Indicate by check mark
if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒
Indicate by check mark
if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒
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
if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein,
and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated
by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ☒
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 definitions of “large accelerated filer,” “accelerated filer,” “smaller
reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
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 Act). Yes ☐ No ☒
The aggregate market value of the common
stock, $0.001 par value, or Common Stock, of the registrant held by non-affiliates, as of June 30, 2018 was approximately $7,429,769
based on a per share price of $1.14, the price at which the Common Stock was last sold as of June 30, 2018.
As of April 1, 2019, there were 10,734,232 shares
of the issuer’s Common Stock outstanding.
The statements contained in this Annual Report
on Form 10-K 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 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 future results, performance, levels of activity, or our achievements,
or industry results, expressed or implied by such forward-looking statements. Such forward-looking statements appear in Item 1
– “Business” and Item 7 – “Management’s Discussion and Analysis of Financial Condition and
Results of Operations,” as well as elsewhere in this Annual Report and include, among other statements, statements regarding
the following:
The factors discussed herein, including those
risks described in Item 1A. “Risk Factors,” and expressed from time to time in our filings with the Securities and
Exchange Commission could cause actual results and developments to be materially different from those expressed in or implied
by such statements. The forward-looking statements are made only as of the date of this filing, and except as required by law
we undertake no obligation to publicly update such forward-looking statements to reflect subsequent events or circumstances.
PART I
The Company was formed as a Delaware corporation on January
31, 2002. On March 14, 2013, the Company changed its corporate name from Lapis Technologies, Inc. to Micronet Enertec Technologies,
Inc.
On July 13, 2018, following the sale of its
former
subsidiary Enertec Systems Ltd., the Company changed its
name from Micronet Enertec
Technologies, Inc. to MICT, Inc.
The Company’s shares have been listed for trade on the Nasdaq Capital Market, or
Nasdaq, since April 29, 2013.
The Company operates primarily through an Israel-based subsidiary,
Micronet Ltd., or Micronet, in which the Company previously had a majority ownership interest that has since been diluted to a
minority ownership interest.
As
of December 31, 2018, we held 49.89% of Micronet’s issued and outstanding shares, and together with an irrevocable proxy
in our benefit from Mr. David Lucatz, our President and Chief Executive Officer, we held 50.07% of the voting interest in Micronet
as of such date. On February 24, 2019, Micronet closed a public equity offering on the Tel Aviv Stock Exchange, or the TASE, and
as a result of this offering, our ownership interest in Micronet was diluted from 49.89% to 33.88%. On February 24, 2019, Mr. David
Lucatz, our President and Chief Executive Officer, executed a new irrevocable proxy assigning his voting power over 1,980,000 shares
of Micronet for our benefit. As a result, our current voting interest in Micronet stands at 39.53% of the issued and outstanding
shares of Micronet. The decrease in our voting interest in Micronet will result in a deconsolidation of Micronet and, therefore,
from February 24, 2019,
we will account for
the investment in Micronet in accordance with the equity method. The
Company is still
assessing the gain/loss that will be recorded as a result thereof and
our results
in future periods might change significantly as a result of the move to the equity method.
Micronet operates in the growing commercial
Mobile Resource Management, or MRM, market. Micronet through both its Israeli and U.S. operational offices designs, develops, manufactures
and sells rugged mobile computing devices that provide fleet operators and field workforces with computing solutions in challenging
work environments. Micronet’s vehicle portable tablets increase workforce productivity and enhance corporate efficiency by
offering computing power and communication capabilities that provide fleet operators with visibility into vehicle location, fuel
usage, speed and mileage. Furthermore, users are able to manage the drivers in various aspects, such as: driver identification,
reporting hours worked, customer/organization working procedures and protocols, route management and navigation based on tasks
and time schedule. End users may also receive real time messages for various services such as pickup and delivery, repair and maintenance,
status reports, alerts, notices relating to the start and ending of work, digital forms, issuing and printing of invoices and payments.
Through its SmartHub product, Micronet provides its consumers with services such as driver recognition, identifying and preventing
driver fatigue, recognizing driver behavior, preventive maintenance, fuel efficiency and an advanced driver assistance system.
In addition, Micronet provides third party telematics service providers, or TSPs, a platform to offer services such as “Hours
of Service.” Micronet previously commenced and continues to evaluate integration with other TSPs.
Micronet’s customers consist primarily
of application service providers, or ASPs, and solution providers specializing in the MRM market. These companies sell Micronet’s
products as part of their MRM systems and solutions. Currently, Micronet does not sell directly to end users. Micronet customers
are generally MRM solution and service providers, ASP providers in the transportation market, including long haul, local fleets’
student transportation (yellow busses) and fleet and field management systems for construction and heavy equipment. Micronet products
are used by customers worldwide.
Micronet operates and conducts its business
in the U.S. market through Micronet Inc., a fully owned subsidiary located in Utah. The Micronet U.S.-based business, operations
and facilities include manufacturing and technical support infrastructure as well as sales and marketing capabilities which allow
Micronet to continue and expand into the U.S. market and support its existing U.S.-based customers, all with further accessibility
and presence to local fleets and local MRM service providers.
Sale of Enertec Systems 2001 Ltd.
On
December 31, 2017, the Company, Enertec Systems 2001 Ltd., or Enertec, previously our wholly owned subsidiary, and Enertec Management
Ltd., entered into a Share Purchase Agreement, or the Share Purchase Agreement, with Coolisys Technologies Inc., or Coolisys, a
subsidiary of DPW Holdings, Inc., or DPW, pursuant to which we agreed to sell the entire share capital of Enertec to Coolisys.
As consideration for the sale of Enertec’s entire share capital, Coolisys agreed to pay, at the closing of the transaction,
a purchase price of $5,250,000 as well as assume up to $4,000,000 of Enertec debt. On May 22, 2018, the Company closed on the sale
of all of the outstanding equity of Enertec pursuant to the Share Purchase Agreement.
At the closing, the Company received aggregate
gross proceeds of approximately $4,700,000 of which 10% will be held in escrow for up to 14 months after the closing to satisfy
certain potential indemnification claims. The final consideration amount was adjusted, pursuant to the terms of the Share Purchase
Agreement, as a result of adjustments relating to certain Enertec debts at the closing. In addition, Coolisys also assumed approximately
$4,000,000 of Enertec’s debt.
In
conjunction with, and as a condition to, the closing, the Company, Enertec, Coolisys, DPW and Mr. David Lucatz, our Chief Executive
Officer, executed a consulting agreement, or the Consulting Agreement, whereby we, via Mr. Lucatz, will provide Enertec with certain
consulting and transitional services over a 3 year period as necessary and requested by the Coolisys (but in no event to exceed
20% of Mr. Lucatz’s time). Coolisys (via Enertec) will pay us an annual consulting fee of $150,000 as well as issue us 150,000
restricted shares of DPW Class A common stock, or the DPW Equity, for such services, to be vested and released from restriction
in three equal installments, with the initial installment vesting the day after the closing and the remaining installments vesting
on each of the first 2 anniversaries of the closing
.
In the event of a change of control in the Company, or if Mr. Lucatz shall no longer be employed by us, the rights and obligations
under the Consulting Agreement shall be assigned to Mr. Lucatz along with the DPW Equity.
Acquisition Agreement with BNN Technology
PLC
On December 18, 2018, we, Global Fintech
Holdings Ltd., a British Virgin Islands corporation, or BVI Pubco, GFH Merger Subsidiary, Inc., a Delaware corporation and a wholly-owned
subsidiary of BVI Pubco, or Merger Sub, BNN Technology PLC, a United Kingdom Private limited company, or BNN, Brookfield Interactive
(Hong Kong) Limited, a Hong Kong company and a subsidiary of BNN, or BI China, ParagonEx LTD, a British Virgin Islands company,
or ParagonEx, certain holders of ParagonEx’s outstanding ordinary shares and a trustee thereof, and Mark Gershinson, in the
capacity as the representative of the ParagonEx sellers, entered into an Acquisition Agreement, or the Acquisition Agreement, pursuant
to which, among other things, subject to the satisfaction or waiver of the conditions set forth in the Acquisition Agreement, Merger
Sub will merge with and into the Company, as a result of which each outstanding share of the Company’s common stock and warrant
to purchase the same shall be cancelled in exchange for the right of the holders thereof to receive 0.93 substantially equivalent
securities of BVI Pubco, after which BVI Pubco will acquire (i) all of the issued and outstanding securities of BI China in exchange
for newly issued ordinary shares of BVI Pubco and (ii) all of the issued and outstanding ordinary shares of ParagonEx for a combination
of cash in the amount equal to approximately $25 million (the majority of which was raised in a private placement by BVI Pubco),
unsecured promissory notes and newly issued ordinary shares of BVI Pubco, or collectively, the Acquisitions.
In furtherance of the Acquisitions, and
upon the terms and subject to the conditions described in the Acquisition Agreement, BNN agreed to commence a tender offer, or
the Offer, as promptly as practicable and no event later than 15 business days after the execution of the Acquisition Agreement,
to purchase up to approximately 20% of the outstanding shares of the Company’s common stock at a price per share of $1.65,
net to the sellers in cash, without interest, or the Offer Price. On March 13, 2019. the deadline for the Tender Offer was extended
to April 8, 2019. Additionally, following the Acquisitions, it is contemplated that the certain of our operating business assets,
including our interest in Micronet, shall be spun off to our stockholders who continue to retain shares of our common stock after
the Offer. Subject to the terms and conditions of the Acquisition Agreement, and assuming that none of the shares of our common
stock are purchased by BNN in connection with the Offer, our stockholders will own approximately 5.27% of BVI Pubco after giving
effect to the transactions contemplated by the Acquisition Agreement.
Consummation of the transactions contemplated
by the Acquisition Agreement is subject to certain closing conditions, including, among other things, approval by the stockholders
of MICT. The Acquisition Agreement contains certain termination rights for each of the Company, BNN, BI
China and ParagonEx, and further provides that, upon termination of the Acquisition Agreement under specified circumstances, MICT
may be required to pay to BNN and ParagonEx a termination fee of $900,000, and BNN and ParagonEx may be required to pay to us a
base termination fee of $1.8 million, which shall increase to $3 million under certain specified circumstances. The Acquisition
Agreement also contains customary representations, warranties and covenants made by, among others, the Company, BNN and BI China,
ParagonEx, and BVI Pubco and Merger Sub, including as to the conduct of their respective businesses (as applicable) between the
date of signing the Acquisition Agreement and the closing of the transactions contemplated thereby.
The Acquisition Agreement provides that,
as a result of the transactions contemplated thereby, options to purchase shares of the Company’s common stock that are outstanding
and unexercised shall be converted into and become options to purchase ordinary shares of BVI Pubco, and BVI Pubco shall assume
our 2012 Stock Incentive Plan and 2014 Stock Incentive Plan, as in effect as of the date of the Acquisition Agreement.
The Company’s board of directors
has approved the Acquisition Agreement. The Acquisition Agreement does not obligate our board of directors to recommend
that our stockholders accept the Offer and tender their shares of our common stock at the Offer Price, and our board of directors
will make its determination regarding whether to make such a recommendation or to remain neutral at or around the time the Offer
is launched. The obligation of BNN to consummate the Offer is subject to a number of conditions, including (i) the absence of a
material adverse effect with respect to the Company, (ii) compliance by the Company with certain Nasdaq requirements, and (iii)
certain other customary conditions. The consummation of the Offer is not subject to any financing condition or any condition regarding
any minimum number of shares of our common stock being validly tendered in the Offer.
The foregoing description of the Acquisition
Agreement, the Offer, and the transactions contemplated thereby does not purport to be complete and is qualified in its entirety
by reference to the Acquisition Agreement, which is filed as an exhibit to this Annual Report on Form 10-K and incorporated herein
by reference.
Voting Agreement
. In connection
with the execution and delivery of the Acquisition Agreement, David Lucatz, on behalf of his affiliates that are stockholders of
the Company, or the Stockholder, entered into a voting agreement, or the Voting Agreement, pursuant to which, during the term of
such agreement, the Stockholder has agreed to certain actions in support of the transactions contemplated by the Acquisition Agreement
and will, at every meeting of the stockholders of the Company called for such purpose, and at every adjournment or postponement
thereof (or in any other circumstances upon which a vote, consent or approval is sought, including by written consent), not vote
any of his shares of the Company’s common stock at such meeting in favor of, or consent to, and will vote against and not
consent to, the approval of any alternative proposal that is intended, or would reasonably be expected, to prevent, impede, interfere
with, delay or adversely affect in any material respect the transactions contemplated by the Acquisition Agreement. The foregoing
description of the Voting Agreement does not purport to be complete and is qualified in its entirety by reference to the Voting
Agreement, a form of which is filed as an exhibit to this Annual Report on Form 10-K and incorporated herein by reference.
Amendment to Warrants and Debentures
.
On December 17, 2018, we entered into an Amendment to Warrants and Debentures, or the YA Agreement, with YA II PN, Ltd., or YA,
with respect to (i) the secured convertible debentures due October 1, 2019 held by YA, which were issued pursuant to that certain
securities purchase agreement dated March 29, 2018 between YA, the Company, and Enertec Electronics Ltd., or the Debentures, and
(ii) the warrants to purchase an aggregate of 1,187,500 shares of the Company’s common stock held by YA, with exercise prices
ranging from $1.50 to $4.00 and expiration dates ranging from June 30, 2021 to March 29, 2023, or, collectively, the Warrants.
Pursuant to the YA Agreement, in connection with the transactions contemplated by the Acquisition Agreement and effective upon
the consummation of the Acquisitions, the Warrants shall be replaced by certain new warrants, or the Replacement Warrants, exercisable
at $2.00 per share for a number of ordinary shares of BVI Pubco equal to the number of shares underlying the Warrants immediately
prior to the effectiveness of the Acquisitions (subject to adjustment as described therein). YA also agreed that it would not convert
the Debentures into more than one million shares of the Company’s common stock during the period between the execution of
the YA Agreement and the earlier to occur of the effectiveness of the Acquisitions or the termination of the Acquisition
Agreement. We agreed to pay in cash the remaining outstanding principal amount and all accrued interest with respect to the Debentures
as of the consummation of the Acquisitions, subject to any applicable redemption premiums. The foregoing description of the YA
Agreement and the Replacement Warrants does not purport to be complete and is qualified in its entirety by reference to the YA
Agreement and the Replacement Warrants, forms which were are filed as exhibits to this Annual Report on Form 10-K and incorporated
herein by reference.
Micronet
Micronet currently operates via its Israeli
and U.S. facilities, the first located in Azur, Israel, near Tel Aviv, and the latter located in Salt Lake City, Utah, from which
Micronet operates. Micronet operates in the MRM market as a global developer, manufacturer and provider of mobile computing platforms,
designed for integration into fleet management and mobile workforce management solutions. The products and solutions designed,
developed and manufactured by Micronet include rugged mobile computing devices (tablets and on-board-computers) that provide fleet
operators and field workforces with computing solutions for challenging work environments, such as extreme temperatures, repeated
vibrations or dirty and wet or dusty conditions.
Micronet’s connected tablets collect
data from the vehicle’s environment, upload the data to the customer’s cloud and are designed to increase workforce
productivity, enhance corporate efficiency and customer service by offering computing power and communication capabilities. Micronet
products provide fleet operators with, among other things, data on vehicle location, fuel usage, speed and mileage and allow
the installation of software applications and communication integration enabling the users to manage the drivers in various aspects
such as: driver behavior (including through real-time video analytics), driver identification, hourly working reports, customer/organization
working procedures and protocols, rout management, electronic logging and navigation based on tasks and time schedules and other
insights into their mobile workforce, allowing customers to reduce operating and capital costs while increasing revenue. End users
of Micronet’s products may now also receive real time messages for various services such as pickup and delivery, repair and
maintenance, status reports, alerts, notices relating to start and ending of work, digital forms, issuing and printing of invoices
and payments.
Micronet conducts its sales and support
activities mainly through its U.S.-based facilities. Micronet’s customers include leading international MRM solution and
service providers as well as Value Added Resellers, or VARs. Micronet maintains an in-house research and development staff and
operates an ISO 9001-2008 certified manufacturing facility.
Micronet’s products are used in and/or
targeted to a wide range of MRM industry sectors, including:
|
●
|
haulage
and distribution, which includes short- and long- haul trucking and distribution servicing of urban retail and wholesale needs,
such as delivery of packages, parts and similar items;
|
|
●
|
public transportation, which refers mainly to buses, para-transit, taxis and limousine services;
|
|
●
|
construction, which refers to vehicle fleets that are involved in the construction industry such as cement trucks and heavy equipment;
|
|
●
|
service industries, which include insurance companies, rental car companies and other companies operating large mobile service force of technicians, installers and similar personnel;
|
|
●
|
municipalities, which include waste management and field workers such as public works; and
|
|
●
|
public safety services, which includes fire departments, ambulances, police and forestry.
|
Micronet’s products are fully programmable
and provide customers with the operational flexibility to customize such products for their ongoing needs via a comprehensive development
tool kit package that enables them to develop independently and support their own industry-specific applications and solutions.
Recent Developments
Micronet believes that awareness and demand
for MRM solutions is significantly increasing, as customers seek to optimize workforce productivity and customer satisfaction.
In addition, Micronet believes that the local fleet market is considered to be among the leading, largest and fastest growing segments
of the MRM market
Micronet currently offers its customers optional
third party software services based on Android platform devices, which enable customer management and control (configuration and
updates) of the products, including updates for the operational system, distance diagnostics of the product and similar services.
These services are based on Micronet’s business cooperation with third party software vendors, which are integrated into
the Micronet offered solutions and include guardian system design, or GSD, a cloud based system. Such solutions offer customers
and fleets the ability to manage, control and operate their equipment from a distance, perform malfunction diagnostics and improve
their efficiency and provide a cost saving solution for the duration of the life of the installed products.
Micronet is also developing its own software
which will enable the customers to receive reports related to specific data directly from the vehicle computers.
In
early 2019, Micronet launched its new business and technological services which may include an MRM application store service for
the MRM market, which is anticipated to include applications specifically designed for fleet management and workforce management
purposes.
Micronet
is also focusing on adding application layers to its open hardware platforms in order to provide a comprehensive solution for its
customers by integrating and developing a dedicated MRM application store that will be open to Micronet's customers, and will enable
Micronet to capitalize on the software as a service component of its business model, increasing hardware sales and increasing demand
for its services. To this end, Micronet focuses on creating technological and commercial collaborations with MRM applications and
application providers to provide comprehensive solutions for its own hardware solutions.
We believe that these new products and solutions
will further improve the performance and respond to additional specific MRM requirements, allowing Micronet’s customers to
better achieve their desired results and performance.
Micronet’s key initiatives for future
revenue growth include the following:
|
●
|
expanding sales activities in the North American and European markets, which will include establishing strong relationships with new customers and partners;
|
|
●
|
addressing the local fleet vertical of the MRM market with tablets that are specifically designed to support sales to local fleets through multiple value added resellers by offering advanced features at competitive prices;
|
|
●
|
supporting Android OS, to satisfy a wider customer base, enabling independent application programming and integration with various mission critical automotive system and enterprise-level software solutions;
|
|
●
|
upgrading and enhancing current products and engaging in new product development and launching based on input from clients and partners; and
|
|
●
|
partnering with major truck manufacturers to develop a built-in, telematics platform.
|
Developments in the communications market
in recent years have enabled Micronet to integrate its products into new standard technologies, which have reduced communication
costs and extended availability, thereby increasing the demand for Micronet’s products and solutions. Micronet has made significant
investments in its facilities, infrastructure and manufacturing capabilities and has made product enhancements and strengthened
functionality.
Market Opportunity
Micronet operates in the MRM market. Micronet’s
customers are located around the world and are telematics service providers that provide fleet management solutions and services,
including cloud services, with emphasis on specific vertical markets such as transportation and distribution (short and long distances),
passenger transportation (buses, taxis, special transportation), various types of technical services (communications, maintenance),
emergency services (police, firefighters, ambulances), etc. The range of replacement products for Micronet’s products in
the MRM market includes retail products such as smartphones, tablets and navigation devices, through Original Equipment Manufacturers’,
or OEMs, products that are manufactured according to specific specifications for the customer, at various price and performance
levels, to products developed and manufactured by customers themselves in-house. On the basis of market data held by Micronet,
the size of the global market relevant to Micronet, in terms of the number of vehicles with telematics systems for managing fleet
fleets, was approximately 30 million units at the end of 2018. The United States and Europe are leading the market with 13 million
and 7 million installed vehicles, respectively, with an average annual growth rate of 17% and 14.2%, respectively. Historically,
the United States has been the largest market in which Micronet operates and sells its products. Based on the current information
known to us as published by market analysis reports, 13 million GPS devices / mobile devices are used in service with MRM systems
to monitor and track fleet of vehicles, carriers, equipment and employees. This number is expected to grow to more than 14 million
units by the end of 2019 and to 16 million units at the end of 2020. In 2018, the global penetration rate of MRM systems for fleet
management was 15%. In the United States alone, the rate of penetration is expected to increase from 30% at the end of 2018 to
about 40% in the years 2019-2020.
Most of the products manufactured or marketed
by Micronet are intended for sale abroad, in particular to North America, which is currently Micronet’s main geographical
target market. The MRM market is a growing market and accordingly Micronet believes that it can grow in the coming years as a result
thereof.
Products and Services
Micronet’s products are devices and
services for the management of commercial vehicle fleets and the management of mobile resources, and are designed to make the work
environment of commercial fleets accessible and convenient, while maintaining the full management and control capability of fleet
managers and task managers. Micronet’s hardware product is a rugged computer / tablet designed for installation in the vehicle
(i.e., a cab) as part of an advanced technological solution including fleet management. The company's products include software
development tools and various interfaces that support solutions for vertical markets for transportation, buses, service technicians
and the like. The company's products, design and development products are based on and support the Android operating system. The
handsets enable connection to in-vehicle and out-of-the-box products via wireless communication (via Bluetooth, 3G, 3.5G, LTE,
NFC, Wi-Fi) and landline connections such as USB, Serial Ports, Ethernet LAN and GPS.
In addition to selling its devices, Micronet
now offers its customers with ancillary optional services for its Android-based devices, enabling the customer remote management
and control, remote updating of the operating system, remote diagnostics of the device, etc. This service is based on a business
cooperation between Micronet and third party specialized software manufacturers in the field of Over The Air service. These software
manufacturers fully integrate their software products with Micronet's Android-based product line, including the GSD cloud computing
system that provides advanced software tools to manage and support Over The Air updates, thereby enabling remote equipment management
and fault diagnosis. Micronet’s GSD solutions offer operational advantages and cost savings over the period of use of Micronet’s
products.
An additional software service offered by
Micronet on the basis of dedicated software developed by Micronet, enables its customers to receive reports of specific data they
require from their computers. The software is installed on Micronet's computers and regularly monitors the data that passes through
the computer network, such as reports of technical problems in the engine, the status of the fuel tank, the mileage, and the speed
of the vehicle.
Currently, Micronet offers products based
on Android OS versions 4, 5.1 and 9 which are expected to be launched in the coming months. Micronet's product line includes several
product families including SmarTab, SmartHub, TREQ317 and the TREQ 317OBC. These products have similar characteristics, but are
designed for different customer requirements and among other, are based on different price levels. In light of the existing trend
of organizations and end users to expand and accelerate the use of the Android operating system, Micronet is focusing on establishing
its products on this system, which is an open, flexible and powerful software system that enables innovation and creativity in
application development in target markets. Micronet intends to cease supporting its older products which are Windows CE-based products
under its end of life policy.
Micronet has begun, and intends to continue
in 2019, to implement a business activity plan and new technologies, based on an MRM application store service, especially for
fleet management and personnel management applications. Micronet is collaborating with several application providers in the market
to create integrated solutions on the company's hardware platforms based on the open operating system (Android) and offers a multi-layer
solution that includes hardware, operating system and dedicated software that enables its customers to integrate it into the service
system in a quick way, while significantly reducing the return on investment time and reducing development and support costs. By
implementing this business model, Micronet is interested in expanding its customer base, turning to new marketing and distribution
channels and adding a layer of recurring revenue from licensing and software services.
Micronet’s products are currently
used by leading vehicle fleet service providers in the United States in the areas of vehicle tracking, navigation, task management,
safety, driving improvement, fuel savings, support, etc. The company has products that support the new regulation that has entered
into force, or the Electronic Logging Device, or ELD, mandate in relation to the duty of fleet operators to monitor the driving
hours of drivers in their vehicles.
Strategy
Micronet’s strategy focuses on three
major vertical markets: (1) traditional long haul, (2) local fleets and (3) heavy equipment. In each vertical market, Micronet
implements the delivery of a comprehensive product offering that satisfies the particular needs of that market, and target potentially
larger scale transactions that Micronet expects could result in higher revenue as well as increased gross margin and overall profitability.
Micronet continuously analyzes the needs of the markets in which it operates in order to best serve its customers’ needs.
Micronet’s strategy is driven by, and
focused on, both continued internal growth of its business through gaining a larger market share and the development of new potential
markets, new technologies and innovative systems and products as well as through acquisitions. The key elements of Micronet’s
strategy include:
|
●
|
continuing to invest efforts in its technology and product development, through collaborations with its partners, customers and potential customers;
|
|
●
|
focusing on offering innovative reliable solutions at a competitive price which will target the replacement of in house solutions of the service providers;
|
|
●
|
expanding the sales channels through telecom operators or carriers;
|
|
●
|
penetrating and developing the truck OEM market;
|
|
●
|
partnering with and/or acquiring complementary technology to broaden and deepen its offerings and customer base; and
|
|
|
|
|
●
|
integrating with third party application service providers in order to provide comprehensive solutions, which include hardware and advanced telematics services.
|
Micronet believes that one of its core competitive
strengths is the breadth of its expertise in mobile data technologies, particularly in MRM technologies for the management of vehicle
fleets and mobile workforces.
Micronet intends to enhance its existing products
and develop new products by continuing to make investments in research and development. Micronet further intends to continue its
strategy of internally developing products in order to enter new market segments, while continuing to leverage its market position
in the United States and other global markets, to become a market leader for MRM products and services.
Sales and Marketing
Micronet’s customers consist primarily
of TSPs and VARs specializing in the fleet and MRM markets. Currently, Micronet does not sell directly to the end users’
fleets. Micronet's customers are generally leading TSPs and service providers of commercial solutions that integrate a wide range
of positioning technologies and computing fleet communications in the MRM market.
Micronet products are used by customers
worldwide. The United States currently constitutes Micronet’s largest market, representing approximately 76% of Micronet’s
revenue for the year ended December 31, 2018 and 78% for the year ended December 31, 2017. In any given year, a single Micronet
customer may account for a significant portion of Micronet’s revenues. For the year ended December 31, 2018, Micronet’s
three largest customers represented approximately individually 38%, 17%, 1%, of Micronet’s revenues, respectively. As of
December 31, 2018, the Micronet sales team consisted of seven dedicated sales managers including a back office team.
Research and Development
In order to keep up with the rapid technology
evolution and the changing needs of the markets in which it operates, Micronet continues to focus on its innovation and the development
of new products and technologies, by continuing to make the necessary investments in research and development.
Micronet upgrades and enhances its existing
products on an on-going basis, including based on input from its clients and partners and from other sources. Enhancements include
the addition of capabilities, improvement of product functionality and performance, and adding features to the existing hardware
in order to offer customers a variety of solutions, while continuing to decrease costs to enhance its profit margins and create
a competitive market pricing position.
In addition, Micronet seeks to design and
manage product life cycles through a controlled and structured process. It involves customers and industry experts from its target
markets in the definition and refinement of its product development. Product development emphasis is placed on meeting industry
standards, ease of integration, cost reduction, design-for manufacturability, versatility and innovation, and quality and reliability.
During the fiscal years ended December 31,
2018 and 2017, Micronet spent NIS 7.1 million (approximately $2 million) and NIS 7 million (approximately $1.9 million), respectively,
on research and development activities. Micronet uses its own resources to finances its research and development activities and
none of the cost of such activities is borne by its customers.
To date, Micronet has received an aggregate
of NIS 5.6 million (approximately $1.4 million) from the Israeli Innovation Authority, or IIA, under these three grants. Micronet
is obligated to pay royalties to the IIA amounting to 3%-3.5% of the sales of the products and other related revenues generated
from such projects linked to the dollar plus Libor interest rate.
Competition
Micronet operates in a highly competitive
industry. Further, during the last few years, competition in the field of mobile computers has significantly increased with the
mass entrance and introduction to the market of smart phones, tablets, and laptops, as well as various GPS-based hand-held devices
featuring additional functionalities.
The direct competition in the field of dedicated
laptops for the management of fleets is held primarily with OEMs, which provide products that enable application development and
functional integration according to customer needs. To the best of Micronet’s knowledge, there are half a dozen such direct
competitors operating in Micronet’s main geographical target market, North America. Most of the competitors are private companies
or those who do not publish sales data specific to their products in this field, so the company does not have specific information
to estimate its relative share in the market or to directly compare its size or position relative to a particular competitor.
Micronet believes that there are several
products in the market that compete with its products including mobile devices, which differ among themselves in various parameters.
Micronet estimates that its products are competitive in the market and offer customers a beneficial solution in view of the advanced
technology implemented in such products. Micronet’s competitive position is also effected by its market positioning and the
reputation it has acquired over the years through its dealings with a wide range of customers and products. Micronet estimates
that its Android open operating platform based products provides for a technological edge in the market over a number of competitors,
which still base their devices on their internal proprietary operating systems. These systems are closed systems and with the transformation
of the world to the use of the Android system becoming the dominant operating system among customers, such vendors may be in an
inferior position. Micronet's products align with the trend of the increasing demand in the market for Android-based products,
which enable each customer to develop its applications and functionalization according to its needs.
A large number of Micronet’s competitors
are private companies or companies that do not disclose their sales or other financial information, making it difficult to estimate
Micronet’s market share and position in the market. Micronet believes that its most significant competitors include the following:
CalAmp Corp., Mobile Devices (France), TomTom (Holland), Garmin USA, Inc. and Samsung. In addition, some service providers consider
the use of their in-house development capabilities for the supply of their internal needs for mobile devices.
This intensely competitive industry is characterized
by rapidly changing technologies, evolving industry standards, frequent new product introductions and changes in customer requirements.
In order to maintain its competitive strength, Micronet must continue to develop and introduce on a timely and cost-effective basis,
new products and product features which are in line with the technological developments and emerging industry standards and address
the increasingly sophisticated needs of its customers.
Micronet’s management believes its strongest
competitive advantages are the durability of its products and reputation in the industry. Its competitive strengths include the
following:
|
●
|
30 years of field-proven experience, including engineering and manufacturing know-how;
|
|
●
|
ability to deliver solutions and products to organizations and customers that are leaders in their respective industries;
|
|
●
|
ability to integrate advanced technological capabilities to develop new solutions and products with its own manufacturing infrastructures and facilities, as well as leverage overseas manufacturing partners, to have greater control over the end-to-end production process and cost-efficiencies;
|
|
●
|
professional and direct marketing methodology focused on main target customers;
|
|
●
|
reputation as a leading supplier in relevant markets;
|
|
●
|
lasting working relationships with customers;
|
|
●
|
an experienced, dedicated and competent management team;
|
|
●
|
ELD mandate compliant products; and
|
|
●
|
proprietary technology and know-how that allows rapid configuration and implementation of new solutions to meet the special customer needs.
|
Micronet currently operates via two facilities,
the first located in Azur, Israel, near Tel Aviv, and the second located in Salt Lake City, Utah. These two operating facilities
give Micronet additional manufacturing and marketing flexibility to serve the market’s needs, reduce its operational risk,
improve its U.S. presence and provide management with additional tools to support the business.
Manufacturing
Micronet conducts its manufacturing activities
mainly through third party subcontractors in Israel and outside of Israel and also using its own U.S. and Israel based facilities.
Micronet operates an ISO 9001-2008 certified manufacturing facility.
During the past few years, with the exception
of certain components purchased from subcontractors, Micronet has relied on itself to manufacture its products and solutions using
its own facilities, capabilities and resources, which enable it to control and manage the manufacturing process.
However, Micronet has gradually begun utilizing
overseas manufacturers and subcontractors for its new product offerings, in combination with its internal manufacturing facilities.
As of December 31, 2018, as part of its strategy, Micronet is focused on its core competence, which includes research, development,
marketing and support activities.
Accordingly with respect to its new product
offerings, Micronet has shifted significant parts of its manufacturing activities from its Israeli manufacturing activity to trusted
third party manufacturers and subcontractors in and outside of Israel, while increasing its operational flexibility and reducing
its fixed costs attributed to the production lines. In addition, Micronet is utilizing overseas manufacturing in conjunction with
its internal assembly test lines in Salt Lake City for final provisioning and shipping.
Following certain enhancements in its manufacturing
and production capabilities, Micronet has manufacturing capacity and has the ability to meet current or foreseeable manufacturing
needs without making any significant investments. Implemented enhancements include:
|
●
|
upgraded production and assembly line and purchased new machinery with significant higher component implementation scale;
|
|
●
|
increased factory facilities and upgraded various infrastructures;
|
|
●
|
entered into agreements with subcontractors in the field that operate additional manufacturing facilities, and have significant procurement and manufacturing capabilities and resources that are available to Micronet; and
|
|
●
|
certified subcontractors to perform manufacturing process to ensure flexible manufacturing infrastructures and deployment that can be used for disaster recovery scenarios or rapid increase in production needs.
|
If additional manufacturing resources are
needed to meet increased demand for Micronet’s products, manufacturing capacity can be enhanced by adjusting the outsourcing
manufacturing processes, recruiting and training additional employees, adding shifts to the labor cycles.
Intellectual Property
Proprietary rights are important to Micronet’s
business because its ability to remain competitive in the market is dependent to a significant degree on its proprietary solutions
and products and the technology on which they are based. To protect its proprietary rights, Micronet primarily relies on a combination
of copyright and trade secret laws, internal know-how, and agreements with third parties, such as license agreements. In addition,
Micronet employs internal controls such as the use of confidentiality and non-disclosure agreements. Micronet believes its proprietary
technology incorporates processes, know-how, methods, algorithms, hardware and software that are the result of more than 20 years
of experience and in-house expertise and thus are not easily copied. There is a significant amount of litigation with respect to
intellectual property in the industry in which Micronet operates. Micronet has not, to date, been the subject of any claims or
proceedings with regards to infringement of third party’s proprietary rights and it believes that its products, solutions
and services do not violate or infringe any third party’s intellectual property rights. In light of the strong competition
in the industry and the innovative solutions and technologies incorporated by Micronet into its recent products, Micronet has been
exploring the use of patent applications and is in the process of filing certain patent applications related to its products in
the United States, solutions and proprietary technologies. These patents, to the extent granted, are expected to assist Micronet
to maintain its technological and competitive position in the market. Micronet’s management, together with its research and
development team, monitor closely and continuously all technological developments in the market. Micronet considers and evaluates
on an ad hoc basis whether technology and proprietary assets should be acquired through independent in-house development or through
the purchase of patents or other technological licenses. Where the purchase of third party proprietary technology, solution or
products is required and can be of advantage to its business, Micronet would purchase a license and pay appropriate royalties or
license fees. Micronet currently has all third-party licenses or is in the process of acquiring licenses that it believes are necessary
to maintain and develop its business.
Government Regulation
Micronet’s business is subject to certain
international standards such as U.S. Federal Communications Commission, or FCC, Part 15B, FCC ID, European Conformity, or CE, and
Restriction of Hazardous Substances, or RoHS, which define compatibility of interface and telecommunications standards to those
implemented in Europe by the European Commission and in the United States by the FCC. Its solutions and products also comply with
the E-Mark European standard, which is the standard that defines the compatibility of interface and telecommunications to all appliances
installed in and around an automobile.
Employees
As of December 31, 2018, the Company had
approximately 53 full-time employees (and as of March 28, 2019, the Company had approximately 46 full-time employees) and Micronet
had approximately 49 full-time employees (as of March 28, 2019, Micronet had approximately 41 full-time employees). Of these employees,
12 were employed in manufacturing positions, and the remainder were employed in sales, research and development, management and
administrative positions. Our and Micronet’s employees are not represented by any collective bargaining agreement, and both
we and Micronet have never experienced a work stoppage. Both we and Micronet, to the best of our knowledge, have good and sustainable
relations with our and its employees, respectively. Israeli labor laws and regulations apply to all employees based in Israel.
The laws principally address matters such as paid vacation, paid sick days, length of the workday, payment for overtime and severance
payments upon the retirement or death of an employee or termination of employment under specified circumstances. The severance
payments may be funded, in whole or in part, through a managers’ insurance fund or a pension fund. The payments to the managers’
insurance fund or pension fund toward severance amount to 8.3% of wages. Furthermore, Israeli employees and employers are required
to pay predetermined sums to the National Insurance Institute of Israel. Since January 1, 1995, these amounts also include payments
for health insurance.
Investing in our securities is highly speculative
and involves a high degree of risk. You should carefully consider the following factors and other information in this Annual Report
and our other SEC filings before making a decision to invest in our securities. Additional risks and uncertainties that we are
unaware of may become important factors that affect us. If any of the following events occur, our business, financial conditions
and operating results may be materially and adversely affected. In that event, the trading price of our common stock and warrants
may decline, and you could lose all or part of your investment.
Risks Related to Our Business and Industry
While we have executed the Acquisition
Agreement relating to our acquisition by BNN, the closing of the Acquisition Agreement is subject to numerous conditions which
may not be satisfied or waived.
While we have executed the Acquisition Agreement,
the closing of the agreement is subject to numerous closing conditions including, but not limited to, the approval of our stockholders.
While the parties believe the conditions to the Acquisition Agreement will be satisfied or waived, there is no guarantee that we
will be successful in closing the transaction. If the conditions are not satisfied or waived, the closing of the Acquisition Agreement
may not occur, or may be delayed. Such delays may cause us to lose some or all of the intended benefits of the transaction and
may adversely affect our business, financial condition, prospects, results of operations and reputation.
As a result of Micronet’s public
offering in Israel in February 2019, the Company no longer holds a majority of Micronet’s outstanding common equity.
As a result of the consummation of Micronet’s public offering
in Israel in February 2019, the Company’s ownership interest was reduced to 33.88% of the issued and outstanding shares of
Micronet, while the Company’s voting interest in Micronet is 39.53% as a result of an irrevocable proxy in our benefit from
Mr. David Lucatz, the Company’s President and Chief Executive Officer. As a result of the February 2019 offering in Israel,
the Company no longer owns a majority stake nor does it have majority voting interest in Micronet. Therefore, the Company may no
longer effectively control Micronet’s business or have significant input in its operations. In addition, since the Company
no longer owns a majority stake in Micronet, Micronet may not be considered a subsidiary of the Company and Micronet’s financial
statements may not be consolidated with the Company’s financial statements. In addition, as a result of the Company no longer
filing Micronet’s financial statements on a consolidated basis, the Company may not be able to meet Nasdaq’s continued
listing requirements.
If Micronet is unable to develop new
products and maintain a qualified workforce Micronet may not be able to meet the needs of its customers in the future
Virtually all of the products that Micronet
produces and sells are highly engineered and require sophisticated manufacturing and system-integration techniques and capabilities.
The markets and industry in which Micronet operates are characterized by rapidly changing technologies. The products, systems and
solutions needs of Micronet’s customers change and evolve regularly. Accordingly, Micronet’s future performance depends
on Micronet’s ability to develop and manufacture competitive products and solutions, and bring those products to market quickly
at cost-effective prices. In addition, because of the highly specialized nature of Micronet’s business, Micronet must be
able to hire and retain the skilled and qualified personnel necessary to perform the services required by its customers. If Micronet
is unable to develop new products that meet customers’ changing needs or successfully attract and retain qualified personnel,
Micronet’s future revenues and earnings may be adversely affected.
We are dependent on the services of our
executive officers, whose potential conflicts of interest may not permit us to effectively execute our business strategy
.
We currently depend on the continued services
and performance of David Lucatz, our Chairman and also Micronet’s Chairman and President. Mr. Lucatz also serves as the President,
Chairman and Chief Executive Officer of D.L. Capital Ltd., or DLC, the primary asset of which is its ownership of shares of our
common stock. We have a management and consulting services agreement with DLC. Our business and results of operations may suffer
if Mr. Lucatz, other executive officers or directors, are unable to devote the attention necessary to our overall business
strategy and operations.
Developing new technologies entails significant
risks and uncertainties that may cause Micronet to incur significant costs and could have a material adverse effect on Micronet’s
operating results, financial condition, and/or cash flows.
A significant portion of Micronet’s
business relates to developing sophisticated products and applications. New technologies may be untested or unproven. In addition,
Micronet may incur significant liabilities that are unique to its products and services. While Micronet maintains insurance for
some business risks, it is not practicable to obtain coverage to protect against all operational risks and liabilities. In addition,
Micronet may seek limitation of potential liability related to the sale and use of its products and systems. Micronet may elect
to provide products or services even in instances where it is unable to obtain such indemnification or qualification. Accordingly,
Micronet may be forced to bear substantial costs resulting from risks and uncertainties of its products and products under development,
which could have a material adverse effect on its operating results, financial condition and/or cash flows.
If Micronet is unable to effectively protect
our proprietary technology, our business and competitive position may be harmed.
Micronet’s success and ability to
compete are dependent on its proprietary technology. The steps Micronet has taken to protect its proprietary rights may not be
adequate and Micronet may not be able to prevent others from using its proprietary technology. The methodologies and proprietary
technology that constitute the basis of Micronet’s solutions and products are not protected by patents. Existing trade secret,
copyright and trademark laws and non-disclosure agreements to which Micronet is a party offer only limited protection. Therefore,
others, including our competitors, may develop and market similar solutions and products, copy or reverse engineer elements of
Micronet’s production lines, or engage in the unauthorized use of Micronet’s intellectual property. Any misappropriation
of Micronet’s proprietary technology or the development of competitive technology may have a significant adverse effect on
Micronet’s ability to compete and may harm our business and financial position.
Micronet may incur substantial costs as
a result of litigation or other proceedings relating to intellectual property rights
.
Third parties may challenge the validity
of Micronet’s intellectual property rights or bring claims regarding Micronet’s infringement of a third party’s
intellectual property rights. This may result in costly litigation or other time-consuming and expensive judicial or administrative
proceedings, which could deprive us of valuable rights, cause us to incur substantial expenses and cause a diversion for technical
and management personnel. An adverse determination may subject Micronet to significant liabilities or require it to seek licenses
that may not be available from third parties on commercially favorable terms, if at all. Further, if such claims are proven valid,
through litigation or otherwise, Micronet may be required to pay substantial financial damages or be required to discontinue or
significantly delay the development, marketing, sale or licensing of the affected products and intellectual property rights.
Our business may be negatively impacted
if Micronet is unable to perform under its contracts.
When agreeing to contractual terms, Micronet’s
management makes assumptions and projections about future conditions or events. These projections assess:
|
●
|
the productivity and availability of labor;
|
|
|
|
|
●
|
the complexity of the work to be performed;
|
|
|
|
|
●
|
the cost and availability of materials;
|
|
|
|
|
●
|
the impact of delayed performance; and
|
|
|
|
|
●
|
the timing of product deliveries.
|
If there is a significant change in one
or more of these circumstances or estimates, or if Micronet faces unexpected contract costs, the profitability of one or more of
these contracts may be adversely affected and could affect, among other things, our earnings and margins, due to the fact that
Micronet’s contracts are often made on a fixed-price basis.
Micronet’s earnings and margins could
be negatively affected by deficient subcontractor performance or unavailable raw materials or components.
Micronet relies on other companies to provide
raw materials, major components and subsystems for its products. Subcontractors perform some of the services that Micronet provides
to its customers. Micronet depend on these subcontractors and vendors to meet its contractual obligations in full compliance with
customer requirements. Occasionally, Micronet rely on only one or two sources of supply that, if disrupted, could have an adverse
effect on its ability to meet its commitments to customers. Micronet’s ability to perform its obligations as a prime contractor
may be adversely affected if one or more of these suppliers is unable to provide the agreed-upon supplies or perform the agreed-upon
services in a timely and cost-effective manner. Further, deficiencies in the performance of Micronet’s subcontractors and
vendors could result in a customer terminating a contract for default. A termination for default could expose us and Micronet to
liability and adversely affect our financial performance and Micronet’s ability to win new contracts.
Micronet depend on major customers for
a significant portion of its revenues and its future revenues and earnings could be negatively impacted by the loss or reduction
of the demand for its products or services by such customers.
A significant portion
of Micronet’s annual revenues derived from a few leading customers. As of December 31, 2018, Micronet had two customers that
combined account for approximately 55% of its revenues. Most of Micronet’s major customers do not have any obligation to
purchase additional products or services from the company. Therefore, we cannot provide any assurance that any of Micronet’s
leading customers will continue to purchase solutions, products or services at levels comparable to previous years.
Micronet operates in a highly competitive
and fragmented market and may not be able to maintain its competitive position in the future.
A number of larger competitors
have recently entered the MRM market in which Micronet operates. These large competitors have far greater development and capital
resources that exceed those available to Micronet. Further, there are competitors of Micronet that offer solutions, products and
services similar to those offered by Micronet. If they continue, these trends could undermine Micronet’s competitive strength
and position and adversely affect its earnings and financial condition.
Micronet is subject to regulations in the
United States and Europe, which if failed to be met, could negatively impact Micronet’s and our business and reputation.
Micronet’s business
is subject to certain international standards such as U.S. Federal Communications Commission, or FCC, Part 15B, FCC ID, CE and
Restriction of Hazardous Substances, or RoHS, which define compatibility of interface and telecommunications standards to those
implemented in the United States by the FCC and in Europe by the European Commission, respectively. Micronet’s solutions
and products also need to comply with the E-Mark European standard, which is the standard that defines the compatibility of interface
and telecommunications to all appliances installed in and around an automobile. We and Micronet are exposed to risks from
regulators, arising from Micronet’s failure to comply with the aforementioned international standards, which define interface
and communication standards, compliance with the standards of the European Common Market, European Conformity, or the CE, and the
requirements of the U.S. Communications Regulatory Commission, the FCC, inclusive of the ELD mandate. If Micronet does not adhere
to these international standards, we and Micronet may be limited in marketing Micronet’s products in such markets, and face
fines and/or risks to both our and Micronet’s reputation, and which may also adversely effect our and Micronet’s future
revenues and earnings.
Micronet may cease to be eligible for,
or receive reduced, tax benefits under Israeli law, which could negatively impact our profits in the future
.
Micronet currently receives certain tax
benefits under the Israeli Law for Encouragement of Capital Investments of 1959, as a result of the designation of its production
facility as an “Approved Enterprise.” To maintain its eligibility for these tax benefits, Micronet must continue to
meet several conditions including, among others, generating more than 25% of its gross revenues outside the State of Israel and
continuing to qualify as an “Industrial Company” under Israeli tax law. An Industrial Company, according to the applicable
Israeli law (Law for the Encouragement of Industry (Taxes), 1969), is a company that resides in Israel (either incorporated in
Israel or managed and controlled from Israel) that, during the relevant tax year, derives at least 90% of its income from an Industrial
Factory. An Industrial Factory means a factory that is owned by an Industrial Company and where its manufacturing operations constitute
a vast majority of the factory’s total operations/business. The tax benefits of qualifying as an Industrial Company include
a reduction of the corporate tax from 23% for “Regular Entities” and 16% or 7.5% for “Preferred Enterprises”
(depending on the location of industry) in 2018. In addition, in recent years the Israeli government has reduced the benefits available
under this program and has indicated that it may further reduce or eliminate benefits in the future. There is no assurance that
Micronet will continue to qualify for these tax benefits or that such tax benefits will continue to be available at their current
level, or at all. The termination or reduction of these tax benefits would increase the amount of tax payable by Micronet and,
accordingly, reduce our net profit after tax and negatively impact our profits.
Because the majority of our officers and
directors are located in non-U.S. jurisdictions, you may have no effective recourse against our management for misconduct.
Currently, a majority of our directors
and officers are or will be nationals and/or residents of countries other than the United States, and all or a substantial portion
of their assets are located outside the United States. As a result, it may be difficult for investors to enforce within the United
States any judgments obtained against such officers or directors, including judgments predicated upon the civil liability provisions
of the securities laws of the United States or any U.S. state. Additionally, it may be difficult to enforce civil liabilities under
U.S. securities law in original actions instituted in Israel. Israeli courts may refuse to hear a claim based on a violation of
U.S. securities laws because Israel is not the most appropriate forum to bring such a claim. In addition, even if an Israeli court
agrees to hear a claim, it may determine that Israeli law and not U.S. law is applicable to hear the claim. If U.S. law is found
to be applicable, the content of applicable U.S. law must be proved as a fact, which can be a time-consuming and costly process.
Certain matters of procedure will also be governed by Israeli law.
Our financial results may be negatively
affected by foreign exchange rate fluctuations.
Our revenues are mainly denominated in U.S.
currency and our costs are mainly denominated in Israeli currency. Where possible, we match sales and purchases in these and other
currencies to achieve a natural hedge. Currently, Micronet does not have a policy with respect to the use of derivative instruments
for hedging purposes, except that Micronet will consider engaging in such hedging activities on a case by case basis. To the extent
we are unable to fully match our sales and purchases in different currencies, our business will be exposed to fluctuations in foreign
exchange rates.
We may become a target for cybersecurity
disruptions which may impact our business operations.
We may be subject to attempted cybersecurity
disruptions from a variety of threat actors. If systems for protecting against cybersecurity disruptions prove to be insufficient,
the Company, customers, employees or third parties could be adversely affected. Such cybersecurity disruptions could cause physical
harm to people or the environment; damage or destroy assets; compromise business systems; result in proprietary information being
altered, lost or stolen; result in employee, customer or third party information being compromised; or otherwise disrupt business
operations. We could incur significant costs to remedy the effects of such a cybersecurity disruption, as well as in connection
with resulting regulatory actions and litigation, and such disruption may harm our relationships with our customers and impact
our business reputation.
Cost
fluctuations in the global hardware and communications market and reducing production costs may have a negative impact on our business
and operations
.
Micronet’s operations are affected by
global hardware prices and communication costs, which are a combined component of the technological solution offered by Micronet
to its customers or end users. Also, in order to continue to compete effectively in the target markets, Micronet must continue
to streamline its production costs and reduce them in order to enable a competitive price for its products. Micronet must compete
among other manufacturers of components and / or products from East Asia including China and India. Micronet's ability to streamline
the production process depends, among other things, on its ability to integrate production processes in these areas, as well as
to continue to locate target markets and target customers who are interested in purchasing high-end products that are less sensitive
to cost.
Duration of development and introduction
of new products to the market and costs.
Due to the long period required in order to
develop new technologies and products and the effective ability to introduce such technologies and products to the market, Micronet
is exposed to a risk that at such time the development and market introduction process is finalized, alternative products or similar
products, solutions or services shall be available in the market distributed and sold by our competitors, gaining market share
and acquiring potential customers, all may negatively impact Micronet’s business results and profits.
Economic changes in
Micronet’s target markets may adversely impact its business.
Due to the fact that Micronet’s
target markets are mainly located in North America and Europe, the lack of economic stability in such markets, such as slowdown
or changes to the demands for products or services offered by Micronet, may adversely affect its operations and results
Risks Related to Ownership
of our Securities
Provisions in our corporate charter documents
and under Delaware law could make an acquisition of us, which may be beneficial to our stockholders, more difficult and may prevent
attempts by our stockholders to replace or remove our current management.
Provisions in our certificate of incorporation,
as amended, and amended and restated bylaws may discourage, delay or prevent a merger, acquisition or other change in control of
us that stockholders may consider favorable, including transactions in which you might otherwise receive a premium for your common
stock. These provisions could also limit the price that investors might be willing to pay in the future for our securities, thereby
depressing the market price of our securities. In addition, these provisions may frustrate or prevent any attempts by our stockholders
to replace or remove our current management by making it more difficult for stockholders to replace members of our board of directors.
Because our board of directors is responsible for appointing the members of our management team, these provisions could in turn
affect any attempt by our stockholders to replace current members of our management team.
Moreover, because we are incorporated in Delaware,
we are governed by the provisions of Section 203 of the General Corporation Law of the State of Delaware, or the DGCL, which prohibits
a person who owns in excess of 15% of our outstanding voting stock from merging or combining with us for a period of three years
after the date of the transaction in which the person acquired in excess of 15% of our outstanding voting stock, unless the merger
or combination is approved in a prescribed manner. We have not opted out of the restrictions under Section 203.
Our stockholders may experience significant
dilution as a result of any additional financing using our equity securities and/or debt securities.
To the extent that we raise additional funds
by issuing equity securities, such as through our Standby Equity Distribution Agreement as described below, or convertible debt
securities, our stockholders may experience significant dilution. Sales of additional equity and/or convertible debt securities
at prices below certain levels will trigger anti-dilution provisions with respect to certain securities we have previously sold.
If additional funds are raised through a credit facility, or the issuance of debt securities or preferred stock, lenders under
the credit facility or holders of these debt securities or preferred stock would likely have rights that are senior to the rights
of holders of our common stock, and any credit facility or additional securities could contain covenants that would restrict our
operations.
If the price of our common stock is volatile,
purchasers of our common stock could incur substantial losses.
The price of our common stock has been, and
may continue to be volatile. The market price of our common stock may be influenced by many factors, including but not limited
to the following:
|
●
|
announcements of developments related to our or Micronet’s business;
|
|
●
|
quarterly fluctuations in our actual or anticipated operating results;
|
|
●
|
announcements of technological innovations by Micronet;
|
|
●
|
new products or product enhancements introduced by Micronet or by its competitors;
|
|
●
|
developments in patents and other intellectual property rights and litigation;
|
|
●
|
developments in Micronet’s relationships with our third party manufacturers and/or strategic partners;
|
|
●
|
developments in Micronet’s relationships with our customers and/or suppliers;
|
|
●
|
regulatory or legal developments in the United States, Israel and other countries;
|
|
●
|
general conditions in the global economy; and
|
|
●
|
the other factors described in this “Risk Factors” section.
|
For these reasons and others, you should consider
an investment in our common stock as risky and invest only if you can withstand a significant loss and wide fluctuations in the
value of your investment.
A sale of a substantial number of shares
of our common stock or securities convertible into or exercisable for our common stock may cause the price of our common stock
to decline and may impair our ability to raise capital in the future.
Our common stock is traded on Nasdaq and,
despite certain increases of trading volume from time to time, there have been periods when it could be considered “thinly-traded,”
meaning that the number of persons interested in purchasing our common stock at or near bid prices at any given time may have been
relatively small or non-existent. Finance transactions resulting in a large amount of newly-issued securities may be readily tradable,
or other events that cause current stockholders to sell shares, could place downward pressure on the trading price of our common
stock. In addition, the lack of a robust resale market may require a stockholder who desires to sell a large number of shares of
common stock to sell those shares in increments over time to mitigate any adverse impact of the sales on the market price of our
stock. If our stockholders sell, or the market perceives that our stockholders intend to sell for various reasons, including the
ending of restriction on resale, substantial amounts of our common stock in the public market, including shares issued upon the
exercise of outstanding options or warrants, the market price of our common stock could fall. Sales of a substantial number of
shares of our common stock may make it more difficult for us to sell equity or equity-related securities in the future at a time
and price that we deem reasonable or appropriate. Moreover, we may become involved in securities class action litigation that could
divert management’s attention and harm our business.
If securities or industry analysts do not
publish research or reports or publish unfavorable research about our business, the price of our common stock could decline.
We do not currently have any significant research
coverage by securities and industry analysts and we may never obtain such research coverage. If securities or industry analysts
do not commence or maintain coverage of us, the trading price for our common stock might be negatively affected. In the event
we obtain securities or industry analyst coverage, if one or more of the analysts who covers us or will cover us downgrades our
securities, the price of our common stock would likely decline. If one or more of these analysts ceases to cover us or fails to
publish regular reports on us, interest in the purchase of our common stock could decrease, which could cause the price of our
common stock and trading volume to decline.
We did not declare or pay cash dividends
in either 2018 or 2017 and do not expect to pay dividends for the foreseeable future.
We have no dividends policy and will consider
distributing dividends on a year by year basis. The payment of dividends, if any, in the future, rests within the discretion of
our board of directors and will depend, among other things, upon our earnings, our capital requirements and our financial condition,
as well as other relevant factors. There are no restrictions in our certificate of incorporation, as amended, or amended and restated
bylaws that restrict us from declaring dividends. There are no assurances that we will pay dividends in the future.
Risks Related to Israeli Law and Our Operations
in Israel
Potential political, economic and military
instability in Israel could adversely affect our operations.
Our principal offices and one of Micronet’s
operating facilities are located in Israel. Accordingly, political, economic and military conditions in Israel directly affect
our and Micronet’s operations. Since the establishment of the State of Israel in 1948, a number of armed conflicts have taken
place between Israel and its Arab neighbors. A state of hostility, varying in degree and intensity, has led to security and economic
problems for Israel. Since October 2000, there has been an increase in hostilities between Israel and the Palestinian Arabs, which
has adversely affected the peace process and has negatively influenced Israel’s relationship with its Arab citizens and several
Arab countries, including the Israel-Gaza conflict. Such ongoing hostilities may hinder Israel’s international trade relations
and may limit the geographic markets where Micronet can sell its products and solutions. Hostilities involving or threatening Israel,
or the interruption or curtailment of trade between Israel and its present trading partners, could materially and adversely affect
Micronet’s or our operations.
In addition, Israel-based companies and companies
doing business with Israel have been the subject of an economic boycott by members of the Arab League and certain other predominantly
Muslim countries since Israel’s establishment. Although Israel has entered into various agreements with certain Arab countries
and the Palestinian Authority, and various declarations have been signed in connection with efforts to resolve some of the economic
and political problems in the Middle East, we cannot predict whether or in what manner these problems will be resolved. Wars and
acts of terrorism have resulted in significant damage to the Israeli economy, including reducing the level of foreign and local
investment.
Furthermore, certain of our officers and employees
may be obligated to perform annual reserve duty in the Israel Defense Forces and are subject to being called up for active military
duty at any time. All Israeli male citizens who have served in the army are subject to an obligation to perform reserve duty until
they are between 40 and 49 years old, depending upon the nature of their military service.
Under current Israeli law, the Company
and Micronet
may not be able to enforce our respective Israeli employees’ covenants not to compete and therefore may be unable to prevent
our competitors from benefiting from the expertise of some of our respective former employees.
Previously, the Company and Micronet entered, and the Company
and Micronet may plan in the future to enter into, non-competition agreements with our key employees, in most cases within the
framework of their employment agreements. These agreements prohibit our key employees, if they cease working for us, from competing
directly with us or working for our competitors for a limited period. Under applicable Israeli law, the Company and Micronet may
be unable to enforce these agreements or any part thereof against our Israeli employees. If the Company and Micronet cannot enforce
its non- competition agreements against their respective Israeli employees, then the Company and Micronet may be unable to prevent
their competitors from benefiting from the expertise of these former employees, which could impair the Company’s business,
results of operations and ability to capitalize on Micronet’s proprietary information.
Micronet may become subject to claims for
remuneration or royalties for assigned service invention rights by our employees, which could result in litigation and harm our
business.
A significant portion of the intellectual
property covered by Micronet’s products has been developed by Micronet’s employees in the course of their employment
for Micronet. Under the Israeli Patent Law, 5727-1967, or the Patent Law, and recent decisions by the Israeli Supreme Court and
the Israeli Compensation and Royalties Committee, a body constituted under the Patent Law, Israeli employees may be entitled to
remuneration for intellectual property that they develop for us unless they explicitly waive any such rights. To the extent that
Micronet is unable to enter into agreements with its future employees pursuant to which they agree that any inventions created
in the scope of their employment or engagement are owned exclusively by Micronet (as it has done in the past), Micronet may face
claims demanding remuneration. As a consequence of such claims, Micronet could be required to pay additional remuneration or royalties
to its current and former employees, or be forced to litigate such claims, which could negatively affect its own and our business.
The Israeli identity of certain of Micronet’s
products may adversely affect its ability to sell its products and/or solutions.
The sale of Micronet’s products is
affected in certain countries and may be affected in other countries by the international status of the State of Israel. Israeli
identity may be used in some cases for promoting sales (in light of the recognition of the technological advantages that exist
in Israel) whereas in other cases and is likely to continue to be a disadvantage and result in the cancellation of transactions.
Provisions of Israeli law and Micronet’s
amended and restated articles of association may delay, prevent or otherwise impede a merger with, or an acquisition of, our company,
which could prevent a change of control, even when the terms of such a transaction are favorable to Micronet and its shareholders.
As a company incorporated under the law
of the State of Israel, Micronet is subject to Israeli corporate law. Israeli corporate law regulates mergers, requires tender
offers for acquisitions of shares above specified thresholds, requires special approvals for transactions involving directors,
officers or significant shareholders and regulates other matters that may be relevant to such types of transactions. For example,
a merger may not be consummated unless at least 50 days have passed from the date on which a merger proposal is filed by each merging
company with the Israel Registrar of Companies and at least 30 days have passed from the date on which the shareholders of both
merging companies have approved the merger. In addition, a majority of each class of securities of the target company must approve
a merger. Moreover, a tender offer for all of a company’s issued and outstanding shares can only be completed if the acquirer
receives positive responses from the holders of at least 95% of the issued share capital. Completion of the tender offer also requires
approval of and a majority of the offerees that do not have a personal interest in the tender offer approves the tender offer,
unless, following consummation of the tender offer, the acquirer would hold at least 98% of the company’s outstanding shares.
Furthermore, the shareholders, including those who indicated their acceptance of the tender offer, may, at any time within six
months following the completion of the tender offer, claim that the consideration for the acquisition of the shares does not reflect
their fair market value, and petition an Israeli court to alter the consideration for the acquisition, unless accordingly, other
than those who indicated their acceptance of the tender offer in case the acquirer stipulated in its tender offer that a shareholder
that accepts the offer may not seek such appraisal rights., and the acquirer or the company published all required information
with respect to the tender offer prior to the tender offer’s response date.
Furthermore, Israeli tax considerations may
make potential transactions unappealing to Micronet or to its shareholders whose country of residence does not have a tax treaty
with Israel exempting such shareholders from Israeli tax.
Micronet’s amended and restated articles
of association also contain provisions that could delay or prevent changes in control or changes in its management without the
consent of its board of directors. These provisions include the following:
|
●
|
no cumulative voting in the election of directors,
which limits the ability of minority shareholders to elect director candidates; and
|
|
|
|
|
●
|
the right of Micronet’s board of directors
to elect a director to fill a vacancy created by the expansion of the board of directors or the resignation, death or removal of
a director, which may prevent shareholders from being able to fill vacancies on its board of directors.
|
Micronet’s operations may be disrupted
as a result of the obligation of management or key personnel to perform military service.
Micronet’s employees and consultants
in Israel, including members of its senior management, may be obligated to perform one month, and in some cases longer periods,
of military reserve duty until they reach the age of 40 (or older, for citizens who hold certain positions in the Israeli armed
forces reserves) and, in the event of a military conflict or emergency circumstances, may be called to immediate and unlimited
active duty. In the event of severe unrest or other conflict, individuals could be required to serve in the military for extended
periods of time. In response to increases in terrorist activity, there have been periods of significant call-ups of military reservists.
It is possible that there will be similar large-scale military reserve duty call-ups in the future. Micronet’s operations
could be disrupted by the absence of a significant number of our officers, directors, employees and consultants related to military
service. Such disruption could materially adversely affect Micronet’s business and operations.
Item 1B.
|
Unresolved Staff Comments.
|
Not applicable.
We currently maintain office space in Herzliya,
Israel. The lease agreement is for a term of 24 months, effective as of September 15, 2018. Under the lease agreement, we are currently
occupying approximately 1,184 square feet and our monthly rent obligation is approximately $3,000.
Micronet
currently maintains two facilities in adjacent buildings in Azur, Israel. Both of these facilities are leased, one under a long-term
lease, or the Long Term Lease, under which Micronet has purchased
lease
rights
from the Israeli Land Administration and was accounted as a capital lease. These leases are generally for a term of 49 years with
an option to extend for an additional 49 years. The facility subject to the Long Term Lease is used as Micronet’s headquarters
and the other facility is an industrial building which houses its factory. Micronet’s executive offices occupy approximately
9,150 square feet and house the corporate functions, sales support, and marketing, finance, engineering and operating groups.
The Long Term Lease expires in April 2028, subject to our option to extend the term by another 49 years. We do not pay rent with
respect to this facility because we have purchased the lease rights. The factory facility occupies approximately 9,400 square
feet at approximately $9,118 per month. The facility is used for the manufacturing and logistic support of the business,
including warehouse. During 2018, Micronet paid $140,000 in connection with the Long Term Lease. Micronet believes that its
present facilities are suitable for its existing and projected operations for the near future. Micronet’s U.S. subsidiary,
Micronet Inc., maintains leased offices in Salt Lake City, Utah. Micronet Inc.’s lease was extended on a month to month
basis in May 2016 until either party provides written three months notice to the other. On February 1, 2008, the lease was terminated
and Micronet Inc. entered into an agreement with another lessor in the same building. and the rent cost is approximately $236,244
per year. The factory facility in Salt Lake City occupies approximately 10,101 square feet and is used for the assembly and logistic
support of the business, including warehouse.
Item 3.
|
Legal Proceedings.
|
On March 30, 2017, Micronet announced in an immediate report
filed with the Israeli Securities Authority that it received notice from a client, or the Client, relating to tests performed by
the Client which, to the Client’s belief, revealed a defect in the materials included in the battery integrated into a certain
product of Micronet purchased by the Client. In its immediate report, Micronet clarified that the product at issue is an older
product that has since been replaced by newer models and is part of the portfolio of products purchased from Beijer in June 2014.
The Client filed a complaint, or the Complaint, in this matter with the United States National Highway Traffic Safety Administration,
or the Regulator. The basis of the Complaint relates to similar problems in the specific product that were previously addressed
with the Client pursuant to Micronet’s warranty and in the ordinary course of business. In light of these events, Micronet
performed independent tests to examine the Client’s complaint (including addressing the issue with the battery manufacturer)
and simultaneously addressed the issue with the Regulator, including filing its response to the Complaint. Micronet does not believe
the product in question contains a significant defect, as alleged by the Client and has stated its position in its response to
the Regulator. To date, following almost two years, we have not yet received the Regulator’s response to the Complaint. To
date, Micronet has not yet received the Regulator’s response to the Complaint. Currently, Micronet and the Client have continued
to maintain a business relationship notwithstanding the Complaint and are working together to find a technical and commercial solution
while discussing a resolution to the dispute related to the Complaint. As of the date hereof, the parties each possess certain
claims against the other (Micronet relating to outstanding payments for an existing invoice and the Client with respect to the
alleged damage caused to it relating to the matters identified above). In addition, Micronet has informed its insurance carrier
of the potential claim. At this stage, we are unable to estimate whether this matter, taking into consideration the fact that Micronet
reported that the product discussed is an older generation product that was replaced by marketing of other advanced products, will
have a material adverse effect on Micronet’s prospective sales or on our business.
From time to time we may become subject to litigation incidental
to our business. Other than as set above, Enertec and Micronet are not currently parties to any material legal proceedings.
Item 4.
|
Mine Safety Disclosures.
|
Not applicable.
PART
III
Item
10.
|
Directors,
Executive Officers and Corporate Governance.
|
The
members of our board of directors, or the Board, and our executive officers, together with their respective ages and certain biographical
information are set forth below. Mr. Lucatz receives no compensation for his services as a board member but is entitled to management
services fees paid to a company under his control. Directors hold office until the next annual meeting of our stockholders and
until their successors have been duly elected and qualified. Our executive officers are elected by and serve at the designation
and appointment of the board of directors.
Name
|
|
Age
|
|
|
Position
|
David
Lucatz
|
|
62
|
|
|
Chairman
of the Board, Chief Executive Officer and President
|
Moran
Amran
|
|
38
|
|
|
Principal
Financial Officer
|
Chezy
(Yehezkel) Ofir
(1)(2)(3)
|
|
67
|
|
|
Director
|
Jeffrey
P. Bialos
(1)(2)(3)
|
|
63
|
|
|
Director
|
Miki
Balin
(1)(2)(3)
|
|
48
|
|
|
Director
|
(1)
|
A
member of the Audit Committee.
|
(2)
|
A
member of the Compensation Committee.
|
(3)
|
A
member of the Corporate Governance/Nominating Committee.
|
The
following is a brief account of the business experience of each of our directors and executive officers during the past five years
or more.
David
Lucatz
. Mr. Lucatz was elected to our Board and appointed as our President and Chief Executive Officer in May 2010 and as
a director of Micronet Ltd., our 39.5% owned subsidiary. From May 2010 until the closing of the sale of Enertec Systems 2001 Ltd.,
Mr. Lucatz served as the President of Enertec Systems 2001 Ltd., previously our wholly-owned subsidiary. Since 2006, he has been
the Chairman of the Board, President and Chief Executive Officer of DL Capital Ltd., a boutique investment holding company based
in Israel specializing in investment banking, deal structuring, business development and public/private fund raising with a strong
focus in the defense and homeland security markets. From 2001 until 2006, he was part of the controlling shareholder group and
served as a Deputy President and Chief Financial Officer of I.T.L. Optronics Ltd., a publicly-traded company listed on the TASE
engaged in the development, production and marketing of advanced electronic systems and solutions for the defense and security
industries. From 1998 to 2001, he was the Chief Executive Officer of Talipalast, a leading manufacturer of plastic products. Previously,
Mr. Lucatz was an executive vice president of Securitas, a public finance investments group. Mr. Lucatz holds a B.Sc. in Agriculture
Economics and Management from the Hebrew University of Jerusalem and a M.Sc. in Industrial and Systems Engineering from Ohio State
University.
We
believe that Mr. Lucatz’s experience over the last 25 years in management, operations, finance and business development
in corporate turnaround, roll-up and M&A situations, as well as his experience in the electronics defense and homeland security
sectors, make him suitable to serve as a director of the Company.
Moran
Amran.
Mrs. Amran has been the Company’s Controller since 2011 and in January 2019 was appointed to serve as the Company’s
principal financial officer. From 2010 until 2011, she served as Financial Controller of the Global Consortium on Security Transformation,
a global homeland security organization. From 2006 until 2007, she served as an assistant accountant for Agan Chemicals Ltd. Mrs.
Amran holds a B.A. in Accounting and Business Management from The College of Management Academic Studies in Rishon LeZion, Israel,
obtained an MBA from The Ono Academic College in Kiryat Ono, Israel and is a certified public accountant in Israel.
Chezy
(Yehezkel) Ofir.
Professor Ofir has served on our Board since April 2013. He was appointed as a director of Micronet in September
2012. Professor Ofir has over 20 years of experience in business consulting and corporate management. During this period, Professor
Ofir has served as a member of the boards of directors of a large number of companies in various sectors. Professor Ofir has been
a director and Chairman of the Financial Reporting Committee of Makhteshim Agam, a leading manufacturer and distributor of crop
protection products, has served as a director and member of all board committees of I.T.L. Optronics Ltd., a publicly-traded company
listed on the TASE engaged in the development, production and marketing of advanced electronic systems and solutions for the defense
and security industries, and as a member of the board of directors, Chairman of the Audit Committee and member of all board committees
of Shufersal, the largest food and non-food retail chain in Israel. He served as a member of the Executive Export Trade and Marketing
Committee of the Industry and Trade Ministry where he evaluated company programs and formulated and recommended funding to the
committee. Professor Ofir has been a faculty member at the Hebrew University for more than 20 years. Professor Ofir founded an
Executive MBA program for CEOs, which is the first and only program of its kind in Israel. Additionally, Professor Ofir has been
the Chairman of the Marketing Department at the Hebrew University Business School for fifteen years. Professor Ofir has been invited
as a lecturer or research partner to many top universities, including Stanford University, University of California Berkeley,
New York University and Georgetown University. Professor Ofir’s publications have been covered in media and leading international
business magazines and papers, including The Financial Times, MIT Sloan Management Review and Stanford Business. Professor Ofir
holds a B.Sc. and M.Sc. in Engineering and doctorate and master’s degrees in Business Administration from Columbia University.
We
believe that Professor Ofir’s extensive experience in consulting companies on strategic processes, international business
development, business and marketing strategy, establishing control systems, products and new product strategies and pricing strategy,
makes him suitable to serve as a director of the Company.
Jeffrey
P. Bialos.
Mr. Bialos has served on our Board since April 2013. Mr. Bialos has over 30 years of experience in a broad range
of domestic and international legal, governmental and public policy positions. He served as Deputy Under Secretary of Defense
for Industrial Affairs from January 1999 through December 2001 and in senior positions at the State and Commerce Department during
the Clinton Administration and served on Defense Science Board task forces from June 1996 through June 1997. He also was appointed
to the Secure Virginia Panel, Virginia’s homeland security board, by two Virginia Governors. Mr. Bialos also spent considerable
time in private legal practice in Washington, D.C. with two large national law firms (currently, Sutherland, Asbill & Brennan
LLP where he has been a partner since 2002 and, previously, Weil, Gotshal & Manges from January 1990 through June 1996). He
has represented a wide range of domestic and foreign firms (including large multinational corporations and leading defense and
aerospace firms), foreign governments, development institutions such as the European Bank for Reconstruction and Development and
the International Finance Corporation, private equity funds, public-private partnerships and other entities, in a diverse range
of corporate and commercial, adjudicatory, regulatory, policy and interdisciplinary matters. He has considerable experience in
Europe, the Middle East and Asia. Mr. Bialos holds a J.D. from the University of Chicago Law School, a M.P.P. from the Kennedy
School of Government at Harvard University and an A.B. from Cornell University. He is a member of the New York Council on Foreign
Relations.
We
believe that Mr. Bialos’ broad and intimate familiarity with the aerospace, defense, information technology, space and homeland
security industries and the depth and breadth of his professional experience as a practicing lawyer and former government official,
make him suitable to serve as a director of the Company.
Miki
Balin.
Mr. Balin has served on our Board since April 2013. Mr. Balin has been the Chief Executive Officer and founder of Targetingedge
Ltd., a subsidiary of TLVmedia Ltd. since 2013. Prior to Targetingedge he founded WinBuyer in 2006 and Conversion Methods in 2004,
which developed products for e-retailers. Mr. Balin has devoted much of his career to managing marketing-related ventures. Prior
to establishing Conversion Methods and WinBuyer, he founded Balin, Adatto & Cohen, a leading healthcare consulting and advertising
firm in Israel. He also managed a family-owned food distribution company, and served as general manager of the Rina Shinfeld Ballet
Theatre, where he still serves as a director. In 2011, WinBuyer was awarded the “Best Product at eCommerce Expo” for
its product Winbuyer 2.0.
We
believe that Mr. Balin’s experience as a business and marketing executive make him suitable to serve as a director of the
Company.
There
are no arrangements or understandings with major stockholders, customers, suppliers or others pursuant to which any of our directors
or members of senior management were selected as such. In addition, there are no family relationships among our executive officers
and directors.
Our
future success depends, in significant part, on the continued service of certain key executive officers, managers, and sales and
technical personnel, who possess extensive expertise in various aspects of our business. We may not be able to find an appropriate
replacement for any of our key personnel. Any loss or interruption of our key personnel’s services could adversely affect
our ability to implement our business plan. It could also result in our failure to create and maintain relationships with strategic
partners that are critical to our success. We do not presently maintain key-man life insurance policies on any of our officers.
Corporate
Governance
Our
board of directors is currently comprised of four directors. Mr. Lucatz, our chairman, President and Chief Executive Officer,
is not independent as that term is defined under the Nasdaq Listing Rules. Professor Ofir and Messrs. Bialos, and Balin have been
directors since our public offering. Each of Professor Ofir and Messrs. Bialos, and Balin qualify as “independent”
under the Nasdaq Listing Rules, and SEC rules with respect to members of boards of directors. Our Audit Committee, Compensation
Committee and Corporate Governance/Nominating Committee, and otherwise meet the Nasdaq corporate governance requirements.
Our
board of directors has three standing committees: the Compensation Committee, the Audit Committee and the Corporate Governance/Nominating
Committee.
Audit
Committee
The
members of our Audit Committee are Professor Ofir, Mr. Bialos and Mr. Balin. Professor Ofir is the Chairman of the Audit Committee,
and our board of directors has determined that Professor Ofir is an “Audit Committee financial expert” and that all
members of the Audit Committee are “independent” as defined by the rules of the SEC and the Nasdaq rules and regulations.
The Audit Committee operates under a written charter that is posted on our website at
www.mict-inc.com.
The primary responsibilities
of our Audit Committee include:
|
●
|
Appointing,
compensating and retaining our registered independent public accounting firm;
|
|
|
|
|
●
|
Overseeing
the work performed by any outside accounting firm;
|
|
●
|
Assisting
the board of directors in fulfilling its responsibilities by reviewing: (1) the financial reports provided by us to the SEC,
our stockholders or to the general public and (2) our internal financial and accounting controls; and
|
|
|
|
|
●
|
Recommending,
establishing and monitoring procedures designed to improve the quality and reliability of the disclosure of our financial
condition and results of operations.
|
Compensation
Committee
The
members of our Compensation Committee are Professor Ofir, Mr. Bialos and Mr. Balin. Professor Ofir is the Chairman of the Compensation
Committee and our board of directors has determined that all of the members of the Compensation Committee are “independent”
as defined by the rules of the SEC and Nasdaq rules and regulations. The Compensation Committee operates under a written charter
that is posted on our website at
www.mict-inc.com.
The primary responsibilities of our Compensation Committee include:
|
●
|
Reviewing
and recommending to our board of directors of the annual base compensation, the annual incentive bonus, equity compensation,
employment agreements and any other benefits of our executive officers;
|
|
|
|
|
●
|
Administering
our equity based compensation plans and exercising all rights, authority and functions of the board of directors under all
of the Company’s equity compensation plans, including without limitation, the authority to interpret the terms thereof,
to grant options thereunder and to make stock awards thereunder; and
|
|
●
|
Annually
reviewing and making recommendations to our board of directors with respect to the compensation policy for such other officers
as directed by our board of directors.
|
The
Compensation Committee meets, as often as it deems necessary, without the presence of any executive officer whose compensation
it is then approving. Neither the Compensation Committee nor the Company engaged or received advice from any compensation consultant
during 2018.
Corporate
Governance/Nominating Committee
The
members of our Corporate Governance/Nominating Committee are Professor Ofir, Mr. Bialos and Mr. Balin. Professor Ofir is the Chairman
of the Corporate Governance/Nominating Committee and our board of directors has determined that all of the members of the Corporate
Governance/Nominating Committee are “independent” as defined by Nasdaq rules and regulations. The Corporate Governance/Nominating
Committee operates under a written charter that is posted on our website at
www.mict-inc.com
. The primary responsibilities
of our Corporate governance and Nominating Committee include:
|
●
|
Assisting
the board of directors in, among other things, effecting board organization, membership and function including identifying
qualified board nominees; effecting the organization, membership and function of board of directors committees including composition
and recommendation of qualified candidates; establishment of and subsequent periodic evaluation of successor planning for
the Chief Executive Officer and other executive officers; development and evaluation of criteria for board membership such
as overall qualifications, term limits, age limits and independence; and oversight of compliance with applicable corporate
governance guidelines; and
|
|
●
|
Identifying
and evaluating the qualifications of all candidates for nomination for election as directors.
|
Potential
nominees will be identified by the board of directors based on the criteria, skills and qualifications that will be recognized
by the Corporate Governance/Nominating Committee. In considering whether to recommend any particular candidate for inclusion in
the board’s slate of recommended director nominees, our Corporate Governance/Nominating Committee will apply criteria including
the candidate’s integrity, business acumen, knowledge of our business and industry, age, experience, diligence, conflicts
of interest and the ability to act in the interests of all stockholders. No particular criteria will be a prerequisite or will
be assigned a specific weight, nor do we have a diversity policy. We believe that the backgrounds and qualifications of our directors,
considered as a group, should provide a composite mix of experience, knowledge and abilities that will result in a well-rounded
board of directors and allow the board of directors to fulfill its responsibilities.
There
have not been any changes in our process for nominating directors.
Section
16(a) Beneficial Ownership Reporting Compliance
Section
16(a) of the Exchange Act requires our executive officers and directors, and persons who own more than 10% of our common stock,
to file reports regarding ownership of, and transactions in, our securities with the SEC and to provide us with copies of those
filings. Based solely on our review of the copies of such forms received by us, or written representations from certain reporting
persons, except for (i) the Form 4 filed by Mikhael Balin on June 11, 2018, (ii) the Form 3 filed by BNN Technology PLC filed
on July 2, 2018, (iii) the Form 4 filed by Mikhael Balin on September 13, 2018, (iv) the Form 4 filed by Jeffrey Bialos on September
13, 2018 and (v) the Form 4 filed by Ofir Yehezkel on September 13, 2018, we believe that during fiscal year ended December 31,
2018, all filing requirements applicable to our officers, directors and ten percent beneficial owners were complied with.
Code
of Ethics
We
have adopted a Code of Business Conduct and Ethics that applies to our directors, executive officers and all of our employees.
The Code of Business Conduct and Ethics is available on our website at
www.mict-inc.com
and we will provide, at no charge,
persons with a written copy upon written request made to us.
We
intend to satisfy the disclosure requirement under Item 5.05 of Form 8-K regarding an amendment to, or waiver from, a provision
of our Code of Business Conduct and Ethics by posting such information on the website address specified above.
Item
11.
|
Executive
Compensation
|
The
following information is furnished for the years ended December 31, 2018 and December 31, 2017 for the individuals listed on the
table below, who we refer to as our named executive officers.
Name and Principal Position
|
|
Year
|
|
Salary (1)
|
|
|
Bonus (2)
|
|
|
Option Awards (3)
|
|
|
All Other Compensation (4)
|
|
|
Total
|
|
David Lucatz (5)
|
|
2018
|
|
$
|
393,305
|
|
|
|
300,000
|
|
|
|
217,641
|
|
|
|
5,438
|
|
|
|
916,384
|
|
Chief Executive Officer and President
|
|
2017
|
|
$
|
325,226
|
|
|
|
-
|
|
|
|
0
|
|
|
|
5,278
|
|
|
|
330,504
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tali Dinar
|
|
2018
|
|
$
|
220,912
|
|
|
|
|
|
|
|
39,254
|
|
|
|
22,139
|
|
|
|
282,305
|
|
Chief Financial Officer (6)
|
|
2017
|
|
$
|
167,965
|
|
|
|
|
|
|
|
12,438
|
|
|
|
25,467
|
|
|
|
205,870
|
|
(1)
|
Salary paid partly in NIS and partly in U.S. dollars.
The amounts are converted according to the average foreign exchange rate U.S. dollar/NIS for 2018 and 2017, respectively.
|
(2)
|
Represents discretionary bonus in connection with the
performance and achievements of MICT.
|
(3)
|
The fair value recognized for such option awards was
determined as of the grant date in accordance with Accounting Standards Codification, or ASC, Topic 718. Assumptions used in the
calculations for these amounts are included in Note 13 to the consolidated financial statements for the year ended December 31,
2018 included elsewhere in this Annual Report.
|
(4)
|
Includes the following: pay-out of unused vacation days,
personal use of company car (including tax gross-up), personal use of company cell phone, contributions to manager’s insurance
(retirement and severance components), contributions to advanced study fund, recreational allowance, premiums for disability insurance
and contributions to pension plan. In addition, Ms. Dinar was entitled to receive director compensation from Micronet as a member
of the board of directors of Micronet, pursuant to the Israeli Companies Law regulations (compensation and expenses reimbursement
for independent directors). Mrs. Dinar’s compensation and expenses reimbursement for serving as a director of Micronet amounted
to a total of $7,570 and $12,000 for the periods ended December 31, 2018 and 2017, respectively. On August 13, 2018, Mrs. Tali
Dinar, MICT’s Chief Financial Officer, and MICT jointly agreed to terminate her employment. Mrs. Dinar then continued to
provide her services to MICT as required under Israeli law/her engagement agreement until January 13, 2019. Mrs. Dinar’s
employment termination was not as a result of any disagreement or dispute with MICT but rather as a result of the current needs
of MICT as a result from the sale of Enertec.
|
(5)
|
Pursuant to an agreements between the Micronet and entities
controlled by Mr. Lucatz, through July 6, 2017, Mr. Lucatz was entitled to receive management fees of NIS 65,000 (approximately
$18,172) on a monthly basis, or the Micronet Management Fees, and cover other monthly expenses, or the Micronet Agreement. Effective
July 6, 2017, the Micronet Management Fees were reduced to NIS 23,000 and as of October 31, 2018, the Micronet Management Fees
were reduced to zero.
|
On
November 26, 2012, DLC entered into a 36-month management and consulting services agreement with MICT, effective November 1, 2012,
which provided that MICT (via any of its directly or indirectly fully owned subsidiaries) will pay the entities controlled by
Mr. Lucatz: (1) management fees of $13,333 on a monthly basis, and cover other monthly expenses, (2) an annual bonus of 3% of
the amount by which the annual earnings before interest, tax, depreciation and amortization, or EBITDA, for such year exceeds
the average annual EBITDA for 2011 and 2010, and (3) a one-time bonus of 0.5% of the purchase price of any acquisition or capital
or debt raising transaction, excluding only a specified 2013 public equity offering, completed by us during the term of the agreement.
According to the agreement, the management and consulting services agreement between DLC and MICT automatically renewed for a
successive one-year term on the same terms and conditions. On June 6, 2018, the Compensation Committee of MICT approved maintaining
Mr. Lucatz’s annual base salary of $400,000.
In
addition, on June 6, 2018, the Compensation Committee of MICT approved a discretionary cash bonus to Mr. Lucatz, MICT’s
Chief Executive Officer, in the aggregate amount of $300,000 as well the issuance of a stock option to purchase 300,000 shares
of MICT’s common stock, with an exercise price of $1.32 per share, with 100,000 shares of common stock vesting immediately
and 100,000 shares of common stock vesting on each of the first two anniversaries of the date of grant. The bonus and option were
granted to Mr. Lucatz in light of his contributions to MICT’s successful sale of its then wholly owned subsidiary, Enertec
Systems 2001 Ltd.
(6)
Ms. Dinar resigned as MICT’s Chief Financial Officer effective as of January 13, 2019.
Employment
Agreements
None
of our employees is subject to a collective bargaining agreement.
Outstanding
Equity Awards
During
2018, 723,000 options were issued to our directors, officers and employees under our 2012 Incentive Plan and 82,500 shares were
issued to our directors, officers and employees under our 2014 Incentive Plan. The following table presents the outstanding equity
awards held as of December 31, 2018, by our named executive officers:
|
|
Option Awards
|
|
|
|
Number of
securities
underlying
unexercised
options (#)
exercisable
|
|
|
Number of securities
underlying
unexercised options
unexercisable
|
|
|
Option exercise
price ($)
|
|
|
Option
expiration
date
|
David Lucatz
|
|
|
250,000
|
|
|
|
-
|
|
|
|
4.30
|
|
|
11/11/2024
|
|
|
|
250,000
|
|
|
|
-
|
|
|
|
1.32
|
|
|
06/06/2028
|
|
|
|
100,000
|
|
|
|
200,000
|
|
|
|
1.32
|
|
|
06/06/2028
|
Tali Dinar
|
|
|
80,000
|
|
|
|
-
|
|
|
|
4.30
|
|
|
11/11/2024
|
|
|
|
80,000
|
|
|
|
-
|
|
|
|
1.32
|
|
|
06/06/2028
|
Director
Compensation
The
following table provides information regarding compensation earned by, awarded or paid to each person for serving as a director
who is not an executive officer during the fiscal year ended December 31, 2018:
Name(1)
|
|
Fees Earned or paid in cash
($) (4)
|
|
|
Option
Awards
($)(2)(3)
|
|
|
Stock
Awards
($) (5)
|
|
|
All Other
Compensation
($)
|
|
|
Total
($)
|
|
Chezy (Yehezkel) Ofir
|
|
$
|
12,200
|
|
|
$
|
13,114
|
|
|
$
|
36,800
|
|
|
|
-
|
|
|
$
|
62,114
|
|
Jeffrey P. Bialos
|
|
$
|
12,200
|
|
|
$
|
13,114
|
|
|
$
|
36,800
|
|
|
|
-
|
|
|
$
|
62,114
|
|
Miki Balin
|
|
$
|
12,200
|
|
|
$
|
13,114
|
|
|
$
|
36,800
|
|
|
|
-
|
|
|
$
|
62,114
|
|
(1)
|
Mr.
Lucatz, who serves as our Chairman, Chief Executive Officer and President, is not included in this table because he receives
no compensation for his services as a director. The compensation received by Mr. Lucatz is as shown above in the Summary Compensation
Table.
|
|
|
(2)
|
The
fair value recognized for such option awards was determined as of the grant date in accordance with ASC Topic 718. Assumptions
used in the calculations for these amounts are included in Note 13 to our consolidated financial statements for the year ended
December 31, 2018 included elsewhere in this Annual Report.
|
(3)
|
As
of December 31, 2018, each of the directors listed in the table above held options to purchase 35,000 shares, 5,000 of which
were granted on April 29, 2013 and 5,000 of which were granted on November 11, 2014, each exercisable at an exercise price
of $4.30 per share. Such options vested within three years following the date of grant. In addition, options to purchase 10,000
shares were granted to each director listed above on June 6, 2018 at an exercise price of $1.32 per share and options to purchase
15,000 shares were granted to each director listed above on August 13, 2018 at an exercise price of $1.4776 per share. All
of the options have vested. As of December 31, 2018, each of the directors listed in this table held options to purchase 105,000
shares of MICT common stock.
|
(4)
|
For
the year ended December 31, 2018, we paid an aggregate amount of $36,600 to our directors as compensation for serving on our
board of directors. Independent directors received $12,000 plus applicable taxes for the year of service as a director of
the Company. Independent directors receive $200 (or $100 if the director participates via telephone or video conference) for
each meeting in excess of three meetings in any month.
|
|
|
(5)
|
Each
non-employee director was granted 25,000 shares of MICT common stock on June 6, 2018.
|
Other
than as described above, we have no present formal plan for compensating our directors for their service in their capacity as
directors. Directors are entitled to reimbursement for reasonable travel and other out-of-pocket expenses incurred in connection
with attendance at meetings of our board of directors. The board of directors may award special remuneration to any director undertaking
any special services on our behalf other than services ordinarily required of a director. Other than indicated above, no director
received and/or accrued any compensation for his or her services as a director, including committee participation and/or special
assignments during 2018.
Item
12.
|
Security
Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
|
The
following table sets forth certain information, as of March 27, 2019, with respect to the beneficial ownership of the outstanding
common stock held by (1) each person known by us to be the beneficial owner of more than 5% of our common stock; (2) our current
directors; (3) each of our named executive officers; and (4) our executive officers and current director as a group. Unless otherwise
indicated, the persons named in the table below have sole voting and investment power with respect to the number of shares indicated
as beneficially owned by them. Unless otherwise indicated, the address for each of the below persons is c/o MICT, Inc., 20 Galali
Haplada St., Herzelya Israel.
Name
|
|
Number of Shares Beneficially Owned
|
|
|
Percentage of Shares Beneficially Owned(1)
|
|
5% Stockholders
|
|
|
|
|
|
|
D.L. Capital Ltd.(2)
|
|
|
1,234,200
|
|
|
|
11.5
|
%
|
BNN Technology PLC(3)
|
|
|
1,363,000
|
|
|
|
12.7
|
%
|
UTA Capital LLC(4)
|
|
|
726,746
|
|
|
|
6.8
|
%
|
Meydan(5)
|
|
|
600,000
|
|
|
|
5.6
|
%
|
Directors and Named Executive Officers
|
|
|
|
|
|
|
|
|
David Lucatz(2)(6)
|
|
|
1,834,200
|
|
|
|
14.1
|
%
|
Tali Dinar(7)
|
|
|
172,500
|
|
|
|
1.33
|
%
|
Chezy (Yehezkel) Ofir(8)
|
|
|
60,000
|
|
|
|
0.46
|
%
|
Jeffrey P. Bialos(9)
|
|
|
157,424
|
|
|
|
1.2
|
%
|
Miki Balin(10)
|
|
|
60,000
|
|
|
|
0.467
|
%
|
Directors and executive officers as a group (6 persons) (11)
|
|
|
2,284,124
|
|
|
|
17.55
|
%
|
(1)
|
Applicable
percentage ownership is based on 13,018,732 shares of Common Stock outstanding as of March 27, 2019, together with securities
exercisable or convertible into shares of Common Stock within 60 days of March 27, 2019 for each stockholder. Beneficial ownership
is determined in accordance with the rules of the SEC and generally includes voting or investment power with respect to securities.
Shares of Common Stock that are currently exercisable or exercisable within 60 days of March 31, 2018 are deemed to be beneficially
owned by the person holding such securities for the purpose of computing the percentage of ownership of such person, but are
not treated as outstanding for the purpose of computing the percentage ownership of any other person.
|
|
|
(2)
|
Mr.
Lucatz, by virtue of being the controlling shareholder of DLC as well as the Chief Executive Officer and Chairman of the board
of directors of DLC, may be deemed to beneficially own the 1,234,200 shares of our Common Stock held by DLC.
|
|
|
(3)
|
According
to information contained in Schedule 13D filed on July 2, 2018 with the SEC.
|
(4)
|
According
to information contained in Schedule 13G/A filed jointly on February 18, 2014 with the SEC and a Form 4 filed jointly on November
12, 2014 with the SEC by (1) UTA Capital LLC; (2) the members or beneficial owners of membership interests in UTA, which include
(a) YZT Management LLC, a New Jersey limited liability company and the managing member of UTA, and (b) Alleghany Capital Corporation,
a Delaware corporation and a member of UTA; (3) Alleghany Corporation, a publicly-traded Delaware corporation of which Alleghany
Capital Corporation is a wholly-owned subsidiary; and (iv) Udi Toledano, the managing member of YZT Management LLC. Based
on those filings and information subsequently available to us, as of March 31, 2017, UTA held sole voting and dispositive
power with respect to such shares. YZT Management LLC, Alleghany Capital Corporation, Alleghany Corporation, and Udi Toledano
have shared voting and dispositive power with respect to such shares by virtue of their relationships with UTA. UTA’s
principal business address is 100 Executive Drive, Suite 330, West Orange, New Jersey.
|
|
|
(5)
|
According
to information contained in a Schedule 13G/A filed on May 9, 2013 with the SEC. Based on this filing and information subsequently
available to us, as of April 14, 2016, Meydan held sole voting and dispositive power with respect to such shares. Meydan’s
principal business address is 38A Lansell Road, Toorak, Australia VIC 3142.
|
|
|
(6)
|
Includes
600,000 shares of common stock issuable upon the exercise of stock options owned by Mr. Lucatz.
|
|
|
(7)
|
Includes
160,000 shares of common stock issuable upon the exercise of stock options owned by Mrs. Dinar.
|
|
|
(8)
|
Includes
35,000 shares of common stock issuable upon the exercise of stock options owned by Mr. Ofir.
|
|
|
(9)
|
Includes
35,000 shares of common stock issuable upon the exercise of stock options owned by Mr. Bialos.
|
|
|
(10)
|
Includes
35,000 shares of common stock issuable upon the exercise of stock options owned by Mr. Balin.
|
|
|
(11)
|
Includes
865,000 shares of common stock issuable upon the exercise of stock options beneficially owned by the referenced persons.
|
Securities
Authorized For Issuance Under Equity Compensation Plans
The
following table summarizes the options granted under the 2012 Stock Incentive Plan and 2014 Stock Incentive Plan as of December
31, 2018. The shares covered by outstanding options are subject to adjustment for changes in capitalization, stock splits, stock
dividends and similar events.
Plan Category
|
|
Number of securities to be issued upon exercise of outstanding options, warrants and rights
|
|
|
Weighted-average exercise price of outstanding options, warrants and rights
|
|
|
Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a))
|
|
|
|
(a)
|
|
|
(b)
|
|
|
(c)
|
|
Equity compensation plans approved by security holders
|
|
|
1,297,000
|
|
|
$
|
2.33
|
|
|
|
3,703,000
|
|
Equity compensation plans not approved by security holders
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Total
|
|
|
1,297,000
|
|
|
$
|
2.33
|
|
|
|
3,703,000
|
|
Pursuant
to our 2012 Stock Incentive Plan, as amended, our board of directors is authorized to award stock options to purchase shares of
common stock to our officers, directors, employees and certain others, up to a total of 5,000,000 shares of common stock, subject
to adjustment in the event of a stock split, stock dividend, recapitalization or similar capital change.
Pursuant
to our 2014 Stock Incentive Plan, our board of directors is authorized to issue stock options, restricted stock and other awards
to officers, directors, employees, consultants and other service providers in an amount up to a total of 600,000 shares of common
stock.
As
of December 31, 2018, 396,775 stock options remain available for future awards under the 2014 Stock Incentive Plan. As of December
31, 2018, 3,703,000 stock options remain available for future awards under the 2012 Stock Incentive Plan.
Item
13.
|
Certain
Relationships and Related Transactions, and Director Independence.
|
MICT’s
policy is to enter into transactions with related parties on terms that are on the whole no less favorable to it than those that
would be available from unaffiliated parties at arm’s length. Based on its experience in the business sectors in which it
operates and the terms of the transactions with unaffiliated third parties, MICT believes that all of the transactions described
below met this policy standard at the time they occurred.
On November 7, 2012, the board of directors and the audit committee
of Micronet approved the entry into the Micronet Agreement which is a management and consulting services agreement with DLC, an
entity controlled by Mr. Lucatz, MICT’s Chief Executive Officer and significant shareholder, pursuant to which effective
November 1, 2012, Mr. Lucatz agreed to devote 60% of his time to Micronet matters for the three year term of the agreement and
Micronet agreed to pay the Micronet Management Fees to the entities controlled by Mr. Lucatz, and cover other monthly expenses.
Such agreement was further subject to the approval of Micronet’s stockholders, which was obtained at a special meeting held
on January 30, 2013 for that purpose and went into effect following its execution on February 8, 2013. The Micronet Agreement was
extended on November 1, 2015 for three years on the same terms and conditions and was approved by Micronet’s board of directors
on October 11, 2015 and Micronet’s shareholders on November 16, 2015. Effective July 6, 2017, DLC has consented to reduce
the Micronet Management Fees to NIS 23,000 and by its further consent, as of October 31, 2018 management and consulting services
are rendered for no consideration.
On
November 26, 2012, DLC entered into a management and consulting services agreement with MICT, effective November 1, 2012, which
provides that MICT would pay the entities controlled by Mr. Lucatz: (i) management fees of $13,333 on a monthly basis, and cover
other monthly expenses, (ii) an annual bonus of 3% of the amount by which the annual EBITDA for such year exceeds the average
annual EBITDA for 2011 and 2010, and (iii) a bonus of 0.5% of the purchase price of any acquisition or capital raising transaction,
excluding the public offering contemplated at such time, completed by us during the term of the agreement.
On
June 6, 2018, the Compensation Committee of MICT approved maintaining Mr. Lucatz’s annual base salary of $400,000. In addition,
on June 6, 2018, the Compensation Committee of MICT approved a discretionary cash bonus to Mr. Lucatz, MICT’s Chief Executive
Officer, in the aggregate amount of $300,000 as well the issuance of a stock option to purchase 300,000 shares of MICT’s
common stock, with an exercise price of $1.32 per share, with 100,000 shares of common stock vesting immediately and 100,000 shares
of common stock vesting on each of the first two anniversaries of the date of grant. The bonus and option were granted to Mr.
Lucatz in light of his contributions to MICT’s successful sale of its then wholly owned subsidiary, Enertec Systems 2001
Ltd.
On
December 30, 2015, MICT entered into the Meydan Loan pursuant to which Meydan agreed to loan MICT $750,000 on certain terms and
conditions. As of December 31, 2017, the balance of the loan was $326,000. The Meydan Loan was fully paid in March 2018.
On November 19, 2018, the Company and DLC, a company owned by
our President and Chief Executive Officer, each provided, separately and jointly, to Micronet, a commitment to provide Micronet
with an aggregate amount of $400,000, subject to the Company being the sole investor in a transaction between the Company and Micronet,
of a minimum investment of $250,000, whereby DLC would provide up to an additional $150,000. As of December 15, 2018, this commitment
is no longer in effect.
On
February 24, 2019, Mr. David Lucatz, our President and Chief Executive Officer, participated in Micronet’s public equity
offering on the TASE. Mr. Lucatz purchased 1,980 units, with each unit consisting of 1,000 ordinary shares of Micronet and options
to purchase 400 ordinary shares of Micronet, at a price per unit of NIS 435 (approximately $123), for an aggregate investment
of NIS 435,000 (approximately $123,000) by Mr. Lucatz. As a result of this offering, the Company’s ownership and voting
interests in Micronet were each diluted.
Subject
to, and upon closing of, the Acquisitions, MICT will issue to its directors/officers the following awards (i) to each of MICT’s
Board members, 300,000 options to purchase MICT Common Stock (1,200,000 options in the aggregate) with an exercise price equal
to the purchase price per share of Merger Sub stock which shall be granted as success bonuses under MICT’s existing 2012
and 2014 Stock Incentive Plans or under the Merger Sub equity plan (including the Merger Sub Israeli sub-plan) and which shall
be, converted into MICT Replacement Options (as described in Section 2.6(b) of the Acquisition Agreement) and which, for the,
avoidance of doubt, and notwithstanding the termination of the employment or directorship of the, option holder, shall expire
on the 15 month anniversary of the closing date); and (ii) up to an additional, 300,000 restricted shares of MICT common stock,
to be issued to officers and service providers of MICT and to Mr. Jeffrey P. Bialos, a director of MICT, who shall be entitled
to 80,000 restricted shares as consideration for certain special efforts and services in actively participating in negotiations
for the Acquisition Agreement and the transactions contemplated thereby.
Except
as described above, no director, executive officer, principal stockholder holding at least 5% of MICT common stock, or any family
member thereof, had or will have any material interest, direct or indirect, in any transaction, or proposed transaction, during
2018 in which the amount involved in the transaction exceeded or exceeds $120,000 or one percent of the average of the total assets
of MICT at the year-end for the last two completed fiscal years.
Item
14.
|
Principal
Accounting Fees and Services.
|
The
fees billed by BDO Ziv Haft, our independent registered public accounting firm, for professional services provided to the Company
for each of the last two fiscal years were as follows:
|
|
Year ended on December 31,
|
|
|
Year ended on December 31,
|
|
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
Audit Fees
|
|
$
|
91,628
|
|
|
$
|
86,500
|
|
|
|
|
|
|
|
|
|
|
Audit-Related Fees
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
Tax Fees
|
|
$
|
-
|
|
|
$
|
18,000
|
|
|
|
|
|
|
|
|
|
|
All Other Fees
|
|
|
21,552
|
|
|
|
-
|
|
Total Fees
|
|
$
|
113,180
|
|
|
$
|
104,500
|
|
Audit
Fees
Audit
fees are for audit services for each of the years shown in this table, review of our quarterly financial results submitted on
Form 10-Q, and performance of local statutory audits.
Tax
Fees
Tax
fees in 2018 were for professional services rendered by our auditors for tax advice on actual or contemplated transactions, audit
of tax return and IIA incentives.
Audit
Committee Pre-Approval Policies and Procedures
Currently,
the audit committee acts with respect to audit policy, choice of auditors, and approval of out of the ordinary financial transactions.
The audit committee pre-approves all services provided by our independent registered public accounting firm. All of the above
services and fees were reviewed and approved by the audit committee before the services were rendered.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(In
Thousands)
NOTE
1 — DESCRIPTION OF BUSINESS
Overview
MICT
Inc ("the Company") were formed as a Delaware corporation on January 31, 2002. On March 14, 2013, the Company changed
our corporate name from Lapis Technologies, Inc. to Micronet Enertec Technologies, Inc. On July 13, 2018, following the sale of
our former subsidiary Enertec Systems Ltd., the Company changed the Company name from Micronet Enertec Technologies, Inc. to MICT,
Inc. Our shares have been listed for trade on the Nasdaq Capital Market, or Nasdaq, since April 29, 2013.
The
Company operates primarily through an Israel-based subsidiary, Micronet Ltd., or Micronet, in which the Comapny previously had
a majority ownership interest that has since been diluted to a minority ownership interest.
As
of December 31st, 2018 the Company held 50.07% of Micronet's issued and outstanding shares. On February 24, 2019, Micronet
closed a public equity offering on the Tel Aviv Stock Exchange, or the TASE and as result of this offering, our ownership
interest in Micronet was diluted from 49.89% to 33.88%. In addition, on February 24, 2019, Mr. David Lucatz, our President
and Chief Executive Officer, executed an irrevocable proxy assigning his voting power over 1,980,000 shares of Micronet for
our benefit. As a result, our current voting interest in Micronet stands at 39.53% of the issued and outstanding shares of
Micronet. The decrease in the Company’s voting interest in Micronet will
result in deconsolidation of Micronet
and therefore, from February 24, 2019 the Company will account for the investment in Micronet in accordance with the
equity method. The Company is still assessing the gain/loss that will be recorded, as a result thereof.
Micronet
operates in the growing commercial Mobile Resource Management, or MRM, market. Micronet through both its Israeli and U.S. operational
offices designs, develops, manufactures and sells rugged mobile computing devices that provide fleet operators and field workforces
with computing solutions in challenging work environments. Micronet’s vehicle portable tablets increase workforce productivity
and enhance corporate efficiency by offering computing power and communication capabilities that provide fleet operators with
visibility into vehicle location, fuel usage, speed and mileage. This enables the users to manage the drivers in various aspects
such as: driver identification, reporting hours worked customer/organization working procedures and protocols, route management
and navigation based on tasks and time schedule. End users may also receive real time messages for various services such as pickup
and delivery, repair and maintenance, status reports, alerts, notices relating to the start and ending of work, digital forms,
issuing and printing of invoices and payments. In addition, using its recently launched SmartHub (formerly known as Treq5), Micronet
provides third party telematics service providers a platform to offer services such as “Hours of Service,” or HOS.
Micronet is also commencing an evaluation of integration with other telematics service providers, or TSPs. Through its SmartHub
product, Micronet provides its consumers with services such as driver recognition, identifying and preventing driver fatigue,
recognizing driver behavior, preventive maintenance, fuel efficiency and an advance driver assistance system.
Micronet’s
customers consist primarily of application service providers, ASP's and solution providers specializing in the MRM market. These
companies sell Micronet’s products as part of their MRM systems and solutions. Currently, Micronet does not sell directly
to end users. Micronet customers are generally MRM solution and service providers, ASP providers in the transportation market,
including long haul, local fleets’ student transportation (yellow busses) and fleet and field management systems for constructions
and heavy equipment. Micronet products are used by customers worldwide.
Micronet
operates and conducts its business in the U.S market through Micronet Inc., a fully owned subsidiary located in Utah. The Micronet
U.S business, operations and facilities include manufacturing and technical support infrastructure as well as sales and marketing
capabilities which allow Micronet to continue and expand into the U.S market and support its existing U.S. based customers, all
with further accessibility and presence to local fleets and local MRM service providers.
NOTE
1 — DESCRIPTION OF BUSINESS (CONT.)
Pursuant to the
February 2019, equity offering on the Tel Aviv Stock Exchange, Micronet raised a total of NIS 5,003 (approximately $1,400) in aggregate
gross proceeds in consideration for the issuance of in the aggregate of 11,500,000 ordinary shares and 4,600,000 options.
On
December 31, 2017, the Company, Enertec, previously our wholly owned subsidiary, and Enertec Management Ltd., entered into a Share
Purchase Agreement, or the Share Purchase Agreement, with Coolisys Technologies Inc., or Coolisys, a subsidiary of DPW Holdings,
Inc., or DPW, pursuant to which
the Company
agreed
to sell the entire share capital of Enertec to Coolisys. As consideration for the sale of Enertec’s entire share capital,
Coolisys agreed to pay, at the closing of the transaction, a purchase price of $5,250 as well as assume up to $4,000 of Enertec
debt. Enertec met the definition of a component as defined by Financial Accountings Standards Board, or FASB, Accounting Standards
Codification, or ASC, Topic 205. The Company believes the sale represents a strategic shift in its business. Accordingly, its
assets and liabilities were classified as held for sale and the results of operations in the statement of operations and prior
periods’ results have been reclassified as a discontinued operation. On May 22, 2018, the Company closed on the sale, or
the Closing, of all of the outstanding equity of Enertec pursuant to the Share Purchase Agreement.
At
the Closing, the Company received aggregate gross proceeds of approximately $4,700, of which 10% will be held in escrow for up
to 14 months after the Closing to satisfy certain potential indemnification claims. Therefore, the Company has recorded such escrowed
amount on its balance sheet as restricted cash and a liability. The final consideration amount was adjusted, pursuant to the terms
of the Share Purchase Agreement, as a result of adjustments relating to certain Enertec debts at the Closing. In addition, Coolisys
also assumed approximately $4,000 of Enertec’s debt. The Company’s capital gain from the sale of Enertec, based on
the Company’s balance sheet at the closing date was $6,844.
On
December 18, 2018, the Company, Global Fintech Holdings Ltd., a British Virgin Islands corporation, or BVI Pubco, GFH Merger Subsidiary,
Inc., a Delaware corporation and a wholly-owned subsidiary of BVI Pubco, or Merger Sub, BNN Technology PLC, a United Kingdom Private
limited company, or BNN, Brookfield Interactive (Hong Kong) Limited, a Hong Kong company and a subsidiary of BNN, or BI China,
ParagonEx LTD, a British Virgin Islands company, or ParagonEx, certain holders of ParagonEx’s outstanding ordinary shares
and a trustee thereof, and Mark Gershinson, in the capacity as the representative of the ParagonEx sellers, entered into an Acquisition
Agreement, or the Acquisition Agreement, pursuant to which, among other things, subject to the satisfaction or waiver of the conditions
set forth in the Acquisition Agreement, Merger Sub will merge with and into the Company, as a result of which each outstanding
share of the Company’s common stock and warrant to purchase the same shall be cancelled in exchange for the right of the
holders thereof to receive 0.93 substantially equivalent securities of BVI Pubco, after which BVI Pubco will acquire (i) all of
the issued and outstanding securities of BI China in exchange for newly issued ordinary shares of BVI Pubco and (ii) all of the
issued and outstanding ordinary shares of ParagonEx for a combination of cash in the amount equal to approximately $25 million
(the majority of which was raised in a private placement by BVI Pubco), unsecured promissory notes and newly issued ordinary shares
of BVI Pubco, or collectively, the Acquisitions.
Subject
to, and upon closing of, the Acquisitions, MICT will issue to its directors/officers the following awards (i) to each of MICT’s
Board members, 300,000 options to purchase MICT common stock (1,200,000 options in the aggregate) with an exercise price
equal to $1.65 which shall be granted as success bonuses under MICT’s existing Stock Incentive Plans or under the GFH Equity
Plan (including the GFH Israeli Sub-Plan) and which shall be, converted into MICT Replacement Options (as described in Section
2.6(b) of the Acquisition Agreement) and which, for the, avoidance of doubt, and notwithstanding the termination of the employment
or directorship of the, optionholder, shall expire on the 15 month anniversary of the closing date of the Acquisition Agreement);
and (ii) up to an additional, 300,000 restricted shares of MICT ‘s common stock, to be issued to officers and service providers
of MICT.
NOTE
2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis
of Presentation
The
accompanying consolidated financial statements are prepared in accordance with generally accepted accounting principles in the
United States of America (U.S. GAAP).
The
consolidated financial statements include the financial statements of the Company and its subsidiaries. All significant inter-company
transactions and balances among the Company and its subsidiaries are eliminated upon consolidation.
Functional
Currency
The
functional currency of MICT, Inc. is the U.S. dollar. The functional currency of certain subsidiaries is their local currency.
The financial statements of those companies are included in consolidation, based on translation into U.S. dollars. Assets and
liabilities are translated at year-end-exchange rates, while revenues and expenses are translated at monthly average exchange
rates during the year. Differences resulting from translation are presented in the consolidated statements of comprehensive income.
Use
of Estimates
The
preparation of the financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the
financial statements and the reported amounts of revenue and expenses during the reporting periods. Actual results could differ
from those estimates.
Principles
of Consolidation
The
consolidated financial statements are comprised of the Company and its subsidiaries. Control is the power to govern the financial
and operating policies of an entity so as to obtain benefits from its operating activities. In assessing control, legal and contractual
rights, are taken into account. The consolidated financial statements of subsidiaries are included in the consolidated financial
statements from the date that control is achieved until the date that control is lost. Intercompany transactions and balances
are eliminated upon consolidation.
Cash
and Cash Equivalents
Cash
equivalents are considered by the Company to be highly-liquid investments, including inter-alia, short-term deposits with banks,
which do not exceed maturities of three months at the time of deposit and which are not restricted.
Investments
in Marketable Securities
Management
determines the appropriate classification of its investments at the time of purchase and reevaluates such determinations at each
balance sheet date. Investments in marketable securities are classified as “trading,” and unrealized gains or losses
are reported in the statement of income.
NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (CONT.)
Allowance for Doubtful Accounts
The Company establishes an allowance for doubtful
accounts to ensure trade and financing receivables are not overstated due to uncollectability. The allowance for doubtful accounts
was based on specific receivables, which their collection, in the opinion of Company’s management, is in doubt. Trade receivables
are charged off in the period in which they are deemed to be uncollectible. As of December 31, 2018 and 2017, the allowance for
doubtful accounts amounted to $1,330 and $0, respectively.
Reclassifications
Certain balance sheet amounts and cash flow have been
reclassified to conform with the current year presentation.
Inventories
Inventories of raw materials are stated at the lower
of cost (first-in, first-out basis) or realizable value. Cost of work in process is comprised of direct materials, direct production
costs and an allocation of production overheads based on normal operating capacity.
Property and Equipment
Property and equipment are stated at cost, net of
accumulated depreciation. Depreciation is calculated by the straight-line method over their estimated useful lives. Annual rates
of depreciation are as follows:
Leasehold improvements
|
|
Over the shorter of the lease term or
the life of the assets
|
Machinery and equipment
|
|
7-14 years
|
Furniture and fixtures
|
|
10-14 years
|
Transportation equipment
|
|
7 years
|
Computer equipment
|
|
3 years
|
Stock Based Compensation
The Company accounts for stock based compensation
under the fair market value method under which compensation cost is measured at the grant date based on the value of the award
and is recognized over the service period, which is usually the vesting period. For stock options, fair value is determined using
an option-pricing model that takes into account the stock price at the grant date, the exercise price, the expected life of the
option, the volatility of the underlying stock, the expected dividends on it, and the risk-free interest rate over the expected
life of the option.
Research and Development Costs
Research and development costs are charged to statements
of income as incurred net of grants from the Israel Innovation Authority (formerly known as the Israel Office of the Chief Scientist
of the Ministry of Economy) , or IIA.
Earning (Loss) per Share
Basic and diluted net earnings (loss) per share
are computed based on the weighted average number of shares of common stock outstanding during each year.
NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (CONT.)
Long-Lived Assets and Intangible assets
Intangible assets that are not considered to
have an indefinite useful life are amortized using the straight-line basis over their estimated useful lives. The Company
evaluates property and equipment and purchased intangible assets with finite lives for impairment whenever events or changes
in circumstances indicate the carrying value of an asset may not be recoverable. The Company assesses the recoverability of
the assets based on the undiscounted future cash flow and recognizes an impairment loss when the estimated undiscounted
future cash flow expected to result from the use of the asset plus the net proceeds expected from disposition of the asset,
if any, are less than the carrying value of the asset. When the Company identifies an impairment, it reduces the carrying
amount of the asset to its estimated fair value based on a discounted cash flow approach or, when available and appropriate,
to comparable market values. As of December 31, 2017, no indicators of impairment have been
identified. As of December 31, 2018 all intangible assets were fully amortized.
Goodwill
The Company performed goodwill impairment tests until
2016. The goodwill impairment test is conducted in two steps. In the first step, the Company determines the fair value of the reporting
unit using expected future discounted cash flows and estimated terminal values. If the net book value of the reporting unit exceeds
the fair value, the Company would then perform the second step of the impairment test, which requires allocation of the reporting
unit's fair value of all its assets and liabilities in a manner similar to acquisition cost allocation, with any residual fair
value being allocated to goodwill. The implied fair value of the goodwill is then compared to the carrying value to determine impairment,
if any.
Starting in 2017, the Company determines the fair
value of the reporting unit using the income approach, which utilizes a discounted cash flow model, as the Company believes that
this approach best approximates the unit’s fair value at this time. The Company has corroborated the fair values using the
market approach. Judgments and assumptions related to revenue, gross profit, operating expenses, future short-term and long-term
growth rates, weighted average cost of capital, interest, capital expenditures, cash flows, and market conditions are inherent
in developing the discounted cash flow model. Additionally, the Company evaluated the reasonableness of the estimated fair value
of its reporting unit by reconciling its market capitalization. This reconciliation allowed the Company to consider market expectations
in corroborating the reasonableness of the fair value of the reporting unit. Following such reconciliation, the Company found that
there was a material difference (approximately 54%) between the fair value of the reporting unit and its market capitalization
as of December 31, 2017.
The Company has one operating segment and one operating
unit related to its overall MRM. Until 2017, step one of the assessment resulted in the carrying value of the MRM reporting unit
exceeding its fair value. As described in the preceding paragraphs, the second step was performed by allocating the reporting unit's
fair value to all of its assets and liabilities, with any residual fair value being allocated to goodwill. There were no impairments
recorded until 2017.
As of December 31, 2018, the Company market capitalization
was significantly lower than the net book value of the reporting unit. In establishing the appropriate market capitalization, the
Company looked at the date that the annual impairment test is performed (December 31, 2018). In order to calculate its market capitalization,
the Company used the price per share of NIS0.46. Following the results of the step one test, the Company continued to the second
step, which was performed by allocating the reporting unit’s fair value to all of its assets and liabilities, with any residual
fair value being allocated to goodwill. The Company determined that the carrying value of goodwill should be impaired and therefore
an impairment of $1.466 million was recorded.
Revenue recognition
Sales of products consist of revenue from the
sale of MRM products. The Company recognizes revenue at the amount to which it expects to be entitled when control of the products
or services is transferred to its customers. Control is generally transferred when the Company has a present right to payment and
title and the significant risks and rewards of ownership of products are transferred to its customers. There is limited judgement
needed in identifying the point control passes: once physical delivery of the products to the agreed location has occurred, the
company no longer has physical possession, the company usually will have a present right to payment and retains none of the significant
risks and rewards of the goods in question For most of the Company’s products sales, control transfers when products are
shipped.
Comprehensive Income (Loss)
FASB ASC Topic 220-10, “Reporting Comprehensive
Income,” requires the Company to report in its consolidated financial statements, in addition to its net income, comprehensive
income (loss), which includes all changes in equity during a period from non-owner sources including, as applicable, foreign currency
items, and other items.
The Company’s other comprehensive income for
all periods presented is related to the translation from functional currency to the presentation currency.
NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (CONT.)
Income Taxes
Deferred taxes are determined utilizing the “asset
and liability” method, whereby deferred tax asset and liability account balances are determined based on differences between
financial reporting and the tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will
be in effect when the differences are expected to reverse. The Company provides a valuation allowance, when it’s more likely
than not that deferred tax assets will not be realized in the foreseeable future.
The Company applied FASB ASC Topic 740-10-25, “Income
Taxes,” which provides guidance for recognizing and measuring uncertain tax positions and prescribes a threshold condition
that a tax position must meet for any of the benefits of the uncertain tax position to be recognized in the financial statements.
It also provides accounting guidance on derecognizing, classification and disclosure of these uncertain tax positions. The Company’s
policy on classification of all interest and penalties related to unrecognized income tax positions, if any, is to present them
as a component of income tax expense.
Financial Instruments
1.
|
Concentration of credit risks:
Financial instruments that have the potential to expose
the Company to credit risks are mainly cash and cash equivalents, bank deposit accounts, marketable securities and trade receivables.
The Company holds cash and cash equivalents, securities
and deposit accounts at large banks in Israel, thereby substantially reducing the risk of loss.
With respect to trade receivables, the risk is limited
due to the geographic spreading, nature and size of the entities that constitute the Company’s customer base. The Company
assesses the financial position of its customers prior to the engagement with them.
The Company performs ongoing credit evaluations of
its customers for the purpose of determining the appropriate allowance for doubtful accounts and generally does not require collateral.
An appropriate allowance for doubtful accounts is included in the accounts.
|
2.
|
Fair value measurement:
The Company measures fair value and discloses fair
value measurements for financial and non-financial assets and liabilities. Fair value is based on 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.
The accounting standard establishes a fair value hierarchy
that prioritizes observable and unobservable inputs used to measure fair value into three broad levels, which are described below:
|
|
Level 1:
|
Quoted prices (unadjusted) in active markets that are accessible at the measurement date for assets or liabilities. The fair value hierarchy gives the highest priority to Level 1 inputs.
|
|
Level 2:
|
Observable prices that are based on inputs not quoted on active markets, but corroborated by market data.
|
|
Level 3:
|
Unobservable inputs are used when little or no market data is available. The fair value hierarchy gives the lowest priority to Level 3 inputs.
|
NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (CONT.)
Financial Instruments
(Cont.)
In determining fair value, the Company utilizes valuation
techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible and considers
counterparty credit risk in its assessment of fair value.
Recent Accounting Pronouncements
In November 2016, the FASB issued Accounting Standards Update
(ASU) 2016-18. This updates provides guidance on the classification and presentation of changes in restricted cash or restricted
cash equivalents in the statement of cash flows under Topic 230, Statement of Cash Flows. The amendments are effective for reporting
periods (interim and annual) beginning after December 15, 2017, with early adoption permitted. The amendments will be applied retrospectively
to each period presented. The Company implemented this standard on its consolidated financial statements.
In August 2016, the FASB issued Accounting Standards
Update (ASU) 2016-15. This update addresses whether to present certain specific cash flow items as operating, investing or financing
activities. The amendments are effective for reporting periods (interim and annual) beginning after December 15, 2017. Early adoption
is permitted. The amendments will be applied retrospectively to each period presented. The Company implemented this standard on
its consolidated financial statements.
In February 2016, the FASB issued ASU 2016-02, “Leases
(Topic 842)”, which establishes the principles to report transparent and economically neutral information about the assets
and liabilities that arise from leases. This guidance results in a more faithful representation of the rights and obligations arising
from operating and capital leases by requiring lessees to recognize the lease assets and lease liabilities that arise from leases
in the statement of financial position and to disclose qualitative and quantitative information about lease transactions, such
as information about variable lease payments and options to renew and terminate leases. This guidance is effective prospectively
for interim and annual periods beginning after December 15, 2018.
On initial adoption, the Company expects to recognize
right-of-use assets of approximately $ 1,600 and lease liabilities of approximately $ 773 on our balance sheet. The Company will
apply the standard retrospectively at the beginning of the period of adoption through a cumulative-effect adjustment to equity.
In January 2017, the FASB issued Accounting Standards
Update (ASU) No. 2017-01, which is intended to help companies evaluate whether transactions should be accounted for as acquisitions
(or disposals) of assets or businesses. When substantially all of the fair value of gross assets acquired is concentrated in a
single asset (or a group of similar assets), the assets acquired would not represent a business. This introduces an initial required
screening that, if met, eliminates the need for further assessment. To be considered a business, an acquisition would have to include
at least one input and a substantive process that together significantly contribute to the ability to create outputs. In order
for an integrated set of assets and activities to be a business without outputs, there will need to be an organized workforce.
The ASU also narrows the definition of the term “outputs” to be consistent with how it is described in Topic 606,
Revenue
from Contracts with Customers
. The amendments are effective for reporting periods (interim and annual) beginning after December
15, 2017. The company has no impact implanting this standard.
NOTE 3 — FAIR VALUE MEASUREMENTS
Items carried at fair value as of December 31, 2018
and 2017 are classified in the table below in one of the three categories described in Note 2.
|
|
Fair value measurements using input type
|
|
|
|
December 31, 2018
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
Cash and cash equivalents
|
|
$
|
2,174
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,174
|
|
Total
|
|
$
|
2,174
|
|
|
|
|
|
|
|
-
|
|
|
|
2,174
|
|
|
|
Fair value measurements using input type
|
|
|
|
December 31, 2017
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
Cash and cash equivalents
|
|
$
|
2,114
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,114
|
|
Restricted cash
|
|
|
284
|
|
|
|
-
|
|
|
|
-
|
|
|
|
284
|
|
Derivative liability
|
|
|
-
|
|
|
|
3
|
|
|
|
-
|
|
|
|
3
|
|
Derivative liability- phantom option
|
|
|
-
|
|
|
|
(11
|
)
|
|
|
-
|
|
|
|
(11
|
)
|
Total
|
|
|
2,398
|
|
|
|
(8
|
)
|
|
|
-
|
|
|
|
2,390
|
|
NOTE 4 — INVENTORIES
Inventories are stated at the lower of cost or market,
computed using the first-in, first-out method. Inventories consist of the following:
|
|
December 31,
|
|
|
|
2018
|
|
|
2017
|
|
Raw materials
|
|
$
|
3,800
|
|
|
$
|
3,189
|
|
Work in process and finished product
|
|
|
545
|
|
|
|
1,790
|
|
|
|
$
|
4,345
|
|
|
$
|
4,979
|
|
NOTE 5 — PROPERTY AND EQUIPMENT, NET
Property and equipment consists of the following as
of December 31, 2018 and 2017:
|
|
December 31,
|
|
|
|
2018
|
|
|
2017
|
|
Building
|
|
$
|
1,851
|
|
|
$
|
1,997
|
|
Computer equipment
|
|
|
790
|
|
|
|
920
|
|
Dies
|
|
|
553
|
|
|
|
566
|
|
Furniture and fixtures
|
|
|
313
|
|
|
|
322
|
|
Machinery and equipment
|
|
|
299
|
|
|
|
1,466
|
|
Transportation equipment
|
|
|
62
|
|
|
|
68
|
|
|
|
|
3,868
|
|
|
|
5,339
|
|
Less accumulated depreciation
|
|
|
(3,207
|
)
|
|
|
(4,429
|
)
|
|
|
$
|
661
|
|
|
$
|
910
|
|
Depreciation expenses totaled $312 and $344, for the
years ended December 31, 2018 and 2017, respectively.
NOTE 6 — INTANGIBLE ASSETS AND OTHERS, NET
Composition:
|
|
Useful life
|
|
|
December 31,
|
|
|
|
years
|
|
|
2018
|
|
|
2017
|
|
Original amount:
|
|
|
|
|
|
|
|
|
|
Technology
|
|
|
5
|
|
|
$
|
2,010
|
|
|
$
|
2,010
|
|
Customer related intangible assets
|
|
|
3-5
|
|
|
|
3,470
|
|
|
|
3,470
|
|
|
|
|
|
|
|
$
|
5,480
|
|
|
$
|
5,480
|
|
Accumulated amortization:
|
|
|
|
|
|
|
|
|
|
|
|
|
Technology
|
|
|
5
|
|
|
$
|
2,010
|
|
|
$
|
1,534
|
|
Customer related intangible assets
|
|
|
3-5
|
|
|
|
3,470
|
|
|
|
2,747
|
|
|
|
|
5
|
|
|
$
|
5,480
|
|
|
$
|
4,281
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Amount:
|
|
|
|
|
|
$
|
-
|
|
|
$
|
1,199
|
|
Prepaid lease expenses
and capitalization of license
|
|
|
|
|
|
|
434
|
|
|
|
295
|
|
|
|
|
|
|
|
$
|
434
|
|
|
$
|
1,494
|
|
NOTE 7 - SHORT-TERM BANK LOANS
:
Composition:
|
|
Interest rate
as of
December 31,
|
|
|
|
|
Total short-term liabilities
|
|
|
|
2018
|
|
|
Linkage
|
|
December 31,
|
|
|
|
%
|
|
|
basis
|
|
2018
|
|
|
2017
|
|
Due to banks
|
|
|
Prime plus 2.45%
Prime plus 2.5%
|
|
|
NIS
|
|
$
|
2,330
|
|
|
$
|
951
|
|
Current portion
|
|
|
|
|
|
|
|
|
476
|
|
|
|
631
|
|
|
|
|
|
|
|
|
|
$
|
2,806
|
|
|
$
|
1,582
|
|
As of December 31, 2018, the Company had short-term
bank credit of $2,806 comprised as follows: $476 current portion of long-term loans of Micronet and $1,566 of short-term bank loans
that bear interest of prime plus 2.45% through prime plus 2.5% paid either on a monthly or weekly basis and long term loans of
$ 764 that were classified to the short term loans due to the fact Micronet does not meet its covenants.
MICT Telematics Ltd., or MICT Telematics, one of our
subsidiaries, had not met all of its bank covenants as of December 31, 2018.
As of December 31, 2017, the Company had short-term
bank credit of $1,582 comprised as follows: $631 current portion of long-term loans and $951 of short-term bank loans that bear
interest of prime plus 1.7% through prime plus 2.45% paid either on a monthly or weekly basis.
On July 10, 2018, Micronet received a loan from Mizrahi-Tefahot
Bank in the amount of NIS 5 million, in accordance with a financing agreement dated March 25, 2018. The loan bears annual interest
at a rate of Prime plus 2.5%. The loan has a term of 36 months and will be repaid in twelve quarterly installments payable from
October 10, 2018 to July 11, 2021.
In 2018, Micronet entered into a credit line
agreement, or the Mizrahi-Tefahot Credit Line, with Mizrahi-Tefahot Bank for borrowings of up to a total of $1,335 at a rate of
Prime plus 1.9%. As of December 31, 2018, the balance on the Mizrahi-Tefahot Credit Line was $1,335. The Company may cancel the
Mizrahi-Tefahot Credit Line with an advance notice of 14 days. This credit arrangement was obtained to support Micronet’s
working capital.
Pursuant to Micronet borrowing arrangements in 2018, Micronet
has covenanted that it will present separate financial statements reflecting; (A) annual EBITDA shall of not less then $750; (B)
the ratio of customer debt to financial credit (credit utilized by Micronet under each agreement with
Mizrahi-Tefahot
Bank
for the deduction of bank guarantees) shall not be less than 1:1 on the basis of a report (C) the ratio of inventory
to financial credit shall not be less than 1:1 on the basis of semi-annual report; and (D) the tangible shareholder’s equity
shall not be less than NIS 15,000 and not less 35% of the total balance sheet deducted on the basis of the Micronet semi-annual
reports. As of December 31, 2018 Micronet has not met these covenants.
NOTE 8 — LOANS FROM OTHERS
On each of June 30, October 28, and December 22, 2016,
the Company and its wholly-owned subsidiary, MICT Telematics, entered into separate Note Purchase Agreement with YA II PN Ltd.,
or YA II, a Cayman Island exempt limited partnership and affiliate of Yorkville Advisors Global, LLC, whereby YA II purchased $600,
$500 and $1,000 of notes from the Company. The outstanding principal balance of the notes bears interest at 7% per annum. Upon
the occurrence of an Event of Default (as defined in the notes), all amounts payable may be due immediately. In connection with
the Note Purchase Agreements, the Company granted to YA II a five-year warrant to purchase 252,000 shares of the Company’s
common stock at an exercise price of $3.00 per share.
On June 8, 2017, the Company entered into another
Note Purchase Agreement with YA II whereby YA II agreed to lend the Company $600 pursuant to an additional secured promissory note.
The outstanding principal balance of the additional note bears interest at 7% per annum. The additional note matures on December
31, 2018. The Company shall make payments of $100 on September 30, 2018 and $500 on December 31, 2018.
Pursuant to the June 8, 2017 Note Purchase Agreement,
the Company and YA II agreed to amend the terms of the promissory notes issued by the Company to YA II dated June 30, 2016, or
the June 2016 Note, October 28, 2016, or the October 2016 Note, and December 22, 2016, or the December 2016 Note, respectively.
The June 2016 Note was amended to (i) extend the
maturity date to December 31, 2017 and (ii) amend the repayment schedule owed under such note such that $150 shall be payable
by the Company on each of October 10, 2016, May 1, 2017, September 30, 2017 and December 31, 2017. The Company made the required
payment by December 31, 2017.
The October 2016 Note was amended to (i) extend the
maturity date to March 31, 2018 and (ii) amend the repayment schedule such that on May 1, 2017, September 30, 2017, December 31,2017
and March 31, 2018 the Company shall make payments of $150, $100, $150 and $100, respectively. The payment of December, 31, 2017
was paid on January, 18, 2018.
The December 2016 Note was amended to (i) extend the
maturity date to September 30, 2018 and (ii) amend the repayment schedule such that on March 31, 2018, June 30, 2018 and September
30, 2018 the Company shall make payments of $300, $400 and $300, respectively.
In addition, the Company agreed to amend the exercise
price of the 252,000 warrants to purchase shares of common stock of the Company, which were granted in connection with the June
30, 2016, October 28, 2016 and December 22, 2016 Note Purchase Agreements, to $2.00 per share.
NOTE 8 — LOANS FROM OTHERS (CONT.)
On August 22, 2017, the Company and MICT Telematics
executed the Third Supplemental Agreement which supplements the Note Purchase Agreement executed by the parties on October 28,
2016. Pursuant to the Third Supplemental Agreement, the Company borrowed $1,500 from YA II pursuant to the terms of a secured promissory
note. The outstanding principal balance of the note shall bear interest at 7% per annum. The note was to mature on November 22,
2017. On November 19, 2017, the Company and YA II amended the maturity date of the August 2017 Note to February 15, 2018 and provided
that the Company may extend such maturity date to January 15, 2019 at its sole discretion. In the event the Company elect to utilize
such extension, the Company have agreed to (i) pay an aggregate of $200 of principal plus all accrued and unpaid interest under
the note on March 31, 2018, (ii) pay an aggregate of $200 of principal plus all accrued and unpaid interest under the note on June
30, 2018, (iii) pay an extension fee of $50 and (iv) issue YA II a five-year warrant to purchase 158,000 shares of our common stock
at an exercise price of $1.50 per share. The warrant also provides for demand and piggyback registration rights (see Note 18).
The Company
evaluated the modifications to the terms of the loans in accordance with the guidance in ASC Topic 470-50-40 regarding de-recognition
of debt, and concluded that the new loans are not substantially different from the original loans. Therefore, these modifications
were not accounted for as extinguishment of the existing debt.
On March 29, 2018, the Company and MICT Telematics
executed and closed on a securities purchase agreement with YA II whereby the Company issued and sold to YA II (1) certain Series
A Convertible Debentures in the aggregate principal aggregate amount of $3,200, or the Series A Debentures, and (2) a Series B
Convertible Debenture in the principal aggregate amount of $1,800, or the Series B Debenture. The Series A Debentures were issued
in exchange for the cancellation and retirement of certain promissory notes issued by the Company to YA II on October 28, 2016,
December 22, 2016, June 8, 2017 and August 22, 2017, or collectively, the Prior Notes, with a total outstanding aggregate principal
amount of $3,200. The Series B Debenture was issued and sold for aggregate gross cash proceeds of $1,800.
In addition, pursuant to the terms of the securities
purchase agreement, the Company agreed to issue to YA II a warrant to purchase 375,000 shares of the Company’s common stock
at a purchase price of $2.00 per share, a warrant to purchase 200,000 shares of the Company’s common stock at a purchase
price of $3.00 per share and a warrant to purchase 112,500 shares of the Company’s common stock at a purchase price of $4.00
per share.
In conjunction with the issuance of the Series A Debentures
and the Series B Debentures, a total of $273 in fees and expenses were deducted from the aggregate gross proceeds and paid to YA
II.
The Company evaluated if those changes stands for
Trouble debt restructuring (TDR), and concluded that it does not meet TDR requirements, then it evaluated if the modifications
to the terms of the aforementioned loans from YA II in accordance with the guidance in FASB ASC Topic 470-50-40 “Derecognition,”
and concluded that the Series A Debentures and Series B Debenture are substantially different from the Prior Loans. Therefore,
these modifications were accounted for as an extinguishment of the existing debt. As a result, the Company recorded an expense
of $334.
In addition, in June 2018, the Company made aggregate
payments of $875 towards the repayment of the Series A Debentures.
On July 3, 2018, the Company made a payment of $1,000
towards the repayment of the Series A Debentures. In addition, on July 5, 2018, a payment of $125 towards the repayment of the
Series A Debentures was made in shares of the Company’s common stock at an applicable conversion price of $1.1158 per share
pursuant to the terms of the Series A Debentures.
Subject to, and upon closing of the Acquisition Agreement
among the Company, BNN Technology PLC (“BNN”), a newly created BVI entity, Global Fintech Holdings Ltd., which is intended
to be the public company after the transaction in which the Company and other parties merge (the “New Public Company”),
and others, BNN and the other counterparties have insisted that the Company modify the terms of the 1,187,500 Warrants to eliminate
or modify certain provisions such that all of the Warrants are exchanged for new warrants (the “
New Warrants
”)
which New Warrants shall be exercisable at $2 per share of New Public Company common stock (subject to adjustment as provided herein
and therein) and shall expire on June 30, 2022.
Subject to, and upon closing of the Acquisition Agreement,
securities issued in connection with the payment of the Indebtedness owing to Yorkville, including but not limited to the amortization
of such Indebtedness and the conversion of such Indebtedness into up to 1,000,000 shares of MICT Common Stock at a price of not
less than $1.10 per share and up to 250,000 shares of MICT Common Stock at a price of not less than $1.0 per share.
NOTE 9 — ACCRUED SEVERANCE PAY, NET
|
The Company is liable for severance pay to its employees pursuant to the applicable local laws prevailing in the respective countries of employment and employment agreements. For Israeli employees, the liability is partially covered by individual managers’ insurance policies under the name of the employee, for which the Company makes monthly payments. The Company may make withdrawals from the managers’ insurance policies only for the purpose of paying severance pay.
|
|
The amounts accrued and the amounts funded with managers’ insurance policies are as follows:
|
|
|
December 31,
|
|
|
|
2018
|
|
|
2017
|
|
Accrued severance pay
|
|
$
|
208
|
|
|
$
|
249
|
|
Less - amount funded
|
|
|
(98
|
)
|
|
|
(116
|
)
|
|
|
$
|
110
|
|
|
$
|
133
|
|
NOTE 10 — PROVISION FOR INCOME TAXES
A.
|
Basis of Taxation
United States:
The U.S. corporate tax rate was 21% in 2018 and 35%
in 2017.
On December 22, 2017, the U.S. Tax Cuts and Jobs Act,
or the Act, was enacted, which significantly changed U.S. tax laws. The Act lowered the tax rate of the Company. The statutory
federal income tax rate was reduced from 35% in 2017 to 21% in 2018.
Israel:
The Company’s Israeli subsidiaries are governed
by the tax laws of the state of Israel which had a general tax rate of 23% in 2018 and 24% in 2017. The Company is entitled to
various tax benefits in Israel by virtue of being granted the status of an “Approved Enterprise Industrial Company”
as defined by the tax regulations. The benefits include, among other things, a reduced tax rate.
In December 2010, legislation amending the Law for
Encouragement of Capital Investments of 1959, or the Investment Law, was adopted. This new legislation became effective as of January 1,
2011 and applies to preferred income produced or generated by a preferred company from the effective date. Under this legislation,
a uniform corporate tax rate applies to all qualifying income of certain Industrial Companies, or Preferred Enterprise (as defined
under the Investment Law), as opposed to the previous law’s incentives, which were limited to income from Approved Enterprises
and Privileged Enterprises during their benefits period. Under the legislation, the uniform tax rates are as follows: 2011 and
2012 - 15% (10% in preferred area), 2013 and 2014 - 12.5% (7% in preferred area) and in 2015 - 12% (6% in preferred area).
Effective beginning in 2014, the regular Israeli tax
rate was 26.5% for Regular Entities and 16% or 9% for Preferred Enterprises (depending on the location of industry).
Micronet is eligible for the tax rate for Preferred Enterprises. In 2018 and 2017, Micronet was taxed at the 16% rate.
In December 2016, the Israeli government published
the Economic Efficiency Law (2016) (legislative amendments to accomplish budget goals for the years 2017 and 2018). According to
such law, in 2017 the general tax rate was decreased by 1% and starting in 2018 was decreased by 2%; so that the tax rate was 24%
in 2017 and was 23% in 2018 and onwards. In addition, the tax rate that applies to Preferred Enterprises in preferred areas was
be decreased by 1.5% to 7.5% starting January 1, 2017.
|
NOTE 10 — PROVISION FOR INCOME TAXES (CONT.)
|
|
Year ended
December 31,
|
|
|
|
2018
|
|
|
2017
|
|
Current:
|
|
|
|
|
|
|
Domestic
|
|
$
|
(7
|
)
|
|
$
|
(1
|
)
|
Foreign (Israel)
|
|
|
(62
|
)
|
|
|
22
|
|
|
|
|
(69
|
)
|
|
|
21
|
|
|
|
|
|
|
|
|
|
|
Taxes related to prior years
|
|
|
(15
|
)
|
|
|
(31
|
)
|
|
|
|
|
|
|
|
|
|
Deferred:
|
|
|
|
|
|
|
|
|
Deferred taxes, net
|
|
|
(522
|
)
|
|
|
-
|
|
Total provision for income taxes
|
|
$
|
(606
|
)
|
|
$
|
(10
|
)
|
C.
|
The reconciliation of income tax at the U.S. statutory rate to the Company’s effective tax rate as follows:
|
|
|
2018
|
|
|
2017
|
|
U.S. federal statutory rate
|
|
|
21
|
%
|
|
|
35
|
%
|
Tax rate difference between U.S. and Israel
|
|
|
2
|
%
|
|
|
(11
|
)%
|
Effect of Israeli tax rate benefit
|
|
|
(7
|
)%
|
|
|
(8
|
)%
|
Effect of previous years
|
|
|
-
|
%
|
|
|
-
|
%
|
Change in valuation allowance
|
|
|
(9
|
)%
|
|
|
(9
|
)%
|
Others
|
|
|
(7
|
)%
|
|
|
(7
|
)%
|
Effective tax rate
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
D.
|
Deferred Tax Assets and Liabilities
|
Deferred tax reflects the net tax effects of temporary
differences between the carrying amounts of assets or liabilities for financial reporting purposes and the amounts used for income
tax purposes. As of December 31, 2018 and 2017, the Company’s deferred taxes were in respect of the following:
|
|
December 31,
|
|
|
|
2018
|
|
|
2017
|
|
Net operating loss carry forward
|
|
$
|
1,509
|
|
|
$
|
1,814
|
|
Provisions for employee rights and other temporary differences
|
|
|
278
|
|
|
|
542
|
|
Deferred tax assets before valuation allowance
|
|
|
1,787
|
|
|
|
2,356
|
|
Valuation allowance
|
|
|
(1,787
|
)
|
|
|
(1,814
|
)
|
Deferred tax assets
|
|
|
-
|
|
|
|
542
|
|
Deferred tax liability
|
|
|
-
|
|
|
|
-
|
|
Deferred tax assets, net
|
|
$
|
-
|
|
|
$
|
542
|
|
E.
|
Tax losses
As of December 31, 2018, the Company has a net operating
loss carry forward of approximately $5,123, according to the tax report of 2017, which may be utilized to offset future taxable
income for United States federal tax purposes. This net operating loss carry forward begins to expire in 2022. Since it is
more likely than not that the Company will not realize a benefit from this net operating loss carry forward, a 100% valuation allowance
has been recorded to reduce the deferred tax asset to its net realizable value.
|
F.
|
Tax Assessments
The Company received final tax assessments in the
United States through tax year 2012, and with regard to the Israeli subsidiaries received final tax assessments up until tax year
2012.
|
G.
|
Uncertain Tax Position
The Company did not record any liability for income
taxes associated with unrecognized tax benefits during 2018 and 2017.
|
NOTE 11 — RELATED PARTIES
MICT’s policy is to enter into transactions
with related parties on terms that are on the whole no less favorable to it than those that would be available from unaffiliated
parties at arm’s length. Based on its experience in the business sectors in which it operates and the terms of the transactions
with unaffiliated third parties, MICT believes that all of the transactions described below met this policy standard at the time
they occurred.
On November 7, 2012, the board of directors and
the audit committee of Micronet approved the entry into a management and consulting services agreement, or the Micronet Agreement,
with D.L. Capital Ltd., an entity controlled by Mr. Lucatz, MICT’s Chief Executive Officer and significant shareholder, pursuant
to which effective November 1, 2012, Mr. Lucatz agreed to devote 60% of his time to Micronet matters for the three year term of
the agreement and Micronet agreed to pay the entities controlled by Mr. Lucatz management fees consisting of: (i) management fees
of $13 on a monthly basis, and cover other monthly expenses, (ii) an annual bonus of 3% of the amount by which the annual EBITDA
for such year exceeds the average annual EBITDA for 2011 and 2010, and (iii) a bonus of 0.5% of the purchase price of any acquisition
or capital raising transaction, excluding the public offering contemplated at such time, completed by us during the term of the
agreement. Such agreement was further subject to the approval of Micronet’s stockholders, which was obtained at a special
meeting held on January 30, 2013 for that purpose and went into effect following its execution on February 8, 2013. The Micronet
Agreement was extended on November 1, 2015 for three years on the same terms and conditions and was approved by Micronet’s
Board of Directors on October 11, 2015 and Micronet’s shareholders on November 16, 2015. Effective July 6, 2017, D.L. Capital
Ltd. consented to reduce the requirement of the time Mr. Lucatz is to devote to Micronet matters to 22%, as well as a reduction
in .the fees to be paid to D.L. Capital Ltd.to NIS 23,000. On October 31, 2018, D.L. Capital Ltd. agreed to continue rendering
services pursuant to the Micronet Agreement for no consideration.
On June 6, 2018, the Compensation Committee of
MICT approved maintaining Mr. Lucatz’s annual base salary of $400. In addition, on June 6, 2018, the Compensation Committee
of MICT approved a discretionary cash bonus to Mr. Lucatz, of $300, as well the issuance of a stock option to purchase 300,000
shares of MICT’s common stock, with an exercise price of $1.32 per share, with 100,000 shares of common stock vesting immediately
and 100,000 shares of common stock vesting on each of the first two anniversaries of the date of grant. The bonus and option were
granted to Mr. Lucatz in light of his contributions to MICT’s successful sale of its then wholly owned subsidiary, Enertec
systems 2001 LTD.
On December 30, 2015, MICT obtained a loan from
Meydan Family Trust No 3., or Meydan, pursuant to which Meydan agreed to loan MICT $750 on certain terms and conditions. As of
December 31, 2017, the balance of the loan was $326. The loan from Meydan was fully paid in March 2018.
On December 18, 2018, the Company, Global Fintech
Holdings Ltd., a British Virgin Islands corporation, or BVI Pubco, GFH Merger Subsidiary, Inc., a Delaware corporation and a wholly-owned
subsidiary of BVI Pubco, or Merger Sub, BNN Technology PLC, a United Kingdom Private limited company, or BNN, Brookfield Interactive
(Hong Kong) Limited, a Hong Kong company and a subsidiary of BNN, or BI China, ParagonEx LTD, a British Virgin Islands company,
or ParagonEx, certain holders of ParagonEx’s outstanding ordinary shares and a trustee thereof, and Mark Gershinson, in the
capacity as the representative of the ParagonEx sellers, entered into an Acquisition Agreement, or the Acquisition Agreement, pursuant
to which, among other things, subject to the satisfaction or waiver of the conditions set forth in the Acquisition Agreement, Merger
Sub will merge with and into the Company, as a result of which each outstanding share of the Company’s common stock and warrant
to purchase the same shall be cancelled in exchange for the right of the holders thereof to receive 0.93 substantially equivalent
securities of BVI Pubco, after which BVI Pubco will acquire (i) all of the issued and outstanding securities of BI China in exchange
for newly issued ordinary shares of BVI Pubco and (ii) all of the issued and outstanding ordinary shares of ParagonEx for a combination
of cash in the amount equal to approximately $25 million (the majority of which was raised in a private placement by BVI Pubco),
unsecured promissory notes and newly issued ordinary shares of BVI Pubco, or collectively, the Acquisitions.
Subject to, and upon closing of, the Acquisitions,
MICT will issue to its directors/officers the following awards (i) to each of MICT’s Board members, 300,000 options to purchase
MICT common stock (1,200,000 options in the aggregate) with an exercise price equal to $1.65 which shall be granted as success
bonuses under MICT’s existing Stock Incentive Plans or under the GFH Equity Plan (including the GFH Israeli Sub-Plan) and
which shall be, converted into MICT Replacement Options (as described in Section 2.6(b) of the Acquisition Agreement) and which,
for the, avoidance of doubt, and notwithstanding the termination of the employment or directorship of the, optionholder, shall
expire on the 15 month anniversary of the closing date of the Acquisition Agreement); and (ii) up to an additional, 300,000 restricted
shares of MICT ‘s common stock, to be issued to officers and service providers of MICT.
Except as described above, no director, executive
officer, principal stockholder holding at least 5% of MICT common stock, or any family member thereof, had or will have any material
interest, direct or indirect, in any transaction, or proposed transaction, during 2018 or 2017 in which the amount involved in
the transaction exceeded or exceeds $120 or one percent of the average of the total assets of MICT at the year-end for the last
two completed fiscal years.
Transactions with related parties
|
|
Year ended
December 31,
|
|
|
|
2018
|
|
|
2017
|
|
Consulting fee paid to controlling shareholder
|
|
$
|
400
|
|
|
$
|
331
|
|
Bonus paid to controlling shareholder
|
|
|
300
|
|
|
|
-
|
|
Stock based compensation granted to controlling shareholder
|
|
|
218
|
|
|
|
-
|
|
Total
|
|
|
918
|
|
|
|
331
|
|
NOTE 12 — SHAREHOLDER’S EQUITY
Common stock confers upon its holders the rights to
receive notice to participate and vote in general meetings of the Company, and the right to receive dividends if declared.
Pursuant to our 2012 Stock Incentive Plan as amended
and approved at the Company’s Annual Meeting of Shareholders in December 2018, the board of directors is authorized to award
stock options to purchase shares of common stock to our officers, directors, employees and certain others, up to a total of 5,000,000
shares of common stock, subject to adjustments in the event of a stock split, stock dividend, recapitalization or similar capital
change. Stock based compensation amounted to $377 and $25 for the years ended December 31, 2018 and 2017, respectively.
The exercise price of the options granted under the
2012 Stock Incentive Plan is set by the board of directors and will not be less than the closing sale price on Nasdaq Capital Market
at the grant date. As of December 31, 2018, 3,703,000 shares of common stock remain available for future awards under the 2012
Stock Incentive Plan. Under the 2012 Stock Incentive Plan, unless determined otherwise by the board, options generally vest over
a two or three year period from the date of grant and expire 10 years after the grant date. Unvested options are forfeited 90 days
following the termination of employment. Any options that are forfeited before expiration become available for future grants.
On July 17, 2014 the Company adopted the 2014
Stock Incentive Plan pursuant to which the board of directors is authorized to issue stock options, restricted stock and
other awards to officers, directors, employees, consultants and other service providers. The board of directors initially
reserved 100,000 shares of the Company’s common stock for issuance pursuant to awards that may be made pursuant to the
2014 Stock Incentive Plan. The 2014 Stock Incentive Plan was amended in December 2018 and the number of shares of the
Company’s common stock reserved for issuance under the plan was increased to 600,000 shares. The 2014 Stock Incentive
Plan was approved by the stockholders on September 30, 2014 and the amendment to the 2014 Stock Incentive Plan was approved
by the stockholders on December 26, 2018. As of December 31, 2018, 396,775 shares of common stock remain available for
future awards under the 2014 Stock Incentive Plan.
The following table summarizes information about stock
options outstanding and exercisable as of December 31, 2018:
Options Outstanding
|
|
Options Exercisable
|
Number
Outstanding on
December 31,
2018
|
|
|
Weighted Average
Remaining
Contractual Life
|
|
Number
Exercisable on
December 31,
2018
|
|
|
Exercise Price
|
|
|
|
Years
|
|
|
|
|
$
|
|
15,000
|
|
|
4.5
|
|
|
15,000
|
|
|
4.30
|
|
421,000
|
|
|
6
|
|
|
421,000
|
|
|
4.30
|
|
736,000
|
|
|
9.5
|
|
|
536,000
|
|
|
1.32
|
|
125,000
|
|
|
9.75
|
|
|
125,000
|
|
|
1.4776
|
|
1,297,000
|
|
|
|
|
|
1,097,000
|
|
|
|
NOTE 12 — SHAREHOLDER’S EQUITY (CONT.)
B.
|
Stock
Option Plan - (continued):
|
|
|
2018
|
|
|
2017
|
|
|
|
Number of
Options
|
|
|
Weighted Average Exercise Price
|
|
|
Number of
Options
|
|
|
Weighted Average Exercise Price
|
|
|
|
|
|
|
$
|
|
|
|
|
|
$
|
|
Options outstanding at the beginning of year:
|
|
|
536,000
|
|
|
|
4.30
|
|
|
|
746,000
|
|
|
|
4.30
|
|
Changes during the year:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
861,000
|
|
|
|
1.34
|
|
|
|
100,000
|
|
|
|
4.30
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Forfeited
|
|
|
(100,000
|
)
|
|
|
4.30
|
|
|
|
(310,000
|
)
|
|
|
4.30
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options outstanding at end of year
|
|
|
1,297,000
|
|
|
|
2.34
|
|
|
|
536,000
|
|
|
|
4.30
|
|
Options exercisable at year-end
|
|
|
1,097,000
|
|
|
|
1.35
|
|
|
|
461,000
|
|
|
|
4.30
|
|
Subject to, and upon closing of the Acquisition Agreement,
the securities issued upon the exercise or conversion of outstanding options will be in accordance with the terms on which they
were granted initially.
The fair value of each option granted is estimated
on the date of grant, using the Black-Scholes option-pricing model with the following weighted average assumptions: dividend yield
of 0% for all years; expected volatility: 2018 – 37.30%; risk-free interest rate: 2018 – 2.8 %; and expected life:
2018- 6 years.
The Company is required to assume a dividend yield
as an input in the Black-Scholes model. The dividend yield assumption is based on the Company’s historical experience and
expectation of future dividends payouts and may be subject to change in the future.
The Company uses historical volatility in accordance
with FASB ASC Topic 718, “Compensation - stock compensation”. The computation of volatility uses historical volatility
derived from the Company’s exchange-traded shares.
The risk-free interest assumption is the implied yield
currently available on U.S. Treasury zero-coupon bonds, issued with a remaining term equal to the expected life term of the Company’s
options.
Pre-vesting rates forfeitures were zero based on pre-vesting
forfeiture experience.
The Company uses the simplified method to compute
the expected option term for options granted.
C.
|
Stock Option Plan of Subsidiary
|
During
2018, the board of the directors of Micronet approved the grant of 70,000 options with exercise prices of between NIS 2.308, out
of which 30,000 options expire during the year
.
The total expenses of the options of Micronet recorded
in 2018 amounted to $205
NOTE 12 — SHAREHOLDER’S EQUITY (CONT.)
D.
|
SEDA- Standby Equity Distribution Agreement
|
On August 22, 2017, the Company entered into a Standby
Equity Distribution Agreement, or the 2017 SEDA with YA II for the sale of up to $10 of shares of the Company’s common stock
over a three-year commitment period. Under the terms of the 2017 SEDA, the Company may from time to time, in its discretion,
sell newly-issued shares of its common stock to YA II at a discount to market of 1.5%. The Company and YA II previously entered
into a prior Standby Equity Distribution Agreement on June 30, 2016, or the 2016 SEDA, for the sale of up to $2,390 of shares of
the Company’s common stock over a three year period.
The Company is not obligated to utilize any of the
$10 available under the 2017 SEDA and there are no minimum commitments or minimum use penalties. The total amount of funds
that ultimately can be raised under the 2017 SEDA over the three year term will depend on the market price for the Company’s
common stock and the number of shares actually sold. YA II is obligated under the 2017 SEDA to purchase shares of the Company’s
common stock from the Company subject to certain conditions including, but not limited to the Company filing a registration statement
with the SEC, to register the resale by YA II of shares of common stock sold to YA II under the 2017 SEDA, or the Registration
Statement, and the SEC declaring such Registration Statement effective.
The 2017 SEDA does not impose any restrictions on
the Company’s operating activities. During the term of the 2017 SEDA, YA II is prohibited from engaging in any short selling
or hedging transactions related to the Company’s common stock.
In connection with the 2017 SEDA, the Company agreed
to pay YA Global II SPV, LLC, a wholly owned subsidiary of YA II, a commitment fee in the amount of $800, or the Commitment Fee,
in the aggregate, which was to be paid in eight quarterly installments of $100, with the first installment due and payable on the
fifth trading day following the execution of the SEDA. The Commitment Fee may be paid in cash or shares of the Company’s
common stock. The company paid YA II $50 out of the first installment of the Commitment Fee.
On November 19, 2017, the Company entered into an
agreement with YA II whereby the commitment fee repayment terms were amended such that (i) $200 of the commitment fee shall be
payable as follows: $50 shall be due and payable on March 31, 2018, $50 shall be due and payable on September 30, 2018, $50 shall
be due and payable on March 31, 2019, and $50 shall be due and payable on September 30, 2019, and (ii) the Company shall pay the
remaining $600 as follows: $90 shall be paid when the aggregate advance amounts under the 2017 SEDA shall total $3,000, $30 shall
be paid when the aggregate advance amounts under the 2017 SEDA shall total $4,000, $30 shall be paid when the aggregate advance
amounts under the 2017 SEDA shall total $5,000, $150 shall be paid when the aggregate advance amounts under the 2017 SEDA shall
total $6,000, $50 shall be paid when the aggregate advance amounts under the 2017 SEDA shall total $7,000, $130 shall be paid when
the aggregate advance amounts under the 2017 SEDA shall total $8,000, $60 shall be paid when the aggregate advance amounts under
the 2017 SEDA shall total $9,000 and $60 shall be paid when the aggregate advance amounts under the 2017 SEDA shall total $10,000.
On November 22, 2017, Company entered into a Securities
Purchase Agreement, or the Purchase Agreement, with one investor, an affiliate of YA II, for the sale of 555,556 shares of the
Company’s common stock at a purchase price per share of $0.90 per share in a registered direct offering for total gross proceeds
of $500. The Shares were offered and sold by the Company pursuant to the Company’s shelf registration statement on Form S-3
(File No. 333-219596). The net proceeds to the Company from the offering, after deducting fees and expenses, were $495. The Company
used the net proceeds of the offering to pay $25 towards the remaining balance of a commitment fee pursuant to the Third Supplemental
Agreement between the Company and YA II, $150 towards the repayment of principal and interest to the June 2016 Note issued to YA
II and the remaining balance for working capital and general corporate purposes.
On May 8, 2018, the Company and YA mutually agreed to
terminate the 2017 SEDA. As a result of the termination of the 2017 SEDA, the Company’s obligation to pay any and all
of the remaining commitment fee owned under the 2017 SEDA was terminated.
NOTE 13 — SEGMENT REPORTING
The Company accounts for its segment information in
accordance with the provisions of FASB ASC Topic 280-10, “Segment Reporting,” or ASC 280-10. ASC 280-10 establishes
annual and interim reporting standards for operating segments of a company. ASC 280-10 requires disclosures of selected segment-related
financial information about products, major customers, and geographic areas based on the Company’s internal accounting methods.
Following Enertec' sale, the Company has one segment
reporting only.
|
1.
|
Geographic Areas Information:
|
Sales: Classified by Geographic Areas:
The following presents total revenue for the years
ended December 31, 2018 and 2017 by geographic area:
|
|
Year ended
December 31,
|
|
|
|
2018
|
|
|
2017
|
|
United States
|
|
$
|
10,834
|
|
|
$
|
14,256
|
|
Israel
|
|
|
119
|
|
|
|
233
|
|
Other
|
|
|
3,209
|
|
|
|
3,877
|
|
Total
|
|
$
|
14,162
|
|
|
$
|
18,366
|
|
There were two customers that represented 38% and
17% of the Company’s total revenue in 2018. There were two customers that represented 30% and 20% of the Company’s
total revenue in 2017.
NOTE 14 — COMMITMENTS AND CONTINGENCIES
Lease commitments-
Micronet’s short-term lease expires in June
2019. Accrual rent fee is approximately $140 per year including a property management fee. Micronet Inc.’s additional lease
expires in November 2021. Accrual rent fee is approximately $236 per year.
At December 31, 2018, total minimum cars and lease
rentals under non-cancelable operating leases with an initial or remaining lease term of one year or more are as follows:
Year Ending December 31,
|
|
Amount
|
|
2019
|
|
$
|
414
|
|
2020
|
|
|
315
|
|
2021
|
|
|
244
|
|
2022
|
|
$
|
35
|
|
Legal proceedings
The Company are not subject to any pending or threatened
legal proceedings, nor is our property the subject of a pending or threatened legal proceeding. None of our directors, officers
or affiliates is involved in a proceeding adverse to our business or has a material interest adverse to our business.
Covenants
MICT Telematics has covenants under its bank loan
mainly requiring separate financial statements equity of not less than 32.5% of total assets. MICT Telematics has not met all of
its bank covenants as of December 31, 2018 and as a result, some payments
were advanced.
Pursuant to Micronet borrowing arrangements in 2018, Micronet
has covenanted that it will present separate financial statements reflecting; (A) annual EBITDA shall of not less then $750; (B)
the ratio of customer debt to financial credit (credit utilized by Micronet under each agreement with
Mizrahi-Tefahot
Bank
for the deduction of bank guarantees) shall not be less than 1:1 on the basis of a report (C) the ratio of inventory
to financial credit shall not be less than 1:1 on the basis of semi-annual report; and (D) the tangible shareholder’s equity
shall not be less than NIS 15,000 and not less 35% of the total balance sheet deducted on the basis of the Micronet semi-annual
reports. As of December 31, 2018 Micronet has not met these covenants.
Israel Innovation Authority
In April 2013, Micronet submitted to the IIA a request
for financial support within a framework of a research and development program for a new product. In September 2013, a grant to
Micronet in a total amount of NIS 5.5 million (approximately $1.5 million) was approved by the IIA. This grant was provided by
the IIA for a period of one year (starting April 2013) at a level of 30% from the aforementioned amount. In addition, during 2014
Micronet received further confirmation for a grant from the IIA in the total amount of NIS 5.5 million (approximately $1.5 million).
This grant was provided by the IIA for a period of one year (starting April 2014) at a level of 40% from the aforementioned amount.
In addition, during 2015 Micronet received further confirmation for a grant from the IIA in the total amount of NIS 5.1 million
(approximately $1.3 million) at a level of 40% from the aforementioned amount. Micronet is obligated to pay royalties to the IIA
amounting to 3%-3.5% of the sales of the products and other related revenues generated from such projects linked to the dollar
plus Libor interest rate. To date, Micronet has received an aggregate of NIS 5.6 million (approximately $1.5) from the IIA under
these three grants.
NOTE 15 — SUPPLEMENTARY FINANCIAL STATEMENTS
INFORMATION
A.
|
Other accounts receivable:
|
|
|
December 31,
|
|
|
|
2018
|
|
|
2017
|
|
Prepaid expenses
|
|
$
|
164
|
|
|
$
|
751
|
|
Government departments and agencies
|
|
|
129
|
|
|
|
277
|
|
Others
|
|
|
46
|
|
|
|
64
|
|
|
|
$
|
339
|
|
|
$
|
1,092
|
|
B.
|
Other Accounts Payable:
|
|
|
December 31,
|
|
|
|
2018
|
|
|
2017
|
|
Employees and wage-related liabilities
|
|
$
|
442
|
|
|
$
|
650
|
|
Deferred revenues and credit card
|
|
|
88
|
|
|
|
1,532
|
|
Accrued expenses
|
|
|
442
|
|
|
|
720
|
|
Other current liabilities
|
|
|
239
|
|
|
|
244
|
|
|
|
$
|
1,211
|
|
|
$
|
3,146
|
|
C.
|
Earnings (loss) per Share:
|
Basic and diluted earnings (losses) per share were
computed based on the average number of shares outstanding during each year.
The following table sets forth the computation of
basic and diluted net earnings (losses) per share attributable to Micronet Enertec:
|
|
Year
ended
December 31,
|
|
|
|
2018
|
|
|
2017
|
|
Numerator:
|
|
|
|
|
|
|
Amount
for basic earnings per share
|
|
$
|
(2,610
|
)
|
|
$
|
(8,157
|
)
|
Effect
of dilutive instruments
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Amount
for diluted earnings per share
|
|
|
(2,610
|
)
|
|
|
(8,157
|
)
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
Denominator
for basic earnings per share - weighted average of shares
|
|
|
9,166,443
|
|
|
|
7,128,655
|
|
Loss
per share attributable to MICT Inc.:
|
|
|
|
|
|
|
|
|
Basic
and diluted continued operation
|
|
$
|
(0.81
|
)
|
|
$
|
(0.45
|
)
|
Basic
and diluted discontinued operation
|
|
$
|
0.56
|
|
|
$
|
(0.69
|
)
|
NOTE 16 — DISCONTINUED OPERATION
On
December 31, 2017, the Company, Enertec and Enertec Management Ltd. entered into the Share Purchase Agreement with Coolisys, a
subsidiary of DPW, pursuant to which the Conpany agreed to sell the entire share capital of Enertec to Coolisys. As consideration
for the sale of Enertec’s entire share capital, Coolisys agreed to pay, at the closing of the transaction, a purchase price
of $5,250 as well as assume up to $4,000 of Enertec debt. Enertec met the definition of a component as defined by FASB ASC Topic
205, since Enertec had been classified as held for sale and the Company believes the sale represented a strategic shift in its
business. Accordingly, its assets and liabilities were classified as held for sale and the results of operations in the statement
of operations and prior periods’ results have been reclassified as a discontinued operation. On May 22, 2018, the Company
closed on the sale of all of the outstanding equity of Enertec pursuant to the Share Purchase Agreement.
At the closing, the Company received aggregate gross
proceeds of approximately $4,700 of which 10% will be held in escrow for up to 14 months after the Closing to satisfy certain potential
indemnification claims. Therefore, the Company has recorded such escrowed amount on its balance sheet as restricted cash and a
liability. The final consideration amount was adjusted, pursuant to the terms of the Share Purchase Agreement, as a result of adjustments
relating to certain Enertec debts at the Closing. In addition, Coolisys also assumed approximately $4,000 of Enertec’s debt.
The Company’s capital gain from the sale of Enertec, based on the Company’s balance sheet at the closing date is $6,844.
The following is the composition from discontinued
operation through December 31, 2018 and December 31, 2017:
The following is the composition from discontinued
operation:
|
|
December 31,
2018
|
|
|
December 31,
2017
|
|
ASSETS
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
-
|
|
|
$
|
279
|
|
Restricted cash
|
|
|
-
|
|
|
|
4,224
|
|
Trade accounts receivable, net
|
|
|
-
|
|
|
|
4,807
|
|
Inventories
|
|
|
-
|
|
|
|
1,506
|
|
Other accounts receivable
|
|
|
-
|
|
|
|
66
|
|
Total current assets
|
|
|
-
|
|
|
|
10,882
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
|
-
|
|
|
|
676
|
|
Long-term Assets
|
|
|
-
|
|
|
|
98
|
|
Total long-term assets
|
|
|
-
|
|
|
|
774
|
|
Total assets
|
|
$
|
-
|
|
|
$
|
11,656
|
|
|
|
December 31,
2018
|
|
|
December 31,
2017
|
|
LIABILITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term bank credit
|
|
$
|
-
|
|
|
$
|
8,863
|
|
Trade accounts payable
|
|
|
-
|
|
|
|
1,380
|
|
Other accounts payable
|
|
|
-
|
|
|
|
957
|
|
Total current liabilities
|
|
|
-
|
|
|
|
11,200
|
|
|
|
|
|
|
|
|
|
|
Accrued severance pay, net
|
|
|
-
|
|
|
|
138
|
|
Total Liabilities
|
|
$
|
-
|
|
|
$
|
11,338
|
|
NOTE 16 — DISCONTINUED OPERATION (Cont.)
|
|
For the Period between
|
|
|
|
January 1, 2018 to
May 22,
2018
|
|
|
January 1, 2017 to
December 31,
2017
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
1,512
|
|
|
$
|
7,061
|
|
Cost of revenues
|
|
|
2,655
|
|
|
|
7,790
|
|
Gross profit (loss)
|
|
|
(1,143
|
)
|
|
|
(729
|
)
|
Operating expenses:
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
120
|
|
|
|
672
|
|
Selling and marketing
|
|
|
204
|
|
|
|
546
|
|
General and administrative
|
|
|
376
|
|
|
|
2,199
|
|
Total operating expenses
|
|
|
700
|
|
|
|
3,417
|
|
Loss from operations
|
|
|
(1,843
|
)
|
|
|
(4,146
|
)
|
Capital gain
|
|
|
6,844
|
|
|
|
-
|
|
Finance expense, net
|
|
|
(102
|
)
|
|
|
(632
|
)
|
Profit (loss) before provision for income taxes
|
|
|
4,899
|
|
|
|
(4,778
|
)
|
Taxes on income
|
|
|
5
|
|
|
|
124
|
|
Net profit (loss)
|
|
$
|
4,894
|
|
|
$
|
(4,902
|
)
|
|
|
For the Period between
|
|
|
|
January 1, 2018 to
May 22,
2018
|
|
|
January 1, 2017 to
December 31,
2017
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities
|
|
$
|
131
|
|
|
$
|
(1,367
|
)
|
Net cash used in investing activities
|
|
|
(39
|
)
|
|
|
43
|
|
Net cash provided by (used in) financing activities
|
|
|
(63
|
)
|
|
|
1,427
|
|
|
|
|
|
|
|
|
|
|
NET CASH INCREASE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH
|
|
|
29
|
|
|
|
103
|
|
|
|
|
|
|
|
|
|
|
CASH, CASH EQUIVALENTS AND RESTRICTED CASH AT BEGINNING OF THE PERIOD
|
|
|
4,503
|
|
|
|
128
|
|
|
|
|
|
|
|
|
|
|
TRANSLATION ADJUSTMENT OF CASH AND CASH EQUIVALENTS
|
|
|
(147
|
)
|
|
|
48
|
|
|
|
|
|
|
|
|
|
|
CASH, CASH EQUIVALENTS AND RESTRICTED CASH AT END OF THE PERIOD
|
|
$
|
4,385
|
|
|
$
|
279
|
|
NOTE 17 — SUBSEQUENT EVENTS
On February 24,
2019, Micronet announced that it closed a public equity offering on the TASE, pursuant to Micronet’s shelf prospectus, which
became effective in July 2018. Micronet sold 11,500 units, with each unit consisting of 1,000 ordinary shares and 400 options (with
each option exercisable based on a 1:1 ratio and exercisable until August 2020), at a price of 435 NIS per unit.
In
addition, on February 24, 2019, Mr. Lucatz, our President and Chief Executive Officer, executed an irrevocable proxy assigning
his voting power over 1,980,000 shares of Micronet for our benefit.
As a result, the Company’s voting interest in
Micronet was decreased to 39.53% of the issued and outstanding shares of Micronet
.
As of February 21, 2019, the Company had issued to YA 250,000 share of common stock at a purchase price per share of $1.00.
On March 13, 2019, the Company issued an additional
996,817 share of common stock at a purchase price per share of $1.10. These issuances of the Company’s common stock to YA
reduced the debt owed to YA such that as of March 31, 2019, the balance of the debt is $1,750.
F-32