Item 1.
|
Financial Statements.
|
MICT,
INC. AND SUBSIDIARY
CONDENSED
CONSOLIDATED BALANCE SHEETS
(USD
In Thousands, Except Share and Par Value Data)
|
|
March 31, 2019
|
|
|
December 31, 2018
|
|
ASSETS
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
347
|
|
|
$
|
2,174
|
|
Trade accounts receivable, net
|
|
|
-
|
|
|
|
1,010
|
|
Inventories
|
|
|
-
|
|
|
|
4,345
|
|
Prepaid expenses and other current assets
|
|
|
112
|
|
|
|
-
|
|
Other accounts receivable
|
|
|
-
|
|
|
|
339
|
|
Total current assets
|
|
|
459
|
|
|
|
7,868
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
|
24
|
|
|
|
661
|
|
Intangible assets, net and others
|
|
|
-
|
|
|
|
434
|
|
Long-term deposit and prepaid expenses
|
|
|
-
|
|
|
|
703
|
|
Restricted cash escrow
|
|
|
477
|
|
|
|
477
|
|
Micronet Ltd. investment
|
|
|
1,711
|
|
|
|
-
|
|
Total long-term assets
|
|
|
2,212
|
|
|
|
2,275
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
2,671
|
|
|
$
|
10,143
|
|
MICT,
INC. AND SUBSIDIARIES
CONDENSED
CONSOLIDATED BALANCE SHEETS
(USD
In Thousands, Except Share and Par Value Data)
|
|
March 31, 2019
|
|
|
December 31, 2018
|
|
LIABILITIES AND EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short term bank credit and current portion of long term bank loans
|
|
$
|
244
|
|
|
$
|
2,806
|
|
Short term credit from others and current portion of long term loans from others
|
|
|
1,734
|
|
|
|
3,004
|
|
Trade accounts payable
|
|
|
1
|
|
|
|
1,531
|
|
Other accounts payable
|
|
|
305
|
|
|
|
1,211
|
|
Total current liabilities
|
|
|
2,284
|
|
|
|
8,552
|
|
|
|
|
|
|
|
|
|
|
Long term escrow
|
|
|
477
|
|
|
|
477
|
|
Accrued severance pay, net
|
|
|
48
|
|
|
|
110
|
|
Total long term liabilities
|
|
|
525
|
|
|
|
587
|
|
|
|
|
|
|
|
|
|
|
Stockholders’ Equity:
|
|
|
|
|
|
|
|
|
Preferred stock; $0.001 par value, 5,000,000 shares authorized, none issued and outstanding as of March 31, 2019
|
|
|
|
|
|
|
|
|
Common stock; $0.001 par value, 25,000,000 shares authorized, 10,734,232 and 9,342,088 shares issued and outstanding as of March 31, 2019 and December 31, 2018, respectively
|
|
|
11
|
|
|
|
9
|
|
Additional paid in capital
|
|
|
13,518
|
|
|
|
11,905
|
|
Accumulated other comprehensive (loss)
|
|
|
-
|
|
|
|
(117
|
)
|
Accumulated loss
|
|
|
(13,667
|
)
|
|
|
(12,757
|
)
|
MICT, Inc. stockholders’ equity
|
|
|
(138
|
)
|
|
|
(960
|
)
|
|
|
|
|
|
|
|
|
|
Non-controlling interests
|
|
|
-
|
|
|
|
1,964
|
|
|
|
|
|
|
|
|
|
|
Total equity
|
|
|
(138
|
)
|
|
|
1,004
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and equity
|
|
$
|
2,671
|
|
|
$
|
10,143
|
|
MICT,
INC. AND SUBSIDIARIES
CONDENSED
CONSOLIDATED STATEMENTS OF INCOME
(USD
In Thousands, Except Share and Earnings Per Share Data)
(Unaudited)
|
|
Three months ended
March 31,
|
|
|
|
2019
|
|
|
2018
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
477
|
|
|
$
|
5,980
|
|
Cost of revenues
|
|
|
846
|
|
|
|
4,258
|
|
Gross profit
|
|
|
(369
|
)
|
|
|
1,722
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
261
|
|
|
|
527
|
|
Selling and marketing
|
|
|
198
|
|
|
|
454
|
|
General and administrative
|
|
|
990
|
|
|
|
1,212
|
|
Amortization of intangible assets
|
|
|
20
|
|
|
|
222
|
|
Total operating expenses
|
|
|
1,469
|
|
|
|
2,415
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(1,838
|
)
|
|
|
(693
|
)
|
Equity loss
|
|
|
-
|
|
|
|
-
|
|
Net profit from loss of control
|
|
|
299
|
|
|
|
|
|
Financial (expenses) income, net
|
|
|
76
|
|
|
|
(392
|
|
Loss before provision for income taxes
|
|
|
(1,463
|
)
|
|
|
(1,085
|
)
|
Taxes on income (benefit)
|
|
|
3
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Net loss from continued operation
|
|
|
(1,466
|
)
|
|
|
(1,085
|
)
|
Net profit (loss) from discontinued operation
|
|
|
-
|
|
|
|
(111
|
)
|
Total net loss
|
|
|
(1,466
|
)
|
|
|
(974
|
)
|
Net loss attributable to non-controlling interests
|
|
|
(556
|
)
|
|
|
(124
|
)
|
Net loss attributable to MICT, Inc.
|
|
|
(910
|
)
|
|
|
(850
|
)
|
|
|
|
|
|
|
|
|
|
Basic and diluted loss per share from continued operation
|
|
|
(0.09
|
)
|
|
|
(0.11
|
)
|
Basic and diluted loss per share from discontinued operation
|
|
$
|
-
|
|
|
$
|
(0.01
|
)
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding:
|
|
|
|
|
|
|
|
|
Basic
|
|
|
9,707,831
|
|
|
|
8,867,830
|
|
MICT,
INC. AND SUBSIDIARIES
CONDENSED
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(USD
In Thousands)
(Unaudited)
|
|
Three months ended
March 31,
|
|
|
|
2019
|
|
|
2018
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(1,466
|
)
|
|
$
|
(974
|
)
|
Other comprehensive loss, net of tax:
|
|
|
|
|
|
|
|
|
Currency translation adjustment
|
|
|
(144
|
)
|
|
|
133
|
|
Total comprehensive loss
|
|
|
(1,610
|
)
|
|
|
(841
|
)
|
Comprehensive loss attributable to non-controlling interests
|
|
|
(465
|
)
|
|
|
(432
|
)
|
Comprehensive loss attributable to MICT, Inc.
|
|
$
|
(1,145
|
)
|
|
$
|
(409
|
)
|
MICT, INC.
STATEMENTS OF CHANGES IN EQUITY
(In Thousands, Except Numbers of Shares)
|
|
Common Stock
|
|
|
Additional
Paid-in
|
|
|
Retained
|
|
|
Accumulated Other Comprehensive
|
|
|
Non-controlling
|
|
|
Total Stockholders’
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Earnings
|
|
|
Income
|
|
|
Interest
|
|
|
Equity
|
|
Shares issued to service providers and employees
|
|
|
145,300
|
|
|
|
-
|
|
|
|
175
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
175
|
|
Stock based compensation
|
|
|
-
|
|
|
|
-
|
|
|
|
22
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
22
|
|
Comprehensive loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(910
|
)
|
|
|
(306
|
)
|
|
|
(393
|
)
|
|
|
(1,609
|
)
|
Stock based compensation in subsidiary
|
|
|
-
|
|
|
|
-
|
|
|
|
70
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(70
|
)
|
|
|
0
|
|
Loss of control of subsidiary
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
423
|
|
|
|
(1,501
|
)
|
|
|
(1,078
|
)
|
Issuance of shares, net
|
|
|
1,246,817
|
|
|
|
2
|
|
|
|
1,346
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,348
|
|
Balance, March 31, 2019
|
|
|
10,734,232
|
|
|
|
11
|
|
|
|
13,518
|
|
|
|
(13,667
|
)
|
|
|
0
|
|
|
|
0
|
|
|
|
(138
|
)
|
|
|
Common Stock
|
|
|
Additional
Paid-in
|
|
|
Retained
|
|
|
Accumulated Other Comprehensive
|
|
|
Non-controlling
|
|
|
Total Stockholders’
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Earnings
|
|
|
Income
|
|
|
Interest
|
|
|
Equity
|
|
Balance, December 31, 2017
|
|
|
8,645,656
|
|
|
|
8
|
|
|
|
10,881
|
|
|
|
(10,147
|
)
|
|
|
(363
|
)
|
|
|
5,595
|
|
|
|
5,974
|
|
Shares issued to service providers and employees
|
|
|
42,500
|
|
|
|
-
|
|
|
|
51
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
51
|
|
Issuance of warrants
|
|
|
-
|
|
|
|
-
|
|
|
|
28
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
28
|
|
Comprehensive loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(851
|
)
|
|
|
517
|
|
|
|
(506
|
)
|
|
|
(840
|
)
|
Stock based compensation in subsidiary
|
|
|
-
|
|
|
|
-
|
|
|
|
(74
|
)
|
|
|
-
|
|
|
|
|
|
|
|
74
|
|
|
|
0
|
|
Issuance of shares, net
|
|
|
456,309
|
|
|
|
1
|
|
|
|
478
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
479
|
|
Balance, March 31, 2018
|
|
|
9,144,465
|
|
|
|
9
|
|
|
|
11,364
|
|
|
|
(10,998
|
)
|
|
|
154
|
|
|
|
5,163
|
|
|
|
5,692
|
|
MICT,
INC. AND SUBSIDIARIES
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(USD
In Thousands)
(Unaudited)
|
|
Three months ended
March 31,
|
|
|
|
2019
|
|
|
2018
|
|
CASH FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
Net loss from continued operations
|
|
$
|
(1,466
|
)
|
|
$
|
(1,085
|
)
|
|
|
|
|
|
|
|
|
|
Adjustments to reconcile net income to net cash provided by operating activities:
|
|
|
|
|
|
|
|
|
Profit from loss of control
|
|
|
(299
|
)
|
|
|
-
|
|
Depreciation and amortization
|
|
|
85
|
|
|
|
308
|
|
Change in fair value of derivatives, net
|
|
|
-
|
|
|
|
(1
|
)
|
Accrued interest and exchange rate differences on bank loans
|
|
|
102
|
|
|
|
(51
|
)
|
Extinguishment of loan costs and commissions
|
|
|
-
|
|
|
|
360
|
|
Accrued interest and exchange rate differences on loans from others
|
|
|
76
|
|
|
|
112
|
|
Stock-based compensation
|
|
|
127
|
|
|
|
125
|
|
Decrease in trade accounts receivable, net
|
|
|
672
|
|
|
|
310
|
|
Decrease (increase) in inventories
|
|
|
348
|
|
|
|
(190
|
)
|
Decrease in accrued severance pay, net
|
|
|
(8
|
)
|
|
|
(3
|
)
|
Increase in other accounts receivable
|
|
|
(294
|
)
|
|
|
199
|
|
Decrease in trade accounts payable
|
|
|
(394
|
)
|
|
|
(580
|
)
|
Decrease in other accounts payable
|
|
|
(22
|
)
|
|
|
(910
|
)
|
Net cash used in operating activities
|
|
$
|
(1,073
|
)
|
|
$
|
(1,406
|
)
|
MICT,
INC. AND SUBSIDIARIES
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(USD
In Thousands)
(Unaudited)
|
|
Three months ended
March 31,
|
|
|
|
2019
|
|
|
2018
|
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Purchase of property and equipment
|
|
|
(57
|
)
|
|
|
(72
|
)
|
Deconsolidation of Micronet Ltd.
|
|
|
(608
|
)
|
|
|
-
|
|
Net cash provided by (used in) investing activities
|
|
$
|
(665
|
)
|
|
$
|
(72
|
)
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Short term bank credit
|
|
$
|
(101
|
)
|
|
$
|
1,139
|
|
Receipt of loans from others, net
|
|
|
-
|
|
|
|
4,971
|
|
Extinguishment of loan costs
|
|
|
-
|
|
|
|
(360
|
)
|
Repayment of loans from others
|
|
|
-
|
|
|
|
(3,538
|
)
|
Issuance of shares, net
|
|
|
-
|
|
|
|
479
|
|
Issuance of warrants net
|
|
|
-
|
|
|
|
29
|
|
Net cash provided by financing activities
|
|
$
|
(101
|
)
|
|
$
|
2,720
|
|
|
|
|
|
|
|
|
|
|
NET CASH INCREASE IN CASH AND CASH EQUIVALENTS
|
|
|
(1,839
|
)
|
|
|
1,242
|
|
|
|
|
|
|
|
|
|
|
Cash, Cash Equivalents and restricted cash at beginning of the period
|
|
|
2,174
|
|
|
|
2,398
|
|
|
|
|
|
|
|
|
|
|
TRANSLATION ADJUSTMENT ON CASH AND CASH EQUIVALENTS
|
|
|
12
|
|
|
|
(24
|
)
|
Cash, Cash Equivalents and restricted cash at end of the period
|
|
$
|
347
|
|
|
$
|
3,616
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information:
|
|
|
|
|
|
|
|
|
Amount paid during the period for:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
116
|
|
|
$
|
294
|
|
Taxes
|
|
$
|
46
|
|
|
$
|
4
|
|
Appendix A: Micronet LTD
|
|
February 24, 2019
|
|
Working capital other than cash
|
|
|
(2,301
|
)
|
Finance lease
|
|
|
359
|
|
Accrued severance pay, net
|
|
|
56
|
|
Translation reserve
|
|
|
(417
|
)
|
Micronet Ltd investment in fair value
|
|
|
1,711
|
|
Non controlling interests
|
|
|
1,499
|
|
Net profit from loss of control
|
|
|
(299
|
)
|
Cash
|
|
|
608
|
|
Appendix B: non cash transaction
As of February 21, 2019, the Company issued
to YA II PN Ltd., a Cayman Island exempt limited partnership and affiliate of Yorkville Advisors Global, LLC, or YA II,
250,000 shares of its common stock as part of a conversion of $250 of the Series A Debenture at a conversion price of $1.00 per
share.
On March 13, 2019, the Company issued an additional
996,817 shares of its common stock as part of a conversion of $1,000 of the Series A Debenture at a conversion price of $1.10 per
share
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(USD
in thousands, except per share data)
NOTE
1 — DESCRIPTION OF BUSINESS
Overview
MICT Inc., or we or 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 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’s business relates to its
ownership interest in its Israel-based subsidiary, Micronet Ltd., or Micronet, in which the Company previously held a majority
ownership interest that has since been diluted to a minority ownership interest. 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.
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. As a result of Micronet’s 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 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 resulted in the deconsolidation of Micronet’s operating results from our
financial statements as of February 24, 2019. Therefore, commencing from February 24, 2019, the Company account for the investment
in Micronet in accordance with the equity method. As a result of the equity method, the Company recognized a net profit of $299
from the deconsolidation of Micronet Ltd.
NOTE
1 — DESCRIPTION OF BUSINESS (Cont.)
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 $25,000 (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.
Liquidity
During the period ended March 31, 2019, the Company had a total
comprehensive loss of $1,100 and incurred a $1,000 loss from operating cash flow. As of March 31, 2019, the Company incurred accumulated
losses of approximately $13,600. Based on the Company’s projected cash flows and the Company’s cash balance as of March
31, 2019, the Company believes that it has sufficient resources to enable it to continue advancing its activities for a period
of at least 12 months from the date of issuance of these financial statements. The Company intends to satisfy its liquidity through
the sale of its securities, either in public or private transactions, through the closing of the transactions contemplated by the
Acquisition Agreement or pursuant to a break up fee, if applicable, that the Company may be entitled to receive pursuant to the
terms of the Acquisition Agreement.
In 2019, the Company expects to pay off all of its bank loans
in the amount of $244 and the loans (as further detailed below) with YA II in the aggregate principal amount of $1,750 as part
of the closing of the transactions contemplated by the Acquisition Agreement.
The Company filed a Form S-3 registration
statement (File No. 333-219596) under the Securities Act of 1933, as amended, with the SEC using a “shelf” registration
process, which was declared effective on July 31, 2017. Under this shelf registration process, the Company may, from time to time,
sell common stock, warrants or units in one or more offerings up to a total dollar amount of $30,000, subject to certain limitations
as set forth in General Instruction I.B.6. of Form S-3, pursuant to which the Company have sold approximately $1,000 of our securities
to date.
NOTE
2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying unaudited condensed consolidated
financial statements and condensed footnotes have been prepared in accordance with the applicable rules and regulations of the
Securities and Exchange Commission, or the SEC, regarding interim financial reporting. Accordingly, they do not include all of
the information and footnotes required by the accounting principles generally accepted in the United States of America, or U.S.
GAAP, for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring items) considered
necessary for fair statement of results for the interim periods presented have been included. The results of operations for the
three months ended March 31, 2019 are not necessarily indicative of the results to be expected for the full year 2019 or for other
interim periods or for future years. The consolidated balance sheet as of March 31, 2019 is derived from audited financial statements
as of that date; however, it does not include all of the information and footnotes required by U.S. GAAP for complete financial
statements. These consolidated financial statements should be read in conjunction with the audited consolidated financial statements
and related notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018.
Furthermore, from February 24, 2019 the Company
will account for the investment in Micronet in accordance with the equity method, and therefore, the results of operations for
the three months ended March 31, 2019 are not necessarily indicative of the results to be expected for the full year 2019 or for
other interim periods or for future years.
Principles of Consolidation
The accompanying financial statements are
prepared in accordance with U.S. GAAP.
Note
3 —
Loans from others
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 up to 375,000 shares of the Company’s
common stock at a purchase price of $2.00 per share, a warrant to purchase up to 200,000 shares of the Company’s common stock
at a purchase price of $3.00 per share and a warrant to purchase up to 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 would
be deemed trouble debt restructuring, or TDR, and concluded that it does not meet TDR requirements. The Company then evaluated
if the modifications to the terms of the Prior Notes 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 Notes. 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 B Debentures.
Note
3 —
Loans from others
(Cont.)
On July 3, 2018, the Company made a payment
of $1,000 towards the repayment of the Series B 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, BNN and the other counterparties have insisted that the Company modify the terms of the 1,187,500 warrants issued to
YA II to eliminate or modify certain provisions such that all of the warrants will be exchanged for new warrants, or the New Warrants,
which New Warrants shall be exercisable at $2.00 per share of BVI Pubco common stock (subject to adjustment as provided herein
and therein) and shall expire on June 30, 2022.
Subject to, and upon closing of the transactions
contemplated by the Acquisition Agreement, securities issued in connection with the payment of the indebtedness owing to YA II,
will include, but not be limited to, the amortization of such indebtedness and the conversion of such indebtedness into up to 1,000,000
shares of the Company’s common stock at a price of not less than $1.10 per share and up to 250,000 shares of Company’s
common stock at a price of not less than $1.00 per share.
As of February 21, 2019, the Company issued
to YA II 250,000 shares of its common stock as part of a conversion of $250 of the Series A Debenture at a conversion price of
$1.00 per share.
On March 13, 2019, the Company issued an additional
996,817 shares of its common stock as part of a conversion of $1,000 of the Series A Debenture at a conversion price of $1.10 per
share.
NOTE 4 — DISCONTINUED OPERATION
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 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 Accounting Standards Codification, or ASC, Topic 205. 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, 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 approximately $6,800.
NOTE 4 — DISCONTINUED OPERATION (Cont.)
The following is the composition from discontinued
operation through March 31, 2019 and December 31, 2018:
|
|
Three months ended
March 31,
|
|
|
|
2019
|
|
|
2018
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
-
|
|
|
|
2,578
|
|
Cost of revenues
|
|
|
-
|
|
|
|
1,931
|
|
Gross profit
|
|
|
-
|
|
|
|
647
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
-
|
|
|
|
58
|
|
Selling and marketing
|
|
|
-
|
|
|
|
119
|
|
General and administrative
|
|
|
-
|
|
|
|
260
|
|
Total operating expenses
|
|
|
-
|
|
|
|
437
|
|
Profit (loss) from operations
|
|
|
-
|
|
|
|
210
|
|
|
|
|
|
|
|
|
|
|
Finance income (expense), net
|
|
|
-
|
|
|
|
99
|
|
Profit (loss) before provision for income taxes
|
|
|
-
|
|
|
|
111
|
|
Taxes on income
|
|
|
|
|
|
|
-
|
|
Net profit (loss)
|
|
|
-
|
|
|
|
111
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
March 31,
|
|
|
|
2019
|
|
|
2018
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities
|
|
$
|
-
|
|
|
|
255
|
|
Net cash provided by (used in) investing activities
|
|
|
-
|
|
|
|
(10
|
)
|
Net cash provided by (used in) financing activities
|
|
|
-
|
|
|
|
(266
|
)
|
|
|
|
|
|
|
|
|
|
NET CASH INCREASE (DECREASE) IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH
|
|
|
-
|
|
|
|
(21
|
)
|
|
|
|
|
|
|
|
|
|
CASH, CASH EQUIVALENTS AND RESTRICTED CASH AT BEGINNING OF THE PERIOD
|
|
|
-
|
|
|
|
4,503
|
|
TRANSLATION ADJUSTMENT OF CASH AND CASH EQUIVALENTS
|
|
|
|
|
|
|
|
|
CASH, CASH EQUIVALENTS AND RESTRICTED CASH AT END OF THE PERIOD
|
|
$
|
-
|
|
|
|
4,482
|
|
NOTE 5 —
LOSS
OF CONTROL OF SUBSIDIARY
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 TASE. As a result of Micronet’s 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 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 resulted
in the loss of control of Micronet. As a result, effective as of February 24, 2019, we no longer include Micronet’s operating
results in our financial statements. Therefore, commencing from February 24, 2019, the Company will account for the investment
in Micronet in accordance with the equity method.
While Micronet is a publicly traded company in Israel, its shareholder
base is widely spread and we continue to be Micronet’s largest shareholder, controlling 39.53% of its issued and outstanding
shares. We believe that since most items that may require shareholder approval required majority consent, we exert a high level
of influence over such voting matters which may include the appointment and removal of directors. In that regard, to date, we have
appointed a majority of the directors of Micronet’s board of directors.
Based on the above, although we are unable to fully consolidate Micronet’s financial statements
according to U.S. GAAP, we also do not consider Micronet to be a discontinued operation since we consider ourselves in effective
control of Micronet and the raising of equity by Micronet that diluted our interests was done in order to continue its operations.
The following is the composition from Micronet’s operation
for the three months ended March 31, 2019 and March 31, 2018, respectively:
|
|
Three months ended March 31,
|
|
|
|
2019
|
|
|
2018
|
|
Revenues
|
|
$
|
1,550
|
|
|
$
|
5,980
|
|
|
|
|
|
|
|
|
|
|
Gross profit (loss)
|
|
|
(6
|
)
|
|
|
1,722
|
|
Income (loss) from operations
|
|
|
(1,041
|
)
|
|
|
(366
|
)
|
|
|
|
|
|
|
|
|
|
Net profit (loss)
|
|
$
|
(1,108
|
)
|
|
|
(247
|
)
|
Item 2.
|
Management’s Discussion and Analysis of Financial Condition and Results of Operations.
|
This Quarterly Report on Form 10-Q contains
certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and other Federal
securities laws, and is subject to the safe-harbor created by such Act and laws. In some cases, you can identify forward-looking
statements by terminology such as “may,” “will,” “should,” “expect,” “intend,”
“plan,” “anticipate,” “believe,” “estimate,” “predict,” “potential”
or “continue,” the negative of such terms, or other variations thereon or comparable terminology. The statements
herein and their implications are merely predictions and therefore inherently subject to known and unknown risks, uncertainties,
assumptions and other factors that may cause actual results to be materially different from those contemplated by the forward-looking
statements. Such forward-looking statements appear in this Item 2 – “Management’s Discussion and Analysis
of Financial Condition and Results of Operations,” and may appear elsewhere in this Quarterly Report on Form 10-Q and include,
but are not limited to, statements regarding the following:
|
●
|
Continuing
minority stake in Micronet’s share capital;
|
|
●
|
the
organic and non-organic growth of our business;
|
|
●
|
our
financing needs and our ability to continue to raise capital;
|
|
●
|
use
of proceeds from any future financing, if any;
|
|
●
|
the
sufficiency of our capital resources; and
|
|
●
|
the
proposed transaction with BNN Technology PLC.
|
Our business is subject to substantial
risks, which increase the uncertainty inherent in the forward-looking statements contained or implied in this report. Except
as required by law, we assume no obligation to update these forward-looking statements to reflect actual results or changes in
factors or assumptions affecting such forward-looking statements. Further information on potential factors that could affect our
business is described under the heading “Risk Factors” in Part I, Item 1A of our Annual Report on Form 10-K for the
fiscal year ended December 31, 2018. Readers are also urged to carefully review and consider the various disclosures
we have made in that report. The following discussion and analysis should be read in conjunction with the Consolidated Financial
Statements and related notes included elsewhere in this Quarterly Report on Form 10-Q.
Overview
The Company’s business relates to its
ownership interest in its Israel-based subsidiary, Micronet Ltd., or Micronet, in which the Company previously held a majority
ownership interest that has since been diluted to a minority ownership interest. 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.
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. As a result of Micronet’s 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 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 resulted in the deconsolidation of Micronet’s operating results from our
financial statements as of February 24, 2019. Therefore, commencing from February 24, 2019, the Company will account for the investment
in Micronet in accordance with the equity method.
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 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 $5,250,000
as well as assume up to $4,000,000 of Enertec debt. Enertec met the definition of a component as defined by Accounting Standards
Codification 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, 000, 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 $4,000,000
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 $6,844,000.
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.
Loss of Control of Micronet Ltd.
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 TASE. As a result of Micronet’s 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 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 resulted
in the loss of control of Micronet. As a result, effective as of February 24, 2019, we no longer include Micronet’s operating
results in our financial statements. Therefore, commencing from February 24, 2019, the Company will account for the investment
in Micronet in accordance with the equity method.
While Micronet is a publicly traded company in Israel, its shareholder
base is widely spread and we continue to be Micronet’s largest shareholder, controlling 39.53% of its issued and outstanding
shares. We believe that since most items that may require shareholder approval required majority consent, we exert a high level
of influence over such voting matters which may include the appointment and removal of directors. In that regard, to date, we have
appointed a majority of the directors of Micronet’s board of directors.
Based on the above, although we are unable to fully consolidate
Micronet’s financial statements according to U.S. GAAP, we also do not consider Micronet to be a discontinued operation since
we consider ourselves in effective control of Micronet and the raising of equity by Micronet that diluted our interests was done
in order to continue its operations.
The following is the composition from Micronet’s operation
for the three months ended March 31, 2019 and March 31, 2018, respectively:
|
|
Three months ended
March 31,
|
|
|
|
2019
|
|
|
2018
|
|
Revenues
|
|
$
|
1,550
|
|
|
$
|
5,980
|
|
|
|
|
|
|
|
|
|
|
Gross profit (loss)
|
|
|
(6
|
)
|
|
|
1,722
|
|
Income (loss) from operations
|
|
|
(1,041
|
)
|
|
|
(366
|
)
|
|
|
|
|
|
|
|
|
|
Net profit (loss)
|
|
$
|
(1,108
|
)
|
|
|
(247
|
)
|
Results of Operations
As discussed above and in the footnotes to our financial statements contained in Part I, Item 1 of this
Quarterly Report on Form 10-Q, on February 24, 2019, as a result of a public offering by Micronet, our voting interest in Micronet
(including voting power associated with an irrevocable proxy in our benefit from Mr. David Lucatz, our President and Chief Executive
Officer) was reduced to 39.53% of the issued and outstanding shares of Micronet. Therefore, Micronet’s reports are consolidated
in our financial statements from January 1, 2019 until February 24, 2019 only.
Three Months Ended March 31, 2019 Compared
to Three Months Ended March 31, 2018
Revenues for the three months ended March
31, 2019 were $477,000, compared to $5,980,000 for the three months ended March 31, 2018. This represents a decrease of $5,503,000,
or 92%, for the three months ended March 31, 2019. The decrease in revenues for the three months ended March 31, 2019 is primarily
due to the dilution in our ownership and voting interests in Micronet, causing us to cease consolidating Micronet’s operations
in our financial statements commencing from February 24, 2019, as well as a decrease in customer orders, and their value, a trend
that has continued from the fiscal year ended December 31, 2018.
Micronet is experiencing a significant decline
in the rate at which it receives new orders. The decrease in orders received for the three months ended March 31, 2019 had a significant
effect on the revenues recorded in the three months ended March 31, 2019.
Gross loss for the three months ended March
31, 2019 decreased by $2,091,000, to $369,000, and represents 77% of the revenues. This is in comparison to gross profit of
$1,722,000 and 29% of the revenues for the three months ended March 31, 2018. The decrease in gross margin for the three months
ended March 31, 2019 is mainly a result of the dilution in our ownership and voting interests in Micronet, causing us to cease
consolidating Micronet’s operations in our financial statements commencing from February 24, 2019 as well as the decrease
in revenues and slow inventory reduction at Micronet.
Selling and Marketing
Selling and marketing costs are part of operating
expenses. Selling and marketing costs for the three months ended March 31, 2019 were $198,000, compared to $454,000 for the three
months ended March 31, 2018. This represents a decrease of $256,000, or 56%, for the three months ended March 31, 2019. The decrease
is mainly due to the dilution in our ownership and voting interests in Micronet, causing us to cease consolidating Micronet’s
operations in our financial statements commencing from February 24, 2019 as well as a decrease in salary expenses due to the reduction
of employees and subcontractors at Micronet.
General and Administrative
General and administrative costs are part
of operating expenses. General and administrative costs for the three months ended March 31, 2019 were $990,000, compared to $1,212,000
for the three months ended March 31, 2018. This represents a decrease of $222,000, or 18%, for the three months ended March 31,
2019. The decrease is mainly the result of the dilution in our ownership and voting interests in Micronet, causing us to
cease consolidating Micronet’s operations in our financial statements commencing from February 24, 2019 as well as decreases
in wages and professional services at Micronet and partially offset by (1) an increase associated with the issuance of options
and shares to directors, employees and consultants, (2) an increase in salary to Mr. David Lucatz, our President and Chief Executive
Officer, (3) an increase in professional consultant fees and (4) a provision for doubtful debts.
Research and Development Costs
Research and development costs are part of
operating expenses. Research and development costs, which mainly include wages, materials and sub-contractors, for the three
months ended March 31, 2019 were $261,000, compared to $527,000 for the three months ended March 31, 2018. This represents a decrease
of $266,000, or 50% , for the three months ended March 31, 2019. The decrease in research and development costs for the three months
ended March 31, 2019 is primarily a result of the dilution in our ownership and voting interests in Micronet, causing us to cease
consolidating Micronet’s operations in our financial statements commencing from February 24, 2019 as well as a decrease in
salary expenses due to a decrease in the number of employees at Micronet.
Loss from Operations
Our loss from operations for the three months
ended March 31, 2019 was $1,838,000, or 385% of revenues, compared to loss from operations of $693,000, or 12% of revenues, for
the three months ended March 31, 2018. The decrease in loss from operations for the three months ended March 31, 2019 is mainly
a result of the dilution in our ownership and voting interests in Micronet, causing us to cease consolidating Micronet’s
operations in our financial statements commencing from February 24, 2019 as well as the decrease in revenues described above.
Financial Income (Expenses), net
Financial income, net for the three months
ended March 31, 2019 was $76,000 compared to expenses of $392,000 for the three months ended March 31, 2018. This represents an
increase in financial income of $468,000, for the three months ended March 31, 2019. The increase in financial income, net for
the three months ended March 31, 2019, is primarily due to changes in currency exchange rates.
Net Profit/Loss Attributed to MICT, Inc.
Our net loss attributed to MICT, Inc.
for the three months ended March 31, 2019 was $910,000, compared to a net loss of $850,000 for the three months ended March
31, 2018. This represents an increase in net loss of $60,000 for the three months ended March 31, 2019, as compared to the
same period last year. The increase in net loss for the three months ended March 31, 2019 is primarily attributable to
the decrease in revenues and the change in the consolidation period relating to the Company’s holdings of
Micronet’s equity securities.
Liquidity and Capital Resources
The Company finances its operations through
loans and securities offerings.
The loans are divided into bank loans and loans from
YA
II PN Ltd., or YA II, as described below
.
As of March 31, 2019, our total cash and cash
equivalents balance was $347,000, as compared to $2,174,000 as of December 31, 2018. This reflects a decrease of $1,827,000 in
cash and cash equivalents. The decrease in cash and cash equivalents is primarily a result of the dilution in our ownership and
voting interests in Micronet, causing us to cease consolidating Micronet’s operations in our financial statements commencing
from February 24, 2019, and partially offset by the repayment of loans from YA II.
On December 31, 2017, the Company, Enertec
and our previously wholly owned subsidiary, Enertec Management Ltd., entered into a Share Purchase Agreement with Coolisys, a subsidiary
of DPW, pursuant to which the Company agreed to sell the entire share capital of Enertec to Coolisys. On May 22, 2018, the Company
completed the Closing. At the Closing, the Company received aggregate gross proceeds of approximately $4.7 million, 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’s
debts at the Closing. In addition, Coolisys also assumed approximately $4.0 million of Enertec’s debt.
In conjunction with, and as a condition to,
the closing of the Share Purchase Agreement, the Company, Enertec, Coolisys, DPW and Mr. David Lucatz, the Company’s Chief
Executive Officer, agreed to execute a consulting agreement, or the Consulting Agreement, whereby the Company, 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 the Company an annual consulting fee
of $150,000 as well as issue the Company 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 the Company, the rights and obligations under the Consulting
Agreement shall be assigned to Mr. Lucatz along with the DPW Equity.
Prior to March 29, 2018, the Company and MICT
Telematics (formerly known as Enertec Electronics Ltd.) entered into a series of Note Purchase Agreements with YA II, whereby YA
II purchased an aggregate of $3.2 million of notes from the Company.
On March 29, 2018, the Company and MICT Telematics
executed and closed on a securities purchase agreement with YA, whereby the Company issued and sold to YA II (1) certain Series
A Convertible Debentures in the aggregate principal aggregate amount of $3.2 million, or the Series A Debentures, and (2) a Series
B Convertible Debenture in the principal aggregate amount of $1.8 million, 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 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 $3.2 million. The Series B Debenture was issued and sold for aggregate gross cash proceeds of $1.8 million. At the closing
of the transactions contemplated by the securities purchase agreement, the Company agreed to pay YA II, or its designee, a commitment
fee of $90,000, an extension fee of $50,000 relating to the prior extension of the secured promissory note issued on August 22,
2017, and $126,786.74 representing the accrued and unpaid interest on the Prior Notes.
Pursuant to the terms of the Series A Debentures,
YA II may elect to convert the required payments due thereunder into the Company’s common stock at a fixed conversion price
of $2.00 per share. In addition, the Company may, at its sole discretion, convert a required payment at a conversion price equal
to 98.5% of the lowest daily volume weighted average price of the Company’s common stock during the ten consecutive trading
days immediately preceding a conversion, provided that such price may not be less than $0.50. In addition, pursuant to a Series
A Debentures, the Company agreed to pay YA y $63,287 representing the remaining unpaid and accrued interest from one of the Prior
Notes within 90 days.
Pursuant to the terms of the Series B Debenture,
YA II may elect to convert the required payments due thereunder into the Company’s common stock at a fixed conversion price
of $4.00 per share. In addition, the Company may, at its sole discretion, convert a required payment at a conversion price equal
to 98.5% of the lowest daily volume weighted average price during the ten consecutive trading days immediately preceding a conversion,
provided that such price may not be less than $0.50.
Upon a change of control of the Company, YA
II may elect to convert the Series A Debentures and Series B Debenture at either the relevant fixed conversion price or the variable
conversion price, at its sole discretion. Upon the occurrence of an Event of Default (as defined in the Series A Debentures and
the Series B Debenture), all amounts payable may be due immediately and YA II may elect to convert the Series A Debentures and
the Series B Debenture at either the relevant fixed conversion price or the variable conversion price, at its sole discretion.
The Series A Debentures and Series B Debenture are secured by a pledge of shares of Micronet owned by MICT Telematics.
In addition, pursuant to the terms of the
securities purchase agreement, the Company agreed to issue to YA II a warrant to purchase up to 375,000 shares of the Company’s
common stock at a purchase price of $2.00 per share, a warrant to purchase up to 200,000 shares of the Company’s common stock
at a purchase price of $3.00 per share and a warrant to purchase up to 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 $273,787 in fees and expenses were deducted from the aggregate gross proceeds.
In addition, in June 2018, the Company made
aggregate payments of $875,000 towards the repayment of the Series A Debentures.
On July 3, 2018, the Company made a payment
of $1 million towards the repayment of the Series A Debentures. In addition, on July 5, 2018, the Company issued shares at a conversion
price of $1.1158 as repayment of $125,000 of the Series A Debentures.
On February 21, 2019 and on March 13, 2019,
the Company issued to YA II 250,000 shares and 996,817 shares of its common stock, respectively, as a conversion of $1.25 million
at a conversion price of $1.10 per share of the Series A Debentures. As of the date hereof, the current outstanding balance of
indebtedness owed to YA II is $1.75 million.
On December 17, 2018, the Company entered
into an agreement with YA II, or the YA Agreement, with respect to (i) the Series A Debentures and the Series B Debenture, 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 acquisition, 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 acquisition
(subject to adjustment as described therein). YA II also agreed that it would not convert the Series A Debentures and the Series
B Debenture 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 acquisition or the termination of the Acquisition Agreement.
The Company agreed to pay in cash the remaining
outstanding principal amount and all accrued interest with respect to the Series A Debentures and the Series B Debenture as of
the consummation of the Acquisitions, subject to any applicable redemption premiums.
On June 17, 2014, MICT Telematics entered
into a loan agreement, or the Mercantile Loan Agreement, with Mercantile Discount Bank Ltd., or Mercantile Bank, pursuant to which
Mercantile Bank agreed to loan the Company approximately $3,631,000 on certain terms and conditions, or the Mercantile Loan. The
proceeds of the Mercantile Loan were used by the Company: (1) to refinance previous loans granted to the Company in the amount
of approximately $1,333,000; (2) to complete the purchase by the Company, via Enertec, of 1.2 million shares of Micronet constituting
6.3% of the issued and outstanding shares of Micronet; and (3) for working capital and general corporate purposes.
Pursuant to the terms of the Mercantile Loan
Agreement: (1) approximately $3,050,000 of the Mercantile Loan bears interest at a quarterly adjustable rate of Prime plus 2.45%,
or the Mercantile Long Term Portion, and (2) approximately $581,000 of the Mercantile Loan bears interest at a quarterly adjustable
rate of Prime plus 1.7%, or the Mercantile Short Term Portion. The Mercantile Long Term Portion is due and payable in five equal
consecutive annual installments beginning on July 1, 2015, and the interest on the Mercantile Long Term Portion is due and payable
in ten equal consecutive annual installments beginning at January 1, 2015. The Mercantile Short Term Portion in the amount of the
date of the Mercantile Loan, the exercise price of the Phantom Stock Options is higher than the market price of the Option Shares.
As of March 31, 2019, the fair value of this Phantom Stock Option was less than $0.
As of March 31, 2019, our total current assets
were $459,000, as compared to $7,868,000 on December 31, 2018. The decrease is mainly due to the dilution in our ownership and
voting interests in Micronet, causing us to cease consolidating Micronet’s operations in our financial statements commencing
from February 24, 2019.
Our trade accounts receivable at March 31,
2019 were $0 as compared to $1,010,000 at December 31, 2018. The decrease is mainly due to the dilution in our ownership and voting
interests in Micronet, causing us to cease consolidating Micronet’s operations in our financial statements commencing from
February 24, 2019.
As of March 31, 2019, our working capital was a deficit of $1,825,000, as compared to a deficit of $684,000
at December 31, 2018. The increase is mainly due to the dilution in our ownership and voting interests in Micronet, causing us
to cease consolidating Micronet’s operations in our financial statements commencing from February 24, 2019.
As of March 31, 2019, our total debt, excluding
any debt associated with our discontinued operation, was $1,978,000 as compared to $5,810,000 on December 31, 2018. The decrease
in total debt is primarily due to the (i) dilution in our ownership and voting interests in Micronet, causing us to cease consolidating
Micronet’s operations in our financial statements commencing from February 24, 2019 and (ii) the issuance of 1,246,817 shares
of the Company’s common stock to YA II in order to reduce the amount owed under the Series A Debentures.
As of March 31, 2019, our bank and other debt
is composed of short-term loans amounting to $244,000 compared to $2,806,000 on December 31, 2018.
Our current debt includes the bank debt of
our subsidiaries as described above and loans from YA II :
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Our bank debt is composed of short-term loans to MICT Telematics amounting to $244,000 as compared to $2,806,000, which includes both MICT Telematics and Micronet, as of December 31, 2018. These short-term loans bear interest at a rate of Prime (currently 1.60%) plus 2.45%. The bank loan has a maturity date of July 1, 2019.
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MICT Telematics has covenanted under its bank loan mainly that the Company will present separate financial statements equity of not less than 32.5% of total assets. MICT Telematics had not met all of its bank covenants as of December 31, 2018 and March 31, 2019 and as a result, a portion of amounts owed by us under this bank loan were accelerated to the bank prior to their maturity date.
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As described above, 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) the Series A Convertible Debentures in the aggregate principal aggregate amount of $3,200,000 and (2) the Series B Convertible Debenture in the principal aggregate amount of $1,800,000. As of March 31, 2019, we paid $1,450,000 of the principal balance of the Series A Convertible Debentures and $1,800,000 of the Series B Convertible Debenture.
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Financing Needs
The Company will be required to support its
own operational financial needs which include, among others, our general and administrative costs (such as for our various consultants
in regulatory, tax, legal, accounting and other areas of business) and our financing costs related to the loans and funding instruments
assumed by us.
In 2019, the Company expects to pay off
all of its bank loans in the amount of $244,000 and the principal of the YA II loans in the aggregate amount of $1,750,000. The
Company expects to pay the debt upon and as part of the closing of the transactions contemplated by the Acquisition Agreement and/or
using our issuance of shares of its common stock or possibly through additional debt or equity financings. The Company intends
to satisfy its liquidity through the sale of its securities, either in public or private transactions, through the closing of the
transactions contemplated by the Acquisition Agreement or pursuant to a break up fee, if applicable, that the Company may be entitled
to receive pursuant to the terms of the Acquisition Agreement,
The Company filed a Form S-3 registration
statement (File No. 333-219596) under the Securities Act of 1933, as amended, with the SEC using a “shelf” registration
process, which was declared effective on July 31, 2017. Under this shelf registration process, the Company may, from time to time,
sell common stock, warrants or units in one or more offerings up to a total dollar amount of $30,000,000, subject to certain limitations
as set forth in General Instruction I.B.6. of Form S-3, pursuant to which we have sold approximately $1,000,000 of our securities
to date.
Based
on our current business plan and existing loans, we anticipate that our existing cash balances and cash generated from future
income will be sufficient to permit us to conduct our operations and carry out our contemplated business plans for at least the
next 12 months from the date of this Quarterly Report.
Currently,
the only main external sources of liquidity are our banks, and the YA II loans, and we therefore may seek additional financing
from them or through securities offerings in the next 12 months. The Company may also satisfy its liquidity through the sale of
its securities, either in public or private transactions, through the closing of the transactions contemplated by the Acquisition
Agreement or pursuant to a break up fee, if applicable, that the Company may be entitled to receive pursuant to the terms of the
Acquisition Agreement. We intend to use such funds in order to sustain or expand our operations and refinance our various debts
.
However, we may also undertake additional debt or conduct equity financings (including sales of common stock, warrants or units
under our shelf registration statement) to better enable us to support or grow and meet our future operating and capital requirements.
There is no assurance that we will be able to consummate such offerings on favorable terms or at all. Further, there is no assurance
that we will be able to borrow additional funds on favorable terms or at all.
Off-Balance Sheet Arrangements
The Company does not have any off-balance
sheet arrangements that have or are reasonably likely to have a current or future effect that is material to investors on our financial
condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital
resources.