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 table 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
(In
Thousands, except Share and Par Value data)
NOTE 1 — DESCRIPTION OF BUSINESS
Overview
MICT, Inc. (“MICT”,
the “Company”, “We”, “us”, “our”) was 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 wholly-owned holding company, established in Israel on December 31, 1991. On October 22, 1993, MICT Telematics
established a wholly-owned holding company headquartered in Israel, MICT Management Ltd.
On February 1, 2019, BI Intermediate
(Hong Kong) Limited (“BI Intermediate”) was incorporated in Hong Kong as a wholly-owned holding company of GFH Intermediate
Holdings Ltd. (“GFHI” or “Intermediate”).
On December 11, 2019, Bokefa
Petroleum and Gas Co., Ltd (“Bokefa Petroleum” ) was incorporated in Hong Kong as a holding company, and is the wholly-owned
subsidiary of BI Intermediate. On October 22, 2020 and March 8, 2021, Bokefa Petroleum established two additional holding companies, Shanghai
Zheng Zhong Energy Technologies Co., Ltd (“Shanghai Zheng Zhong”) and Tianjin Bokefa Technology Co., Ltd. (“Bokefa”).
On June 10, 2020, MICT Telematics
purchased 5,999,996 ordinary shares of Micronet Ltd. (“Micronet”) for aggregate proceeds of New Israeli Shekel (“NIS”)
1,800 (or $515) through tender offer issued by MICT Telematics. As a result, increased our ownership interest in Micronet to 45.53% of
Micronet’s issued and outstanding ordinary shares.
Subsequently, on June 23,
2020 we purchased, through a public offering consummated by Micronet on the Tel Aviv Stock Exchange (the “TASE”), 10,334,000
of Micronet’s ordinary shares for total consideration of NIS 3,100 (or $887). As a result, we increased our ownership interest in
Micronet to 53.39% of Micronet’s outstanding ordinary shares. MICT applied purchase accounting and began to consolidate Micronet’s
operating results into our financial statements once the offering was consummated. MICT recognized a $665 gain on previously held equity
in Micronet.
On October 11, 2020, Micronet
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 (or $1,417). Following Micronet’s offering, including the purchase of Micronet shares, the exercise
of our stock options and the 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 Micronet’s outstanding share capital. On May 9, 2021, following the exercise of options by
minority stockholders, the Company’s ownership interest was further 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.
MICT, Inc.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(In Thousands,
except Share and Par Value data)
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
of GFHI 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, as amended and restated on April 15,
2020 (the “Restated Merger Agreement” or “Merger”). MICT is a holding company conducting financial technology
business through its subsidiaries and entities controlled through various VIEs arrangements with a marketplace in China, as well
as other areas of the world, and is currently in the process of building various platforms for business opportunities in different insurance
platform segments (formerly: verticals and technology segments) in order to capitalize on such technology and business. GFHI plans to
increase its capabilities and its technological platforms through acquisition and licensing technologies to support its growth efforts
in the different market segments. After the merger, MICT includes the business of Intermediate, its wholly-owned subsidiary, operating
through its operating subsidiaries, as described herein.
On October 2, 2020, BI Intermediate
entered into a strategic agreement (the “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 $3,000 (the “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
would be consummated in two phases, an initial purchase whereby 9% of the share capital of Magpie was acquired 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
(the “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% 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 on the remaining
91%, which remained 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 91% of the share capital of Magpie purchased at such time by BI Intermediate. The obligations
of Magpie have been guaranteed by its majority shareholder. On February 26, 2021 we finalized the acquisition of Magpie. The acquisition
was consummated following the receipt of approval from the SFC effecting the change in the majority shareholder of Magpie. In consideration
for the entire share capital of Magpie, we paid a total Purchase Price of $2,947 (reflecting the net asset value of Magpie estimated at
$2,034 recorded as a working capital, and a premium $902 that was 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”), are in the process of integrating
its mobile app platform with Magpie’s licensed trading assets.
Upon completion of the acquisition
of 100% of the equity interest in Magpie, we were able to obtain the licenses and permits needed for operating our online platform. After
we complete the appropriate system testing to ensure scale and reliability, 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 January 1, 2021, we entered
into a transaction through our wholly-owned subsidiary, 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 loaned the Guangxi Zhongtong shareholders through a frame work loan (the “GZ Frame Work Loan”) the
amount of up to RMB 40,000 (approximately $6,125) (“GZ Frame Work Loan Amount”) which is designated, if exercised, to be used
as a working capital loan for Guangxi Zhongtong. As of March 31, 2022, only RMB 8,010 (approximately $1,243) was drawn down from the GZ Frame
Work Loan for working capital and approximately $919 was drawn down for loans to shareholders of Guangxi Zhongtong (as stipulated
in the agreement). In consideration for the GZ Frame Work Loan, the parties entered into various additional agreements which include:
(i) a pledge agreement pursuant to which the shareholders have pledged their shares for the benefit of Bokefa in order to secure
the GZ Frame work Loan Amount (ii) an exclusive option agreement pursuant to which Bokefa has an exclusive option to purchase the
entire issued and outstanding common shares of Guangxi Zhongtong from the shareholders (“Option Agreement”) under such terms
set forth therein (which include an exercise price not less than the maximum GZ Frame Work Loan Amount and the right to convert the GZ
Frame Work Loan Amount into the purchased shares) (iii) an entrustment agreement and power of attorney agreement pursuant to which the
shareholders irrevocably entrusted and appointed Tianjin Bokefa as their 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) a business cooperation agreement and a master exclusive service agreement which grants Bokefa rights related to Guangxi Zhongtong’s
business and operations in order to secure repayment of the GZ Frame Work Loan Amount.
MICT, Inc.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(In
Thousands, except Share and Par Value data)
This transaction was structured
pursuant to a Variable Interest Entity (“VIE”) Structure (in which we do not hold the shares). As such, and given 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 Guangxi Zhongtong business. We have, therefore, consolidated the financial position and operating results
of Guangxi Zhongtong into our consolidated financial statements, using the fair value of the assets and liabilities of Guangxi Zhongtong
in accordance with U.S. GAAP. Beijing Fucheng Lianbao Technology Co., Ltd (“Beijing Fucheng”) is an entity incorporated
on December 29, 2020, in which 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”) which
holds 100% of the equity interest in Beijing Fucheng Insurance Brokerage Co., Ltd. (“Fucheng Insurance”). Fucheng Insurance
is a Chinese insurance brokerage agency and a nation-wide licensed entity which offers insurance brokerage services for a broad range
of insurance products. Fucheng Insurance, through their nationwide license, will give us the flexibility to offer and create tailor-made
insurance products, leverage customers directly or through distribution partners and procure better deals with both our existing and new
insurance company partners. Fucheng Insurance further enables us to accelerate the onboarding of new agents onto our platforms all throughout
China. 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’ large customer bases which will also offer MICT’S
full suite of insurance products. Beijing Fucheng shares were acquired for approximately $5,700, and funded through MICT. For further
information please refer to Note 7.
On June 16, 2021, Micronet
announced that it completed a public equity offering on the TASE. Pursuant to the offering, Micronet sold an aggregate 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 (approximately $8,290) in the offering. The Company did not participate in the offering,
and, as a result, the Company owned 31.47% of the outstanding ordinary shares of Micronet and 26.83% on a fully diluted basis as of March
31, 2022.
On July 1, 2021, Bokefa 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 (the “Transaction”). Pursuant to the Transaction, Bokefa
agreed to provide the All Weather shareholders with a frame work loan (the “AW Frame Work Loan”) for a
total amount of up to RMB 30,000 (approximately $4,700) (the “AW Frame Work Loan Amount”) which, if utilized, will be
used for working capital purposes of All Weather. In consideration for the AW Frame Work Loan, the parties entered into
various additional agreements which include: (i) a pledge agreement pursuant to which the shareholders pledged their shares for the benefit
of Bokefa in order to secure the amount for the AW Frame Work Loan Amount (ii) an exclusive option agreement pursuant to which Bokefa
has an exclusive option to purchase the entire issued and outstanding common 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 AW Frame
Work Loan Amount and the right to convert the AW Frame Work Loan Amount into the purchased shares) (iii) an entrustment agreement and
power of attorney agreement pursuant to which the shareholders irrevocably entrusted and appointed Bokefa as their 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 and (iv) a business cooperation agreement and a master exclusive service agreement which grants Bokefa
rights related to All Weather’s business and operations in order to secure repayment of the AW Frame Work Loan Amount. The Transaction
was structured as a VIE structure (pursuant to which we do not technically hold the shares) and as a result of our direct ownership in
Bokefa and its contractual arrangements with All Weather, we are regarded as All Weather’s controlling entity and the primary beneficiary
of All Weather’s business. On October 27, 2021, the entire AW Frame Work Loan Amount was utilized by the All Weather shareholders
and the AW Frame Work Loan Amount was transferred to All Weather for purposes of working capital. In addition, as of March 31,
2022, the Company granted All Weather shareholders an additional loan in the sum of approximately $776 to be provided in advance
to a transaction between the parties pursuant to which the VIE structure described above shall be replaced by an equity structure for
purchase by MICT of such equity interests in All Weather on such commercial and other terms to be agreed by the parties.
MICT, Inc.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(In
Thousands, except Share and Par Value data)
All Weather Appraisal Co.,
Ltd. (All Weather Appraisal) is a subsidiary of All Weather Insurance Agency Co., Ltd, which holds 99.6% equity in All Weather Appraisal.
All Weather Appraisal is a nationwide company and is approved by the China Banking and Insurance Regulatory Commission, specializing in
the appraisal, evaluation, inspection and damage assessment of subjects of Insurance.
On August 23, 2021, Beijing
Yibao Technology Co., Ltd, Guangxi Zhongtong Insurance Agency Co., Ltd, and two shareholders of Guangxi Zhongtong entered into a capital
increase agreement pursuant to which Beijing Yibao will invest approximately RMB30,000 ($4,700) into Guangxi Zhongtong. On October 21,
2021, Beijing Yibao transferred the funds separately and the transaction closed. As a result of the transaction, Beijing Yibao now
holds a sixty percent (60%) equity interest in Guangxi Zhongtong and is the controlling shareholder. As a condition of the closing, the
previous agreements consummated on January 1, 2021 per the GZ Frame Work Loan became null and void, and the loan should be repaid
by the shareholders before December 31, 2022.
From January through September
2021, Shenzhen Bokefa Technology Co., Ltd (“Shenzhen Bokefa”) and Tianjin Dibao Technology Co., Ltd (“Tianjin Dibao”)
were established under BI Intermediate as holding companies to further develop the Company’s insurance business in China. As
of March 31, 2022, no substantial operations conducted in those two entities.
Our current business, following
the completion of the acquisition of GFHI, is primarily comprised and focused on the growth and development of the GFHI financial technology
offerings and the marketplace in China. We are in the process of building various platforms for business opportunities in different insurance
platform segments (formerly: verticals and technology segments) in order to capitalize on such technology and business.
As a result of our acquisition
of GFHI and the subsequent work we have undertaken with the management of GFHI, we are positioned to establish ourselves, through our
operating subsidiaries and VIEs, to serve the markets as a financial technology company with a significant Chinese marketplace. We plan
to expand on a global level as we continue to scale our business. GFHI has built various platforms to capitalize on business opportunities
in a range of insurance platform segments (formerly: verticals and technology segments), which currently include stock trading and wealth
management, commodities in segments of oil and gas trading and insurance brokerage. We are seeking to secure material contracts in all
of these market segments in China while also developing opportunities in order to allow GFHI access to these markets. We will continue
to increase the capabilities of our platforms through acquisition and/or licensing different technologies to support our efforts. 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 by
capitalizing on Intermediate’s experience with local markets in China, as well as with the Company’s operating subsidiaries,
which have begun to secure material contracts in fast growing market segments in China.
Our current 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; and |
|
● |
Insurance brokerage segment |
These opportunities will continue
to be realized and executed through our business development efforts, which include the acquisition of potential target entities, business
and assets (such as applicable required licenses) in the relevant business space and segments in which we plan to operate. This allows
the Company to enter into the market quickly and leverage existing assets in order to promote our growth strategy.
MICT, Inc.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(In Thousands,
except Share and Par Value data)
The following diagram illustrates
the Company’s corporate structure, including its subsidiaries, and variable interest entities (“VIEs”), as of March
31, 2022:
VIE agreements with Guangxi Zhongtong:
On January 1, 2021, Bokefa,
our wholly foreign-owned enterprise (“WFOE”), Guangxi Zhongtong, and nominee shareholders of Guangxi Zhongtong entered into
six agreements, described below, pursuant to which Bokefa is deemed to have controlling financial interest and be the primary beneficiary
of Guangxi Zhogntong. 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 term of the loan shall start from the date when
the loan is actually paid, until the date on which the loan is repaid in full. The agreement shall terminate when the shareholders repay
the loan. The loan should be used solely for Guangxi Zhongtong’s operating expenses 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 provisions as provided in the agreement, or upon written notice by Bokefa to shareholders. In consideration
of Bokefa’s loan arrangement, the shareholders have agreed to grant Bokefa an exclusive option to purchase their equity interest.
Distribution of residual profits, if any, are restricted without the approval of Bokefa. Upon request by Bokefa, Guangxi Zhongtong is
obligated to distribute profits to the shareholders of Guangxi Zhongtong, who must remit such profits 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
upon such date when the other agreements have been terminated. Pursuant to the agreement, the nominee shareholders pledged all their equity
interest in Guangxi Zhongtong to Bokefa as security for the obligations in the other agreements. Bokefa has the right to receive dividends
on the pledged shares, and all shareholders are required to act in a manner that is in the best interest of Bokefa.
MICT, Inc.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(In Thousands,
except Share and Par Value data)
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 the
financial and operational decisions for Guangxi Zhongtong will be made by Bokefa.
Exclusive Service Agreement
The effective term of this
agreement is for one year and it can be extended an unlimited number of times if agreed by both parties. Bokefa agrees to provide exclusive
technical consulting and support services to Guangxi Zhongtong and Guangxi Zhongtong agrees to pay service fees to Bokefa.
Entrustment and Power of Attorney Agreement
The shareholders of Guangxi
Zhongtong agreed to entrust all the rights to exercise their voting power and any other rights as shareholders of Guangxi Zhongtong to
Bokefa. The shareholders of Guangxi Zhongtong have each executed an irrevocable power of attorney to appoint Bokefa as their attorney-in-fact
to vote on their behalf on all matters requiring shareholder approval. The agreement is effective until deregistration of Guangxi Zhongtong.
On August 23, 2021, Beijing
Yibao Technology Co., Ltd, Guangxi Zhongtong Insurance Agency Co., Ltd, and two shareholders of Guangxi Zhongtong entered into a capital
increase agreement pursuant to which Beijing Yibao will invest approximately RMB30,000 ($4,700) into Guangxi Zhongtong. On October 21,
2021, Beijing Yibao transferred the funds separately and the transaction closed. As a result of the transaction, Beijing Yibao now
holds a sixty percent (60%) equity interest in Guangxi Zhongtong and is the controlling shareholder. As a condition of the closing, the
previous agreements consummated on January 1, 2021 per the GZ Frame Work Loan became null and void, and the loan should be repaid
by the shareholders before December 31, 2022.
VIE agreements with Beijing Fucheng:
On December 31, 2020, as amended
on August 25, 2021, Bokefa, Beijing Fucheng Lianbao Technology Co., Ltd. (“Beijing Fucheng”), and the shareholders of Beijing
Fucheng entered into six agreements, described below, pursuant to which Bokefa is deemed to have a controlling financial interest and
be the primary beneficiary of Beijing Fucheng,. 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 term of the loan under this agreement shall start
from the date when the loan is actually paid and shall continue until the shareholders repay all the loan in accordance with this agreement.
The agreement shall terminate when the shareholders repay the loan. The loan should be used solely for Beijing Fucheng’s operating
expenses, 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 of the equity interest of Bejing Fucheng to Bokefa in
accordance with relevant laws and provisions as provided in the agreement, or upon written notice by Bokefa to the shareholders. In consideration
for Bokefa’s loan arrangement, the shareholders have agreed to grant Bokefa an exclusive option to purchase their equity interest.
Distribution of residual profits, if any, is restricted without the approval of Bokefa. Upon request by Bokefa, Beijing Fucheng is obligated
to distribute profits to the shareholders of Beijing Fucheng, who must remit those profits 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
operations.
MICT, Inc.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(In Thousands,
except Share and Par Value data)
Equity Pledge Agreement
The agreement will be terminated
at the date when the other agreements have been terminated. Pursuant to the agreement, the shareholders pledged all their equity interest
in Beijing Fucheng to Bokefa as security for their obligations under the agreements. Bokefa has the right to receive dividends on 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. Beijing Fucheng and its shareholders 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 shareholders agree that all financial
and operational decisions of Beijing Fucheng will be made by Bokefa.
Exclusive Service Agreement
The effective term of this
agreement is for one year and it can be extended an unlimited number of times if agreed by both parties. Bokefa agrees to provide exclusive
technical consulting and support services to Beijing Fucheng and Beijing Fucheng agrees to pay service fees to Bokefa.
Entrustment and Power of Attorney Agreement
The shareholders of Beijing
Fucheng agreed to entrust all the rights to exercise their voting power and any other rights as shareholders of Beijing Fucheng to Bokefa.
The shareholders of Beijing Fucheng have each executed an irrevocable power of attorney to appoint Bokefa as their attorney-in-fact to
vote on their behalf on all matters requiring shareholder approval. The agreement is effective until deregistration of Beijing Fucheng.
VIE agreements with All Weather:
On July 1, 2021, Bokefa, All
Weather, and nominee shareholders of All Weather entered into six agreements, described below, pursuant to which Bokefa is deemed to have
a controlling financial interest and be the primary beneficiary of All Weather. All Weather is deemed a VIE of Bokefa.
Loan Agreement
Pursuant to this agreement,
Bokefa agreed to provide loans to the shareholders of All Weather. The term of the loan is one year and shall start from the
date when the loan is actually paid. The agreement shall terminate when the shareholders repay the loan. The loan should be used solely
by All Weather for operating expenses, and should be exclusively repaid by transferring shares of All Weather 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 of the equity interest of All Weather to Bokefa in accordance
with relevant laws and provisions in the agreement, or upon written notice by Bokefa to the shareholders. In consideration for Bokefa’s
loan arrangement, the shareholders have agreed to grant Bokefa an exclusive option to purchase their equity interest. Distribution of
residual profits, if any, is restricted without the approval of Bokefa. Upon request by Bokefa, All Weather is obligated to distribute
profits to the shareholders of All Weather, who must remit the profits to Bokefa immediately. All Weather and its shareholders are required
to act in a manner that is in the best interest of Bokefa with regard to All Weather’s business operations.
Equity Pledge Agreement
The agreement will be terminated
at the date when the other agreements have been terminated. Pursuant to the agreement, the nominee shareholders pledged all of their equity
interest in All Weather to Bokefa as security for their obligations pursuant to the other agreements. Bokefa has the right to receive
dividends on 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. All Weather and its shareholders agree that the legal person, directors, general manager and other senior
officers of All Weather should be appointed or elected by Bokefa. All Weather and its shareholders agree that all the financial and operational
decisions of All Weather will be made by Bokefa.
MICT, Inc.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(In Thousands,
except Share and Par Value data)
Exclusive Service Agreement
The effective term of this
agreement is for one year and it can be extended an unlimited number of times if agreed by both parties. Bokefa agrees to provide exclusive
technical consulting and support services to All Weather and All Weather agrees to pay service fees to Bokefa.
Entrustment and Power of Attorney Agreement
The shareholders of All Weather
agreed to entrust all their rights to exercise their voting power and any other rights as shareholders of All Weather to Bokefa. The shareholders
of All Weather have each executed an irrevocable power of attorney to appoint Bokefa as their attorney-in-fact to vote on their behalf
on all matters requiring shareholder approval. The agreement is effective until the deregistration of All Weather.
Exclusive Service Agreement
The effective term of this
agreement is for one year and it can be extended an unlimited number of times if agreed by both parties. Bokefa agrees to provide exclusive
technical consulting and support services to All Weather and All Weather agrees to pay service fees to Bokefa.
Entrustment and Power of Attorney Agreement
The shareholders of All Weather
agreed to entrust all their rights to exercise their voting power and any other rights as shareholders of All Weather to Bokefa. The shareholders
of All Weather have each executed an irrevocable power of attorney to appoint Bokefa as their attorney-in-fact to vote on their behalf
on all matters requiring shareholder approval. The agreement is effective until the deregistration of All Weather.
The assets and liabilities
of the Company’s VIEs (All Weather and Beijing Fucheng) included in the Company’s unaudited condensed consolidated financial
statements as of March 31, 2022 and December 31, 2021 are as follows:
| |
March 31, 2022 | | |
December 31, 2021 | |
| |
| | |
| |
Current assets: | |
| | |
| |
Cash | |
$ | 1,352 | | |
$ | 1,260 | |
Trade accounts receivable, net | |
| 2,430 | | |
| 2,462 | |
Other current assets | |
| 3,478 | | |
| 4,550 | |
Total current assets | |
| 7,260 | | |
| 8,272 | |
| |
| | | |
| | |
Property and equipment, net | |
| 184 | | |
| 208 | |
Intangible assets | |
| 5,716 | | |
| 5,718 | |
Long-term prepaid expenses | |
| 26 | | |
| 48 | |
Right of use assets | |
| 329 | | |
| 530 | |
Restricted cash | |
| 1,609 | | |
| 1,632 | |
Deferred tax assets | |
| 906 | | |
| 369 | |
Total long-term assets | |
| 8,770 | | |
| 8,505 | |
| |
| | | |
| | |
Total assets | |
$ | 16,030 | | |
$ | 16,777 | |
| |
| | | |
| | |
Current liabilities: | |
| | | |
| | |
Short term loan from others | |
$ | 948 | | |
$ | 1,155 | |
Trade accounts payable | |
| 645 | | |
| 697 | |
Related party | |
| 2,713 | | |
| 4,583 | |
Other current liabilities | |
| 5,349 | | |
| 2,401 | |
Total current liabilities | |
| 9,655 | | |
| 8,836 | |
| |
| | | |
| | |
Long-term liabilities: | |
| | | |
| | |
Lease liability | |
| 81 | | |
| 106 | |
Deferred tax liability | |
| 225 | | |
| 224 | |
Total long-term liabilities | |
| 306 | | |
| 330 | |
| |
| | | |
| | |
Total liabilities | |
$ | 9,961 | | |
$ | 9,166 | |
MICT, Inc.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(In Thousands, except Share and Par Value data)
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
month ended March 31, 2022 and 2021 are as follows:
| |
For the three months Ended | | |
For the three months Ended | |
| |
March 31, | | |
March 31, | |
| |
2022 | | |
2021 | |
| |
| | |
| |
Net revenues | |
$ | 8,864 | | |
$ | 6,210 | |
Loss from operations | |
$ | (2,184 | ) | |
$ | 250 | |
Net loss | |
$ | (1,572 | ) | |
$ | 159 | |
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, 2021 annual report on Form 10-K filed on June 17, 2022.
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 rest of 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’s consolidated financial reports, however, there were
lockdowns in numerous provinces, which prevented employees of MICT and representatives of Friedman LLP, MICT’s registered independent
audit firm from accessing a number of MICT’s offices in these affected provinces, which cause a delay in filing the financial reports
on time. In addition, there was a decrease in revenues from Guangxi Zhongtong as a result of the lockdown in certain cities and regions
due to the COVID-19 impacts.; 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.
MICT, Inc.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(In Thousands,
except Share and Par Value data)
Principles of Consolidation
The accompanying unaudited
condensed consolidated financial statements are prepared in accordance with generally accepted accounting principles in the U.S. GAAP.
The accompanying unaudited condensed consolidated financial statements include the financial statements of the Company and its subsidiaries
and variable interest entities. All significant intercompany transactions and balances among the Company and its subsidiaries are eliminated
upon consolidation.
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 March
31, 2022 and December 31, 2021, allowance for doubtful accounts amounted to approximately $2,738 and $2,606, respectively.
Inventories
Inventories consisting of
raw materials are stated at the lower of cost (first-in, first-out basis) or realizable value. Cost of work in process is comprised of
direct materials, direct production costs and an allocation of production overheads based on normal operating capacity.
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.
MICT, Inc.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(In Thousands, except
Share and Par Value data)
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 March 31, 2022 and December 31, 2021.
The operating lease is included
in right-of-use assets and lease liability on the unaudited condensed consolidated balance sheets.
Investments
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 March 31, 2022 and December
31, 2021, the Company owned 31.47% and 36.8%, respectively, of shares in Micronet which was accounted for under equity method.
As of March 31, 2022 and December
31, 2021, the Company owned 24% and 24%, respectively, of the 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.
MICT, Inc.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(In Thousands, except
Share and Par Value data)
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:
|
● |
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 March 31,
2022 and December 31, 2021.
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 and some of them for 10 years |
Technology know-how | |
6 years |
Trade name/ trademarks | |
indefinite useful life and some of them for 5 years |
Customer relationship | |
5-10 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 March 31, 2022 and December 31, 2021.
MICT, Inc.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(In Thousands, except
Share and Par Value data)
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, goodwill, intangible 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
We
recognize our revenue under ASC 606. ASC 606 establishes principles for reporting information about the nature, amount, timing and uncertainty
of revenue and cash flows arising from the entity’s contracts to provide goods or services to customers. The core principle requires
an entity to recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration that
it expects to be entitled to receive in exchange for those goods or services recognized as performance obligations are satisfied. It also
requires us to identify contractual performance obligations and determine whether revenue should be recognized at a point in time or over
time, based on when control of goods and services transfers to a customer.
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 from the insurance division 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 at point in time when the requested information is delivered to the customer.
The
Company’s revenues from the online stock trading platform are generated from stock trading commission income. Magpie provides trade
execution to its customers. Commission revenue is recognized when transfer of control occurs. Trade execution performance obligation generally
occurs on the trade date because that is when the underlying financial instrument (for a purchase) or purchaser (for a sale) is identified
and the pricing is agreed upon.
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.
MICT, Inc.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(In Thousands, except
Share and Par Value data)
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,
stock-based compensation expense may differ materially in the future from that recorded in the current reporting period.
Recently
issued accounting pronouncements
In
May 2019, the FASB issued ASU 2019-05, which is an update to ASU Update No. 2016-13, Financial Instruments — Credit
Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which introduced the expected credit losses methodology
for the measurement of credit losses on financial assets measured at amortized cost basis, replacing the previous incurred loss
methodology. The amendments in Update 2016-13 added Topic 326, Financial Instruments — Credit Losses, and made several
consequential amendments to the Codification. Update 2016-13 also modified the accounting for available-for-sale debt
securities, which must be individually assessed for credit losses when fair value is less than the amortized cost basis, in
accordance with Subtopic 326-30, Financial Instruments Credit Losses Available-for-Sale Debt Securities. The amendments in this
Update address those stakeholders’ concerns by providing an option to irrevocably elect the fair value option for certain
financial assets previously measured at amortized cost basis. For those entities, the targeted transition relief will increase
comparability of financial statement information by providing an option to align measurement methodologies for similar financial
assets. Furthermore, the targeted transition relief also may reduce the costs for some entities to comply with the amendments in
Update 2016-13 while still providing financial statement users with decision-useful information. In November 2019,
the FASB issued ASU No. 2019-10, which to update the effective date of ASU No. 2016-02 for private companies,
not-for-profit organizations and certain smaller reporting companies applying for credit losses, leases, and hedging standard.
The new effective date for these preparers is for fiscal years beginning after December 15, 2022. The Company does not expect
the adoption of this ASU would have a material effect on the Company’s unaudited condensed consolidated financial
statements.
MICT, Inc.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(In Thousands, except
Share and Par Value data)
In
October 2021, the FASB issued ASU 2021-08, “Business Combinations”. The amendments in this Update address how to
determine whether a contract liability is recognized by the acquirer in a business combination and resolve the inconsistency of
measuring revenue contracts with customers acquired in a business combination by providing specific guidance on how to recognize and
measure acquired contract assets and contract liabilities from revenue contracts in a business combination. The amendments in this
Update apply to all entities that enter into a business combination within the scope of Subtopic 805-10, Business
Combination-Overalls. For public business entities, ASU 2021-08 is effective for fiscal years beginning after December 15,
2022, including interim periods within those fiscal years. Early application is permitted. The amendments in this Update should be
applied prospectively to business combinations occurring on or after the effective date of the amendments. The Company does not
expect the adoption of this standard to have a material impact on its unaudited condensed consolidated financial
statements.
Except
as mentioned above, the Company does not believe other recently issued but not yet effective accounting standards, if currently
adopted, would have a material effect on the Company’s unaudited condensed consolidated balance sheets, unaudited condensed
consolidated statements of operations, comprehensive loss and cash flows.
Note 3 — Stockholders’
Equity
On November 2, 2020 the Company
entered into a Securities Purchase Agreement (the “Purchase Agreement”) with certain 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 and one warrant to purchase 0.8 of one share of Common Stock at
a purchase price of $2.50 per Unit. The warrants are exercisable nine 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. 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 had entered into
a securities purchase agreement (the “February Purchase Agreement”) with certain institutional 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 nine 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 nine 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.
MICT, Inc.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(In Thousands, except
Share and Par Value data)
On March 2, 2021, the Company
entered into a securities purchase agreement (the “March 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 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 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 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 to Mr. Darren
Mercer, the Company’s Chief Executive Officer. The issuance of the shares was 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 Fucheng Insurance and Magpie; (ii) obtaining
regulatory approval from the Hong Kong SFC regarding the acquisition of Magpie; (iii) the execution 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
execution of an exclusive partnership with the Shanghai Petroleum and Natural Gas Trading Center to which allows 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
unanimously approved a grant of fully vested 300,000 shares of common stock of the Company to Richard Abrahams, 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 respectively,
options under the 2012 Incentive Plan, with an exercise price of $1.41, $1.81 and $2.49, respectively, of which 310,000 options vested
as of March 31, 2022. This resulted in a stock-based compensation expense of approximately $458,000 recorded for the three months ended
March 31, 2022, 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 who exercised their options at an exercise price of $1.41.
In September 2021, the Board
unanimously approved a grant of 87,000 fully vested shares of common stock of the Company to some of our employees.
On September 13, 2021, 40,000
shares of common stock were issued to an employee who exercised their options at an exercise price of $1.32.
On September 28, 2021, MICT
granted 823,020 shares of common stock of the Company to China Strategic Investments Limited.
On May 10, 2022, MICT granted
1,659,500 shares of common stock of the Company to Cushman Holdings Limited, an unrelated third party, as an introducer fee for Tingo, Inc. merger
transaction as further discussed in Note 17.
On May 10, 2022, MICT granted
858,631 shares of common stock of the Company to China Strategic Investments Limited, an unrelated third party, in connection with the
GFHI acquisition as discussed in Note 1.
On May 10, 2022, MICT granted 612,500 shares of common stock of the
Company to some of our Directors and employees. The shares were issued pursuant to the 2020 Incentive
Plan.
On May 10, 2022, the Company’s
Board of Directors (the “Board”) unanimously approved a grant of fully vested 4,000,000 shares of common stock to Mr. Darren
Mercer, the Company’s Chief Executive Officer. The shares were issued under the Company’s long term incentive plan as such
long term incentive plan 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 Fucheng Insurance and
Magpie; (ii) obtaining regulatory approval from the Hong Kong SFC regarding the acquisition of Magpie; (iii) the execution 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 execution of an exclusive partnership with the Shanghai Petroleum and Natural Gas Trading Center to which
allows MICT to provide financial services to its customers; (v) entered into an Agreement and Plan of Merger with Tingo (vi) the completion
of capital raises totaling in excess of $140 million and broadening the Company’s institutional investor base.
MICT, Inc.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(In Thousands,
except Share and Par Value data)
The following table summarizes information about
stock options outstanding and exercisable as of March 31, 2022:
| |
Three months ended March 31 | | |
Year ended December 31 | |
| |
2022 | | |
2021 | |
| |
Number of Options | | |
Weighted Average Exercise Price | | |
Number of Options | | |
Weighted Average Exercise Price | |
| |
| | |
| | |
| | |
| |
Options outstanding at the beginning of year/period: | |
| 1,558,000 | | |
$ | 1.74 | | |
| 1,158,000 | | |
$ | 2.24 | |
Changes during the year/period: | |
| | | |
| | | |
| | | |
| | |
Granted | |
| - | | |
| - | | |
| 740,000 | | |
| 1.97 | |
Exercised | |
| - | | |
| - | | |
| (60,000 | ) | |
| 1.35 | |
Forfeited | |
| (818,000 | ) | |
| 1.54 | | |
| (280,000 | ) | |
| 1.41 | |
| |
| | | |
| | | |
| | | |
| | |
Options outstanding at end of year/period | |
| 740,000 | | |
$ | 1.97 | | |
| 1,558,000 | | |
$ | 1.74 | |
Options exercisable at end of year/period | |
| 402,500 | | |
$ | 1.69 | | |
| 1,118,000 | | |
$ | 1.57 | |
The Company has warrants outstanding as
follows:
| |
Warrants Outstanding | | |
Average Exercise Price | | |
Remaining Contractual Life | |
Balance, December 31, 2021 | |
| 62,863,879 | | |
$ | 2.854 | | |
| 4.5 | |
Granted | |
| - | | |
| - | | |
| - | |
Forfeited | |
| - | | |
| - | | |
| - | |
Exercised | |
| - | | |
| - | | |
| - | |
Balance, March 31, 2022 (Unaudited) | |
| 62,863,879 | | |
$ | 2.854 | | |
| 4.25 | |
NOTE 4 - EQUITY INVESTMENT IN MICRONET
As of March 31, 2021, the
Company held 50.31% of Micronet’s issued and outstanding shares. On May 9, 2021, following the 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. 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 had completed a public equity 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 31.47% of the outstanding ordinary shares of Micronet and 26.83% on a fully diluted
basis as of March 31, 2022.
| |
May 9, 2021 | |
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 | |
MICT, Inc.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(In Thousands,
except Share and Par Value data)
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 (the “Convertible
Loan”). The Convertible Loan bears interest at a rate of 3.95% calculated and 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 issuance. 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
one of Micronet’s ordinary shares for each ordinary share that it issued as a result of a conversion of the Convertible Loan 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 exercise
price changed from 0.6 NIS per share to 9 NIS per Micronet share.
On January 1, 2020, the Convertible
Loan was approved at a general meeting of the Micronet shareholders and as a result, the Convertible Loan and the transactions contemplated
thereby became effective. The loan was repaid on January 4, 2022.
On August 13, 2020, MICT Telematics
extended to Micronet an additional loan in the aggregate amount of $175 (the “Loan Sum”) which governed the existing outstanding
intercompany debt. The loan does not bear any interest and has a term of twelve months. The Loan Sum was granted for the purpose of supporting
Micronet’s working capital and general corporate needs. The loan was repaid on August 25, 2021.
NOTE 6 — 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
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 7 — Guangxi
Zhongtong Insurance Agency Co., Ltd Acquisition
On January 1, 2021, we 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 granted loans
to Guangxi Zhongtong’s shareholders through a frame work loan (the “GZ Frame Work Loan”) the amount of up to RMB 40,000
(approximately $6,125) (“GZ Frame Work Loan Amount”) which is designated, if exercised, to be used as a working capital loan
for Guangxi Zhongtong. As of March 31, 2022, only RMB 8,010 (approximately $1,243) was drawn down from the GZ Frame Work Loan
for working capital and approximately $919 was drawn down for loans to shareholders of Guangxi Zhongtong (as stipulated
in the agreement). In consideration for the GZ Frame Work Loan, the parties entered into various additional agreements which include:
(i) a pledge agreement pursuant to which the shareholders have pledged their shares for the benefit of Bokefa in order to secure
the GZ Frame work Loan Amount (ii) an exclusive option agreement pursuant to which Bokefa has an exclusive option to purchase the
entire issued and outstanding common shares of Guangxi Zhongtong from the shareholders (“Option Agreement”) under such terms
set forth therein (which include an exercise price not less than the maximum GZ Frame Work Loan Amount and the right to convert the GZ
Frame Work Loan Amount into the purchased shares) (iii) an entrustment agreement and power of attorney agreement pursuant to which the
shareholders irrevocably entrusted and appointed Tianjin Bokefa as their 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) a business cooperation agreement and a master exclusive service agreement which grants Bokefa rights related to Guangxi Zhongtong’s
business and operations in order to secure repayment of the GZ Frame Work Loan Amount.
MICT, Inc.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(In Thousands, except
Share and Par Value data)
This transaction was structured
pursuant to a Variable Interest Entity, Structure (in which we do not hold the shares). As such, and given 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 Guangxi Zhongtong business. We have, therefore, consolidated the financial position and operating results of Guangxi Zhongtong into
our consolidated financial statements, using the fair value of the assets and liabilities of Guangxi Zhongtong in accordance with U.S.
GAAP. Beijing Fucheng Lianbao Technology Co., Ltd is an entity incorporated on December 29, 2020, in which 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., which holds 100% of the equity interest in Beijing Fucheng Insurance Brokerage Co., Ltd.
(“Fucheng Insurance”). Fucheng Insurance is a Chinese insurance brokerage agency and a nation-wide licensed entity which offers
insurance brokerage services for a broad range of insurance products. Fucheng Insurance, through their nationwide license, will give us
the flexibility to offer and create tailor-made insurance products, leverage customers directly or through distribution partners and procure
better deals with both our existing and new insurance company partners. Fucheng Insurance further enables us to accelerate the onboarding
of new agents onto our platforms all throughout China. 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’ large
customer bases which will also offer MICT’S full suite of insurance products. Beijing Fucheng shares were acquired for approximately
$5,700, and funded through MICT.
On October 21, 2021, Yibao
transferred such funds and the transaction closed. As a result of the transaction, Yibao now holds a sixty percent (60%) equity interest
in Guangxi Zhongtong and is the controlling shareholder. As a condition of the Closing, the previous agreements consummated on January
1, 2021 per the Frame Work Loan became null and void.
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:
Guangxi Zhongtong
Insurance agency co., Ltd, Purchase Price
Allocation
Total cash consideration (1) | |
$ | - | |
Total Purchase Consideration | |
$ | - | |
| |
| | |
Less: | |
| | |
| |
| | |
Debt-free net working capital | |
$ | 613 | |
Property and equipment | |
| 13 | |
Intangible assets - Licenses | |
| 1,926 | |
Intangible assets - customer relationship (1) | |
| 248 | |
Deferred Tax liability (2) | |
| (544 | ) |
Fair value of net assets acquired | |
$ | 2,256 | |
| |
| | |
Noncontrolling interest | |
$ | (3,231 | ) |
Gain on equity interest | |
| 1,128 | |
Equity investment | |
| - | |
Change in investment | |
| (2,103 | ) |
| |
| | |
Goodwill value (3) | |
$ | (153 | ) |
(1) | The
customer database value is based on the cost to recreate, as indicated by management. |
(2) | 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%. |
(3) | The goodwill is not deductible for tax purposes. |
MICT, Inc.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(In Thousands, except
Share and Par Value data)
NOTE 8 - ALL WEATHER
TRANSACTION
On July 1, 2021, we entered
into a transaction through Bokefa, with the shareholders of All Weather, a local Chinese entity with business and operations in the insurance
brokerage business. Pursuant to the transaction, we granted loans to All Weather’s shareholders through a frame work loan (the “AW
Frame Work Loan”) the amount of up to RMB 30,000 (approximately $4,700) (“AW Frame Work Loan Amount”) which is designated,
if exercised, to be used as a working capital loan for All Weather. As of March 31, 2022, RMB 30,000 (approximately $4,700) was drawn
down from the AW Frame Work Loan for working capital. In consideration for the AW Frame Work Loan, the parties entered into various additional
agreements which include: (i) a pledge agreement pursuant to which the shareholders have pledged their shares for the benefit of Bokefa
in order to secure the AW Frame work Loan Amount (ii) an exclusive option agreement pursuant to which Bokefa has an exclusive option
to purchase the entire issued and outstanding common shares of All Weather from the shareholders (“Option Agreement”) under
such terms set forth therein (iii) an entrustment agreement and power of attorney agreement pursuant to which the shareholders irrevocably
entrusted and appointed Bokefa as their 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) a business cooperation agreement
and a master exclusive service agreement which grants Bokefa rights related to All Weather’s business and operations in order to
secure repayment of the AW Frame Work Loan Amount.
This transaction was structured
pursuant to a Variable Interest Entity Structure (in which we do not hold the shares). As such, and given our direct ownership in Bokefa
and its contractual arrangements with All Weather, we are regarded as All Weather’s controlling entity and primary beneficiary of
All Weather’s business. We have, therefore, consolidated the financial position and operating results of All Weather into our consolidated
financial statements, using the fair value of the assets and liabilities of All Weather in accordance with U.S. GAAP.
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:
All Weather, Purchase Price Allocation
Total cash consideration (1) | |
$ | - | |
Total Purchase Consideration | |
$ | - | |
| |
| | |
Less: | |
| | |
| |
| | |
Debt-free net working capital | |
$ | (105 | ) |
Property and equipment | |
| 153 | |
Right of use assets | |
| 208 | |
Lease liabilities | |
| (258 | ) |
Intangible assets - licencs (1) | |
| 849 | |
Intangible assets - customer relationship (1) | |
| 54 | |
Deferred Tax liability (2) | |
| (226 | ) |
Fair value of net assets acquired | |
$ | 675 | |
| |
| | |
Noncontrolling interest | |
$ | (675 | ) |
Change in investment | |
| (675 | ) |
| |
| | |
Goodwill value (3) | |
$ | - | |
(1) | The customer database value is based on the cost to recreate, as indicated by management. |
(2) | 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 25%. |
(3) | The goodwill is not deductible for tax purposes. |
MICT, Inc.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(In Thousands, except
Share and Par Value data)
NOTE 9 — 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 marketplace, through our operating subsidiaries, as a financial
technology company (Fintech Industry) targeting the Chinese marketplace as well as other areas of the world. We have built and/or, are
in the process of building, various platforms to capitalize on business opportunities in a range of insurance platform segments (formerly:
verticals and technology segments) including stock trading and insurance brokerage services. We will continue to increase the capabilities
of our platforms through acquisition and/or the licensing of different technologies to support our 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. First, we have launched our insurance platform, operated by GFHI, for
the Chinese market and have been generating revenues in GFHI. While the revenues were not material in 2020, these revenues are building
and we expect these revenues to continue to grow as this business establishes itself in the market as a reputable service available to
consumers Secondly, we are currently in the process of launching our securities trading software platform and accelerating the development
and business around this segment. This is possible due to the recent completion of the acquisition of Magpie (formerly: Huapei) on February
26, 2021.
As a result of such acquisition,
we have obtained the necessary licenses and permits to operate our online platform in the Hong Kong stock exchange.
As we begin development of
our oil and gas trading platform, we are looking to partner with an established and reputable Chinese organization to build out our technology,
which will support 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, and 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 was diluted and, as a result, we
no longer include Micronet’s operating results in our consolidated financial statements.
The following table summarizes the financial performance
of our operating segments:
| |
Three months ended March 31, 2022 | |
| |
Insurance platform | | |
Mobile resource management | | |
Online stock trading | | |
Consolidated | |
| |
| | |
| | |
| | |
| |
Revenues from external customers | |
$ | 9,533 | | |
| - | | |
| 30 | | |
$ | 9,563 | |
Segment operating loss | |
| (4,295 | )(1) | |
| - | | |
| (3,544 | ) | |
| (7,839 | ) |
Non allocated expenses | |
| | | |
| | | |
| | | |
| (2,131 | ) |
Finance expenses and other | |
| | | |
| | | |
| | | |
| 49 | |
Consolidated loss before provision for income taxes | |
| | | |
| | | |
| | | |
$ | (9,921 | ) |
(1) | Includes $733 of intangible assets amortization, derived from GFHI acquisition. |
| |
Three months ended March 31, 2021 | |
| |
Insurance platform | | |
Mobile resource management | | |
Consolidated | |
Revenues from external customers | |
$ | 8,209 | | |
$ | 726 | | |
$ | 8,935 | |
Segment operating loss | |
| (1,967 | )(1) | |
| (827 | )(2) | |
| (2,794 | ) |
Non allocated expenses | |
| | | |
| | | |
| (1,989 | ) |
Finance expenses and other | |
| | | |
| | | |
| (479 | ) |
Consolidated loss before provision for income taxes | |
| | | |
| | | |
$ | (5,262 | ) |
(1) | Includes $733 of intangible assets amortization, derived from GFHI acquisitions. |
(2) | Includes $103 of intangible assets amortization, derived from Micronet consolidation. |
MICT, Inc.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(In Thousands, except
Share and Par Value data)
The following table summarizes
the financial statements of our balance sheet accounts of the segments:
| |
As of March 31, 2022 | |
| |
Insurance platform | | |
Mobile resource management | | |
Online stock trading | | |
Consolidated | |
| |
(Unaudited) | | |
(Unaudited) | | |
(Unaudited) | | |
(Unaudited) | |
Assets related to segments | |
$ | 62,522 | (2) | |
$ | - | | |
$ | 56,632 | (4) | |
$ | 119,154 | |
Non allocated Assets | |
| | | |
| - | | |
| | | |
| 45,690 | |
Liabilities related to segments | |
| (20,032 | )(3) | |
| - | | |
| (3,552 | ) | |
| (23,584 | ) |
Non allocated liabilities | |
| - | | |
| - | | |
| - | | |
| (2,341 | ) |
Total Equity | |
| | | |
| | | |
| | | |
$ | 138,919 | |
(2) | Includes $11,440 of intangible assets and $19,788 goodwill, derived from GFHI’s acquisition. |
(3) | Includes $2,974 of deferred tax liability, derived from GFHI acquisition. |
The following table
summarizes the financial statements of our balance sheet accounts of the segments:
| |
As of December 31, 2021 | |
| |
Insurance platform | | |
Mobile resource management | | |
Online stock trading | | |
Consolidated | |
| |
| | |
| | |
| | |
| |
Assets related to segments | |
$ | 86,474 | (1) | |
$ | - | | |
$ | 60,581 | (3) | |
$ | 147,055 | |
Non allocated Assets | |
| | | |
| - | | |
| | | |
| 30,756 | |
Liabilities related to segments | |
| (23,516 | )(2) | |
| - | | |
| (3,953 | ) | |
| (27,469 | ) |
Non allocated liabilities | |
| - | | |
| - | | |
| - | | |
| (2,620 | ) |
Total Equity | |
| | | |
| | | |
| | | |
$ | 147,722 | |
(1) | Includes $19,292 of intangible assets and $19,788 goodwill, derived from GFHI’s acquisition. |
(2) | Includes $3,728 of deferred tax liability, derived from GFHI acquisition. |
(3) | Includes $1,222 of intangible assets. |
NOTE 10 — INTANGIBLE ASSETS, NET
| |
Useful life | |
March 31, | | |
December 31, | |
| |
years | |
2022 | | |
2021 | |
Original amount: | |
| |
| | |
| |
Technology know-how | |
6 | |
$ | 11,490 | | |
$ | 11,490 | |
Trade name/ trademarks | |
Indefinite or 5 years | |
| 923 | | |
| 923 | |
Customer relationship | |
5-10 years | |
| 4,802 | | |
| 4,802 | |
License | |
Indefinite or 10 years | |
| 8,498 | | |
| 8,498 | |
Software | |
10 | |
| 175 | | |
| 172 | |
| |
| |
| 25,888 | | |
| 25,885 | |
Accumulated amortization: | |
| |
| | | |
| | |
Technology know-how | |
| |
| (3,351 | ) | |
| (2,873 | ) |
trade name/ trademarks | |
| |
| (203 | ) | |
| (174 | ) |
Customer related intangible assets | |
| |
| (1,590 | ) | |
| (1,355 | ) |
License | |
| |
| (90 | ) | |
| (39 | ) |
Software | |
| |
| (6 | ) | |
| (2 | ) |
| |
| |
| (5,240 | ) | |
| (4,443 | ) |
Net | |
| |
$ | 20,648 | | |
$ | 21,442 | |
MICT, Inc.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(In Thousands, except
Share and Par Value data)
NOTE 11 — TRADE ACCOUNTS RECEIVABLE, NET
For the three months ended March 31, 2022 and
the fiscal year ended December 31, 2021, accounts receivable were comprised of the following:
| |
March 31, | | |
December 31, | |
| |
2022 | | |
2021 | |
Trade accounts receivable | |
$ | 17,153 | | |
$ | 20,485 | |
Allowance for doubtful accounts | |
| (2,738 | ) | |
| (2,606 | ) |
| |
$ | 14,415 | | |
$ | 17,879 | |
Movement of allowance for
doubtful accounts the three months ended March 31, 2022 and the fiscal year ended December 31, 2021 are as follows:
| |
March 31, | | |
December 31, | |
| |
2022 | | |
2021 | |
Beginning balance | |
$ | 2,606 | | |
$ | 5 | |
Provision | |
| 118 | | |
| 2,574 | |
Exchange fluctuation | |
| 14 | | |
| 32 | |
Decrease due to deconsolidation of Micronet | |
| - | | |
| (5 | ) |
| |
$ | 2,738 | | |
$ | 2,606 | |
NOTE 12 — OTHER CURRENT ASSETS
| |
March 31, | | |
December 31, | |
| |
2022 | | |
2021 | |
Prepaid expenses | |
$ | 1,090 | | |
$ | 1,715 | |
Advance to suppliers | |
| 3,793 | | |
| 4,027 | |
Deposit | |
| 137 | | |
| 1,335 | |
Business advance to employee | |
| 1,658 | | |
| 1,444 | |
Other receivables | |
| 3,516 | | |
| 1,033 | |
| |
$ | 10,194 | | |
$ | 9,554 | |
NOTE 13 — RELATED PARTIES
Current assets – related parties
| |
March 31, | | |
December 31, | |
| |
2022 | | |
2021 | |
| |
| | |
| |
Shareholders of All Weather | |
$ | 3,197 | | |
$ | 3,680 | |
Convertible loan to Micronet | |
| - | | |
| 535 | |
Shareholders of Guangxi Zhongtong | |
| 926 | | |
| 919 | |
| |
$ | 4,123 | | |
$ | 5,134 | |
Current liabilities – related party
| |
March 31, | | |
December 31, | |
(USD in thousands) | |
2022 | | |
2021 | |
| |
| | |
| |
Shareholders of All Weather | |
| 264 | | |
| 4 | |
| |
$ | 264 | | |
$ | 4 | |
MICT, Inc.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(In Thousands, except
Share and Par Value data)
NOTE 14 — 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 March 31, 2022 and December 31, 2021
Assets/liabilities | |
March 31, | | |
December 31, | |
| |
2022 | | |
2021 | |
Assets | |
| | |
| |
Right-of-use assets | |
$ | 1,597 | | |
$ | 1,921 | |
| |
| | | |
| | |
Liabilities | |
| | | |
| | |
Lease liabilities- current portion | |
$ | 1,079 | | |
$ | 1,298 | |
Lease liabilities- long term | |
| 601 | | |
| 691 | |
Total Lease liabilities | |
$ | 1,680 | | |
$ | 1,989 | |
The operating lease expenses for the three months
ended March 31, 2022 and 2021 were as follows:
| |
Three months ended March 31, | |
| |
2022 | | |
2021 | |
Operating lease cost | |
$ | 412 | | |
$ | 135 | |
Maturities of operating lease liabilities
for the three-month ended March 31, 2022 were as follows:
| |
Year ended March 31, | |
2022* | |
| 1,112 | |
2023 | |
| 537 | |
2024 | |
| 122 | |
2025 | |
| 13 | |
2026 | |
| 1 | |
Total lease payment | |
| 1,785 | |
Less: imputed interest | |
| (105 | ) |
Total | |
| 1,680 | |
* include operating leases with a term less than
one year.
Lease term and discount rate | |
March 31, 2022 | |
| |
| |
Weighted-average remaining lease term (years) – operating leases | |
| 1.99 | |
Weighted average discount rate – operating leases | |
| 5.28 | % |
MICT, Inc.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(In Thousands, except
Share and Par Value data)
NOTE 15 — PROVISION FOR INCOME TAXES
A.
Basis of Taxation
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 2020 and in the three months ended March 31, 2021 and 2022. As of March 31, 2022 the operating
loss carry forward were $36,156 , among which there was $5,115 expiring from 2025 through 2037, and the remaining $31,041 has no expiration
date.
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 three months ended March
31, 2021 and 2022. As of March 31, 2022 the operating loss carry forward were $6,361 , which does not have an expiration date.
Mainland China:
The Company’s Chinese subsidiaries
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%.
As of March 31, 2022 the operating loss carry forward was $9,228, which will expire from 2023 through 2027.
Hong Kong:
Our subsidiaries incorporated in Hong Kong, such as Magpie Securities
Limited, BI Intermediate Limited, are subject to Hong Kong profit tax on their profits arising from their business operations carried
out in Hong Kong. Hong Kong profits tax for a corporation from the year of assessment 2018/2019 onwards is generally 8.25% on assessable
profits up to HK$2,000; and 16.5% on any part of assessable profits over HK$2,000. Under the Hong Kong Inland Revenue Ordinance, profits
that we derive from sources outside of Hong Kong are generally not subject to Hong Kong profits tax.
As of March 31, 2022, the tax loss
carry forward was $11,464 for Magpie Securities Limited, and the operating loss carry forward was $3,620 for BI Intermediate Limited.
Tax losses can be carried forward indefinitely until utilized.
Singapore:
Our subsidiaries incorporated in Singapore
are subject to an income tax rate of 17% for taxable income earned in Singapore. Singapore does not impose a withholding tax on dividends
for resident companies. In 2021, we did not incur any income tax as there was no estimated assessable profit that was subject to Singapore
income tax.
As of March 31, 2022, the operating
loss carry forward was $49.
Subject to qualifying conditions, trade
losses can be carried forward indefinitely while unutilized donations can be carried forward for up to 5 years of assessment.
B.
Provision for (Benefit of) Income Taxes
| |
Three months ended March 31, | |
| |
2022 | | |
2021 | |
Current | |
| | |
| |
Domestic | |
$ | - | | |
$ | 43 | |
Foreign | |
| 3 | | |
| 7 | |
Total | |
$ | 3 | | |
| 50 | |
Deferred | |
| | | |
| | |
Domestic | |
$ | - | | |
$ | - | |
Foreign | |
| (1,079 | ) | |
| (406 | ) |
Total | |
$ | (1,076 | ) | |
$ | (356 | ) |
MICT, Inc.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(In Thousands, except
Share and Par Value data)
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 March 31, 2022 and December 31, 2021, deferred tax assets were included in long-term deposit and prepaid expenses,
and the Company’s deferred taxes were in respect of the following:
| |
March 31, | | |
December 31, | |
| |
2022 | | |
2021 | |
Deferred tax assets | |
| | |
| |
Provisions for employee rights and other temporary differences | |
$ | 23 | | |
$ | 260 | |
Provisions for bad debt | |
| 685 | | |
| 696 | |
Net operating loss carry forward | |
| 13,860 | | |
| 12,034 | |
Valuation allowance | |
| (11,934 | ) | |
| (11,226 | ) |
Deferred tax assets, net of valuation allowance | |
| 2,634 | | |
| 1,764 | |
Deferred tax liabilities | |
| | | |
| | |
Recognition of intangible assets arising from business combinations | |
| (3,748 | ) | |
| (3,952 | ) |
Deferred tax liabilities, net | |
$ | (1,114 | ) | |
$ | (2,188 | ) |
NOTE 16 — LEGAL PROCEEDINGS
There are no open legal proceeding
as of March 31, 2022 and as of today.
NOTE 17 — SUBSEQUENT EVENTS
On May 10, 2022, Tingo, Inc.,
a Nevada corporation (“Tingo” or the “Seller”), entered into an Agreement and Plan of Merger (the “Merger
Agreement”) with MICT Merger Sub, Inc., a Nevada corporation and a wholly-owned subsidiary of MICT (“Merger Sub”), and
MICT, Inc., a Delaware corporation.
Pursuant to the Merger Agreement,
subject to the terms and conditions set forth therein, upon the consummation of the transactions contemplated by the Merger Agreement
(the “Closing”), Merger Sub will merge with and into Tingo (the “Merger” and, together with the other transactions
contemplated by the Merger Agreement, the “Transactions”), with the Seller continuing as the surviving corporation in the
Merger and a wholly-owned subsidiary of MICT.
As a result of the Merger,
all of the issued and outstanding capital stock of the Seller immediately prior to the Closing, shall no longer be outstanding and shall
automatically be cancelled and shall cease to exist, in exchange for the right for each Seller Stockholder to receive its Pro Rata Share
of the Merger Consideration, upon the terms and subject to the conditions set forth in the Merger Agreement.
As consideration for the Merger,
the Seller Security Holders collectively shall receive from MICT, in the aggregate, a number of shares of MICT Common Stock equal to (the
“Merger Consideration”) the product of (a) 3.44444 and (b) the number of shares of MICT Pre-Closing Common Stock (the total
portion of the Merger Consideration amount payable to all Seller Stockholders in accordance with the Merger Agreement). This will result
in Tingo shareholders receiving new MICT common shares in an amount equal to approximately 77.5% in the combined company, and current
MICT shareholders owning approximately 22.5% on a fully diluted basis following the closing, with a combined estimated group value of
$4.09 billion.
On June 15, 2022, Tingo, Merger
Sub and MICT entered into an Amended and Restated Agreement and Plan of Merger, following the completion of extensive due diligence by
MICT and its advisors. including financial due diligence, tax due diligence and quality of earnings analysis by Ernst & Young, financial
analysis by Houlihan Lokey, legal, operational, corporate and local due diligence by the Nigerian office of Dentons and corporate due
diligence and securities due diligence by Ellenoff Grossman & Schole.
In accordance with US GAAP,
upon Closing, which is subject to Tingo stock holder approval, MICT stock holder approval, the satisfaction of regulatory requirements
and the Registration Statement having been declared effective by the SEC, the Merger will be accounted for by MICT in its consolidated
financial statements as a reverse acquisition.
On April 2, 2022, Shanghai
Zhengzhong Energy Technology Co., Ltd. (Zhengzhong Energy”), our wholly owned subsidiary, entered into a transaction with the shareholders
of Tianjin Dibao Technology Development Co. Ltd.(“Tianjin Dibao”) 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 Shanghai Zhengzhong Energy in order to secure the amount drown from the Frame work Loan Amount (ii) exclusive option agreement pursuant
to which Shanghai Zhengzhong Energy has an exclusive option to purchase the entire shares of Tianjin Dibao from the Shareholders (“Option
Agreement”) under such terms set forth in the Option Agreement (iii) Entrustment Agreement and Power of Attorney Agreement pursuant
to which the Shareholders irrevocably entrusted and appointed Shanghai Zhengzhong Energy as its proxy and trustee to exercise on their
behalf any and all rights under applicable law and the articles of association of Tianjin Dibao in the Shareholder’s equity interest
in Tianjin Dibao (iv) business cooperation agreement and a master exclusive service agreement which grants Shanghai Zhengzhong Energy
with rights related to the Tianjin Dibao business and operations designed to secure repayment of the Loan Amount. The transaction above
was structured pursuant to a Variable Interest Entity (VIE) Structure according to which Zhengzhong Energy controlled 76% interest in
Dibao, and the remaining 24% equity was held directly by Zhengzhong Energy.
On April 5, 2022,
Beijing Fucheng Lianbao disposed its subsidiary of Beijing Fucheng Prospect Technology Co., Ltd (“Fucheng Prospect”).The
shares previously held by Beijing Fucheng Lianbao were transferred to an individual Wang Yuanyuan on April 5, 2022. The net assets
of Fucheng Prospect as of April 5, 2022 was $94 and transaction price was zero. The Company recognized a gain of $ 94 for disposing
and stopped consolidating its financials starting from April.