Item 1. Financial Statements.
MICT, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(USD In Thousands, Except Share and
Par Value Data)
|
|
September 30,
2020
|
|
|
December 31,
2019
|
|
|
|
(Unaudited)
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
18,623
|
|
|
$
|
3,154
|
|
Restricted cash
|
|
|
-
|
|
|
|
45
|
|
Trade accounts receivable, net
|
|
|
98
|
|
|
|
-
|
|
Short-term loan to related party Micronet Ltd., net
|
|
|
|
|
|
|
281
|
|
Inventories, net
|
|
|
1,769
|
|
|
|
-
|
|
Other current assets
|
|
|
747
|
|
|
|
937
|
|
Total current assets
|
|
|
21,237
|
|
|
|
4,417
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
|
582
|
|
|
|
29
|
|
Long term deposit
|
|
|
3
|
|
|
|
-
|
|
Right of use assets
|
|
|
84
|
|
|
|
-
|
|
Goodwill
|
|
|
22,405
|
|
|
|
-
|
|
Intangible assets and others, net
|
|
|
18,205
|
|
|
|
-
|
|
Restricted cash escrow
|
|
|
477
|
|
|
|
477
|
|
Micronet Ltd. equity method investment
|
|
|
|
|
|
|
994
|
|
Total long-term assets
|
|
|
41,756
|
|
|
|
1,500
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
62,993
|
|
|
$
|
5,917
|
|
MICT, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(USD In Thousands, Except Share and
Par Value Data)
|
|
September 30,
2020
|
|
|
December 31,
2019
|
|
|
|
(Unaudited)
|
|
|
|
|
LIABILITIES AND EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short term bank credit and current portion of long term bank loans
|
|
$
|
1,139
|
|
|
$
|
-
|
|
Short term credit from others
|
|
|
|
|
|
|
-
|
|
Trade accounts payable
|
|
|
781
|
|
|
|
-
|
|
Other current liabilities
|
|
|
3,176
|
|
|
|
290
|
|
Total current liabilities
|
|
|
5,096
|
|
|
|
290
|
|
|
|
|
|
|
|
|
|
|
Long term loans from others
|
|
|
|
|
|
|
1,856
|
|
Lease liability
|
|
|
36
|
|
|
|
-
|
|
Deferred tax liabilities
|
|
|
4,463
|
|
|
|
-
|
|
Long term escrow
|
|
|
477
|
|
|
|
477
|
|
Accrued severance pay
|
|
|
140
|
|
|
|
50
|
|
Total long term liabilities
|
|
|
5,116
|
|
|
|
2,383
|
|
|
|
|
|
|
|
|
|
|
Stockholders’ Equity:
|
|
|
|
|
|
|
|
|
Series A Convertible Preferred Stock; $0.001 par value, 0 and 2,386,363 shares authorized, issued and outstanding as of September 30, 2020 and December 31, 2019, respectively
|
|
|
0
|
|
|
|
2
|
|
Series B Convertible Preferred Stock; $0.001 par value, 0 and 0 shares authorized, issued and outstanding as of September 30, 2020 and December 31, 2019, respectively
|
|
|
0
|
|
|
|
0
|
|
Common stock; $0.001 par value, 25,000,000 shares authorized, 59,855,175 shares issued and outstanding as of September 30, 2020 and 11,089,532 shares issued and outstanding as of December 31, 2019, respectively
|
|
|
60
|
|
|
|
11
|
|
Additional paid in capital
|
|
|
83,393
|
|
|
|
14,107
|
|
Additional paid in capital – Series A Convertible Preferred Stock
|
|
|
138
|
|
|
|
6,028
|
|
Additional paid in capital – Series B Convertible Preferred Stock
|
|
|
|
|
|
|
|
|
Accumulated other comprehensive (loss)
|
|
|
(277
|
)
|
|
|
70
|
|
Accumulated loss
|
|
|
(32,533
|
)
|
|
|
(16,974
|
)
|
MICT, Inc. stockholders’ equity
|
|
|
50,781
|
|
|
|
3,244
|
|
|
|
|
|
|
|
|
|
|
Non-controlling interests
|
|
|
2,000
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Total equity
|
|
|
52,781
|
|
|
|
3,244
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and equity
|
|
$
|
62,993
|
|
|
$
|
5,917
|
|
MICT, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF
INCOME
(USD In Thousands, Except Share and
Earnings Per Share Data)
(Unaudited)
|
|
Nine months ended
September 30,
|
|
|
Three months ended
September 30,
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
349
|
|
|
|
477
|
|
|
|
349
|
|
|
|
-
|
|
Cost of revenues
|
|
|
347
|
|
|
|
846
|
|
|
|
347
|
|
|
|
-
|
|
Gross profit (loss)
|
|
|
2
|
|
|
|
(369
|
)
|
|
|
2
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
230
|
|
|
|
261
|
|
|
|
230
|
|
|
|
-
|
|
Selling and marketing
|
|
|
69
|
|
|
|
198
|
|
|
|
69
|
|
|
|
-
|
|
General and administrative
|
|
|
6,337
|
|
|
|
2,161
|
|
|
|
4,899
|
|
|
|
501
|
|
Amortization of intangible assets
|
|
|
820
|
|
|
|
20
|
|
|
|
820
|
|
|
|
-
|
|
Total operating expenses
|
|
|
7,456
|
|
|
|
2,640
|
|
|
|
6,018
|
|
|
|
501
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(7,454
|
)
|
|
|
(3,009
|
)
|
|
|
(6,016
|
)
|
|
|
(501
|
)
|
Share in investee losses
|
|
|
(786
|
)
|
|
|
(771
|
)
|
|
|
|
|
|
|
(366
|
)
|
Net profit from loss of control
|
|
|
|
|
|
|
299
|
|
|
|
|
|
|
|
|
|
Gain on previously held equity in Micronet
|
|
|
665
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income
|
|
|
138
|
|
|
|
|
|
|
|
138
|
|
|
|
|
|
Financial expenses, net
|
|
|
(8,803
|
)
|
|
|
(292
|
)
|
|
|
(8,960
|
)
|
|
|
(346
|
)
|
loss before provision for income taxes
|
|
|
(16,240
|
)
|
|
|
(3,773
|
)
|
|
|
(14,838
|
)
|
|
|
(1,213
|
)
|
Provision for income taxes
|
|
|
(219
|
)
|
|
|
(5
|
)
|
|
|
(225
|
)
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net loss
|
|
|
(16,021
|
)
|
|
|
(3,778
|
)
|
|
|
(14,613
|
)
|
|
|
(1,210
|
)
|
Net loss attributable to non-controlling interests
|
|
|
(462
|
)
|
|
|
(556
|
)
|
|
|
(462
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to MICT, Inc.
|
|
|
(15,559
|
)
|
|
|
(3,222
|
)
|
|
|
(14,151
|
)
|
|
|
(1,210
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss per share attributable to MICT, Inc.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted loss per share
|
|
$
|
(1.03
|
)
|
|
|
(0.30
|
)
|
|
|
(0.61
|
)
|
|
|
(0.11
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding:
|
|
|
15,048,644
|
|
|
|
10,583,496
|
|
|
|
22,832,683
|
|
|
|
11,009,532
|
|
MICT, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF
COMPREHENSIVE INCOME
(USD In Thousands)
(Unaudited)
|
|
Nine months ended
September 30,
|
|
|
Three months ended
September 30,
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss)
|
|
$
|
(16,021
|
)
|
|
$
|
(3,778
|
)
|
|
$
|
(14,613
|
)
|
|
$
|
(1,210
|
)
|
Other comprehensive income (loss), net of tax:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Currency translation adjustment
|
|
|
(58
|
)
|
|
|
(143
|
)
|
|
|
(152
|
)
|
|
|
-
|
|
Comprehensive income attributable to investment in Micronet Ltd.
|
|
|
|
|
|
|
58
|
|
|
|
-
|
|
|
|
58
|
|
Total comprehensive (loss)
|
|
|
(16,079
|
)
|
|
|
(3,863
|
)
|
|
|
(14,765
|
)
|
|
|
(1,152
|
)
|
Comprehensive (loss) attributable to non-controlling interests
|
|
|
(172
|
)
|
|
|
(463
|
)
|
|
|
(172
|
)
|
|
|
-
|
|
Comprehensive (loss) attributable to MICT, Inc.
|
|
$
|
(15,907
|
)
|
|
$
|
(3,400
|
)
|
|
$
|
(14,593
|
)
|
|
$
|
(1,152
|
)
|
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
|
|
|
Additional
Paid-in
|
|
|
Additional
Paid-in
|
|
|
Retained
|
|
|
Accumulated
Other
Comprehensive
|
|
|
Non-
controlling
|
|
|
Total
Stockholders’
|
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Capital
|
|
|
Capital
|
|
|
Capital
|
|
|
Earnings
|
|
|
Income
|
|
|
Interest
|
|
|
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
December 31, 2019
|
|
|
-
|
|
|
|
-
|
|
|
|
2
|
|
|
|
2,386,363
|
|
|
|
11
|
|
|
|
11,089,532
|
|
|
|
-
|
|
|
|
6,028
|
|
|
|
14,107
|
|
|
|
(16,974
|
)
|
|
|
70
|
|
|
|
0
|
|
|
|
3,244
|
|
Shares issued to service
providers and employees
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
|
840,909
|
|
|
|
|
|
|
|
|
|
|
|
2,490
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,491
|
|
Exercising options
for employees and consultants
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
|
1,198,000
|
|
|
|
|
|
|
|
|
|
|
|
2,365
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,366
|
|
Stock based compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
186
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
186
|
|
Issuance of warrants
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(15,559
|
)
|
|
|
(347
|
)
|
|
|
|
|
|
|
(15,906
|
)
|
Entering the control
of a subsidiary
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,000
|
|
|
|
2,000
|
|
Convertible note
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14
|
|
|
|
13,636,364
|
|
|
|
|
|
|
|
|
|
|
|
22,400
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22,414
|
|
GFH transaction
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23
|
|
|
|
22,727,273
|
|
|
|
|
|
|
|
|
|
|
|
32,026
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
32,049
|
|
YA Exercising warrants
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
|
584,920
|
|
|
|
|
|
|
|
|
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
Hardon Exercising
warrants
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
|
1,596,362
|
|
|
|
|
|
|
|
|
|
|
|
1,611
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,612
|
|
Issuance of shares,
net- Series A Convertible Preferred Stock
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
|
795,455
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
409
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
410
|
|
Issuance of shares,
net- Series B+A Convertible Preferred Stock
|
|
|
(2
|
)
|
|
|
(1,818,182
|
)
|
|
|
(3
|
)
|
|
|
(3,181,818
|
)
|
|
|
8
|
|
|
|
8,181,818
|
|
|
|
(1,914
|
)
|
|
|
(6,299
|
)
|
|
|
8,209
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2
|
)
|
Issuance
of shares, net- Series B Convertible Preferred Stock
|
|
|
2
|
|
|
|
1,818,182
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,914
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,916
|
|
Balance,
September 30, 2020
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
60
|
|
|
|
59,855,178
|
|
|
|
-
|
|
|
|
138
|
|
|
|
83,393
|
|
|
|
(32,533
|
)
|
|
|
(277
|
)
|
|
|
2,000
|
|
|
|
52,781
|
|
|
|
Series
B
Convertible
Preferred Stock
|
|
|
Series
A
Convertible
Preferred Stock
|
|
|
Common
Stock
|
|
|
Additional
Paid-in
|
|
|
Additional
Paid-in
|
|
|
Additional
Paid-in
|
|
|
Retained
|
|
|
Accumulated
Other
Comprehensive
|
|
|
Non-
controlling
|
|
|
Total
Stockholders’
|
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Capital
|
|
|
Capital
|
|
|
Capital
|
|
|
Earnings
|
|
|
Income
|
|
|
Interest
|
|
|
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
June 30, 2020
|
|
|
2
|
|
|
|
1,818,182
|
|
|
|
3
|
|
|
|
3,181,818
|
|
|
|
11
|
|
|
|
11,107,714
|
|
|
|
1,914
|
|
|
|
6,437
|
|
|
|
14,198
|
|
|
|
(18,382
|
)
|
|
|
164
|
|
|
|
2,172
|
|
|
|
6,519
|
|
Shares issued to service
providers and employees
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
|
822,727
|
|
|
|
|
|
|
|
|
|
|
|
2,468
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,469
|
|
Exercising options
for employees and consultants
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
|
1,198,000
|
|
|
|
|
|
|
|
|
|
|
|
2,365
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,366
|
|
Stock based compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
117
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
117
|
|
Issuance of warrants
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(14,151
|
)
|
|
|
(441
|
)
|
|
|
|
|
|
|
(14,592
|
)
|
Entering the control
of a subsidiary
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(172
|
)
|
|
|
(172
|
)
|
Convertible note
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14
|
|
|
|
13,636,364
|
|
|
|
|
|
|
|
|
|
|
|
22,400
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22,414
|
|
GFH transaction
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23
|
|
|
|
22,727,273
|
|
|
|
|
|
|
|
|
|
|
|
32,026
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
32,049
|
|
YA Exercising warrants
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
|
584,920
|
|
|
|
|
|
|
|
|
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
Hardon Exercising
warrants
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
|
1,596,362
|
|
|
|
|
|
|
|
|
|
|
|
1,611
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,612
|
|
Issuance of shares,
net- Series B+A Convertible Preferred Stock
|
|
|
(2
|
)
|
|
|
(1,818,182
|
)
|
|
|
(3
|
)
|
|
|
(3,181,818
|
)
|
|
|
8
|
|
|
|
8,181,818
|
|
|
|
(1,914
|
)
|
|
|
(6,299
|
)
|
|
|
8,209
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2
|
)
|
Balance,
September 30, 2020
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
60
|
|
|
|
59,855,178
|
|
|
|
-
|
|
|
|
138
|
|
|
|
83,393
|
|
|
|
(32,533
|
)
|
|
|
(277
|
)
|
|
|
2,000
|
|
|
|
52,781
|
|
|
|
Common Stock
|
|
|
Common Stock
|
|
|
Additional
Paid-in
|
|
|
Additional
Paid-in
|
|
|
Retained
|
|
|
Accumulated
Other
Comprehensive
|
|
|
Non-
controlling
|
|
|
Total
Stockholders’
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
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
|
|
|
|
|
|
|
|
|
|
|
420,600
|
|
|
|
|
|
|
|
533
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
533
|
|
Stock based compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
46
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
46
|
|
Comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,222
|
)
|
|
|
(248
|
)
|
|
|
(393
|
)
|
|
|
(3,863
|
)
|
Stock based compensation in subsidiary
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
70
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(70
|
)
|
|
|
|
|
Loss of control of subsidiary
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
423
|
|
|
|
(1,501
|
)
|
|
|
(1,078
|
)
|
Issuance of shares, net
|
|
|
|
|
|
|
|
|
|
|
1,246,817
|
|
|
|
2
|
|
|
|
1,346
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,348
|
|
Issuance of shares, net- Series A Preferred Stock and warrants
|
|
|
2,386,363
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
122
|
|
|
|
4,827
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,951
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, September 30, 2019
|
|
|
2,386,363
|
|
|
|
2
|
|
|
|
11,009,532
|
|
|
|
11
|
|
|
|
14,022
|
|
|
|
4,827
|
|
|
|
(15,979
|
)
|
|
|
58
|
|
|
|
0
|
|
|
|
2,941
|
|
|
|
Common Stock
|
|
|
Common Stock
|
|
|
Additional
Paid-in
|
|
|
Additional
Paid-in
|
|
|
Retained
|
|
|
Accumulated
Other
Comprehensive
|
|
|
Non-
controlling
|
|
|
Total
Stockholders’
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Capital
|
|
|
Earnings
|
|
|
Income
|
|
|
Interest
|
|
|
Equity
|
|
Balance, June 30, 2019
|
|
|
-
|
|
|
|
-
|
|
|
|
11,009,532
|
|
|
|
11
|
|
|
|
13,893
|
|
|
|
|
|
|
|
(14,769
|
)
|
|
|
0
|
|
|
|
0
|
|
|
|
(865
|
)
|
Stock based compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7
|
|
Comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,210
|
)
|
|
|
58
|
|
|
|
-
|
|
|
|
(1,152
|
)
|
Issuance of shares, net- Series A Preferred Stock and warrants
|
|
|
2,386,363
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
122
|
|
|
|
4,827
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,951
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, September 30, 2019
|
|
|
2,386,363
|
|
|
|
2
|
|
|
|
11,009,532
|
|
|
|
11
|
|
|
|
14,022
|
|
|
|
4,827
|
|
|
|
(15,979
|
)
|
|
|
58
|
|
|
|
0
|
|
|
|
2,941
|
|
MICT, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF
CASH FLOWS
(USD In Thousands)
(Unaudited)
|
|
Nine months ended
September 30,
|
|
|
|
2020
|
|
|
2019
|
|
CASH FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
Net loss from continued operations
|
|
$
|
(16,021
|
)
|
|
$
|
(3,778
|
)
|
|
|
|
|
|
|
|
|
|
Adjustments to reconcile net income to net cash provided by operating activities:
|
|
|
|
|
|
|
|
|
Gain on previously held equity interest in Micronet
|
|
|
(665
|
)
|
|
|
|
|
Profit from loss of control
|
|
|
|
|
|
|
(299
|
)
|
Share in investee losses
|
|
|
786
|
|
|
|
436
|
|
Impairment of equity method investment and change in fair value in loan to Micronet
|
|
|
(187
|
)
|
|
|
335
|
|
Impairment of loan to Micronet Ltd.
|
|
|
(76
|
)
|
|
|
|
|
Depreciation and amortization
|
|
|
890
|
|
|
|
85
|
|
Restricted cash
|
|
|
45
|
|
|
|
|
|
Change in deferred taxes
|
|
|
(205
|
)
|
|
|
—
|
|
Accrued interest and exchange rate differences on bank loans
|
|
|
3
|
|
|
|
109
|
|
Accrued interest and exchange rate differences on loans from others
|
|
|
13
|
|
|
|
399
|
|
Stock-based compensation for employees and consultants
|
|
|
2,675
|
|
|
|
509
|
|
Decrease (increase) in trade accounts receivable, net
|
|
|
207
|
|
|
|
672
|
|
Decrease in inventories
|
|
|
83
|
|
|
|
348
|
|
Decrease in accrued severance pay, net
|
|
|
(5
|
)
|
|
|
(6
|
)
|
Increase in other accounts receivable
|
|
|
(907
|
)
|
|
|
(292
|
)
|
Increase in trade accounts payable
|
|
|
(412
|
)
|
|
|
(394
|
)
|
Finance cost related to the convertible notes conversion
|
|
|
8,877
|
|
|
|
-
|
|
Increase (Decrease) in other accounts payable
|
|
|
1,620
|
|
|
|
(52
|
)
|
Net cash used in operating activities
|
|
$
|
(3,279
|
)
|
|
$
|
(1,928
|
)
|
MICT, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF
CASH FLOWS
(USD In Thousands)
(Unaudited)
|
|
Nine months ended
September 30,
|
|
|
|
2020
|
|
|
2019
|
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
Loan to Micronet Ltd.
|
|
|
(125
|
)
|
|
|
(250
|
)
|
Additional investment in Micronet Ltd.
|
|
|
(515
|
)
|
|
|
-
|
|
Property and equipment
|
|
|
59
|
|
|
|
(57
|
)
|
consolidation of Micronet Ltd. (Appendix B)
|
|
|
268
|
|
|
|
-
|
|
Long Term Deposit
|
|
|
25
|
|
|
|
-
|
|
consolidation of GFH I. (Appendix C)
|
|
|
-
|
|
|
|
-
|
|
Deconsolidation of Micronet Ltd. (Appendix A)
|
|
|
-
|
|
|
|
(608
|
)
|
Net cash (used in) provided by investing activities
|
|
$
|
(288
|
)
|
|
$
|
(915
|
)
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Exercise of options
|
|
$
|
2,366
|
|
|
$
|
-
|
|
Receipt of long term convertible loan from others
|
|
|
-
|
|
|
|
1,834
|
|
Exercise of warrants
|
|
|
1,612
|
|
|
|
-
|
|
Repayment of bank loans, net
|
|
|
(184
|
)
|
|
|
(352
|
)
|
Issuance of convertible preferred shares net
|
|
|
409
|
|
|
|
-
|
|
Receipt of short term bank loans
|
|
|
121
|
|
|
|
-
|
|
Issuance of convertible preferred shares and warrants net
|
|
|
-
|
|
|
|
4,829
|
|
Repayment on account of redemption
|
|
|
(15,900
|
)
|
|
|
|
|
Payments on account of shares
|
|
|
15,900
|
|
|
|
|
|
payment received by convertible notes purchasers
|
|
|
14,797
|
|
|
|
-
|
|
issuance of warrants , net
|
|
|
-
|
|
|
|
122
|
|
Net cash provided by financing activities
|
|
$
|
19,121
|
|
|
$
|
6,433
|
|
|
|
|
|
|
|
|
|
|
NET INCREASE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH
|
|
|
15,554
|
|
|
|
3,590
|
|
|
|
|
|
|
|
|
|
|
Cash, Cash Equivalents and restricted cash at the beginning of the period
|
|
|
3,154
|
|
|
|
2,174
|
|
|
|
|
|
|
|
|
|
|
TRANSLATION ADJUSTMENT ON CASH AND CASH EQUIVALENTS
|
|
|
(85
|
)
|
|
|
3
|
|
Cash, Cash Equivalents and restricted cash at end of the period
|
|
$
|
18,623
|
|
|
$
|
5,767
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information:
|
|
|
|
|
|
|
|
|
Amount paid during the period for:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
25
|
|
|
$
|
172
|
|
Taxes
|
|
$
|
22
|
|
|
$
|
3
|
|
Appendix A: Micronet Ltd.
|
|
February 24,
2019
|
|
Working capital other than cash
|
|
|
(2,301
|
)
|
Finance lease
|
|
|
359
|
|
Accrued severance pay, net
|
|
|
60
|
|
Translation reserve
|
|
|
(423
|
)
|
Micronet Ltd. investment in fair value
|
|
|
1,711
|
|
Non controlling interests
|
|
|
1,501
|
|
Net profit from loss of control
|
|
|
(299
|
)
|
Cash
|
|
|
608
|
|
Appendix B: Acquisition
of Micronet Ltd., net of cash acquired:
Net working capital (borrowing excluded)
|
|
$
|
(351
|
)
|
Property and equipment
|
|
|
661
|
|
Intangible assets
|
|
|
2,475
|
|
Goodwill
|
|
|
2,618
|
|
Right of use assets
|
|
|
310
|
|
Other assets
|
|
|
26
|
|
Borrowings
|
|
|
(1,676
|
)
|
Micronet Ltd. investment in fair value
|
|
|
(1,573
|
)
|
Non-current liabilities
|
|
|
(558
|
)
|
Accumulated other comprehensive income
|
|
|
(28
|
)
|
Non controlling interests
|
|
|
(2,172
|
)
|
Net cash provided by acquisition
|
|
$
|
268
|
|
Appendix C: Acquisition of Intermediate, net of cash acquired:
Intangible assets
|
|
$
|
16,570
|
|
Goodwill
|
|
|
19,788
|
|
Non-current liabilities
|
|
|
(4,308
|
)
|
Shares issued and outstanding
|
|
|
(23
|
)
|
Additional paid-in capital
|
|
|
(32,027
|
)
|
Net cash provided by acquisition
|
|
$
|
-
|
|
Appendix D: 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 $250,000 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 $1,000,000 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 (the “Conversion Agreement”), with BNN Technology PLC (“BNN”),
pursuant to which BNN agreed to convert the outstanding convertible note (the “BNN Note”) 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 (the “Series B Preferred Stock”).
On July 1, 2020, the Company completed
the Acquisition of GFH Intermediate Holdings Ltd., a British Virgin Islands company (“Intermediate”), pursuant
to the previously announced Agreement and Plan of Merger entered into on November 7, 2019 by and between the Company, Intermediate,
Global Fintech Holding Ltd., a British Virgin Islands company and the sole shareholder of Intermediate (“GFH”),
and MICT Merger Subsidiary Inc., a British Virgin Islands company and a wholly owned subsidiary of MICT (“Merger Sub”),
as amended and restated on April 15, 2020 (the “Restated Merger Agreement”). As described in the Restated Merger
Agreement, upon consummation of the Acquisition, each outstanding share of Intermediate was cancelled in exchange for a convertible
promissory note in the principal amount of $25,000,000 (the “Consideration Note”), As of the date hereof pursuant
to the Acquisition agreement the company issued shares of common stock at a conversion price of $1.10 per share.
On September 8, 2020, the Company and all of the holders of
the Company’s Series A Convertible Preferred Stock, par value $0.001 per share , entered into a series of Series A Convertible
Preferred Stock Exchange Agreements, pursuant to which the Holders exchanged an aggregate of 3,181,818 shares of the Series A
Preferred, on a 1-for-2 basis, for an aggregate of 6,363,636 shares of the Company’s common stock, par value $0.001 per
share.
On September 10, 2020, the Company and the holder of the Company’s
Series B Convertible Preferred Stock, with a par value of $0.001 per share, entered into that certain Series B Convertible Preferred
Stock Exchange Agreement, pursuant to which the Holder exchanged an aggregate of 1,818,181 shares of the Series B Preferred, on
a 1-for-1 basis, for an aggregate of 1,818,181 shares of the Company’s common stock, par value $0.001 per share.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(USD in thousands, except per share data)
NOTE 1 — DESCRIPTION OF
BUSINESS
Overview
MICT Inc., (“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 Mict Inc Technologies, Inc. On July 13, 2018, following the sale of its former
subsidiary Enertec Systems Ltd., the Company changed the Company name from Mict Inc Technologies, Inc. to MICT, Inc. Our shares
of common stock have been listed on The Nasdaq Capital Market, or Nasdaq, since April 29, 2013.
Prior to the Merger, we operated primarily
through our Israel-based subsidiary, Micronet. Micronet operates in the growing commercial MRM market. Micronet, through both
its Israeli and U.S. operational offices, designs, develops, manufactures and sells rugged mobile computing devices that provide
fleet operators and field workforces with computing solutions in challenging work environments. Micronet’s vehicle portable
tablets are designed to increase workforce productivity and enhance corporate efficiency by offering computing power and communication
capabilities that provide fleet operators with visibility into vehicle location, fuel usage, speed and mileage. Furthermore, users
are able to manage the drivers in various aspects, such as: driver behavior, driver identification, reporting hours worked, customer/organization
working procedures and protocols, route management and navigation based on tasks and time schedule. End users may also receive
real time messages for various services, such as pickup and delivery, repair and maintenance, status reports, alerts, notices
relating to the start and ending of work, digital forms, issuing and printing of invoices and payments. Through its SmartHub product,
Micronet provides its consumers with services such as driver recognition, identifying and preventing driver fatigue, recognizing
driver behavior, preventive maintenance, fuel efficiency and an advanced driver assistance system. In addition, Micronet provides
third party telematics service providers, or TSPs, a platform to offer services such as “Hours of Service.” Micronet
previously commenced and continues to evaluate integration with other TSPs.
Micronet is currently entering the video
analytics device market by developing an all in-one video telematics device known as Micronet SmartCam. Micronet SmartCam is based
on the powerful and flexible Android platform, and is expected to be a ruggedized, integrated, and ready-to-go smart camera supporting
complete telematics features designed for in-vehicle use. Coupled with vehicle-connected interfaces, state of the art diagnostic
capabilities, and two smart cameras, it offers video analytics and telematics services capabilities, addressing safety, vehicle
health, and tracking needs of commercial fleets. MICT believes that Micronet SmartCam provides a versatile, advanced, and affordable
mobile computing platform for a variety of fleet management and video analytics solutions. The powerful computing platform, coupled
with the Android operating systems, allows its customers to run their applications or pick and choose a set of applications and
services from the Micronet marketplace. Micronet’s customers consist primarily of application service providers, or ASPs,
solution providers specializing in the MRM market and potentially Original Equipment Manufacturer (“OEM”) truck and
vehicle manufacturers including as part of the aftermarket sales. These companies sell Micronet’s products as part of their
MRM systems and solutions. Currently, Micronet does not sell directly to end users. Micronet customers are generally MRM solution
and service providers, ASP providers in the transportation market, including long haul, local fleets’ student transportation
(yellow busses) and fleet and field management systems for construction and heavy equipment. Micronet products are used by customers
operating vehicle fleets around the world such as in Israel, Canada, USA, Europe and other countries.
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 (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 subsequent public equity offering on the TASE. As a result, our ownership interest in Micronet was further
diluted from 33.88% to 30.48%, which was later increased as described herein. 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 on February 24, 2019, the Company accounted for its ownership in Micronet in accordance
with the equity method. As a result of the deconsolidation, the Company recognized a net gain of $299,000 in February 2019.
On June 10, 2020, the Company announced that
MICT Telematics Ltd. will own, assuming that all of the ordinary shares offered in the tender offer were purchased, 45.53% of
Micronet’s issued and outstanding ordinary shares. Also on June 10, 2020, the Company further informed Micronet that, assuming
that the full subscription of such tender offer is accepted, the Company intends to, but shall not be required to, participate
in a public offering of Micronet’s ordinary shares, pursuant to which the Company may purchase up to $900,000 of such shares.
Subsequently, on June 23, 2020, the Company
announced that, as a result of (i) the completion of the tender offer, in which 5,999,996 of Micronet’s ordinary shares
were purchased for aggregate proceeds of NIS 1,800,000 (or $515,000), and (ii) the closing of the public offering, in which the
Company purchased 10,334,000 of Micronet’s ordinary shares for total consideration of NIS 3,100,200 (or $887,000), As of
September 30, 2020 the Company owns 53.39% of Micronet’s outstanding ordinary shares. the company expects to continue
to maintain a controlling interest in Micronet in the future.
NOTE 1 — DESCRIPTION OF
BUSINESS (Cont.)
The consequences of COVID-19, when combined
with other events or conditions over which we have little or no control, may create a material uncertainty as to Micronet’s
ability to continue as a going concern. The Company will continue to monitor the situation closely, but given the uncertainty,
management cannot estimate the impact of the COVID-19 pandemic on the Company’s financial statements or operations.
In June 2019, the Company entered into a
Securities Purchase Agreement with BNN, pursuant to which BNN agreed to purchase from the Company $2,000,000 of convertible notes
(the “BNN Notes”), which were issued on July 31, 2019. The BNN Notes, which were initially 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. On January 21, 2020, the Company entered into the Conversion Agreement with BNN, pursuant to which BNN
agreed to convert all outstanding BNN 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 (the “Series
B Preferred Stock”).
On June 4, 2019, the Company commenced an
offering of its Series A Preferred Stock (the “Series A Preferred Stock”), by entering into a securities purchase
agreement, pursuant to which the Company sold, in multiple closings, 3,181,818 shares of Series A Preferred Stock (the “Preferred
Offering”). The Series A Preferred Stock, convertible into up to 6,363,636 shares of common stock of the Company, was
issued together with certain preferred warrants (the “Series A Preferred Warrants”) to purchase up to 4,772,727
shares of common stock, for aggregate gross proceeds of $7,000,000 to the Company.
On November 7, 2019, the Company entered
into a Securities Purchase, with certain investors, 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 with an aggregate principal amount of approximately $15,900,000. The proceeds of $15,900,000
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 and, together with the Primary Purchase
Agreement, the Purchase Agreements, with certain investors , and, together with the Primary Purchasers, the , 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 , and, together
with the Primary Convertible Debentures, the , with an aggregate principal amount of $9,000,000, together with the Primary Convertible
Debenture Offering, the . The Convertible Debentures were convertible into our shares of our common stock at a conversion price
of $1.41 per share. 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 . 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, MICT, Inc. entered
into a series of note purchase agreements with certain investors identified therein pursuant to which, among other things, the
Purchasers purchased on July 1, 2020 certain convertible notes with an aggregate principal amount of approximately $11.0 million.
On July 8, 2020, the Company entered into an additional series of purchase agreements with certain other purchaser pursuant to
which such purchasers purchased from the Company at such date convertible notes with an aggregate principal amount of approximately
$4.0 million. Accordingly, at total, pursuant to the above, the Company has sold convertible notes with an aggregate principal
amount of approximately $15.0 million.
The Convertible Notes included terms allowing
for a conversion into shares of common stock of the Company at a conversion price of $1.10 per share. The Convertible Notes are
generally due two years from the date of issuance, except that certain convertible notes will be due five years from the date
of issuance. The Company is 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 the Company’s option, in shares of common stock. Subject to approval
of the Company’s stockholders, the Convertible Notes shall be convertible into shares of common stock. Upon the occurrence
of certain events, the Purchasers are permitted to require the Company to redeem the Convertible Notes, including any interest
that has accrued thereunder, for cash. As of the date hereof and based on the terms included in the convertible notes, following
receipt of the Company’s stockholders, the Convertible Notes were converted into shares of common stock of the Company at
a conversion price of $1.10 per share as set above.
In July 2020, we completed the acquisition of Intermediate
pursuant to the Merger Agreement. Intermediate is a financial technology company with a marketplace in China and in other areas
of the world. Intermediate is in the process of building various platforms for business opportunities in various verticals and
technology segments it can capitalize on, and it plans to continue to add the capabilities of such platforms through acquisition
or license of technologies to support these efforts in the different market segments as more fully described below. By building
secure, reliable and scalable platforms with high volume processing capability, Intermediate believes it is able to provide customized
solutions that address the needs of a very diverse client base, each outstanding share of Intermediate was cancelled in exchange
for a convertible promissory note in the principal amount of $25,000,000, which Convertible Note were converted into 22,727,273
shares of common stock of MICT at a conversion price of $1.10 per share,.
Intermediate’s management is seeking to secure material
contracts in valuable market segments in China and has developed good opportunities, which will allow Intermediate to access the
following market segments: stock trading, oil and gas trading, insurance brokerage and recyclable metal trading through its operating
subsidiaries.
NOTE 1 — DESCRIPTION OF
BUSINESS (Cont.)
On September 8, 2020, the Company and all of the holders of
the Company’s Series A Convertible Preferred Stock, par value $0.001 per share, entered into a series A Convertible Preferred
Stock Exchange Agreements (each an Exchange Agreement and together, the “Exchange Agreements”), pursuant to which the
Holders exchanged an aggregate of 3,181,818 shares of the Series A Preferred, on a 1-for-2 basis, for an aggregate of 6,363,636
shares of the Company’s common stock, par value $0.001 per share .
On September 10, 2020, the Company and the holder of the Company’s
Series B Convertible Preferred Stock, with a par value of $0.001 per share , entered into that certain Series B Convertible Preferred
Stock Exchange Agreement, pursuant to which the Holder exchanged an aggregate of 1,818,181 shares of the Series B Preferred, on
a 1-for-1 basis, for an aggregate of 1,818,181 shares of the Company’s common stock, par value $0.001 per share.
On September 13, 2020, the board of directors of MICT, appointed Arie Rand as Chief Financial Officer of the Company, effective September
14, 2020.
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 and nine months ended September
30, 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 September 30, 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 until
June 23, 2020, the Company accounted for its ownership in Micronet in accordance with the equity method; and therefore, the results
of operations for the three and nine months ended September 30, 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, among other things, the unprecedented conditions surrounding the spread of the COVID-19 virus throughout North
America, Israel and the world. While the Company expects the COVID-19 pandemic to have an impact on its business operations and
financial results, the extent of the impact on the Company’s business, its corporate development objectives, its financial
position and the value of and market for its common stock will depend on future developments that are highly uncertain and cannot
be predicted with confidence at this time, such as the ultimate duration of the pandemic, travel restrictions, quarantines, social
distancing and business closure requirements in the United States, Israel, or elsewhere, as well as the effectiveness of actions
taken globally to contain and treat the disease. Notably, COVID-19 and measures implemented to reduce the spread of the virus have
limited access to the Company’s offices and have disrupted its normal interactions with certain of its accounting personnel,
legal advisors, auditors and others. Additionally, the COVID-19 outbreak has adversely affected the global economy and
financial markets, which may result in a long-term economic downturn that could negatively affect future performance. The extent
to which COVID-19 will impact our business and our consolidated financial results in the future will depend on future developments
related to the spread of COVID-19 which are highly uncertain and cannot be predicted at the time of the filing of this Quarterly
Report on Form 10-Q. The consequences of COVID-19, when combined with other events or conditions over which we have little or no
control, may create a material uncertainty as to Micronet’s ability to continue as a going concern. The Company will continue
to monitor the situation closely, but given the uncertainty, management cannot estimate the impact of the COVID-19 pandemic on
the Company’s financial statements or operations.
As of the date of this Quarterly Report, COVID-19 and
the resulting government actions enacted in China and elsewhere have not had a material adverse effect on GFH I financial reports;
however, there can be no assurance that GFH I financial reports will not be affected in the future from COVID-19 or resulting
government actions.
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 BNN Note in the amount of $2,000,000 into 1,818,181
shares of the Company’s Series B Preferred Stock.
Note
4 — Stockholders’ Equity
On June 4, 2019, the Company commenced an
offering of its Series A Preferred Stock (the “Series A Preferred Stock”), by entering into a securities purchase
agreement, pursuant to which the Company sold, in multiple closings, 3,181,818 shares of Series A Preferred Stock (the “Preferred
Offering”). The Series A Preferred Stock, convertible into up to 6,363,636 shares of common stock of the Company, was issued
together with certain preferred warrants (the “Series A Preferred Warrants”) to purchase up to 4,772,727 shares of
common stock, for aggregate gross proceeds of $7,000,000 to the Company.
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 $5,250,000. The Company paid an aggregate of $420,000
in fees with respect to this closing of the Preferred Offering. Additionally, in 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 $1,750,000. The Company paid an aggregate of $140,000 in fees with respect to this closing of the
Preferred Offering.
The Series A Preferred Stock was convertible into common stock
at the option of each holder of Series A Preferred Stock at any time and from time to time, and was also convertible automatically
upon the occurrence of certain events. The Company also had 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 subject to the satisfaction of certain conditions. The holders
of Series A Preferred Stock voted 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 were entitled to appoint an independent
director to the Company’s board of directors. The Preferred Securities Purchase Agreement provided for customary registration
rights.
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 $20,000,000.
Pursuant to the April 21, 2020, and the July 8, 2020 Agreements
entered by MICT with various purchasers for the sale of certain convertible notes as described in the Description of Business above,
MICT sold convertible notes with an aggregate total principal amount of approximately $15.0 million under such terms as described
hereinabove. Based on the terms included in the convertible notes, following receipt of the Company’s stockholders in September
2020, the Convertible Notes were converted into 13,636,363 shares of common stock of the Company at a conversion price of $1.10
per share as set above.
On July 1, 2020, MICT completed its acquisition (the “Acquisition”)
of GFH Intermediate Holdings Ltd. (“GFHI”), pursuant to the previously announced Agreement and Plan of Merger entered
into on November 7, 2019 by and between MICT, GFHI, Global Fintech Holding Ltd. (“GFH”), a British Virgin Islands company
and the sole shareholder of GFHI, and MICT Merger Subsidiary Inc., a British Virgin Islands company and a wholly owned subsidiary
of MICT (“Merger Sub”), as amended and restated on April 15, 2020 (the “Restated Merger Agreement”). As
of the date hereof pursuant to the Acquisition the company issued to GFH 22,727,272 shares of common stock reflecting a price of
$1.10 per each MICT share.
On September 8, 2020, the Company and all
of the holders (the “Holders”) of the Company’s Series A Convertible Preferred Stock, par value $0.001 per share
(the “Series A Preferred”), entered into a series of Series A Convertible Preferred Stock Exchange Agreements (each
an Exchange Agreement and together, the “Exchange Agreements”), pursuant to which the Holders exchanged an aggregate
of 3,181,818 shares of the Series A Preferred, on a 1-for-2 basis, for an aggregate of 6,363,636 shares of the Company’s
common stock, par value $0.001 per share (the “Common Stock”).
On September 10, 2020, the Company and the holder (the “Holder”)
of the Company’s Series B Convertible Preferred Stock, with a par value of $0.001 per share (the “Series B Preferred”),
entered into that certain Series B Convertible Preferred Stock Exchange Agreement (the “Exchange Agreement”) in the
form attached hereto as Exhibit 10.1, pursuant to which the Holder exchanged an aggregate of 1,818,181 shares of the Series B Preferred,
on a 1-for-1 basis, for an aggregate of 1,818,181 shares of the Company’s common stock, par value $0.001 per share (the “Common
Stock”).
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%. The initial decrease in the Company’s voting interest
in Micronet resulted in the loss of control of Micronet. As a result, commencing on February 24, 2019, the Company no longer accounted
for its ownership in Micronet in its financial statements. Commencing on February 24, 2019, the Company began to account for its
ownership in Micronet in accordance with the equity method.
The method used
for determining fair value of the investment in Micronet was based on a quoted market price on the TASE.
NOTE 6 — GAIN
OF CONTROL OF SUBSIDIARY- Micronet Acquisition
On June 23, 2020, Micronet completed the special tender offer
(the “Tender Offer”), in which MICT successfully purchased 5,999,996 shares of Micronet’s ordinary shares
(the “Ordinary Shares”), in the aggregate amount of NIS 1,800,000 (or $515,000) offered in the Tender Offer, which
brought MICT’s ownership interest up to 45.53%.
Also on June 23, 2020, MICT purchased an
additional 10,334,000 shares of Micronet’s Ordinary Shares in the aggregate amount of NIS 3,100,000 (or $887,000), which
brought MICT’s ownership interest up to 53.39% as of September 30, 2020. Accordingly, MICT obtained voting control over
Micronet and, as a result, MICT applied purchase accounting (see the table below) and began to consolidate Micronet beginning
on such date. MICT recognized a $665,000 gain on previously held equity in Micronet.
There are material uncertainties related
to events or conditions such as: (i) the effects of COVID-19 on Micronet’s overall business (ii) recent accumulated losses,
(iii) historical working capital deficiencies, (iv) the significant decrease in demand for the company’s products, which results
in a delay in the receipt of new orders and, consequently, a lack of sufficient backlog, and (v) a significant slowdown in the
business activities of the global economy. The above reasons, among others, create a material uncertainty and cast substantial
doubt upon Micronet’s ability to continue as a going concern.
Micronet’s income
and net loss as presented if the Company’s acquisition date had occurred at the beginning of the annual reporting period
|
|
Nine months ended
September 30,
|
|
|
Three months ended
September 30,
|
|
|
|
2020
|
|
|
2020
|
|
Revenues
|
|
$
|
1,438
|
|
|
$
|
349
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(3,448
|
)
|
|
|
(905
|
)
|
Management engaged a third-party valuation
firm to assist them with the valuation of the intangible assets that are detailed in the schedule below.
NOTE 6 — GAIN
OF CONTROL OF SUBSIDIARY- Micronet Acquisition (Cont.)
Purchased identifiable intangible assets
are amortized on a straight-line basis over their respective useful lives. The table set forth below summarizes the estimates
of the fair value of assets acquired and liabilities assumed and resulting gain on bargain purchase. In addition, the following
table summarizes the allocation of the preliminary purchase price as of the acquisition date:
Micronet Ltd. Purchase Price Allocation
(USD In Thousands)
Total cash consideration (1)
|
|
|
887
|
|
Total Purchase Consideration
|
|
$
|
887
|
|
|
|
|
|
|
Less:
|
|
|
|
|
|
|
|
|
|
Debt-free net working capital, (2)
|
|
$
|
788
|
|
Property and equipment (2)
|
|
|
661
|
|
Right of use assets (2)
|
|
|
310
|
|
Other assets (2)
|
|
|
26
|
|
Borrowings (2)
|
|
|
(1,675
|
)
|
Severance payable (2)
|
|
|
(95
|
)
|
Lease liabilities (2)
|
|
|
(101
|
)
|
Intangible assets - trade name/ trademarks
|
|
|
270
|
|
Intangible assets - developed technology
|
|
|
1,580
|
|
Intangible assets - customer relationship
|
|
|
410
|
|
Intangible assets - ground
|
|
|
215
|
|
Deferred Tax liability
|
|
|
(362
|
)
|
Fair value of net assets acquired
|
|
$
|
2,027
|
|
|
|
|
|
|
Noncontrolling interest
|
|
|
(2,172
|
)
|
Gain on equity interest
|
|
|
(665
|
)
|
Equity investment
|
|
|
(921
|
)
|
Change in investment
|
|
|
(3,758
|
)
|
|
|
|
|
|
Goodwill value
|
|
$
|
2,618
|
|
|
(1)
|
Cash
paid at the closing of the Micronet public offering.
|
|
(2)
|
Book
value used as a proxy for fair value.
|
NOTE 7 — LOAN TO MICRONET LTD.
On September 19, 2019, MICT Telematics
entered into a loan agreement with Micronet, pursuant to which MICT Telematics loaned Micronet $250,000 (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 $250,000 from non-related parties.
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 $125,000 (the
“Second Loan”), pursuant to terms and conditions identical to those governing the First Loan, including the
repayment terms. Accordingly, at such date (and prior to the approval of the Convertible Loan by Micronet’s shareholders
on January 1, 2020 as set forth hereunder), the Company granted to Micronet, pursuant to the First Loan and Second Loan, an accumulated
loans in the total sum of $375,000.
NOTE 7 — LOAN TO MICRONET LTD. (Cont.)
On November 13, 2019, the Company and
Micronet executed a convertible loan agreement pursuant to which the Company agreed to loan to Micronet $500,000 in the aggregate
(the “Convertible Loan”). The Convertible Loan bears interest at a rate of 3.95% calculated and is paid on
a quarterly basis. In addition, the Convertible Loan, if not converted, shall be repaid in four equal installments, the first
of such installment payable following the fifth quarter after the issuance of the Convertible Loan, with the remaining three installments
due on each subsequent quarter thereafter, such that the Convertible Loan shall be repaid in full upon the lapse of 24 months
from its grant. In addition, the outstanding principal balance of the Convertible Loan, and all accrued and unpaid interest, is
convertible at the Company’s option, at a conversion price equal to 0.38 NIS per Micronet share. Pursuant to the Convertible
Loan agreement, Micronet also agreed to issue the Company an option to purchase up to one of Micronet’s ordinary shares
for each ordinary share that it issued as a result of a conversion of the Convertible Loan (“Convertible Loan Warrant”),
at an exercise price of 0.60 NIS per share, exercisable for a period of 15 months. On July 5, 2020, the company had a reverse
split where the price of the Convertible Loan changed from 0.08 NIS per Micronet share into 5.7 NIS per Micronet share. The option’s
exercised price was changed from 0.6 NIS per share to 9 NIS per Micronet share.
On January 1, 2020, the Convertible Loan
transaction was approved at a general meeting of the Micronet shareholders and as a result, the Convertible Loan and the transactions
contemplated thereby entered into effect. At such time, the First Loan and Second Loan were repaid to us and the Convertible Loan
was provided.
On August 13, 2020, MICT Telematics extended to Micronet an
additional loan in the aggregate amount of $175,000 (the “Third Loan” and the “Loan Sum”,
respectively) which governing the existing outstanding intercompany debt. The Third Loan does not bear any interest and is provided
for a period of twelve (12) months. The Loan Sum was granted for the purpose of supporting Micronet’s working capital and
general corporate needs.
NOTE 8 — GFH
Intermediate Holdings Ltd (“GFHI”) Acquisition
On July 1, 2020, MICT completed its acquisition of GFH Intermediate
Holdings Ltd. pursuant to the previously announced Agreement and Plan of Merger entered into on November 7, 2019 by and between
MICT, Micronet, GFHI, Global Fintech Holding Ltd, a British Virgin Islands company and the sole shareholder of GFHI, and MICT Merger
Subsidiary Inc., a British Virgin Islands company and a wholly owned subsidiary of MICT, as amended and restated on April 15, 2020.
As described in the Restated Merger Agreement, upon consummation of the Acquisition, the outstanding share of GFHI was cancelled
in exchange for a convertible promissory note in the principal amount of $25,000,000 issued to GFH by MICT, which Consideration
Note has been converted into 22,727,273 shares of common stock of MICT at a conversion price of $1.10 per share.
Management engaged a third-party valuation
firm to assist them with the valuation of the intangible assets that are detailed in the schedule below.
As of the date of this Quarterly Report,
COVID-19 and the resulting government actions enacted in China and elsewhere have not had a material adverse effect on GFH I financial
reports; however, there can be no assurance that GFH I financial reports will not be affected in the future from COVID-19 or resulting
government actions.
Purchased identifiable intangible assets
are amortized on a straight-line basis over their respective useful lives. The table set forth below summarizes the estimates
of the fair value of assets acquired and liabilities assumed and resulting gain on bargain purchase. In addition, the following
table summarizes the allocation of the preliminary purchase price as of the acquisition date:
GFH Intermediate Holdings LTD,
Purchase Price Allocation
(USD In Thousands)
Total share consideration (1)
|
|
|
32,050
|
|
Total Purchase Consideration
|
|
$
|
32,050
|
|
|
|
|
|
|
Less:
|
|
|
|
|
|
|
|
|
|
Intangible assets - trade name/ trademarks
|
|
|
580
|
|
Intangible assets - developed technology
|
|
|
11,490
|
|
Intangible assets - Customer database (2)
|
|
|
4,500
|
|
Deferred Tax liability (3)
|
|
|
(4,308
|
)
|
Fair value of net assets acquired
|
|
$
|
12,262
|
|
|
|
|
|
|
Goodwill value (4)
|
|
$
|
19,788
|
|
|
(1)
|
The
purchase consideration represented the fair value of the Convertible Promissory Notes that were converted into common stock of
MICT.
|
|
(2)
|
The
Customer database value is based on the cost to recreate, as indicated by Management.
|
|
(3)
|
Represents the income tax effect of the difference between
the accounting and income tax bases of the identified intangible assets, using an assumed statutory income tax rate of 26%.
|
|
(4)
|
The goodwill is not deductible for tax purposes.
|
NOTE 8 — GFH
Intermediate Holdings Ltd (“GFHI”) Acquisition (Cont.)
GFHI's income and net loss as presented
if the Company's acquisition date had occurred at the beginning of the annual reporting period
|
|
Nine months
ended
September 30,
|
|
|
Three months
ended
September 30,
|
|
|
|
2020
|
|
|
2020
|
|
Revenues
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(136
|
)
|
|
|
(136
|
)
|
NOTE 9 — 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. We have two operating
segments: verticals and technology segments operated by GFHI and a MRM segment operated by Micronet.
The following table summarizes the financial performance of
our operating segments:
|
|
Nine
months ended September 30, 2020
|
|
|
|
Verticals
and technology
|
|
|
Mobile
resource management
|
|
|
Consolidated
|
|
Revenues from external customers
|
|
$
|
-
|
|
|
$
|
349
|
|
|
$
|
349
|
|
Segment operating loss
|
|
|
(869
|
)(1)
|
|
|
(1,118
|
)(2)
|
|
|
(1,987
|
)
|
Non allocated expenses
|
|
|
|
|
|
|
|
|
|
|
(5,816
|
)
|
Finance expenses and other
|
|
|
|
|
|
|
|
|
|
|
(8,786
|
)
|
Consolidated loss before provision for income
taxes
|
|
|
|
|
|
|
|
|
|
$
|
(16,240
|
)
|
|
(1)
|
Includes $733 of intangible assets amortization, derived
from GFHI. acquisitions.
|
|
(2)
|
Includes $103 of intangible assets amortization, derived
from Micronet.
|
The following table summarizes the financial statements of our
BS segments:
|
|
As of September 30, 2020
|
|
|
|
Verticals and technology
|
|
|
Mobile resource management
|
|
|
Consolidated
|
|
Assets related to segments
|
|
$
|
35,896
|
(3)
|
|
$
|
8,131
|
(4)
|
|
$
|
44,027
|
|
Non allocated Assets
|
|
|
|
|
|
|
|
|
|
|
18,966
|
|
Liabilities related to segments
|
|
|
(4,528
|
)(5)
|
|
|
(4,455
|
)(6)
|
|
|
(8,983
|
)
|
Non allocated liabilities
|
|
|
|
|
|
|
|
|
|
|
(1,229
|
)
|
Total Equity
|
|
|
|
|
|
|
|
|
|
$
|
52,781
|
|
|
(3)
|
Includes $14,660 of intangible assets and $19,788 goodwill,
derived from GFHI’s acquisition.
|
|
(4)
|
Includes $1,765 of intangible assets and $2,617 goodwill, derived from Micronet’s consolidation.
|
|
(5)
|
Includes $4,118 of deferred tax liability, derived from
GFHI acquisition.
|
|
(6)
|
Includes $345 of deferred tax liability, derived from Micronet
consolidation.
|
NOTE 10 — SUBSEQUENT EVENTS
In October 2020, MICT appointed
Mr. Richard Abrahams as the Chief Executive Officer of Intermediate’s stock trading and wealth management business.
MICT, Inc previously announced on October
2, 2020 that its indirect wholly-owned subsidiary BI Intermediate (Hong Kong) Limited (“BI Intermediate”)
has entered a strategic agreement (“Strategic Agreement”) to acquire, for a total purchase price of U.S.$3.0
million, 9% of a Huapei Global Securities Limited (“Huapei”), Hong Kong based securities and investments firm.
The Strategic Agreement provided that the remaining 91% of Huapei would be purchased by BI Intermediate upon approval from the
Hong Kong Securities and Futures Commission (SFC), the principal regulator of Hong Kong's securities and futures markets.
On November 11, 2020, BI Intermediate closed on its acquisition of the first 9% of its acquisition and paid 9% of the purchase
price. Additionally, on November 11, 2020, upon the initial closing, BI Intermediate made a loan to Huapei in an amount equivalent
to the remaining 91% of the purchase price. Upon the closing of the remaining 91%, which remains subject to SFC approval, the
loan will be cancelled, and BI Intermediate will acquire the remaining 91% of Huapei. If the Strategic Agreement is terminated
or the closing of the remaining 91% does not occur within 24 months, Huapei will repay the loan to BI Intermediate. The loan is
secured against the 91% of the share capital of Huapei not owned by BI Intermediate. The obligations of Huapei Global Capital
Limited, the seller of the interests of Huapei, under the loan agreement have been guaranteed by the ultimate controller of Huapei
Global Capital Limited. Huapei is licensed to trade securities on leading exchanges in Hong Kong, the U.S. and China including
the valuable China A-Shares, all of which are the primary target markets for Company's global fintech business. The Company is
in the process of integrating its mobile app supporting platform with Huapei’s licensed trading assets.
On October 11, 2020, Micronet closed a
public equity offering on the Tel Aviv Stock Exchange (the “TASE”) , in which the Company purchased 520,600 of Micronet’s
ordinary shares and 416,480 of Micronet’s stock options convertible into 416,480 Micronet ordinary shares (at a conversion
price of NIS 3.5 per share), for total consideration of NIS 4,961,202 (or $1,417,486). Following the Micronet’s offering,
the purchase of share and the exercise of our stock options, our ownership interest in Micronet was diluted from 53.39% to 50.32%
of the Micronet outstanding share capital.
On November 2, 2020, MICT, Inc entered
into a Securities 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 agreed to sell, in a registered
direct offering, an aggregate of 10,000,000 units, 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 six months after the date of issuance at an exercise price of $3.12 per share and will expire five
years following the date the Warrants become exercisable. The closing of the sale of Units pursuant to the Securities Purchase
Agreement occurred on November 4, 2020. As of the date hereof, $22.325 million in gross proceeds out of the Offering were
provided to the Company and the remaining additional $2.675 million of proceeds were wired to the Company’s wholly owned
indirect subsidiary, Bokefa Petroleum and Gas Co Ltd. (“Bokefa”), in the Peoples Republic of China. The Offering Proceeds
that were wired to Bokefa, are currently subject to China’s State Administration of Foreign Exchange’s (“SAFE”)
Circular on Relevant Issues Concerning Foreign Exchange Control on Domestic Residents’ Offshore Investment and Financing
and Roundtrip Investment Through Special Purpose Vehicles, or SAFE Circular 37. Following the clearance of SAFE Circular
37, such proceeds will be deposited in the Bokefa account. The gross proceeds were subject to certain issuance
costs and related expenses, including U.S. Placement Agent’s fees of 7.0% of the public offering price on $15.0 million,
U.S. Placement Agents fees of 3.5% on $10 million, non-U.S. broker fees of 6.5% on $10 million and a non-accountable expense allowance
of 1% of the public offering price to the U.S. Placement Agent as well as additional expenses pay to professionals in connection
with the Offering.
A.G.P./Alliance
Global Partners acted as the exclusive placement agent (the “Placement Agent”) for the Company, on a “reasonable
best efforts” basis, in connection with the Offering. Pursuant to that certain Placement Agency Agreement, dated as of November
2, 2020, by and between the Company and the Placement Agent (the “Placement Agency Agreement”), the Placement Agent
will be entitled to a cash fee equal to 7.0% of the gross proceeds from the placement of the total amount of Units sold by the
Placement Agent and 3.5% of the gross proceeds from the placement of the total amount of Units sold in the offering, plus a non-accountable
expense allowance in an amount equal to 1% of the aggregate gross proceeds of the Offering.
On November 2,
2020, Intermediate, through an operating subsidiary, launched its insurance platform.
On November 3, 2020, the Company entered
into a settlement and release agreement with Maxim Group LLC, or Maxim, pursuant to which the Company and Maxim agreed to release
one another from any and all claims arising out of that certain advisory agreement entered into by and between Maxim and BNN Technology
PLC on February 22, 2018. In consideration therefor, as of today the Company was issued to Maxim $500,000 of Common Stock and to
file a resale registration with respect to such shares.
Item 2. Management’s Discussion
and Analysis of Financial Condition and Results of Operations.
This Quarterly Report on Form 10-Q (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:
|
●
|
our
ownership position in Micronet’s share capital;
|
|
●
|
the
impact of COVID-19 on both our operations and financial outlook and those of Intermediate, Micronet and MICT;
|
|
●
|
our
financing needs and strategies, and our ability to continue to raise capital in the future;
|
|
●
|
our
corporate development objectives;
|
|
●
|
our
financial position and the value of and market for our common stock;
|
|
●
|
use
of proceeds from any future financing, if any; and
|
|
●
|
the
sufficiency of our capital resources.
|
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
in our SEC filing and the risk factors included in Part II, Item IA below. 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
MICT Inc., (“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 Mict Inc Technologies, Inc. On July 13, 2018, following the sale of its former
subsidiary Enertec Systems Ltd., the Company changed the Company name from Mict Inc Technologies, Inc. to MICT, Inc. Our shares
of common stock have been listed on The Nasdaq Capital Market, or Nasdaq, since April 29, 2013.
Prior to the Merger, we operated primarily
through our Israel-based subsidiary, Micronet. Micronet operates in the growing commercial MRM market. Micronet, through both
its Israeli and U.S. operational offices, designs, develops, manufactures and sells rugged mobile computing devices that provide
fleet operators and field workforces with computing solutions in challenging work environments. Micronet’s vehicle portable
tablets are designed to increase workforce productivity and enhance corporate efficiency by offering computing power and communication
capabilities that provide fleet operators with visibility into vehicle location, fuel usage, speed and mileage. Furthermore, users
are able to manage the drivers in various aspects, such as: driver behavior, driver identification, reporting hours worked, customer/organization
working procedures and protocols, route management and navigation based on tasks and time schedule. End users may also receive
real time messages for various services, such as pickup and delivery, repair and maintenance, status reports, alerts, notices
relating to the start and ending of work, digital forms, issuing and printing of invoices and payments. Through its SmartHub product,
Micronet provides its consumers with services such as driver recognition, identifying and preventing driver fatigue, recognizing
driver behavior, preventive maintenance, fuel efficiency and an advanced driver assistance system. In addition, Micronet provides
third party telematics service providers, or TSPs, a platform to offer services such as “Hours of Service.” Micronet
previously commenced and continues to evaluate integration with other TSPs.
Micronet is currently entering the video
analytics device market by developing an all in-one video telematics device known as Micronet SmartCam. Micronet SmartCam is based
on the powerful and flexible Android platform, and is expected to be a ruggedized, integrated, and ready-to-go smart camera supporting
complete telematics features designed for in-vehicle use. Coupled with vehicle-connected interfaces, state of the art diagnostic
capabilities, and two smart cameras, it offers video analytics and telematics services capabilities, addressing safety, vehicle
health, and tracking needs of commercial fleets. MICT believes that Micronet SmartCam provides a versatile, advanced, and affordable
mobile computing platform for a variety of fleet management and video analytics solutions. The powerful computing platform, coupled
with the Android operating systems, allows its customers to run their applications or pick and choose a set of applications and
services from the Micronet marketplace. Micronet’s customers consist primarily of application service providers, or ASPs,
solution providers specializing in the MRM market and potentially Original Equipment Manufacturer (“OEM”) truck and
vehicle manufacturers including as part of the aftermarket sales. These companies sell Micronet’s products as part of their
MRM systems and solutions. Currently, Micronet does not sell directly to end users. Micronet customers are generally MRM solution
and service providers, ASP providers in the transportation market, including long haul, local fleets’ student transportation
(yellow busses) and fleet and field management systems for construction and heavy equipment. Micronet products are used by customers
operating vehicle fleets around the world such as in Israel, Canada, USA, Europe and other countries.
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 (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 subsequent public equity offering on the TASE. As a result, our ownership interest in Micronet was further
diluted from 33.88% to 30.48%, which was later increased as described herein. 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 on February 24, 2019, the Company accounted for its ownership in Micronet in accordance
with the equity method. As a result of the deconsolidation, the Company recognized a net gain of $299,000 in February 2019.
On June 10, 2020, the Company announced that
MICT Telematics Ltd. will own, assuming that all of the ordinary shares offered in the tender offer were purchased, 45.53% of
Micronet’s issued and outstanding ordinary shares. Also on June 10, 2020, the Company further informed Micronet that, assuming
that the full subscription of such tender offer is accepted, the Company intends to, but shall not be required to, participate
in a public offering of Micronet’s ordinary shares, pursuant to which the Company may purchase up to $900,000 of such shares.
Subsequently, on June 23, 2020, the Company
announced that, as a result of (i) the completion of the tender offer, in which 5,999,996 of Micronet’s ordinary shares
were purchased for aggregate proceeds of NIS 1,800,000 (or $515,000), and (ii) the closing of the public offering, in which the
Company purchased 10,334,000 of Micronet’s ordinary shares for total consideration of NIS 3,100,200 (or $887,000), As of
September 30, 2020 the Company owns 53.39% of Micronet’s outstanding ordinary shares. the company expects to continue to
maintain a controlling interest in Micronet in the future.
The consequences of COVID-19, when combined
with other events or conditions over which we have little or no control, may create a material uncertainty as to Micronet’s
ability to continue as a going concern. The Company will continue to monitor the situation closely, but given the uncertainty,
management cannot estimate the impact of the COVID-19 pandemic on the Company’s financial statements or operations.
In June 2019, the Company entered into a
Securities Purchase Agreement with BNN, pursuant to which BNN agreed to purchase from the Company $2,000,000 of convertible notes
(the “BNN Notes”), which were issued on July 31, 2019. The BNN Notes, which were initially 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. On January 21, 2020, the Company entered into the Conversion Agreement with BNN, pursuant to which BNN
agreed to convert all outstanding BNN 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 (the “Series
B Preferred Stock”).
On June 4, 2019, the Company commenced an
offering of its Series A Preferred Stock (the “Series A Preferred Stock”), by entering into a securities purchase
agreement, pursuant to which the Company sold, in multiple closings, 3,181,818 shares of Series A Preferred Stock (the “Preferred
Offering”). The Series A Preferred Stock, convertible into up to 6,363,636 shares of common stock of the Company, was
issued together with certain preferred warrants (the “Series A Preferred Warrants”) to purchase up to 4,772,727
shares of common stock, for aggregate gross proceeds of $7,000,000 to the Company.
On November 7, 2019, the Company entered
into a Securities Purchase, with certain investors, 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 with an aggregate principal amount of approximately $15,900,. The proceeds of $15,900,000
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 and, together with the Primary Purchase
Agreement, the Purchase Agreements, with certain investors , and, together with the Primary Purchasers, the , 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 , and, together
with the Primary Convertible Debentures, the , with an aggregate principal amount of $9,000,000, together with the Primary Convertible
Debenture Offering, the . The Convertible Debentures were convertible into our shares of our common stock at a conversion price
of $1.41 per share. 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 . 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, MICT, Inc. entered
into a series of note purchase agreements with certain investors identified therein pursuant to which, among other things, the
Purchasers purchased on July 1, 2020 certain convertible notes with an aggregate principal amount of approximately $11.0 million.
On July 8, 2020, the Company entered into an additional series of purchase agreements with certain other purchaser pursuant to
which such purchasers purchased from the Company at such date convertible notes with an aggregate principal amount of approximately
$4.0 million. Accordingly, at total, pursuant to the above, the Company has sold convertible notes with an aggregate principal
amount of approximately $15.0 million.
the Convertible Notes included terms allowing
for a conversion into shares of common stock of the Company at a conversion price of $1.10 per share. The Convertible Notes are
generally due two years from the date of issuance, except that certain convertible notes will be due five years from the date
of issuance. The Company is 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 the Company’s option, in shares of common stock. Subject to approval
of the Company’s stockholders, the Convertible Notes shall be convertible into shares of common stock. Upon the occurrence
of certain events, the Purchasers are permitted to require the Company to redeem the Convertible Notes, including any interest
that has accrued thereunder, for cash. As of the date hereof and based on the terms included in the convertible notes, following
receipt of the Company’s stockholders, the Convertible Notes were converted into shares of common stock of the Company at
a conversion price of $1.10 per share as set above.
In July 2020, we completed the acquisition
of Intermediate pursuant to the Merger Agreement. Intermediate believes it has been well positioned to establish itself, through
its operating subsidiaries, as a financial technology company with a significant China marketplace and in other areas of the world.
Intermediate has been in the process of building various platforms for business opportunities in various verticals and technology
segments it can capitalize on, and it will continue to add the capabilities of such platforms through acquisition or license of
technologies to support these efforts in the different market segments as more fully described below. By building secure, reliable
and scalable platforms with high volume processing capability, Intermediate believes it is able to provide customized solutions
that address the needs of a very diverse client base, each outstanding share of Intermediate was cancelled in exchange for a convertible
promissory note in the principal amount of $25,000,000, which Convertible Note were converted into shares of common stock of MICT
at a conversion price of $1.10 per share,.
Intermediate’s management has over
15 years’ experience in dealing with the largest websites and portals on resale of products in China and has deep connections
with local governments. Taking advantage of their profound experience and deep connections, such management is seeking to secure
material contracts in valuable market segments in China and has developed good opportunities, which will allow Intermediate to
access the following market segments: stock trading, oil and gas trading, insurance brokerage and recyclable metal trading through
its operating subsidiaries.
On September 8, 2020, the Company and all
of the holders of the Company’s Series A Convertible Preferred Stock, par value $0.001 per share , entered into a series
of Series A Convertible Preferred Stock Exchange Agreements (each an Exchange Agreement and together, the “Exchange Agreements”),
pursuant to which the Holders exchanged an aggregate of 3,181,818 shares of the Series A Preferred, on a 1-for-2 basis, for an
aggregate of 6,363,636 shares of the Company’s common stock, par value $0.001 per share .
The Common Stock issued in exchange for the
Series A Preferred was issued in reliance upon the exemption from registration set forth in Section 3(a)(9) of the Securities
Act of 1933, as amended, for securities exchanged by the issuer and an existing security holder where no commission or other remuneration
is paid or given directly or indirectly by the issuer for soliciting such exchange.
On September 10, 2020, the Company and the
holder of the Company’s Series B Convertible Preferred Stock, with a par value of $0.001 per share , entered into that certain
Series B Convertible Preferred Stock Exchange Agreement in the form attached hereto as Exhibit 10.1, pursuant to which the Holder
exchanged an aggregate of 1,818,181 shares of the Series B Preferred, on a 1-for-1 basis, for an aggregate of 1,818,181 shares
of the Company’s common stock, par value $0.001 per share .
The Common Stock issued in exchange for the
Series B Preferred was issued in reliance upon the exemption from registration set forth in Section 3(a)(9) of the Securities
Act of 1933, as amended, for securities exchanged by the issuer and an existing security holder where no commission or other remuneration
is paid or given directly or indirectly by the issuer for soliciting such exchange.
GAIN
OF CONTROL OF SUBSIDIARY- Micronet Acquisition
On June 23, 2020, Micronet completed the
special tender offer (the “Tender Offer”), in which MICT successfully purchased 5,999,996 shares of Micronet’s
ordinary shares (the “Ordinary Shares”), in the aggregate amount of NIS 1,800,000 (or $515,000) offered in the Tender
Offer, which brought MICT’s ownership interest up to 45.53%.
Also, on June 23, 2020, MICT purchased an
additional 10,334,000 shares of Micronet’s Ordinary Shares in the aggregate amount of NIS 3,100,200 (or $887,000), which
brought MICT’s ownership interest up to 53.39%. Accordingly, MICT obtained voting control over Micronet and, as a result,
MICT applied purchase accounting (see the table below) and began to consolidate Micronet beginning on such date. MICT recognized
a $665,000 gain from consolidation.
There are material uncertainties related
to events or conditions such as: (i) the effects of COVID-19 on Micronet’s overall business (ii) recent accumulated losses,
(iii) historical working capital deficiencies, (iv) the significant decrease in demand for the company’s products, which results
in a delay in the receipt of new orders and, consequently, a lack of sufficient backlog, and (v) a significant slowdown in the
business activities of the global economy. The above reasons, among others, create a material uncertainty and cast significant
doubt upon Micronet’s ability to continue as a going concern.
Management engaged a third-party valuation
firm to assist them with the valuation of the intangible assets that are detailed in the schedule below.
Purchased identifiable intangible assets
are amortized on a straight-line basis over their respective useful lives. The table set forth below summarizes the estimates
of the fair value of assets acquired and liabilities assumed and resulting gain on bargain purchase. In addition, the following
table summarizes the allocation of the preliminary purchase price as of the acquisition date:
Micronet LTD Purchase Price Allocation
(USD In Thousands)
Total cash consideration (1)
|
|
|
887
|
|
Total Purchase Consideration
|
|
$
|
887
|
|
|
|
|
|
|
Less:
|
|
|
|
|
|
|
|
|
|
Debt-free net working capital, (2)
|
|
$
|
788
|
|
Property and equipment (2)
|
|
|
661
|
|
Right of use assets (2)
|
|
|
310
|
|
Other assets (2)
|
|
|
26
|
|
Borrowings (2)
|
|
|
(1,675
|
)
|
Severance payable (2)
|
|
|
(95
|
)
|
Lease liabilities (2)
|
|
|
(101
|
)
|
Intangible assets - trade name/ trademarks
|
|
|
270
|
|
Intangible assets - developed technology
|
|
|
1,580
|
|
Intangible assets - customer relationship
|
|
|
410
|
|
Intangible assets - ground
|
|
|
215
|
|
Deferred Tax liability
|
|
|
(362
|
)
|
Fair value of net assets acquired
|
|
$
|
2,027
|
|
|
|
|
|
|
Noncontrolling interest
|
|
|
(2,172
|
)
|
Gain on equity interest
|
|
|
(665
|
)
|
Equity investment
|
|
|
(921
|
)
|
Change in investment
|
|
|
(3,758
|
)
|
|
|
|
|
|
Goodwill value
|
|
$
|
2,618
|
|
|
(1)
|
Cash
paid at the closing of the Micronet public offering.
|
|
(2)
|
Book
value used as a proxy for fair value.
|
GFH
Intermediate Holdings Ltd (“GFHI”) Acquisition
On July 1, 2020, MICT completed its acquisition
of GFH Intermediate Holdings Ltd. pursuant to the previously announced Agreement and Plan of Merger entered into on November 7,
2019 by and between MICT, Micronet, GFHI, Global Fintech Holding Ltd,a British Virgin Islands company and the sole shareholder
of GFHI, and MICT Merger Subsidiary Inc., a British Virgin Islands company and a wholly owned subsidiary of MICT , as amended
and restated on April 15, 2020 . As described in the Restated Merger Agreement, upon consummation of the Acquisition, the outstanding
share of GFHI was cancelled in exchange for a convertible promissory note in the principal amount of $25,000,000 issued to GFH
by MICT, which Consideration Note has been converted into shares of common stock of MICT at a conversion price of $1.10 per share.
Management engaged a third-party valuation
firm to assist them with the valuation of the intangible assets that are detailed in the schedule below.
As of the date of this Quarterly Report,
COVID-19 and the resulting government actions enacted in China and elsewhere have not had a material adverse effect on GFH I financial
reports; however, there can be no assurance that GFH I financial reports will not be affected in the future from COVID-19 or resulting
government actions.
Purchased identifiable intangible assets
are amortized on a straight-line basis over their respective useful lives. The table set forth below summarizes the estimates
of the fair value of assets acquired and liabilities assumed and resulting gain on bargain purchase. In addition, the following
table summarizes the allocation of the preliminary purchase price as of the acquisition date:
GFH Intermediate Holdings LTD, Purchase
Price Allocation
(USD In Thousands)
Total share consideration (1)
|
|
|
32,050
|
|
Total Purchase Consideration
|
|
$
|
32,050
|
|
|
|
|
|
|
Less:
|
|
|
|
|
|
|
|
|
|
Intangible assets - trade name/ trademarks
|
|
|
580
|
|
Intangible assets - developed technology
|
|
|
11,490
|
|
Intangible assets - Customer database (2)
|
|
|
4,500
|
|
Deferred Tax liability (3)
|
|
|
(4,308
|
)
|
Fair value of net assets acquired
|
|
$
|
12,262
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill value
|
|
$
|
19,788
|
|
|
(1)
|
The
purchase consideration represented the fair value of the Convertible Promissory Notes that were converted into common stock of
MICT Inc.
|
|
(2)
|
The
Customer database value is based on the cost to recreate, as indicated by Management.
|
|
(3)
|
Represents
the income tax effect of the difference between the accounting and income tax bases of the identified intangible assets, using
an assumed statutory income tax rate of 26%.
|
Non-GAAP Financial Measures
In addition to providing financial measurements
based on generally accepted accounting principles in the U.S., or GAAP, we provide additional financial metrics that are not prepared
in accordance with GAAP, or non-GAAP financial measures. Management uses non-GAAP financial measures, in addition to GAAP financial
measures, to understand and compare operating results across accounting periods, for financial and operational decision making,
for planning and forecasting purposes and to evaluate our financial performance.
Management believes that these non-GAAP financial
measures reflect our ongoing business in a manner that allows for meaningful comparisons and analysis of trends in our business,
as they exclude expenses and gains that are not reflective of our ongoing operating results. Management also believes that
these non-GAAP financial measures provide useful information to investors in understanding and evaluating our operating results
and future prospects in the same manner as management and in comparing financial results across accounting periods and to those
of peer companies.
The non-GAAP financial measures do not replace
the presentation of our GAAP financial results and should only be used as a supplement to, not as a substitute for, our financial
results presented in accordance with GAAP.
The
non-GAAP adjustments, and the basis for excluding them from non-GAAP financial measures, are outlined below:
|
●
|
Amortization
of acquired intangible assets - We are required to amortize the intangible assets,
included in our GAAP financial statements, related to the Transaction and the Acquisition.
The amount of an acquisition’s purchase price allocated to intangible assets and
term of its related amortization are unique to these transactions. The amortization of
acquired intangible assets are non-cash charges. We believe that such charges do not
reflect our operational performance. Therefore, we exclude amortization of acquired intangible
assets to provide investors with a consistent basis for comparing pre- and post-transaction
operating results.
|
|
●
|
Expenses
related to beneficial conversion feature expense - Those expenses are non-cash expenses
and are related to the difference between the stock price at the closing of the Note
Purchase Agreements and the conversion price of $1.10 per share.
|
|
●
|
Stock-based
compensation is share based awards granted to certain individuals. They are
non-cash and affected by our historical stock prices which are irrelevant to forward-looking
analyses and are not necessarily linked to our operational performance.
|
|
●
|
Expenses
related to the purchase of a business - These expenses relate directly to the purchase
of the GFH I transaction and consist mainly of legal and accounting fees, insurance fees
and other consultants. We believe that these expenses do not reflect our operational
performance. Therefore, we exclude them to provide investors with a consistent basis
for comparing pre- and post-Vehicle Business purchase operating results.
|
The following table reconciles, for the periods presented, GAAP
net loss attributable to MICT to non-GAAP net income attributable to MICT. and GAAP loss per diluted share attributable to MICT
to non-GAAP net loss per diluted share attributable to MICT.:
|
|
Nine months ended
September 30,
|
|
|
|
(Dollars in Thousands, other than share and per share amounts)
|
|
|
|
2020
|
|
|
2019
|
|
GAAP net loss attributable to Mict, Inc.
|
|
$
|
(15,559
|
)
|
|
$
|
(3,222
|
)
|
Amortization of acquired intangible assets
|
|
|
788
|
|
|
|
-
|
|
Expenses related to beneficial conversion feature expense
|
|
|
8,482
|
|
|
|
-
|
|
Stock-based compensation
|
|
|
2,675
|
|
|
|
-
|
|
Expenses related to purchase of a business
|
|
|
1,295
|
|
|
|
-
|
|
Income tax-effect of above non-GAAP adjustments
|
|
|
(199
|
)
|
|
|
-
|
|
Total Non-GAAP net loss attributable to Mict, Inc.
|
|
$
|
(2,518
|
)
|
|
$
|
(3,222
|
)
|
|
|
|
|
|
|
|
|
|
Non-GAAP net loss per diluted share attributable to Mict, Inc.
|
|
$
|
(0.16
|
)
|
|
$
|
(0.30
|
)
|
Weighted average common shares outstanding used in per share calculations
|
|
|
15,048,644
|
|
|
|
10,583,496
|
|
GAAP net loss per diluted share attributable to Mict, Inc.
|
|
$
|
(1.03
|
)
|
|
$
|
(0.30
|
)
|
Weighted average common shares outstanding used in per share calculations
|
|
|
15,048,644
|
|
|
|
10,583,496
|
|
Non-GAAP Financial Measures (Cont.)
|
|
Three months ended
September 30,
|
|
|
|
(Dollars in Thousands, other than share and per share amounts)
|
|
|
|
2020
|
|
|
2019
|
|
GAAP net loss attributable to Mict, Inc.
|
|
$
|
(14,151
|
)
|
|
$
|
(1,210
|
)
|
Amortization of acquired intangible assets
|
|
|
788
|
|
|
|
-
|
|
Expenses related to beneficial conversion feature expense
|
|
|
8,482
|
|
|
|
-
|
|
Stock-based compensation
|
|
|
2,584
|
|
|
|
-
|
|
Expenses related to purchase of a business
|
|
|
935
|
|
|
|
-
|
|
Income tax-effect of above non-GAAP adjustments
|
|
|
(199
|
)
|
|
|
-
|
|
Total Non-GAAP net loss attributable to Mict, Inc.
|
|
$
|
(1,561
|
)
|
|
$
|
(1,210
|
)
|
|
|
|
|
|
|
|
|
|
Non-GAAP net loss per diluted share attributable to Mict, Inc.
|
|
$
|
(0.07
|
)
|
|
$
|
(0.11
|
)
|
Weighted average common shares outstanding used in per share calculations
|
|
|
22,832,683
|
|
|
|
11,009,532
|
|
GAAP net loss per diluted share attributable to Mict, Inc.
|
|
$
|
(0.61
|
)
|
|
$
|
(0.11
|
)
|
Weighted average common shares outstanding used in per share calculations
|
|
|
22,832,683
|
|
|
|
11,009,532
|
|
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 were reduced to 33.88% of the issued and outstanding shares of Micronet,
and on September 5, 2019, such holdings were further reduced to 30.48%. Therefore, Micronet’s reports are consolidated in
our audited financial statements from January 1, 2019 until February 24, 2019 only.
On June 23, 2020, the company consummated
the Tender Offer, pursuant to which the Company purchased 5,999,996 shares of Micronet’s ordinary shares (the “Ordinary
Shares”), in the aggregate amount of NIS 1,800,000 (or $515,000) offered in the Tender Offer, and the closing of the
public offering, in which the Company purchased 10,334,000 shares of Micronet’s Ordinary Shares in aggregate amount of NIS
3,100,200 (or $887,000). As of September 30, 2020, the Company owns 53.39% of the outstanding Ordinary Shares of Micronet. Therefore,
Micronet’s reports are consolidated in our financial statements from June 23, 2020. and expects to continue to hold a majority
voting interest in the future.
On July 1, 2020, the Company completed the Acquisition, pursuant
to the previously announced Restated Merger Agreement. As described in the Restated Merger Agreement, upon consummation of the
Acquisition, each outstanding share of Intermediate was cancelled in exchange for a convertible promissory note in the principal
amount of $25,000,000 (the “Consideration Note”), which as of today, the Convertible Note was already converted
into shares of common stock of MICT at a conversion price of $1.10 per share, subject to stockholder approval.
Intermediate is a financial technology company
with a significant China marketplace. Intermediate is currently in the process of building various platforms for business opportunities
in various verticals and technology segments, including the online trading of stock, oil and gas, and recyclable metal and insurance
brokerage (collectively, the “Platforms”).
Pursuant to the April 21, 2020, and the July 8, 2020 Agreements
entered by MICT with various purchasers for the sale of certain convertible notes as described in the Description of Business above,
MICT has sold convertible notes with an aggregate total principal amount of approximately $15.0 million under such terms as described
hereinabove. The Purchase Agreements provide for customary registration rights, pursuant to which the Company was obligated to,
among other things, (i) file a registration statement (the “Resale Registration Statement”) with the SEC within
180 days following the closing of the Convertible Note Offering for purposes of registering the Conversion Shares and (ii) use
its commercially reasonable efforts to cause the Resale Registration Statement which was declared effective by the SEC after filing.
As of the date hereof and based on the terms included in the convertible notes, following receipt of the Company’s stockholders,
the Convertible Notes were converted into 13,636,363 shares of common stock of the Company at a conversion price of $1.10 per share
as set above.
On August 13, 2020, MICT Telematics extended to Micronet a loan
aggregate in amount of $175,000 (the “Third Loan” and the “Loan Sum”, respectively) that
will replace the outstanding intercompany debt, which may be exercised by Micronet during such twelve month period,. The Loan Sum
will fund the working capital and general corporate purposes required by Micronet Ltd. and may only be used for such purpose. The
Third Loan did not bear any interest.
Three and Nine Months Ended September
30, 2020, Compared to Three and Nine Months Ended September 30, 2019
Revenues
Revenues for the three and Nine months ended
September 30, 2020 were $349,000 and $349,000, respectively, compared to $0 and $477,000 for the three and nine months ended September
30, 2019, respectively. This represents an increase of $349 in the three month ended September 30, 2020 and a decrease of $128,000
in the nine months ended September 30, 2020. The change in revenues for the three and nine months ended September 30, 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 up until June 23, 2020.
Gross Profit (Loss)
Gross profit for the three and nine months
ended September 30, 2020 were $2,000 and $2,000, respectively, compared to gross loss of $0 and $369,000 for the three and nine
months ended September 30, 2019, respectively , and represents 1% and 1% of the revenues for the three and nine months ended September
30, 2020, respectively. The change in gross profit for the three and nine months ended September 30, 2020, respectively 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 up until June 23, 2020.
Selling and Marketing
Selling and marketing costs are part of operating
expenses. Selling and marketing costs for the three and nine months ended September 30, 2020 were $69,000 and $69,000, respectively,
compared to $0 and $198,000 for the three and nine months ended September 30, 2019, respectively. This represents an increase
of $69,000 for the three month and decrease of $129,000 for the nine months ended September 30, 2020, respectively. The change
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 up until June 23, 2020.
General and Administrative
General and administrative costs are part of operating expenses.
General and administrative costs for the three and nine months ended September 30, 2020 were $4,899,000 and $6,337,000, respectively,
compared to $501,000 and $2,161,000 for the three and nine months ended September 30, 2019, respectively. This represents
an increase of $4,398,000 and $4,176,000, for the three and nine months ended September 30, 2020, respectively. The increase
is mainly the result of: (i) increase in consultant as a result of the Merger and the April and July Convertible Notes; (ii) increase
in expenses of directors and officers insurance; (iii) Increase in share issue expenses to service providers granted due to the
Merger; (iv) the consolidation of Intermediate. as from July 1, 2020.
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
and nine months ended September 30, 2020, were $230,000 and $230,000, respectively, compared to $0 and $261,000 for the three
and nine months ended September 30, 2019, respectively. This represents an increase of $230,000 for the three-month ended September
30, 2020, and a decrease of $31,000 for the nine months ended September 30, 2020. The change in research and development costs
for the three and nine months ended September 30, 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 up until June 23, 2020.
Loss from Operations
Our loss from operations for the three and
nine months ended September 30, 2020 was $6,016,000 and $7,454,000, compared to a loss from operations of $501,000 and $3,009,000,
for the three and nine months ended September 30, 2019, respectively. The increase in loss from operations for the three and nine
months ended September 30, 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 up until
June 23, 2020 and increase in General and administrative expenses as described above.
Financial Income (Expenses), Net
Financial income (expenses), net for the
three and nine months ended September 30, 2020 were $(8,960,000) and $(8,803,000) compared to $(346,000) and $(292,000) for the
three and nine months ended September 30, 2019, respectively. This represents an increase in financial expenses of $8,614,000
and $8,511,000, for the three and nine months ended September 30, 2020. The increase in financial income, net for the three and
nine months ended September 30, 2020, is primarily due to the recognition of beneficial conversion expense of approximately $8,482,000.
Net Loss Attributed to MICT
Our net loss attributed to MICT, Inc. for
the three and nine months ended September 30, 2020, respectively, was $14,151,000 and $15,559,000, compared to net loss of $1,210,000
and $3,222,000 for the three and nine months ended September 30, 2019, respectively. This represents a decrease of $12,941,000
and $12,337,000 for the three and nine months ended September 30, 2020, respectively, as compared to the same period last
year. The decrease in net loss for the three and nine months ended September 30, 2020 is mainly a result of increase in General
and administrative expenses and increase in financial expenses as described above.
Liquidity and Capital Resources
As of September 30, 2020, our total cash
and cash equivalents balance was $18,623,000, as compared to $3,154,000 as of December 31, 2019. This reflects an increase of
$15,469,000 in cash and cash equivalents. The increase in cash and cash equivalents is primarily a result of April and July Convertible
Note transaction as described below. And also, from exercise of option and warrants in the third quarter as described below.
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.
Sales of our Securities
Pursuant to the April 21, 2020, and the
July 8, 2020 Agreements entered by MICT with various purchasers for the sale of certain convertible notes as described in the
Description of Business above, MICT has sold convertible notes with an aggregate total principal amount of approximately $15.0
million under such terms as described hereinabove
On the third quarter a total number of
2,181,282 warrants previously issued by MICT were exercised by certain holders resulting in receipt by MICT of an aggregate principal
amount of $1,612,327.
In addition, as a result of the exercise
of 1,198,000 options issued to consultants and former officers and directors, MICT has received an aggregate principal amount
of $2,365,968.
Loans Provided by Us
On September 19, 2019, MICT Telematics entered
into a loan agreement with Micronet, pursuant to which MICT Telematics loaned Micronet $250,000, 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 $250,000 from non-related parties.
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 $125,000, pursuant
to terms and conditions identical to those governing the First Loan, including the repayment terms. Accordingly, at such date
(and prior to the approval of the Convertible Loan by Micronet’s shareholders on January 1, 2020 as set forth hereunder),
the Company granted to Micronet, pursuant to the First Loan and Second Loan, an accumulated loans in the total sum of $375,000.
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. The
Convertible Loan bears interest at a rate of 3.95% calculated and is paid on a quarterly basis. In addition, the Convertible Loan,
if not converted, shall be repaid in four equal installments, the first of such installment payable following the fifth quarter
after the issuance of the Convertible Loan, with the remaining three installments due on each subsequent quarter thereafter, such
that the Convertible Loan shall be repaid in full upon the lapse of 24 months from its grant. In addition, the outstanding principal
balance of the Convertible Loan, and all accrued and unpaid interest, is convertible at the Company’s option, at a conversion
price equal to 0.38 NIS per Micronet share. Pursuant to the Convertible Loan agreement, Micronet also agreed to issue the Company
an option to purchase up to one of Micronet’s ordinary shares for each ordinary share that it issued as a result of a conversion
of the Convertible Loan, at an exercise price of 0.60 NIS per share, exercisable for a period of 15 months.
On January 1, 2020, the Convertible Loan
transaction was approved at a general meeting of the Micronet shareholders and as a result, the Convertible Loan and the transactions
contemplated thereby entered into effect. At such time, the First Loan and Second Loan were repaid to us and the Convertible Loan
was provided.
On July 5, 2020, with the execution of a capital consolidation
carried out by Micronet ltd, the conversion price of the loan principal and the interest that has not yet been repaid was adjusted
for shares of 0.1 NIS pare value to 5.7 NIS per share and the exercise of the options to which MICT will be entitled if the loan
principal and interest are converted into shares to 9 NIS per share of 0.1 NIS pare value.
On August 13, 2020, MICT Telematics extended
to Micronet an additional loan in the aggregate amount of $175,000 (the “Loan” and the “Loan Sum”, respectively)
which governing the existing outstanding intercompany debt. The Loan does not bear any interest and is provided for a period of
twelve (12) months. The Loan Sum was granted for the purpose of supporting Micronet’s working capital and general corporate needs.
Debt Repayment
As of September 30, 2020, our total debt
was $1,139,000 as compared to $1,856,000 on December 31, 2019. The change in total debt is due to: (i) the conversion of
the BNN Note on January 21, 2020, previously issued on July 31, 2019, into 1,818,181 shares of the Company’s Series B Preferred
Stock on February 3, 2020; (ii) the consolidation of Micronet Ltd. as from June 23, 2020.
Total Current Assets, Trade Accounts Receivable
and Working Capital
As of September 30, 2020, our total current
assets were $21,237,000, as compared to $4,417,000 on December 31, 2019. The increase is primarily due to (i) the increase in
cash and cash equivalents as a result from the April and July Convertible Notes, and (ii) the consolidation of Micronet from June
23, 2020, and (iii) exercise of option and warrants.
As of September 30, 2020, our working capital
was $16,141,000, as compared to $4,127,000 at December 31, 2019. The increase is primarily due to (i) the increase in cash and
cash equivalents as a result from the April and July Convertible Notes, and (ii) the consolidation of Micronet from June 23, 2020,
and (iii) exercise of option and warrants.
Our working capital
may be increased if the $477,000 of proceeds from the sale of our previously wholly owned subsidiary, Enertec, shall be released
from an escrow account pursuant to that certain purchase agreement with Coolisys Technologies Inc., or Coolisys, a subsidiary
of DPW Holdings, Inc., or DPW as further set hereunder (under legal procedures). This is amount is currently in dispute in view
of the legal proceedings between the parties as further detailed hereunder.
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.
We expect the net proceeds from the sale
of the securities will be used to fund the growth and development of our insurance business, as well as for working capital and
for other general corporate purposes. We may also use a portion of the net proceeds to acquire or invest in businesses, products
and technologies that are complementary to our business, but we currently have no commitments or agreements relating to any of
these types of transactions.
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.