form 10-K for the fiscal year ended December 31,
As used in this Quarterly Report, the terms “we”, “us”, “our”, “the Company”, and “OTI” mean On Track Innovations Ltd. and our subsidiaries, unless otherwise indicated or as otherwise required by the context.
All figures in this Quarterly Report are stated in United States dollars, unless otherwise specified herein.
Overview
We are a 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
On January 27, 2022, we entered into a definitive agreement and debenture relating to the Nayax Loan, or the Nayax Loan. On March 17, 2022, we entered into an Agreement and Plan of Merger, or the Merger Agreement, with Nayax and OTI Merger Sub Ltd., an Israeli company, wholly owned by Nayax, or Merger Sub, pursuant to which Merger Sub will merge with and into our company, with our company surviving as a direct wholly-owned subsidiary of Nayax, or the Merger, in exchange for $4,500,000 in cash, or the Merger Consideration. On May 10, 2022, the shareholders approved the Merger. The Company expects that the Merger will be completed after June 10, 2022, following and subject to the passage of the waiting periods prescribed under the Companies Law, 1999, and the fulfillment of certain closing conditions. 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,
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Three months ended
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
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
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
Our revenues from sales in
Our revenues from sales in Europe decreased by 4
Our revenues from sales in Africa increased by
Our revenues from sales in the Asia-Pacific region, or APAC, decreased by
Our revenues derived from outside the United States are primarily
Due to the conflict between Russia and Ukraine, and in light of sanctions imposed by certain countries on Russia, our Board guided our management to halt sales to Russian customers. As a result, our revenues will continue to be adversely impacted. 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
Our revenues from Retail in the three months ended
Our revenues
Cost of Revenues and Gross Margin
Our cost of revenues, presented by gross profit and gross margin percentage,
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
Gross margin. The decrease in gross margin percentage in the three months ended 5
Operating expenses
Our operating expenses
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.
Selling and marketing. Our selling and marketing expenses consist primarily of salaries and substantially all of the expenses of our sales and marketing
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 increase of
Financing
Our financing
Financing expenses, net, consist primarily of financing expense related to interest payable on bank loans, bank commissions and 6 Income tax benefit, net
The decrease in our income tax benefit, net, of $13,000, in 2022 compared to 2021 is mainly attributed to income tax benefit due to previous years as
Net loss from continuing operations
Our net loss from continuing operations
The
Net loss from discontinued operations
Our net loss from discontinued operations
The
Net loss
Our net loss
The 7
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
In connection with the outbreak of the COVID-19 pandemic, we have taken steps to protect our workforce in Israel, the United States, Poland, South Africa and elsewhere. Such steps include working from home where possible, minimizing face-to-face meetings, utilizing video
It is difficult to predict with certainty what other impacts the COVID-19 pandemic may have on us. As of March 31, 2022, our and certain of our subsidiaries’ manufacturing facilities and certain equipment have been pledged as security to Nayax in respect of a Nayax Loan. 8
Operating activities related to continuing operations
For the For the three months ended March 31, 2021, net cash used in continuing operating activities was
Operating activities related to discontinued operations
For the For the three months ended March 31, 2021, net cash provided by discontinued operating activities was $3,000, mainly related to the Mass Transit Ticketing
Investing and financing activities related to continuing operations
For the For the three months ended March 31, 2021, net cash used in continuing investing activities was
For the
For the three months ended March 31, 2021, net cash used in continuing financing activities was $201,000, due to a $1.2 million decrease in short-term bank credit, net and a $2,000 repayment of long-term loans, partially offset by $961,000 of proceeds from convertible short-term loan received from shareholders, net of transaction
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Investing and financing activities related to discontinued operations
We had no cash flows provided by or used in discontinued investing activities in the three months ended March 31, 2022. For the
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
Changes in Internal Control Over Financial Reporting - There has been no change in our internal control over financial reporting during the quarter ended
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PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
For information with respect to legal proceedings to be disclosed under this Item, see Note 6A to the consolidated Financial Statements included under Part I Item 1 in this Quarterly Report.
Item 6. Exhibits.
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SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. ON TRACK INNOVATIONS LTD.
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