UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

Form 10-Q

 

(Mark One)

 

☒ QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended March 31, 2020

 

☐ TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT

 

For the transition period from

__________ to __________

 

Commission file number 000-49877

 

ON TRACK INNOVATIONS LTD.
(Exact name of registrant as specified in its charter)

 

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

 

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

 

Registrant’s telephone number, including area code: + 972-4-6868000

 

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

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

 

Yes ☒     No ☐ 

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    

 

Yes ☒     No ☐ 

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

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

 

Emerging growth company ☐ 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

 

Yes ☐     No ☒ 

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 53,824,377 Ordinary Shares outstanding as of May 8, 2020.

 

 

 

 

 

 

ON TRACK INNOVATIONS LTD.

 

TABLE OF CONTENTS

 

       
Part I - Financial Information    
       
Item 1. Financial Statements   1
       
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations   2
       
Item 4. Controls and Procedures   11
       
Part II - Other Information    
       
Item 1. Legal Proceedings   12
       
Item 1A. Risk Factors   12
       
Item 5. Other Information   13
       
Item 6. Exhibits   14
       
  Signatures   15

 

i

 

 

PART I - FINANCIAL INFORMATION

 

Item 1.   Financial Statements.

 

ON TRACK INNOVATIONS LTD. AND ITS SUBSIDIARIES

 

INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

As of March 31, 2020

 

(Unaudited)

 

1

 

 

On Track Innovations Ltd.

and its Subsidiaries

 

Interim Unaudited Condensed Consolidated Financial Statements as of March 31, 2020

 

Contents

 

  Page
   
Interim Unaudited Condensed Consolidated Balance Sheets F-2 - F-3
   
Interim Unaudited Condensed Consolidated Statements of Operations F-4
   
Interim Unaudited Condensed Consolidated Statements of Comprehensive Loss F-5
   
Interim Unaudited Condensed Consolidated Statements of Changes in Equity F-6
   
Interim Unaudited Condensed Consolidated Statements of Cash Flows F-7 - F-8
   
Notes to the Interim Unaudited Condensed Consolidated Financial Statements F-9 - F-25

 

F-1

 

 

On Track Innovations Ltd.

and its Subsidiaries

 

Interim Unaudited Condensed Consolidated Balance Sheets

 

 

US dollars in thousands except share data

 

    March 31     December 31  
    2020     2019  
Assets            
             
Current assets            
Cash and cash equivalents   $ 2,637     $ 2,543  
Short-term investments     805       2,305  
Trade receivables (net of allowance for doubtful accounts of $600 and $612 as of March 31, 2020 and December 31, 2019, respectively)     3,043       2,430  
Other receivables and prepaid expenses     1,601       1,822  
Inventories     3,025       3,332  
                 
Total current assets     11,111       12,432  
                 
Long term restricted deposit for employee benefits     462       477  
                 
Severance pay deposits     371       383  
                 
Property, plant and equipment, net     3,371       3,694  
                 
Intangible assets, net     740       733  
                 
Right-of-use assets due to operating leases     3,728       2,134  
                 
Total Assets   $ 19,783     $ 19,853  

 

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

 

F-2

 

 

On Track Innovations Ltd.

and its Subsidiaries

 

Interim Unaudited Condensed Consolidated Balance Sheets

 

 

US dollars in thousands except share data

 

    March 31     December 31  
    2020     2019  
Liabilities and Equity            
             
Current Liabilities            
Short-term bank credit and current maturities of long-term bank loans   $ 2,609     $ 2,478  
Trade payables     3,094       4,126  
Other current liabilities     3,337       3,054  
                 
Total current liabilities   $ 9,040     $ 9,658  
                 
Long-Term Liabilities                
Long-term loans, net of current maturities     18       22  
Long-term liabilities due to operating leases, net of current maturities     2,861       1,483  
Accrued severance pay     864       884  
Deferred tax liability     361       416  
Total long-term liabilities     4,104       2,805  
                 
Total Liabilities     13,144       12,463  
                 
Commitments and Contingencies, see note 6                
                 
Equity                
                 
Ordinary shares of NIS 0.1 par value: Authorized – 50,000,000 shares as of March 31, 2020 and December 31, 2019; issued: 49,003,076 and 47,963,076 shares as of March 31, 2020 and December 31, 2019, respectively; outstanding: 47,824,377 and 46,784,377 shares as of March 31, 2020 and December 31, 2019, respectively     1,256       1,226  
Additional paid-in capital     226,152       225,970  
Treasury shares at cost - 1,178,699 shares as of March 31, 2020 and December 31, 2019     (2,000 )     (2,000 )
Accumulated other comprehensive loss     (1,268 )     (974 )
Accumulated deficit     (217,501 )     (216,832 )
Total Equity     6,639       7,390  
                 
Total Liabilities and Equity   $ 19,783     $ 19,853  

 

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
March 31
 
    2020     2019  
Revenues            
Sales   $ 3,396     $ 1,722  
Licensing and transaction fees     1,055       1,291  
                 
Total revenues     4,451       3,013  
                 
Cost of revenues                
Cost of sales     2,273       1,370  
Total cost of revenues     2,273       1,370  
                 
Gross profit     2,178       1,643  
Operating expenses                
Research and development     898       871  
Selling and marketing     1,162       1,285  
General and administrative     957       965  
                 
Total operating expenses     3,017       3,121  
                 
Operating loss from continuing operations     (839 )     (1,478 )
Financial income (expenses), net     168       (69 )
                 
Loss from continuing operations before taxes on income     (671 )     (1,547 )
                 
Income tax benefits (expenses)     13       (5 )
                 
Loss from continuing operations     (658 )     (1,552 )
Loss from discontinued operations     (11 )     (193 )
                 
Net loss   $ (669 )   $ (1,745 )
                 
Basic and diluted net loss attributable to shareholders per ordinary share                
From continuing operations   $ (0.01 )   $ (0.04 )
From discontinued operations   $  *     $  *  
    $ (0.01 )   $ (0.04 )
Weighted average number of ordinary shares used in computing basic and diluted net loss per ordinary share     47,790,091       41,294,377  

 

* Less than $0.01 per ordinary share.

 

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
March 31
 
    2020     2019  
             
Total comprehensive loss:            
Net loss   $ (669 )   $ (1,745 )
Foreign currency translation adjustments     (294 )     (63 )
                 
Total comprehensive loss   $ (963 )   $ (1,808 )

 

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

 

    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, 2018     42,473,076     $ 1,068     $ 225,022     $ (2,000 )   $ (956 )   $ (210,943 )   $ 12,191  
                                                         
Changes during the three month period  ended March 31, 2019:                                                        
                                                         
Stock-based compensation     -       -       46       -       -       -       46  
Foreign currency translation adjustments     -       -       -       -       (63 )     -       (63 )
Net loss     -       -       -       -       -       (1,745 )     (1,745 )
Balance as of March 31, 2019     42,473,076     $ 1,068     $ 225,068     $ (2,000 )   $ (1,019 )   $ (212,688 )   $ 10,429  
                                                         
Balance as of December 31, 2019     47,963,076     $ 1,226     $ 225,970     $ (2,000 )   $ (974 )   $ (216,832 )   $ 7,390  
                                                         
Changes during the three month period  ended March 31, 2020:                                                        
                                                         
Issuance of shares, net of issuance costs of $8     1,040,000       30       170       -       -       -       200  
Stock-based compensation     -       -       12       -       -       -       12  
Foreign currency translation adjustments     -       -       -       -       (294 )     -       (294 )
Net loss     -       -       -       -       -       (669 )     (669 )
Balance as of March 31, 2020     49,003,076     $ 1,256     $ 226,152     $ (2,000 )   $ (1,268 )   $ (217,501 )   $ 6,639  

 

 

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

 

F-6

 

 

On Track Innovations Ltd.

and its Subsidiaries

 

Interim Unaudited Condensed Consolidated Statements of Cash Flows

 

 

US dollars in thousands

    Three months ended March 31  
    2020     2019  
Cash flows from continuing operating activities            
Net loss from continuing operations   $ (658 )   $ (1,552 )
Adjustments required to reconcile net loss to net cash provided by continuing operating activities:                
Stock-based compensation related to options issued to employees and others     12       46  
Gain on sale of property and equipment, net     -       (2 )
Accrued interest and linkage differences, net     (156 )     (12 )
Depreciation and amortization     307       320  
Deferred tax benefits, net     (15 )     (10 )
Changes in operating assets and liabilities:                
Change in accrued severance pay, net     (8 )     29  
(Increase) decrease in trade receivables, net     (697 )     1,323  
Decrease in other receivables and prepaid expenses     142       264  
Decrease (increase) in inventories     274       (457 )
(Decrease) increase in trade payables     (917 )     423  
Increase (decrease) in other current liabilities     584       (186 )
Net cash (used in) provided by continuing operating activities     (1,132 )     186  
                 
Cash flows from continuing investing activities                
Purchase of property and equipment and intangible assets     (168 )     (163 )
Proceeds from sale of property, plant and equipment     -       10  
Change in short-term investments, net     1,508       6  
Proceeds from restricted deposit for employee benefits     -       10  
Net cash provided by (used in) continuing investing activities     1,340       (137 )
                 
Cash flows from continuing financing activities                
Increase in short-term bank credit, net     160       372  
Repayment of long-term loans     (5 )     (119 )
Proceeds from issuance of shares, net of issuance costs     200       -  
Net cash provided by continuing financing activities     355       253  
                 
Cash flows from discontinued operations                
Net cash used in discontinued operating activities     (334 )     (1,231 )
                 
Total net cash used in discontinued operations     (334 )     (1,231 )
                 
Effect of exchange rate changes on cash and cash equivalents     (135 )     (57 )
                 
Increase (decrease) in cash, cash equivalents and restricted cash     94       (986 )
Cash, cash equivalents and restricted cash - beginning of the period     2,648       5,105  
                 
Cash, cash equivalents and restricted cash - end of the period   $ 2,742     $ 4,119  

 

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

 

F-7

 

 

On Track Innovations Ltd.

and its Subsidiaries

 

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

 

US dollars in thousands

 

    Three months ended
March 31
 
    2020     2019  
Supplementary cash flows activities:            
Cash paid during the period for:            
Interest paid   $ 23     $ 4  
Income taxes paid   $ 31     $ 69  
                 
Supplemental disclosures of non-cash flow information      
Payables due to purchase of property and equipment and intangible assets   $ 174     $ -  

 

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

 

F-8

 

 

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

 

At March 31, 2020, the Company operates in two operating segments: (a) Retail and Mass Transit Ticketing, and (b) Petroleum. See Note 11. During December 2018, the Company sold its medical smart cards operation – see Note 1C(2).

 

B. Interim Unaudited Financial Information

 

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

 

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

 

Use of Estimates:

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the assets, liabilities, revenue, costs, expenses and accumulated other comprehensive income/(loss) that are reported in the Interim Consolidated Financial Statements and accompanying disclosures. These estimates are based on management’s best knowledge of current events, historical experience, actions that the Company may undertake in the future and on various other assumptions that are believed to be reasonable under the circumstances. As a result, actual results may be different from these estimates.

 

F-9

 

 

On Track Innovations Ltd.

and 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. Divestiture of operations

 

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

 

On April 20, 2016, the purchaser of the Smart ID division, SuperCom Ltd. (“SuperCom”), and the Company entered into a settlement agreement resolving certain litigation between SuperCom and the Company pursuant to which SuperCom paid the Company $2,050 and agreed to pay the Company up to $1,500 in accordance with and subject to a certain earn-out mechanism. In November 2017, the Company commenced an arbitration procedure with SuperCom, in which the Company 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. The evidence in the arbitration was heard on March 6, 2018, and 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 the maximum earn-out amount, which equals $1,500 minus the earn-out amounts that were already paid by SuperCom to the Company. 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).

 

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

 

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

 

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)

 

D. Liquidity and Capital Resources

 

The Company has had recurring losses and has an accumulated deficit as of March 31, 2020 of $217,501. The Company also has a payable balance on its short-term loan of $2,609 as of March 31, 2020 that is due within the next 12 months.  

 

Since inception, the Company’s principal sources of liquidity have been revenues, proceeds from sales of equity securities, borrowings from banks, cash from the exercise of options and warrants as well as proceeds from the divestiture of parts of the Company’s businesses. The Company had cash, cash equivalents and short-term investments representing bank deposits of $3,442 (of which an amount of $105 has been pledged as securities for certain items) as of March 31, 2020.  The Company believes that it has sufficient capital resources to fund its operations for at least the next 12 months.

 

Further, as disclosed in Note 10A, subsequent to the balance sheet date the Company received funds in a total amount of $1,200 in consideration for the issuance of 6,000,000 ordinary shares, all in accordance with the terms and provisions of the Agreement (as defined in Note 10A below).

 

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

 

As of the reporting date, the main impact of the COVID-19 pandemic is a decrease in the Company’s revenues derived from Mass Transit activity in the Polish market. The decrease of approximately $300 in this operation, that was relatively stable during the year preceding the COVID-19 outbreak, started mainly in March 2020 and is expected to continue for the foreseeable future. As a response to this effect, the Company has taken steps to reduce some costs that are not essential under the current circumstances.

 

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

 

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

 

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

 

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

 

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 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, 2019.

 

Recent accounting pronouncements

 

1. In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-13, Financial Instruments - Credit Losses (Topic 326). The main objective of this ASU is to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date. To achieve this objective, the amendments in this ASU replace the incurred loss impairment methodology in current GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. The amendments affect entities holding financial assets and net investment in leases that are not accounted for at fair value through net income. The amendments affect loans, debt securities, trade receivables, net investments in leases, off-balance-sheet credit exposures, reinsurance receivables, and any other financial assets not excluded from the scope that have the contractual right to receive cash. ASU 2016-13 is effective for the Company for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. Early adoption is permitted for fiscal years beginning after December 15, 2018. The Company currently does not expect the adoption of this accounting standard to have a material impact on its consolidated financial statements.

 

2. In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (ASU 2019-12), which simplifies the accounting for income taxes. This ASU, among other things, removes the exception to the incremental approach for intraperiod allocation of tax expense when a company has a loss from continuing operations and income from other items that are not included in continuing operations, such as income from discontinued operations, or income recorded in other comprehensive income. The general rule under Accounting Standards Update (“ASC”) 740-20-45-7 is that the tax effect of pretax income or loss from continuing operations should be determined by a computation that does not consider the tax effects of items that are not included in continuing operations. Previously, companies could consider the impact on a loss from continuing operations of items in discontinued operations or other comprehensive income. However, under the amended guidance, companies should not consider the effect of items outside of continuing operations in calculating the tax effect on continuing operations. The new standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. Early adoption is permitted, with the amendments to be applied on a retrospective, modified retrospective or prospective basis, depending on the specific amendment. The Company is currently evaluating the impact of adopting this guidance.

 

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

 

    March 31     December 31  
    2020     2019  
Government institutions   $ 404     $ 414  
Prepaid expenses     301       224  
Receivables under contractual obligations to be transferred to others (*)     94       330  
Suppliers advance     549       544  
Other receivables     253       310  
    $ 1,601     $ 1,822  

 

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

 

Note 4 - Other Current Liabilities

 

    March 31     December 31  
    2020     2019  
Employees and related expenses   $ 596     $ 613  
Accrued expenses     809       887  
Customer advances     908       111  
Short-term liabilities due to operating leases and current maturities     734       686  
Other current liabilities (*)     290       757  
    $ 3,337     $ 3,054  

 

(*) See Note 6A(5).

 

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 - Leases

 

The Company leases a limited number of assets, mainly offices and cars for use in its operations. The Company adopted the accounting standard ASC 842 “Leases” and all the related amendments on January 1, 2019 and used the effective date as Company’s date of initial application.

 

As of March 31, 2020, right-of-use assets due to operating leases are $3,728 (as of December 31, 2019 - $2,134) and the liabilities due to operating leases are $3,595 (as of December 31, 2019 - $2,169), out of which $2,861 are classified as long-term liabilities and $734 are classified as current liabilities (see Note 4).

 

The right-of-use assets and the liabilities due to operating leases as of March 31, 2020, include assets and liabilities in the amount of $1,787 and $1,732, respectively, that derive from the lease commencement of the headquarters office in Yokne’am, Israel (in lieu of the previous leased headquarters building in Rosh Pina) in January 2020. The operating lease period of this office is five years (excluding the extension-period, as mentioned in the agreement). The total annual rent expenses of this building, including management fees and excluding construction costs-reimbursement payments, is approximately NIS 595 ($167) during the lease period and approximately NIS 654 ($183) during the extension-period, if extended. The construction costs-reimbursement payments are approximately NIS 2,913 ($817), out of which 50% will be paid during the lease period. If the Company leases this office during the extension-period of five years, the rest of the 50% costs-reimbursement payments will be paid during the extension-period. Otherwise, the rest of the 50% costs- reimbursement payments will be paid at the end of 2024.

 

The Company includes renewal options that it is reasonably certain to exercise in the measurement of the lease liabilities. The remaining operating lease periods of the leases range from less than one year to ten years as of March 31, 2020. The weighted average remaining lease term is 3.4 years as of March 31, 2020.

 

The following is a schedule of the maturities of operating lease liabilities for the next five years as of March 31, 2020, and thereafter, as were taken into account in the calculation of the operating lease liabilities as of March 31, 2020:

 

Remainder of 2020   $ 737  
2021     857  
2022     688  
2023     405  
2024     327  
Thereafter     1,191  
Total leases payments     4,205  
Less - discount     610  
Operating lease liabilities   $ 3,595  

 

As of March 31, 2020, the weighted average discount rate of the operating leases is approximately 5%.

 

Operating lease costs and cash paid during the three months ended March 31, 2020 and 2019, for amounts included in the measurement of the lease liabilities were approximately $262 and $180, respectively. Operating lease costs include fixed payments and variable payments that depend on an index or rate. There are no other significant variable lease payments.

 

The Company does not have any material leases, individually or in the aggregate, classified as a finance leasing arrangement.

 

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

 

A. Legal claims

 

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 in its purchase of the division. SuperCom undertook to indemnify the Company and hold it harmless against any liabilities the Company may incur in connection with Merwell’s consulting agreement and the arbitration.  An arbitration decision was issued on February 21, 2016, awarding Merwell approximately $855 for outstanding commissions, plus expenses and legal fees.  The arbitration decision had been appealed and the appeal was denied on June 17, 2018. In order to collect the award, Merwell filed a motion against the Company and the Nazareth District Court issued a judgment requiring the Company to pay Merwell an amount of NIS 5,080 (approximately $1,370) that was paid by the Company on January 8, 2019. As mentioned above, based on the agreement with SuperCom from April 2016 (which was granted an effect of a court judgment), SuperCom is liable for all the costs and liabilities arising out of this claim. Since SuperCom failed to pay the Company the amounts due, in February 2019 the Company initiated an arbitration process to collect from SuperCom, the amount paid to Merwell, as well as any complementary amounts, as may be ordered in the future.

 

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

 

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

 

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 6 - Commitments and Contingencies (cont’d)

 

A. Legal claims (cont’d)

 

3. In October 2013, a financial claim was filed against the Company and its then French subsidiary, Parx France (in this paragraph, together, the “Defendants”), in the Commercial Court of Paris, France (in this paragraph, the “Court”). The sum of the claim is €1,500 (approximately $1,641) and is based on the allegation that the plaintiff sustained certain losses in connection with Defendants not granting the plaintiff exclusive marketing rights to distribute and operate the Defendants’ PIAF Parking System in Paris and the Ile of France. On October 25, 2017, the Court issued its ruling in this matter dismissing all claims against the Company but ordering Parx France to pay the plaintiff €50 ($55) plus interest in damages plus another approximately €5 ($6) in other fees and penalties. The Company offered to pay the amounts mentioned above to the plaintiff in consideration for not filing future appeals. The Plaintiff rejected this offer and filed an appeal against Parx France and the Company claiming the sum of €503 ($550) plus interest and expenses. On November 7, 2019, the Company’s external legal counsel concluded that the appeal was inadmissible, and that it believed that the opposing claims would be dismissed. The appeal hearing was scheduled for May 4, 2020. However, due to the Corona Virus outbreak, all hearings are currently suspended until at least May 11, 2020 and there is no certainty with respect to the new date of the appeal hearing. Based on the assessment of the Company’s external legal counsel, the Company’s management is of the opinion that the chances of the appeal being approved against the Company are low.

 

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

 

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 6 - Commitments and Contingencies (cont’d)

 

A. Legal claims (cont’d)

 

5. During the year ended December 31, 2017, the Company recorded income of approximately $1,600 based on a judgment 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 in 2011. The judgment determined that this 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 January 26, 2020, Harel and the Company agreed to the offer of the Israeli Supreme Court, as made by way of settlement in which the Company will pay back to Harel the sum of NIS 1,907 (approximately $553) in three monthly equal installments starting February 26, 2020. Accordingly, the Company recorded loss of $71 and $482 within the net loss from continuing operations and within the net loss from discontinued operations, respectively, in the fourth quarter of 2019. As of May 12, 2020, we paid all the settlement amount.

 

6. Regarding an additional legal claim, see Notes 1C(1).

 

B. Guarantees

 

As of March 31, 2020, the Company has granted performance guarantees and guarantees to secure customer advances in the sum of $376. The expiration dates of the guarantees range from May 2020 to September 2021.

 

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 7 – Revenues

 

Disaggregation of revenue

 

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

 

    Three months ended March 31  
    2020  
   

Retail and

Mass Transit

Ticketing

    Petroleum     Total  
                   
Cashless payment products (A)   $2,469     $ -     $2,469  
                         
Complete cashless payment solutions (B):                        
Sales of products (B1)     314       571       885  
Licensing fees, transaction fees and
services (B2)
    870       227       1,097  
      1,184       798       1,982  
                         
Total revenues   $ 3,653     $ 798     $ 4,451  

 

    Three months ended March 31  
    2019  
   

Retail and

Mass Transit

Ticketing

    Petroleum     Total  
                   
 Cashless payment products (A)   $ (*)784   $ -     $ (*)784
                         
Complete cashless payment solutions (B):                        
Sales of products (B1)     (*)192     505       (*)697
Licensing fees, transaction fees and
services (B2)
    1,217       315       1,532  
      (*)1,409     820       (*)2,229
                         
Total revenues   $ 2,193     $ 820     $ 3,013  

 

(*) Reclassified

 

Performance obligations

 

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

 

A. Cashless payment products –

 

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

 

F-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 7 – Revenues (cont’d)

 

Performance obligations (cont’d)

 

B. Complete cashless payment solutions –

 

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

 

1. Sales of products –

 

Selling of contactless payment products (see A above) together with payment gateways and machine-to-machine controllers.

Selling of petroleum payment solutions including site and vehicle equipment.

For such sales, the performance obligation, transfer of control and revenue recognition occur when the products are delivered.

 

2. Licensing fees, transaction fees and services -

 

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

 

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

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

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

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

 

Contract balances

    March 31     December 31  
    2020     2019  
Trade receivables, net of allowance for doubtful accounts   $ 3,043     $ 2,430  
Customer advances   $ 908     $ 111  

 

Accounts receivable are recognized when the right to consideration becomes unconditional based upon contractual billing schedules.

 

Transaction price and variable consideration

 

The transaction price is the amount of consideration to which the Company expects to be entitled in exchange for transferring goods or services to a customer, excluding amounts collected on behalf of third parties. In certain arrangements with variable consideration, revenue is recognized over time as it is mainly attributed to ongoing services provided.

 

F-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 8 – Discontinued operations

 

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

 


Set forth below are the results of the discontinued operations:

 

    Three months ended March 31  
    2020     2019  
Revenues   $ -     $ -  
Expenses     (11 )     (193 )
                 
Net loss from discontinued operations   $ (11 )   $ (193 )

 

Note 9 - Fair Value of Financial Instruments

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

The carrying amounts of variable interest rate long-term loans are equivalent or approximate to their fair value as they bear interest at approximate market rates.

 

As of March 31, 2020, the Company held approximately $805 of short-term bank deposits (as of December 31, 2019 - $2,305). As of March 31, 2020 and December 31, 2019, short-term deposits in the amount of $105 have been pledged as security in respect of guarantees granted and cannot be pledged to others or withdrawn without the consent of the bank.

 

F-20

 

 

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

 

A. Share capital

 

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

 

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

 

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

 

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

 

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)

 

B. Stock option plans

 

During each of the three-month periods ended March 31, 2020 and March 31, 2019, 204,000 and 100,000 options were granted, respectively. The vesting period for the options is three years. The exercise prices for the options that were granted during the three months ended March 31, 2020 and March 31, 2019, are $0.28 and $0.70, respectively. Those options expire up to five years after the date of grant. Any options which are forfeited or cancelled before expiration become available for future grants under the Company’s option plan. The fair value of each option granted to employees during the three months ended March 31, 2020 and March 31, 2019 was estimated on the date of grant, using the Black-Scholes model and the following assumptions:

 

    Three months ended
March 31
 
    2020     2019  
Expected dividend yield     0 %     0 %
Expected volatility     102.45 %     79 %
Risk-free interest rate     0.65 %     2.47 %
Expected life - in years     2.44       2.44  

 

1. Dividend yield of zero percent for all periods.
2. Expected average volatility represents a weighted average standard deviation rate for the price of the Company’s ordinary shares on Nasdaq and on the OTCQX market, as applicable.
3. Risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant.
4. Estimated expected lives are based on historical grants data.

 

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

 

    Number of options outstanding     Weighted average exercise price per share  
Outstanding – December 31, 2019     809,000     $ 0.93  
                 
Options granted     204,000       0.28  
Options expired or forfeited     (5,000 )     1.68  
Outstanding – March 31, 2020     1,008,000       0.79  
                 
Exercisable as of:                
December 31, 2019     505,657     $ 1.06  
March 31, 2020     500,657     $ 1.05  

 

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 10 – Equity (cont’d)

 

B. Stock option plans (cont’d)

 

The weighted average fair value of options granted during the three months ended March 31, 2020 and during the three months ended March 31, 2019 is $0.11 and $0.25, respectively, per option. The aggregate intrinsic value of outstanding options as of March 31, 2020 and December 31, 2019 is zero. The aggregate intrinsic value of exercisable options as of March 31, 2020 and December 31, 2019 is zero.

 

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

 

    Options outstanding     Options Exercisable  
    Number     Weighted           Number     Weighted        
    outstanding     average     Weighted     Outstanding     average     Weighted  
    as of     remaining     Average     as of     remaining     Average  
  March 31,     contractual     Exercise     March 31,     contractual     Exercise  
Range of exercise price ($)   2020     life (years)     Price ($)     2020     life (years)     Price ($)  
0.28-0.90     537,000       3.92       0.48       110,995       1.53       0.77  
1.07-1.68     471,000       2.18       1.14       389,662       2.08       1.13  
      1,008,000       3.11               500,657       1.96          

 

 

As of March 31, 2020, there was approximately $100 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 1.17 years.

 

During the three months ended March 31, 2020, and March 31, 2019, the Company recorded stock-based compensation expenses in the amount of $12 and $46, respectively, in accordance with ASC 718, “Compensation-Stock Compensation.”

 

C. Stock options and warrants in the amounts of 1,008,000 and 1,595,666 outstanding as of March 31, 2020 and 2019, respectively, have been excluded from the calculation of the diluted net loss per ordinary share because all such securities have an anti-dilutive effect for all periods presented.

 

F-23

 

 

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 - Operating segments

 

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

 

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

 

    Three months ended March 31, 2020  
   

Retail and

Mass Transit

Ticketing

    Petroleum     Total  
                   
Revenues   $ 3,653     $ 798     $ 4,451  
                         
Reportable segment gross profit *     2,045       323       2,368  
                         
                       
Reconciliation of reportable segment gross profit to gross profit for the period                        
                         
Depreciation                     (189 )
Stock-based compensation                     (1 )
                         
Gross profit for the period in the consolidated financial statement                   $ 2,178  

 

    Three months ended March 31, 2019  
   

Retail and

Mass Transit

Ticketing

    Petroleum     Total  
                   
Revenues   $ 2,193     $ 820     $ 3,013  
                         
Reportable segment gross profit *     1,498       346       1,844  
                         
Reconciliation of reportable segment gross profit to gross profit for the period                        
                         
Depreciation                     (200 )
Stock-based compensation                     (1 )
                         
Gross profit for the period in the consolidated financial statement                   $ 1,643  

 

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

 

F-24

 

 

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 12 – Subsequent events

 

1. In April 2020, the Company’s shareholders approved an increase in the Company’s authorized share capital, by NIS 5,000,000, divided into 50,000,000 ordinary share of NIS 0.1 par value per share, to NIS 10,000,000, divided into 100,000,000 ordinary shares of NIS 0.1 par value per share, see Note 10A.

 

2. Regarding the issuance of 6,000,000 ordinary shares for aggregate gross proceed of $1,200 in April 2020, see Note 10A.

 

3. In April 2020 the Company granted an aggregate of 580,000 options to its Chief Executive Officer and to one of its directors. The exercise price of 480,000 options is $0.2 per share and the exercise price of 100,000 options is $0.35 per share. The rest of the terms of those options are similar to the terms of options granted during the three months ended March 31, 2020, as mentioned in Note 10B.

 

4. Regarding a change in the maturity term of a bank loan, see Note 1D.

 

F-25

 

 

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;

 

any impact of the Corona Virus, or COVID-19, pandemic on our business, including continued decrease in the Mass Transit activity in Poland;

 

the expected development and potential benefits from our existing or future products or our intellectual property, or IP;

 

our intention to increase the 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 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;

 

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

 

our expectation to close transactions related to our Retail business with potential customers.

 

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.

 

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

 

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

 

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

 

Overview

 

We are a fintech pioneer and a leading developer of cutting-edge secure cashless payment solutions providing global enterprises with innovative technology for three decades. We operate in two main segments: (1) Retail and Mass Transit Ticketing; and (2) Petroleum.

 

Our vision is to strengthen our global presence with innovative solutions and provide our customers with the best possible support in superior service and reliable advanced products.

 

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

 

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

 

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

 

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

 

Results of Operations

 

Discontinued operations. In December 2018, we completed the sale of our MediSmart activities (most of which is attributed to our former “Other” segment) to Smart Applications International Limited. In December 2013, we completed the sale of certain assets, certain subsidiaries and IP directly related to our SmartID division. The results from such operations and the cash flow 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.

 

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Three months ended March 31, 2020, compared to the three months ended March 31, 2019

 

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, licensing and transaction fees and also less significantly, from engineering services, customer services and technical support. During the three months ended March 31, 2020 and March 31, 2019, the revenues that we derived from sales and licensing and transaction fees were as follows (in thousands):

 

   

Three months ended

March 31,

 
    2020     2019  
Sales   $ 3,396     $ 1,722  
Licensing and transaction fees   $ 1,055     $ 1,291  
Total revenues   $ 4,451     $ 3,013  

 

 

Sales. Sales increased by $1.7 million, or 97%, in the three months ended March 31, 2020, compared to the three months ended March 31, 2019. The increase is mainly attributed to an increase of Retail and Mass Transit Ticketing segment sales in the United States and Russia. 

 

Licensing and transaction fees. Licensing and transaction fees include single and periodic payments for distribution rights for our products as well as licensing our IP rights to third parties. Transaction fees are paid by customers based on the volume of transactions processed by systems that contain our products. Our licensing and transaction fees decreased by $236,000, or 18%, in the three months ended March 31, 2020, compared to the three months ended March 31, 2019. The decrease is mainly attributed to a decrease in Mass Transit Ticketing sales in the Polish market as a result of the impact of the COVID-19 pandemic. Such decrease is expected to continue for the foreseeable future.

 

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

 

Three months ended March 31,   Americas     Europe     Africa     APAC  
2020   $ 1,755       39 %   $ 1,966       44 %   $ 517       12 %   $ 213       5 %
2019   $ 641       21 %   $ 1,646       55 %   $ 573       19 %   $ 153       5 %

 

Our revenues from sales in Americas increased by $1.1 million, or 174%, in the three months ended March 31, 2020, compared to the three months ended March 31, 2019, mainly due to an increase in sales of readers to the U.S. market.

 

Our revenues from sales in Europe increased by $320,000, or 19%, in the three months ended March 31, 2020, compared to the three months ended March 31, 2019, mainly due to an increase in sales of readers to the Russian and Turkish markets, partially offset by a decrease in Mass Transit Ticketing sales in the Polish market as a result of the impact of COVID-19.

 

Our revenues from sales in Africa in the three months ended March 31, 2020, compared to the three months ended March 31, 2019, remained consistent.

 

Our revenues from sales in the Asia-Pacific region, or APAC, increased by $60,000, or 39%, in the three months ended March 31, 2020, compared to the three months ended March 31, 2019, mainly due to an increase in Petroleum segment sales.

 

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

 

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

 

Three months ended March 31,   Retail and Mass
Transit Ticketing
    Petroleum  
2020   $ 3,653       82 %   $ 798       18 %
2019   $ 2,193       73 %   $ 820       27 %

 

Our revenues from Retail and Mass Transit Ticketing in the three months ended March 31, 2020 increased by $1.5 million, or 67%, compared to the three months ended March 31, 2019, mainly attributed to an increase in sales of readers in the United States and Russian market.

 

Our revenues from Petroleum in the three months ended March 31, 2019, compared to the three months ended March 31, 2019, remained consistent.

 

Cost of Revenues and Gross Margin

 

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

 

Cost of revenues   Three months ended
March 31,
 
    2020     2019  
             
Cost of sales   $ 2,273     $ 1,370  
Gross profit   $ 2,178     $ 1,643  
Gross margin percentage     49 %     55 %

 

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 increase of $903,000, or 66%, in the three months ended March 31, 2020, compared to the three months ended March 31, 2019, resulted primarily from the increase in revenues mainly attributed to the increase in Retail sales in the United States and in Russia.

 

Gross margin. The decrease in gross margin percentage in the three months ended March 31, 2020, compared to the three months ended March 31, 2019, is mainly attributed to a change in our revenue mix and attributed to the decrease in Mass Transit Ticketing sales in the Polish market as a result of the impact of COVID-19.

 

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Operating expenses

 

Our operating expenses for the three months ended March 31, 2020 and March 31, 2019, were as follows (in thousands):

 

Operating expenses   Three months ended
March 31,
 
    2020     2019  
Research and development   $ 898     $ 871  
Selling and marketing   $ 1,162     $ 1,285  
General and administrative   $ 957     $ 965  
Total operating expenses   $ 3,017     $ 3,121  

 

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 research and development expenses in the three months ended March 31, 2020, compared to the three months ended March 31, 2019, remained consistent.

 

Selling and marketing. Our selling and marketing expenses consist primarily of salaries and substantially all of the expenses of our sales and marketing subsidiaries and offices in the United States, South Africa and Europe, as well as expenses related to advertising, professional expenses and participation in exhibitions and tradeshows. The decrease of $123,000, or 10%, in the three months ended March 31, 2020, compared to the three months ended March 31, 2019, is primarily attributed to a decrease in marketing and advertising expenses and to a decrease in employment expenses.

 

General and administrative. Our general and administrative expenses consist primarily of salaries and related expenses of our executive management and financial and administrative staff. These expenses also include costs of our professional advisors (such as legal and accounting), office expenses, insurance and patent maintenance expenses which consist of professional advisors of our patents and other IP. The general and administrative expenses in the three months ended March 31, 2020, compared to the three months ended March 31, 2019, remained consistent.

 

Financing income (expenses), net

 

Our financing income (expenses), net, for the three months ended March 31, 2020 and March 31, 2019, were as follows (in thousands):

 

    Three months ended
March 31,
 
    2020     2019  
Financing income (expenses), net   $ 168     $ (69 )

 

Financing income (expenses), net consist primarily of financing expense related to interest payable on bank loans and bank commissions, partially offset by financing income related to interest earned on investments in short-term deposits and foreign exchange differentials. The change in financing income, net, of $237,000 in the three months ended March 31, 2020, compared to the three months ended March 31, 2019, is mainly due to an exchange rate differential.

 

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Net loss from continuing operations

 

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

 

    Three months ended
March 31,
 
    2020     2019  
Net loss from continuing operations   $ (658 )   $ (1,552 )

 

The decrease in our net loss from continuing operations of $894,000, or 58%, in the three months ended March 31, 2020, compared to the three months ended March 31, 2019, is mainly due to an increase in our sales, a decrease in our operating expenses and a change in the financing income (expenses), net, as described above.

 

Net loss from discontinued operations

 

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

 

    Three months ended
March 31,
 
    2020     2019  
Net loss from discontinued operations   $ (11 )   $ (193 )

 

The decrease in our net loss from discontinued operations for the reporting periods are presented in the statements of operations as discontinued operations separately from continuing operations. The decrease in the net loss from discontinued operations of $182,000, or 94% in the three months ended March 31, 2020, compared to the three months ended March 31, 2019, is mainly due to a decrease in expenses relating to legal proceedings.

 

Net loss

 

Our net loss for the three months ended March 31, 2020 and March 31, 2019, was as follows (in thousands):

 

    Three months ended
March 31,
 
    2020     2019  
Net loss   $ (669 )   $ (1,745 )

 

The decrease in net loss of $1.1 million, or 62%, in the three months ended March 31, 2020, compared to the three months ended March 31, 2019, is primarily due to an increase in our sales, a decrease in our operating expenses, a change in the financing income (expenses), net, and a decrease in net loss from discontinued operations, as described above.

 

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Liquidity and Capital Resources

 

Our principal sources of liquidity since our inception have been revenues, proceeds from sales of equity securities, borrowings from banks, cash from the exercise of options and warrants and proceeds from the divestiture of part of our businesses. As of March 31, 2020, we had cash, cash equivalents and short-term investments representing bank deposits of $3.4 million (of which an amount of $105,000 has been pledged as securities for certain items). We believe that we have sufficient capital resources to fund our operations for at least the next 12 months.

 

On December 23, 2019, we entered into a share purchase agreement, or the Agreement, with Jerry L Ivy, Jr. Descendants Trust, or Ivy, and two other investors who are members of the Company’s Board of Directors, or collectively together with Ivy, the Investors. The Agreement relates to a private placement of an aggregate of up to 12,500,000 of our ordinary shares for aggregate gross proceeds to us of up to $2,500,000.

 

As part of this Agreement, in December 2019 and January 2020, we issued 5,460,000 and 1,040,000 ordinary shares, respectively, for aggregate gross proceed of $1,092,000 and $208,000 respectively. Under the term of the Agreement and following the issuance of those shares, we appointed one representative to our Board of Directors, designated by Ivy. Also, pursuant to the Agreement, Ivy has a right to purchase any future equity securities offered by us, except with respect to certain exempt issuances as set forth in the Agreement.

 

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

 

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

 

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

 

As of the reporting date, the main impact of the COVID-19 pandemic, as we predicted at the early stage, is a decrease in our revenues derived from Mass Transit activity in the Polish market. The decrease of approximately $0.3 million in this operation, that was relatively stable during the year preceding the COVID-19 outbreak, started mainly in March 2020 and is expected to continue for the foreseeable future. As a response to this effect, we take steps to reduce some costs that are not essential under the current circumstances.

 

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

 

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

 

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

 

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Based on Polish government regulations introduced in relation to the COVID-19 pandemic, ASEC S.A. (Spolka Akcyjna), our Polish subsidiary, or ASEC, received the consent of PKO Bank Polski, a Polish bank, or the Lender, to postpone the maturity of a secured $2,000,000 loan, as loaned to it in May 2019, by six months. Accordingly, the loan will mature on November 22, 2020 instead of May 23, 2020, as previously provided in the loan agreement. The loan will be payable in full on maturity (with option of early repayment by ASEC) and the interest is paid on a monthly basis. The loan bears interest at an annual interest rate based on 1-month LIBOR plus a margin of 1.8%, or currently approximately 2.8% in total. The loan agreement includes customary events of default, including, among others, failures to repay any amounts due to the Lender, breaches or defaults under the terms of the loan agreement, etc. If an event of default occurs, the Lender may reduce the amount of the loan, demand an additional security or terminate the loan agreement.

 

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

 

As of March 31, 2020, we granted guarantees to third parties including performance guarantees and guarantees to secure customer advances in the sum of $376,000. The expiration dates of the guarantees range from May 2020 to September 2021.

 

For the three months ended March 31, 2020, we had a negative cash flow from continuing operations of $1.1 million.

 

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Operating activities related to continuing operations 

 

For the three months ended March 31, 2020, net cash used in continuing operating activities was $1.1 million primarily due to a $917,000 decrease in trade payables, a $697,000 increase in trade receivables, a $658,000 net loss from continuing operations, a $156,000 decrease in accrued interest and linkage differences, a $15,000 decrease in deferred tax liability and a $8,000 decrease in accrued severance pay, partially offset by a $584,000 increase in other current liabilities, $307,000 of depreciation and amortization, a $274,000 decrease in inventory, a $142,000 decrease in other receivables and prepaid expenses and $12,000 of expenses due to stock based compensation issued to employees and others.

 

For the three months ended March 31, 2019, net cash provided by continuing operating activities was $186,000 primarily due to a $1.6 million net loss from continuing operations, a $1.3 million decrease in trade receivables, a $457,000 increase in inventory, a $423,000 increase in trade payables, $320,000 of depreciation and amortization, a $264,000 decrease in other receivables and prepaid expenses, a $186,000 decrease in other current liabilities, a $46,000 expense due to stock based compensation issued to employees and others, a $29,000 increase in accrued severance pay, a $12,000 decrease in accrued interest and linkage differences, a $10,000 decrease in deferred tax liability and a $2,000 gain on sale of property and equipment.

 

Operating activities related to discontinued operations

 

For the three months ended March 31, 2020, net cash used in discontinued operating activities was $334,000, mainly related to expenses derived from legal proceedings with Harel Insurance Company Ltd.

 

For the three months ended March 31, 2019, net cash used in discontinued operating activities was $1.2 million, mainly related to the dispute regarding Merwell Inc. in connection with the SmartID division.

 

Investing and financing activities related to continuing operations

 

For the three months ended March 31, 2020, net cash provided by continuing investing activities was $1.3 million, mainly due to a change of $1.5 million in short-term investments, net, partially offset by $168,000 of purchases of long-lived assets.

 

For the three months ended March 31, 2019, net cash used in continuing investing activities was $137,000, mainly due to $163,000 of purchases of long-lived assets, partially offset by $10,000 in proceeds from restricted deposit for employee benefits, $10,000 in proceeds from the sale of property and equipment and a change of $6,000 in short-term investments, net.

 

For the three months ended March 31, 2020, net cash provided by continuing financing activities was $355,000, mainly due to a $200,000 proceeds from issuance of shares, net of issuance costs, a $160,000 increase in short-term bank credit, net, partially offset by a $5,000 repayment of long-term loans.

 

For the three months ended March 31, 2019, net cash provided by continuing financing activities was $253,000, mainly due to a $372,000 increase in short-term bank credit, net, partially offset by a $119,000 repayment of long-term bank loans.

 

Investing and financing activities related to discontinued operations

 

We had no cash flows provided by or used in discontinued investing or financing activities in the three months ended March 31, 2020 and March 31, 2019.

 

Off Balance Sheet Arrangements

 

We have no off balance sheet arrangements.

 

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Item 4. Controls and Procedures.

 

Evaluation of Disclosure Controls and Procedures - Our management, including our Chief Executive Officer, or CEO, and Chief Financial Officer, or CFO, are responsible for establishing and maintaining our disclosure controls and procedures (within the meaning of Rule 13a-15(e) of the Securities Exchange Act of 1934, as amended, or Exchange Act). These controls and procedures are designed to ensure that information required to be disclosed in the reports that we file under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC and that such information was made known to our management, including our CEO and CFO, by others within the Company, as appropriate to allow timely decisions regarding required disclosure. We evaluated these disclosure controls and procedures under the supervision of our CEO and CFO as of March 31, 2020. Based upon that evaluation, our management, including our CEO and CFO, concluded that our disclosure controls and procedures are effective as of such date.

 

Changes in Internal Control Over Financial Reporting - There has been no change in our internal control over financial reporting during the quarter ended March 31, 2020 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 

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PART II - OTHER INFORMATION

Item 1. Legal Proceedings.

 

On September 2, 2012, we filed an insurance lawsuit in the Israeli Central District Court against Harel Insurance Company Ltd., or Harel, for damages incurred by us due to flooding in our subcontractor’s (Smartrac) manufacturing site in Thailand in 2011, in the amount of approximately $11 million. This caused disruptions to our supply chain and specifically affected our ability to deliver products to our customers. On August 23, 2017, the District Court in Israel issued judgment in our favor in the amount of approximately $2.3 million (including $0.7 million specifically set for legal fees, etc.) for insurance coverage for damages incurred in connection with flooding in Thailand. 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. Following the denial of Harel’s request, a payment of approximately $1.6 million was received. On January 26, 2020, a hearing in the Israeli Supreme Court took place in front of three judges. Further to discussions held during the hearing, the judges made the parties an offer by way of a settlement, pursuant to which the Company shall return to Harel a sum of approximately $553,000, in three subsequent monthly installments commencing on February 26, 2020. Based on the Supreme Court’s recommendation and the advice of the Company’s legal counsel, the Company agreed to the suggested offer which was also approved by Harel. As of May 12, 2020, we paid all the settlement amount.

 

In June 2013, prior to our divestiture of our SmartID division, Merwell Inc., or Merwell, filed a claim against us before an agreed-upon arbitrator alleging breach of contract in connection with certain commissions claimed to be owed to Merwell with respect to the division’s activities in Tanzania. These activities, along with all other activities of the SmartID division were later assigned to and assumed by SuperCom Ltd., or SuperCom, in its purchase of the division. SuperCom undertook to indemnify us and hold us harmless against any liabilities we may incur in connection with Merwell’s consulting agreement and the arbitration. An arbitration decision was issued on February 21, 2016, awarding Merwell $854,912 for outstanding commissions. The arbitration decision had been appealed by SuperCom but the appeal was denied. In order to collect the award, Merwell filed a motion against the Company and on January 7, 2019 the Nazareth District Court issued a judgment requiring the Company to pay Merwell an amount of NIS 5,080,000 (approximately $1,370,000). Based on the Company’s prior agreement with SuperCom (which was granted an effect of a court judgment), we deem SuperCom to be liable for all the costs and liabilities arising out of this claim. Since SuperCom failed to pay us the amounts due, in February 2019, we initiated an arbitration process to collect from SuperCom the amount paid to Merwell, as well as any complementary amounts as may be ordered in the future.

 

On June 12, 2019, Merwell submitted a complementary claim against the Company in arbitration, with respect to the additional financial details that Merwell claims that the Company was ordered to provide according to the arbitration verdict from February 21, 2016, and additional payments that Merwell claims that the Company is obligated to pay Merwell. The said financial details refer to the quantity of smart driving licenses that Merwell claims were issued in the later period of a project in Tanzania in which Merwell claims to have provided services to the Company. Merwell claims that despite the Company’s failure to provide the details, Merwell obtained the details independently from other sources, and they indicate that the Company is obligated to pay Merwell an additional amount of $1,618,792, and there might be additional amounts to be claimed in the future, as additional information might be found from time to time. On March 4, 2020, we submitted a response to this complementary claim, rejecting Merwell’s claims. As mentioned above, we are conducting in parallel a separate arbitration process against SuperCom in that matter, as we deem SuperCom to be liable for all the costs and liabilities arising out of this claim.

 

Item 1A. Risk Factors.

 

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

 

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

 

Our operations and business could be materially adversely affected by the recent outbreak of COVID-19. Our revenues from Mass Transit activity in the Polish market decreased during the first quarter of 2020 and are expected to continue to decrease in the foreseeable future. In addition, the execution of transactions related to our Retail activity is slow due to COVID-19 and there is no assurance that we will close any of the potential transactions with customers and partners. Further, another impact of COVID-19 is on product delivery, where components’ procurement lead time is longer and a shortage in components has grown as the duration of the COVID-19 pandemic has continued. As long as the COVID-19 pandemic continues, the components’ lead time may be longer than normal and shortages in component may continue or get worse. Although , we maintain a comprehensive network of world-wide suppliers to handle such delays in delivery, we may still suffer delays. Simultaneously, we are attempting to comply with rapidly changing restrictions, such as travel restrictions, curfews and others. In particular, following recommendations from the Israeli Ministry of Health and the Ministry of Finance, on March 16, 2020, the Israeli prime minister announced restrictions under which businesses in the private sector must reduce their onsite workforce. Currently travel to and from work is still permitted; however, the authorities may place additional, more restrictive measures on businesses and individuals. Though we may still operate under such regulations, any additional actions taken by the Israeli government could further limit that ability, which may have a material adverse effect on our operations and financial results. A significant reduction in our workforce and our compliance with instructions imposed by Israeli authorities may harm our ability to continue operating our business and materially and adversely affect our operations and financial condition. Further, we cannot assure you that we will be designated an “essential business”, as defined under regulatory instructions, and moreover, we cannot foresee whether the Israeli authorities will impose further restrictive instructions, which if implemented may lead to significant changes.

 

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

 

Item 5. Other Information.

 

As we previously reported, on May 24, 2019, ASEC entered into a loan agreement with the Lender. On the same day, the Lender loaned to ASEC the full amount of the loan, $2,000,000, secured by certain assets of ASEC.

 

Based on Polish government regulations introduced in relation to the COVID-19 pandemic, on May 11, 2020, ASEC entered into an addendum to the loan agreement with the Lender, pursuant to which the Lender agreed to postpone the maturity of the secured $2,000,000 loan, by six months. Accordingly, pursuant to such addendum, the loan will mature on November 22, 2020, instead of May 23, 2020, as previously provided in the loan agreement. The loan will be payable in full on maturity (with option of early repayment by ASEC) and the interest is paid on a monthly basis. The loan bears interest at an annual interest rate based on 1-month LIBOR plus a margin of 1.8%, or currently approximately 2.8% in total. The loan agreement includes customary events of default, including, among others, failures to repay any amounts due to the Lender, breaches or defaults under the terms of the loan agreement, etc. If an event of default occurs, the Lender may reduce the amount of the loan, demand an additional security or terminate the loan agreement.

 

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Item 6. Exhibits.

 

3.1*   Amended and Restated Articles of Incorporation, as amended on April 14, 2020.
     
3.2*   Amended and Restated Articles of Incorporation, as amended on April 14, 2020 (marked copy).
     
3.3*   Memorandum of Association, as amended and restated after the April 14, 2020 amendment.
     
10.1   Form of Indemnification Agreement between the Company and its directors and officers (incorporated by reference to Appendix B to the Company’s proxy statement on Schedule 14A filed with the SEC on March 10, 2020).
     
10.2*   Addendum to Loan Agreement, dated May 11, 2020, by and between ASEC S.A. (Spolka Akcyjna), a wholly-owned Polish subsidiary of the Company, and PKO Bank Polski, a Polish bank. (translated from Polish).
     
31.1*   Rule 13a-14(a) Certification of Chief Executive Officer.
     
31.2*   Rule 13a-14(a) Certification of Chief Financial Officer.
     
32.1**   Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350.
     
32.2**     Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350.
     
101 *   The following materials from our Quarterly Report on Form 10-Q for the quarter ended March 31, 2020 formatted in XBRL (eXtensible Business Reporting Language): (i) the Interim Condensed Consolidated Balance Sheets, (ii) the Interim Condensed Consolidated Statements of Operations, (iii) the Interim Condensed Consolidated Statements of Comprehensive Loss, (iv) the Interim Condensed Statements of Changes in Equity, (v) the Interim Condensed Consolidated Statements of Cash Flows, and (vi) the Notes to Interim Condensed Consolidated Financial Statements, tagged as blocks of text and in detail.

 

* Filed herewith.

 

** Furnished herewith.

 

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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.  
   
By: /s/ Yehuda Holtzman  
Yehuda Holtzman, Chief Executive Officer  
(Principal Executive Officer)  
Dated: May 12, 2020  
   
By: /s/ Assaf Cohen  
Assaf Cohen, Chief Financial Officer  
(Principal Financial and Accounting Officer)  
Dated: May 12, 2020  

 

 

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Exhibit 3.1

 

AMENDED AND RESTATED ARTICLES OF INCORPORATION, AS AMENDED ON

APRIL 14, 2020

 

Amended and Restated

 

Articles of Association of

 

On Track Innovations Ltd.

 

A Company Limited by Shares

 

Under The Companies Law, 5759-1999

 

Chapter 1 General 1
Chapter 2 Shares and Share Capital 2
Chapter 3 General Meetings 5
Chapter 4 The Board of Directors 8
Chapter 5 Committees of the Board of Directors 11
Chapter 6 General Manager 11
Chapter 7 Exemption, Insurance, and Indemnification 11
Chapter 8 Internal Auditor 13
Chapter 9 Auditing Accountant 13
Chapter 10 Signing in the Company’s Name 13
Chapter 11 Dividend and Benefit Shares 13
Chapter 12 Accounts 14
Chapter 13 Notifications 14

 

 

 

 

1.   General

 

1.1 Name of Company.

 

The name of the Company is On Track Innovations Ltd. 

 

1.2 Goals of the Company.

 

The goal of the Company is to engage in any lawful business.

 

1.3 Interpretation

 

  1.3.1 Any statement in the singular shall also include the plural and vice versa; any statement in the masculine shall also include the feminine and vice versa.

 

  1.3.2 Except insofar as these Articles include special definitions of certain terms, any word and expression in these Articles shall have the meaning attributed thereto in the Companies Law, 5759-1999 (the “Companies Law”) unless this contradicts the written matter or the content thereof.

 

  1.3.3 To prevent doubt it is clarified that regarding matters regulated in the Companies Law in such manner that the arrangements in these matters may be conditioned in the Articles, and in cases in which these Articles do not include different provisions from those in the Companies Law, the provisions of the Companies Law shall apply.

 

  1.3.4 For the avoidance of doubt, the provisions of the Articles of Association of the Company as detailed below are in any event subject to the provisions of the Companies Law, the Securities Law, 5728-1968 (the “Securities Law”) and any other applicable law.

 

1.4 Limited Liability.

 

The liability of the shareholders for the Company’s debts shall be limited to the full amount (nominal value with the addition of premium) required to be paid to the Company for the shares and which has not yet been paid.

 

1.5 Donations.

 

The Company is entitled to donate a reasonable sum of money for a fit purpose. The Board of Directors of the Company is entitled to determine, at its discretion, rules for the making of donations by the Company.

 

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2.   Shares and Share Capital

 

2.1 Share Capital and Rights Attached to Shares

 

  2.1.1 The registered capital of the Company is NIS10,000,000, divided into100,000,000 ordinary shares with a nominal value of NIS 0.1 each.

 

  2.1.2 The ordinary shares shall entitle their owners to –

 

  2.1.2.1 An equal right to participate in and vote at the General Meetings of the Company, whether Annual Meetings or Extraordinary Meetings. Each of the shares in the Company shall entitle its owner present at the meeting and participating in the vote in person, by proxy, or by means of a voting deed, to one vote;

 

  2.1.2.2 An equal right to participate in the distribution of dividends, whether in cash or assets, benefit shares, or any other distribution, according to the proportionate nominal value of the shares held thereby;

 

  2.1.2.3 An equal right to participate in the distribution of the surplus assets of the Company in the event of its liquidation in accordance with the proportionate nominal value of the shares held thereby.

 

  2.1.3 The Board of Directors is entitled to issue shares and other convertible securities or securities that may be realized as shares up to the limit of the Company’s registered capital. For the purpose of calculating the limit of the registered capital, convertible securities or securities that may be realized as shares shall be considered to have been converted or realized as of their date of issue.

 

2.2 Share Certificates

 

  2.2.1 The owner of a share registered in the registry of shareholders is entitled to receive from the Company, without payment and within a period of three months following the allocation or the registration of transfer, one share certificate stamped with the Company’s stamp regarding all the shares registered in his name, which certificate shall detail the number of shares. In the event of a jointly owned share, the Company shall issue one share certificate for all the joint owners of the share, and the delivery of such a certificate to one of the partners shall be considered delivery to them all.

 

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Each share certificate shall bear the signature of at least one Director, together with the Company stamp or its printed name.

 

  2.2.2 A share certificate that has been defaced, destroyed, or lost may be renewed on the basis of such proof and guarantees as shall be required by the Company from time to time.

 

  2.2.3 Subject to the Companies Law, shares of the Company may be either certificated or uncertificated.

 

2.3 Reliefs relating to Shares that Have Not Been Fully Paid

 

  2.3.1 If any or all of the remuneration the shareholder undertook to pay the Company in return for his shares has not been paid by such date and on such conditions as established in the conditions for the allocation of his shares and/or in the payment request as stated in Article ‎2.3.2 below, the Company is entitled, by way of a decision of the Board of Directors, to forfeit the shares whose remuneration has not been fully paid. The forfeiture of shares shall take place provided that the Company has sent the shareholder written warning of its intention to forfeit the shares after at least 7 days from the date of receipt of the warning, insofar as payment shall not be made during the period determined in the letter of warning.

 

The Board of Directors is entitled, at any time prior to the date on which the forfeited share is sold, reallocated, or otherwise transferred, to nullify the forfeiture on such conditions as it shall see fit.

 

  2.3.2 If, in accordance with the conditions of allocation of the shares, there is no fixed date for the payment of any part of the price to be paid on account thereof, the Board of Directors is entitled, from time to time, to present payment requests to the shareholders on account of monies not yet removed for the shares they hold, and each shareholder shall be obliged to pay the Company the amount requested on the date determined as stated, provided that he shall receive prior notice of 14 days of the date and place of payment (a “Payment Request”). The notification shall specify that non-payment by or before the determined date and in the specified place may lead to the forfeiture of the shares regarding which payment is requested. A Payment Request may be nullified or postponed to another date, all as shall be decided by the Board of Directors.

 

  2.3.3 Unless otherwise determined in the conditions of allocations of the shares, a shareholder shall not be entitled to receive a dividend or to exercise any right as a shareholder on account of shares that have not yet been fully paid.

 

  2.3.4 Persons who are the joint owners of a share shall be liable jointly and severally for payment of the amounts due to the Company on account of the share.

 

  2.3.5 The content of this section shall not derogate from any other relief of the Company vis-à-vis a shareholder who fails to pay his debt to the Company on account of his shares.

 

2.4 Transfer of Shares

 

  2.4.1 The Company’s shares are transferable.

 

  2.4.2 The transfer of shares must be made in writing, and it shall be recorded in the registry of shareholders only if –

 

  2.4.2.1 A proper certificate for the transfer of shares, together with the certificates of the share intended for transfer, if such were issued, are delivered to the Company at its registered office. The certificate of transfer shall be drafted in such form approved by the Board of Directors and signed by the transferor and by a witness confirming the signature of the transferor. In the event of the transfer of shares that are not fully paid as of the date of transfer, the certificate of transfer shall also be signed by the recipient of the share and by a witness testifying to the signature of the recipient; or

 

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  2.4.2.2 A court order for the amendment of the registration shall be delivered to the Company; or

 

  2.4.2.3 It shall be proved to the Company that lawful conditions pertain for the transfer of the right to the share.

 

  2.4.3 The transfer of shares that have not been fully paid requires the authorization of the Board of Directors, which is entitled to refuse to grant its authorization at its absolute discretion and without stating grounds therefore.

 

  2.4.4 The recipient of the transfer shall be considered the shareholder regarding the transferred shares from the moment of the registration of his name in the registry of shareholders.

 

2.5 Changes in Capital

 

  2.5.1 The General Meeting is entitled to increase the Company’s registered share capital by creating new shares of an existing class or a new class, all as shall be determined in the decision of the General Meeting.

 

  2.5.2 Subject to the provisions of the Companies Law, the General Meeting is entitled to decrease the Company’s registered share capital or nullify registered share capital that has not yet been allocated (provided that there is no commitment, including a conditioned commitment, by the Company to allocate the shares).

 

  2.5.3 The General Meeting shall be entitled, subject to the provisions of any law:

 

  2.5.3.1 To unify and redivide its share capital, or any part thereof, into shares of a nominal value greater than the nominal value of the existing shares.

 

  2.5.3.2 To divide, by way of the redivision of any or all of the existing shares, its share capital into shares of a nominal value smaller than the nominal value of the existing shares.

 

  2.5.3.3 To reduce its share capital and any reserved fund for the repayment of capital in such manner and on such conditions and with the receipt of such authorization as shall be required by the Companies Law.

 

2.6 Changes in the Rights of Share Classes

 

  2.6.1 Unless otherwise stated in the conditions of issue of the shares, and subject to the provisions of any law, the rights of any share class may be changed following a decision of the Company’s Board of Directors, and with the authorization of the General Meeting of shareholders of that class. The provisions of the Company’s Articles of Association regarding General Meetings shall apply, mutatis mutandis, to a class meeting of class shareholders.

 

  2.6.2 The rights granted to the holders of shares of a specific class issued with special rights shall not be considered to have been changed by virtue of the creation or issue of additional shares of equal grade, unless otherwise conditioned in the conditions of issue of the said shares.

 

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2.7 Redeemable Securities

 

The Company is entitled, subject to any law, to issue redeemable securities on such conditions as shall be determined by the Board of Directors, provided that the General Meeting shall approve the recommendation of the Board of Directors and the conditions established thereby.

 

3.   General Meetings

 

3.1 Authorities of General Meeting

 

  3.1.1 Company decisions on the following matters shall be taken at the General Meeting –

 

  3.1.1.1 Changes to the Articles;

 

  3.1.1.2 Exercising vital authorities of the Board of Directors in the event that the Board of Directors is unable to perform its function;

 

  3.1.1.3 Appointment of the auditing accountant of the Company and the cessation of employment thereof;

 

  3.1.1.4 Appointment of Directors, including External Directors;

 

  3.1.1.5 Authorization of actions and transactions requiring the authorization of the General Meeting in accordance with the provisions of the Companies Law and any other law;

 

  3.1.1.6 Increasing and decreasing the registered share capital;

 

  3.1.1.7 Merger as defined in the Companies Law.

 

  3.1.2 Subject to the provisions of the law, the General Meeting is entitled to assume authorities granted to another organ in the Company, including the Board of Directors, for a particular matter or for a given period of time required under the circumstances.

 

If the General Meeting has assumed authorities granted to the Board of Directors in accordance with the Companies Law, the shareholders shall bear the same rights, obligations, and liability as apply to the Board of Directors regarding the exercising of those same authorities, as detailed in section 50 of the Companies Law, as this shall be amended from time to time.

 

3.2 Convening of General Meetings

 

  3.2.1 General meetings shall be convened at least once a year at such a venue and on such a date as shall be determined by the Board of Directors, and subject to the provisions of the law, but not later than 15 months after the previous General Meeting. These General Meetings shall be called “Annual Meetings.” The remaining meetings of the Company shall be called “Extraordinary Meetings.”

 

  3.2.2 The agenda at the Annual Meeting shall include discussion of the report of the Board of Directors and financial statements as required by law. The Annual Meeting shall appoint an auditing accountant; shall appoint the Directors to the extent required in accordance with these Articles; and shall discuss all other matters to be discussed at the Annual Meeting of the Company in accordance with these Articles or in accordance with the Companies Law, as well as any other matter as shall be determined by the Board of Directors.

 

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  3.2.3 The Board of Directors is entitled to convene an Extraordinary Meeting in accordance with its decision, and must convene a General Meeting if a written request is received from any of the following (a “Request to Convene”):

 

  3.2.3.1 Two Directors or one-fourth of the incumbent Directors;

 

  3.2.3.2 One or more shareholders holding at least five percent of the issued capital and at least one percent of the voting rights in the Company; or

 

  3.2.3.3 One or more shareholders holding at least five percent of the voting rights in the Company.

 

  3.2.4 Any Request to Convene must specify the goals for whose purpose the meeting is to be convened, and shall be signed by those requesting the convening and delivered at the Company’s registered office. The request may consist of a number of documents of identical format, each signed by one or more individuals making the request.

 

  3.2.5 A Board of Directors required to convene an Extraordinary Meeting shall proceed to convene such meeting within twenty-one days from the date on which the Request to Convene was submitted thereto, for a date determined in an invitation in accordance with Article ‎3.2.6 below and subject to any law.

 

  3.2.6 Notification of the members of the Company regarding the convening of a General Meeting shall be published or delivered to all the shareholders registered in the registry of shareholders in the Company in accordance with the requirements of the law. The notification shall include the agenda, the proposed decisions, and arrangements regarding voting in writing.

 

3.3 Discussion at General Meetings

 

  3.3.1 The discussion at the General Meeting shall be opened only if a legal quorum is present at the time the discussion begins. A legal quorum is the presence of at least two shareholders holding at least one-third of the voting rights (including presence by means of proxy or through a voting deed) within half an hour from the time specified for the opening of the meeting.

 

  3.3.2 If, at the end of half an hour from the time specified for the opening of the meeting, no legal quorum is present, the meeting shall be postponed by one week, to the same day, the same hour, and the same venue, or to a later date, if specified in the invitation to the meeting or in the notification of the meeting (the “Postponed Meeting”). Notification of a Postponed Meeting shall be made as stated in Article ‎3.2.6, mutatis mutandis, provided that notification and invitation regarding a Postponed Meeting postponed for a period of not more than 21 days shall be made not later than seventy-two hours prior to the Postponed Meeting.

 

  3.3.3 The legal quorum for commencing a Postponed Meeting shall be the presence of any two shareholders (including presence by means of proxy or through a voting deed).

 

  3.3.4 The chairperson of the Board of Directors shall serve as the chairperson of the General Meeting. If the chairperson of the Board of Directors is absent from the meeting after 15 minutes from the time specified for the meeting, or if he refuses to serve as the chairperson of the meeting, the chairperson shall be elected by the General Meeting.

 

  3.3.5 A General Meeting with a legal quorum is entitled to decide on the postponement of the meeting to another date and to such venue as shall be determined and, in this case, notifications and invitations to the Postponed Meeting shall be made as stated in Article ‎3.3.2 above.

 

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3.4 Voting at a General Meeting

 

  3.4.1 A shareholder in the Company shall be entitled to vote at General Meetings in person or by means of a proxy or a voting deed.

 

Shareholders entitled to participate in and vote at the General Meeting are the shareholders as of such date as shall be determined by the Board of Directors in the decision to convene the General Meeting, and subject to any law.

 

  3.4.2 In any vote, each shareholder shall have a number of votes equivalent to the number of shares in their possession entitling the holder to a vote.

 

  3.4.3 A decision at the General Meeting shall be taken by an ordinary majority unless another majority is determined in the Companies Law or in these Articles.

 

  3.4.4 The declaration by the chairperson of the meeting that a decision has been adopted unanimously or by a given majority, or rejected or not adopted by a given majority, shall constitute prima facie evidence of the content thereof.

 

  3.4.5 If the votes at the meeting are equally divided, the chairperson of the meeting shall not have an additional or casting opinion and the decision presented for voting shall be rejected.

 

  3.4.6 To the extent required by the Companies Law or otherwise resolved by the Board of Directors in its decision to convene the General Meeting, shareholders in the Company shall be entitled to vote on certain matters on the agenda of a General Meeting (including class meetings) by means of a voting deed.

 

  3.4.7 In order to be considered tantamount to presence at the meeting, including for the matter of the presence of the legal quorum, a voting deed, stating the manner of voting as set forth in the Companies Law, must be delivered to the Company by such date prescribed by the Board of Directors, or, if no such date has been prescribed, up to 72 hours prior to the time of commencement of the meeting.

 

  3.4.8 Appointment of a proxy shall be in writing, signed by the appointer (“Power of Attorney”). A corporation shall vote by means of its representatives, who shall be appointed in a document signed properly by the corporation (“Letter of Appointment.”)

 

  3.4.9 A vote in accordance with the conditions of a Power of Attorney shall be lawful even if the appointer dies before the voting, or becomes legally incompetent, is liquidated, becomes bankrupt, nullifies the Letter of Appointment, or transfers the share regarding which it was given, unless written notification is received at the Company’s office prior to the meeting that the shareholder has died, become legally incompetent, been liquidated, become bankrupt, or has nullified the Letter of Appointment or transferred the shares as stated. Unless a longer period of validity is specified within, no Power of Attorney shall be valid following the elapse of 12 months from its execution.

 

  3.4.10 The Letter of Appointment and the Power of Attorney, or a copy authorized by an attorney, shall be deposited at the Company’s registered offices at least 72 hours prior to the time determined for the meeting or for the Postponed Meeting at which the person mentioned in the document intends to vote in accordance therewith.

 

  3.4.11 A shareholder in the Company shall be entitled to vote at the Company’s meetings by means of several proxies appointed thereby, provided that each proxy shall be appointed on account of different sections of the shares held by the said shareholder. There shall be no impediment to each proxy as stated voting in a different manner in the Company’s meetings.

 

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  3.4.12 If a shareholder is legally incompetent, he is entitled to vote by means of his trustees, the recipient of his assets, his natural guardian or other legal guardian, and these are entitled to vote in person or by proxy or a voting deed.

 

  3.4.13 When two or more persons are the joint owners of a share, in a vote on any matter the vote of the person whose name is registered first in the registry of shareholders as the owner of that share shall be accepted, whether in person or by proxy, and he is entitled to deliver voting deeds to the Company.

 

4.   The Board of Directors

 

4.1 Authorities of the Board of Directors

 

The Board of Directors shall set the Company’s policy, supervise the execution of the functions and actions of the General Manager, and, within this, shall act and shall enjoy all the authorities detailed in section 92 of the Companies Law. In addition, any authority not granted in the Companies Law or in these Articles to another organ may be exercised by the Board of Directors, in addition to the authorities and functions of the Board of Directors in accordance with the content of any law.

 

4.2 Appointment of Board of Directors and Cessation of Office Thereof

 

  4.2.1 The number of Directors in the Company shall be determined from time to time by the Annual Meeting, provided that this shall not be fewer than 5 and not more than 10 Directors, including External Directors. The number of External Directors in the Company shall not be less than the number determined in the Companies Law.

 

  4.2.2 Other than External Directors (who shall be elected and serve in office in strict accordance with the provisions of the Companies Law), the Directors in the Company shall be elected at a General Meeting and shall serve in their office until the next General Meeting following three years from their election, or until they cease to serve in their office in accordance with the provisions of the Articles or any law, whichever is the earlier.

 

  4.2.3 In addition to the content of Article ‎4.2.2 above, the Board of Directors is entitled to appoint a Director in place of a Director, other than an External Director, whose position has become vacant, or appoint new additions to the Board of Directors up to the maximum number of Directors set forth in Article ‎4.2.1 above. The appointment of a Director by the Board of Directors shall remain valid through the next General Meeting at which Directors are being appointed or until the Director shall cease to serve in their office in accordance with the provisions of these Articles or of any law, whichever is the earlier.

 

  4.2.4 A Director whose period of office has expired may be reelected; an External Director may be reelected for additional periods of office in strict accordance with the provisions of the Companies Law.

 

  4.2.5 The office of a Director shall commence on the date of appointment or on a later date if so determined in the decision of appointment.

 

  4.2.6 The Board of Directors shall elect one of its members as the chairperson of the Board of Directors. The elected chairperson shall run the meetings of the Board of Directors and shall sign the minutes of the discussion. If no chairperson is elected, or if the chairperson of the Board of Directors is not present after 15 minutes from the time set for the meeting, the Directors present shall choose one of their number to serve as the chairperson at that meeting, and the chosen member shall run the meeting and sign the minutes of the discussion.

 

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  4.2.7 The chairperson of the Board of Directors shall not be the General Manager of the Company or a relative thereof unless the conditions stipulated in section 121(C) of the Companies Law apply.

 

  4.2.8 The General Meeting is entitled to remove any Director (other than an External Director) from their office prior to the end of the period of their office, whether the Director was appointed thereby in accordance with Article ‎4.2.2 above or was appointed by the Board of Directors in accordance with Article ‎4.2.3 above, provided that the Director shall be given a reasonable opportunity to state their case before the General Meeting.

 

  4.2.9 Any Director is entitled, with the agreement of the Board of Directors and subject to the provisions of the Companies Law, to appoint a substitute for themselves (a “Substitute Director”), provided that a person who is not competent shall not be appointed to serve as a Substitute Director, nor a person who has been appointed as a Substitute Director for another Director and/or a person who is already serving as a Director in the Company, and further provided that a Substitute Director must posses the same qualifications as required of the appointing Director.

 

The appointment or cessation of office of a Substitute Director shall be made in a written document signed by the Director who appointed him; in any case, however, the office of a Substitute Director shall be terminated if one of the cases stipulated in the paragraphs in Article ‎4.2.10 below shall apply, or if the office of the member of the Board of Directors for whom he serves as a substitute shall become vacant for any reason.

 

A Substitute Director is considered tantamount to a Director and all the legal provisions and the provisions of these Articles shall apply, with the exception of the provisions regarding the appointment and/or dismissal of a Director as established in these Articles.

 

  4.2.10 The office of a Director shall become vacant prior to expiration of his period of office in any of the following cases:

 

  4.2.10.1 He resigns from his office by means of a letter signed in his hand, submitted to the Company and detailing the reasons for his resignation;

 

  4.2.10.2 He is removed from his office by the General Meeting;

 

  4.2.10.3 He is convicted of an offense as stated in section 232 of the Companies Law;

  

  4.2.10.4 In accordance with the decision of the administrative enforcement committee, as stated in section 232A of the Companies Law;

 

  4.2.10.5 In accordance with a court decision as stated in section 233 of the Companies Law;

 

  4.2.10.6 He is declared legally incompetent;

 

  4.2.10.7 He is declared bankrupt and, if the Director is a corporation – it opted for voluntary liquidation or a liquidation order was issued against it.

 

  4.2.11 In the event that the position of a Director becomes vacant, the remaining Directors shall be entitled to continue to act, provided the number of Directors remaining shall not be less than the minimum number of Directors as stated above. If the number of Directors falls below the above-mentioned minimum number, the remaining Directors shall be entitled to act solely in order to fill the place of the Director that has become vacant as stated in Article ‎4.2.3 above, or in order to convene a General Meeting of the Company, and pending the convening of the General Meeting of the Company as stated they may act to manage the Company’s affairs solely in matters that cannot be delayed.

 

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  4.2.12 The conditions of office of the members of the Board of Directors shall be authorized in accordance with the provisions of the Companies Law.

 

4.3 Meetings of the Board of Directors

 

  4.3.1 The Board of Directors shall convene for a meeting in accordance with the needs of the Company, and at least once every three months.

 

  4.3.2 The chairperson of the Board of Directors is entitled to convene the Board at any time. In addition, the Board of Directors shall hold a meeting on such subject as shall be specified in the following cases:

 

  4.3.2.1 In accordance with the request of one Director;

 

  4.3.2.2 If a notification or report by the General Manager require an action on the part of the Board of Directors;

 

  4.3.2.3 If the auditing accountant has informed the chairperson of the Board of Directors – or, in the event that no chairperson was appointed for the Board of Directors, has informed the Board of Directors – of substantial defects in the accounting control of the Company.

 

  4.3.3 Notification of the meeting of the Board of Directors shall be delivered to all members of the Board a reasonable period of time (taking into account the circumstances and urgency of the matter) prior to the date of convening of the Board. Notification shall be delivered to the address of the Director as forwarded to the Company in advance, and shall stipulate the time of the meeting and the venue at which it shall convene, as well as reasonable detail of all subjects on the agenda.

 

Notwithstanding the above, the Board of Directors is entitled to convene a meeting without notification, in urgent matters, with the consent of the majority of the Directors.

 

  4.3.4 The agenda of the meetings of the Board of Directors shall be determined by the chairperson of the Board, or if no chairperson has been appointed the Directors convening the meeting, and shall include: Subjects determined by the chairperson of the Board; subjects deriving from the report of the General Manager and/or the auditing accountant; or any subject a Director or the General Manager have requested to be included on the agenda a reasonable period of time prior to the convening of the meeting of the Board.

 

  4.3.5 The legal quorum for the commencement of a meeting of the Board of Directors shall be at least a majority of number of Directors in office at the time of the meeting. If, within half an hour from the time set for the commencement of the meeting, no quorum is present, the meeting shall be postponed to another date as decided by the chairperson of the Board, or, in his absence, by the Directors present at the convened meeting, provided that reasonable prior notification be given to all Directors regarding the date of the Postponed Meeting. The legal quorum for the opening of a Postponed Meeting shall be any two Directors.

 

  4.3.6 The Board of Directors is entitled to hold meetings by use of any means of communication, providing that all the participating Directors can hear each other simultaneously.

 

  4.3.7 The Board of Directors is entitled to take decisions without actually convening, provided that all the Directors entitled to participate in the discussion and to vote on the subject brought for decision agree thereto. If decisions are made as stated in this section, the chairperson of the Board of Directors shall record minutes of the decisions stating the manner of voting of each Director on the subjects brought for decision, as well as the fact that all the Directors agreed to take the decision without convening.

 

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4.4 Voting on the Board of Directors

 

  4.4.1 Each Director shall have one vote when voting on the Board of Directors.

 

  4.4.2 Decisions of the Board of Directors shall be taken by a majority vote. The chairperson of the Board of Directors shall not have any additional or casting opinion, and in the event of a tie vote, the decision brought for voting shall be rejected.

 

5.   Committees of the Board of Directors

 

5.1 The Board of Directors is entitled to establish committees and to appoint members thereto (“Board’ Committee”). If Board’ Committees are established, the Board of Directors shall determine, in the conditions of empowerment thereof, whether specific authorities of the Board of Directors shall be delegated to the Board’ Committees, in such manner that the decision of the Board’ Committee shall be considered tantamount to a decision of the Board of Directors, or whether the decision of the Board’ Committee shall merely constitute a recommendation, subject to the authorization of the Board of Directors; provided that authorities to make decisions in the matters stated in Article 112 of the Companies Law shall not be delegated to a committee.

 

5.2 A person who is not a Director shall not serve in a Board’ Committee to which the Board of Directors has delegated authorities. Persons who are not members of the Board of Directors may serve in a Board’ Committee whose function is merely to advise or submit recommendations to the Board of Directors.

 

5.3 The provisions included in these Articles relating to the meetings of the Board of Directors and voting therein shall apply, mutatis mutandis and subject to the decisions of the Board of Directors regarding the procedures for the meetings (if any) of any Board’ Committee comprising two or more members.

 

6.   General Manager

 

6.1 The Board of Directors of the Company shall appoint one or more General Managers. The General Manager shall be responsible for the routine management of the Company’s affairs within the framework of the policy set by the Board of Directors and subject to its guidelines.

 

7.   Exemption, Insurance, and Indemnification

 

7.1 Exemption

 

Subject to the provisions of the Companies Law and the Securities Law, the Company hereby releases, in advance, its Office Holders from liability to the Company for damage that arises from the breach of the Office Holder’s duty of care to the Company.

 

7.2 Insurance

 

Subject to the provisions of the Companies Law and the Securities Law, the Company may enter into a contract for the insurance of the liability, in whole or in part, of an Office Holder, with respect to an obligation imposed on such Office Holder due to an act performed by him in his capacity as such, arising from any of the following:

 

  7.2.1 a breach of duty of care to the Company or to any other person;

 

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  7.2.2 a breach of the duty of loyalty to the Company provided that the Office Holder acted in good faith and had reasonable grounds to assume that the act would not harm the interests of the Company;

 

  7.2.3 a financial liability imposed on such Office Holder in favor of any other person, including in favor of an injured party as set forth in section 52LIV(a)(1)(a) of the Securities Law, as well as expenses, including reasonable litigation expenses and attorney’s fees, expended by an Office Holder or which were imposed on an Office Holder by a court in proceedings filed against the Office Holder under Chapters VIII’3, VIII’4 or IX’1 of the Securities Law; and

 

  7.2.4 any other incident for which it is or shall be permitted to insure the liability of an officer.

 

7.3 Indemnification

 

Subject to the provisions of the Companies Law and the Securities Law, the Company may undertake in advance to indemnify, or may indemnify retroactively, an Office Holder of the Company with respect to any of the following liabilities or expenses that arise from an act performed by the Office Holder by virtue of being an Office Holder of the Company:

 

  7.3.1 a financial liability imposed on an Office Holder in favor of another person by any judgment, including a judgment given as a result of a settlement or an arbitrator’s award which has been confirmed by a court, provided however that an undertaking to indemnify the Office Holder for such liabilities shall be restricted to those events that the Board may deem foreseeable in light of the Company’s actual activities, at the time of giving of such undertaking, and to a specific sum or a reasonable criterion under such circumstances as determined by the Board;

 

  7.3.2 reasonable litigation expenses, including attorney’s fees, incurred by him as a result of an investigation or proceeding instituted against him by an authority empowered to conduct an investigation or proceedings, which are concluded without the filing of an indictment against the Office Holder and without the levying of a monetary obligation in lieu of criminal proceedings upon the Office Holder, or which are concluded without the filing of an indictment against the Office Holder but with levying a monetary obligation in substitute of such criminal proceedings upon the Office Holder for a crime that does not require proof of criminal intent;

 

  7.3.3 reasonable litigation expenses, including attorney’s fees, expended by an Office Holder or which were imposed on an Office Holder by a court in proceedings filed against the Office Holder by the Company or in its name or by any other person or in a criminal charge on which the Office Holder was acquitted or in a criminal charge on which the Office Holder was convicted for an offense which did not require proof of criminal intent;

 

  7.3.4 a financial liability imposed on an Office Holder in favor of an injured party as set forth in section 52LIV(a)(1)(a) of the Securities Law, as well as expenses, including reasonable litigation expenses and attorney’s fees, expended by an Office Holder or which were imposed on an Office Holder by a court in proceedings filed against the Office Holder under Chapters VIII’3, VIII’4 or IX’1 of the Securities Law; and

 

  7.3.5 any other obligation or expense for which it is or shall be permitted to indemnify an officer.

 

7.4 The provisions of this ‎7 are not intended, and shall not be interpreted, to restrict the Company in any manner in respect of the procurement of insurance or in respect of indemnification (i) in connection with any person who is not an Office Holder, including, without limitation, any employee, agent, consultant or contractor of the Company who is not an Office Holder, or (ii) in connection with any Office Holder to the extent that such insurance and/or indemnification is not specifically prohibited under the Companies Law; provided that the procurement of any such insurance or the provision of any such indemnification shall be approved by the Board.

 

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7.5 Any modification of the provisions of this ‎7, and any amendment to the Companies Law, the Securities Law or any other applicable law, shall be prospective in effect and shall not affect the Company’s obligation or ability to indemnify an Office Holder for any act or omission occurring prior to such modification or amendment, unless otherwise provided by the Companies Law, the Securities Law or such applicable law.

 

8.   Internal Auditor

 

8.1 The Board of Directors of the Company shall appoint an internal auditor in accordance with the proposal of the audit committee. A person who is an interested party in the Company, an office holder therein, or the relative or either of the above, as well as the auditing accountant or any person on his behalf, shall not serve as an internal auditor in the Company.

 

8.2 The Board of Directors shall determine which office holder shall be organizationally accountable for the internal auditor and, in the absence of such determination; this shall be the chairperson of the Board of Directors.

 

8.3 The internal audit plan prepared by the auditor shall be submitted to the audit committee for authorization; however, the Board of Directors is permitted to determine that the plan shall be examined by the audit committee and submitted to the Board of Directors for authorization.

 

9.   Auditing Accountant

 

9.1 The General Meeting shall appoint an auditing accountant for the Company. The auditing accountant shall serve in office through the end of the following Annual Meeting, or for a longer period as determined by the Annual Meeting, provided that the period of office shall not be extended beyond the end of the third Annual Meeting following that at which the auditing accountant was appointed.

 

9.2 The fee of the auditing accountant for the auditing operations shall be determined by the General Meeting, which may delegate such authority to the Board of Directors.

 

10.   Signing in the Company’s Name

 

10.1 The rights to sign in the Company’s name shall be determined from time to time by the Board of Directors of the Company.

 

10.2 The Company’s authorized signatory shall do so together with the Company’s stamp, or alongside its printed name.

 

11.   Dividend and Benefit Shares

 

11.1 The decision by the Company to allocate a dividend and/or to allocate benefit shares shall be taken by the Company’s Board of Directors.

 

11.2 Unless determined otherwise by the Board of Directors, it shall be permitted to pay any dividend by way of check or payment order to be sent by mail in accordance with the registered address of the shareholder or the personal eligible thereto or, in the case of joint registered owners of the same share, to that shareholder whose name is mentioned first in the registry of shareholders with regard to the joint ownership. Any such check shall be made out to order of the person to whom it is sent. A receipt from a person whose name, as of the date of declaration of the dividend, is registered in the registry of shareholders as the owner of any share or, in the case of joint owners, of one of the joint owners, shall serve as authorization regarding all payments made in connection with that share and regarding which the receipt was received.

 

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11.3 For the purpose of executing any decision in accordance with the provisions of this section, the Board of Directors is entitled to resolve as it sees fit any difficulty that emerges regarding distribution of the dividend and/or the benefit shares, including determining the value for the purpose of the said division of certain assets, and to determine that payments in cash shall be made to members on the basis of the value so determined; to determine provisions regarding fractions of shares; or to determine that sums of less than NIS 50 shall not be paid to a shareholder.

 

12.   Accounts

 

12.1 The Company shall maintain accounts and shall prepare financial statements in accordance with the Companies Law.

 

12.2 The account ledgers shall be held at the Company’s registered offices or in any other place as the Directors shall see fit, and shall always be open for inspection by the Directors.

 

13.   Notifications

 

13.1 Subject to any law, a notification or any other document that shall be delivered by the Company, and which it is entitled or required to issue in accordance with the provisions of the Articles or any law, shall be delivered by the Company to any person in one of the following manners as decided by the Company in each individual case: (A) By dispatch by registered mail in a letter addressed in accordance with the registered address of that shareholder in the registry of shareholders, or in accordance with such address as stated by the shareholder in a letter to the Company as the letter for the delivery of notifications or other documents; (B) By dispatch by facsimile or other electronic form, in accordance with the number or address stated by the shareholder for the delivery of such notifications; or (C) By way of publication in applicable distribution site.

 

13.2 Any notification to be made to shareholders shall be made, regarding jointly owned shares, to that person whose name is mentioned first in the registry of shareholders as the holder of that share, and any notification made in this manner shall be sufficient notification for the holders of that share.

 

13.3 Any notification or other document sent in accordance with the provisions of Article ‎13 above shall be considered to have reached its destination: (A) Within 3 business days – if sent by registered mail in Israel; (B) On the first business day after its dispatch, if delivered by hand or sent by facsimile or other electronic method; or (C) On the date of publication on applicable distribution site.

 

In proving delivery, it shall be sufficient to prove that the letter sent by mail included the notification and that the document was addressed properly and was delivered to the post office as a letter bearing stamps, or as a registered letter bearing stamps, and, regarding a facsimile or other electronic method, it shall be sufficient to produce a dispatch confirmation sheet from the dispatching machine.

 

13.4 Any record made in an ordinary manner in the company’s registry shall be considered prima facie evidence of dispatch as recorded in that registry.

 

13.5 When it is necessary to provide prior notification of a certain number of days, or when notification is valid for a certain period, the date of delivery shall be included in reckoning the number of days or the period.

 

**************

 

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Exhibit 3.2

 

AMENDED AND RESTATED ARTICLES OF INCORPORATION, AS AMENDED ON

APRIL 14, 2020 (MARKED COPY)

 

Amended and Restated

 

Articles of Association of

 

On Track Innovations Ltd.

 

A Company Limited by Shares

 

Under The Companies Law, 5759-1999

 

Chapter 1 General 1
Chapter 2 Shares and Share Capital 2
Chapter 3 General Meetings 5
Chapter 4 The Board of Directors 8
Chapter 5 Committees of the Board of Directors 11
Chapter 6 General Manager 11
Chapter 7 Exemption, Insurance, and Indemnification 11
Chapter 8 Internal Auditor 13
Chapter 9 Auditing Accountant 13
Chapter 10 Signing in the Company’s Name 13
Chapter 11 Dividend and Benefit Shares 13
Chapter 12 Accounts 14
Chapter 13 Notifications 14

 

 

 

 

1.   General

 

1.1 Name of Company.

 

The name of the Company is On Track Innovations Ltd.

 

1.2 Goals of the Company.

 

The goal of the Company is to engage in any lawful business.

 

1.3 Interpretation

 

  1.3.1 Any statement in the singular shall also include the plural and vice versa; any statement in the masculine shall also include the feminine and vice versa.

 

  1.3.2 Except insofar as these Articles include special definitions of certain terms, any word and expression in these Articles shall have the meaning attributed thereto in the Companies Law, 5759-1999 (the “Companies Law”) unless this contradicts the written matter or the content thereof.

 

  1.3.3 To prevent doubt it is clarified that regarding matters regulated in the Companies Law in such manner that the arrangements in these matters may be conditioned in the Articles, and in cases in which these Articles do not include different provisions from those in the Companies Law, the provisions of the Companies Law shall apply.

 

  1.3.4 For the avoidance of doubt, the provisions of the Articles of Association of the Company as detailed below are in any event subject to the provisions of the Companies Law, the Securities Law, 5728-1968 (the “Securities Law”) and any other applicable law.

 

1.4 Limited Liability.

 

The liability of the shareholders for the Company’s debts shall be limited to the full amount (nominal value with the addition of premium) required to be paid to the Company for the shares and which has not yet been paid.

 

1.5 Donations.

 

The Company is entitled to donate a reasonable sum of money for a fit purpose. The Board of Directors of the Company is entitled to determine, at its discretion, rules for the making of donations by the Company.

 

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2.   Shares and Share Capital

 

2.1 Share Capital and Rights Attached to Shares

 

  2.1.1 The registered capital of the Company is NIS 5,000,00010,000,000, divided into 50,000,000100,000,000 ordinary shares with a nominal value of NIS 0.1 each.

 

  2.1.2 The ordinary shares shall entitle their owners to –

 

  2.1.2.1 An equal right to participate in and vote at the General Meetings of the Company, whether Annual Meetings or Extraordinary Meetings. Each of the shares in the Company shall entitle its owner present at the meeting and participating in the vote in person, by proxy, or by means of a voting deed, to one vote;

 

  2.1.2.2 An equal right to participate in the distribution of dividends, whether in cash or assets, benefit shares, or any other distribution, according to the proportionate nominal value of the shares held thereby;

 

  2.1.2.3 An equal right to participate in the distribution of the surplus assets of the Company in the event of its liquidation in accordance with the proportionate nominal value of the shares held thereby.

 

  2.1.3 The Board of Directors is entitled to issue shares and other convertible securities or securities that may be realized as shares up to the limit of the Company’s registered capital. For the purpose of calculating the limit of the registered capital, convertible securities or securities that may be realized as shares shall be considered to have been converted or realized as of their date of issue.

 

2.2 Share Certificates

 

  2.2.1 The owner of a share registered in the registry of shareholders is entitled to receive from the Company, without payment and within a period of three months following the allocation or the registration of transfer, one share certificate stamped with the Company’s stamp regarding all the shares registered in his name, which certificate shall detail the number of shares. In the event of a jointly owned share, the Company shall issue one share certificate for all the joint owners of the share, and the delivery of such a certificate to one of the partners shall be considered delivery to them all.

 

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Each share certificate shall bear the signature of at least one Director, together with the Company stamp or its printed name.

 

  2.2.2 A share certificate that has been defaced, destroyed, or lost may be renewed on the basis of such proof and guarantees as shall be required by the Company from time to time.

 

  2.2.3 Subject to the Companies Law, shares of the Company may be either certificated or uncertificated.

 

2.3 Reliefs relating to Shares that Have Not Been Fully Paid

 

  2.3.1 If any or all of the remuneration the shareholder undertook to pay the Company in return for his shares has not been paid by such date and on such conditions as established in the conditions for the allocation of his shares and/or in the payment request as stated in Article ‎2.3.2 below, the Company is entitled, by way of a decision of the Board of Directors, to forfeit the shares whose remuneration has not been fully paid. The forfeiture of shares shall take place provided that the Company has sent the shareholder written warning of its intention to forfeit the shares after at least 7 days from the date of receipt of the warning, insofar as payment shall not be made during the period determined in the letter of warning.

 

The Board of Directors is entitled, at any time prior to the date on which the forfeited share is sold, reallocated, or otherwise transferred, to nullify the forfeiture on such conditions as it shall see fit.

 

  2.3.2 If, in accordance with the conditions of allocation of the shares, there is no fixed date for the payment of any part of the price to be paid on account thereof, the Board of Directors is entitled, from time to time, to present payment requests to the shareholders on account of monies not yet removed for the shares they hold, and each shareholder shall be obliged to pay the Company the amount requested on the date determined as stated, provided that he shall receive prior notice of 14 days of the date and place of payment (a “Payment Request”). The notification shall specify that non-payment by or before the determined date and in the specified place may lead to the forfeiture of the shares regarding which payment is requested. A Payment Request may be nullified or postponed to another date, all as shall be decided by the Board of Directors.

 

  2.3.3 Unless otherwise determined in the conditions of allocations of the shares, a shareholder shall not be entitled to receive a dividend or to exercise any right as a shareholder on account of shares that have not yet been fully paid.

 

  2.3.4 Persons who are the joint owners of a share shall be liable jointly and severally for payment of the amounts due to the Company on account of the share.

 

  2.3.5 The content of this section shall not derogate from any other relief of the Company vis-à-vis a shareholder who fails to pay his debt to the Company on account of his shares.

 

2.4 Transfer of Shares

 

  2.4.1 The Company’s shares are transferable.

 

  2.4.2 The transfer of shares must be made in writing, and it shall be recorded in the registry of shareholders only if –

 

  2.4.2.1 A proper certificate for the transfer of shares, together with the certificates of the share intended for transfer, if such were issued, are delivered to the Company at its registered office. The certificate of transfer shall be drafted in such form approved by the Board of Directors and signed by the transferor and by a witness confirming the signature of the transferor. In the event of the transfer of shares that are not fully paid as of the date of transfer, the certificate of transfer shall also be signed by the recipient of the share and by a witness testifying to the signature of the recipient; or

 

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  2.4.2.2 A court order for the amendment of the registration shall be delivered to the Company; or

 

  2.4.2.3 It shall be proved to the Company that lawful conditions pertain for the transfer of the right to the share.

 

  2.4.3 The transfer of shares that have not been fully paid requires the authorization of the Board of Directors, which is entitled to refuse to grant its authorization at its absolute discretion and without stating grounds therefore.

 

  2.4.4 The recipient of the transfer shall be considered the shareholder regarding the transferred shares from the moment of the registration of his name in the registry of shareholders.

 

2.5 Changes in Capital

 

  2.5.1 The General Meeting is entitled to increase the Company’s registered share capital by creating new shares of an existing class or a new class, all as shall be determined in the decision of the General Meeting.

 

  2.5.2 Subject to the provisions of the Companies Law, the General Meeting is entitled to decrease the Company’s registered share capital or nullify registered share capital that has not yet been allocated (provided that there is no commitment, including a conditioned commitment, by the Company to allocate the shares).

 

  2.5.3 The General Meeting shall be entitled, subject to the provisions of any law:

 

  2.5.3.1 To unify and redivide its share capital, or any part thereof, into shares of a nominal value greater than the nominal value of the existing shares.

 

  2.5.3.2 To divide, by way of the redivision of any or all of the existing shares, its share capital into shares of a nominal value smaller than the nominal value of the existing shares.

 

  2.5.3.3 To reduce its share capital and any reserved fund for the repayment of capital in such manner and on such conditions and with the receipt of such authorization as shall be required by the Companies Law.

 

2.6 Changes in the Rights of Share Classes

 

  2.6.1 Unless otherwise stated in the conditions of issue of the shares, and subject to the provisions of any law, the rights of any share class may be changed following a decision of the Company’s Board of Directors, and with the authorization of the General Meeting of shareholders of that class. The provisions of the Company’s Articles of Association regarding General Meetings shall apply, mutatis mutandis, to a class meeting of class shareholders.

 

  2.6.2 The rights granted to the holders of shares of a specific class issued with special rights shall not be considered to have been changed by virtue of the creation or issue of additional shares of equal grade, unless otherwise conditioned in the conditions of issue of the said shares.

 

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2.7 Redeemable Securities

 

The Company is entitled, subject to any law, to issue redeemable securities on such conditions as shall be determined by the Board of Directors, provided that the General Meeting shall approve the recommendation of the Board of Directors and the conditions established thereby.

 

3.   General Meetings

 

3.1 Authorities of General Meeting

 

  3.1.1 Company decisions on the following matters shall be taken at the General Meeting –

 

  3.1.1.1 Changes to the Articles;

 

  3.1.1.2 Exercising vital authorities of the Board of Directors in the event that the Board of Directors is unable to perform its function;

 

  3.1.1.3 Appointment of the auditing accountant of the Company and the cessation of employment thereof;

 

  3.1.1.4 Appointment of Directors, including External Directors;

 

  3.1.1.5 Authorization of actions and transactions requiring the authorization of the General Meeting in accordance with the provisions of the Companies Law and any other law;

 

  3.1.1.6 Increasing and decreasing the registered share capital;

 

  3.1.1.7 Merger as defined in the Companies Law.

 

  3.1.2 Subject to the provisions of the law, the General Meeting is entitled to assume authorities granted to another organ in the Company, including the Board of Directors, for a particular matter or for a given period of time required under the circumstances.

 

If the General Meeting has assumed authorities granted to the Board of Directors in accordance with the Companies Law, the shareholders shall bear the same rights, obligations, and liability as apply to the Board of Directors regarding the exercising of those same authorities, as detailed in section 50 of the Companies Law, as this shall be amended from time to time.

 

3.2 Convening of General Meetings

 

  3.2.1 General meetings shall be convened at least once a year at such a venue and on such a date as shall be determined by the Board of Directors, and subject to the provisions of the law, but not later than 15 months after the previous General Meeting. These General Meetings shall be called “Annual Meetings.” The remaining meetings of the Company shall be called “Extraordinary Meetings.”

 

  3.2.2 The agenda at the Annual Meeting shall include discussion of the report of the Board of Directors and financial statements as required by law. The Annual Meeting shall appoint an auditing accountant; shall appoint the Directors to the extent required in accordance with these Articles; and shall discuss all other matters to be discussed at the Annual Meeting of the Company in accordance with these Articles or in accordance with the Companies Law, as well as any other matter as shall be determined by the Board of Directors.

 

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  3.2.3 The Board of Directors is entitled to convene an Extraordinary Meeting in accordance with its decision, and must convene a General Meeting if a written request is received from any of the following (a “Request to Convene”):

 

  3.2.3.1 Two Directors or one-fourth of the incumbent Directors;

 

  3.2.3.2 One or more shareholders holding at least five percent of the issued capital and at least one percent of the voting rights in the Company; or

 

  3.2.3.3 One or more shareholders holding at least five percent of the voting rights in the Company.

 

  3.2.4 Any Request to Convene must specify the goals for whose purpose the meeting is to be convened, and shall be signed by those requesting the convening and delivered at the Company’s registered office. The request may consist of a number of documents of identical format, each signed by one or more individuals making the request.

 

  3.2.5 A Board of Directors required to convene an Extraordinary Meeting shall proceed to convene such meeting within twenty-one days from the date on which the Request to Convene was submitted thereto, for a date determined in an invitation in accordance with Article ‎3.2.6 below and subject to any law.

 

  3.2.6 Notification of the members of the Company regarding the convening of a General Meeting shall be published or delivered to all the shareholders registered in the registry of shareholders in the Company in accordance with the requirements of the law. The notification shall include the agenda, the proposed decisions, and arrangements regarding voting in writing.

 

3.3 Discussion at General Meetings

 

  3.3.1 The discussion at the General Meeting shall be opened only if a legal quorum is present at the time the discussion begins. A legal quorum is the presence of at least two shareholders holding at least one-third of the voting rights (including presence by means of proxy or through a voting deed) within half an hour from the time specified for the opening of the meeting.

 

  3.3.2 If, at the end of half an hour from the time specified for the opening of the meeting, no legal quorum is present, the meeting shall be postponed by one week, to the same day, the same hour, and the same venue, or to a later date, if specified in the invitation to the meeting or in the notification of the meeting (the “Postponed Meeting”). Notification of a Postponed Meeting shall be made as stated in Article ‎3.2.6, mutatis mutandis, provided that notification and invitation regarding a Postponed Meeting postponed for a period of not more than 21 days shall be made not later than seventy-two hours prior to the Postponed Meeting.

 

  3.3.3 The legal quorum for commencing a Postponed Meeting shall be the presence of any two shareholders (including presence by means of proxy or through a voting deed).

 

  3.3.4 The chairperson of the Board of Directors shall serve as the chairperson of the General Meeting. If the chairperson of the Board of Directors is absent from the meeting after 15 minutes from the time specified for the meeting, or if he refuses to serve as the chairperson of the meeting, the chairperson shall be elected by the General Meeting.

 

  3.3.5 A General Meeting with a legal quorum is entitled to decide on the postponement of the meeting to another date and to such venue as shall be determined and, in this case, notifications and invitations to the Postponed Meeting shall be made as stated in Article ‎3.3.2 above.

 

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3.4 Voting at a General Meeting

 

  3.4.1 A shareholder in the Company shall be entitled to vote at General Meetings in person or by means of a proxy or a voting deed.

 

Shareholders entitled to participate in and vote at the General Meeting are the shareholders as of such date as shall be determined by the Board of Directors in the decision to convene the General Meeting, and subject to any law.

 

  3.4.2 In any vote, each shareholder shall have a number of votes equivalent to the number of shares in their possession entitling the holder to a vote.

 

  3.4.3 A decision at the General Meeting shall be taken by an ordinary majority unless another majority is determined in the Companies Law or in these Articles.

 

  3.4.4 The declaration by the chairperson of the meeting that a decision has been adopted unanimously or by a given majority, or rejected or not adopted by a given majority, shall constitute prima facie evidence of the content thereof.

 

  3.4.5 If the votes at the meeting are equally divided, the chairperson of the meeting shall not have an additional or casting opinion and the decision presented for voting shall be rejected.

 

  3.4.6 To the extent required by the Companies Law or otherwise resolved by the Board of Directors in its decision to convene the General Meeting, shareholders in the Company shall be entitled to vote on certain matters on the agenda of a General Meeting (including class meetings) by means of a voting deed.

 

  3.4.7 In order to be considered tantamount to presence at the meeting, including for the matter of the presence of the legal quorum, a voting deed, stating the manner of voting as set forth in the Companies Law, must be delivered to the Company by such date prescribed by the Board of Directors, or, if no such date has been prescribed, up to 72 hours prior to the time of commencement of the meeting.

 

  3.4.8 Appointment of a proxy shall be in writing, signed by the appointer (“Power of Attorney”). A corporation shall vote by means of its representatives, who shall be appointed in a document signed properly by the corporation (“Letter of Appointment.”)

 

  3.4.9 A vote in accordance with the conditions of a Power of Attorney shall be lawful even if the appointer dies before the voting, or becomes legally incompetent, is liquidated, becomes bankrupt, nullifies the Letter of Appointment, or transfers the share regarding which it was given, unless written notification is received at the Company’s office prior to the meeting that the shareholder has died, become legally incompetent, been liquidated, become bankrupt, or has nullified the Letter of Appointment or transferred the shares as stated. Unless a longer period of validity is specified within, no Power of Attorney shall be valid following the elapse of 12 months from its execution.

 

  3.4.10 The Letter of Appointment and the Power of Attorney, or a copy authorized by an attorney, shall be deposited at the Company’s registered offices at least 72 hours prior to the time determined for the meeting or for the Postponed Meeting at which the person mentioned in the document intends to vote in accordance therewith.

 

  3.4.11 A shareholder in the Company shall be entitled to vote at the Company’s meetings by means of several proxies appointed thereby, provided that each proxy shall be appointed on account of different sections of the shares held by the said shareholder. There shall be no impediment to each proxy as stated voting in a different manner in the Company’s meetings.

 

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  3.4.12 If a shareholder is legally incompetent, he is entitled to vote by means of his trustees, the recipient of his assets, his natural guardian or other legal guardian, and these are entitled to vote in person or by proxy or a voting deed.

 

  3.4.13 When two or more persons are the joint owners of a share, in a vote on any matter the vote of the person whose name is registered first in the registry of shareholders as the owner of that share shall be accepted, whether in person or by proxy, and he is entitled to deliver voting deeds to the Company.

 

4.   The Board of Directors

 

4.1 Authorities of the Board of Directors

 

The Board of Directors shall set the Company’s policy, supervise the execution of the functions and actions of the General Manager, and, within this, shall act and shall enjoy all the authorities detailed in section 92 of the Companies Law. In addition, any authority not granted in the Companies Law or in these Articles to another organ may be exercised by the Board of Directors, in addition to the authorities and functions of the Board of Directors in accordance with the content of any law.

 

4.2 Appointment of Board of Directors and Cessation of Office Thereof

 

  4.2.1 The number of Directors in the Company shall be determined from time to time by the Annual Meeting, provided that this shall not be fewer than 5 and not more than 10 Directors, including External Directors. The number of External Directors in the Company shall not be less than the number determined in the Companies Law.

 

  4.2.2 Other than External Directors (who shall be elected and serve in office in strict accordance with the provisions of the Companies Law), the Directors in the Company shall be elected at a General Meeting and shall serve in their office until the next General Meeting following three years from their election, or until they cease to serve in their office in accordance with the provisions of the Articles or any law, whichever is the earlier.

 

  4.2.3 In addition to the content of Article ‎4.2.2 above, the Board of Directors is entitled to appoint a Director in place of a Director, other than an External Director, whose position has become vacant, or appoint new additions to the Board of Directors up to the maximum number of Directors set forth in Article ‎4.2.1 above. The appointment of a Director by the Board of Directors shall remain valid through the next General Meeting at which Directors are being appointed or until the Director shall cease to serve in their office in accordance with the provisions of these Articles or of any law, whichever is the earlier.

 

  4.2.4 A Director whose period of office has expired may be reelected; an External Director may be reelected for additional periods of office in strict accordance with the provisions of the Companies Law.

 

  4.2.5 The office of a Director shall commence on the date of appointment or on a later date if so determined in the decision of appointment.

 

  4.2.6 The Board of Directors shall elect one of its members as the chairperson of the Board of Directors. The elected chairperson shall run the meetings of the Board of Directors and shall sign the minutes of the discussion. If no chairperson is elected, or if the chairperson of the Board of Directors is not present after 15 minutes from the time set for the meeting, the Directors present shall choose one of their number to serve as the chairperson at that meeting, and the chosen member shall run the meeting and sign the minutes of the discussion.

 

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  4.2.7 The chairperson of the Board of Directors shall not be the General Manager of the Company or a relative thereof unless the conditions stipulated in section 121(C) of the Companies Law apply.

 

  4.2.8 The General Meeting is entitled to remove any Director (other than an External Director) from their office prior to the end of the period of their office, whether the Director was appointed thereby in accordance with Article ‎4.2.2 above or was appointed by the Board of Directors in accordance with Article ‎4.2.3 above, provided that the Director shall be given a reasonable opportunity to state their case before the General Meeting.

 

  4.2.9 Any Director is entitled, with the agreement of the Board of Directors and subject to the provisions of the Companies Law, to appoint a substitute for themselves (a “Substitute Director”), provided that a person who is not competent shall not be appointed to serve as a Substitute Director, nor a person who has been appointed as a Substitute Director for another Director and/or a person who is already serving as a Director in the Company, and further provided that a Substitute Director must posses the same qualifications as required of the appointing Director.

 

The appointment or cessation of office of a Substitute Director shall be made in a written document signed by the Director who appointed him; in any case, however, the office of a Substitute Director shall be terminated if one of the cases stipulated in the paragraphs in Article ‎4.2.10 below shall apply, or if the office of the member of the Board of Directors for whom he serves as a substitute shall become vacant for any reason.

 

A Substitute Director is considered tantamount to a Director and all the legal provisions and the provisions of these Articles shall apply, with the exception of the provisions regarding the appointment and/or dismissal of a Director as established in these Articles.

 

  4.2.10 The office of a Director shall become vacant prior to expiration of his period of office in any of the following cases:

 

  4.2.10.1 He resigns from his office by means of a letter signed in his hand, submitted to the Company and detailing the reasons for his resignation;

 

  4.2.10.2 He is removed from his office by the General Meeting;

 

  4.2.10.3 He is convicted of an offense as stated in section 232 of the Companies Law;

  

  4.2.10.4 In accordance with the decision of the administrative enforcement committee, as stated in section 232A of the Companies Law;

 

  4.2.10.5 In accordance with a court decision as stated in section 233 of the Companies Law;

 

  4.2.10.6 He is declared legally incompetent;

 

  4.2.10.7 He is declared bankrupt and, if the Director is a corporation – it opted for voluntary liquidation or a liquidation order was issued against it.

 

  4.2.11 In the event that the position of a Director becomes vacant, the remaining Directors shall be entitled to continue to act, provided the number of Directors remaining shall not be less than the minimum number of Directors as stated above. If the number of Directors falls below the above-mentioned minimum number, the remaining Directors shall be entitled to act solely in order to fill the place of the Director that has become vacant as stated in Article ‎4.2.3 above, or in order to convene a General Meeting of the Company, and pending the convening of the General Meeting of the Company as stated they may act to manage the Company’s affairs solely in matters that cannot be delayed.

 

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  4.2.12 The conditions of office of the members of the Board of Directors shall be authorized in accordance with the provisions of the Companies Law.

 

4.3 Meetings of the Board of Directors

 

  4.3.1 The Board of Directors shall convene for a meeting in accordance with the needs of the Company, and at least once every three months.

 

  4.3.2 The chairperson of the Board of Directors is entitled to convene the Board at any time. In addition, the Board of Directors shall hold a meeting on such subject as shall be specified in the following cases:

 

  4.3.2.1 In accordance with the request of one Director;

 

  4.3.2.2 If a notification or report by the General Manager require an action on the part of the Board of Directors;

 

  4.3.2.3 If the auditing accountant has informed the chairperson of the Board of Directors – or, in the event that no chairperson was appointed for the Board of Directors, has informed the Board of Directors – of substantial defects in the accounting control of the Company.

 

  4.3.3 Notification of the meeting of the Board of Directors shall be delivered to all members of the Board a reasonable period of time (taking into account the circumstances and urgency of the matter) prior to the date of convening of the Board. Notification shall be delivered to the address of the Director as forwarded to the Company in advance, and shall stipulate the time of the meeting and the venue at which it shall convene, as well as reasonable detail of all subjects on the agenda.

 

Notwithstanding the above, the Board of Directors is entitled to convene a meeting without notification, in urgent matters, with the consent of the majority of the Directors.

 

  4.3.4 The agenda of the meetings of the Board of Directors shall be determined by the chairperson of the Board, or if no chairperson has been appointed the Directors convening the meeting, and shall include: Subjects determined by the chairperson of the Board; subjects deriving from the report of the General Manager and/or the auditing accountant; or any subject a Director or the General Manager have requested to be included on the agenda a reasonable period of time prior to the convening of the meeting of the Board.

 

  4.3.5 The legal quorum for the commencement of a meeting of the Board of Directors shall be at least a majority of number of Directors in office at the time of the meeting. If, within half an hour from the time set for the commencement of the meeting, no quorum is present, the meeting shall be postponed to another date as decided by the chairperson of the Board, or, in his absence, by the Directors present at the convened meeting, provided that reasonable prior notification be given to all Directors regarding the date of the Postponed Meeting. The legal quorum for the opening of a Postponed Meeting shall be any two Directors.

 

  4.3.6 The Board of Directors is entitled to hold meetings by use of any means of communication, providing that all the participating Directors can hear each other simultaneously.

 

  4.3.7 The Board of Directors is entitled to take decisions without actually convening, provided that all the Directors entitled to participate in the discussion and to vote on the subject brought for decision agree thereto. If decisions are made as stated in this section, the chairperson of the Board of Directors shall record minutes of the decisions stating the manner of voting of each Director on the subjects brought for decision, as well as the fact that all the Directors agreed to take the decision without convening.

 

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4.4 Voting on the Board of Directors

 

  4.4.1 Each Director shall have one vote when voting on the Board of Directors.

 

  4.4.2 Decisions of the Board of Directors shall be taken by a majority vote. The chairperson of the Board of Directors shall not have any additional or casting opinion, and in the event of a tie vote, the decision brought for voting shall be rejected.

 

5.   Committees of the Board of Directors

 

5.1 The Board of Directors is entitled to establish committees and to appoint members thereto (“Board’ Committee”). If Board’ Committees are established, the Board of Directors shall determine, in the conditions of empowerment thereof, whether specific authorities of the Board of Directors shall be delegated to the Board’ Committees, in such manner that the decision of the Board’ Committee shall be considered tantamount to a decision of the Board of Directors, or whether the decision of the Board’ Committee shall merely constitute a recommendation, subject to the authorization of the Board of Directors; provided that authorities to make decisions in the matters stated in Article 112 of the Companies Law shall not be delegated to a committee.

 

5.2 A person who is not a Director shall not serve in a Board’ Committee to which the Board of Directors has delegated authorities. Persons who are not members of the Board of Directors may serve in a Board’ Committee whose function is merely to advise or submit recommendations to the Board of Directors.

 

5.3 The provisions included in these Articles relating to the meetings of the Board of Directors and voting therein shall apply, mutatis mutandis and subject to the decisions of the Board of Directors regarding the procedures for the meetings (if any) of any Board’ Committee comprising two or more members.

 

6.   General Manager

 

6.1 The Board of Directors of the Company shall appoint one or more General Managers. The General Manager shall be responsible for the routine management of the Company’s affairs within the framework of the policy set by the Board of Directors and subject to its guidelines.

 

7.   Exemption, Insurance, and Indemnification

 

7.1 Exemption

 

Subject to the provisions of the Companies Law and the Securities Law, the Company hereby releases, in advance, its Office Holders from liability to the Company for damage that arises from the breach of the Office Holder’s duty of care to the Company.

 

7.2 Insurance

 

Subject to the provisions of the Companies Law and the Securities Law, the Company may enter into a contract for the insurance of the liability, in whole or in part, of an Office Holder, with respect to an obligation imposed on such Office Holder due to an act performed by him in his capacity as such, arising from any of the following:

 

  7.2.1 a breach of duty of care to the Company or to any other person;

 

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  7.2.2 a breach of the duty of loyalty to the Company provided that the Office Holder acted in good faith and had reasonable grounds to assume that the act would not harm the interests of the Company;

 

  7.2.3 a financial liability imposed on such Office Holder in favor of any other person, including in favor of an injured party as set forth in section 52LIV(a)(1)(a) of the Securities Law, as well as expenses, including reasonable litigation expenses and attorney’s fees, expended by an Office Holder or which were imposed on an Office Holder by a court in proceedings filed against the Office Holder under Chapters VIII’3, VIII’4 or IX’1 of the Securities Law; and

 

  7.2.4 any other incident for which it is or shall be permitted to insure the liability of an officer.

 

7.3 Indemnification

 

Subject to the provisions of the Companies Law and the Securities Law, the Company may undertake in advance to indemnify, or may indemnify retroactively, an Office Holder of the Company with respect to any of the following liabilities or expenses that arise from an act performed by the Office Holder by virtue of being an Office Holder of the Company:

 

  7.3.1 a financial liability imposed on an Office Holder in favor of another person by any judgment, including a judgment given as a result of a settlement or an arbitrator’s award which has been confirmed by a court, provided however that an undertaking to indemnify the Office Holder for such liabilities shall be restricted to those events that the Board may deem foreseeable in light of the Company’s actual activities, at the time of giving of such undertaking, and to a specific sum or a reasonable criterion under such circumstances as determined by the Board;

 

  7.3.2 reasonable litigation expenses, including attorney’s fees, incurred by him as a result of an investigation or proceeding instituted against him by an authority empowered to conduct an investigation or proceedings, which are concluded without the filing of an indictment against the Office Holder and without the levying of a monetary obligation in lieu of criminal proceedings upon the Office Holder, or which are concluded without the filing of an indictment against the Office Holder but with levying a monetary obligation in substitute of such criminal proceedings upon the Office Holder for a crime that does not require proof of criminal intent;

 

  7.3.3 reasonable litigation expenses, including attorney’s fees, expended by an Office Holder or which were imposed on an Office Holder by a court in proceedings filed against the Office Holder by the Company or in its name or by any other person or in a criminal charge on which the Office Holder was acquitted or in a criminal charge on which the Office Holder was convicted for an offense which did not require proof of criminal intent;

 

  7.3.4 a financial liability imposed on an Office Holder in favor of an injured party as set forth in section 52LIV(a)(1)(a) of the Securities Law, as well as expenses, including reasonable litigation expenses and attorney’s fees, expended by an Office Holder or which were imposed on an Office Holder by a court in proceedings filed against the Office Holder under Chapters VIII’3, VIII’4 or IX’1 of the Securities Law; and

 

  7.3.5 any other obligation or expense for which it is or shall be permitted to indemnify an officer.

 

7.4 The provisions of this ‎7 are not intended, and shall not be interpreted, to restrict the Company in any manner in respect of the procurement of insurance or in respect of indemnification (i) in connection with any person who is not an Office Holder, including, without limitation, any employee, agent, consultant or contractor of the Company who is not an Office Holder, or (ii) in connection with any Office Holder to the extent that such insurance and/or indemnification is not specifically prohibited under the Companies Law; provided that the procurement of any such insurance or the provision of any such indemnification shall be approved by the Board.

 

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7.5 Any modification of the provisions of this ‎7, and any amendment to the Companies Law, the Securities Law or any other applicable law, shall be prospective in effect and shall not affect the Company’s obligation or ability to indemnify an Office Holder for any act or omission occurring prior to such modification or amendment, unless otherwise provided by the Companies Law, the Securities Law or such applicable law.

 

8.   Internal Auditor

 

8.1 The Board of Directors of the Company shall appoint an internal auditor in accordance with the proposal of the audit committee. A person who is an interested party in the Company, an office holder therein, or the relative or either of the above, as well as the auditing accountant or any person on his behalf, shall not serve as an internal auditor in the Company.

 

8.2 The Board of Directors shall determine which office holder shall be organizationally accountable for the internal auditor and, in the absence of such determination; this shall be the chairperson of the Board of Directors.

 

8.3 The internal audit plan prepared by the auditor shall be submitted to the audit committee for authorization; however, the Board of Directors is permitted to determine that the plan shall be examined by the audit committee and submitted to the Board of Directors for authorization.

 

9.   Auditing Accountant

 

9.1 The General Meeting shall appoint an auditing accountant for the Company. The auditing accountant shall serve in office through the end of the following Annual Meeting, or for a longer period as determined by the Annual Meeting, provided that the period of office shall not be extended beyond the end of the third Annual Meeting following that at which the auditing accountant was appointed.

 

9.2 The fee of the auditing accountant for the auditing operations shall be determined by the General Meeting, which may delegate such authority to the Board of Directors.

 

10.   Signing in the Company’s Name

 

10.1 The rights to sign in the Company’s name shall be determined from time to time by the Board of Directors of the Company.

 

10.2 The Company’s authorized signatory shall do so together with the Company’s stamp, or alongside its printed name.

 

11.   Dividend and Benefit Shares

 

11.1 The decision by the Company to allocate a dividend and/or to allocate benefit shares shall be taken by the Company’s Board of Directors.

 

11.2 Unless determined otherwise by the Board of Directors, it shall be permitted to pay any dividend by way of check or payment order to be sent by mail in accordance with the registered address of the shareholder or the personal eligible thereto or, in the case of joint registered owners of the same share, to that shareholder whose name is mentioned first in the registry of shareholders with regard to the joint ownership. Any such check shall be made out to order of the person to whom it is sent. A receipt from a person whose name, as of the date of declaration of the dividend, is registered in the registry of shareholders as the owner of any share or, in the case of joint owners, of one of the joint owners, shall serve as authorization regarding all payments made in connection with that share and regarding which the receipt was received.

 

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11.3 For the purpose of executing any decision in accordance with the provisions of this section, the Board of Directors is entitled to resolve as it sees fit any difficulty that emerges regarding distribution of the dividend and/or the benefit shares, including determining the value for the purpose of the said division of certain assets, and to determine that payments in cash shall be made to members on the basis of the value so determined; to determine provisions regarding fractions of shares; or to determine that sums of less than NIS 50 shall not be paid to a shareholder.

 

12.   Accounts

 

12.1 The Company shall maintain accounts and shall prepare financial statements in accordance with the Companies Law.

 

12.2 The account ledgers shall be held at the Company’s registered offices or in any other place as the Directors shall see fit, and shall always be open for inspection by the Directors.

 

13.   Notifications

 

13.1 Subject to any law, a notification or any other document that shall be delivered by the Company, and which it is entitled or required to issue in accordance with the provisions of the Articles or any law, shall be delivered by the Company to any person in one of the following manners as decided by the Company in each individual case: (A) By dispatch by registered mail in a letter addressed in accordance with the registered address of that shareholder in the registry of shareholders, or in accordance with such address as stated by the shareholder in a letter to the Company as the letter for the delivery of notifications or other documents; (B) By dispatch by facsimile or other electronic form, in accordance with the number or address stated by the shareholder for the delivery of such notifications; or (C) By way of publication in applicable distribution site.

 

13.2 Any notification to be made to shareholders shall be made, regarding jointly owned shares, to that person whose name is mentioned first in the registry of shareholders as the holder of that share, and any notification made in this manner shall be sufficient notification for the holders of that share.

 

13.3 Any notification or other document sent in accordance with the provisions of Article ‎13 above shall be considered to have reached its destination: (A) Within 3 business days – if sent by registered mail in Israel; (B) On the first business day after its dispatch, if delivered by hand or sent by facsimile or other electronic method; or (C) On the date of publication on applicable distribution site.

 

In proving delivery, it shall be sufficient to prove that the letter sent by mail included the notification and that the document was addressed properly and was delivered to the post office as a letter bearing stamps, or as a registered letter bearing stamps, and, regarding a facsimile or other electronic method, it shall be sufficient to produce a dispatch confirmation sheet from the dispatching machine.

 

13.4 Any record made in an ordinary manner in the company’s registry shall be considered prima facie evidence of dispatch as recorded in that registry.

 

13.5 When it is necessary to provide prior notification of a certain number of days, or when notification is valid for a certain period, the date of delivery shall be included in reckoning the number of days or the period.

 

**************

 

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Exhibit 3.3

 

MEMORANDUM OF ASSOCIATION, AS AMENDED AND RESTATED AFTER THE APRIL 14, 2020 AMENDMENT

 

The Companies Ordinance

A Company Limited by Shares

Memorandum of Association, as Amended and Restated after the April 14, 2020 Amendment of

 

On Track Innovations Be’am [in Hebrew]

On Track Innovations Ltd. [in English]

 

1. The company’s name is: On Track Innovations Ltd.

 

2. The goal of the company is to engage in any lawful business.

 

3. The liability of the shareholders for the company’s debts shall be limited to the full amount (nominal value with the addition of premium) required to be paid to the company for the shares and which has not yet been paid..

 

4. The registered capital of the Company is NIS10,000,000, divided into 100,000,000 ordinary shares with a nominal value of NIS 0.1 each.

 

 

 

 

 

Exhibit 10.2

 

ADDENDUM NO. 1

TO AGREEMENT No. 97 1020 1026 0000 1702 0388 9318

OVERDRAFT FACILITY

OF 23 May 2019 (“AGREEMENT”)

 

 

The Agreement is made on the day it is signed by the last of the parties’ representatives.

 

Powszechna Kasa Oszczędności Bank Bank Polski Spółka Akcyjna with its registered office in Warsaw, address: ul. Puławska 15, 02-515 Warsaw, registered under KRS number 0000026438 in the District Court for the Capital City of Warsaw, 13th Commercial Division of the National Court Register, Tax ID: PLN 525-000-77-38, REGON (stat. ID): 016298263, share capital (paid-in capital) PLN 1,250,000,000.00 (PKOBP SA), represented by:

 

1. Paweł Krzywdziuk – Proxy,

 

2. Renata Kwotek – Proxy,

 

and

ASEC Joint Stock Company with its registered office in Krakow, address: ul. Wadowicka 6, 30-415 Kraków, registered in the District Court for Krakow-Śródmieście in Krakow, 11th Commercial Division of the National Court Register under KRS number 0000034383, Tax ID: 677-193-09-64, REGON: 351324446, share capital(paid capital) PLN 4107,000.00 ( “Borrower”), represented by:

 

1. Agnieszka Światły –CEO

 

2. Tomasz Boryczko – Member of the Board,

 

(collectively, “Parties”), make this Addendum No. 1 (“Addendum”) to the Agreement, to read as follows:

 

§ 1

 

1. The Parties agree to amend the Agreement to the following extent:

 

1) the loan term and the utilization term shall be extended by 6 (six) months, i.e. until November 22, 2020, starting from the day following the last day of the loan term and the utilization term indicated in the existing provisions of the Agreement;

 

2) both the utilization term and the loan repayment term expire on the last day of the loan term, in accordance with item 1 above,

 

3) in § 7 para. 3 item 1 shall be amended to read as follows:

 

“1) submitting the documents, in the originals, required by the law and copies of the documents that have been provided using the electronic channel, i.e. by e-mail from the Borrower’s e-mail address: molszewska@otieuropa.com and aswiatly@otieuropa.com at each request of PKO BP SA, no later, however, than in within 7 (say: seven) days from the date of such request by PKO BP SA. “;

 

4) in § 8 point 7 shall be amended to read as follows:

 

“7) all copies of documents provided in connection with the Agreement by email from the Borrower’s email address molszewska@otieuropa.com and aswiatly@otieuropa.com are a faithful representation of the original documents in the Borrower’s permanent possession, and the Borrower is aware of criminal liability for providing false information regarding the documents provided in this way and the responsibility for the actions of the persons the Borrower entrusted with providing the copies of the documents by e-mail from the abovementioned email address.”;

 

5) § 13 para. 2 item 1 shall be amended to read as follows:

 

“1) to PKO BP SA:

Powszechna Kasa Oszczędności Bank Polski Spółka Akcyjna

1st Regional Corporate Center in Warsaw,

ul. Chłodna 52,

00-872 Warsaw,

Phone number: 22 597 41 14

e-mail pawel.krzywdziuk@pkobp.pl; RCK.I.Warszawa@pkpb.pl

or another of which PKO BP SA may notify the Borrower no less than five business days in advance. “

 

2. The Borrower hereby confirms that all representations, warranties and obligations made by the Borrower in the Agreement remain true, effective and valid as at the date of signing the Addendum.

 

3. The Borrower declares that all collaterals established by the Borrower for the obligations arising from the Agreement remain in force.

 

§ 2

 

The other provisions of the Agreement shall remain unchanged.

 

§ 3

 

Due to the conclusion of the Addendum, PKO BP SA shall collect, without a separate instruction from the Borrower, the applicable commissions and bank fees in the amounts specified in the Agreement, in an amount proportional to the extended loan term. The bank commissions and fees shall be collected on the day of conclusion of the Addendum, in the manner specified in the Agreement, for which the Borrower hereby authorizes PKO BP SA.

 

§ 4.

 

The Addendum shall form an integral part of the Agreement and shall come into force on the day on which it is signed.

 

§ 5

 

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1. The Addendum is made in 2 (two) counterparts, 1 (one) for each of the Parties hereto.

 

2. This document is made / the declaration of intent is made by the proxy in electronic format and signed with qualified electronic signatures using qualified certificates, in accordance with the provisions of the Act of 5 September 2016 on Trust Services and Electronic Identification.

 

Signatures of persons acting on behalf of the Borrower:   Signatures of persons acting on behalf of PKO BP SA:
     
Signed by:   Signed by:
     
/s/ Agnieszka Światły   /s/ Renata Elzbieta Kwitek
Agnieszka Światły, CEO   Renata Elzbieta Kwitek, Proxy
Date: 5.11.2020 2:16 p.m.   Date: 5.11.2020 2:48 p.m.
     
Signed by:    
     
/s/ Tomasz Stanisław Boryczko    
Tomasz Stanisław Boryczko, Member of the Board    
Date: 5.11.2020 2:23 p.m.    

 

 

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Exhibit 31.1

 

CERTIFICATION

 

I, Yehuda Holtzman, certify that:

 

1. I have reviewed this quarterly report on Form 10-Q of On Track Innovations Ltd.;

 

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13(a)-15(f) and 15d-15(f)) of the registrant and have:

 

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

Date: May 12, 2020  
  /s/ Yehuda Holtzman
  Yehuda Holtzman
  Chief Executive Officer
  (Principal Executive Officer)

 

Exhibit 31.2

 

CERTIFICATION

 

I, Assaf Cohen, certify that:

 

1. I have reviewed this quarterly report on Form 10-Q of On Track Innovations Ltd.;

 

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13(a)-15(f) and 15d-15(f)) of the registrant and have:

 

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

Date: May 12, 2020  
  /s/ Assaf Cohen
  Assaf Cohen
  Chief Financial Officer
   (Principal Financial Officer)

 

Exhibit 32.1

 

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350

 

In connection with the Quarterly Report of On Track Innovations Ltd. (the “Company”) on Form 10-Q for the period ended March 31, 2020 (the “Report”), as filed with the Securities and Exchange Commission on the date hereof, I, Yehuda Holtzman, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:

 

1. The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

 

2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

Date: May 12, 2020 By: /s/ Yehuda Holtzman
    Yehuda Holtzman
    Chief Executive Officer

 

Exhibit 32.2

 

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350

 

In connection with the Quarterly Report of On Track Innovations Ltd. (the “Company”) on Form 10-Q for the period ended March 31, 2020 (the “Report”), as filed with the Securities and Exchange Commission on the date hereof, I, Assaf Cohen, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:

 

1. The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

 

2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

Date: May 12, 2020 By: /s/ Assaf Cohen
    Assaf Cohen
    Chief Financial Officer