Item
1.
|
Financial
Statements.
|
MICT,
INC. AND SUBSIDIARIES
CONDENSED
CONSOLIDATED BALANCE SHEETS
(USD
In Thousands, Except Share and Par Value Data)
|
|
March 31,
2020
|
|
|
December 31,
2019
|
|
ASSETS
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
2,826
|
|
|
$
|
3,154
|
|
Restricted cash
|
|
|
45
|
|
|
|
45
|
|
Trade accounts receivable, net
|
|
|
-
|
|
|
|
-
|
|
Short-term loan to related party Micronet Ltd., net
|
|
|
-
|
|
|
|
281
|
|
Inventories
|
|
|
-
|
|
|
|
-
|
|
Other current assets
|
|
|
1,132
|
|
|
|
937
|
|
Total current assets
|
|
|
4,003
|
|
|
|
4,417
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
|
26
|
|
|
|
29
|
|
Long-term loan to related party Micronet Ltd., net
|
|
|
134
|
|
|
|
-
|
|
Restricted cash escrow
|
|
|
477
|
|
|
|
477
|
|
Micronet Ltd. equity method investment
|
|
|
354
|
|
|
|
994
|
|
Total long-term assets
|
|
|
991
|
|
|
|
1,500
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
4,994
|
|
|
$
|
5,917
|
|
MICT,
INC. AND SUBSIDIARIES
CONDENSED
CONSOLIDATED BALANCE SHEETS
(USD
In Thousands, Except Share and Par Value Data)
|
|
March 31,
2020
|
|
|
December 31,
2019
|
|
LIABILITIES AND EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short term bank credit and current portion of long term bank loans
|
|
$
|
-
|
|
|
$
|
-
|
|
Short term credit from others and current portion of long term loans from others
|
|
|
-
|
|
|
|
-
|
|
Trade accounts payable
|
|
|
-
|
|
|
|
-
|
|
Other current liabilities
|
|
|
540
|
|
|
|
290
|
|
Total current liabilities
|
|
|
540
|
|
|
|
290
|
|
|
|
|
|
|
|
|
|
|
Long term loans from others
|
|
|
-
|
|
|
|
1,856
|
|
Long term escrow
|
|
|
477
|
|
|
|
477
|
|
Accrued severance pay
|
|
|
50
|
|
|
|
50
|
|
Total long term liabilities
|
|
|
527
|
|
|
|
2,383
|
|
|
|
|
|
|
|
|
|
|
Stockholders’ Equity:
|
|
|
|
|
|
|
|
|
Series A Convertible Preferred Stock; $0.001 par value, 3,181,818 and 2,386,363 shares authorized, issued and outstanding as of March 31, 2020 and December 31, 2019, respectively
|
|
|
3
|
|
|
|
2
|
|
Series B Convertible Preferred Stock; $0.001 par value, 1,818,182 and 0 shares authorized, issued and outstanding as of March 31, 2020 and December 31, 2019, respectively
|
|
|
2
|
|
|
|
0
|
|
Common stock; $0.001 par value, 25,000,000 shares authorized, 11,089,532 shares issued and outstanding as of March 31, 2020 and December 31, 2019, respectively
|
|
|
11
|
|
|
|
11
|
|
Additional paid in capital
|
|
|
14,169
|
|
|
|
14,107
|
|
Additional paid in capital – Series A Convertible Preferred Stock
|
|
|
6,437
|
|
|
|
6,028
|
|
Additional paid in capital – Series B Convertible Preferred Stock
|
|
|
1,914
|
|
|
|
|
|
Accumulated other comprehensive (loss)
|
|
|
-
|
|
|
|
70
|
|
Accumulated loss
|
|
|
(18,609
|
)
|
|
|
(16,974
|
)
|
MICT, Inc. stockholders’ equity
|
|
|
3,927
|
|
|
|
3,244
|
|
|
|
|
|
|
|
|
|
|
Non-controlling interests
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Total equity
|
|
|
3,927
|
|
|
|
3,244
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and equity
|
|
$
|
4,994
|
|
|
$
|
5,917
|
|
MICT,
INC. AND SUBSIDIARIES
CONDENSED
CONSOLIDATED STATEMENTS OF INCOME
(USD
In Thousands, Except Share and Earnings Per Share Data)
(Unaudited)
|
|
Three months ended
March 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
-
|
|
|
$
|
477
|
|
Cost of revenues
|
|
|
-
|
|
|
|
846
|
|
Gross profit
|
|
|
-
|
|
|
|
(369
|
)
|
Operating expenses:
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
-
|
|
|
|
261
|
|
Selling and marketing
|
|
|
-
|
|
|
|
198
|
|
General and administrative
|
|
|
770
|
|
|
|
990
|
|
Amortization of intangible assets
|
|
|
-
|
|
|
|
20
|
|
Total operating expenses
|
|
|
770
|
|
|
|
1,469
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(770
|
)
|
|
|
(1,838
|
)
|
Share in investee losses
|
|
|
(640
|
)
|
|
|
-
|
|
Net profit from loss of control
|
|
|
-
|
|
|
|
299
|
|
Financial (expenses) income, net
|
|
|
(224
|
)
|
|
|
76
|
|
Loss before provision for income taxes
|
|
|
(1,634
|
)
|
|
|
(1,463
|
)
|
Taxes on income
|
|
|
1
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
Net loss from continued operation
|
|
|
(1,635
|
)
|
|
|
(1,466
|
)
|
Net profit (loss) from discontinued operation
|
|
|
-
|
|
|
|
-
|
|
Total net loss
|
|
|
(1,635
|
)
|
|
|
(1,466
|
)
|
Net loss attributable to non-controlling interests
|
|
|
-
|
|
|
|
(556
|
)
|
Net loss attributable to MICT, Inc.
|
|
|
(1,635
|
)
|
|
|
(910
|
)
|
|
|
|
|
|
|
|
|
|
Basic and diluted loss per share from continued operation
|
|
|
(0.15
|
)
|
|
|
(0.09
|
)
|
Basic and diluted loss per share from discontinued operation
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding:
|
|
|
|
|
|
|
|
|
Basic
|
|
|
11,089,532
|
|
|
|
9,707,831
|
|
MICT,
INC. AND SUBSIDIARIES
CONDENSED
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(USD
In Thousands)
(Unaudited)
|
|
Three months ended
March 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(1,635
|
)
|
|
$
|
(1,466
|
)
|
Other comprehensive loss, net of tax:
|
|
|
|
|
|
|
|
|
Currency translation adjustment
|
|
|
(70
|
)
|
|
|
(144
|
|
Total comprehensive loss
|
|
|
(1,705
|
)
|
|
|
(1,610
|
)
|
Comprehensive loss attributable to non-controlling interests
|
|
|
-
|
|
|
|
(465
|
)
|
Comprehensive loss attributable to MICT, Inc.
|
|
$
|
(1,705
|
)
|
|
$
|
(1,145
|
)
|
MICT,
INC.
STATEMENTS
OF CHANGES IN EQUITY
(USD
In Thousands, Except Numbers of Shares)
(Unaudited)
|
|
Series
B
Convertible
Preferred Stock
|
|
|
Series
A
Convertible
Preferred Stock
|
|
|
Common
Stock
|
|
|
Additional
Paid-in
Capital
|
|
|
Additional
Paid-in
Capital
|
|
|
Additional
Paid-in
Capital
|
|
|
Retained
Earnings
|
|
|
Accumulated
Other
Comprehensive
Income
|
|
|
Non-
controlling
Interest
|
|
|
Total
Stockholders’
Equity
|
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December
31, 2019
|
|
|
-
|
|
|
|
-
|
|
|
|
2
|
|
|
|
2,386,363
|
|
|
|
11
|
|
|
|
11,089,532
|
|
|
|
-
|
|
|
|
6,028
|
|
|
|
14,107
|
|
|
|
(16,974
|
)
|
|
|
70
|
|
|
|
0
|
|
|
|
3,244
|
|
Stock based compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
62
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
62
|
|
Issuance of warrants
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,635
|
)
|
|
|
(70
|
)
|
|
|
|
|
|
|
(1,705
|
)
|
Issuance of shares, net-
Series A Convertible Preferred Stock
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
|
795,455
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
409
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
410
|
|
Issuance of shares, net-
Series B Convertible Preferred Stock
|
|
|
2
|
|
|
|
1,818,182
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,914
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,916
|
|
Balance, March 31, 2020
|
|
|
2
|
|
|
|
1,818,182
|
|
|
|
3
|
|
|
|
3,181,818
|
|
|
|
11
|
|
|
|
11,089,532
|
|
|
|
1,914
|
|
|
|
6,437
|
|
|
|
14,169
|
|
|
|
(18,609
|
)
|
|
|
0
|
|
|
|
0
|
|
|
|
3,927
|
|
|
|
Common Stock
|
|
|
Additional
Paid-in
|
|
|
Retained
|
|
|
Accumulated
Other
Comprehensive
|
|
|
Non-
controlling
|
|
|
Total
Stockholders’
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Earnings
|
|
|
Income
|
|
|
Interest
|
|
|
Equity
|
|
Balance, December 31, 2018
|
|
|
9,342,115
|
|
|
|
9
|
|
|
|
11,905
|
|
|
|
(12,757
|
)
|
|
|
(117
|
)
|
|
|
1,964
|
|
|
|
1,004
|
|
Shares issued to service providers and employees
|
|
|
145,300
|
|
|
|
-
|
|
|
|
175
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
175
|
|
Stock based compensation
|
|
|
-
|
|
|
|
-
|
|
|
|
22
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
22
|
|
Comprehensive loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(910
|
)
|
|
|
(306
|
)
|
|
|
(393
|
)
|
|
|
(1,609
|
)
|
Stock based compensation in subsidiary
|
|
|
-
|
|
|
|
-
|
|
|
|
70
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(70
|
)
|
|
|
0
|
|
Loss of control of subsidiary
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
423
|
|
|
|
(1,501
|
)
|
|
|
(1,078
|
)
|
Issuance of shares, net
|
|
|
1,246,817
|
|
|
|
2
|
|
|
|
1,346
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,348
|
|
Balance, March 31, 2019
|
|
|
10,734,232
|
|
|
|
11
|
|
|
|
13,518
|
|
|
|
(13,667
|
)
|
|
|
0
|
|
|
|
0
|
|
|
|
(138
|
)
|
MICT,
INC. AND SUBSIDIARIES
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(USD
In Thousands)
(Unaudited)
|
|
Three months ended
March 31,
|
|
|
|
2020
|
|
|
2019
|
|
CASH FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Net loss from continued operations
|
|
$
|
(1,635
|
)
|
|
$
|
(1,466
|
)
|
|
|
|
|
|
|
|
|
|
Adjustments to reconcile net income to net cash provided by operating activities:
|
|
|
|
|
|
|
|
|
Profit from loss of control
|
|
|
|
|
|
|
(299
|
)
|
Impairment of loan to Micronet Ltd.
|
|
|
272
|
|
|
|
|
|
Impairment of equity method investment in Micronet Ltd.
|
|
|
640
|
|
|
|
|
|
Depreciation and amortization
|
|
|
3
|
|
|
|
85
|
|
Accrued interest and exchange rate differences on bank loans
|
|
|
-
|
|
|
|
(102
|
)
|
Extinguishment of loan costs and commissions
|
|
|
-
|
|
|
|
-
|
|
Accrued interest and exchange rate differences on loans from others
|
|
|
(62
|
)
|
|
|
76
|
|
Stock-based compensation for employees and consultants
|
|
|
62
|
|
|
|
127
|
|
Decrease in trade accounts receivable, net
|
|
|
-
|
|
|
|
672
|
|
Decrease in inventories
|
|
|
-
|
|
|
|
348
|
|
Decrease in accrued severance pay, net
|
|
|
-
|
|
|
|
(8
|
)
|
Decrease in other accounts receivable
|
|
|
(195
|
)
|
|
|
(294
|
)
|
Decrease in trade accounts payable
|
|
|
-
|
|
|
|
(394
|
)
|
Decrease (increase) in other accounts payable
|
|
|
303
|
|
|
|
(22
|
)
|
Net cash used in operating activities
|
|
$
|
(612
|
)
|
|
$
|
(1,073
|
)
|
MICT,
INC. AND SUBSIDIARIES
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(USD
In Thousands)
(Unaudited)
|
|
Three months ended
March 31,
|
|
|
|
2020
|
|
|
2019
|
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
Purchase of property and equipment
|
|
|
-
|
|
|
|
(57
|
)
|
Loan to related party (Micronet Ltd.)
|
|
|
(125
|
)
|
|
|
|
|
Deconsolidation of Micronet Ltd.
|
|
|
-
|
|
|
|
(608
|
)
|
Net cash used in investing activities
|
|
$
|
(125
|
)
|
|
$
|
(665
|
)
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Short term bank credit
|
|
$
|
-
|
|
|
$
|
(101
|
)
|
Repayment on account of redemption
|
|
|
(15,900
|
)
|
|
|
|
|
Payments on account of shares
|
|
|
15,900
|
|
|
|
|
|
Issuance of convertible preferred shares net
|
|
|
409
|
|
|
|
-
|
|
Net cash provided by (used in) financing activities
|
|
$
|
409
|
|
|
$
|
(101
|
)
|
|
|
|
|
|
|
|
|
|
NET DECREASE IN CASH AND CASH EQUIVALENTS
|
|
|
(328
|
)
|
|
|
(1,839
|
)
|
|
|
|
|
|
|
|
|
|
Cash, Cash Equivalents and restricted cash at beginning of the period
|
|
|
3,154
|
|
|
|
2,174
|
|
|
|
|
|
|
|
|
|
|
TRANSLATION ADJUSTMENT ON CASH AND CASH EQUIVALENTS
|
|
|
-
|
|
|
|
12
|
|
Cash, Cash Equivalents and restricted cash at end of the period
|
|
$
|
2,826
|
|
|
$
|
347
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information:
|
|
|
|
|
|
|
|
|
Amount paid during the period for:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
15
|
|
|
$
|
116
|
|
Taxes
|
|
$
|
1
|
|
|
$
|
46
|
|
Appendix
A: Micronet Ltd.
|
|
February 24,
2019
|
|
Working capital other than cash
|
|
|
(2,301
|
)
|
Finance lease
|
|
|
359
|
|
Accrued severance pay, net
|
|
|
56
|
|
Translation reserve
|
|
|
(417
|
)
|
Micronet Ltd investment in fair value
|
|
|
1,711
|
|
Non controlling interests
|
|
|
1,499
|
|
Net profit from loss of control
|
|
|
(299
|
)
|
Cash
|
|
|
608
|
|
Appendix
B: Non-cash Transaction
As
of February 21, 2019, the Company issued to YA II PN Ltd., a Cayman Island exempt limited partnership and affiliate of Yorkville
Advisors Global, LLC 250,000 shares of its common stock as part of a conversion of $250 of the Series A Debenture at a conversion
price of $1.00 per share.
On
March 13, 2019, the Company issued an additional 996,817 shares of its common stock as part of a conversion of $1,000 of the previously
issued Series A Debenture at a conversion price of $1.10 per share. The Series A Debenture was repaid in full as of October 31,
2019.
On January 21, 2020, the Company entered
into a Conversion Agreement, or the Conversion Agreement, with BNN Technology PLC, or BNN, pursuant to which BNN agreed to convert
the outstanding Convertible Note in the amount of $2,000 into 1,818,181 shares of the Company’s newly-designated Series
B Convertible Preferred Stock, par value $0.001 per share, with a stated value of $1.10 per share, or the Series B Preferred Stock.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(USD
in thousands, except per share data)
NOTE
1 — DESCRIPTION OF BUSINESS
Overview
MICT Inc., or we, or the Company, was formed
as a Delaware corporation on January 31, 2002. On March 14, 2013, the Company changed its corporate name from Lapis Technologies,
Inc. to Micronet Enertec Technologies, Inc. On July 13, 2018, following the sale of its former subsidiary Enertec Systems Ltd.,
the Company changed the Company name from Micronet Enertec Technologies, Inc. to MICT, Inc. Our shares of common stock have been
listed for trade on the Nasdaq Capital Market, or Nasdaq, since April 29, 2013.
The
Company’s business relates to its ownership interest in its Israel-based, former subsidiary, Micronet Ltd., or Micronet,
in which the Company previously held a majority ownership interest that has since been diluted to a minority ownership interest.
Micronet operates in the growing commercial Mobile Resource Management, or MRM, market. Micronet through both its Israeli and
U.S. operational offices designs, develops, manufactures and sells rugged mobile computing devices that provide fleet operators
and field workforces with computing solutions in challenging work environments.
As of December 31, 2018, the Company held 49.89% of Micronet’s
issued and outstanding shares, and together with an irrevocable proxy in our benefit from Mr. David Lucatz, the Company’s
President and Chief Executive Officer, we held 50.07% of the voting interest in Micronet as of such date. On February 24, 2019,
Micronet closed a public equity offering on the Tel Aviv Stock Exchange, or the TASE. As a result of Micronet’s offering,
our ownership interest in Micronet was diluted from 49.89% to 33.88%. On September 5, 2019, Micronet closed a public equity offering
on the TASE. As a result, our ownership interest in Micronet was further diluted from 33.88% to 30.48%. We currently hold and control
30.48% of Micronet’s issued and outstanding shares. The initial decrease in the Company’s voting interest in Micronet
resulted in the deconsolidation of Micronet’s operating results from our financial statements as of February 24, 2019. Therefore,
commencing from February 24, 2019, the Company accounts for the investment in Micronet in accordance with the equity method. As
a result of the deconsolidation, the Company recognized a net gain of $299 in February 2019.
On May 19, 2020, the Company, via MICT Telematics Ltd., a wholly
owned subsidiary of the Company, or MICT Telematics, initiated under Israeli law, a partial tender offer pursuant to which it has
tendered to purchase up to 8,000,000 ordinary shares, par value 0.1 NIS, of Micronet, at a proposed purchase price of NIS 0.16
per share (or approximately $0.05), or the Tender Offer.
On June 4, 2020, Micronet filed an immediate report with the
TASE, announcing an amendment to MICT Telematics’ Tender Offer, or the Amended Tender Offer. Pursuant to the Amended Tender
Offer, the number of ordinary shares to be offered to be purchased by MICT Telematics pursuant to the Amended Tender Offer will
be up to 6,000,000 ordinary shares, and the proposed purchase price was changed to NIS 0.30 per share (or approximately $0.09 per
share), for aggregate gross proceeds to Micronet of NIS 1,800,000 (or approximately $520). The Amended Tender Offer will remain
open until June 11, 2020 at 2:00 PM Israel time The Amended Tender Offer has been accepted, however, it is subject to certain conditions.
On June 11, 2020, Micronet filed an immediate report with the TASE reporting that the Amended Tender Offer has been fully accepted.
Subject to fulfillment of the closing conditions the Company will own 45.53% of the issued and outstanding ordinary shares of Micronet
following the completion of the Amended Tender Offer.
On June 10, 2020, the Company further informed Micronet that, assuming
the full subscription of such Amended Tender Offer is accepted, the Company intends to, but shall not be required to, participate
in a public offering of Micronet’s ordinary shares, or the 2020 Micronet Offering, pursuant to which the Company may purchase
up to $900 of Micronet’s ordinary shares.
NOTE
1 — DESCRIPTION OF BUSINESS (Cont.)
On November 7, 2019, the Company and GFH Intermediate Holdings
Ltd., a British Virgin Islands company, or Intermediate, entered into, and MICT Merger Subsidiary Inc., a to-be-formed British
Virgin Islands company and a wholly owned subsidiary of the Company, or Merger Sub, was to enter into, upon execution of a joinder
agreement, or the Joinder Agreement, an Agreement and Plan of Merger, or the Original Agreement.
On April 15, 2020, the Company, Intermediate, and Global Fintech
Holding Ltd., a British Virgin Islands company and the sole shareholder of Intermediate, or GFH, entered into, and Merger Sub shall,
upon execution of the Joinder Agreement, enter into, an Amended and Restated Agreement and Plan of Merger, or the Restated Merger
Agreement, pursuant to which, among other things, subject to the satisfaction or waiver of the conditions set forth in the Restated
Merger Agreement, Merger Sub shall merge with and into Intermediate, with Intermediate continuing as the surviving entity, and
each outstanding share of Intermediate shall be cancelled in exchange for the right of the holder thereof to receive a convertible
promissory note in the principal amount of approximately $25,000, or the Consideration Note, which shall be convertible into shares
of our common stock, or collectively, the Acquisition. The Consideration Note shall be issued at the closing of the Acquisition
and shall be, under certain circumstances, automatically convertible into shares of our common stock, at a conversion price of
$1.10 per share. The Restated Merger Agreement amended and restated the Original Agreement in its entirety.
On November 7, 2019, the Company entered into a Securities Purchase
Agreement, or the Primary Purchase Agreement, with certain investors, or the Primary Purchasers, pursuant to which, among other
things, the Primary Purchasers agreed, subject to the satisfaction or waiver of the conditions set forth in the Primary Purchase
Agreement, to purchase from us 5% senior secured convertible debentures due during 2020, or the Primary Convertible Debentures,
with an aggregate principal amount of approximately $15,900, or the Primary Convertible Debenture Offering. The proceeds of $15,900
from the sale of the Primary Convertible Debentures were funded on January 21, 2020. Concurrently with entry into the Primary Purchase
Agreement, the Company entered into a separate Securities Purchase Agreement, or the Non-Primary Purchase Agreement and, together
with the Primary Purchase Agreement, the Purchase Agreements, with certain investors, or the Non-Primary Purchasers and, together
with the Primary Purchasers, the Purchasers, pursuant to which, among other things, the Non-Primary Purchasers agreed, subject
to the satisfaction or waiver of the conditions set forth in the Non-Primary Purchase Agreement, to purchase from us 5% senior
secured convertible debentures due during 2020, or the Non-Primary Convertible Debentures, and, together with the Primary Convertible
Debentures, the Convertible Debentures, with an aggregate principal amount of $9,000, together with the Primary Convertible Debenture
Offering, the Convertible Debenture Offering. The Convertible Debentures were convertible into our shares of our common stock at
a conversion price of $1.41 per share. The Convertible Debentures were to be due upon the earlier of (i) six months from the date
of issuance and (ii) the termination of the Original Agreement. On March 13, 2020, the Company received a notice of exercise of
remedies, or the Notice, from the Primary Purchasers pursuant to the Primary Purchase Agreement and the Primary Convertible Debentures
with an aggregate principal amount of approximately $15,900, or the Outstanding Principal, issued to the Primary Purchasers pursuant
to the Primary Purchase Agreement on January 17, 2020. The Notice advised that two Triggering Events (as defined in the Primary
Purchase Agreement) had occurred and are continuing as a result of the failure by the Company (a) to file with the U.S. Securities
and Exchange Commission, or the SEC, a registration statement by January 30, 2020, as required by Section 2(a) of that certain
registration rights agreement by and between the Primary Purchasers and the Company and clause (g) of the definition of “Triggering
Event” in each Primary Convertible Debenture and (b) to respond to the SEC by February 21, 2020, with respect to the SEC’s
comments on the Company’s preliminary proxy statement received on February 6, 2020, or the SEC Response, as required by clause
(e) of the definition of “Triggering Event” in each Primary Convertible Debenture. The Notice also advises that the
Company has failed to timely deliver to each Purchaser the trigger event notices with respect to such trigger events as required
by Section 6(b) of each Primary Convertible Debenture, which failure due to the lapse of the applicable grace period resulted in
two Events of Default under Section 8(a)(ii) of each Primary Convertible Debenture.
As
a result of the Notice, the Primary Purchasers exercised their right to an optional redemption pursuant to Section 6(b) of each
Primary Convertible Debenture and declared the occurrence and continuance of an event of default, each of which accelerated the
Company’s obligation to repay all outstanding balances under the Primary Convertible Debentures, or the Optional Redemption.
On March 16, 2020, the Outstanding Principle was transferred from the Company to the Purchasers. As a result, the Primary Purchase
Agreement was terminated.
On
April 21, 2020, the Company entered into a series of Note Purchase Agreements, or the April Purchase Agreements, with certain
investors, or the PIPE Purchasers, pursuant to which, among other things, the PIPE Purchasers agreed, subject to the satisfaction
or waiver of the conditions set forth in the April Purchase Agreement, to purchase from the Company certain convertible notes,
or the April Convertible Notes, with an aggregate principal amount of approximately $11.0 million, or the April Convertible Notes
Offering. The April Convertible Notes shall be convertible into shares of common stock of the Company at a conversion price of
$1.10 per share, or the April Conversion Shares. Approximately $8.0 million of the April Convertible Notes will be due two years
from the date of issuance, while approximately $3.0 million of the April Convertible Notes will be due five years from the date
of issuance. The Company is obligated to pay interest to the PIPE Purchasers on the outstanding principal amount at the rate of
1.0% per annum, payable on each conversion date, in cash or, at the Company’s option, in shares of its common stock. In
April and May 2020, the Company issued April Convertible Notes with an aggregate principal amount of approximately $5.9 million,
which will be due two years from the date of issuance. The sale and issuance of the entire $11.0 million of April Convertible
Notes has not occurred as of the date of the quarterly report on Form 10-Q in which these financial statements are included and
there can be no assurance that we and the PIPE Purchasers ever close on the issuance of the remaining $5.1 million of April Convertible
Notes.
In
June 2019, the Company entered into a Securities Purchase Agreement, or the Note Purchase Agreement, with BNN, pursuant to which
BNN agreed to purchase from the Company $2,000 of convertible notes, which subscription amount shall be subject to increase by
up to an additional $1,000 as determined by BNN and the Company, or collectively, the Convertible Notes. Convertible Notes in
the amount of $2,000 were issued on July 31, 2019. The Convertible Notes, convertible into up to 2,727,272 shares of common stock,
were sold together with certain common stock purchase warrants to purchase up to 2,727,272 shares of common stock. The Convertible
Notes have a duration of two years.
On January 21, 2020, the Company entered into a Conversion Agreement,
or the Conversion Agreement, with BNN, pursuant to which BNN agreed to convert outstanding Convertible Notes in the amount of $2,000
into 1,818,181 shares of the Company’s newly-designated Series B Convertible Preferred Stock, par value $0.001 per share,
with a stated value of $1.10 per share, or the Series B Preferred Stock.
On June 4, 2019, the Company commenced
an offering, or the Preferred Offering, of its Series A Preferred Stock, or the Series A Preferred Stock, by entering into a securities
purchase agreement, or the Preferred Securities Purchase Agreement, pursuant to which the Company agreed to sell 3,181,818 shares
of Series A Preferred Stock. The Series A Preferred Stock, convertible into up to 6,363,636 shares of common stock of the Company,
was issued together with preferred warrants, or the Series A Preferred Warrants, to purchase up to 4,772,727 shares of common stock,
for aggregate gross proceeds of $7,000 to the Company.
During January 2020, the Company completed
a second closing of the sale of Series A Convertible Preferred Stock, pursuant to which it sold 795,455 additional shares of Series
A Preferred Stock and 1,193,183 accompanying Preferred Warrants to purchase up to 1,084,712 shares of the Company’s common
stock, for aggregate gross proceeds of $1,750. The Company paid an aggregate of $140 in fees in with respect to this closing of
the Preferred Offering.
The
Company filed a Form S-3 registration statement (File No. 333-219596) under the Securities Act of 1933, as amended, with the SEC
using a “shelf” registration process, which was declared effective on July 31, 2017. Under this shelf registration
process, the Company may, from time to time, sell common stock, warrants or units in one or more offerings up to a total dollar
amount of $30,000, subject to certain limitations as set forth in General Instruction I.B.6. of Form S-3, pursuant to which the
Company has sold approximately $1,000 of its securities to date.
NOTE
2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis
of Presentation
The accompanying condensed unaudited consolidated
financial statements and condensed footnotes have been prepared in accordance with the applicable rules and regulations of the
SEC, regarding interim financial reporting. Accordingly, they do not include all of the information and footnotes required by
the accounting principles generally accepted in the United States of America, or U.S. GAAP, for complete financial statements.
In the opinion of management, all adjustments (consisting of normal recurring items) considered necessary for fair statement of
results for the interim periods presented have been included. The results of operations for the three months ended March 31, 2020
are not necessarily indicative of the results to be expected for the full year 2020 or for other interim periods or for future
years. The consolidated balance sheet as of March 31, 2020 is derived from unaudited financial statements as of that date; and,
it does not include all of the information and footnotes required by U.S. GAAP for complete financial statements. These consolidated
financial statements should be read in conjunction with the audited consolidated financial statements and related notes included
in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019.
Furthermore,
from February 24, 2019 the Company began to account for the investment in Micronet in accordance with the equity method, and therefore,
the results of operations for the three months ended March 31, 2020 are not necessarily indicative of the results to be expected
for the full year 2020 or for other interim periods or for future years.
The Company’s operations and business
have experienced disruptions due to the unprecedented conditions surrounding the spread of COVID-19 throughout North America, Israel
and the world. In particular, COVID-19 and measures implemented to reduce the spread of the virus have limited access to the Company’s
offices and disrupted its normal interactions with its accounting personnel, legal advisors, auditors and others involved in the
preparation of the quarterly report on Form 10-Q in which these financial statements are included.
Principles
of Consolidation
The
accompanying financial statements are prepared in accordance with U.S. GAAP.
Note
3 — Loans
from others
On
January 21, 2020, the Company entered into the Conversion Agreement with BNN pursuant to which BNN agreed to convert the outstanding
Convertible Note in the amount of $2,000 into 1,818,181 shares of the Company’s newly-designated Series B Preferred Stock.
Note
4 — Stockholders’ Equity
On June 4, 2019, the Company commenced the
Preferred Offering pursuant to which the Company agreed to sell 3,181,818 shares of Series A Preferred Stock. The Series A Preferred
Stock, convertible into up to 6,363,636 shares of common stock of the Company, were issued together with Series A Preferred Warrants
to purchase up to 4,772,727 shares of common stock, for aggregate gross proceeds of $7,000 to the Company.
The
Series A Preferred Stock is convertible into common stock at the option of each holder of Series A Preferred Stock at any time
and from time to time, and shall also convert automatically upon the occurrence of certain events, including the completion by
the Company of a fundamental transaction. Commencing on March 31, 2020, cumulative cash dividends shall become payable on the
Preferred Stock at the rate per share of 7% per annum, which rate shall increase to 14% per annum on June 30, 2020. The Company
shall also have the option to redeem some or all of the Series A Preferred Stock, at any time and from time to time, beginning
on December 31, 2019. The holders of Series A Preferred Stock vote together with the holders of common stock as a single class
on as-converted basis, and the holders of Series A Preferred Stock holding a majority-in-interest of the Series A Preferred Stock
are be entitled to appoint an independent director to the Company’s board of directors. The Preferred Securities Purchase
Agreement provides for customary registration rights. Such registration rights remain outstanding and to date no securities have
been registered pursuant to the Series A Preferred Stock.
The
Series A Preferred Warrants have an exercise price of $1.01 (subject to customary adjustment in the event of future stock dividends,
splits and the like) and are exercisable immediately, until the earlier of (i) two years from the date of issuance or (ii) the
later of (a) 180 days after the closing by the Company of a change of control transaction, or (b) the company’s next debt
or equity financing of at least $20,000.
On
July 29, 2019, the Company completed the first closing in the Preferred Offering, pursuant to which it sold 2,386,363 shares of
Series A Preferred Stock and 3,579,544 accompanying Series A Preferred Warrants for aggregate gross proceeds of $5,250. The Company
paid an aggregate of $420 in fees in with respect to this closing of the Preferred Offering.
In
January 2020, the Company completed the second closing in the Preferred Offering, pursuant to which it sold 795,455 shares of
Series A Preferred Stock and 1,193,183 accompanying Series A Preferred Warrants for aggregate gross proceeds of $1,750. The Company
paid an aggregate of $140 in fees in with respect to this closing of the Preferred Offering.
NOTE
5 — LOSS OF CONTROL OF SUBSIDIARY
As of December 31, 2018, we held 49.89% of Micronet’s issued and
outstanding shares, and together with an irrevocable proxy in our benefit from Mr. David Lucatz, our President and Chief Executive
Officer, we held 50.07% of the voting interest in Micronet as of such date. On February 24, 2019, Micronet closed a public equity
offering on the TASE. As a result of Micronet’s offering, our ownership interest in Micronet was diluted from 49.89% to 33.88%.
On September 5, 2019, Micronet closed a public equity offering on the TASE. As a result, our ownership interest in Micronet was
diluted from 33.88% to 30.48%. We currently hold and control 30.48% of Micronet’s issued and outstanding shares. The decrease
in the Company’s voting interest in Micronet resulted in the loss of control of Micronet. As a result, effective as of February
24, 2019, we no longer include Micronet’s operating results in our financial statements. Therefore, commencing from February
24, 2019, the Company began to account for the investment in Micronet in accordance with the equity method. As set forth in Note
1, in the event the Amended Tender Offer launched by MICT Telematics, the Company’s subsidiary, shall be fully accepted by
Micronet shareholders, the Company will own over 45% of the issued and outstanding shares of Micronet as a result thereof. However
at this stage there is no assurance or certainty as to the number of Micronet shares to be purchased, if any, pursuant to the Amended
Tender Offer. Furthermore, Amended Tender Offer closes and we purchase the full amount of Micronet ordinary shares available in
the Amended Tender Offer, and if the Company converts certain outstanding loans issued to Micronet by it or its subsidiaries (see
Note 6) into ordinary shares of Micronet, the Company would own more than 50% of Micronet’s issued and outstanding shares.
The
Company recorded an impairment of its investment in Micronet and change in fair value in loan to Micronet as of March 31, 2020
in the total amount of $640.
The
method used for determining fair value of the investment in Micronet was based on a quoted market price on the TASE.
While
Micronet is a publicly traded company in Israel, its shareholder base is widely spread and we continue to be Micronet’s largest
shareholder, maintaining an ownership interest of 30.48% of its issued and outstanding shares as of March 31, 2020. We believe
that since most items that may require shareholder approval required majority consent, we exert significant influence over such
voting matters which may include the appointment and removal of directors. In that regard, to date, we have appointed a majority
of the directors of Micronet’s board of directors. See Note 1 and Note 7 regarding the Amended Tender Offer. Assuming the
Amended Tender Offer closes and the Company (i) converts outstanding loans to Micronet into ordinary shares of Micronet or (ii)
the Company participates in the 2020 Micronet Offering, we may regain control of Micronet (by holding in excess of 50% of its outstanding
share capital). There can be no assurance that the Company will close on the full amount of ordinary shares included in the Amended
Tender Offer or that it will convert the outstanding loans into shares or participates in the 2020 Micronet Offering.
Based
on the above, although we do not control Micronet and thus do not consolidate Micronet’s financial statements according to
U.S. GAAP. We also do not consider Micronet to be a discontinued operation since we did not view the dilution of our interest as
a strategic shift that had or will have a major effect on our operations. See Note 1 regarding the Amended Tender Offer.
The
following is the composition from Micronet’s operations for the three months ended March 31, 2020 and March 31, 2019, respectively:
|
|
Three months ended
March 31,
|
|
|
|
2020
|
|
|
2019
|
|
Revenues
|
|
$
|
617
|
|
|
$
|
1,550
|
|
|
|
|
|
|
|
|
|
|
Gross loss
|
|
|
(330
|
)
|
|
|
(6
|
)
|
Loss from operations
|
|
|
(1,413
|
)
|
|
|
(1,041
|
)
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(1,436
|
)
|
|
|
(1,108
|
)
|
NOTE
6 — Loan to Micronet Ltd.
On
September 19, 2019, MICT Telematics entered into a loan agreement with Micronet, pursuant to which MICT Telematics loaned Micronet
$250, or the First Loan, on certain terms and conditions. The proceeds from the First Loan were designated, per the terms of the
First Loan, for Micronet’s working capital and general corporate needs. The First Loan did not bear any interest and was
due and payable upon the earlier of (i) December 31, 2019; or (ii) at such time Micronet receives an investment of at least $250
from non-related parties.
On November 13, 2019, the Company and
Micronet executed a convertible loan agreement pursuant to which the Company agreed to loan to Micronet $500 in the aggregate,
or the Initial Convertible Loan. The Initial Convertible Loan bears interest at a rate of 3.95% calculated and is paid on a quarterly
basis. In addition, the Initial 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 Initial Convertible Loan, with the remaining three installments
due on each subsequent quarter thereafter, such that the Initial Convertible Loan shall be repaid in full upon the lapse of 24
months from its grant. In addition, the outstanding principal balance of the Initial 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 Initial Convertible Loan agreement, Micronet also agreed to issue the Company an option to purchase up to one of Micronet’s
ordinary shares for each ordinary share that it issued as a result of a conversion of the Initial Convertible Loan, or the Convertible
Loan Warrant, at an exercise price of 0.60 NIS per share, exercisable for a period of 15 months. On January 1, 2020, the Initial
Convertible Loan transaction was approved at a general meeting of the Micronet shareholders and as a result thereof, Convertible
Loan and the transactions contemplated thereby went into effect. As further amended on May 14, 2020 and on May 27, 2020, Micronet
and the Company entered into amendments to the Initial Convertible Loan, or the Amended Convertible Loan, to amend the conversion
price and exercise price, as the case may be, to 0.14 NIS and subsequently to 0.16 NIS, which, is subject to the approval of the
Micronet shareholders (for further details see note 7 below).
In view of Micronet’s working capital needs, on November
18, 2019, the Company entered into an additional loan agreement with Micronet for the loan of $125, pursuant to terms and conditions
identical to those governing the First Loan, including the repayment terms, or the Second Loan. Accordingly, prior to the approval
of the Convertible Loan by Micronet’s shareholders on January 1, 2020, the Company transferred to Micronet, pursuant to the
First Loan and Second Loan, a total sum of $375. On January 1, 2020, the Convertible Loan agreement was approved at the general
meeting of Micronet’s shareholders. At such time, the First Loan and Second Loan were repaid to us and the remaining amount
due to be loaned under the Convertible Loan, in the sum of $125, was loaned to Micronet.
The
Company recognized an impairment loss on financial assets derived from the measurement performed by comparing the quoted market
price of Micronet’s shares on the TASE at its carrying value. As of March 31, 2020, the Company recorded a financial expense
on the Convertible Loan in the amount of $272.
NOTE
7 — SUBSEQUENT EVENTS
Effective April 2, 2020, David Lucatz resigned
as our President and Chief Executive Officer. Mr. Lucatz will continue to serve on the Company’s Board of Directors. Mr.
Lucatz’s resignation was not a result of a disagreement with the Company on any matters related to its operations, policies
or practices. In connection with his resignation, on April 2, 2020 the Company and Mr. Lucatz entered into a separation agreement,
or the Separation Agreement, which provides that Mr. Lucatz will receive $25 per month for a period of 16 months. Additionally,
Mr. Lucatz is entitled to receive a one-time bonus equal to 0.5% of the cash purchase price paid on the closing date in connection
with the transactions described in the Original Agreement by and among the Company, Merger Sub and Intermediate, dated as of November
7, 2019, or any similar transaction. Furthermore, Mr. Lucatz shall retain his options to purchase shares of common stock of the
Company with the expiration date of such options extended until the earlier of October 30, 2021 or the expiration of the original
term of each such option.
Concurrently
with Mr. Lucatz’s departure on April 2, 2020, Darren Mercer, current board member of the Company, was appointed the interim
Chief Executive Officer of the Company and is entitled to a salary of $25 per month for his services to the Company.
On April 15, 2020, the Company, Intermediate,
and GFH, entered into, and Merger Sub shall, upon execution of the Joinder Agreement enter into, the Restated Merger Agreement
pursuant to which, among other things, subject to the satisfaction or waiver of the conditions set forth in the Restated Merger
Agreement, Merger Sub shall merge with and into Intermediate, with Intermediate continuing as the surviving entity, and each outstanding
share of Intermediate shall be cancelled in exchange for the right of the holder thereof to receive the Consideration Note, which
shall be convertible into shares of our common stock. The Consideration Note shall be issued at the closing of the Acquisition
and shall be, under certain circumstances, automatically convertible into shares of our common stock, at a conversion price of
$1.10 per share. The Restated Merger Agreement amends and restates the Original Agreement in its entirety.
On April 21, 2020, the Company entered
into the April Purchase Agreements with the PIPE Purchasers to consummate the April Convertible Notes Offering. In April and May
2020, the Company closed on an aggregate of $5,900 of the April Convertible Notes Offering which will be due in two years from
the date of issuance.
Subject to approval of the Company’s
stockholders of an increase in the number of the Company’s authorized shares of common stock to allow for the conversion
of the April Convertible Notes into our common stock, the April Convertible Notes shall be convertible into common stock at the
option of the PIPE Purchasers at any time and from time to time. Upon the occurrence of certain events, including, among others,
if the Acquisition is not consummated by May 20, 2020, if approval from our shareholders with respect to the issuance of shares
of common stock underlying the April Convertible Notes, as required by the applicable rules and regulations of Nasdaq, is not obtained
by June 30, 2020, or if we have failed to amend our certificate of incorporation to increase the number of shares authorized for
issuance to cover the April Conversion Shares by June 30, 2020, the PIPE Purchasers are permitted to require the Company to redeem
the April Convertible Notes, including any interest that has accrued thereunder, for cash.
On
May 14, 2020 and on May 27, 2020, Micronet and the Company entered into amendments to the Initial Convertible Loan, or the Amended
Convertible Loan, to amend the conversion price and exercise price, as the case may be, to 0.14 NIS and subsequently to 0.16 NIS,
which, is subject to the approval of the Micronet shareholders.
On May 19, 2020, Micronet filed an immediate
report with the TASE announcing the commencement of the Tender Offer by MICT Telematics. On June 4, 2020, Micronet filed an immediate
report with the TASE, announcing the Amended Tender Offer. The Amended Tender Offer remained open until June 11, 2020 at 2:00
PM Israel time. The Amended Tender Offer has been accepted; however, it is subject to certain conditions. On June 11, 2020, Micronet
filed an immediate report with the TASE reporting that the Amended Tender Offer has been fully accepted. Subject to fulfillment
of the closing conditions, the Company will own 45.53% of the issued and outstanding ordinary shares of Micronet upon the completion
of the Amended Tender Offer.
On June 10, 2020, the Company informed Micronet that, assuming the closing
of the Amended Tender Offer, the Company intends to participate in the 2020 Micronet Offering, pursuant to which the Company plans
to purchase 50% of Micronet’s ordinary shares offered in such public offering, in an amount up $900 in the aggregate.
Item
2.
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Management’s
Discussion and Analysis of Financial Condition and Results of Operations.
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This
Quarterly Report on Form 10-Q, or the Quarterly Report, contains certain forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995 and other Federal securities laws, and is subject to the safe-harbor created
by such Act and laws. In some cases, you can identify forward-looking statements by terminology such as “may,”
“will,” “should,” “expect,” “intend,” “plan,” “anticipate,”
“believe,” “estimate,” “predict,” “potential” or “continue,” the negative
of such terms, or other variations thereon or comparable terminology. The statements herein and their implications
are merely predictions and therefore inherently subject to known and unknown risks, uncertainties, assumptions and other factors
that may cause actual results to be materially different from those contemplated by the forward-looking statements. Such
forward-looking statements appear in this Item 2 – “Management’s Discussion and Analysis of Financial Condition
and Results of Operations,” and may appear elsewhere in this Quarterly Report and include, but are not limited to, statements
regarding the following:
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●
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continuing
our minority stake or obtaining a controlling stake in Micronet Ltd.’s, or Micronet, share capital;
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●
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the
impact of COVID-19 on both our operations and financial outlook and those of Micronet;
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●
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our
financing needs and our ability to continue to raise capital;
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●
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the
completion and results of a tender offer by MICT Telematics Ltd., our wholly-owned subsidiary, or MICT Telematics, in Micronet;
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●
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our
plan to purchase ordinary shares of Micronet in its own public offering;
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●
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use
of proceeds from any future financing, if any;
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●
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the
sufficiency of our capital resources; and
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●
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the
proposed transaction with BNN Technology PLC, or BNN.
|
Our business is subject to substantial risks, which increase
the uncertainty inherent in the forward-looking statements contained or implied in this report. Except as required by
law, we assume no obligation to update these forward-looking statements to reflect actual results or changes in factors or assumptions
affecting such forward-looking statements. Further information on potential factors that could affect our business is described
under the heading “Risk Factors” below, as well as in Part I, Item 1A of our Annual Report on Form 10-K for the fiscal
year ended December 31, 2019, or the Annual Report. Readers are also urged to carefully review and consider the various
disclosures we have made below and in that report. The following discussion and analysis should be read in conjunction with the
Consolidated Financial Statements and related notes included elsewhere in this Quarterly Report.
Overview
The
Company’s business relates to its ownership interest in its Israel-based, former subsidiary, Micronet Ltd., or Micronet,
in which the Company previously held a majority ownership interest that has since been diluted to a minority ownership interest.
Micronet operates in the growing commercial Mobile Resource Management, or MRM, market. Micronet through both its Israeli and
U.S. operational offices designs, develops, manufactures and sells rugged mobile computing devices that provide fleet operators
and field workforces with computing solutions in challenging work environments.
As of December 31, 2018, the Company held 49.89% of Micronet’s
issued and outstanding shares, and together with an irrevocable proxy in our benefit from Mr. David Lucatz, the Company’s
President and Chief Executive Officer, we held 50.07% of the voting interest in Micronet as of such date. On February 24, 2019,
Micronet closed a public equity offering on the Tel Aviv Stock Exchange, or the TASE. As a result of Micronet’s offering,
our ownership interest in Micronet was diluted from 49.89% to 33.88%. On September 5, 2019, Micronet closed a public equity offering
on the TASE. As a result, our ownership interest in Micronet was further diluted from 33.88% to 30.48%. We currently hold and control
30.48% of Micronet’s issued and outstanding shares. The initial decrease in the Company’s voting interest in Micronet
resulted in the deconsolidation of Micronet’s operating results from our financial statements as of February 24, 2019. Therefore,
commencing from February 24, 2019, the Company accounts for the investment in Micronet in accordance with the equity method. As
a result of the deconsolidation, the Company recognized a net gain of $299 in February 2019.
On May 19, 2020, we, via MICT Telematics, initiated under Israeli
law, a partial tender offer pursuant to which MICT Telematics has tendered to purchase up to 8,000,000 ordinary shares, par value
0.1 NIS, of Micronet, at a proposed purchase price of NIS 0.16 per share (or approximately $0.05), or the Tender Offer. On June
4, 2020, Micronet filed an immediate report with the TASE, announcing an amendment to the Tender Offer, or the Amended Tender Offer.
Pursuant to the Amended Tender Offer, the number of ordinary shares to be offered to be purchased by MICT Telematics pursuant to
the Amended Tender Offer will be up to 6,000,000 ordinary shares, and the proposed purchase price was changed to NIS 0.30 per share
(or approximately $0.09 per share), for aggregate gross proceeds to Micronet of NIS 1,800,000 (or approximately $519,865). The
Tender Offer will remain open until June 11, 2020 at 2:00 PM Israel time. The Amended Tender Offer has been accepted, however,
it is subject to certain conditions. On June 11, 2020, Micronet filed an immediate report with the TASE reporting that the Amended
Tender Offer has been fully accepted. Subject to fulfillment of the closing conditions, the Company will own 45.53% of the issued
and outstanding ordinary shares of Micronet following the completion of the Amended Tender Offer.
On
June 10, 2020, we informed Micronet that, assuming the closing of the Amended Tender Offer, we intend to participate in a public
offering of Micronet’s ordinary shares, pursuant to which we plan to purchase 50% of Micronet’s ordinary shares offered
in such public offering, in an amount up $900,000 in the aggregate.
On November 7, 2019, the Company and GFH Intermediate Holdings
Ltd., a British Virgin Islands company, or Intermediate, entered into, and MICT Merger Subsidiary Inc., a to-be-formed British
Virgin Islands company and a wholly owned subsidiary of the Company, or Merger Sub, was to enter into, upon execution of a joinder
agreement, or the Joinder Agreement, an Agreement and Plan of Merger, or the Original Agreement.
On April 15, 2020, the Company, Intermediate, and Global Fintech
Holding Ltd., a British Virgin Islands company and the sole shareholder of Intermediate, or GFH, entered into, and Merger Sub shall,
upon execution of the Joinder Agreement, enter into, an Amended and Restated Agreement and Plan of Merger, or the Restated Merger
Agreement, pursuant to which, among other things, subject to the satisfaction or waiver of the conditions set forth in the Restated
Merger Agreement, Merger Sub shall merge with and into Intermediate, with Intermediate continuing as the surviving entity, and
each outstanding share of Intermediate shall be cancelled in exchange for the right of the holder thereof to receive a convertible
promissory note in the principal amount of approximately $25,000,000 or the Consideration Note, which shall be convertible into
shares of our common stock, or collectively, the Acquisition. The Consideration Note shall be issued at the closing of the Acquisition
and shall be, under certain circumstances, automatically convertible into shares of our common stock, at a conversion price of
$1.10 per share. The Restated Merger Agreement amended and restated the Original Agreement in its entirety.
In June 2019, the Company entered into a Securities Purchase Agreement,
or the Note Purchase Agreement, with BNN, pursuant to which BNN agreed to purchase from the Company $2,000,000 of convertible notes,
which subscription amount shall be subject to increase by up to an additional $1,000,000 as determined by BNN and the Company,
or collectively, the Convertible Notes. Convertible Notes in the amount of $2,000,000 were issued on July 31, 2019. The Convertible
Notes, convertible into up to 2,727,272 shares of common stock, were sold together with certain common stock purchase warrants
to purchase up to 2,727,272 shares of common stock. The Convertible Notes have a duration of two years.
On January 21, 2020, the Company entered into a Conversion Agreement,
or the Conversion Agreement, with BNN, pursuant to which BNN agreed to convert outstanding Convertible Notes in the amount of $2,000,000
into 1,818,181 shares of the Company’s newly-designated Series B Convertible Preferred Stock, par value $0.001 per share,
with a stated value of $1.10 per share, or the Series B Preferred Stock.
Loss
of Control of Micronet Ltd.
As of December 31, 2018, we held 49.89% of
Micronet’s issued and outstanding shares, and together with an irrevocable proxy in our benefit from Mr. David Lucatz, our
President and Chief Executive Officer, we held 50.07% of the voting interest in Micronet as of such date. On February 24, 2019,
Micronet closed a public equity offering on the TASE. As a result of Micronet’s offering, our ownership interest in Micronet
was diluted from 49.89% to 33.88%. On September 5, 2019, Micronet closed a public equity offering on the TASE. As a result, our
ownership interest in Micronet was diluted from 33.88% to 30.48%. We currently hold and control 30.48% of Micronet’s issued
and outstanding shares. The decrease in the Company’s voting interest in Micronet resulted in the loss of control of Micronet.
As a result, effective as of February 24, 2019, we no longer include Micronet’s operating results in our financial statements.
Therefore, commencing from February 24, 2019, the Company began to account for the investment in Micronet in accordance with the
equity method.
The
Company recorded an impairment of its investment in Micronet and change in fair value in loan to Micronet as of March 31, 2020
in the total amount of $640,000.
The
method used for determining fair value of the investment in Micronet was based on a quoted market price on the TASE.
While
Micronet is a publicly traded company in Israel, its shareholder base is widely spread and we continue to be Micronet’s
largest shareholder, maintaining an ownership interest of 30.48% of its issued and outstanding shares as of March 31, 2020. We believe that since most items that may require shareholder approval required majority consent, we exert
significant influence over such voting matters which may include the appointment and removal of directors. In that regard, to
date, we have appointed a majority of the directors of Micronet’s board of directors.
Based
on the above, although we do not control Micronet and thus do not consolidate Micronet’s financial statements according
to U.S. GAAP, we also do not consider Micronet to be a discontinued operation since we did not view the dilution of our interest
as a strategic shift that had or will have a major effect on our operations.
The
following is the composition from Micronet’s operation for the three months ended March 31, 2020 and March 31, 2019, respectively
(USD reflected in thousands):
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|
Three months ended
March 31,
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|
|
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2020
|
|
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2019
|
|
Revenues
|
|
$
|
617
|
|
|
$
|
1,550
|
|
|
|
|
|
|
|
|
|
|
Gross loss
|
|
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(330
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)
|
|
|
(6
|
)
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Loss from operations
|
|
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(1,413
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)
|
|
|
(1,041
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)
|
|
|
|
|
|
|
|
|
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Net loss
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$
|
(1,436
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)
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|
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(1,108
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)
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Results
of Operations
As
discussed above and in the footnotes to our financial statements contained in Part I, Item 1 of this Quarterly Report on Form
10-Q, on February 24, 2019, as a result of a public offering by Micronet, our holding in Micronet was reduced to 33.88% of the
issued and outstanding shares of Micronet, and on September 5, 2019, was further reduced to 30.48%. Therefore, Micronet’s
reports are consolidated in our financial statements from January 1, 2019 until February 24, 2019 only.
Three
Months Ended March 31, 2020 Compared to Three Months Ended March 31, 2019
Revenues
Revenues
for the three months ended March 31, 2020 were $0, compared to $477,000 for the three months ended March 31, 2019. This represents
a decrease of $477,000, or 100%, for the three months ended March 31, 2020. The decrease in revenues for the three months ended
March 31, 2020 is primarily due to the dilution in our ownership and voting interests in Micronet, causing us to cease consolidating
Micronet’s operations in our financial statements commencing from February 24, 2019.
Gross
Loss
Gross
loss for the three months ended March 31, 2020 decreased by $369,000 to $0. This is in comparison to gross loss of $369,000,
representing 77% of revenues for the three months ended March 31, 2019. The decrease in gross loss for the three months ended
March 31, 2020 is mainly a result of the dilution in our ownership and voting interests in Micronet, causing us to cease consolidating
Micronet’s operations in our financial statements commencing from February 24, 2019.
Selling
and Marketing
Selling
and marketing costs are part of operating expenses. Selling and marketing costs for the three months ended March 31, 2020 were
$0, compared to $198,000 for the three months ended March 31, 2019. This represents a decrease of $198,000, or 100%, for the three
months ended March 31, 2020. The decrease is mainly due to the dilution in our ownership and voting interests in Micronet, causing
us to cease consolidating Micronet’s operations in our financial statements commencing from February 24, 2019 as well as
a decrease in salary expenses due to the reduction of employees and subcontractors at Micronet.
General
and Administrative
General
and administrative costs are part of operating expenses. General and administrative costs for the three months ended March 31,
2020 were $770,000, compared to $990,000 for the three months ended March 31, 2019. This represents a decrease of $220,000, or
22%, for the three months ended March 31, 2020. The decrease is mainly the result of the dilution in our ownership and voting
interests in Micronet, causing us to cease consolidating Micronet’s operations in our financial statements commencing from
February 24, 2019.
Research
and Development Costs
Research
and development costs are part of operating expenses. Research and development costs, which mainly include wages, materials
and sub-contractors, for the three months ended March 31, 2020 were $0, compared to $261,000 for the three months ended March
31, 2019. This represents a decrease of $261,000, or 100%, for the three months ended March 31, 2020. The decrease in research
and development costs for the three months ended March 31, 2020 is primarily a result of the dilution in our ownership and voting
interests in Micronet, causing us to cease consolidating Micronet’s operations in our financial statements commencing from
February 24, 2019.
Loss
from Operations
Our
loss from operations for the three months ended March 31, 2020 was $770,000, compared to loss from operations of $1,838,000, for
the three months ended March 31, 2019. The increase in loss from operations for the three months ended March 31, 2020 is
mainly a result of the dilution in our ownership and voting interests in Micronet, causing us to cease consolidating Micronet’s
operations in our financial statements commencing from February 24, 2019.
Financial
Income (Expenses), Net
Financial expenses, net for the three months
ended March 31, 2020 were $224,000, compared to financial income of $76,000 for the three months ended March 31, 2019. This
represents a decrease in financial income of $300,000, for the three months ended March 31, 2020. The decrease in financial income,
net for the three months ended March 31, 2020, is primarily due to changes in currency exchange rates, and impairment of $272,000
relating to the Initial Convertible Loan, dated November 13, 2019 pursuant to which we lent $500,000 to Micronet.
Net
Loss Attributed to MICT
Our net loss attributed to MICT for the three
months ended March 31, 2020 was $1,635,000, compared to a net loss of $910,000 for the three months ended March 31, 2019. This
represents an increase in net loss of $725,000 for the three months ended March 31, 2020, as compared to the same period
last year. The increase in net loss for the three months ended March 31, 2020 is primarily a result of investment losses of $640,000,
as well as the dilution in our ownership and voting interests in Micronet, causing us to cease consolidating Micronet’s
operations in our financial statements commencing from February 24, 2019.
Liquidity
and Capital Resources
As of March 31, 2020, our total cash and
cash equivalents balance was $2,826,000, as compared to $3,154,000 as of December 31, 2019. This reflects a decrease of $328,000
in cash and cash equivalents. The decrease in cash and cash equivalents is primarily a result of costs of the Acquisition and
a certain loan that we provided to Micronet during May 2020 (see “Loans Provided by Us” below for additional information).
As of the date of this Quarterly Report, COVID-19 and the resulting government actions enacted in Israel and elsewhere have not
had a material adverse effect on our financial condition; however, there can be no assurance that our financial condition will
not be affected in the future from COVID-19 or resulting government actions.
Our liquidity and capital resources during the period ended
March 31, 2020 were also impacted by the following events. If the April Convertible Note transaction described below does not close
or we do not receive the full proceeds provided for under these agreements, we may require additional financing. There can be no
guarantee that we will be able to obtain additional financing, or if such additional financing will be available to us on favorable
terms.
On March 13, 2020, we received a notice of exercise of remedies,
or the Notice, from the purchasers, or the Primary Purchasers, that entered into a Securities Purchase Agreement, or the Primary
Purchase Agreement, with us in November 2019, who purchased from us $15.9 million, or the Outstanding Principal, 5% senior secured
convertible debentures due during 2020, or the Primary Convertible Debentures. The Outstanding Principal was previously placed
in a blocked bank account, pursuant to a deposit account control agreement. The Notice advised that two Triggering Events (as defined
in the Primary Purchase Agreement) had occurred and are continuing as a result of the failure by the Company (a) to file with the
U.S. Securities and Exchange Commission, or the SEC, a registration statement by January 30, 2020, as required by Section 2(a)
of that certain registration rights agreement by and between the Primary Purchasers and us and clause (g) of the definition of
“Triggering Event” in each Primary Convertible Debenture and (b) to respond to the SEC by February 21, 2020, with respect
to the SEC’s comments on the Company’s preliminary proxy statement received on February 6, 2020, or the SEC Response,
as required by clause (e) of the definition of “Triggering Event” in each Primary Convertible Debenture. The Notice
also advises that the Company has failed to timely deliver to each Purchaser the trigger event notices with respect to such trigger
events as required by Section 6(b) of each Primary Convertible Debenture, which failure due to the lapse of the applicable grace
period resulted in two Events of Default under Section 8(a)(ii) of each Primary Convertible Debenture.
As a result of the Notice, the Primary Purchasers exercised
their right to an optional redemption pursuant to Section 6(b) of each Convertible Debenture and declared the occurrence and continuance
of an event of default, each of which accelerated the Company’s obligation to repay all outstanding balances under the Convertible
Debentures, or the Optional Redemption. On March 16, 2020, the Outstanding Principal was transferred from the Company to the Purchasers
and the Primary Purchase Agreement was terminated.
Sales
of our Securities
In January 2020, we completed the second
closing in a preferred offering, pursuant to which we sold 795,455 shares of the Company’s Series A Convertible Preferred
Stock, or the Series A Preferred Stock, and 1,193,183 accompanying preferred warrants to purchase up to 1,084,712 shares of our
common stock for aggregate gross proceeds of $1,750,000, of which, $1,200,000 was received on December 31, 2019 and $550,000 was
received on January 17, 2020.
On March 16, 2020, as a result of the Notice,
the Outstanding Principal under the Primary Purchase Agreement was transferred from us to the Purchasers and the Primary Purchase
Agreement was terminated.
Concurrently
with entry into the Primary Purchase Agreement, we entered into the Non-Primary Purchase Agreement with the non-primary purchasers,
or the Non-Primary Purchasers, pursuant to which, among other things, the Non-Primary Purchasers agreed, subject to the satisfaction
or waiver of the conditions set forth in the Non-Primary Purchase Agreement, to purchase from us convertible debentures, or the
Non-Primary Convertible Debentures, with an aggregate principal amount of $9.0 million. The sale and issuance of the Non-Primary
Convertible Debentures has not occurred as of the date of this Quarterly Report and there can be no assurance that we and the
Non-Primary Purchasers ever close on the issuance of such debentures.
On
April 21, 2020, the Company entered into a series of Note Purchase Agreements, or the Note Purchase Agreements, with certain investors,
or the Purchasers, pursuant to which, among other things, the Purchasers agreed, subject to the satisfaction or waiver of the
conditions set forth in the Note Purchase Agreement, to purchase from us certain convertible notes, or the April Convertible Notes,)
with an aggregate principal amount of approximately $11.0 million, or the Convertible Notes Offering. The Convertible Notes shall
be convertible into shares of common stock of the Company at a conversion price of $1.10 per share. Approximately $8.0 million
of the April Convertible Notes will be due two years from the date of issuance, while approximately $3.0 million of the April
Convertible Notes will be due five years from the date of issuance. We are obligated to pay interest to the Purchasers on the
outstanding principal amount at the rate of 1.0% per annum, payable on each conversion date, in cash or, at our option, in shares
of common stock.
In
April and May 2020, we issued April Convertible Notes with an aggregate principal amount of approximately $5.9 million, which
will be due two years from the date of issuance. The sale and issuance of the entire $11.0 million of April Convertible Notes
has not occurred as of the date of this Quarterly Report and there can be no assurance that we and the Purchasers ever close on
the issuance of the remaining $5.1 million of April Convertible Notes.
Loans
Provided by Us
On September 19, 2019, MICT Telematics Ltd.,
or MICT Telematics, a wholly owned subsidiary of the Company, entered into a loan agreement with Micronet, pursuant to which MICT
Telematics loaned Micronet $250,000, on certain terms and conditions, or the First Loan.
In view of Micronet’s working capital needs, on November
18, 2019, we entered into an additional loan agreement with Micronet for the loan of $125,000, pursuant to terms and conditions
identical to those governing the First Loan, including the repayment terms, or the Second Loan. Accordingly, prior to the approval
of the Initial Convertible Loan by Micronet’s shareholders on January 1, 2020, we transferred to Micronet, pursuant to the
First and Second Loan, a total sum of $375,000. On January 1, 2020, the Initial Convertible Loan agreement was approved at the
general meeting of Micronet’s shareholders. At such time, the First Loan and Second Loan were repaid to us and the remaining
amount due to be loaned under the Initial Convertible Loan, in the sum of $125,000, was loaned to Micronet.
The
Company recognized a loss on financial assets derived from a measurement preformed to the Initial Convertible Loan. As of March
31, 2020, we recorded a financial expense on the Initial Convertible Loan of $272,000.
On November 13, 2019, the Company and Micronet
executed a convertible loan agreement pursuant to which the Company agreed to loan to Micronet $500,000 in the aggregate, or the
Initial Convertible Loan. The Initial Convertible Loan bears interest at a rate of 3.95% calculated and is paid on a quarterly
basis. In addition, the Initial 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 Initial Convertible Loan, with the remaining three installments
due on each subsequent quarter thereafter, such that the Initial Convertible Loan shall be repaid in full upon the lapse of 24
months from its grant. In addition, the outstanding principal balance of the Initial 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 Initial Convertible Loan agreement, Micronet also agreed to issue the Company an option to purchase up to one of Micronet’s
ordinary shares for each ordinary share that it issued as a result of a conversion of the Initial Convertible Loan, or the Convertible
Loan Warrant, at an exercise price of 0.60 NIS per share, exercisable for a period of 15 months. On May 14, 2020, as further amended
on May 27, 2020, we and Micronet entered into an amendment to the Initial Convertible Loan, or the Amended Convertible Loan, which
is subject to the approval of the Micronet shareholders.
On May 14, 2020, as amended effective as
of May 21, 2020, we entered into a loan agreement with Micronet, pursuant to which we agreed to loan Micronet $500,000 on certain
terms and conditions, or the Second Convertible Loan. The Second Convertible Loan bears interest at a rate of interest of 3.95%
per year, calculated and paid on a quarterly basis. The Second Convertible Loan is due and payable in four equal installments,
on a quarterly basis, with the first such payment due within 10 days after the end of Micronet’s fiscal quarter ending March
31, 2021 (such that the first repayment would be made by April 10, 2021), and in any event shall be paid in full by the 24 month
anniversary of the grant date of the Second Convertible Loan; provided, however, that the Company, at its discretion, may convert
any or all of the Second Convertible Loan into ordinary shares of Micronet at a conversion price of 0.16 NIS (and in accordance
with the U.S. dollar to NIS exchange rate in effect as of the closing date of the Loan), per ordinary share of Micronet. In addition,
the Company shall receive a warrant, or the Second Convertible Loan Warrant, to purchase one ordinary share of Micronet for every
ordinary share into which the Second Convertible Loan is converted. The Second Convertible Loan Warrants, if any, are exercisable
for a term of 15 months from their date of grant at an exercise price of 0.16 NIS per Ordinary Share of Micronet.
Further,
effective as of May 27, 2020, the Company and Micronet entered into the Amended Convertible Loan, to amend the terms of the Initial
Convertible Loan and the Convertible Loan Warrant so that the Conversion Price for the Initial Convertible Loan and the exercise
price for the Amended Convertible Loan Warrant would each be 0.16 NIS per ordinary share of Micronet. The Amended Convertible
Loan is subject to the receipt of the approval of Micronet’s shareholders.
Debt
Repayment
As of March 31, 2020, our total debt was $0 as compared to $1,856,000
on December 31, 2019. The decrease in total debt is due to the conversion of the outstanding convertible note on January 21,
2020, previously issued on July 31, 2019, into 1,818,181 shares of the Company’s Series B Preferred Stock. The Series B Preferred
was issued on February 3, 2020.
Total
Current Assets, Trade Accounts Receivable and Working Capital
As
of March 31, 2020, our total current assets were $4,003,000, as compared to $4,417,000 on December 31, 2019. The decrease is mainly
due to the decrease in cash and cash equivalents and from the Convertible Loan agreement that was approved by Micronet’s
shareholders on January 1, 2020, which converted the short term loans to Micronet to a long term loan.
As
of March 31, 2020, our working capital was $3,463,000, as compared to $4,127,000 at December 31, 2019. The decrease
is mainly due to the decrease in current assets as described above.
Our
working capital could increase if the $477,000 of proceeds from the sale of our previously wholly owned subsidiary, Enertec, are
released from escrow pursuant to a certain purchase agreement, or the Share Purchase Agreement, with Coolisys Technologies Inc.,
or Coolisys, a subsidiary of DPW Holdings, Inc., or DPW.
In
conjunction with, and as a condition to, the closing, the Company, Enertec, Coolisys, DPW and Mr. David Lucatz, our former Chief
Executive Officer and currently a director, executed a consulting agreement, or the Consulting Agreement, whereby we, via Mr.
Lucatz, will provide Enertec with certain consulting and transitional services over a 3 year period as necessary and requested
by the Coolisys (but in no event to exceed 20% of Mr. Lucatz’s time). Pursuant to the consulting agreement, Coolisys (via
Enertec) is obligated to pay us an annual consulting fee of $150,000, or the Annual Consulting Fee, as well as issue us 150,000
restricted shares of DPW Class A common stock, or the DPW Equity, for such services, to be vested and released from restriction
in three equal installments, with the initial installment vesting the day after the closing and the remaining installments vesting
on each of the first 2 anniversaries of the closing. In the event of a change of control in the Company, or if Mr. Lucatz shall
no longer be employed by us, the rights and obligations under the Consulting Agreement shall be assigned to Mr. Lucatz along with
the DPW Equity. Although Mr. Lucatz is no longer an employee of the Company, because he currently serves as a director, we
continue to expect Coolisys (via Enertec) to be obligated to pay us for the Annual Consulting Fee.
As
of the date of this Quarterly Report, Coolisys and the Company are in dispute in connection with the transaction contemplated
for the sale of the Enertec shares to Coolisys. As a result of such dispute, the Escrow Amount remains in escrow following an
indemnification claim issued by Coolisys alleging for certain misrepresentations in the Share Purchase Agreement resulting in
losses to Coolisys, estimated by Coolisys, to be at least $4,000,000.
As
a result of this dispute with Coolisys, the Annual Consulting Fee has not been paid and the DPW Equity was never issued to us.
The Company reserve its rights against Coolisys in such matter. As of the date hereof, there is no ongoing litigation in this
matter, and it is the Company’s position that the claim issued by Coolisys is unfounded and should be rejected. Accordingly,
the Company has delivered Coolisys an answer to that effect.
Financing
Needs
The
Company will be required to support its own operational financial needs which include, among others, our general and administrative
costs (such as for our various consultants in regulatory, tax, legal, accounting and other areas of business) and our financing
costs related to the loans and funding instruments assumed by us.
Our
operations have experienced disruptions due to the unprecedented conditions surrounding the spread of COVID-19 throughout
North America, Israel and the world. In particular, COVID-19 and measures implemented to reduce the spread of the virus
have limited access to our own offices and disrupted our normal interactions with our accounting personnel, legal advisors, auditors
and others involved in the preparation of this Quarterly Report. At this time, as we continue to assess the ongoing and past effects
of COVID-19 on us, we do not know if the spread of COVID-19 and the resulting government actions in Israel and the United States,
or in other geographical areas in which we are operating or negotiating agreements with parties will cause us to require additional
financing (see “Risk Factors” below for additional information).
The
Company filed a Form S-3 registration statement (File No. 333-219596) under the Securities Act with the SEC using a “shelf”
registration process, which was declared effective on July 31, 2017. Under this shelf registration process, we may, from time
to time, sell common stock, warrants or units in one or more offerings up to a total dollar amount of $30,000,000, pursuant to
which we have sold approximately $1,000,000 of our securities to date.
Pursuant
to the Amended Tender Offer, if successful, we will materially increase our stake and holdings in Micronet. Micronet believes
that its highly innovative products, integrating powerful computing power, enhanced user interface and complete telematics features
may create a new value proposition to telematics customers and allow Micronet to expand its reach into the fast growing segment
of the telematics market, while increasing its SaaS revenues through software services. If the Amended Tender Offer is successful,
we may require additional financing in order to retain the same level of control over Micronet or in order to increase our control.
COVID-19
has resulted in a material adverse effect on Micronet’s business and operation, results of operations and financial condition,
due to, among other things, a delay in receiving customers’ orders and the general negative economic climate that has resulted
from COVID-19 (see “Risk Factors” below for additional information).
Based
on our current business plan, and in view of our cash balance following the transactions described in this Item 2, we
anticipate that our cash balances will be sufficient to permit us to conduct our operations and carry out our contemplated
business plans for at least the next 12 months from the date of this Quarterly Report. However, we do not know if as a result
of COVID-19, or as a result of MICT Telematics purchasing all ordinary shares under the Amended Tender Offer, we may utilize
our cash at a faster rate than currently anticipated. We may also satisfy our liquidity through the sale of our securities, either in public or private
transactions, or through the closing of the transactions contemplated by the Acquisition. We intend to use such funds in
order to sustain or expand our operations.