The accompanying notes are an integral part of
the unaudited condensed consolidated financial statements
The accompanying notes are an integral part of
the unaudited condensed consolidated financial statements
The accompanying notes are an integral part of
the unaudited condensed consolidated financial statements
The accompanying notes are an integral part of
the unaudited condensed consolidated financial statements
The accompanying notes are an integral part of
the unaudited condensed consolidated financial statements
The following tables provides a reconciliation
of cash and restricted cash reported within the statement of financial position that sum to the total of the same amounts shown in the
statement of cash flows:
The accompanying notes are an integral part of
the unaudited condensed consolidated financial statements
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 — DESCRIPTION
OF BUSINESS
Overview
MICT, Inc (“MICT”,
the “Company”, “We”, “us”, “our”) were formed as a Delaware corporation on January 31, 2002.
On March 14, 2013, we 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., we changed our name from Micronet Enertec Technologies, Inc. to MICT.
Our shares have been listed for trading on The Nasdaq Capital Market under the symbol “MICT” since April 29, 2013.
MICT Telematics Ltd (“MICT
Telematics”) is a holding company wholly-owned by MICT, established in Israel on December 31, 1991. On October 22, 1993, MICT Telematics
Ltd established a wholly-owned holding company headquartered in Israel, MICT Management Ltd.
On June 10, 2020, MICT Telematics
Ltd, our fully owned subsidiary, purchased 5,999,996 ordinary shares of Micronet Ltd. (“Micronet”) for aggregate proceeds
of New Israeli Shekel (“NIS”) 1.8 Million (or $515,000) through tender offer issued by MICT Telematics. As a result, we have
increased the ownership interest in Micronet to 45.53% of Micronet’s issued and outstanding ordinary shares.
Subsequently, on June 23,
2020 we have purchased through public offering consummated by Micronet on the TASE, 10,334,000 of Micronet’s ordinary shares for
total consideration of NIS 3,100,200 (or $887,000). as a result increased our ownership interest in Micronet to 53.39% of Micronet’s
outstanding ordinary shares, and, as a result, MICT applied purchase accounting and began to consolidate Micronet beginning on such date.
MICT recognized a $665,000, gain on previously held equity in Micronet.
On October 11, 2020, Micronet
has consummated a public equity offering on the TASE, in which the Company purchased 520,600 of Micronet’s ordinary shares and 416,480
of Micronet’s stock options convertible into 416,480 Micronet ordinary shares (at a conversion price of NIS 3.5 per share), for
total consideration of NIS 4,961,202 (or $1,417,486). Following the Micronet’s offering and as a result thereof including the purchase
of Micronet shares, the exercise of our stock options and additional purchase of 115,851 Micronet shares from an individual seller our
ownership interest in Micronet was diluted from 53.39% to 50.31% of the Micronet outstanding share capital. On May 9, 2021, following
exercise of options by minority stockholders, the Company’s ownership interest was diluted to 49.88% and, as a result we no longer
consolidate Micronet’s operating results in our financial statements. As of May 9, 2021, the Company accounted for the investment
in Micronet using the equity method of accounting.
On June 16, 2021, Micronet
announced that it completed a public equity offering on the Tel Aviv Stock Exchange (the “TASE”). Pursuant to the offering,
Micronet sold an aggregate number of 18,400 securities units (the “Units”) at a price of NIS 14.6 per Unit with each Unit
consisting of 100 ordinary shares, 25 series A options and 75 series B options, resulting in the issuance of 1,840,000 ordinary shares,
460,000 series A options and 1,380,000 series B options. Micronet raised total gross proceeds of NIS 26,864,000 (approximately $8,290,000)
in the Offering. The Company did not participate in the offering, and, as a result, the Company owned 36.95% of the outstanding ordinary
shares of Micronet and 26.56% on a fully diluted basis as of June 30, 2021.
Prior to July 1, 2020, MICT
operated primarily through its Israel-based majority-owned subsidiary, Micronet. Since July 1, 2020, after MICT completed its acquisition
(the “Acquisition”) of GFH Intermediate Holdings Ltd. (“GFHI” or “Intermediate”), pursuant to that
certain Agreement and Plan of Merger entered into on November 7, 2019 by and between MICT, GFHI, Global Fintech Holding Ltd. (“GFH”),
a British Virgin Islands company and the sole shareholder of GFHI, and MICT Merger Subsidiary Inc., a British Virgin Islands company and
a wholly owned subsidiary of MICT (“Merger Sub”), as amended and restated on April 15, 2020 (the “Restated Merger Agreement”
and “Merger”), we have been operating in the financial technology sector. Intermediate is a financial technology company with
a marketplace in China and in other areas of the world and is currently in the process of building various platforms for business opportunities
in various verticals and technology segments in order to capitalize on such technology and business. Intermediate plans to continue and
advance its capabilities and its technological platforms through acquisition or license of technologies to support in growth efforts in
the different market segments as more fully described below. Accordingly, after the Merger, MICT’s includes the business of Intermediate,
its wholly-owned subsidiary, operating through its operating subsidiaries, as described herein.
On February 1, 2019, BI Intermediate
(Hong Kong) Limited (“BI Intermediate”) was incorporated in Hong Kong as a holding company wholly-owned by GFHI.
On October 2, 2020, BI Intermediate
entered a strategic agreement (“Strategic Agreement”) to acquire, the entire share capital of Magpie Securities Limited (“Magpie”),
a Hong Kong based securities and investments firm for a total purchase price of approximately $3.0 million (“Purchase Price”).
Magpie is licensed to trade securities on leading exchanges in Hong Kong, the U.S. and China, including China A-Shares, all of which are
the primary target markets for Company’s global fintech business. The Strategic Agreement provided that the acquisition shall be
consummated in two phases, an initial purchase of 9% of the share capital of Magpie and thereafter, the remaining 91% of Magpie would
be purchased by BI Intermediate upon, and subject to, the approval of the Hong Kong Securities and Futures Commission (SFC), the principal
regulator of Hong Kong’s securities and futures markets. On November 11, 2020, BI Intermediate closed on its acquisition of the
first 9% of its acquisition and paid 9% of the Purchase Price. Additionally, pursuant to the Strategic Agreement upon the initial closing,
BI Intermediate loaned Magpie an amount equivalent to the remaining 91% of the Purchase Price. Upon closing of the remaining 91%, which
remains subject to SFC approval, the loan will be cancelled, and BI Intermediate will acquire the remaining 91% of Magpie. The loan was
secured against the pledge of the 91% of the share capital of Magpie yet purchased at such time by BI Intermediate. The obligations of
Magpie, the seller of the interests of Magpie, under the loan agreement have been guaranteed by the ultimate shareholder of Magpie. On
February 26, 2021 we completed the 100% acquisition of Magpie. The acquisition was consummated following the receipt of approval from
the SFC effecting the change in the substantial shareholder of Magpie. In the consideration for the entire share capital of Magpie, we
paid a total Purchase Price of $2.947 million (reflecting the net asset value of Magpie estimated at $2.034 million recorded as a working
capital, and a premium $902 thousands that were recorded as a license in the Intangible assets). The Company, through and together with
the Company’s wholly owned subsidiaries, Beijing Magpie Securities Consulting Services Co., Ltd (“Beijing Magpie”) and
Shenzhen Magpie Information Consulting Technology Co., Ltd (“Shenzhen Magpie”), is in the process of integrating its mobile
app supporting platform with Magpie’s licensed trading assets.
Upon completion of the Magpie
acquisition, we were able to obtain the licenses and permits needed for operating online platform. After the appropriate testing to ensure
scale and reliability of the system is complete, we will be in a position to notify the Hong Kong regulator of our intended launch date.
Our initial plan is to launch the online stock trading platform in Hong Kong.
On December 11, 2019, Bokefa
Petroleum and Gas Co., Ltd (“Bokefa Petroleum”) was incorporated in Hong Kong as a holding Company, which is wholly-owned
by BI Intermediate. On October 22, 2020 and March 8, 2021, Bokefa Petroleum established another two holding companies, Shanghai Zheng
Zhong Energy Technologies Co., Ltd (“Shanghai Zheng Zhong”) and Tianin Bokefa Technology Co., Ltd. (“Bokefa”).
On January 1, 2021, we have
entered into a transaction through Bokefa, with the shareholders of Guangxi Zhongtong Insurance Agency Co., Ltd (“Guangxi Zhongtong”),
a local Chinese entity with business and operations in the insurance brokerage business. Pursuant to the transaction, we have granted
to the Guangxi Zhongtong shareholders (the “Shareholders”) with a frame work loan (“Frame Work Loan”) in the amount
of up to RMB 40 million (approximately $6,125,000) (“Frame Work Loan Amount”) which is designated, if exercised, to be used
as working capital loan for Guangxi Zhongtong. As of June 30, 2021, only RMB 1,800,000 (approximately $275,000) was drawn down from our
the Frame Work Loan for working capital and approximately $500,000 drawn down from our Frame work Loan as loans to shareholders of Guangxi
Zhongtong as stipulated in the agreement. In the consideration for the Frame Work Loan, the parties have entered into various additional
agreements which include among other: (i) a pledge agreement pursuant to which the Shareholders have pledged their shares for the benefit
of Bokefa in order to secure the amount drown from the Frame work Loan Amount (ii) exclusive option agreement pursuant to
which Bokefa has an exclusive option to purchase the entire shares of Guangxi Zhongtong from the Shareholders (“Option Agreement”)
under such terms set forth in the Option Agreement which include an exercise price not less than the maximum Frame work Loan Amount and
the right to convert the Frame work Loan Amount into the purchased shares (iii) Entrustment Agreement and Power of Attorney Agreement
pursuant to which the Shareholders irrevocably entrusted and appointed Tianjin Bokefa as its proxy and trustee to exercise on their behalf
any and all rights under applicable law and the articles of association of Guangxi Zhongtong in the Shareholder’s equity interest
in Guangxi Zhongtong (iv) business cooperation agreement and a master exclusive service agreement which grants Bokefa with rights related
to the Guangxi Zhongtong business and operations designed to secure repayment of the Loan Amount.
This transaction was structured
pursuant to a Variable Interest Entity (“VIE”) Structure (in which we do not hold the shares). As such, and in view of our
direct ownership in Bokefa and its contractual arrangements with Guangxi Zhongtong, we are regarded as Guangxi Zhongtong’s controlling
entity and primary beneficiary of the Guangxi Zhongtong business. We have, therefore, consolidated the financial position and operating
results of Guangxi Zhongtong in our consolidated financial statements, using the fair value of the assets and liabilities of Guangxi Zhongtong,
in accordance with U.S. GAAP. Please see below for VIE related disclosure.
Beijing Fucheng Lianbao Technology
Co., Ltd (“Beijing Fucheng”) is an entity incorporated on December 29, 2020, in which Tianjin Bokefa Technology Co., Ltd (“Bokefa”)
owns 24% equity interest with the remaining 76% controlled by Bokefa through VIE agreements. On February 10, 2021, Beijing Fucheng acquired
all of the shares of Beijing Yibao Technology Co., Ltd., (“Beijing Yibao”) who hold 100% in the equity interest of Beijing
Fucheng Insurance Brokerage Co., Ltd. (“Fucheng Insurance”). Fucheng Insurance is a Chinese insurance brokerage agency and
is a nation-wide licensed entity which offers insurance brokerage services for a broad range of insurance products. The Fucheng Insurance,
through their nationwide license, will give us flexibility to offer and create tailor-made insurance products, to leverage directly to
customers or through distribution partners and procure better deals with both our existing and new insurance company partners. The Fucheng
Insurance further enables us to accelerate the onboarding of new agents throughout China onto our platforms. It also creates the opportunity
to promote our business through some of China’s biggest online portals, which will provide business-to-business-to-consumer (B2B2C)
as well as business-to-consumer (B2C) channels. When Fucheng Insurance initiates its nationwide rollout of its mobile application, it
will facilitate access to those portals’ vast customer bases, which will offer MICT’S full complement of insurance products.
Beijing Fucheng shares were acquired for approximately $5.7 million, and funded through MICT. For further information please refer to
Note 7.
From January through June
2021, Shenzhen Bokefa Technology Co., Ltd (“Shenzhen Bokefa”) and Tianjin Dibao Technology Co., Ltd was established under
BI Intermediate as holding companies to further develop the Company’s business in China.
Our current business, following
the completion of the Acquisition, is primarily comprised and focused on the growth and development of the Intermediate financial technology
offering and the marketplace in China. We aim and are in the process of building various platforms for business opportunities in various
verticals and technology segments in order to capitalize on such technology and business.
As a result of our Acquisition
of Intermediate and the subsequent work we have undertaken with the management of Intermediate, we are positioned to establish ourselves,
through our operating subsidiaries, to serve the markets as a financial technology company with a significant China marketplace and in
other areas of the world. Intermediate has built various platforms to capitalize on business opportunities in a range of verticals and
technology segments, which currently includes stock trading and wealth management; commodities in segments of oil and gas trading; and
insurance brokerage. We are seeking to secure material contracts in these valuable market segments in China while developing opportunities,
in order to allow Intermediate to access to such markets. We will continue to add to the capabilities of such platforms such as through
acquisition and/or the license of technologies to support these efforts in the different market segments as more fully described below.
By building secure, reliable and scalable platforms with high volume processing capability, we intend to provide customized solutions
that address the needs of a highly diverse and broad client base.
We implemented our plans taking advantage of Intermediate
experience and experience in local markets in China, and through the Company’s operating subsidiaries which have begun to secure
material contracts in fast growing market segments in China.
Our current valuable opportunities
have given us access the following market segments:
|
●
|
Stock trading and wealth management segment
|
|
●
|
Commodities in the field of Oil and gas trading segment
|
|
●
|
Insurance brokerage segment
|
As set hereunder, these opportunities
are supported and shall further planned to be executed and realized through our business development efforts which as set forth herein
include the acquisition of potential targets entities, business and assets (such as applicable required licenses) in the relevant business
space and segments in which we plan to operate, which allow the Company to enter the market quickly and leverage on such existing assets
in order to promote its growth strategy.
The following diagram illustrates
the Company’s corporate structure, including its subsidiaries, and variable interest entities (“VIEs”), as of June 30,
2021:
VIE agreements with Guangxi Zhongtong:
On January 1, 2021, Tianjin
Bokefa Technology Co. Ltd (“Bokefa”) the wholly foreign-owned enterprise (“WFOE”), Guangxi Zhongtong, and nominee
shareholders of Guangxi Zhongtong entered into six agreements, and are described in detail below, pursuant to which Bokefa is deemed to
have controlling financial interest and be the primary beneficiary of Guangxi Zhogntong, and, therefore, Guangxi Zhongtong is deemed a
VIE of Bokefa:
Loan Agreement
Pursuant to this agreement,
Bokefa agreed to provide loans to the registered shareholders of Guangxi Zhongtong. The effective term of the loan agreement is unlimited,
and the agreement shall terminate when the shareholders repay the loan. The loan should be solely used as Guangxi Zhongtong’s operating
purpose, and should be exclusively repaid by transferring shares of Guangxi Zhongtong to Bokefa when PRC Law permits.
Exclusive Option Agreement
The effective term of the
agreement is unlimited and the agreement shall terminate upon the transfer of all the equity interest of Guangxi Zhongtong to Bokefa
in accordance with relevant laws and the provisions as provided in the agreement, or upon written notice by Bokefa to shareholders. In
consideration of Bokefa’s finance support in terms of loan arrangement, the shareholder have agreed to grant Bokefa exclusively
an option to purchase the equity interest. Distribution of residual profit, if any, is restricted without the approval of Bokefa. Upon
request by Bokefa, Guangxi Zhongtong is obliged to distribute profit to the shareholders of Guangxi Zhongtong, who must remit to Bokefa
immediately Guangxi Zhongtong and its shareholders are required to act in a manner that is in the best interest of Bokefa with regards
to Guangxi Zhongtong’s business operation.
Equity Pledge Agreement
The agreement will be terminated
at the date when the other agreements have been terminated. Pursuant to the agreement, the nominee shareholder pledged all its equity
interest in Guangxi Zhongtong to Bokefa as a security for the obligations in the other agreements. Bokefa has the right to receive dividends
of the pledged shares; and all shareholders are required to act in a manner that is in the best interest of Bokefa.
Business Cooperation Agreement
The agreement is effective
until terminated by both parties. Guangxi Zhongtong and its shareholders agree that the legal person, directors, general manager and other
senior officers of Guangxi Zhongtong should be appointed or elected by Bokefa. Guangxi Zhongtong and its shareholders agree that all financial
and operational decisions of Guangxi Zhongtong should be made by Bokefa.
Exclusive Service Agreement
The effective term of this
agreement is for one year and it can be extended unlimited times if agreed by both parties. Bokefa agrees to provide exclusive technical
consulting and supporting services to Guangxi Zhongtong and Guangxi Zhongtong agrees to pay service fees to Bokefa.
VIE agreements with Beijing Fucheng:
On December 31, 2020, Tianjin
Bokefa Technology Co. Ltd (“Bokefa”) the WOFE, Beijing Fucheng, and a shareholder of Beijing Fucheng entered into six agreements,
and such agreements are described in detail below, pursuant to which Bokefa is deemed to have controlling financial interest and be the
primary beneficiary of Beijing Fucheng, and, therefore, Beijing Fucheng is deemed a VIE of Bokefa. Beijing Fucheng was incorporated on
December 29, 2020 and had no assets or liabilities as of December 31, 2020.
Loan Agreement
Pursuant to this agreement,
Bokefa agreed to provide loans to the registered shareholders of Beijing Fucheng. The effective term of the loan agreement is unlimited,
and the agreement terminates when the shareholder repays the loan. The loan should be solely used as Beijing Fucheng’s operating
purpose, and should be exclusively repaid by transferring shares of Beijing Fucheng to Bokefa when PRC Law permits.
Exclusive Option Agreement
The effective term of the
agreement is unlimited and the agreement shall terminate upon the transfer of all the equity interest of Bejing Fucheng to Bokefa in accordance
with relevant laws and the provisions as provided in the agreement, or upon written notice by Bokefa to shareholder. In consideration
of Bokefa’s finance support in terms of loan arrangement, the shareholder have agreed to grant Bokefa exclusively an option to purchase
the equity interest. Distribution of residual profit, if any, is restricted without the approval of Bokefa. Upon request by Bokefa, Beijing
Fucheng is obliged to distribute profit to the shareholders of Beijing Fucheng, who must remit to Bokefa immediately Beijing Fucheng and
its shareholders are required to act in a manner that is in the best interest of Bokefa with regards to Beijing Fucheng’s business
operation.
Equity Pledge Agreement
The agreement will be terminated
at the date when the other agreements have been terminated. Pursuant to the agreement, the shareholder pledged all its equity interest
in Beijing Fucheng to Bokefa as a security for the obligations in the other agreements. Bokefa has the right to receive dividends of the
pledged shares; and all shareholder is required to act in a manner that is in the best interest of Bokefa.
Business Cooperation Agreement
The agreement is effective
until terminated by both parties. Beijing Fucheng and its shareholder agree that the legal person, directors, general manager and other
senior officers of Beijing Fucheng should be appointed or elected by Bokefa. Beijing Fucheng and its shareholder agree that all financial
and operational decisions of Beijing Fucheng should be made by Bokefa.
Exclusive Service Agreement
The effective term of this
agreement is for one year and it can be extended unlimited times if agreed by both parties. Bokefa agrees to provide exclusive technical
consulting and supporting services to Beijing Fucheng and Beijing Fucheng agrees to pay service fees to Bokefa.
The assets and liabilities
of the Company’s VIEs (Guangxi Zhongtong and Beijing Fucheng) included in the Company’s unaudited condensed consolidated financial
statements as of June 30, 2021 are as follows:
|
|
June 30,
2021
USD
in thousands
|
|
|
|
(Unaudited)
|
|
Current assets:
|
|
|
|
|
Cash
|
|
$
|
1,665
|
|
Trade accounts receivable, net
|
|
|
10,535
|
|
Other current assets
|
|
|
721
|
|
Total current assets
|
|
|
12,921
|
|
|
|
|
|
|
Property and equipment, net
|
|
$
|
110
|
|
Long-term prepaid expenses
|
|
$
|
32
|
|
Goodwill
|
|
|
4,885
|
|
Total long-term assets
|
|
$
|
5,027
|
|
|
|
|
|
|
Total assets
|
|
$
|
17,948
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
Trade accounts payable
|
|
|
10,779
|
|
Other current liabilities
|
|
$
|
1,324
|
|
Total current liabilities
|
|
$
|
12,103
|
|
|
|
|
|
|
Total liabilities
|
|
$
|
12,103
|
|
Net revenues, loss from operations
and net loss of the VIEs that were included in the Company’s unaudited condensed consolidated financial statements for the three
and six months ended June 30, 2021 are as follows:
|
|
For the
Three Months
Ended
|
|
|
For the
Six Months
Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2021
|
|
|
2021
|
|
|
|
USD
in thousands
|
|
|
USD
in thousands
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
Net revenues
|
|
$
|
8,045
|
|
|
$
|
14,265
|
|
Loss from operations
|
|
$
|
(979
|
)
|
|
$
|
(1,093
|
)
|
Net loss
|
|
$
|
(900
|
)
|
|
$
|
(1,101
|
)
|
NOTE 2 — SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The unaudited condensed consolidated financial
statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S.
GAAP”). In the opinion of management, all adjustments (which include normal recurring adjustments) necessary to present a fair presentation
of the Company’s financial position, its results of operations and its cash flows, as applicable, have been made. Interim results
are not necessarily indicative of results to be expected for the full year. The information included in this Form 10-Q should be read
in conjunction with information included in the Company’s December 31, 2020 annual report on Form 10-K filed on March 31, 2021.
The Company’s operations
and business may still be subject to adverse effect due to the unprecedented conditions surrounding the spread of COVID-19 throughout
North America, Israel, China and the world. Although currently the COVID-19 (due to the measures implemented to reduce the spread of the
virus) have not had a material adverse effect on the Company financial reports; there can be no assurance that Company’s financial
reports will not be affected in the future from COVID-19 or resulting from restrictions and other government actions.
Principles of Consolidation
The accompanying consolidated
financial statements are prepared in accordance with generally accepted accounting principles in the U.S. GAAP.
Cash
Cash consists of cash on hand,
demand deposits and time deposits placed with banks or other financial institutions and have original maturities of less than three months.
Accounts receivable, net
Accounts receivable
include trade accounts due from customers. Accounts are considered overdue after thirty (30) days from payment due date. In
establishing the required allowance for doubtful accounts, management considers historical collection experience, aging of the
receivables, the economic environment, industry trend analysis, and the credit history and financial conditions of the customers.
Management reviews its receivables on a regular basis to determine if the bad debt allowance is adequate, and adjusts the allowance
when necessary. Delinquent account balances are written off against allowance for doubtful accounts after management has determined
that the likelihood of collection is not probable. As of June 30, 2021 and December 31, 2020, allowance for doubtful accounts
amounted to nil and approximately $5,000, respectively.
Inventories
Inventories consisting 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.
Foreign currency translation and transaction
The reporting currency of
the Company is the U.S. dollar. The Companies in China conducts their businesses in the local currency, Renminbi (RMB), as its functional
currency. The Companies in Israel conducts their businesses in the local currency, New Israeli Shekel (NIS), as its functional currency.
The Companies in Hong Kong conducts their businesses in the local currency, Hong Kong Dollar (HKD), as its functional currency.
Assets and liabilities are
translated at the noon buying rate in the City of New York for cable transfers of RMB , NIS and HKD as certified for customs purposes
by the Federal Reserve Bank of New York at the end of the period. The statement of income accounts are translated at the average translation
rates and the equity accounts are translated at historical rates. Translation adjustments resulting from this process are included in
accumulated other comprehensive income (loss). Transaction gains and losses that arise from exchange rate fluctuations on transactions
denominated in a currency other than the functional currency are included in the results of operations as incurred.
Segment reporting
Accounting Standard Codification
(“ASC”) Topic 280, “Segment Reporting”, establishes standards for reporting information about operating segments
on a basis consistent with the Company’s internal organizational structure as well as information about geographical areas, business
segments and major customers in financial statements for detailing the Company’s business segments. Operating segments are reported
in a manner consistent with the internal reporting provided to the chief operating decision maker (the “CODM”), which is comprised
of certain members of the Company’s management team.
Operating leases
The Company follows ASC No.
842, Leases. The Company determines if an arrangement is a lease or contains a lease at inception. Operating lease liabilities are recognized
based on the present value of the remaining lease payments, discounted using the discount rate for the lease at the commencement date.
As the rate implicit in the lease is not readily determinable for the operating lease, the Company generally uses an incremental borrowing
rate based on information available at the commencement date to determine the present value of future lease payments. Operating lease
right-of-use assets (“ROU assets”) represent the Company’s right to control the use of an identified asset for the lease
term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. ROU assets are generally
recognized based on the amount of the initial measurement of the lease liability. Lease expense is recognized on a straight-line basis
over the lease term.
ROU assets are reviewed for
impairment when indicators of impairment are present. ROU assets from operating and finance leases are subject to the impairment guidance
in ASC 360, Property, Plant, and Equipment, as ROU assets are long-lived nonfinancial assets.
ROU assets are tested for
impairment individually or as part of an asset group if the cash flows related to the ROU asset are not independent from the cash flows
of other assets and liabilities. An asset group is the unit of accounting for long-lived assets to be held and used, which represents
the lowest level for which identifiable cash flows are largely independent of the cash flows of other groups of assets and liabilities.
The Company recognized no
impairment of ROU assets as of June 30, 2021 and December 31, 2020.
The operating lease is included
in right-of-use assets and lease liability on the unaudited condensed consolidated balance sheets.
Investments
The Company’s long-term investments consist of equity investments
in privately held entities accounted for using the measurement alternative and equity investments accounted for using the equity method.
On January 1, 2018, the Company adopted ASU 2016-01 Financial Instruments-Overall (Subtopic 825-10): Recognition and Measurement of Financial
Assets and Financial Liabilities. According to the guidance, the Company accounts for the equity investments at fair value, with gains
and losses recorded through net earnings. The Company elected to measure certain equity investments without readily determinable fair
value at cost, less impairments, plus or minus observable price changes and assess for impairment quarterly.
The Company accounts for its equity investment
over which it has significant influence but does not own a majority equity interest or otherwise control, using the equity method. The
Company adjusts the carrying amount of the investment and recognizes investment income or loss for its share of the earnings or loss of
the investee after the date of investment. The Company assesses its equity investment for other-than-temporary impairment by considering
factors including, but not limited to, current economic and market conditions, operating performance of the entity, including current
earnings trends and undiscounted cash flows, and other entity-specific information. The fair value determination, particularly for investments
in a privately held entity, requires judgment to determine appropriate estimates and assumptions. Changes in these estimates and assumptions
could affect the calculation of the fair value of the investment and determination of whether any identified impairment is other-than-temporary.
As of June 30, 2021, the Company owned 36.95%
of shares in Micronet which was accounted for under equity method.
As of June 30, 2021, the Company owned 24% of
shares in Beijing Fucheng and controlled the remaining 76% through contractual arrangements as discussed in Note 1. Beijing Fucheng was
therefore 100% consolidated in the unaudited condensed consolidated financial statements.
Fair value measurement
The accounting standard regarding
fair value of financial instruments and related fair value measurements defines financial instruments and requires disclosure of the fair
value of financial instruments held by the Company.
The accounting standards define
fair value, establish a three-level valuation hierarchy for disclosures of fair value measurement and enhance disclosure requirements
for fair value measures. The three levels are defined as follow:
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●
|
Level 1 inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.
|
|
|
|
|
●
|
Level 2 inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the assets or liability, either directly or indirectly, for substantially the full term of the financial instruments.
|
|
|
|
|
●
|
Level 3 inputs to the valuation methodology are unobservable and significant to the fair value.
|
Financial instruments included
in current assets and current liabilities are reported in the consolidated balance sheets at face value or cost, which approximate fair
value because of the short period of time between the origination of such instruments and their expected realization and their current
market rates of interest.
Intangible assets
The Company’s intangible
assets with definite useful lives primarily consist of licensed software, capitalized development costs, platform system, and land-use
rights. The Company amortizes its intangible assets with definite useful lives over their estimated useful lives and reviews these assets
for impairment. The Company typically amortizes its intangible assets with definite useful lives on a straight-line basis over the shorter
of the contractual terms or the estimated useful lives. The Company did not record any impairment of intangible assets as of June 30, 2021 and December 31, 2020.
Intangible assets are stated
at cost less accumulated amortization. Amortization is computed using the straight-line method over the estimated useful lives of the
assets. The estimated useful lives are as follows:
|
|
Useful Life
|
Licensed & software
|
|
indefinite useful life
|
Technology know-how
|
|
6 years
|
Trade name/ trademarks
|
|
5 years
|
Customer relationship
|
|
5 years
|
Goodwill
Goodwill represents the
excess of the purchase price over the estimated fair value of the net assets acquired in the acquisition of a business. We test
goodwill for impairment annually in the fourth quarter and when events or changes in circumstances indicate that the fair value of a
reporting unit with goodwill has been reduced below its carrying value. On January 26, 2017, the Financial Accounting Standards
Board (“FASB”) issued ASU 2017-04, “Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill
Impairment.” The standard simplifies the accounting for goodwill impairment by requiring a goodwill impairment to be measured
using a single step impairment model, whereby the impairment equals the difference between the carrying amount and the estimated
fair value of the specified reporting units in their entirety. This eliminated the second step of the previous impairment model that
required companies to first estimate the fair value of all assets in a reporting unit and measure impairments based on those
estimated fair values and a residual measurement approach. It also specifies that any loss recognized should not exceed the total
amount of goodwill allocated to that reporting unit. The Company did not record any impairment of goodwill as of June 30,
2021 and December 31, 2020.
Use of Estimates and Assumptions
The preparation of consolidated
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 disclosures of contingent assets and liabilities as of the date of the consolidated financial statements
and the reported amounts of revenues and expenses during the periods presented. Significant accounting estimates reflected in our consolidated
financial statements include the useful lives of plant and equipment and intangible assets, capitalized development costs, impairment
of long-lived assets, allowance for doubtful accounts, revenue recognition, allowance for deferred tax assets and uncertain tax position.
Actual results could differ from these estimates.
Revenue Recognition
In May 2014, the FASB issued
ASU No. 2014-09, “Revenue from Contracts with Customers (Topic 606)”, or ASU 2014-09. ASU 2014-09 requires an entity to recognize
the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. ASU 2014-09 will
replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective and permits the use of either the retrospective
or cumulative effect transition method. We adopted Topic 606 on January 1, 2018 using the modified retrospective transition method, and
the adoption did not have a material impact on our consolidated financial statements.
We recognize revenue which
represents the transfer of goods and services to customers in an amount that reflects the consideration to which we expect to be entitled
in such exchange. We identify contractual performance obligations and determines whether revenue should be recognized at a point in time
or over time, based on when control of goods and services are provided to customers.
We use a five-step model to
recognize revenue from customer contracts. The five-step model requires us to (i) identify the contract with the customer; (ii) identify
the performance obligations in the contract; (iii) determine the transaction price, including variable consideration to the extent that
it is probable that a significant future reversal will not occur; (iv) allocate the transaction price to the respective performance obligations
in the contract; and (v) recognize revenue when (or as) we satisfy the performance obligation.
We derive our revenues from
sales contracts with our customers with revenues being recognized upon performance of services. Our contracts with customers generally
do not include a general right of return relative to the delivered products or services. We applied practical expedient when sales taxes
were collected from customers, meaning sales tax is recorded net of revenue, instead of cost of revenue, which are subsequently remitted
to governmental authorities and are excluded from the transaction price.
With respect to Micronet applicable
revenue recognition U.S. GAAP requirements, Micronet implements a revenue recognition policy pursuant to which it recognizes its revenues
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 discretion needed in identifying the point control passes: once physical delivery
of the products to the agreed location has occurred, Micronet no longer has physical possession of the product and will be entitled at
such time to receive payment while relieved from the significant risks and rewards of the goods delivered. For most of Micronet’s
products sales, control transfers when products are shipped.
The Company’s revenues are generated from: a) providing customers
with marketing promotion and information drainage services, which is to charge information service fees according to the customer traffic
information provided to customers with business needs; b) to providing insurance brokerage services or insurance agency services on behalf
of insurance carriers. With respect to the information drainage services and insurance brokerage services applicable to revenue recognition
U.S. GAAP requirements, the company implements a revenue recognition policy pursuant to which it recognizes its revenues 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. Our performance obligation to the insurance carrier is satisfied and commission revenue is recognized at the point in
time when an insurance policy becomes effective. The Company provides customers with information drainage services and settles service
charges with customers on the monthly basis. Performance obligation is satisfied overtime during the contract term.
In accordance with ASC 606-10-55, Revenue Recognition: Principal Agent
Considerations, the Company considers several factors in determining whether it acts as the principal or as an agent in the arrangement
of merchandise sales and provision of various related services and thus whether it is appropriate to record the revenues and the related
cost of sales on a gross basis or record the net amount earned as service fees. For insurance brokerage services, we have identified our
promise to sell insurance policies on behalf of the insurance carriers as the performance obligation in our contracts with the insurance
carriers.
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 basis 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.
MICT and its subsidiaries and VIEs within the jurisdiction of the United
States, Israel and China are subject to a tax examination for the most recent three, four and five years, respectively.
Stock-Based Compensation
Stock-based compensation granted to the Company’s
employees and consultants are measured at fair value on grant date and stock-based compensation expense is recognized (i) immediately
at the grant date if no vesting conditions are required, or (ii) using the accelerated attribution method, net of estimated forfeitures,
over the requisite service period. The fair value of restricted shares is determined with reference to the fair value of the underlying
shares.
At each date of measurement, the Company reviews
internal and external sources of information to assist in the estimation of various attributes to determine the fair value of the share-based
awards granted by the Company, including but not limited to the fair value of the underlying shares, expected life, expected volatility
and expected forfeiture rates. The Company is required to consider many factors and make certain assumptions during this assessment. If
any of the assumptions used to determine the fair value of the stock-based compensation changes significantly, share-based compensation
expense may differ materially in the future from that recorded in the current reporting period.
Reclassification
Prior to the deconsolidation of Micronet, Micronet had been taking
active steps to sell its building within the year 2021. The company reclassified the related assets which were previously included in
property and equipment, net and intangible assets, net to held-for-sale as of December 31, 2020.
Note 3
— Stockholders’ Equity
On November 2, 2020 the Company
entered into a Securities Purchase Agreement (the “Purchase Agreement” or the “Securities Purchase Agreement”) with
certain investors (the “Investors”) for the purpose of raising $25.0 million in gross proceeds for the Company (the “Offering”).
Pursuant to the terms of the Purchase Agreement, the Company sold in a registered direct offering, an aggregate of 10,000,000 units (each,
a “Unit”), with each Unit consisting of one share of the Company’s common stock, par value $0.001 per share (the “Common
Stock”), and one warrant to purchase 0.8 of one share of Common Stock (each, a “Warrant”). at a purchase price of $2.50
per Unit. The Warrants are exercisable six months after the date of issuance at an exercise price of $3.12 per share and will expire five
years following the date the Warrants become exercisable. The closing of the sale of Units pursuant to the Securities. Purchase Agreement
occurred on November 4, 2020. By December 31, 2020, the Company had received a total of $22.325 million in gross proceeds pursuant
to Offering and issued in the aggregate, 7,600,000 Units. The remaining gross proceeds, in the additional aggregate amount of $2.675 million,
were received by the Company on March 1, 2021 and in consideration for such proceeds, the Company issued the remaining 2,400,000 units.
On
February 11, 2021, the Company announced that it has entered into a Securities Purchase Agreement (the “February Purchase Agreement”)
with certain institution investors for the sale of (i) 22,471,904 shares of common stock, (ii) 22,471,904 Series A Warrants to purchase
22,471,904 shares of common stock and (iii) 11,235,952 Series B Warrants to purchase 11,235,952 shares of common stock at a combined purchase
price of $2.67 (the “February Offering”). The gross proceeds to the Company from the February Offering were expected to be
approximately $60.0 million. The Series A Warrants will be exercisable six months after the date of issuance, have an exercise price of
$2.80 per share and will expire five and one-half years from the date of issuance. The Series B Warrants will be exercisable six months
after the date of issuance, have an exercise price of $2.80 per share and will expire three and one-half years from the date of issuance.
The Company received net proceeds of $54.0 million on February 16, 2021 after deducting the Placement Agent’s fees and other expenses.
On
March 2, 2021, the Company entered into a securities purchase agreement (“March Securities Purchase Agreement”) with certain
investors for the purpose of raising approximately $54.0 million in gross proceeds for the Company. Pursuant to the terms of the March
Securities Purchase Agreement, the Company agreed to sell, in a registered direct offering, an aggregate of 19,285,715 shares of the Company’s
common stock, par value $0.001 per share, at a purchase price of $2.675 per Share and in a concurrent private placement, warrants to purchase
an aggregate of 19,285,715 shares of common stock, at a purchase price of $0.125 per Warrant, for a combined purchase price per Share
and Warrant of $2.80 (the “Purchase Price”) which was priced at the market under Nasdaq rules. The Warrants are immediately
exercisable at an exercise price of $2.80 per share, subject to adjustment, and expire five years after the issuance date. The closing
date for the transaction consummated under the March Securities Purchase Agreement was on March 4, 2021. The Company received net proceeds
of $48.69 million on March 4, 2021, after deducting the Placement Agent’s fees and other expenses.
On
May 17, 2021, the Company’s Board of Directors (the “Board”) unanimously approved a grant of fully vested 6,000,000 shares
of common stock (the “Shares”) to Mr. Darren Mercer, the Company’s Chief Executive Officer. The issuance of the Shares
is pursuant to the Company’s Long Term Incentive Plan as previously approved by the stockholders and negotiated in connection with
the Company’s acquisition of Global Fintech Holdings Limited. The Board unanimously agreed to issue the Shares in recognition of
Mr Mercer’s direct contribution to achieving numerous key deliverables including: (i) the completion of several acquisitions, including
those of Beijing Fucheng Insurance Brokerage Co., Ltd and Magpie Securities Ltd; (ii) obtaining regulatory approval from the Hong Kong
SFC regarding the acquisition of Magpie Securities Ltd; (iii) the signing of several major commercial contracts and partnerships, including
with a number of major insurance agents and one of China’s largest payment service providers; (iv) the signing of an exclusive partnership
with the Shanghai Petroleum and Natural Gas Trading Center to allow MICT to provide financial services to its customers; (v) the successful
launch of the insurance business in December 2020 and the delivery of significant revenues and revenue growth in Q1 2021; and (vi) the
completion of capital raises totaling in excess of $140 million and broadening the Company’s institutional investor base.
On May 17, 2021, the Board
of MICT unanimously approved a grant of fully vested 300,000 shares of common stock of the Company to Richard Abrahams, the Magpie’s Chief
Executive Officer.
Our 2012 Stock Incentive Plan
(the “2012 Incentive Plan”) was initially adopted by the Board on November 26, 2012 and approved by our stockholders on January
7, 2013 and subsequently amended on September 30, 2014, October 26, 2015, November 15, 2017 and November 8, 2018. Under the 2012 Incentive
Plan, as amended, up to 5,000,000 shares of our common stock, are currently authorized to be issued pursuant to option awards granted
thereunder. On May 17, 2021, May 23, 2021 and June 28, 2021, the Company granted an aggregate of 125,000, 370,000 and 245,000 options
under the 2012 Stock Incentive Plan, with an exercise price of $1,41, $1.81 and $2.49, respectively, of which 310,000 options vested as
of June 30, 2021, resulting in an stock-based compensation expense of approximately $458,000 recorded for the six months ended June 30,
2021, based on a fair value determined using a Black-Scholes model. On March 22, 2021, 20,000 shares of common stock were issued to an
employee from exercising of options at an exercise price of $1.41.
NOTE 4 — EQUITY INVESTMENT IN MICRONET
Micronet’s net revenues
and net loss are presented if the acquisition date had occurred at the beginning of the annual reporting period.
|
|
Six months ended
June 30,
|
|
|
Three months ended
June 30,
|
|
|
|
2020
|
|
|
2020
|
|
|
|
USD
in thousands
|
|
|
USD
in thousands
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
Net revenues
|
|
$
|
1,089
|
|
|
$
|
472
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
(3,952
|
)
|
|
|
(882
|
)
|
Management engaged a third-party
valuation firm to assist them with the valuation of the intangible assets that are detailed in the schedule below.
Purchased identifiable intangible
assets are amortized on a straight-line basis over their respective useful lives. The table set forth below summarizes the estimates of
the fair value of assets acquired and liabilities assumed and resulting gain on bargain purchase. In addition, the following table summarizes
the allocation of the preliminary purchase price as of the acquisition date:
Micronet Ltd. Purchase Price Allocation
(USD in thousands)
Total cash consideration
|
|
|
887
|
|
Total Purchase Consideration
|
|
$
|
887
|
|
|
|
|
|
|
Less:
|
|
|
|
|
|
|
|
|
|
Debt-free net working capital
|
|
$
|
788
|
|
Property and equipment
|
|
|
661
|
|
Right of use assets
|
|
|
310
|
|
Other assets
|
|
|
26
|
|
Borrowings
|
|
|
(1,675
|
)
|
Severance payable
|
|
|
(95
|
)
|
Lease liabilities
|
|
|
(101
|
)
|
Intangible assets - trade name/ trademarks
|
|
|
270
|
|
Intangible assets - developed technology
|
|
|
1,580
|
|
Intangible assets - customer relationship
|
|
|
410
|
|
Intangible assets - ground
|
|
|
215
|
|
Deferred Tax liability
|
|
|
(362
|
)
|
Fair value of net assets acquired
|
|
$
|
2,027
|
|
|
|
|
|
|
Noncontrolling interest
|
|
|
(2,172
|
)
|
Gain on equity interest
|
|
|
(665
|
)
|
Equity investment
|
|
|
(921
|
)
|
Change in investment
|
|
|
(3,758
|
)
|
|
|
|
|
|
Goodwill value
|
|
$
|
2,618
|
|
Loss of control of Micronet
As of March 31, 2021, the
Company held 50.31% of Micronet Ltd. (or “Micronet”) issued and outstanding shares. On May 9, 2021, following exercise of options
by minority stockholders, the Company’s ownership interest was diluted to 49.88% and as a result the Company is no longer required
to include Micronet’s operating results in its financial statements. Therefore, commencing from May 9, 2021, the Company accounted
for the investment in Micronet in accordance with the equity method.
On June 16, 2021, (“Micronet”) announced that it has completed
a public equity offering (the “Offering”) on the TASE. Pursuant to the Offering, Micronet sold an aggregate number of 18,400
securities units (the “Units”) at a price of 14.6 NIS per Unit with each Unit consisting of 100 ordinary shares, 25 series
A options and 75 series B options, resulting in the issuance of 1,840,000 ordinary shares, 460,000 series A options and 1,380,000 series
B options. Micronet raised total gross proceeds of 26,864,000 NIS (approximately $8,290,000) in the Offering. The Company did not participate
in the Offering, and, as a result, the Company owned 36.95% of the outstanding ordinary shares of Micronet and 26.56% on a fully diluted
basis as of June 30, 2021.
|
|
May 9,
2021
|
|
|
|
USD
in thousands
|
|
|
|
(Unaudited)
|
|
Micronet’s fair value as of May 9, 2021
|
|
|
1,127
|
|
Net assets
|
|
|
(6,185
|
)
|
Capital reserve from currency translation
|
|
|
134
|
|
Non-controlling interests
|
|
|
2,990
|
|
Net loss from loss of control
|
|
|
1,934
|
|
NOTE 5 — LOAN TO MICRONET
On November 13, 2019, the
Company and Micronet executed a convertible loan agreement pursuant to which the Company agreed to loan to Micronet $500,000 in the aggregate
(the “Convertible Loan”). The Convertible Loan bears interest at a rate of 3.95% calculated and is paid on a quarterly basis.
In addition, the Convertible Loan, if not converted, shall be repaid in four equal installments, the first of such installment payable
following the fifth quarter after the issuance of the Convertible Loan, with the remaining three installments due on each subsequent quarter
thereafter, such that the Convertible Loan shall be repaid in full upon the lapse of 24 months from its grant. In addition, the outstanding
principal balance of the Convertible Loan, and all accrued and unpaid interest, is convertible at the Company’s option, at a conversion
price equal to 0.38 NIS per Micronet share. Pursuant to the Convertible Loan agreement, Micronet also agreed to issue the Company an option
to purchase up to one of Micronet’s ordinary shares for each ordinary share that it issued as a result of a conversion of the Convertible
Loan (“Convertible Loan Warrant”), at an exercise price of 0.60 NIS per share, exercisable for a period of 15 months. On July
5, 2020, the Company had a reverse split where the price of the Convertible Loan changed from 0.08 NIS per Micronet share into 5.7 NIS
per Micronet share. The option’s exercised price was changed from 0.6 NIS per share to 9 NIS per Micronet share.
On January 1, 2020, the Convertible
Loan transaction was approved at a general meeting of the Micronet shareholders and as a result, the Convertible Loan and the transactions
contemplated thereby entered into effect.
On August 13, 2020, MICT Telematics
extended to Micronet an additional loan in the aggregate amount of $175,000 (the “Third Loan” and the “Loan Sum”,
respectively) which governing the existing outstanding intercompany debt. The Third Loan does not bear any interest and is provided for
a period of twelve months. The Loan Sum was granted for the purpose of supporting Micronet’s working capital and general corporate
needs.
NOTE 6 — GFH
Intermediate Holdings Ltd (“GFHI”) Acquisition
On July 1, 2020, MICT completed
its acquisition of GFHI pursuant to the previously announced Agreement and Plan of Merger entered into on November 7, 2019 by and between
MICT, Micronet, GFHI, Global Fintech Holding Ltd, a British Virgin Islands company and the sole shareholder of GFHI, and MICT Merger Subsidiary
Inc., a British Virgin Islands company and a wholly owned subsidiary of MICT, as amended and restated on April 15, 2020. As described
in the Restated Merger Agreement, upon consummation of the Acquisition, the outstanding share of GFHI was cancelled in exchange for a
convertible promissory note in the principal amount of $25,000,000 issued to GFH by MICT, which Consideration Note has been converted
into 22,727,273 shares of common stock of MICT at a conversion price of $1.10 per share. As a result of the acquisition goodwill and intangible
assets were created.
GFHI’s net revenues
and net loss are presented if the Company’s acquisition date had occurred at the beginning of the annual reporting period.
|
|
Six months ended
June 30,
|
|
|
Three months
ended
June 30,
|
|
|
|
2020
|
|
|
2020
|
|
|
|
USD
in thousands
|
|
|
USD
in thousands
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
Net revenues
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
(2,410
|
)
|
|
|
(103
|
)
|
Management engaged a third-party
valuation firm to assist them with the valuation of the intangible assets that are detailed in the schedule below.
As of the date of this Quarterly
Report, COVID-19 and the resulting government actions enacted in China and elsewhere have not had a material adverse effect on GFH I financial
reports; however, there can be no assurance that GFH I financial reports will not be affected in the future from COVID-19 or resulting
government actions.
Purchased identifiable intangible
assets are amortized on a straight-line basis over their respective useful lives. The table set forth below summarizes the estimates of
the fair value of assets acquired and liabilities assumed and resulting gain on bargain purchase. In addition, the following table summarizes
the allocation of the preliminary purchase price as of the acquisition date:
GFH Intermediate Holdings LTD, Purchase Price
Allocation
(USD in thousands)
Total share consideration (1)
|
|
|
32,050
|
|
Total Purchase Consideration
|
|
$
|
32,050
|
|
|
|
|
|
|
Less:
|
|
|
|
|
|
|
|
|
|
Intangible assets - trade name/ trademarks
|
|
|
580
|
|
Intangible assets - developed technology
|
|
|
11,490
|
|
Intangible assets - Customer database (2)
|
|
|
4,500
|
|
Deferred Tax liability (3)
|
|
|
(4,308
|
)
|
Fair value of net assets acquired
|
|
$
|
12,262
|
|
|
|
|
|
|
Goodwill value (4)
|
|
$
|
19,788
|
|
|
(1)
|
The purchase consideration represented the fair value of the convertible
promissory notes that were converted into common stock of MICT.
|
(2)
|
The customer database value is based on the cost to recreate, as indicated
by management.
|
(3)
|
Represents the income tax effect of the difference between the accounting and income tax bases of the identified intangible assets, using an assumed statutory income tax rate of 26%.
|
(4)
|
The goodwill is not deductible for tax purposes.
|
NOTE 7 — BEIJING FUCHENG LIANBAO TECHNOLOGY
CO., LTD TRANSACTION
On February 10, 2021, the
Company closed a transaction pursuant to which it acquired (via Beijing Fucheng in which it holds 24% and engaged in a VIE structure)
all of the shares of Beijing Yibao Technology Co., Ltd., and indirectly its fully owned subsidiary Beijing Fucheng Insurance Brokerage
Co., Ltd. (the “Fucheng Insurance Transaction”).
The table set forth below
summarizes the estimates of the fair value of assets acquired and liabilities assumed and resulting gain on bargain purchase. In addition,
the following table summarizes the allocation of the preliminary purchase price as of the acquisition date:
Beijing Fucheng Lianbao Technology Co.,
Ltd transaction, Purchase Price Allocation
(USD in thousands)
|
|
|
(Unaudited)
|
|
Total cash consideration
|
|
|
5,711
|
|
Total Purchase Consideration
|
|
$
|
5,711
|
|
|
|
|
|
|
Less:
|
|
|
|
|
|
|
|
|
|
Net working capital
|
|
$
|
926
|
|
Property and equipment
|
|
|
26
|
|
License
|
|
|
4,814
|
|
Current liabilities
|
|
|
(55
|
)
|
Fair value of net assets acquired
|
|
$
|
5,711
|
|
NOTE 8 — SEGMENTS
ASC 280, “Segment Reporting”,
establishes standards for reporting information about operating segments on a basis consistent with the Company’s internal organizational
structure as well as information about geographical areas, business segments and major customers in financial statements for detailing
the Company’s business segments.
Operating segments are based
upon our internal organization structure, the manner in which our operations are managed and the availability of separate financial information.
As a result of our acquisition of GFHI on July 1, 2020, we currently serve the markets, through our operating subsidiaries, as a financial
technology company (Fintech Industry) aiming and targeting the significant China marketplace and other areas of the world. We have built
and/or in the process of building various platforms to capitalize on business opportunities in a range of verticals and technology segments,
including: stock trading and wealth management; oil and gas trading; and insurance brokerage. We will continue to add to the capabilities
of such platforms through acquisition and/or the license of technologies to support these efforts in the different market segments. By
building secure, reliable and scalable platforms with high volume processing capability, we intend to provide customized solutions that
address the needs of a highly diverse and broad client base. As stated above, we have two operating segments: verticals technology segments
in the Fintech Industry operated by GFHI. These segments include the following: (i) insurance brokerage segment - we have launched our
insurance platform operated by GFHI for the Chinese market and from that day onward, we have been generating revenues in GFHI. While the
revenues were not material in 2020, these revenues are building and we expect these revenues to grow considerably during 2021 as this
business establishes itself in the market as a reputable service available to consumers (ii) online stock trading segment. We are currently
in the process of launching our securities trading software platform and accelerating the development and business of this segment. This
is supported and enabled due to the recent completion of the acquisition of Magpie Securities, Limited (formerly: Huapei) on February
26, 2021 which as a result of such acquisition, we have obtained via our subsidiary licenses and permits to operate our online platform
in the Hong Kong stock exchange.
Further, we are currently
in the process of developing and is looking to partner with a significant Chinese organization to build an oil and gas trading technology
platform supporting two major elements of China’s energy sector.
During the period between
June 23, 2020, and May 9, 2021 we have held a controlling interest in Micronet, we have presented our mobile resource management (“MRM”)
business operated by Micronet as a segment. As of May 9, 2021, the Company’s ownership interest were diluted and as a result it
no longer include Micronet’s operating results in its financial statements.
The following table summarizes
the financial performance of our operating segments:
|
|
Six months ended June 30, 2021
|
|
(USD in thousands)
|
|
Verticals
and
technology
|
|
|
Mobile
resource
management
|
|
|
Online
stock
trading
|
|
|
Consolidated
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
Revenues from external customers
|
|
$
|
20,550
|
|
|
|
726
|
|
|
|
-
|
|
|
$
|
21,276
|
|
Segment operating loss
|
|
|
(4,883
|
)
|
(1)
|
|
(827
|
)
|
(2)
|
|
(1,956
|
)
|
|
|
(7,666
|
)
|
Non allocated expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(13,686
|
)
|
Finance expenses and other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,289
|
)
|
Consolidated loss before provision for income taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(23,641
|
)
|
(1)
|
Includes $1,466 of intangible assets amortization, derived from GFHI. acquisitions.
|
(2)
|
Includes $103 of intangible assets amortization, derived from Micronet consolidation.
|
|
|
Six months ended June 30, 2020
|
|
(USD in thousands)
|
|
Verticals
and
technology
|
|
|
Mobile
resource
management
|
|
|
Online
stock
trading
|
|
|
Consolidated
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
Revenues from external customers
|
|
$
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
$
|
-
|
|
Segment operating loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Non allocated expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,438
|
)
|
Finance expenses and other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
36
|
|
Consolidated loss before provision for income taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(1,402
|
)
|
|
|
|
|
|
|
Three months ended June 30, 2021
|
|
(USD in thousands)
|
|
Verticals
and
technology
|
|
|
Mobile
resource
management
|
|
|
Online
stock
trading
|
|
|
Consolidated
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
Revenues from external customers
|
|
$
|
12,341
|
|
|
|
-
|
|
|
|
-
|
|
|
$
|
12,341
|
|
Segment operating loss
|
|
|
(2,916
|
)
|
(1)
|
|
-
|
|
|
|
(1,956
|
)
|
|
|
(4,872
|
)
|
Non allocated expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(11,697
|
)
|
Finance expenses and other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,810
|
)
|
Consolidated loss before provision for income taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(18,379
|
)
|
(1)
|
Includes $733 of intangible assets amortization, derived from GFHI. acquisitions.
|
|
|
Three months ended June 30, 2020
|
|
(USD in thousands)
|
|
Verticals
and
technology
|
|
|
Mobile
resource
management
|
|
|
Online
stock
trading
|
|
|
Consolidated
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
Revenues from external customers
|
|
$
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
$
|
-
|
|
Segment operating loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Non allocated expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(668
|
)
|
Finance expenses and other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
900
|
|
Consolidated loss before provision for income taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
232
|
|
The following table summarizes
the financial statements of our balance sheet accounts of the segments:
|
|
As of June 30, 2021
|
|
(USD in thousands)
|
|
Verticals
and
technology
|
|
|
Mobile
resource
management
|
|
|
Online
stock
trading
|
|
|
Consolidated
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
Assets related to segments
|
|
$
|
25,315
|
(2)
|
|
$
|
-
|
|
|
|
31,416
|
(4)
|
|
$
|
56,731
|
|
Non allocated Assets
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
120,893
|
|
Liabilities related to segments
|
|
|
(18,898
|
)(3)
|
|
|
-
|
|
|
|
(247
|
)
|
|
|
(19,145
|
)
|
Non allocated liabilities
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(2,719
|
)
|
Total Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
155,760
|
|
(2)
|
Includes $13,740 of intangible assets and $24,602 goodwill, derived from GFHI’s acquisition.
|
(3)
|
Includes $3,513 of deferred tax liability, derived
from GFHI acquisition.
|
|
|
(4)
|
Includes $939 of intangible assets.
|
|
|
As of December 31, 2020
|
|
(USD in thousands)
|
|
Verticals
and
technology
|
|
|
Mobile
resource
management
|
|
|
Online
stock
trading
|
|
|
Consolidated
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
Assets related to segments
|
|
$
|
7,037
|
|
|
$
|
7,017
|
|
|
|
-
|
|
|
$
|
14,054
|
|
Non allocated Assets
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
63,679
|
|
Liabilities related to segments
|
|
|
(638
|
)
|
|
|
(2,861
|
)
|
|
|
-
|
|
|
|
(3,499
|
)
|
Non allocated liabilities
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(8,538
|
)
|
Total Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
65,696
|
|
NOTE
9 — INTENGABLE ASSETS
(USD in thousands)
|
|
Useful life
|
|
|
June 30,
|
|
|
December 31,
|
|
|
|
years
|
|
|
2021
|
|
|
2020
|
|
Original amount:
|
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
Technology know-how
|
|
|
5-6
|
|
|
$
|
11,490
|
|
|
$
|
13,070
|
|
Trade name/ trademarks
|
|
|
5-10
|
|
|
|
597
|
|
|
|
850
|
|
Customer relationship
|
|
|
5-6
|
|
|
|
4,500
|
|
|
|
4,910
|
|
License
|
|
|
|
|
|
|
5,735
|
|
|
|
-
|
|
Software
|
|
|
|
|
|
|
102
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22,424
|
|
|
|
18,830
|
|
Accumulated amortization:
|
|
|
|
|
|
|
|
|
|
|
|
|
Technology know-how
|
|
|
|
|
|
|
(1,915
|
)
|
|
|
(1,116
|
)
|
trade name/ trademarks
|
|
|
|
|
|
|
(116
|
)
|
|
|
(71
|
)
|
Customer related intangible assets
|
|
|
|
|
|
|
(900
|
)
|
|
|
(484
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,931
|
)
|
|
|
(1,671
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
|
|
|
|
|
|
$
|
19,493
|
|
|
$
|
17,159
|
|
NOTE 10 — TRADE ACCOUNTS RECEIVABLE, NET
As of June 30, 2021 and December 31, 2020, accounts
receivable were comprised of the following:
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2021
|
|
|
2020
|
|
|
|
USD
in thousands
|
|
|
USD
in thousands
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
Trade accounts receivable
|
|
$
|
16,052
|
|
|
$
|
528
|
|
Allowance for doubtful accounts
|
|
|
-
|
|
|
|
(5
|
)
|
|
|
$
|
16,052
|
|
|
$
|
523
|
|
Movement of allowance for doubtful accounts for the six months ended
June 30, 2021 and the fiscal year ended December 31, 2020 are as follows:
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2021
|
|
|
2020
|
|
|
|
USD
in thousands
|
|
|
USD
in thousands
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
Beginning balance
|
|
$
|
5
|
|
|
$
|
116
|
|
Provision (recovery)
|
|
|
-
|
|
|
|
(111
|
)
|
Decrease due to deconsolidation of Micronet
|
|
|
(5
|
)
|
|
|
-
|
|
|
|
$
|
-
|
|
|
$
|
5
|
|
NOTE 11 — OTHER CURRENT ASSETS
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2021
|
|
|
2020
|
|
|
|
USD
in thousands
|
|
|
USD
in thousands
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
Prepaid expenses
|
|
$
|
1,965
|
|
|
$
|
1,300
|
|
Advance to suppliers
|
|
|
6
|
|
|
|
230
|
|
Government departments and agencies receivables
|
|
|
63
|
|
|
|
67
|
|
Prepaid tax
|
|
|
83
|
|
|
|
92
|
|
Others
|
|
|
197
|
|
|
|
67
|
|
|
|
$
|
2,314
|
|
|
$
|
1,756
|
|
NOTE 12 — RELATED PARTIES
Current assets – related parties
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2021
|
|
|
2020
|
|
|
|
USD
in thousands
|
|
|
USD
in thousands
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
Short term loan to Micronet
|
|
$
|
200
|
|
|
$
|
-
|
|
Convertible loan to Micronet
|
|
|
530
|
|
|
|
-
|
|
Shareholders of Guangxi Zhongtong
|
|
|
500
|
|
|
|
-
|
|
|
|
$
|
1,230
|
|
|
$
|
-
|
|
Current liabilities – related parties
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2021
|
|
|
2020
|
|
|
|
USD
in thousands
|
|
|
USD
in thousands
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
Yulan WU, legal representative of Beijing Fucheng
|
|
$
|
-
|
|
|
$
|
156
|
|
Beijing Internet New Network Technology Development Co., Ltd
|
|
|
-
|
|
|
|
7
|
|
|
|
$
|
-
|
|
|
$
|
163
|
|
NOTE 13 — OPERATING LEASES
The Company follows ASC No. 842, Leases. The Company
has operating leases for its office facilities. The Company’s leases have remaining terms of approximately 4 years. Leases with
an initial term of 12 months or less are not recorded on the balance sheet; the Company recognizes lease expense for these leases on a
straight-line basis over the lease term. The Company does not separate non-lease components from the lease components to which they relate,
and instead accounts for each separate lease and non-lease component associated with that lease component as a single lease component
for all underlying asset classes.
The following table provides a summary of leases
by balance sheet location as of June 30, 2021 and December 31, 2020:
Assets/liabilities
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2021
|
|
|
2020
|
|
|
|
USD
in thousands
|
|
|
USD
in thousands
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
Assets
|
|
|
|
|
|
|
Right-of-use assets
|
|
$
|
2,689
|
|
|
$
|
291
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
Lease liability
|
|
$
|
2,533
|
|
|
$
|
164
|
|
The operating lease expenses for the six and three
months ended June 30, 2021 and 2020 were as follows:
(USD in thousands)
|
|
Six months ended
June 30,
|
|
|
Three months ended
June 30,
|
|
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
Operating lease cost
|
|
$
|
530
|
|
|
$
|
45
|
|
|
$
|
229
|
|
|
$
|
23
|
|
Maturities of operating lease liabilities at June
30, 2021 were as follows:
Maturity of lease liabilities
(USD in thousands)
12 months ending June 30,
|
|
Operating
leases
|
|
|
|
(Unaudited)
|
|
2022
|
|
$
|
1,171
|
|
2023
|
|
|
896
|
|
2024
|
|
|
272
|
|
2025
|
|
|
2
|
|
|
|
$
|
2,341
|
|
Lease term and discount rate
|
|
June 30,
2021
|
|
|
|
(Unaudited)
|
|
Weighted-average remaining lease term (years) – operating leases
|
|
|
2
|
|
Weighted average discount rate – operating leases
|
|
|
6
|
%
|
NOTE 14 — PROVISION FOR INCOME TAXES
United States:
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 21% in 2019 and in the six months ended June 30, 2021 and 2020.
Israel:
The Company’s Israeli subsidiaries and associated
are governed by the tax laws of the state of Israel which had a general tax rate of 23% in the six months ended June 30, 2021 and 2020.
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 addition, the tax rate
that applies to Preferred Enterprises in preferred areas is 16%.
China:
The Company’s Chinese subsidiary in the PRC are subject to the
PRC Corporate Income Tax Law (“CIT Law”) and are taxed at the statutory income tax rate of 25%.
(USD in thousands)
|
|
Six months ended
June 30,
|
|
|
Three months ended
June 30,
|
|
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
Current
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic
|
|
$
|
43
|
|
|
$
|
-
|
|
|
$
|
43
|
|
|
$
|
-
|
|
Foreign
|
|
|
31
|
|
|
|
6
|
|
|
|
180
|
|
|
|
5
|
|
Total
|
|
$
|
74
|
|
|
$
|
6
|
|
|
$
|
223
|
|
|
$
|
5
|
|
Deferred
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Foreign
|
|
|
(413
|
)
|
|
|
-
|
|
|
|
(206
|
)
|
|
|
-
|
|
Total
|
|
$
|
(413
|
)
|
|
$
|
-
|
|
|
$
|
(206
|
)
|
|
$
|
-
|
|
|
C.
|
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 June 30, 2021 and December 31, 2020, deferred tax assets were included in long-term deposit and prepaid expenses, and
the Company’s deferred taxes were in respect of the following:
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2021
|
|
|
2020
|
|
|
|
USD
in thousands
|
|
|
USD
in thousands
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
Deferred tax assets
|
|
|
|
|
|
|
Provisions for employee rights and other temporary differences
|
|
$
|
-
|
|
|
$
|
129
|
|
Net operating loss carry forward
|
|
|
14,630
|
|
|
|
9,564
|
|
Valuation allowance
|
|
|
(14,500
|
)
|
|
|
(9,564
|
)
|
Deferred tax assets, net of valuation allowance
|
|
|
130
|
|
|
|
129
|
|
Deferred tax liabilities
|
|
|
|
|
|
|
|
|
Recognition of intangible assets arising from business combinations
|
|
|
3,513
|
|
|
|
4,256
|
|
Deferred tax assets and liabilities, net
|
|
$
|
(3,383
|
)
|
|
$
|
(4,127
|
)
|
NOTE
15 — LEGAL PROCEEDINGS
In March 2017, MICT entered
into the Sunrise Agreement with Sunrise through Sunrise’s principal, Amnon Mandelbaum, pursuant to which Sunrise agreed to assist
MICT in identifying, analyzing, structuring, and negotiating suitable business opportunities, such as a sale of stock or assets, merger,
tender offer, joint venture, financing arrangement, private placement, or any similar transaction or combination thereof. The parties
initially disagreed as to the amount of the fee that would be payable upon the closing of the transactions contemplated by the Reinstated
Merger Agreement. There were also questions about the applicability of the Sunrise Agreement to the Merger, and whether or not Sunrise
is properly owed any transaction fee upon the closing of the Merger. In order to resolve this matter, as of the date hereof, the parties
have executed a settlement and release agreement for the release and waiver of the above claims in consideration for the issuance of freely
tradable shares of common stock of MICT worth no less than $1,500,000 (the “Shares”), which Shares shall be delivered as follows:
(i) 67.5% of the Shares to Amnon Mandelbaum; (ii) 7.5% of the Shares to INTE Securities LLC; and (iii) 25% of the Shares to Amini LLC).
In addition, by no later than February 16, 2021, MICT shall issue 200,000 warrants to purchase 200,000 freely tradable registered shares
of Common Stock of MICT and deliver original copies of such warrants within five business days of the date of issuance of the warrants.
The shares issuable upon exercise of the warrants shall be registered on a registration statement. 150,000 of these warrants shall be
issued to Amnon Mandelbaum; 50,000 of these warrants shall be issued to Amini LLC, or its designee as named in writing. Each warrant shall
be exercisable into one share of registered common stock of MICT until one year after the date of issuance the warrants at an exercise
price of $1.01 per share, and in any other respects on the same material terms and conditions as are applicable to MICT’s current
outstanding warrants including, but not limited to, cashless exercise at all times from the date of issuance of the warrants until to
the expiration dates of the warrants, certain exercise price adjustments, and other terms as are no less favorable to MICT’s recently
issued common stock purchase warrant agreements. MICT was not able to timely file a registration statement to register the shares, and
shares underlying the warrants per the settlement agreement. The Sunrise parties notified MICT that it has breached the settlement agreement.
Subsequently, on March 30, 2021, MICT and the Sunrise parties signed an amended settlement agreement whereby MICT has obligated to make
a $1,000,000 payment by March 31, 2021 and the share dollar amount set forth above was reduced from $1,500,000 to $500,000. MICT made
the $1,000,000 payment. Furthermore, if MICT is not able to file a registration statement with the SEC for the Shares by June 4, 2021,
it was required to make a $600,000 payment to settle the matter in full and Sunrise will not receive any MICT shares. On July 1, 2021,
MICT made the $600,000 payment since there was a disagreement as to whether or not the registration statement was timely filed.
This matter with Sunrise is now fully settled.
On September 22, 2020, the
Company entered into a settlement and release agreement with Craig Marshak, or Marshak, in connection with a claim filed by Marshak against
the Company and additional defendants. Pursuant to settlement and in consideration for a customary release and waiver for the benefit
of MICT, MICT agreed to pay Marshak a sum of $125,000 in cash. Mr. Marshak then dismissed such claim. On January 15, 2021 the parties
have executed an amendment to the settlement and release agreement for the payment to Marshak of $315,000 in exchange for the tender back
of 60,000 of the Company’s share promised to Mr. Marshak as part of the settlement and release agreement. The $315,000 payment was
made and this matter is settled in full.
On December 31, 2017, MICT,
Enertec Systems 2001 Ltd., (“Enertec Systems”), previously our wholly-owned subsidiary, and Enertec Management Ltd., (“Enertec
Management”) entered into a Share Purchase Agreement (the “Share Agreement”), with Coolisys Technologies Inc., (“Coolisys”),
a subsidiary of DPW Holdings, Inc., Per the Share Agreement, Coolisys agreed to pay, at the closing (“Closing”)of the transaction,
a purchase price of $5,250,000 and assume up to $4,000,000 of Enertec Systems’ debt. On May 22, 2018, MICT closed on the sale of
all of the outstanding equity of Enertec.
Upon Closing, MICT received
gross proceeds of approximately $4,700,000, of which 10% was to be held in escrow (“Escrow Amount’) for up to 14 months after
the Closing in order to satisfy any potential indemnification claims. The final consideration amount was adjusted due to Enertec Systems;
debts at the Closing. In addition, Coolisys also assumed approximately $4,000,000 of Enertec Systems’ debt.
In conjunction with, and as
a condition to, the Closing, the Company, Enertec Systems, Coolisys, DPW and Mr. David Lucatz, our former Chief Executive Officer and
director, executed a consulting agreement, (“Consulting Agreement”). Pursuant to the Consulting Agreement, we, via Mr. Lucatz,
provided Enertec Systems with certain consulting and transitional services over a 3 year period as necessary (but in no event to exceed
20% of Mr. Lucatz’s time). Coolisys (via Enertec Systems) paid us an annual consulting fee of $150,000 and issued to us 150,000
restricted shares of DPW Class A Common Stock, (the “DPW Shares”). The DPW Shares were issued in three equal installments,
with the initial installment vesting the day after the Closing and the remaining installments vesting on each of the first two (2) anniversaries
of the Closing. The rights and obligations under the Consulting Agreement were assigned back to Mr. Lucatz along with the DPW Shares.
Coolisys alleged the Company
was in breach of the Share Agreement, and the Escrow Amount remained in escrow. On July 21, 2020, MICT management and MICT (the “Seller
Parties”) received a statement of claim filed in the District Court of Tel Aviv by Coolisys against the Seller Parties and its Board
members in the amount of approximately $2,500,000, (the “Claim”). Pursuant to the Claim, Coolisys alleged that certain misrepresentations
in the Share Agreement resulted in losses to Coolisys and requested, among other things, that the Court instruct the release of the Escrow
Amount held by the escrow agent to Coolisys.
The Company filed its defense
to the Claim on December 15, 2020. Coolisys has asked for an extension to file its answer to our defense claim and the parties are currently
negotiating the possibility of mediation prior to litigating the Claim in court. MICT has issued a notice of the Claim to its director
and office insurance carrier seeking coverage. The insurance policies have been triggered, and the insurance companies are involved in
the process. As of the date of hereof, the Escrow Amount remains in escrow, the annual consulting fee which the Company believes is due
and payable by Coolisys (via Enertec Systems) under the Consulting Agreement have not been paid and certain shares of DPW due pursuant
to the Consulting Agreement were never issued to MICT.
As of June 30, 2021 and December 31, 2020, there were approximately
$477,000 was held in escrow and was presented as restricted cash escrow included in the non-current assets as well as the long-term escrow
included in the non-current liabilities on the unaudited condensed consolidated balance sheets.
NOTE 16 — SUBSEQUENT EVENTS
On July 1, 2021, Bokefa, our
fully owned subsidiary, entered into a transaction with the shareholders of All Weather Insurance Agency Co., Ltd (“All Weather”),
a local Chinese entity with business and operations in the field of broker insurance. Pursuant to the transaction, we granted to the All
Weather shareholders (the “Shareholders”) with a frame work loan (“Frame Work Loan”) in the total amount of up
to RMB 30 million (approximately $4.7 million) (“Frame work Loan Amount”) which is designated, if exercised, to be used as
working capital for All Weather. In consideration for the Frame Work Loan, the parties have entered into various additional agreements
which include among other: (i) a pledge agreement pursuant to which the Shareholders have pledged their shares for the benefit of Bokefa
in order to secure the amount drown from the Frame work Loan Amount (ii) exclusive option agreement pursuant to which Bokefa has an exclusive
option to purchase the entire shares of All Weather from the Shareholders (“Option Agreement”) under such terms set forth
in the Option Agreement which include an exercise price not less than the maximum Frame work Loan Amount and the right to convert the
Frame work Loan Amount into the purchased shares (iii) Entrustment Agreement and Power of Attorney Agreement pursuant to which the Shareholders
irrevocably entrusted and appointed Bokefa as its proxy and trustee to exercise on their behalf any and all rights under applicable law
and the articles of association of All Weather in the Shareholder’s equity interest in All Weather (iv) business cooperation agreement
and a master exclusive service agreement which grants Bokefa with rights related to the All Weather business and operations designed to
secure repayment of the Loan Amount. The transaction above was structured pursuant to a Variable Interest Entity (VIE) Structure (pursuant
to which we do not technically hold the shares) and as a result in view of our direct ownership in Bokefa and its contractual arrangements
with All Weather, we are regarded as All Weather controlling entity and primary beneficiary of the All Weather business.
In July 2021, our warrant
holders exercised an aggregate of 784,562 warrants at an exercise price of $1.01, resulting in an issuance of an aggregate of 784,562
shares of common stock.