Item 1.
Financial Statements.
ON
TRACK INNOVATIONS LTD. AND ITS SUBSIDIARIES
INTERIM
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
As
of September 30, 2017
(Unaudited)
On
Track Innovations Ltd.
and
its Subsidiaries
Interim
Unaudited Condensed Consolidated Financial Statements as of September 30, 2017
Contents
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Page
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Interim
Unaudited Condensed Consolidated Balance Sheets
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F-2
- F-3
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Interim
Unaudited Condensed Consolidated Statements of Operations
|
F-4
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Interim
Unaudited Condensed Consolidated Statements of Comprehensive Income (Loss)
|
F-5
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Interim
Unaudited Condensed Consolidated Statements of Changes in Equity
|
F-6
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Interim
Unaudited Condensed Consolidated Statements of Cash Flows
|
F-7
- F-8
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Notes
to the Interim Unaudited Condensed Consolidated Financial Statements
|
F-9
- F-18
|
On
Track Innovations Ltd.
and
its Subsidiaries
Interim
Unaudited Condensed Consolidated Balance Sheets
US
dollars in thousands except share and per share data
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
6,000
|
|
|
$
|
5,952
|
|
Short-term investments
|
|
|
2,667
|
|
|
|
5,585
|
|
Trade receivables (net of allowance for doubtful accounts
of $638 and $720 as of September 30, 2017 and December 31, 2016, respectively)
|
|
|
5,470
|
|
|
|
5,620
|
|
Other receivables and prepaid expenses
|
|
|
3,963
|
|
|
|
1,638
|
|
Inventories
|
|
|
3,818
|
|
|
|
3,069
|
|
Total current assets
|
|
|
21,918
|
|
|
|
21,864
|
|
|
|
|
|
|
|
|
|
|
Long-term restricted deposit for employees
benefit
|
|
|
494
|
|
|
|
453
|
|
|
|
|
|
|
|
|
|
|
Severance pay deposits
|
|
|
353
|
|
|
|
322
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net
|
|
|
5,824
|
|
|
|
5,788
|
|
|
|
|
|
|
|
|
|
|
Intangible
assets, net
|
|
|
337
|
|
|
|
278
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
28,926
|
|
|
$
|
28,705
|
|
The
accompanying notes are an integral part of these interim unaudited condensed consolidated financial statements.
On
Track Innovations Ltd.
and
its Subsidiaries
Interim
Unaudited Condensed Consolidated Balance Sheets
US
dollars in thousands except share and per share data
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
Liabilities and Equity
|
|
|
|
|
|
|
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Current Liabilities
|
|
|
|
|
|
|
Short-term bank credit and current maturities
of long-term bank loans
|
|
$
|
4,389
|
|
|
$
|
4,369
|
|
Trade payables
|
|
|
6,898
|
|
|
|
6,957
|
|
Other current liabilities
|
|
|
2,482
|
|
|
|
2,822
|
|
Total current liabilities
|
|
|
13,769
|
|
|
|
14,148
|
|
|
|
|
|
|
|
|
|
|
Long-Term Liabilities
|
|
|
|
|
|
|
|
|
Long-term loans, net of current maturities
|
|
|
889
|
|
|
|
1,215
|
|
Accrued severance pay
|
|
|
914
|
|
|
|
811
|
|
Deferred tax liability
|
|
|
477
|
|
|
|
373
|
|
Total long-term liabilities
|
|
|
2,280
|
|
|
|
2,399
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities
|
|
|
16,049
|
|
|
|
16,547
|
|
|
|
|
|
|
|
|
|
|
Commitments and Contingencies
|
|
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|
|
|
|
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|
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Equity
|
|
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Shareholders' Equity
|
|
|
|
|
|
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|
Ordinary shares of NIS 0.1 par value:
Authorized: 50,000,000 shares
as of September 30, 2017 and December 31, 2016;
issued: 42,313,077 and 42,243,075 shares as of September 30, 2017
and December 31, 2016, respectively;
outstanding: 41,134,378 and 41,064,376 shares as of September 30, 2017 and December 31, 2016, respectively
|
|
|
1,063
|
|
|
|
1,061
|
|
Additional paid-in capital
|
|
|
224,676
|
|
|
|
224,415
|
|
Treasury shares at cost - 1,178,699 shares as of September 30, 2017
and December 31, 2016
|
|
|
(2,000
|
)
|
|
|
(2,000
|
)
|
Accumulated other comprehensive loss
|
|
|
(876
|
)
|
|
|
(1,236
|
)
|
Accumulated deficit
|
|
|
(209,986
|
)
|
|
|
(210,082
|
)
|
Total Equity
|
|
|
12,877
|
|
|
|
12,158
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities
and Equity
|
|
$
|
28,926
|
|
|
$
|
28,705
|
|
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 Operations
US
dollars in thousands except share and per share data
|
|
Three months ended
September
30,
|
|
|
Nine months ended
September
30,
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
|
|
$
|
3,445
|
|
|
$
|
3,463
|
|
|
$
|
11,871
|
|
|
$
|
10,409
|
|
Licensing and transaction fees
|
|
|
1,225
|
|
|
|
2,133
|
|
|
|
3,765
|
|
|
|
4,569
|
|
Total revenues
|
|
|
4,670
|
|
|
|
5,596
|
|
|
|
15,636
|
|
|
|
14,978
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales
|
|
|
2,192
|
|
|
|
2,557
|
|
|
|
7,468
|
|
|
|
7,167
|
|
Total cost of revenues
|
|
|
2,192
|
|
|
|
2,557
|
|
|
|
7,468
|
|
|
|
7,167
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
2,478
|
|
|
|
3,039
|
|
|
|
8,168
|
|
|
|
7,811
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
823
|
|
|
|
604
|
|
|
|
2,414
|
|
|
|
2,072
|
|
Selling and marketing
|
|
|
1,332
|
|
|
|
1,300
|
|
|
|
4,166
|
|
|
|
3,974
|
|
General and administrative
|
|
|
758
|
|
|
|
787
|
|
|
|
2,553
|
|
|
|
2,613
|
|
Other expenses
|
|
|
-
|
|
|
|
83
|
|
|
|
-
|
|
|
|
83
|
|
Total operating
expenses
|
|
|
2,913
|
|
|
|
2,774
|
|
|
|
9,133
|
|
|
|
8,742
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating (loss) income from continuing
operations
|
|
|
(435
|
)
|
|
|
265
|
|
|
|
(965
|
)
|
|
|
(931
|
)
|
Financial expenses, net
|
|
|
(126
|
)
|
|
|
(30
|
)
|
|
|
(236
|
)
|
|
|
(185
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit
(loss) from continuing operations before taxes on income
|
|
|
(561
|
)
|
|
|
235
|
|
|
|
(1,201
|
)
|
|
|
(1,116
|
)
|
Income tax
|
|
|
(12
|
)
|
|
|
(28
|
)
|
|
|
(68
|
)
|
|
|
(60
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income from continuing
operations
|
|
|
(573
|
)
|
|
|
207
|
|
|
|
(1,269
|
)
|
|
|
(1,176
|
)
|
Net income
(loss) from discontinued operations
|
|
|
1,441
|
|
|
|
(279
|
)
|
|
|
1,365
|
|
|
|
1,525
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
868
|
|
|
|
(72
|
)
|
|
|
96
|
|
|
|
349
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to
noncontrolling interest
|
|
|
-
|
|
|
|
5
|
|
|
|
-
|
|
|
|
32
|
|
Net income (loss)
attributable to shareholders
|
|
$
|
868
|
|
|
$
|
(67
|
)
|
|
$
|
96
|
|
|
$
|
381
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted net gain (loss)
attributable to shareholders per ordinary share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
From continuing operations
|
|
|
(0.01
|
)
|
|
|
0.01
|
|
|
|
(0.03
|
)
|
|
|
(0.03
|
)
|
From discontinued operations
|
|
|
0.03
|
|
|
|
(0.01
|
)
|
|
|
0.03
|
|
|
|
0.04
|
|
|
|
$
|
0.02
|
|
|
$
|
(*
|
)
|
|
|
(*
|
)
|
|
$
|
0.01
|
|
Weighted average number of ordinary
shares used in computing basic net (loss) income per ordinary share
|
|
|
41,122,965
|
|
|
|
40,914,258
|
|
|
|
41,099,603
|
|
|
|
40,895,268
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of ordinary
shares used in computing diluted net (loss) income per ordinary share
|
|
|
41,122,965
|
|
|
|
41,667,258
|
|
|
|
41,099,603
|
|
|
|
40,895,268
|
|
(*)
Less than $0.01 per ordinary share.
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 Income (Loss)
US
dollars in thousands
|
|
Three months ended
September
30,
|
|
|
Nine months ended
September
30,
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
868
|
|
|
$
|
(72
|
)
|
|
$
|
96
|
|
|
$
|
349
|
|
Foreign currency translation
adjustments
|
|
|
28
|
|
|
|
110
|
|
|
|
360
|
|
|
|
88
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
$
|
896
|
|
|
$
|
38
|
|
|
$
|
456
|
|
|
$
|
437
|
|
Comprehensive loss attributable to the non-controlling interest
|
|
|
-
|
|
|
|
5
|
|
|
|
-
|
|
|
|
32
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
attributable to shareholders
|
|
$
|
896
|
|
|
$
|
43
|
|
|
$
|
456
|
|
|
$
|
469
|
|
The
accompanying notes are an integral part of these interim unaudited condensed consolidated financial statements.
On
Track Innovations Ltd.
and
its Subsidiaries
Interim
Unaudited Condensed Consolidated Statements of Changes in Equity
US
dollars in thousands except number of shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated other
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
|
|
|
|
|
|
Additional
|
|
|
Treasury
|
|
|
comprehensive
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
|
Share
|
|
|
paid-in
|
|
|
Shares
|
|
|
Income
|
|
|
Accumulated
|
|
|
Noncontrolling
|
|
|
Total
|
|
|
|
issued
|
|
|
capital
|
|
|
capital
|
|
|
(at
cost)
|
|
|
(loss)
|
|
|
deficit
|
|
|
interest
|
|
|
equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December
31, 2015
|
|
|
42,014,673
|
|
|
$
|
1,055
|
|
|
$
|
225,925
|
|
|
$
|
(2,000
|
)
|
|
$
|
(1,084
|
)
|
|
$
|
(209,254
|
)
|
|
$
|
(1,819
|
)
|
|
$
|
12,823
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes during the nine
month period ended September 30, 2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation
|
|
|
15,000(**
|
)
|
|
|
(*
|
)
|
|
|
174
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
174
|
|
Exercise of options and warrants
|
|
|
90,402
|
|
|
|
2
|
|
|
|
35
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
37
|
|
Increase in the ownership
rate in subsidiaries (***)
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,920
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,851
|
|
|
|
(69
|
)
|
Foreign currency translation
adjustments
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
88
|
|
|
|
-
|
|
|
|
-
|
|
|
|
88
|
|
Net
income (loss)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
381
|
|
|
|
(32
|
)
|
|
|
349
|
|
Balance as of September
30, 2016
|
|
|
42,120,075
|
|
|
$
|
1,057
|
|
|
$
|
224,214
|
|
|
$
|
(2,000
|
)
|
|
$
|
(996
|
)
|
|
$
|
(208,873
|
)
|
|
$
|
-
|
|
|
$
|
13,402
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December
31, 2016
|
|
|
42,243,075
|
|
|
$
|
1,061
|
|
|
$
|
224,415
|
|
|
$
|
(2,000
|
)
|
|
$
|
(1,236
|
)
|
|
$
|
(210,082
|
)
|
|
$
|
-
|
|
|
$
|
12,158
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes during the nine
month period ended September 30, 2017:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation
|
|
|
45,000(**
|
)
|
|
|
2
|
|
|
|
236
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
238
|
|
Exercise of options
|
|
|
25,002
|
|
|
|
(*)
|
|
|
|
25
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
25
|
|
Foreign currency translation
adjustments
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
360
|
|
|
|
-
|
|
|
|
-
|
|
|
|
360
|
|
Net
income
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
96
|
|
|
|
-
|
|
|
|
96
|
|
Balance as of September
30, 2017
|
|
|
42,313,077
|
|
|
$
|
1,063
|
|
|
$
|
224,676
|
|
|
$
|
(2,000
|
)
|
|
$
|
(876
|
)
|
|
$
|
(209,986
|
)
|
|
$
|
-
|
|
|
$
|
12,877
|
|
(*)
Less than $1.
(**)
See Note 8C.
(***)
See Note 1C(2)
.
The
accompanying notes are an integral part of these interim unaudited condensed consolidated financial statements.
On
Track Innovations Ltd.
and
its Subsidiaries
Interim
Unaudited Condensed Consolidated Statements of Cash Flows
US
dollars in thousands
|
|
Nine months ended
September 30,
|
|
|
|
2017
|
|
|
2016
|
|
Cash flows from continuing operating activities
|
|
|
|
|
|
|
|
|
Net loss from continuing operations
|
|
$
|
(1,269
|
)
|
|
$
|
(1,176
|
)
|
Adjustments required to reconcile net loss to
|
|
|
|
|
|
|
|
|
net cash used in continuing operating activities:
|
|
|
|
|
|
|
|
|
Stock-based compensation related to options and shares issued to employees and
others
|
|
|
238
|
|
|
|
174
|
|
Depreciation
|
|
|
878
|
|
|
|
911
|
|
Deferred tax, net
|
|
|
37
|
|
|
|
60
|
|
(Gain) loss on sale of property and equipment
|
|
|
(9
|
)
|
|
|
83
|
|
Accrued interest and linkage differences, net
|
|
|
(41
|
)
|
|
|
19
|
|
|
|
|
|
|
|
|
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Accrued severance pay, net
|
|
|
72
|
|
|
|
(152
|
)
|
Decrease (increase) in trade receivables, net
|
|
|
187
|
|
|
|
(1,376
|
)
|
(Increase) in other receivables and prepaid expenses
|
|
|
(435
|
)
|
|
|
(16
|
)
|
(Increase) decrease in inventories
|
|
|
(710
|
)
|
|
|
246
|
|
(Decrease) increase in trade payables
|
|
|
(611
|
)
|
|
|
1,024
|
|
(Decrease) in other current liabilities
|
|
|
(777
|
)
|
|
|
(408
|
)
|
Net cash used in continuing operating activities
|
|
|
(2,440
|
)
|
|
|
(611
|
)
|
|
|
|
|
|
|
|
|
|
Cash flows from continuing investing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of property and equipment
|
|
|
(160
|
)
|
|
|
(185
|
)
|
Proceeds from sale of property and equipment
|
|
|
14
|
|
|
|
1,779
|
|
Change in short-term investments, net
|
|
|
2,917
|
|
|
|
(502
|
)
|
Investment in capitalized product costs
|
|
|
(185
|
)
|
|
|
(139
|
)
|
Proceeds from restricted deposit for employees benefit
|
|
|
44
|
|
|
|
142
|
|
Net cash provided by continuing investing activities
|
|
|
2,630
|
|
|
|
1,095
|
|
|
|
|
|
|
|
|
|
|
Cash flows from continuing financing activities
|
|
|
|
|
|
|
|
|
(Decrease) increase in short-term bank credit, net
|
|
|
(72
|
)
|
|
|
287
|
|
Proceeds from long-term bank loans
|
|
|
-
|
|
|
|
27
|
|
Repayment of long-term bank loans
|
|
|
(469
|
)
|
|
|
(1,368
|
)
|
Proceeds from exercise of options and warrants
|
|
|
25
|
|
|
|
37
|
|
Net cash used in continuing financing activities
|
|
|
(516
|
)
|
|
|
(1,017
|
)
|
|
|
|
|
|
|
|
|
|
Cash flows from discontinued operations
|
|
|
|
|
|
|
|
|
Net cash used in discontinued operating activities
|
|
|
(86
|
)
|
|
|
(183
|
)
|
Net cash provided by discontinued investing activities
|
|
|
-
|
|
|
|
2,152
|
|
|
|
|
|
|
|
|
|
|
Total net cash (used in) provided by discontinued operations
|
|
|
(86
|
)
|
|
|
1,969
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash and cash equivalents
|
|
|
460
|
|
|
|
51
|
|
|
|
|
|
|
|
|
|
|
Increase in cash and cash equivalents
|
|
|
48
|
|
|
|
1,487
|
|
Cash and cash equivalents at the beginning of the period
|
|
|
5,952
|
|
|
|
5,450
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at the end of the period
|
|
$
|
6,000
|
|
|
$
|
6,937
|
|
The
accompanying notes are an integral part of these interim unaudited condensed consolidated financial statements.
On
Track Innovations Ltd.
and
its Subsidiaries
Interim
Unaudited Condensed Consolidated Statements of Cash Flows (cont’d)
US
dollars in thousands
|
|
Nine months ended
September 30,
|
|
|
|
2017
|
|
|
2016
|
|
Supplementary
cash flows activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid during the period for:
|
|
|
|
|
|
|
|
|
Interest paid
|
|
$
|
140
|
|
|
$
|
148
|
|
Income taxes paid
|
|
$
|
31
|
|
|
$
|
-
|
|
The
accompanying notes are an integral part of these interim unaudited condensed consolidated financial statements.
On
Track Innovations Ltd.
and
Subsidiaries
Notes
to the Interim Unaudited Condensed Consolidated Financial Statements
US
dollars in thousands
Note
1 - Organization and Basis of Presentation
A.
|
Description of business
|
On
Track Innovations Ltd. (the “Company”) was founded in 1990, in Israel. The Company and its subsidiaries
(together, the “Group”) are principally engaged in the field of design and development of cashless payment
solutions. During the nine-month period ended September 30, 2017, the Company completed the liquidation of its wholly-owned
subsidiaries, Softchip Israel Ltd. and Softchip Technologies (3000) Ltd., and these entities are no longer part of the
Group.
The
Company’s shares are listed for trading on the NASDAQ Capital Market (formerly listed on the NASDAQ Global Market until
April 13, 2016).
B.
|
Interim Unaudited Financial Information
|
The
accompanying unaudited consolidated financial statements of the Company have been prepared in accordance with U.S. generally accepted
accounting principles (“GAAP”) for interim financial information and with the instructions to Form 10-Q. Accordingly,
they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements and therefore
should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2016.
In
the opinion of management, all adjustments considered necessary for a fair presentation, consisting of normal recurring
adjustments, have been included. Operating results for the nine-month period ended September 30, 2017 are not necessarily
indicative of the results that may be expected for the year ending December 31, 2017.
Use
of Estimates:
The
preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect
the assets, liabilities, revenue, costs, expenses and accumulated other comprehensive income/(loss) that are reported in the Interim
Consolidated Financial Statements and accompanying disclosures. These estimates are based on management’s best knowledge
of current events, historical experience, actions that the Company may undertake in the future and on various other assumptions
that are believed to be reasonable under the circumstances. As a result, actual results may be different from these estimates.
C.
|
Divestiture of operations
|
|
1.
|
In
December 2013, the Company completed the sale of certain assets, subsidiaries and intellectual
property (“IP”) relating to its Smart ID division to SuperCom Ltd. (“SuperCom”).
Accordingly, the results and the cash flows of this operation for all reporting periods
are presented in the statements of operations and in the statements of cash flows, respectively,
as discontinued operations separately from continuing operations.
|
On
Track Innovations Ltd.
and
Subsidiaries
Notes
to the Interim Unaudited Condensed Consolidated Financial Statements
US
dollars in thousands
Note
1 - Organization and Basis of Presentation (cont’d)
C.
|
Divestiture of operations (cont’d)
|
|
2.
|
On
September 14, 2016, the Company completed the sale of certain assets and IP related to its former parking segment. The Company
has determined that the sale qualifies as a discontinued operation. Accordingly, the results and the cash flows of these 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.
|
Note
2 - Significant Accounting Policies
These
interim unaudited condensed consolidated financial statements have been prepared according to the same accounting policies as
those discussed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016.
Recent
accounting pronouncements
|
1.
|
In
May 2017, the Financial Accounting Standard Board issued Accounting Standards Update
(“ASU”) 2017-09, “Compensation - Stock Compensation (Topic 718): Scope
of Modification Accounting.” The ASU amends the scope of modification accounting
for share-based payment arrangements, provides guidance on the types of changes to the
terms or conditions of share-based payment awards to which an entity would be required
to apply modification accounting. The new guidance will allow companies to make certain
changes to awards without accounting for them as modifications. It does not change the
accounting for modifications. ASU 2017-09 is effective for all entities for annual reporting
periods beginning after December 15, 2017, with early adoption permitted, including adoption
in any interim period for which financial statements have not yet been issued. The Company
does not expect that the adoption of ASU 2017-09 will have a material impact on the Company's
results of operations and financial condition.
|
|
2.
|
In
connection with other recent accounting pronouncements and the Company’s assessment
of the impacts they will have on the ongoing financial reporting, see Note 2W in the
Company’s Annual Report on Form 10-K for the year ended December 31, 2016.
|
On
Track Innovations Ltd.
and
Subsidiaries
Notes
to the Interim Unaudited Condensed Consolidated Financial Statements
US
dollars in thousands
Note
3 - Other Receivables and Prepaid Expenses
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2017
|
|
|
2016
|
|
Government institutions
|
|
$
|
476
|
|
|
$
|
322
|
|
Prepaid expenses
|
|
|
412
|
|
|
|
526
|
|
Receivables under contractual obligations to be transferred to others (*)
|
|
|
383
|
|
|
|
346
|
|
Other receivables (see also Note 6).
|
|
|
2,692
|
|
|
|
444
|
|
|
|
$
|
3,963
|
|
|
$
|
1,638
|
|
(*)
The Company’s subsidiary in Poland is required to collect certain fees that are to be transferred to local authorities.
Note
4 - Other Current Liabilities
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2017
|
|
|
2016
|
|
Employees and related expenses
|
|
$
|
592
|
|
|
$
|
1,011
|
|
Accrued expenses
|
|
|
1,430
|
|
|
|
1,473
|
|
Customer advances
|
|
|
224
|
|
|
|
249
|
|
Other current liabilities
|
|
|
236
|
|
|
|
89
|
|
|
|
$
|
2,482
|
|
|
$
|
2,822
|
|
On
Track Innovations Ltd.
and
Subsidiaries
Notes
to the Interim Unaudited Condensed Consolidated Financial Statements
US
dollars in thousands
Note
5 - Commitments and Contingencies
|
1.
|
In June 2013, prior to the Company's divestiture of its SmartID division, Merwell Inc. (“Merwell”)
filed a claim against the Company before an agreed-upon arbitrator alleging breach of contract in connection with certain commissions
claimed to be owed to Merwell with respect to the division’s activities in Tanzania. These activities, along with all
other activities of the SmartID division, were later assigned to and assumed by SuperCom Ltd. (“SuperCom”) in its purchase
of the division. SuperCom undertook to indemnify the Company and hold it harmless against any liabilities the Company may incur
in connection with Merwell’s consulting agreement and the arbitration. An arbitration decision was issued on February
21, 2016, awarding Merwell approximately $855 for outstanding commissions. The arbitration decision is being appealed and
is thus not yet ripe for enforcement. As mentioned above, based on the agreement with SuperCom, SuperCom is liable for the costs
and liabilities arising out of this claim. Therefore, the financial statements do not include any provision for this claim.
|
|
2.
|
On October 3, 2013, a financial claim was filed against the Company and its then French subsidiary,
Parx France (in this paragraph, together, the “Defendants”), in the Commercial Court of Paris, France (in this paragraph,
the “Court”). The sum of the claim is € 1,500 (approximately $1,773), and is based on the allegation that the
plaintiff sustained certain losses in connection with Defendants not granting the plaintiff exclusive marketing rights to distribute
and operate the Defendants’ PIAF Parking System in Paris and the Ile of France. On October 25, 2017, the Paris Commercial
Court issued its ruling in this matter dismissing all claims against the Company but ordering Parx France to pay the plaintiff
€50 plus interest in damages plus another approximately €5 in other fees and penalties.
|
|
3.
|
On March 1, 2017, a claim (the “USAT Claim”) was filed in the U.S. District Court, Eastern District of Pennsylvania
against the Company and its U.S. subsidiary, OTI America Inc. by USA Technologies Inc. (“USAT”). The USAT Claim asserted,
among other things, that products sold by the Company to USAT’s manufacturing subcontractor, Masterwork Electronics, Inc.
(“Masterwork”), failed to conform to promised specifications. USAT sought payment of $4,913 plus interest and costs,
comprised of $729 to cover payment for alternative products, and $4,184 to cover costs of replacing the allegedly non-conforming
products already installed. On March 3, 2017, the Company filed a lawsuit (the “OTI Claim”) against Masterwork in
the U.S. District Court for the Northern District of California. The Company sought payment of $2,518 plus interest and costs
as a result of Masterwork’s refusal to perform its obligations in connection with a purchase order supplied by Masterwork
to the Company, based on Masterwork’s allegations that its customer, USAT, had apparently claimed that the products are
not conforming. On July 20, 2017, the OTI Claim was transferred to the Eastern District of Pennsylvania and on August 23, 2017,
the USAT Claim and OTI Claim were consolidated into a single action. On November 1, 2017, all parties to these proceedings entered
into a settlement agreement resolving their disputes and have, accordingly, dismissed all litigation on November 1, 2017.
|
On
Track Innovations Ltd.
and
Subsidiaries
Notes
to the Interim Unaudited Condensed Consolidated Financial Statements
US
dollars in thousands
Note
5 - Commitments and Contingencies (cont’d)
As
of September 30, 2017, the Company has granted performance guarantees and guarantees to secure customer advances in the sum of
$352. The expiration dates of the guarantees range from October 2017 to June 2019.
Note
6 - Discontinued operations
As
described in Note 1C, the Company divested its interest in the SmartID division and its parking segment, and presented these activities
as discontinued operations.
Set
forth below are the results of the discontinued operations:
|
|
Three
months ended
September 30,
|
|
|
Nine
months ended
September 30,
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
Revenues
|
|
|
-
|
|
|
|
184
|
|
|
|
-
|
|
|
|
768
|
|
Expenses
|
|
|
(11
|
)
|
|
|
(327
|
)
|
|
|
(94
|
)
|
|
|
(1,246
|
)
|
Other
(expenses) income, net
|
|
|
1,452(*
|
)
|
|
|
(136
|
)
|
|
|
1,459(*
|
)
|
|
|
2,003
|
|
Net
profit (loss) from discontinued operations
|
|
|
1,441
|
|
|
|
(279
|
)
|
|
|
1,365
|
|
|
|
1,525
|
|
(*) On August 23, 2017, a judgment was
issued by the Israeli Central District Court regarding the Company’s lawsuit against Harel Insurance Company Ltd. (“Harel”)
for damages incurred by the Company due to flooding in a subcontractor’s manufacturing site. The judgment determined that
an amount of $1,600, net be awarded to cover the Company’s damages. On October 10, 2017, Harel submitted its appeal
of the judgment to the Israeli Supreme Court as well as a request for stay of judgment. On October 30, 2017, the Court denied
the requested stay. Based on the advice of counsel, the Company currently believes that there are sufficient grounds on which
to uphold the District Court’s ruling and, as such, Harel’s appeal will be denied.
On
Track Innovations Ltd.
and
Subsidiaries
Notes
to the Interim Unaudited Condensed Consolidated Financial Statements
US
dollars in thousands
Note
7 - 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, used the following methods and assumptions:
The
carrying amounts of cash and cash equivalents, short-term interest bearing investments, trade receivables, short-term bank credit
and trade payables are equivalent to, or approximate their fair value due to the short-term maturity of these instruments.
The
carrying amounts of variable interest rate long-term loans are equivalent or approximate to their fair value as they bear interest
at approximate market rates. As of September 30, 2017, the fair value of bank loans with fixed interest rates did not differ materially
from the carrying amount.
As
of September 30, 2017, the Company held approximately $2,667 of short-term bank deposits (as of December 31, 2016, $5,585).
As of September 30, 2017 and December 31, 2016, short-term deposits in the amount of $1,548 have been pledged as security in
respect of guarantees granted in respect of performance guarantees, loans and credit lines received from a bank and cannot be
pledged to others or withdrawn without the consent of the bank.
On
Track Innovations Ltd.
and
Subsidiaries
Notes
to the Interim Unaudited Condensed Consolidated Financial Statements
US
dollars in thousands
Note
8 - Equity
During
the nine months ended September 30, 2017 and September 30, 2016, 100,000 and 270,000 options were granted, respectively. The vesting
period for the options ranges from one year to four years. The exercise prices for the options range from $0.44 to $1.58. Those
options expire up to five years after the date of the grant. Any options which are forfeited or cancelled before expiration become
available for future grants under the Company’s option plan.
The
fair value of each option granted to employees and non-employees during the nine months ended September 30, 2017 and September
30, 2016, was estimated on the date of grant, using the Black-Scholes
model and the following assumptions:
|
1.
|
Dividend
yield of zero percent for all periods.
|
|
2.
|
Risk-free
interest rate of 1.35% and 1.18% for grants during the nine months ended September 30,
2017 and September 30, 2016, respectively, based on U.S. Treasury yield curve in effect
at the time of grant.
|
|
3.
|
Estimated
expected lives of 3.50 and 3.56 years for grants during the nine months ended September
30, 2017 and September 30, 2016, respectively, using the simplified method.
|
|
4.
|
Expected
average volatility of 74% and 72% for grants during the nine months ended September 30,
2017 and September 30, 2016, respectively, which represent a weighted average standard
deviation rate for the price of the Company's Ordinary Shares on the NASDAQ Global Market
and NASDAQ Capital Market.
|
The
Company’s options activity (including options to non-employees) during the nine months ended September 30, 2017 and options
outstanding and options exercisable as of December 31, 2016 and September 30, 2017, are summarized in the following table:
|
|
|
Number of
|
|
|
Weighted average exercise
|
|
|
|
|
options
|
|
|
price per
|
|
|
|
|
outstanding
|
|
|
share
|
|
|
|
|
|
|
|
|
|
|
Outstanding – December 31, 2016
|
|
|
1,604,836
|
|
|
$
|
1.36
|
|
|
|
|
|
|
|
|
|
|
|
|
Options granted
|
|
|
100,000
|
|
|
|
1.58
|
|
|
Options expired or forfeited
|
|
|
(286,334
|
)
|
|
|
1.89
|
|
|
Options exercised
|
|
|
(25,002
|
)
|
|
|
0.92
|
|
|
Outstanding – September 30, 2017
|
|
|
1,393,500
|
|
|
$
|
1.27
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable as of:
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
|
591,017
|
|
|
$
|
1.83
|
|
|
September 30, 2017
|
|
|
605,167
|
|
|
$
|
1.57
|
|
On
Track Innovations Ltd.
and
Subsidiaries
Notes
to the Interim Unaudited Condensed Consolidated Financial Statements
US
dollars in thousands
Note
8 - Equity (cont’d)
A.
|
Stock
option plans (cont’d)
|
The
weighted average fair value of options granted during the nine months ended September 30, 2017 and during the nine months ended
September 30, 2016 is $0.93 and $0.41, respectively, per option. The aggregate intrinsic value of outstanding options as of September
30, 2017 and December 31, 2016 is approximately $465 and $909, respectively. The aggregate intrinsic value of exercisable options
as of September 30, 2017 and December 31, 2016 is approximately $168 and $166, respectively.
The
following table summarizes information about options outstanding and exercisable (including options to non-employees) as of September
30, 2017:
|
|
|
|
Options
outstanding
|
|
|
Options
Exercisable
|
|
|
|
|
|
Number
|
|
|
Weighted
|
|
|
|
|
|
Number
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
outstanding
|
|
|
average
|
|
|
Weighted
|
|
|
Outstanding
|
|
|
average
|
|
|
Weighted
|
|
|
Range of
|
|
|
as of
|
|
|
remaining
|
|
|
Average
|
|
|
As of
|
|
|
remaining
|
|
|
Average
|
|
|
exercise
|
|
|
September 30,
|
|
|
contractual
|
|
|
Exercise
|
|
|
September 30,
|
|
|
contractual
|
|
|
Exercise
|
|
|
price
|
|
|
2017
|
|
|
life
(years)
|
|
|
Price
|
|
|
2017
|
|
|
life (years)
|
|
|
Price
|
|
|
$
|
0.44-0.90
|
|
|
|
585,000
|
|
|
|
3.05
|
|
|
$
|
0.77
|
|
|
|
281,667
|
|
|
|
2.78
|
|
|
$
|
0.77
|
|
|
|
1.07-1.46
|
|
|
|
420,000
|
|
|
|
3.77
|
|
|
|
1.12
|
|
|
|
50,000
|
|
|
|
0.80
|
|
|
|
1.46
|
|
|
|
1.58-1.68
|
|
|
|
115,000
|
|
|
|
4.08
|
|
|
|
1.59
|
|
|
|
10,000
|
|
|
|
2.25
|
|
|
|
1.68
|
|
|
|
2.32-2.36
|
|
|
|
233,500
|
|
|
|
1.59
|
|
|
|
2.35
|
|
|
|
233,500
|
|
|
|
1.59
|
|
|
|
2.35
|
|
|
$
|
3.03
|
|
|
|
40,000
|
|
|
|
1.98
|
|
|
$
|
3.03
|
|
|
|
30,000
|
|
|
|
1.98
|
|
|
$
|
3.03
|
|
|
|
|
|
|
|
1,393,500
|
|
|
|
3.08
|
|
|
|
|
|
|
|
605,167
|
|
|
|
2.11
|
|
|
|
|
|
As
of September 30, 2017, there was approximately $354 of total unrecognized compensation cost related to non-vested stock-based
compensation arrangements. That cost is expected to be recognized over a weighted-average period of approximately 1.1 year.
During
the nine months ended September 30, 2017 and September 30, 2016, the Company recorded stock-based compensation expenses in the
amount of $238 and $174, respectively, in accordance with ASC 718 “Compensation-Stock Compensation.”
As
of September 30, 2017, there are remaining 40,000 outstanding warrants with a per share exercise price of $0.95. The warrants
expire during 2019.
C.
|
During
the nine months ended September 30, 2017, the Company issued 45,000 ordinary shares to
one of its consultants. The expenses that are recognized due to this issuance are presented within ‘stock based compensation’ in the statement
of changes in equity for the nine months ended September 30, 2017.
|
On
Track Innovations Ltd.
and
Subsidiaries
Notes
to the Interim Unaudited Condensed Consolidated Financial Statements
US
dollars in thousands
Note
9 - Operating segments
For
the purposes of allocating resources and assessing performance in order to improve profitability, the Company's chief operating
decision maker (“CODM”) examines two segments which are the Company's strategic business units: (1) Retail and Mass
Transit Ticketing; and (2) Petroleum. In addition to its two reportable segments, certain products for the medical industry and
other secure smart card solutions are classified under the Company’s “Other” segment.
Information
regarding the results of each reportable segment is included below based on the internal management reports that are reviewed
by the CODM.
|
|
Three months ended
September
30, 2017
|
|
|
|
Petroleum
|
|
|
Retail
and
Mass
Transit
Ticketing
|
|
|
Other
|
|
|
Consolidated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
917
|
|
|
$
|
3,231
|
|
|
$
|
522
|
|
|
$
|
4,670
|
|
Reportable
segment gross profit (*)
|
|
|
493
|
|
|
|
1,859
|
|
|
|
325
|
|
|
|
2,677
|
|
Reconciliation of reportable segment gross profit to
gross profit for the period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(199
|
)
|
Stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
(*) Gross
profit for the period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,478
|
|
|
|
Three months ended
September
30, 2016
|
|
|
|
Petroleum
|
|
|
Retail
and
Mass
Transit
Ticketing
|
|
|
Other
|
|
|
Consolidated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
1,056
|
|
|
$
|
3,891(**
|
)
|
|
$
|
649
|
|
|
$
|
5,596
|
|
Reportable segment gross profit (*)
|
|
|
638
|
|
|
|
2,238
|
|
|
|
326
|
|
|
|
3,202
|
|
Reconciliation of reportable segment gross profit to
gross profit for the period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(161
|
)
|
Stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2
|
)
|
(*) Gross profit for the period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
3,039
|
|
On
Track Innovations Ltd.
and
Subsidiaries
Notes
to the Interim Unaudited Condensed Consolidated Financial Statements
US
dollars in thousands
Note
9 - Operating segments (cont’d)
|
|
Nine months ended
September
30, 2017
|
|
|
|
Petroleum
|
|
|
Retail
and
Mass
Transit
Ticketing
|
|
|
Other
|
|
|
Consolidated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
3,645
|
|
|
$
|
10,654
|
|
|
$
|
1,337
|
|
|
$
|
15,636
|
|
Reportable segment gross profit (*)
|
|
|
1,889
|
|
|
|
6,068
|
|
|
|
794
|
|
|
|
8,751
|
|
Reconciliation of reportable segment gross profit to
profit for the period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(582
|
)
|
Stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1
|
)
|
(*) Gross profit for the period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
8,168
|
|
|
|
Nine months ended
September
30, 2016
|
|
|
|
Petroleum
|
|
|
Retail
and
Mass
Transit Ticketing
|
|
|
Other
|
|
|
Consolidated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
2,996
|
|
|
$
|
10,029(**
|
)
|
|
$
|
1,953
|
|
|
$
|
14,978
|
|
Reportable segment gross profit (*)
|
|
|
1,836
|
|
|
|
5,568
|
|
|
|
968
|
|
|
|
8,372
|
|
Reconciliation of reportable segment gross profit to
profit for the period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(559
|
)
|
Stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2
|
)
|
(*) Gross profit for the period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
7,811
|
|
(
*)
Gross profit as reviewed by the CODM, represents gross profit, adjusted to exclude depreciation and stock-based compensation.
(
**)
The revenues from retail and mass transit ticketing segment for the three months and nine months ended September 30, 2016 include
revenues derived from a litigation settlement with a perpetual license agreement. Those revenues are presented within revenues
from ‘licensing and transaction fees’ in the statements of operations.
Item
2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Forward
- Looking Statements
The
statements contained in this Quarterly Report on Form 10-Q, or Quarterly Report, that are not historical facts are "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act of 1995 and other federal securities laws.
Such forward-looking statements may be identified by, among other things, the use of forward-looking terminology such as "believes",
"intends", "plans", "expects", "may", "will", "should", or "anticipates"
or the negative thereof or other variations thereon or comparable terminology, and similar expressions are intended to identify
forward-looking statements. We remind readers that forward-looking statements are merely predictions and therefore
are inherently subject to uncertainties and other factors and involve known and unknown risks that could cause the actual results,
performance, levels of activity, or our achievements, or industry results, to be materially different from any actual future results,
performance, levels of activity, or our achievements, or industry results, expressed or implied by such forward-looking statements.
Such forward-looking statements may appear in this Item 2 “Management’s Discussion and Analysis of Financial Condition
and Results of Operations” as well as elsewhere in this Quarterly Report and include, among other statements, statements
regarding the following:
|
●
|
our
expectations regarding the growth of the near-field communication, or NFC, market;
|
|
●
|
the
expected development and potential benefits from our existing or future products or our
intellectual property, or IP;
|
|
●
|
increased
generation of revenues from licensing, transaction fees and/or other arrangements;
|
|
●
|
future
sources of revenue, ongoing relationships with current and future business partners,
distributors, suppliers, customers, end-user customers and resellers;
|
|
●
|
our
intention to generate additional recurring revenues, licensing and transaction fees;
|
|
●
|
future
costs and expenses and adequacy of capital resources;
|
|
●
|
our
intention to continue to expand our market presence via strategic partnerships around
the globe;
|
|
●
|
our
expectations that revenues from our business will grow in the next years, and the expected
reasons for that growth;
|
|
●
|
our
expectations regarding our short-term and long-term capital requirements;
|
|
●
|
our
intention to continue to invest in research and development;
|
|
●
|
our
outlook for the coming months; and
|
|
●
|
information
with respect to any other plans and strategies for our business.
|
The
factors discussed herein, including those risk factors expressed from time to time in our press releases or filings with the Securities
and Exchange Commission, or the SEC, could cause actual results and developments to be materially different from those expressed
in or implied by such statements. Readers are cautioned not to place undue reliance on these forward-looking statements, which
speak and are made only as of the date of this filing.
Our
business and operations are subject to substantial risks, which increase the uncertainty inherent in the forward-looking statements
contained in this Quarterly Report. Except as required by law, we undertake no obligation to release publicly the result
of any revision to these forward-looking statements that may be made to reflect events or circumstances after the date hereof
or to reflect the occurrence of unanticipated events. Further information on potential factors that could affect our business
is described among others under the heading “Risk Factors” in Part I, Item 1A of our Annual Report on Form 10-K for
the fiscal year ended December 31, 2016 filed with 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 and affiliates, unless otherwise indicated or as otherwise required by the
context.
All
figures in this Quarterly Report are stated in United States dollars, unless otherwise specified in.
Overview
We
are a pioneer and leading developer of cutting-edge secure cashless payment solutions, providing global enterprises with innovative
technology for over two decades. We currently operate in two main segments: (1) Retail and Mass Transit Ticketing; and (2) Petroleum
(following the divesture of our parking business as specified below). In addition to our two reportable segments, certain products
for the medical industry and other secure smart card solutions are classified under “Other” in segment analyses appearing
in this Quarterly Report.
Our
field-proven suite of cashless payment solutions is based on an extensive IP portfolio, including registered patents and patent
applications worldwide. Since our incorporation in 1990, we have built an international reputation for reliability and innovation,
deploying a large number of solutions for the unattended retail, mass transit, banking, medical and petroleum industries.
We
operate a global network of regional offices, distributors and partners to support various solutions deployed across the globe.
We
focus our efforts on our core business of providing innovative cashless payment solutions based among other things on our contactless
NFC technology. To this end, and in line with our efforts to focus on our core business, in September 2016 we completed the sale
of the operations, including our employees, as well as IP directly related to our parking business. We have
increased our efforts to further develop existing and new products and solutions, including among others by the introduction of
our new products and solutions for the unattended payment market and Internet of Payment Things technology. We have
also increased our sales and marketing activities and resources.
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.
Results
of Operations
Discontinued
operations
. In September 2016 we completed the sale of certain assets and IP related to our parking business. In December
2013, we completed the sale of certain assets, certain subsidiaries and IP directly related to our SmartID division. The results
from such operations and the cash flows for the reporting periods are presented in the statements of operations and in the statements
of cash flows, respectively, as discontinued operations separately from continuing operations. All the data in this Quarterly
Report that are derived from our financial statements, unless otherwise specified, exclude the results of those discontinued operations.
Three
months ended September 30, 2017, compared to the three months ended September 30, 2016
Sources
of Revenue
We
have historically derived a substantial majority of our revenues from the sale of our products, including both complete systems
and original equipment manufacturer components. In addition, we generate revenues from licensing and transaction fees, and also,
less significantly, from engineering services, customer services and technical support. During the three months ended September
30, 2017 and September 30, 2016, the revenues that we derived from sales and licensing and transaction fees were as follows (in
thousands):
|
|
Three
months ended
September
30,
|
|
|
|
2017
|
|
|
2016
|
|
Sales
|
|
$
|
3,445
|
|
|
$
|
3,463
|
|
Licensing and transaction fees
|
|
$
|
1,225
|
|
|
$
|
2,133
|
|
Total revenues
|
|
$
|
4,670
|
|
|
$
|
5,596
|
|
Sales.
Sales in the three months ended September 30, 2017, compared to the three months ended September 30, 2016, remained consistent.
Licensing
and transaction fees
. Licensing and transaction fees include single and periodic payments for distribution rights for our
products. Transaction fees are paid by customers based on the volume of transactions processed by systems that contain our
products. Our licensing and transaction fees in the three months ended September 30, 2017, compared to the three months ended
September 30, 2016, decreased by $908,000, or 43%. This decrease was mainly due to a decrease in licensing of our IP rights
to third parties in the United States (including licenses granted pursuant to settlements of legal actions to enforce patent
rights).
We
have historically derived revenues from different geographical areas. The following table sets forth our revenues (in
thousands) and as a percentage of revenues in different geographical areas, in the three months ended September 30, 2017 and September
30, 2016:
Three months ended September 30,
|
|
Africa
|
|
|
Europe
|
|
|
APAC
|
|
|
Americas
|
|
2017
|
|
$
|
999
|
|
|
|
21
|
%
|
|
$
|
1,421
|
|
|
|
30
|
%
|
|
$
|
73
|
|
|
|
2
|
%
|
|
$
|
2,177
|
|
|
|
47
|
%
|
2016
|
|
$
|
1,081
|
|
|
|
19
|
%
|
|
$
|
1,653
|
|
|
|
30
|
%
|
|
$
|
289
|
|
|
|
5
|
%
|
|
$
|
2,573
|
|
|
|
46
|
%
|
Our
revenues from sales in Africa decreased by $82,000, or 8%, in the three months ended September 30, 2017, compared to the three
months ended September 30, 2016, mainly due to a decrease in sales of Petroleum products.
Our
revenues from sales in Europe decreased by $232,000, or 14%, in the three months ended September 30, 2017, compared to the
three months ended September 30, 2016, mainly due to a decrease in sales of Retail and Mass Transit Ticketing segment
products.
Our
revenues from sales in APAC decreased by $216,000, or 75%, in the three months ended September 30, 2017, compared to the three
months ended September 30, 2016, mainly due to a decrease in sales of access control products.
Our
revenues from sales in Americas decreased by $396,000, or 15%, in the three months ended September 30, 2017, compared to the three
months ended September 30, 2016, mainly due to a decrease in licensing of our intellectual property rights to third parties in
the United States (including licenses granted pursuant to settlements of legal actions to enforce patent rights) partially offset
by an increase in sales of readers in the United States.
Our
revenues derived from outside the United States, which are primarily received in currencies other than the U.S. dollar, will have
a varying impact upon our total revenues, as a result of fluctuations in such currencies’ exchange rates versus the U.S.
dollar.
The
following table sets forth our revenues (in thousands) and as a percentage of revenues by segments, during the three months ended
September 30, 2017 and September 30, 2016:
Three months ended
September 30,
|
|
Petroleum
|
|
|
Retail and Mass Transit Ticketing
|
|
|
Other
|
|
2017
|
|
$
|
917
|
|
|
|
20
|
%
|
|
$
|
3,231
|
|
|
|
69
|
%
|
|
$
|
522
|
|
|
|
11
|
%
|
2016
|
|
$
|
1,056
|
|
|
|
19
|
%
|
|
$
|
3,891
|
|
|
|
69
|
%
|
|
$
|
649
|
|
|
|
12
|
%
|
Our
revenues in the three months ended September 30, 2017, from Petroleum decreased by $139,000, or 13%, compared to the three months
ended September 30, 2016, mainly due to a decrease in sales of Petroleum products in Africa.
Our
revenues from Retail and Mass Transit Ticketing in the three months ended September 30, 2017, decreased by $660,000, or 17%, compared
to the three months ended September 30, 2016, mainly due to a decrease in licensing of our intellectual property rights to third
parties in the United States (including licenses granted pursuant to settlements of legal actions to enforce patent rights) partially
offset by an increase in sales of readers in the United States.
Our
revenues in the three months ended September 30, 2017, from our Other segment decreased by $127,000, or 20%, compared to the three
months ended September 30, 2016, mainly due to a decrease in sales of access control products in APAC partially offset by an increase
in sales of our MediSmart products in Africa.
Cost
of Revenues and Gross Margin
Our
cost of revenues, presented by gross profit and gross margin percentage, in the three months ended September 30, 2017 and September
30, 2016, were as follows (in thousands):
Cost of revenues
|
|
Three months ended September 30,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
Cost of sales
|
|
$
|
2,192
|
|
|
$
|
2,557
|
|
Gross profit
|
|
$
|
2,478
|
|
|
$
|
3,039
|
|
Gross margin percentage
|
|
|
53%
|
|
|
|
54%
|
|
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. The decrease of $365,000, or 14%, in the three months ended
September 30, 2017, compared to the three months ended September 30, 2016, resulted primarily from a decrease in revenues.
Gross
margin.
The decrease in gross margin in the three months ended September 30, 2017, compared to the three months ended September
30, 2016, is mainly attributed to a change in our revenue mix and the decrease in sales.
Operating
expenses
Our
operating expenses in the three months ended September 30, 2017 and September 30, 2016, were as follows (in thousands):
Operating expenses
|
|
Three months ended September 30,
|
|
|
|
2017
|
|
|
2016
|
|
Research and development
|
|
$
|
823
|
|
|
$
|
604
|
|
Selling and marketing
|
|
$
|
1,332
|
|
|
$
|
1,300
|
|
General and administrative
|
|
$
|
758
|
|
|
$
|
787
|
|
Other expenses
|
|
$
|
-
|
|
|
$
|
83
|
|
Total operating expenses
|
|
$
|
2,913
|
|
|
$
|
2,774
|
|
Research
and development.
Our research and development expenses consist primarily of the salaries and related expenses of
our research and development staff, as well as subcontracting expenses. The increase of $219,000, or 36%, in the three months
ended September 30, 2017, compared to the three months ended September 30, 2016, is primarily attributed to an increase in the
number of research and development employees.
Selling
and marketing.
Our selling and marketing expenses consist primarily of salaries and substantially all of the expenses
of our sales and marketing subsidiaries and offices in the United States, South Africa and Europe, as well as expenses related
to advertising, professional expenses and participation in exhibitions and tradeshows. Our selling and marketing expenses,
in the three months ended September 30, 2017, compared to the three months ended September 30, 2016, remained consistent.
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 lawyers
and accountants), office expenses, insurance, general and administrative expenses and provision for doubtful accounts. The decrease
of $29,000, or 4%, in the three months ended September 30, 2017, compared to the three months ended September 30, 2016, is primarily
attributed to income from our lawsuit against Harel Insurance Company Ltd., or Harel, for damages incurred by us due to flooding
in a subcontractor’s manufacturing site, partially offset by an increase in salaries and employees’ benefit and an
increase in professional expenses.
Other
expenses.
Our other expenses in the three months ended September 30, 2016 consist a loss of $83 related to the sale of our
headquarters building in Rosh Pina, Israel to a third party.
Financing
expenses, net
Our
financing expenses, net, in the three months ended September 30, 2017 and September 30, 2016, were as follows (in thousands):
|
|
Three months ended September 30,
|
|
|
|
2017
|
|
|
2016
|
|
Financing expenses, net
|
|
$
|
(126
|
)
|
|
$
|
(30
|
)
|
Financing
expenses consist primarily of interest payable on bank loans, bank commissions and foreign exchange losses. Financing income consists
primarily of foreign exchange gains and interest earned on investments in short-term deposits. The increase in financing expenses,
net in the three months ended September 30, 2017, compared to the three months ended September 30, 2016, of $96,000, or 320%,
is mainly due to exchange rate differentials.
Net
(loss) income from continuing operations
Our
net (loss) income
from continuing operations in the three months ended September 30, 2017 and September 30, 2016,
was as follows (in thousands):
|
|
Three
months ended
September 30,
|
|
|
|
2017
|
|
|
2016
|
|
Net (loss) income from continuing operations
|
|
$
|
(573
|
)
|
|
$
|
207
|
|
The
change of $780,000, in the three months ended September 30, 2017, compared to the three months ended September 30, 2016
is due to a decrease in our sales, a decrease in our gross profit, an increase in our operating expenses and an
increase in financing expenses, net, as described above.
Net
income (loss) from discontinued operations
Our
net income (loss) from discontinued operations in the three months ended September 30, 2017 and September 30, 2016, was as follows
(in thousands):
|
|
Three
months ended
September 30,
|
|
|
|
2017
|
|
|
2016
|
|
Net income (loss) from discontinued operations
|
|
$
|
1,441
|
|
|
$
|
(279
|
)
|
In
September 2016, we completed the sale of certain assets and IP related to our parking business. In December 2013, we completed
the sale of certain assets, certain subsidiaries and IP directly related to our SmartID division.
The
results from these operations for the reporting periods are presented in the statements of operations as discontinued operations
separately from continuing operations.
The increase in net
profit from discontinued operations of $1.7 million in the three months ended September 30, 2017, compared to the three months
ended September 30, 2016, is mainly attributed
to $1.6
million net, recovered by us pursuant to the August 23, 2017 judgment of the Israeli Central District Court in a lawsuit against
Harel Insurance Company Ltd., or Harel for damages incurred by us due to flooding in a subcontractor’s manufacturing site.
Appeal of this judgment by Harel is pending before the Israeli Supreme Court. Based on the advice of counsel, the Company currently
believes that there are sufficient grounds on which to uphold the District Court’s ruling and, as such, Harel’s appeal
will be denied.
Net
income (loss)
Our
net income (loss) in the three months ended September 30, 2017 and September 30, 2016, was as follows (in thousands):
|
|
Three
months ended
September
30,
|
|
|
|
2017
|
|
|
2016
|
|
Net income (loss)
|
|
$
|
868
|
|
|
$
|
(72
|
)
|
The
increase in net income (loss) of $940,000 in the three months ended September 30, 2017, compared to the three months ended September
30, 2016, is due to an increase in net income from discontinued operations which was offset by a decrease in our revenues
and gross profit, an increase in our operating expenses and an increase in financing expenses, net as described above.
Nine
months ended September 30, 2017, compared to the nine months ended September 30, 2016
Sources
of Revenue
During
the nine months ended September 30, 2017 and September 30, 2016, the revenues that we derived from sales and licensing and transaction
fees were as follows (in thousands):
|
|
Nine
months ended
September
30,
|
|
|
|
2017
|
|
|
2016
|
|
Sales
|
|
$
|
11,871
|
|
|
$
|
10,409
|
|
Licensing and transaction fees
|
|
$
|
3,765
|
|
|
$
|
4,569
|
|
Total revenues
|
|
$
|
15,636
|
|
|
$
|
14,978
|
|
Sales
.
Sales increased by $1.5 million, or 14%, in the nine months ended September 30, 2017, compared to the nine months ended September
30, 2016. The increase is mainly attributed to an increase in Retail and Mass Transit Ticketing segment sales in Japan, to
an increase in Petroleum segment sales in Africa and to an increase in sales of our otiMetry solution in Europe partially offset
by a decrease in sales of readers to the U.S. market and to a decrease in our Other segment sales.
Licensing
and transaction fees
. Our licensing and transaction fees in the nine months ended September 30, 2017, compared to the nine
months ended September 30, 2016, decreased by $804,000, or 18%. This was mainly due to a decrease in licensing of our intellectual
property rights to third parties in the United States (including licenses granted pursuant to settlements of legal actions to
enforce patent rights).
We
have historically derived revenues from different geographical areas. The following table sets forth our revenues (in
thousands) and as a percentage of revenues in different geographical areas, in the nine months ended September 30, 2017 and September
30, 2016:
Nine months ended September 30,
|
|
Africa
|
|
|
Europe
|
|
|
APAC
|
|
|
Americas
|
|
2017
|
|
$
|
3,352
|
|
|
|
21
|
%
|
|
$
|
5,355
|
|
|
|
34
|
%
|
|
$
|
1,807
|
|
|
|
12
|
%
|
|
$
|
5,122
|
|
|
|
33
|
%
|
2016
|
|
$
|
3,048
|
|
|
|
20
|
%
|
|
$
|
4,583
|
|
|
|
31
|
%
|
|
$
|
522
|
|
|
|
3
|
%
|
|
$
|
6,825
|
|
|
|
46
|
%
|
Our
revenues from sales in Africa increased by $304,000, or 10%, in the nine months ended September 30, 2017, compared to the
nine months ended September 30, 2016, mainly due to an increase in our sales in our Petroleum segment partially offset by a
decrease in sales of our MediSmart products.
Our
revenues from sales in Europe increased by $772,000, or 17%, in the nine months ended September 30, 2017, compared to the nine
months ended September 30, 2016, mainly due to an increase in sales in our Retail and Mass Transit Ticketing segment and to an
increase in our otiMetry solution in the European market.
Our
revenues from sales in APAC increased by $1.3 million, or 246%, in the nine months ended September 30, 2017, compared to the nine
months ended September 30, 2016, mainly due to an increase in our Uno Plus and GoBox products in Japan.
Our
revenues from sales in Americas decreased by $1.7 million, or 25%, in the nine months ended September 30, 2017, compared to
the nine months ended September 30, 2016, mainly due to a decrease in sales of readers and licensing of our intellectual
property rights to third parties in the United States (including licenses granted pursuant to settlements of legal actions to
enforce patent rights).
Our
revenues derived from outside the United States, which are primarily received in currencies other than the U.S. dollar, will have
a varying impact upon our total revenues, as a result of fluctuations in such currencies’ exchange rates versus the U.S.
dollar.
The
following table sets forth our revenues (in thousands) and as a percentage of revenues by segments, during the nine months ended
September 30, 2017 and September 30, 2016:
Nine months ended
September 30,
|
|
Petroleum
|
|
|
Retail and Mass Transit Ticketing
|
|
|
Other
|
|
2017
|
|
$
|
3,645
|
|
|
|
23
|
%
|
|
$
|
10,654
|
|
|
|
68
|
%
|
|
$
|
1,337
|
|
|
|
9
|
%
|
2016
|
|
$
|
2,996
|
|
|
|
20
|
%
|
|
$
|
10,029
|
|
|
|
67
|
%
|
|
$
|
1,953
|
|
|
|
13
|
%
|
Our
revenues in the nine months ended September 30, 2017, from Petroleum increased by $649,000, or 22%, compared to the nine months
ended September 30, 2016 due to an increase in products sales in Africa.
Our
revenues from Retail and Mass Transit Ticketing in the nine months ended September 30, 2017, increased by $625,000, or 6%,
compared to the nine months ended September 30, 2016, mainly due to an increase in sales in the Japanese market and an increase
in readers and otiMetry solution sales in Europe partially offset by a decrease in sales of readers in the United States.
Our
revenues in the nine months ended September 30, 2017, from our Other segment decreased by $616,000, or 32%, compared to the nine
months ended September 30, 2016, mainly due to a decrease in sales of MediSmart products in East Africa.
Cost
of Revenues and Gross Margin
Our
cost of revenues, presented by gross profit and gross margin percentage, in the nine months ended September 30, 2017 and September
30, 2016, were as follows (in thousands):
Cost of revenues
|
|
Nine months ended September 30,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
Cost of sales
|
|
$
|
7,468
|
|
|
$
|
7,167
|
|
Gross profit
|
|
$
|
8,168
|
|
|
$
|
7,811
|
|
Gross margin percentage
|
|
|
52%
|
|
|
|
52%
|
|
Cost
of sales.
The increase of $301,000, or 4%, in the nine months ended September 30, 2017, compared to the nine months
ended September 30, 2016, resulted primarily from an increase in revenues.
Gross
margin.
Our gross margin, in the nine months ended September 30, 2017, compared to the nine months ended September 30, 2016,
remained consistent.
Operating
expenses
Our
operating expenses in the nine months ended September 30, 2017 and September 30, 2016, were as follows (in thousands):
Operating expenses
|
|
Nine months ended September 30,
|
|
|
|
2017
|
|
|
2016
|
|
Research and development
|
|
$
|
2,414
|
|
|
$
|
2,072
|
|
Selling and marketing
|
|
$
|
4,166
|
|
|
$
|
3,974
|
|
General and administrative
|
|
$
|
2,553
|
|
|
$
|
2,613
|
|
Other expenses
|
|
$
|
-
|
|
|
$
|
83
|
|
Total operating expenses
|
|
$
|
9,133
|
|
|
$
|
8,742
|
|
Research
and development.
The increase of $342,000, or 17%, in the nine months ended September 30, 2017, compared to the nine
months ended September 30, 2016, is primarily attributed to an increase in the number of research and development employees and
to an increase in subcontractor expenses.
Selling
and marketing.
The increase of $192,000, or 5%, in the nine months ended September 30, 2017, compared to the nine months ended
September 30, 2016, is primarily attributed to an increase in employment expenses of selling and marketing employees and to an
increase in marketing and advertising expenses.
General
and administrative.
Our general and administrative expenses, in the nine months ended September 30, 2017, compared to
the nine months ended September 30, 2016, remained consistent.
Other
expenses.
Our other expenses in the nine months ended September 30, 2016 consist a loss of $83 related to the sale of our
headquarters building in Rosh Pina, Israel to a third party.
Financing
expenses, net
Our
financing expenses, net, in the nine months ended September 30, 2017 and September 30, 2016, were as follows (in thousands):
|
|
Nine months ended September 30,
|
|
|
|
2017
|
|
|
2016
|
|
Financing expenses, net
|
|
$
|
(236
|
)
|
|
$
|
(185
|
)
|
The increase of financing
expenses, net in the nine months ended September 30, 2017, compared to the nine months ended September 30, 2016, of $51,000, or
28%, is mainly due to exchange rate differentials offset by an increase in interest earned on investments in short-term deposits,
a decrease in interest expenses on bank loans and a decrease in bank commissions.
Net
loss from continuing operations
Our
net loss
from continuing operations in the nine months ended September 30, 2017 and September 30, 2016, was as follows
(in thousands):
|
|
Nine
months ended
September 30,
|
|
|
|
2017
|
|
|
2016
|
|
Net loss from continuing operations
|
|
$
|
(1,269
|
)
|
|
$
|
(1,176
|
)
|
The
increase in net loss from continuing operations of $93,000, or 8%, in the nine months ended September 30, 2017, compared
to the nine months ended September 30, 2016, is primarily due to an increase in our operating expenses and an increase in
financing expenses, net, offset by an increase in our revenues and gross profit as described above.
Net
income from discontinued operations
Our
net income from discontinued operations in the nine months ended September 30, 2017 and September 30, 2016, was as follows (in
thousands):
|
|
Nine
months ended
September 30,
|
|
|
|
2017
|
|
|
2016
|
|
Net income from discontinued operations
|
|
$
|
1,365
|
|
|
$
|
1,525
|
|
Net income from discontinued
operations decreased by $160,000, or 10%. Net income from discontinued operations in the nine months ended September 30, 2016,
included a $2.1 million settlement fee paid to us in May 2016, in connection with a litigation with SuperCom Ltd. relating to
the sale of our SmartID division, partially offset by a loss from discontinued operations activity related to the sale of certain
assets and IP of our previous parking business. Net income from discontinued operations in the nine months ended September 30,
2017, included a $1.6 million net, recovered by us pursuant to the August 23, 2017 judgment of the Israeli Central District Court
in a lawsuit against Harel for damages incurred by us due to flooding in a subcontractor’s manufacturing site. Appeal of
this judgment by Harel is pending before the Israeli Supreme Court (the Company currently believes that there are sufficient grounds
on which to uphold the District Court’s ruling and, as such, Harel’s appeal will be denied), partially offset by a
loss from decreasing court bonds related to Harel.
Net
income
Our
net income in the nine months ended September 30, 2017 and September 30, 2016, was as follows (in thousands):
|
|
Nine
months ended
September 30,
|
|
|
|
2017
|
|
|
2016
|
|
Net income
|
|
$
|
96
|
|
|
$
|
349
|
|
The
decrease in net income of $253,000, in the nine months ended September 30, 2017, compared to the nine months ended September 30, 2016,
is primarily due to an increase in operating expenses, an increase in financing expenses net and a decrease in net profit
from discontinued operations, partially offset by an increase in revenues and gross profit, as described above.
Liquidity
and Capital Resources
Our
principal sources of liquidity since our inception have been sales of equity securities, borrowings from banks, cash from the
exercise of options and warrants and proceeds from divestitures of parts of our businesses. We had cash, cash equivalents and
short-term investments representing bank deposits of $8.7 million as of September 30, 2017 (of which an amount of $1.5 million
has been pledged to secure performance guarantees granted to third parties and guarantees to secure customer advances, loans and
credit lines received from a bank), and $11.5 million as of December 31, 2016 (of which an amount of $1.5 million had then been
pledged to secure performance guarantees granted to third parties and guarantees to secure customer advances, loans and credit
lines received from a bank). We believe that we have sufficient capital resources to fund our operations in the next
12 months. We adhere to an investment policy which is intended to enable the Company to avoid being classified as a “passive
foreign investment company,” or PFIC, under U.S. law. That said, we cannot provide complete assurance that PFIC status will
be avoided in the future. In addition, our investment policy requires investment in high-quality investment-grade securities.
As of September 30, 2017, our long-term bank loans are denominated in the following currencies: Polish Zloty ($856,000, with maturity
dates ranging from 2017 through 2019) and South African Rand ($597,000, with maturity dates ranging from 2017 through 2023). As
of September 30, 2017, these loans bear interest at rates ranging from 3.2%-10.5% per annum.
Our
composition of long-term loans as of September 30, 2017, was as follows (in thousands):
|
|
September 30,
2017
|
|
Long-term loans
|
|
$
|
1,453
|
|
Less - current maturities
|
|
|
564
|
|
|
|
$
|
889
|
|
Our
composition of short-term loans, bank credit and current maturities of long-term loans as of September 30, 2017, were as follows
(in thousands):
|
|
September 30, 2017
|
|
|
|
Interest rate
|
|
|
|
|
In U.S. dollars
|
|
|
4.21
|
%
|
|
$
|
1,910
|
|
In Polish Zloty
|
|
|
3.63
|
%
|
|
|
1,082
|
|
In NIS
|
|
|
3.60
|
%
|
|
|
833
|
|
|
|
|
|
|
|
|
3,825
|
|
Current maturities of long-term loans
|
|
|
|
|
|
|
564
|
|
|
|
|
|
|
|
$
|
4,389
|
|
Our
and certain of our subsidiaries’ manufacturing facilities and certain equipment have been pledged as security in respect
of a loan received from a bank. Our short term deposits in the amount of $1.5 million have been pledged as security in respect
of guarantees granted to third parties, loans and credit lines received from a bank. Such deposits cannot be pledged to others
or withdrawn without the consent of the bank.
As
of September 30, 2017, we granted guarantees to third parties including performance guarantees and guarantees to secure customer
advances in the sum of $352,000. The expiration dates of the guarantees range from October 2017 to June 2019.
Operating
activities related to continuing operations
For the nine
months ended September 30, 2017, net cash used in continuing operating activities was $2,440,000, primarily due to a $1.3
million net loss from continuing operations, a $777,000 decrease in other current liabilities, a $710,000 increase in
inventory, a $611,000 decrease in trade payables, a $435,000 increase in other receivables and prepaid expenses, a $41,000
decrease in accrued interest and a $9,000 gain on sale of property and equipment, partially offset by depreciation expenses
of $878,000, a $238,000 expense due to stock-based compensation issued to employees, a $187,000 decrease in trade
receivables, a $72,000 increase in accrued severance pay and a $37,000 deferred tax expense.
For
the nine months ended September 30, 2016, net cash used in continuing operating activity was $611,000, primarily due to a $1.2
million net loss from continuing operations, a $1.4 million increase in trade receivables, a $408,000 decrease in other current
liabilities, a $152,000 decrease in accrued severance pay and a $16,000 increase in other receivables and prepaid expenses, partially
offset by a $1 million increase in trade payables, depreciation expenses of $911,000, a $246,000 decrease in inventory, a $174,000
expense due to stock-based compensation issued to employees, a $83,000 loss on sale of property and equipment, a $60,000 deferred
tax expense and a $19,000 accrued interest expense.
Operating
activities related to discontinued operations
For
the nine months ended September 30, 2017, net cash used in discontinued operating activities was $86,000, related to the SmartID
division and previous parking business.
For
the nine months ended September 30, 2016, net cash used in discontinued operating activities was $183,000, related to our SmartID
division and previous parking business.
Investing
and financing activities related to continuing operations
For the
nine months ended September 30, 2017, net cash provided by continuing investing activities was $2.6 million, mainly due to
a $2,917,000 proceeds of short-term investments, a $44,000 in proceeds from restricted deposits for employee benefits and a
$14,000 in proceeds from the sale of property and equipment partially offset by a $185,000 investment in capitalized product
costs and a $160,000 purchase of property and equipment.
For the nine
months ended September 30, 2016, net cash provided by continuing investing activities was $1.1 million, mainly due to a $1.8
million in proceeds from the sale of property and equipment and a $142,000 in proceeds from restricted deposits for employee
benefits, partially offset by a $502,000 purchase of short-term investments, a $185,000 purchase of property and equipment
and a $139,000 investment in capitalized product costs.
For
the nine months ended September 30, 2017, net cash used in continuing financing activities was $516,000, mainly due to a repayment
of $469,000 of long-term bank loans and a $72,000 decrease in short-term bank credit, partially offset by proceeds of $25,000
from the exercise of options.
For
the nine months ended September 30, 2016, net cash used in continuing financing activities was $1 million, mainly due to a repayment
of $1.4 million of long-term bank loans, partially offset by a $287,000 increase in short-term bank credit, proceeds of $37,000
from the exercise of options and warrants and proceeds of $27,000 from long-term bank loans.
Investing
and financing activities related to discontinued operations
We
had no cash flows provided by or used in discontinued investing activities in the nine months ended September 30, 2017.
For
the nine months ended September 30, 2016, net cash provided by discontinued investing activities was $2.2 million, due to contingent
consideration received related to the Smart ID division divestiture and consideration derived from the divestiture of our parking
business.
We
had no cash flows provided by or used in discontinued financing activities in the nine months ended September 30, 2017 and September
30, 2016.
Off
Balance Sheet Arrangements
We
have no off balance sheet arrangements.