The accompanying notes are an integral part of
the unaudited condensed consolidated financial statements
The accompanying notes are an integral part of
the unaudited condensed consolidated financial statements
The accompanying notes are an integral part of
the unaudited condensed consolidated financial statements
The accompanying notes are an integral part of
the unaudited condensed consolidated financial statements
The accompanying notes are an integral part of
the unaudited condensed consolidated financial statements
The following tables provides a reconciliation
of cash and restricted cash reported within the statement of financial position that sum to the total of the same amounts shown in the
statement of cash flows:
The accompanying notes are an integral part of
the unaudited condensed consolidated financial statements
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
NOTE 1 — DESCRIPTION OF BUSINESS
Overview
MICT, Inc (“MICT”,
the “Company”, “We”, “us”, “our”) was formed as a Delaware corporation on January 31,
2002. On March 14, 2013, we changed our corporate name from Lapis Technologies, Inc. to Micronet Enertec Technologies, Inc. On July 13,
2018, following the sale of our former subsidiary Enertec Systems Ltd., we changed our name from Micronet Enertec Technologies, Inc. to
MICT. Our shares have been listed for trading on The Nasdaq Capital Market under the symbol “MICT” since April 29, 2013.
MICT Telematics Ltd (“MICT
Telematics”) is a wholly-owned holding company, established in Israel on December 31, 1991. On October 22, 1993, MICT Telematics
established a wholly-owned holding company headquartered in Israel, MICT Management Ltd.
On February 1, 2019, BI Intermediate
(Hong Kong) Limited (“BI Intermediate”) was incorporated in Hong Kong as a wholly-owned holding company of GFH Intermediate
Holdings Ltd. (“GFHI” or “Intermediate”).
On December 11, 2019, Bokefa
Petroleum and Gas Co., Ltd (“Bokefa Petroleum” ) was incorporated in Hong Kong as a holding company, and is the wholly-owned
subsidiary of BI Intermediate. On October 22, 2020 and March 8, 2021, Bokefa Petroleum established two additional holding companies, Shanghai
Zheng Zhong Energy Technologies Co., Ltd (“Shanghai Zheng Zhong”) and Tianin Bokefa Technology Co., Ltd. (“Bokefa”).
On June 10, 2020, MICT Telematics
purchased 5,999,996 ordinary shares of Micronet Ltd. (“Micronet”) for aggregate proceeds of New Israeli Shekel (“NIS”)
1.8 Million (or $515,000) through tender offer issued by MICT Telematics. As a result, increased our ownership interest in Micronet to
45.53% of Micronet’s issued and outstanding ordinary shares.
Subsequently, on June 23,
2020 we purchased, through a public offering consummated by Micronet on the Tel Aviv Stock Exchange (the “TASE”), 10,334,000
of Micronet’s ordinary shares for total consideration of NIS 3,100,200 (or $887,000). As a result, we increased our ownership interest
in Micronet to 53.39% of Micronet’s outstanding ordinary shares. MICT applied purchase accounting and began to consolidate Micronet’s
operating results into our financial statements once the offering was consummated. MICT recognized a $665,000, gain on previously held
equity in Micronet.
On October 11, 2020, Micronet
consummated 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 Micronet’s offering,
including the purchase of Micronet shares, the exercise of our stock options and the additional purchase of 115,851 Micronet shares from
an individual seller, our ownership interest in Micronet was diluted from 53.39% to 50.31% of Micronet’s outstanding share capital.
On May 9, 2021, following the exercise of options by minority stockholders, the Company’s ownership interest was further diluted
to 49.88% and, as a result we no longer consolidate Micronet’s operating results in our financial statements. As of May 9, 2021,
the Company accounted for the investment in Micronet using the equity method of accounting.
Prior to July 1, 2020, MICT
operated primarily through its Israel-based majority-owned subsidiary, Micronet. Since July 1, 2020, after MICT completed its acquisition
(the “Acquisition”) of GFHI pursuant to that certain Agreement and Plan of Merger entered into on November 7, 2019 by and
between MICT, GFHI, Global Fintech Holding Ltd. (“GFH”), a British Virgin Islands company and the sole shareholder of GFHI,
and MICT Merger Subsidiary Inc., a British Virgin Islands company and a wholly owned subsidiary of MICT (“Merger Sub”), as
amended and restated on April 15, 2020 (the “Restated Merger Agreement” or “Merger”), we have been operating in
the financial technology sector. GFHI is a financial technology company with a marketplace in China , as well as other areas of the world
and is currently in the process of building various platforms for business opportunities in different verticals and technology segments
in order to capitalize on such technology and business. GFHI plans to increase its capabilities and its technological platforms through
acquisition and licensing technologies to support its growth efforts in the different market segments. After the Merger, MICT includes
the business of Intermediate, its wholly-owned subsidiary, operating through its operating subsidiaries, as described herein.
On October 2, 2020, BI Intermediate
entered into a strategic agreement (the “Strategic Agreement”) to acquire the entire share capital of Magpie Securities Limited
(“Magpie”), a Hong Kong based securities and investments firm for a total purchase price of approximately $3.0 million (the
“Purchase Price”). Magpie is licensed to trade securities on leading exchanges in Hong Kong, the U.S. and China, including
China A-Shares, all of which are the primary target markets for Company’s global fintech business. The Strategic Agreement provided
that the acquisition would be consummated in two phases, an initial purchase whereby 9% of the share capital of Magpie was acquired and
thereafter, the remaining 91% of Magpie would be purchased by BI Intermediate upon, and subject to, the approval of the Hong Kong Securities
and Futures Commission (SFC), the principal regulator of Hong Kong’s securities and futures markets. On November 11, 2020, BI Intermediate
closed on its acquisition of the first 9% and paid 9% of the Purchase Price. Additionally, pursuant to the Strategic Agreement upon the
initial closing, BI Intermediate loaned Magpie an amount equivalent to the remaining 91% of the Purchase Price. Upon closing on the remaining
91%, which remained subject to SFC approval, the loan will be cancelled, and BI Intermediate will acquire the remaining 91% of Magpie.
The loan was secured against the pledge of 91% of the share capital of Magpie purchased at such time by BI Intermediate. The obligations
of Magpie, the seller of the interests of Magpie under the loan agreement, have been guaranteed by the majority shareholder of Magpie.
On February 26, 2021 we finalized the acquisition of Magpie. The acquisition was consummated following the receipt of approval from the
SFC effecting the change in the majority shareholder of Magpie. In consideration for the entire share capital of Magpie, we paid a total
Purchase Price of $2.947 million (reflecting the net asset value of Magpie estimated at $2.034 million recorded as a working capital,
and a premium $902 thousands that was recorded as a license in the intangible assets). The Company, through and together with the Company’s
wholly owned subsidiaries, Beijing Magpie Securities Consulting Services Co., Ltd (“Beijing Magpie”) and Shenzhen Magpie Information
Consulting Technology Co., Ltd (“Shenzhen Magpie”), are in the process of integrating its mobile app supporting platform with
Magpie’s licensed trading assets.
Upon completion of the acquisition
of 100% of the equity interest in Magpie, we were able to obtain the licenses and permits needed for operating our online platform. After
we complete the appropriate system testing to ensure scale and reliability, we will be in a position to notify the Hong Kong regulator
of our intended launch date. Our initial plan is to launch the online stock trading platform in Hong Kong.
On January 1, 2021, we entered
into a transaction through Bokefa, with the shareholders of Guangxi Zhongtong Insurance Agency Co., Ltd (“Guangxi Zhongtong”),
a local Chinese entity with business and operations in the insurance brokerage business. Pursuant to the transaction, we loaned the Guangxi
Zhongtong shareholders through a frame work loan (the “GZ Frame Work Loan”) the amount of up to RMB 40 million (approximately
$6,125,000) (“GZ Frame Work Loan Amount”) which is designated, if exercised, to be used as a working capital loan for Guangxi
Zhongtong. As of September 30, 2021, only RMB 8,010,000 (approximately $1,243,000) was drawn down from the GZ Frame Work Loan
for working capital and approximately $857,000 was drawn down for loans to shareholders of Guangxi Zhongtong (as stipulated
in the agreement). In consideration for the GZ Frame Work Loan, the parties entered into various additional agreements which include:
(i) a pledge agreement pursuant to which the shareholders have pledged their shares for the benefit of Bokefa in order to secure
the GZ Frame work Loan Amount (ii) an exclusive option agreement pursuant to which Bokefa has an exclusive option to purchase the
entire issued and outstanding common shares of Guangxi Zhongtong from the shareholders (“Option Agreement”) under such terms
set forth therein (which include an exercise price not less than the maximum GZ Frame Work Loan Amount and the right to convert the GZ
Frame Work Loan Amount into the purchased shares) (iii) an entrustment agreement and power of attorney agreement pursuant to which the
shareholders irrevocably entrusted and appointed Tianjin Bokefa as their proxy and trustee to exercise on their behalf any and all rights
under applicable law and the articles of association of Guangxi Zhongtong in the shareholder’s equity interest in Guangxi Zhongtong
(iv) a business cooperation agreement and a master exclusive service agreement which grants Bokefa rights related to Guangxi Zhongtong’s
business and operations in order to secure repayment of the GZ Frame Work Loan Amount.
This transaction was structured
pursuant to a Variable Interest Entity (“VIE”) Structure (in which we do not hold the shares). As such, and given our direct
ownership in Bokefa and its contractual arrangements with Guangxi Zhongtong, we are regarded as Guangxi Zhongtong’s controlling
entity and primary beneficiary of Guangxi Zhongtong business. We have, therefore, consolidated the financial position and operating results
of Guangxi Zhongtong into our consolidated financial statements, using the fair value of the assets and liabilities of Guangxi Zhongtong,
in accordance with U.S. GAAP. Please see below for VIE related disclosure.
Beijing Fucheng Lianbao Technology
Co., Ltd (“Beijing Fucheng”) is an entity incorporated on December 29, 2020, in which “Bokefa owns 24% equity interest
with the remaining 76% controlled by Bokefa through VIE agreements. On February 10, 2021, Beijing Fucheng acquired all of the shares of
Beijing Yibao Technology Co., Ltd., (“Beijing Yibao”) which holds 100% of the equity interest in Beijing Fucheng Insurance
Brokerage Co., Ltd. (“Fucheng Insurance”). Fucheng Insurance is a Chinese insurance brokerage agency and a nation-wide licensed
entity which offers insurance brokerage services for a broad range of insurance products. Fucheng Insurance, with and through their nationwide
license, will give us the flexibility to offer and create tailor-made insurance products, leverage customers directly or through distribution
partners and procure better deals with both our existing and new insurance company partners. Fucheng Insurance further enables us to accelerate
onboarding of new agents onto our platforms all throughout China. It also creates the opportunity to promote our business through some
of China’s biggest online portals, which will provide business-to-business-to-consumer (B2B2C) as well as business-to-consumer (B2C)
channels. When Fucheng Insurance initiates its nationwide rollout of its mobile application, it will facilitate access to those portals’
vast customer bases which will also offer MICT’S full suite of insurance products. Beijing Fucheng shares were acquired for approximately
$5.7 million, and funded through MICT. For further information please refer to Note 7.
On June 16, 2021, Micronet
announced that it completed a public equity offering on the TASE. Pursuant to the offering, Micronet sold an aggregate of 18,400 securities
units (the “Units”) at a price of NIS 14.6 per Unit with each Unit consisting of 100 ordinary shares, 25 series A options
and 75 series B options, resulting in the issuance of 1,840,000 ordinary shares, 460,000 series A options and 1,380,000 series B options.
Micronet raised total gross proceeds of NIS 26,864,000 (approximately $8,290,000) in the offering. The Company did not participate in
the offering, and, as a result, the Company owned 36.95% of the outstanding ordinary shares of Micronet and 26.56% on a fully diluted
basis as of September 30, 2021.
On July 1, 2021, Bokefa entered
into a transaction with the shareholders of All Weather Insurance Agency Co., Ltd (“All Weather”), a local Chinese entity
with business and operations in the field of broker insurance (the “Transaction”). Pursuant to the Transaction, Bokefa
agreed to provide the All Weather shareholders with a frame work loan (the “AW Frame Work Loan”) for a
total amount of up to RMB 30 million (approximately $4.7 million) (the “AW Frame work Loan Amount”) which, if utilized,
will be ued for working capital purposes of All Weather. In consideration for the AW Frame Work Loan, the parties entered
into various additional agreements which include: (i) a pledge agreement pursuant to which the shareholders pledged their shares for the
benefit of Bokefa in order to secure the amount for the AW Frame Work Loan Amount (ii) an exclusive option agreement pursuant to which
Bokefa has an exclusive option to purchase the entire issued and outstanding common shares of All Weather from the Shareholders (“Option
Agreement”) under such terms set forth in the Option Agreement (which include an exercise price not less than the maximum AW Frame
Work Loan Amount and the right to convert the AW Frame Work Loan Amount into the purchased shares) (iii) an entrustment agreement and
power of attorney agreement pursuant to which the shareholders irrevocably entrusted and appointed Bokefa as their proxy and trustee to
exercise on their behalf any and all rights under applicable law and the articles of association of All Weather in the shareholder’s
equity interest in All Weather and (iv) a business cooperation agreement and a master exclusive service agreement which grants Bokefa
rights related to All Weather’s business and operations in order to secure repayment of the AW Frame Work Loan Amount. The Transaction
was structured as a VIE structure (pursuant to which we do not technically hold the shares) and as a result of our direct ownership in
Bokefa and its contractual arrangements with All Weather, we are regarded as All Weather’s controlling entity and primary beneficiary
of All Weather’s business. On October 27, 2021, the entire AW Frame Work Loan Amount was utilized by the All Weather shareholders
and was transferred to All Weather for purposes of working capital. In addition, as of September 30, 2021, the Company granted All
Weather shareholders with an additional loan in the sum of approximately $776,000, to be provided in advance to a transaction between
the parties pursuant to which the VIE structure described above shall be replaced by an equity structure for the purchase by MICT of such
equity interests in All Weather on such commercial and other terms to be agreed by the parties.
On August 23, 2021, Beijing
Yibao, Guangxi Zhongtong, and two shareholders of Guangxi Zhongtong entered into a capital increase agreement, pursuant to which Beijing
Yibao will invest approximately RMB30 million (USD 4.7 million) into Guangxi Zhongtong. On October 21, 2021, Yibao transferred such funds
and the transaction closed. As a result of the transaction, Beijing Yiabo now holds a sixty percent (60%) equity interest in Guangxi Zhongtong
and is the controlling shareholder. As a condition of the closing, the previous agreements consummated on January 1, 2021 per the GZ Frame
Work Loan became null and void.
From January through September
2021, Shenzhen Bokefa Technology Co., Ltd (“Shenzhen Bokefa”) and Tianjin Dibao Technology Co., Ltd (“Tianjin Dibao”)
were established under BI Intermediate as holding companies to further develop the Company’s business in China.
Our current business, following
the completion of the acquisition of GFHI, is primarily comprised and focused on the growth and development of the GFHI financial technology
offering and the marketplace in China. We are in the process of building various platforms for business opportunities in different verticals
and technology segments in order to capitalize on such technology and business.
As a result of our acquisition
of GFHI and the subsequent work we have undertaken with the management of GFHI, we are positioned to establish ourselves, through our
operating subsidiaries, to serve the markets as a financial technology company with a significant Chinese marketplace. We plan to expand
on a global level as we continue to scale our business. GFHI has built various platforms to capitalize on business opportunities in a
range of verticals and technology segments, which currently include stock trading and wealth management, commodities in segments of oil
and gas trading and insurance brokerage. We are seeking to secure material contracts in all of these market segments in China while also
developing opportunities in order to allow GFHI access to these markets. We will continue to increase the capabilities of our platforms
through acquisition and/or licensing different technologies to support our efforts. By building secure, reliable and scalable platforms
with high volume processing capability, we intend to provide customized solutions that address the needs of a highly diverse and broad
client base.
We implemented our plans by capitalizing
on Intermediate’s experience with local markets in China, as well as with the Company’s operating subsidiaries, which have
begun to secure material contracts in fast growing market segments in China.
Our current opportunities
have given us access the following market segments:
|
●
|
Stock
trading and wealth management segment;
|
|
●
|
Commodities
in the field of Oil and gas trading segment; and
|
|
●
|
Insurance
brokerage segment
|
These opportunities will continue
to be realized and executed through our business development efforts, which include the acquisition of potential target entities, business
and assets (such as applicable required licenses) in the relevant business space and segments in which we plan to operate. This allows
the Company to enter into the market quickly and leverage existing assets in order to promote our growth strategy.
The following diagram illustrates
the Company’s corporate structure, including its subsidiaries, and variable interest entities (“VIEs”), as of September
30, 2021:
VIE agreements with Guangxi Zhongtong:
On January 1, 2021, Bokefa,
our wholly foreign-owned enterprise (“WFOE”), Guangxi Zhongtong, and nominee shareholders of Guangxi Zhongtong entered into
six agreements, described below, pursuant to which Bokefa is deemed to have controlling financial interest and be the primary beneficiary
of Guangxi Zhogntong. Therefore, Guangxi Zhongtong is deemed a VIE of Bokefa:
Loan Agreement
Pursuant to this agreement,
Bokefa agreed to provide loans to the registered shareholders of Guangxi Zhongtong. The effective term of the loan agreement is unlimited,
and the agreement shall terminate when the shareholders repay the loan. The loan should be used solely for Guangxi Zhongtong’s operating
expenses, and should be exclusively repaid by transferring shares of Guangxi Zhongtong to Bokefa when PRC Law permits.
Exclusive Option Agreement
The effective term of the
agreement is unlimited and the agreement shall terminate upon the transfer of all the equity interest of Guangxi Zhongtong to Bokefa in
accordance with relevant laws and provisions as provided in the agreement, or upon written notice by Bokefa to shareholders. In consideration
of Bokefa’s loan arrangement, the shareholders have agreed to grant Bokefa an exclusive option to purchase their equity interest.
Distribution of residual profits, if any, are restricted without the approval of Bokefa. Upon request by Bokefa, Guangxi Zhongtong is
obligated to distribute profits to the shareholders of Guangxi Zhongtong, who must remit such profits to Bokefa immediately. Guangxi Zhongtong
and its shareholders are required to act in a manner that is in the best interest of Bokefa with regards to Guangxi Zhongtong’s
business operation.
Equity Pledge Agreement
The agreement will be terminated
upon such date when the other agreements have been terminated. Pursuant to the agreement, the nominee shareholder pledged all its equity
interest in Guangxi Zhongtong to Bokefa as security for the obligations in the other agreements. Bokefa has the right to receive dividends
on the pledged shares, and all shareholders are required to act in a manner that is in the best interest of Bokefa.
Business Cooperation Agreement
The agreement is effective
until terminated by both parties. Guangxi Zhongtong and its shareholders agree that the legal person, directors, general manager and other
senior officers of Guangxi Zhongtong should be appointed or elected by Bokefa. Guangxi Zhongtong and its shareholders agree that all the
financial and operational decisions for Guangxi Zhongtong will be made by Bokefa.
Exclusive Service Agreement
The effective term of this
agreement is for one year and it can be extended an unlimited number of times if agreed by both parties. Bokefa agrees to provide exclusive
technical consulting and support services to Guangxi Zhongtong and Guangxi Zhongtong agrees to pay service fees to Bokefa.
Entrustment and Power of Attorney Agreement
The shareholders of Guangxi Zhongtong agreed to
entrust all the rights to exercise their voting power and any other rights as shareholders of Guangxi Zhongtong to Bokefa. The shareholders
of Guangxi Zhongtong have each executed an irrevocable power of attorney to appoint Bokefa as their attorney-in-fact to vote on their
behalf on all matters requiring shareholder approval. The agreement is effective until deregistration of Guangxi Zhongtong.
VIE agreements with Beijing Fucheng:
On December 31, 2020, Bokefa,
Beijing Fucheng, and a shareholder of Beijing Fucheng entered into six agreements, described below, pursuant to which Bokefa is deemed
to have a controlling financial interest and be the primary beneficiary of Beijing Fucheng,. Therefore, Beijing Fucheng is deemed a VIE
of Bokefa. Beijing Fucheng was incorporated on December 29, 2020 and had no assets or liabilities as of December 31, 2020.
Loan Agreement
Pursuant to this agreement,
Bokefa agreed to provide loans to the registered shareholders of Beijing Fucheng. The effective term of the loan agreement is unlimited,
and the agreement terminates when the shareholders repay the loan. The loan should be used solely for Beijing Fucheng’s operating
expenses, and should be exclusively repaid by transferring shares of Beijing Fucheng to Bokefa when PRC Law permits.
Exclusive Option Agreement
The effective term of the
agreement is unlimited and the agreement shall terminate upon the transfer of all of the equity interest of Bejing Fucheng to Bokefa in
accordance with relevant laws and provisions as provided in the agreement, or upon written notice by Bokefa to the shareholders. In consideration
for Bokefa’s loan arrangement, the shareholders have agreed to grant Bokefa an exclusive option to purchase their equity interest.
Distribution of residual profits, if any, is restricted without the approval of Bokefa. Upon request by Bokefa, Beijing Fucheng is obligated
to distribute profits to the shareholders of Beijing Fucheng, who must remit those profits to Bokefa immediately. Beijing Fucheng and
its shareholders are required to act in a manner that is in the best interest of Bokefa with regards to Beijing Fucheng’s business
operations.
Equity Pledge Agreement
The agreement will be terminated
at the date when the other agreements have been terminated. Pursuant to the agreement, the shareholders pledged all their equity interest
in Beijing Fucheng to Bokefa as security for its obligations under the agreements. Bokefa has the right to receive dividends on the pledged
shares, and all shareholders are required to act in a manner that is in the best interest of Bokefa.
Business Cooperation Agreement
The agreement is effective
until terminated by both parties. Beijing Fucheng and its shareholders agree that the legal person, directors, general manager and other
senior officers of Beijing Fucheng should be appointed or elected by Bokefa. Beijing Fucheng and its shareholders agree that all financial
and operational decisions of Beijing Fucheng will be made by Bokefa.
Exclusive Service Agreement
The effective term of this
agreement is for one year and it can be extended an unlimited number of times if agreed by both parties. Bokefa agrees to provide exclusive
technical consulting and support services to Beijing Fucheng and Beijing Fucheng agrees to pay service fees to Bokefa.
VIE
agreements with All Weather:
On July 1, 2021, Bokefa, All
Weather, and nominee shareholders of All Weather entered into six agreements, described below, pursuant to which Bokefa is deemed to have
a controlling financial interest and be the primary beneficiary of All Weather. All Weather is deemed a VIE of Bokefa
Loan
Agreement
Pursuant
to this agreement, Bokefa agreed to provide loans to the registered shareholders of All Weather. The effective term of the loan agreement
is unlimited, and the agreement shall terminate when the shareholders repay the loan. The loan should be used solely by All Weather for
operating expenses, and should be exclusively repaid by transferring shares of All Weather to Bokefa when PRC Law permits.
Exclusive Option Agreement
The effective term of the
agreement is unlimited and the agreement shall terminate upon the transfer of all of the equity interest of All Weather to Bokefa in
accordance with relevant laws and provisions in the agreement, or upon written notice by Bokefa to the shareholders. In consideration
for Bokefa’s loan arrangement, the shareholders have agreed to grant Bokefa an exclusive option to purchase their equity interest.
Distribution of residual profits, if any, is restricted without the approval of Bokefa. Upon request by Bokefa, All Weather is obligated
to distribute profits to the shareholders of All Weather, who must remit the profits to Bokefa immediately. All Weather and its shareholders
are required to act in a manner that is in the best interest of Bokefa with regard to All Weather’s business operations.
Equity Pledge Agreement
The agreement will be terminated
at the date when the other agreements have been terminated. Pursuant to the agreement, the nominee shareholders pledged all of their equity
interest in All Weather to Bokefa as security for their obligations pursuant to the other agreements. Bokefa has the right to receive
dividends on the pledged shares, and all shareholders are required to act in a manner that is in the best interest of Bokefa.
Business Cooperation Agreement
The agreement is effective until terminated by both parties. All Weather and its shareholders agree that the legal person, directors,
general manager and other senior officers of All Weather should be appointed or elected by Bokefa. All Weather and its shareholders agree
that all the financial and operational decisions of All Weather will be made by Bokefa.
Exclusive
Service Agreement
The effective term of this agreement is for one year and it can be extended an unlimited number of times if agreed by both parties. Bokefa
agrees to provide exclusive technical consulting and support services to All Weather and All Weather agrees to pay service fees to Bokefa.
Entrustment and Power of Attorney Agreement
The shareholders of All Weather
agreed to entrust all their rights to exercise their voting power and any other rights as shareholders of All Weather to Bokefa. The shareholders
of All Weather have each executed an irrevocable power of attorney to appoint Bokefa as their attorney-in-fact to vote on their behalf
on all matters requiring shareholder approval. The agreement is effective until the deregistration of All Weather.
The assets and liabilities
of the Company’s VIEs (Guangxi Zhongtong, All Weather and Beijing Fucheng) included in the Company’s unaudited condensed consolidated
financial statements as of September 30, 2021 are as follows:
|
|
September 30,
2021
USD
in thousands
|
|
|
|
(Unaudited)
|
|
Current assets:
|
|
|
|
Cash
|
|
$
|
2,062
|
|
Trade accounts receivable, net
|
|
|
17,193
|
|
Other current assets
|
|
|
5,433
|
|
Total current assets
|
|
|
24,688
|
|
|
|
|
|
|
Property and equipment, net
|
|
|
254
|
|
Long-term prepaid expenses
|
|
|
23
|
|
Right of use assets
|
|
|
139
|
|
Intangible assets
|
|
|
4,814
|
|
Total long-term assets
|
|
|
5,230
|
|
|
|
|
|
|
Total assets
|
|
$
|
29,918
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
Trade accounts payable
|
|
$
|
17,475
|
|
Other current liabilities
|
|
|
6,590
|
|
Total current liabilities
|
|
|
24,065
|
|
|
|
|
|
|
|
|
|
|
|
Long -term liabilities:
|
|
|
|
|
Lease liability
|
|
$
|
194
|
|
Total long-term liabilities
|
|
$
|
194
|
|
|
|
|
|
|
Total liabilities
|
|
$
|
24,259
|
|
Net revenues, loss from operations
and net loss of the VIEs that were included in the Company’s unaudited condensed consolidated financial statements for the three
and nine months ended September 30, 2021 are as follows:
|
|
For the
Three Months
Ended
|
|
|
For the
Nine Months
Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2021
|
|
|
2021
|
|
|
|
USD
in thousands
|
|
|
USD
in thousands
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
Net revenues
|
|
$
|
17,445
|
|
|
$
|
31,710
|
|
Loss from operations
|
|
$
|
603
|
|
|
$
|
(490
|
)
|
Net loss
|
|
$
|
603
|
|
|
$
|
(490
|
)
|
NOTE
2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis
of Presentation
The
unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted
in the United States of America (“U.S. GAAP”). In the opinion of management, all adjustments (which include normal recurring
adjustments) necessary to present a fair presentation of the Company’s financial position, its results of operations and its cash
flows, as applicable, have been made. Interim results are not necessarily indicative of results to be expected for the full year. The
information included in this Form 10-Q should be read in conjunction with information included in the Company’s December 31, 2020
annual report on Form 10-K filed on March 31, 2021.
The
Company’s operations and business may still be subject to adverse effect due to the unprecedented conditions surrounding the spread
of COVID-19 throughout North America, Israel, China and the world. Although currently the COVID-19 (due to the measures implemented to
reduce the spread of the virus) have not had a material adverse effect on the Company consolidated financial reports; there can be no
assurance that Company’s financial reports will not be affected in the future from COVID-19 or resulting from restrictions and
other government actions.
Principles
of Consolidation
The
accompanying consolidated financial statements are prepared in accordance with generally accepted accounting principles in the U.S. GAAP.
Cash
Cash
consists of cash on hand, demand deposits and time deposits placed with banks or other financial institutions and have original maturities
of less than three months.
Accounts
receivable, net
Accounts
receivable include trade accounts due from customers. Accounts are considered overdue after thirty (30) days from payment due date. In
establishing the required allowance for doubtful accounts, management considers historical collection experience, aging of the receivables,
the economic environment, industry trend analysis, and the credit history and financial conditions of the customers. Management reviews
its receivables on a regular basis to determine if the bad debt allowance is adequate, and adjusts the allowance when necessary. Delinquent
account balances are written off against allowance for doubtful accounts after management has determined that the likelihood of collection
is not probable. As of September 30, 2021 and December 31, 2020, allowance for doubtful accounts amounted to nil and approximately $5,000,
respectively.
Inventories
Inventories consisting of
raw materials are stated at the lower of cost (first-in, first-out basis) or realizable value. Cost of work in process is comprised of
direct materials, direct production costs and an allocation of production overheads based on normal operating capacity.
Foreign
currency translation and transaction
The
reporting currency of the Company is the U.S. dollar. The Companies in China conducts their businesses in the local currency, Renminbi
(RMB), as its functional currency. The Companies in Israel conducts their businesses in the local currency, New Israeli Shekel (NIS),
as its functional currency. The Companies in Hong Kong conducts their businesses in the local currency, Hong Kong Dollar (HKD), as its
functional currency.
Assets
and liabilities are translated at the noon buying rate in the City of New York for cable transfers of RMB , NIS and HKD as certified
for customs purposes by the Federal Reserve Bank of New York at the end of the period. The statement of income accounts are translated
at the average translation rates and the equity accounts are translated at historical rates. Translation adjustments resulting from this
process are included in accumulated other comprehensive income (loss). Transaction gains and losses that arise from exchange rate fluctuations
on transactions denominated in a currency other than the functional currency are included in the results of operations as incurred.
Segment
reporting
Accounting
Standard Codification (“ASC”) Topic 280, “Segment Reporting”, establishes standards for reporting information
about operating segments on a basis consistent with the Company’s internal organizational structure as well as information about
geographical areas, business segments and major customers in financial statements for detailing the Company’s business segments.
Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision maker (the
“CODM”), which is comprised of certain members of the Company’s management team.
Operating
leases
The
Company follows ASC No. 842, Leases. The Company determines if an arrangement is a lease or contains a lease at inception. Operating
lease liabilities are recognized based on the present value of the remaining lease payments, discounted using the discount rate for the
lease at the commencement date. As the rate implicit in the lease is not readily determinable for the operating lease, the Company generally
uses an incremental borrowing rate based on information available at the commencement date to determine the present value of future lease
payments. Operating lease right-of-use assets (“ROU assets”) represent the Company’s right to control the use of an
identified asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from
the lease. ROU assets are generally recognized based on the amount of the initial measurement of the lease liability. Lease expense is
recognized on a straight-line basis over the lease term.
ROU
assets are reviewed for impairment when indicators of impairment are present. ROU assets from operating and finance leases are subject
to the impairment guidance in ASC 360, Property, Plant, and Equipment, as ROU assets are long-lived nonfinancial assets.
ROU
assets are tested for impairment individually or as part of an asset group if the cash flows related to the ROU asset are not independent
from the cash flows of other assets and liabilities. An asset group is the unit of accounting for long-lived assets to be held and used,
which represents the lowest level for which identifiable cash flows are largely independent of the cash flows of other groups of assets
and liabilities.
The
Company recognized no impairment of ROU assets as of September 30, 2021 and December 31, 2020.
The
operating lease is included in right-of-use assets and lease liability on the unaudited condensed consolidated balance sheets.
Investments
The
Company’s long-term investments consist of equity investments in privately held entities accounted for using the measurement alternative
and equity investments accounted for using the equity method. On January 1, 2018, the Company adopted ASU 2016-01 Financial Instruments-Overall
(Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities. According to the guidance, the Company
accounts for the equity investments at fair value, with gains and losses recorded through net earnings. The Company elected to measure
certain equity investments without readily determinable fair value at cost, less impairments, plus or minus observable price changes
and assess for impairment quarterly.
The
Company accounts for its equity investment over which it has significant influence but does not own a majority equity interest or otherwise
control, using the equity method. The Company adjusts the carrying amount of the investment and recognizes investment income or loss
for its share of the earnings or loss of the investee after the date of investment. The Company assesses its equity investment for other-than-temporary
impairment by considering factors including, but not limited to, current economic and market conditions, operating performance of the
entity, including current earnings trends and undiscounted cash flows, and other entity-specific information. The fair value determination,
particularly for investments in a privately held entity, requires judgment to determine appropriate estimates and assumptions. Changes
in these estimates and assumptions could affect the calculation of the fair value of the investment and determination of whether any
identified impairment is other-than-temporary.
As
of September 30, 2021, the Company owned 36.95% of shares in Micronet which was accounted for under equity method.
As of September 30, 2021,
the Company owned 24% of the shares in Beijing Fucheng and controlled the remaining 76% through contractual arrangements as discussed
in Note 1. Beijing Fucheng was therefore 100% consolidated in the unaudited condensed consolidated financial statements.
Fair
value measurement
The
accounting standard regarding fair value of financial instruments and related fair value measurements defines financial instruments and
requires disclosure of the fair value of financial instruments held by the Company.
The
accounting standards define fair value, establish a three-level valuation hierarchy for disclosures of fair value measurement and enhance
disclosure requirements for fair value measures. The three levels are defined as follow:
|
●
|
Level
1 inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.
|
|
●
|
Level
2 inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are
observable for the assets or liability, either directly or indirectly, for substantially the full term of the financial instruments.
|
|
●
|
Level
3 inputs to the valuation methodology are unobservable and significant to the fair value.
|
Financial
instruments included in current assets and current liabilities are reported in the consolidated balance sheets at face value or cost,
which approximate fair value because of the short period of time between the origination of such instruments and their expected realization
and their current market rates of interest.
Intangible
assets
The
Company’s intangible assets with definite useful lives primarily consist of licensed software, capitalized development costs, platform
system, and land-use rights. The Company amortizes its intangible assets with definite useful lives over their estimated useful lives
and reviews these assets for impairment. The Company typically amortizes its intangible assets with definite useful lives on a straight-line
basis over the shorter of the contractual terms or the estimated useful lives. The Company did not record any impairment of intangible
assets as of September 30, 2021 and December 31, 2020.
Intangible
assets are stated at cost less accumulated amortization. Amortization is computed using the straight-line method over the estimated useful
lives of the assets. The estimated useful lives are as follows:
|
|
Useful Life
|
Licensed & software
|
|
indefinite useful life
|
Technology know-how
|
|
6 years
|
Trade name/ trademarks
|
|
5 years
|
Customer relationship
|
|
5 years
|
Goodwill
Goodwill
represents the excess of the purchase price over the estimated fair value of the net assets acquired in the acquisition of a business.
We test goodwill for impairment annually in the fourth quarter and when events or changes in circumstances indicate that the fair value
of a reporting unit with goodwill has been reduced below its carrying value. On January 26, 2017, the Financial Accounting Standards
Board (“FASB”) issued ASU 2017-04, “Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment.”
The standard simplifies the accounting for goodwill impairment by requiring a goodwill impairment to be measured using a single step
impairment model, whereby the impairment equals the difference between the carrying amount and the estimated fair value of the specified
reporting units in their entirety. This eliminated the second step of the previous impairment model that required companies to first
estimate the fair value of all assets in a reporting unit and measure impairments based on those estimated fair values and a residual
measurement approach. It also specifies that any loss recognized should not exceed the total amount of goodwill allocated to that reporting
unit. The Company did not record any impairment of goodwill as of September 30, 2021 and December 31, 2020.
Use
of Estimates and Assumptions
The
preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities as of the date of the consolidated
financial statements and the reported amounts of revenues and expenses during the periods presented. Significant accounting estimates
reflected in our consolidated financial statements include the useful lives of plant and equipment and intangible assets, capitalized
development costs, impairment of long-lived assets, goodwill, intangible assets, allowance for doubtful accounts, revenue recognition,
allowance for deferred tax assets and uncertain tax position. Actual results could differ from these estimates.
Revenue
Recognition
In
May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers (Topic 606)”, or ASU 2014-09. ASU 2014-09
requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services
to customers. ASU 2014-09 will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective and permits
the use of either the retrospective or cumulative effect transition method. We adopted Topic 606 on January 1, 2018 using the modified
retrospective transition method, and the adoption did not have a material impact on our consolidated financial statements.
We
recognize revenue which represents the transfer of goods and services to customers in an amount that reflects the consideration to which
we expect to be entitled in such exchange. We identify contractual performance obligations and determines whether revenue should be recognized
at a point in time or over time, based on when control of goods and services are provided to customers.
We
use a five-step model to recognize revenue from customer contracts. The five-step model requires us to (i) identify the contract with
the customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price, including variable consideration
to the extent that it is probable that a significant future reversal will not occur; (iv) allocate the transaction price to the respective
performance obligations in the contract; and (v) recognize revenue when (or as) we satisfy the performance obligation.
We
derive our revenues from sales contracts with our customers with revenues being recognized upon performance of services. Our contracts
with customers generally do not include a general right of return relative to the delivered products or services. We applied practical
expedient when sales taxes were collected from customers, meaning sales tax is recorded net of revenue, instead of cost of revenue, which
are subsequently remitted to governmental authorities and are excluded from the transaction price.
With
respect to Micronet applicable revenue recognition U.S. GAAP requirements, Micronet implements a revenue recognition policy pursuant
to which it recognizes its revenues at the amount to which it expects to be entitled when control of the products or services is transferred
to its customers. Control is generally transferred when the Company has a present right to payment and title and the significant risks
and rewards of ownership of products are transferred to its customers. There is limited discretion needed in identifying the point control
passes: once physical delivery of the products to the agreed location has occurred, Micronet no longer has physical possession of the
product and will be entitled at such time to receive payment while relieved from the significant risks and rewards of the goods delivered.
For most of Micronet’s products sales, control transfers when products are shipped.
The
Company’s revenues are generated from: a) providing customers with marketing promotion and information drainage services, which
is to charge information service fees according to the customer traffic information provided to customers with business needs; b) to
providing insurance brokerage services or insurance agency services on behalf of insurance carriers. With respect to the information
drainage services and insurance brokerage services applicable to revenue recognition U.S. GAAP requirements, the company implements a
revenue recognition policy pursuant to which it recognizes its revenues at the amount to which it expects to be entitled when control
of the products or services is transferred to its customers. Control is generally transferred when the Company has a present right to
payment and title and the significant risks and rewards of ownership of products are transferred to its customers. Our performance obligation
to the insurance carrier is satisfied and commission revenue is recognized at the point in time when an insurance policy becomes effective.
The Company provides customers with information drainage services and settles service charges with customers on the monthly basis. Performance
obligation is satisfied overtime during the contract term.
In
accordance with ASC 606-10-55, Revenue Recognition: Principal Agent Considerations, the Company considers several factors in determining
whether it acts as the principal or as an agent in the arrangement of merchandise sales and provision of various related services and
thus whether it is appropriate to record the revenues and the related cost of sales on a gross basis or record the net amount earned
as service fees. For insurance brokerage services, we have identified our promise to sell insurance policies on behalf of the insurance
carriers as the performance obligation in our contracts with the insurance carriers.
Income
Taxes
Deferred
taxes are determined utilizing the “asset and liability” method, whereby deferred tax asset and liability account balances
are determined based on differences between financial reporting and the tax basis of assets and liabilities and are measured using the
enacted tax rates and laws that will be in effect when the differences are expected to reverse. The Company provides a valuation allowance,
when it’s more likely than not that deferred tax assets will not be realized in the foreseeable future.
The
Company applied FASB ASC Topic 740-10-25, “Income Taxes,” which provides guidance for recognizing and measuring uncertain
tax positions and prescribes a threshold condition that a tax position must meet for any of the benefits of the uncertain tax position
to be recognized in the financial statements. It also provides accounting guidance on derecognizing, classification and disclosure of
these uncertain tax positions. The Company’s policy on classification of all interest and penalties related to unrecognized income
tax positions, if any, is to present them as a component of income tax expense.
MICT
and its subsidiaries and VIEs within the jurisdiction of the United States, Israel and China are subject to a tax examination for the
most recent three, four and five years, respectively.
Stock-Based
Compensation
Stock-based
compensation granted to the Company’s employees and consultants are measured at fair value on grant date and stock-based compensation
expense is recognized (i) immediately at the grant date if no vesting conditions are required, or (ii) using the accelerated attribution
method, net of estimated forfeitures, over the requisite service period. The fair value of restricted shares is determined with reference
to the fair value of the underlying shares.
At
each date of measurement, the Company reviews internal and external sources of information to assist in the estimation of various attributes
to determine the fair value of the share-based awards granted by the Company, including but not limited to the fair value of the underlying
shares, expected life, expected volatility and expected forfeiture rates. The Company is required to consider many factors and make certain
assumptions during this assessment. If any of the assumptions used to determine the fair value of the stock-based compensation changes
significantly, stock-based compensation expense may differ materially in the future from that recorded in the current reporting period.
Reclassification
Prior
to the deconsolidation of Micronet, Micronet had been taking active steps to sell its building within the year 2021. The company reclassified
the related assets which were previously included in property and equipment, net and intangible assets, net to held-for-sale as of December
31, 2020.
Note
3 — Stockholders’ Equity
On November 2, 2020 the Company
entered into a Securities Purchase Agreement (the “Purchase Agreement”) with certain investors for the purpose of raising
$25.0 million in gross proceeds for the Company (the “Offering”). Pursuant to the terms of the Purchase Agreement, the Company
sold, in a registered direct offering, an aggregate of 10,000,000 units (each, a “Unit”), with each Unit consisting of one
share of the Company’s common stock, par value $0.001 per share and one warrant to purchase 0.8 of one share of Common Stock at
a purchase price of $2.50 per Unit. The warrants are exercisable nine months after the date of issuance at an exercise price of $3.12
per share and will expire five years following the date the warrants become exercisable. The closing of the sale of Units pursuant
to the. Purchase Agreement occurred on November 4, 2020. By December 31, 2020, the Company had received a total of $22.325 million
in gross proceeds pursuant to Offering and issued in the aggregate, 7,600,000 Units. The remaining gross proceeds, in the additional aggregate
amount of $2.675 million, were received by the Company on March 1, 2021 and in consideration for such proceeds, the Company issued the
remaining 2,400,000 units.
On February 11, 2021, the
Company announced that it had entered into a securities purchase agreement (the “February Purchase Agreement”) with certain
institutional investors for the sale of (i) 22,471,904 shares of common stock, (ii) 22,471,904 Series A warrants to purchase 22,471,904
shares of common stock and (iii) 11,235,952 Series B warrants to purchase 11,235,952 shares of common stock at a combined purchase price
of $2.67 (the “February Offering”). The gross proceeds to the Company from the February Offering were expected to be approximately
$60.0 million. The Series A warrants will be exercisable nine months after the date of issuance, have an exercise price of $2.80 per share
and will expire five and one-half years from the date of issuance. The Series B warrants will be exercisable nine months after the date
of issuance, have an exercise price of $2.80 per share and will expire three and one-half years from the date of issuance. The Company
received net proceeds of $54.0 million on February 16, 2021 after deducting the placement agent’s fees and other expenses.
On March 2, 2021, the Company
entered into a securities purchase agreement (the “March Purchase Agreement”) with certain investors for the purpose of raising
approximately $54.0 million in gross proceeds for the Company. Pursuant to the terms of the March Purchase Agreement, the Company agreed
to sell, in a registered direct offering, an aggregate of 19,285,715 shares of the Company’s common stock, par value $0.001 per
share, at a purchase price of $2.675 per share and in a concurrent private placement, warrants to purchase an aggregate of 19,285,715
shares of common stock, at a purchase price of $0.125 per warrant, for a combined purchase price per share and warrant of $2.80 which
was priced at the market under Nasdaq rules. The warrants are immediately exercisable at an exercise price of $2.80 per share, subject
to adjustment, and expire five years after the issuance date. The closing date for the transaction consummated under the March Purchase
Agreement was on March 4, 2021. The Company received net proceeds of $48.69 million on March 4, 2021, after deducting the placement agent’s
fees and other expenses.
On
May 17, 2021, the Company’s Board of Directors (the “Board”) unanimously approved a grant of fully vested 6,000,000
shares of common stock to Mr. Darren Mercer, the Company’s Chief Executive Officer. The issuance of the shares was pursuant to
the Company’s long term incentive plan as previously approved by the stockholders and negotiated in connection with the Company’s
acquisition of Global Fintech Holdings Limited. The Board unanimously agreed to issue the shares in recognition of Mr Mercer’s
direct contribution to achieving numerous key deliverables including: (i) the completion of several acquisitions, including those of
Fucheng Insurance and Magpie; (ii) obtaining regulatory approval from the Hong Kong SFC regarding the acquisition of Magpie; (iii) the
execution of several major commercial contracts and partnerships, including with a number of major insurance agents and one of China’s
largest payment service providers; (iv) the execution of an exclusive partnership with the Shanghai Petroleum and Natural Gas Trading
Center to which allows MICT to provide financial services to its customers; (v) the successful launch of the insurance business in December
2020 and the delivery of significant revenues and revenue growth in Q1 2021; and (vi) the completion of capital raises totaling in excess
of $140 million and broadening the Company’s institutional investor base.
On
May 17, 2021, the Board unanimously approved a grant of fully vested 300,000 shares of common stock of the Company to Richard
Abrahams, Magpie’s Chief Executive Officer.
Our
2012 Stock Incentive Plan (the “2012 Incentive Plan”) was initially adopted by the Board on November 26, 2012 and approved
by our stockholders on January 7, 2013 and subsequently amended on September 30, 2014, October 26, 2015, November 15, 2017 and November
8, 2018. Under the 2012 Incentive Plan, as amended, up to 5,000,000 shares of our common stock, are currently authorized to be issued
pursuant to option awards granted thereunder. On May 17, 2021, May 23, 2021 and June 28, 2021, the Company granted an aggregate of 125,000,
370,000 and 245,000 respectively, options under the 2012 Incentive Plan, with an exercise price of $1.41, $1.81 and $2.49, respectively,
of which 310,000 options vested as of September 30, 2021. This resulted in a stock-based compensation expense of approximately $458,000
recorded for the nine months ended September 30, 2021, based on a fair value determined using a Black-Scholes model.
On
March 22, 2021, 20,000 shares of common stock were issued to an employee who exercised their options at an exercise price of $1.41.
In September 2021, the Board
unanimously approved a grant of 87,000 fully vested shares of common stock of the Company to some of our employees.
On
September 13, 2021, 40,000 shares of common stock were issued to an employee who exercised their options at an exercise price of $1.32.
On
September 28, 2021, MICT granted 823,020 shares of common stock of the Company to China Strategic Investments Limited.
The
following table summarizes information about stock options outstanding and exercisable as of September 30, 2021:
|
|
Nine months ended
September 30
|
|
|
Year ended
December 31
|
|
|
|
2021
|
|
|
2020
|
|
|
|
Number of Options
|
|
|
Weighted Average Exercise Price
|
|
|
Number of Options
|
|
|
Weighted Average Exercise Price
|
|
|
|
|
|
|
$
|
|
|
$
|
|
|
|
|
Options outstanding at the beginning of year/period:
|
|
|
1,158,000
|
|
|
|
2.24
|
|
|
|
1,167,000
|
|
|
|
2.34
|
|
Changes during the year/period:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
740,000
|
|
|
|
1.96
|
|
|
|
1,300,000
|
|
|
|
1.32
|
|
Exercised
|
|
|
(60,000
|
)
|
|
|
-
|
|
|
|
(1,198,000
|
)
|
|
|
-
|
|
Forfeited
|
|
|
-
|
|
|
|
-
|
|
|
|
(111,000
|
)
|
|
|
2.81
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options outstanding at end of year/period
|
|
|
1,838,000
|
|
|
|
1.69
|
|
|
|
1,158,000
|
|
|
|
2.24
|
|
Options exercisable at end of year/period
|
|
|
1,398,000
|
|
|
|
1.78
|
|
|
|
1,138,000
|
|
|
|
2.36
|
|
The
Company has warrants outstanding as follows:
|
|
Warrants Outstanding
|
|
|
Warrants Exercisable
|
|
|
Average Exercise Price
|
|
|
Remaining Contractual Life
|
|
Balance, December 31, 2020
|
|
|
12,994,545
|
|
|
|
12,994,545
|
|
|
$
|
2.31
|
|
|
|
4.75
|
|
Granted
|
|
|
52,993,570
|
|
|
|
52,993,570
|
|
|
$
|
2.8
|
|
|
|
5.00
|
|
Forfeited
|
|
|
-
|
|
|
|
-
|
|
|
$
|
-
|
|
|
|
-
|
|
Exercised
|
|
|
(2,450,487
|
)
|
|
|
(2,450,487
|
)
|
|
$
|
1.01
|
|
|
|
5.00
|
|
Balance, September 30, 2021 (Unaudited)
|
|
|
63,537,628
|
|
|
|
63,537,628
|
|
|
$
|
2.76
|
|
|
|
4.77
|
|
NOTE
4 — EQUITY INVESTMENT IN MICRONET
Micronet’s
net revenues and net loss are presented if the acquisition date had occurred at the beginning of the annual reporting period.
|
|
Nine months ended
September 30,
|
|
|
Three months ended
September 30,
|
|
|
|
2020
|
|
|
2020
|
|
|
|
USD
in thousands
|
|
|
USD
in thousands
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
Net revenues
|
|
$
|
1,438
|
|
|
$
|
349
|
|
Net loss
|
|
|
(18,565
|
)
|
|
|
(14,613
|
)
|
Management
engaged a third-party valuation firm to assist them with the valuation of the intangible assets that are detailed in the schedule below.
Purchased
identifiable intangible assets are amortized on a straight-line basis over their respective useful lives. The table set forth below summarizes
the estimates of the fair value of assets acquired and liabilities assumed and resulting gain on bargain purchase. In addition, the following
table summarizes the allocation of the preliminary purchase price as of the acquisition date:
Micronet
Ltd. Purchase Price Allocation
(USD
in thousands)
Total cash consideration
|
|
$
|
887
|
|
Total Purchase Consideration
|
|
$
|
887
|
|
|
|
|
|
|
Less:
|
|
|
|
|
|
|
|
|
|
Debt-free net working capital
|
|
$
|
788
|
|
Property and equipment
|
|
|
661
|
|
Right of use assets
|
|
|
310
|
|
Other assets
|
|
|
26
|
|
Borrowings
|
|
|
(1,675
|
)
|
Severance payable
|
|
|
(95
|
)
|
Lease liabilities
|
|
|
(101
|
)
|
Intangible assets - trade name/ trademarks
|
|
|
270
|
|
Intangible assets - developed technology
|
|
|
1,580
|
|
Intangible assets - customer relationship
|
|
|
410
|
|
Intangible assets - ground
|
|
|
215
|
|
Deferred Tax liability
|
|
|
(362
|
)
|
Fair value of net assets acquired
|
|
$
|
2,027
|
|
|
|
|
|
|
Noncontrolling interest
|
|
$
|
(2,172
|
)
|
Gain on equity interest
|
|
|
(665
|
)
|
Equity investment
|
|
|
(921
|
)
|
Change in investment
|
|
|
(3,758
|
)
|
|
|
|
|
|
Goodwill value
|
|
$
|
2,618
|
|
Loss
of control of Micronet
As
of March 31, 2021, the Company held 50.31% of Micronet's issued and outstanding shares. On May 9, 2021, following the exercise of options
by minority stockholders, the Company’s ownership interest was diluted to 49.88% and as a result the Company is no longer required
to include Micronet’s operating results in its financial statements. From May 9, 2021, the Company accounted for the investment
in Micronet in accordance with the equity method.
On June 16, 2021, Micronet
announced that it had completed a public equity offering on the TASE. Pursuant to the offering, Micronet sold an aggregate number of
18,400 securities units (the “Units”) at a price of 14.6 NIS per Unit with each Unit consisting of 100 ordinary shares, 25
series A options and 75 series B options, resulting in the issuance of 1,840,000 ordinary shares, 460,000 series A options and 1,380,000
series B options. Micronet raised total gross proceeds of 26,864,000 NIS (approximately $8,290,000) in the Offering. The Company did
not participate in the Offering, and, as a result, the Company owned 36.95% of the outstanding ordinary shares of Micronet and 26.56%
on a fully diluted basis as of September 30, 2021.
|
|
May 9,
2021
|
|
|
|
USD
in thousands
|
|
|
|
(Unaudited)
|
|
Micronet’s fair value as of May 9, 2021
|
|
|
1,127
|
|
Net assets
|
|
|
(6,185
|
)
|
Capital reserve from currency translation
|
|
|
134
|
|
Non-controlling interests
|
|
|
2,990
|
|
Net loss from loss of control
|
|
|
1,934
|
|
NOTE
5 — LOAN TO MICRONET
On November 13, 2019, the
Company and Micronet executed a convertible loan agreement pursuant to which the Company agreed to loan to Micronet $500,000 (the “Convertible
Loan”). The Convertible Loan bears interest at a rate of 3.95% calculated and paid on a quarterly basis. In addition, the Convertible
Loan, if not converted, shall be repaid in four equal installments, the first of such installment payable following the fifth quarter
after the issuance of the Convertible Loan, with the remaining three installments due on each subsequent quarter thereafter, such that
the Convertible Loan shall be repaid in full upon the lapse of 24 months from its issuance. In addition, the outstanding principal balance
of the Convertible Loan, and all accrued and unpaid interest, is convertible at the Company’s option, at a conversion price equal
to 0.38 NIS per Micronet share. Pursuant to the convertible loan agreement, Micronet also agreed to issue the Company an option to purchase
one of Micronet’s ordinary shares for each ordinary share that it issued as a result of a conversion of the Convertible Loan at
an exercise price of 0.60 NIS per share, exercisable for a period of 15 months. On July 5, 2020, the Company had a reverse split where
the price of the Convertible Loan changed from 0.08 NIS per Micronet share into 5.7 NIS per Micronet share. The option’s exercise
price changed from 0.6 NIS per share to 9 NIS per Micronet share.
On January 1, 2020, the Convertible
Loan was approved at a general meeting of the Micronet shareholders and as a result, the Convertible Loan and the transactions contemplated
thereby became effective.
On August 13, 2020, MICT
Telematics extended to Micronet an additional loan in the aggregate amount of $175,000 (the “Loan Sum”) which governed the
existing outstanding intercompany debt. The loan does not bear any interest and has a term of twelve months. The Loan Sum was granted
for the purpose of supporting Micronet’s working capital and general corporate needs. The loan was repaid on August 25, 2021.
NOTE
6 — GFH Intermediate Holdings Ltd (“GFHI”) Acquisition
On July 1, 2020, MICT completed
its acquisition of GFHI pursuant to the previously announced agreement and plan of merger (the “Merger Agreement”) 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 Merger Agreement, upon consummation of the acquisition, the outstanding share of GFHI
were cancelled in exchange for a convertible promissory note in the principal amount of $25,000,000 issued to GFH by MICT. This note has
been converted into 22,727,273 shares of common stock of MICT at a conversion price of $1.10 per share. As a result of the acquisition
goodwill and intangible assets were created.
GFHI’s
net revenues and net loss are presented as 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
|
|
|
|
USD
in thousands
|
|
|
USD
in thousands
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
Net revenues
|
|
$
|
349
|
|
|
$
|
349
|
|
Net loss
|
|
|
(16,021
|
)
|
|
|
(14,613
|
)
|
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 regulations enacted in China and elsewhere have not had a
material adverse effect on GFH I financial reports; however, there can be no assurance that GFH I financial reports will not be affected
in the future from COVID-19 or resulting government actions.
Purchased
identifiable intangible assets are amortized on a straight-line basis over their respective useful lives. The table set forth below summarizes
the estimates of the fair value of assets acquired and liabilities assumed and resulting gain on bargain purchase. In addition, the following
table summarizes the allocation of the preliminary purchase price as of the acquisition date:
GFH
Intermediate Holdings LTD, Purchase Price Allocation
(USD
in thousands)
Total share consideration (1)
|
|
$
|
32,050
|
|
Total Purchase Consideration
|
|
$
|
32,050
|
|
|
|
|
|
|
Less:
|
|
|
|
|
|
|
|
|
|
Intangible assets - trade name/ trademarks
|
|
$
|
580
|
|
Intangible assets - developed technology
|
|
|
11,490
|
|
Intangible assets - Customer database (2)
|
|
|
4,500
|
|
Deferred Tax liability (3)
|
|
|
(4,308
|
)
|
Fair value of net assets acquired
|
|
$
|
12,262
|
|
|
|
|
|
|
Goodwill value (4)
|
|
$
|
19,788
|
|
|
(1)
|
The
purchase consideration represented the fair value of the convertible promissory notes that were converted into common stock of MICT.
|
(2)
|
The
customer database value is based on the cost to recreate, as indicated by management.
|
(3)
|
Represents the income tax effect of the difference between the accounting and income tax bases of the identified intangible assets, using an assumed statutory income tax rate of 26%.
|
(4)
|
The
goodwill is not deductible for tax purposes.
|
NOTE
7 — BEIJING FUCHENG LIANBAO TECHNOLOGY CO., LTD TRANSACTION
On
February 10, 2021, the Company closed a transaction pursuant to which it acquired (via Beijing Fucheng in which it holds 24% and engaged
in a VIE structure) all of the shares of Beijing Yibao Technology Co., Ltd., and indirectly its fully owned subsidiary Beijing Fucheng
Insurance Brokerage Co., Ltd. (the “Fucheng Insurance Transaction”).
The
table set forth below summarizes the estimates of the fair value of assets acquired and liabilities assumed and resulting gain on bargain
purchase. In addition, the following table summarizes the allocation of the preliminary purchase price as of the acquisition date:
Beijing
Fucheng Lianbao Technology Co., Ltd transaction, Purchase Price Allocation
(USD
in thousands)
|
|
(Unaudited)
|
|
Total cash consideration
|
|
$
|
5,711
|
|
Total Purchase Consideration
|
|
$
|
5,711
|
|
|
|
|
|
|
Less:
|
|
|
|
|
|
|
|
|
|
Net working capital
|
|
$
|
926
|
|
Property and equipment
|
|
|
26
|
|
License
|
|
|
4,814
|
|
Current liabilities
|
|
|
(55
|
)
|
Fair value of net assets acquired
|
|
$
|
5,711
|
|
NOTE
8 — SEGMENTS
ASC
280, “Segment Reporting”, establishes standards for reporting information about operating segments on a basis consistent
with the Company’s internal organizational structure as well as information about geographical areas, business segments and major
customers in financial statements for detailing the Company’s business segments.
Operating
segments are based upon our internal organization structure, the manner in which our operations are managed and the availability of separate
financial information. As a result of our acquisition of GFHI on July 1, 2020, we currently serve the marketplace, through our operating
subsidiaries, as a financial technology company (Fintech Industry) targeting the Chinese marketplace as well as other areas of the world.
We have built and/or, are in the process of building, various platforms to capitalize on business opportunities in a range of verticals
and technology segments including stock trading and wealth management, oil and gas trading and insurance brokerage services. We will
continue to increase the capabilities of our platforms through acquisition and/or the licensing of different technologies to support
our efforts in the different market segments. By building secure, reliable and scalable platforms with high volume processing capability,
we intend to provide customized solutions that address the needs of a highly diverse and broad client base. First, we have launched our
insurance platform, operated by GFHI, for the Chinese market and have been generating revenues in GFHI. While the revenues were not material
in 2020, these revenues are building and we expect these revenues to continue to grow in the 4th quarter as this business establishes
itself in the market as a reputable service available to consumers Secondly, We are currently in the process of launching our securities
trading software platform and accelerating the development and business around this segment. This is possible due to the recent completion
of the acquisition of Magpie (formerly: Huapei) on February 26, 2021.
As
a result of such acquisition, we have obtained the necessary licenses and permits to operate our online platform in the Hong Kong stock
exchange.
AS
we begin development of our oil and gas trading platform, we are looking to partner with an established and reputable Chinese organization
to build out our technology, which will support two major elements of China’s energy sector.
During the period between June 23, 2020, and May 9, 2021 we have held
a controlling interest in Micronet, and we have presented our mobile resource management (“MRM”) business operated by Micronet
as a segment. As of May 9, 2021, the Company’s ownership interest was diluted and, as a result, we no longer include Micronet’s
operating results in our financial statements.
The
following table summarizes the financial performance of our operating segments:
|
|
Nine months ended September 30, 2021
|
|
(USD in thousands)
|
|
Verticals and technology
|
|
|
Mobile resource management
|
|
|
Online stock trading
|
|
|
Consolidated
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
Revenues from external customers
|
|
$
|
39,065
|
|
|
|
726
|
|
|
|
-
|
|
|
$
|
39,791
|
|
Segment operating loss
|
|
|
(5,496
|
)(1)
|
|
|
(827
|
)(2)
|
|
|
(4,208
|
)
|
|
|
(10,531
|
)
|
Non allocated expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(17,343
|
)
|
Finance expenses and other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,167
|
)
|
Consolidated loss before provision for income taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(29,041
|
)
|
(1)
|
Includes $2,198
of intangible assets amortization, derived from GFHI. acquisitions.
|
(2)
|
Includes $103 of
intangible assets amortization, derived from Micronet consolidation.
|
|
|
Nine months ended September 30, 2020
|
|
(USD in thousands)
|
|
Verticals
and
technology
|
|
|
Mobile
resource
management
|
|
|
Online
stock
trading
|
|
|
Consolidated
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
Revenues from external customers
|
|
$
|
-
|
|
|
|
349
|
|
|
|
-
|
|
|
$
|
349
|
|
Segment operating loss
|
|
|
(869
|
)
|
|
|
(769
|
)
|
|
|
-
|
|
|
|
(1,638
|
)
|
Non allocated expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,816
|
)
|
Finance expenses and other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8,786
|
)
|
Consolidated loss before provision for income taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(16,240
|
)
|
|
|
Three months ended September 30, 2021
|
|
(USD in thousands)
|
|
Verticals
and
technology
|
|
|
Mobile
resource
management
|
|
|
Online
stock
trading
|
|
|
Consolidated
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
Revenues from external customers
|
|
$
|
18,515
|
|
|
|
-
|
|
|
|
-
|
|
|
$
|
18,515
|
|
Segment operating loss
|
|
|
(613
|
)
|
|
|
-
|
|
|
|
(2,252
|
)
|
|
|
(2,865
|
)
|
Non allocated expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,656
|
)
|
Finance expenses and other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,122
|
|
Consolidated loss before provision for income taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(5,399
|
)
|
(1)
|
Includes $733 of intangible assets amortization, derived from GFHI. acquisitions.
|
|
|
Three months ended September 30, 2020
|
|
(USD in thousands)
|
|
Verticals
and
technology
|
|
|
Mobile
resource
management
|
|
|
Online
stock
trading
|
|
|
Consolidated
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
Revenues from external customers
|
|
$
|
-
|
|
|
|
349
|
|
|
|
-
|
|
|
$
|
349
|
|
Segment operating loss
|
|
|
(869
|
)
|
|
|
(769
|
)
|
|
|
-
|
|
|
|
(1,638
|
)
|
Non allocated expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,378
|
)
|
Finance expenses and other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8,822
|
)
|
Consolidated loss before provision for income taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(14,838
|
)
|
The
following table summarizes the financial statements of our balance sheet accounts of the segments:
|
|
As of September 30, 2021
|
|
(USD in thousands)
|
|
Verticals
and
technology
|
|
|
Mobile
resource
management
|
|
|
Online
stock
trading
|
|
|
Consolidated
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
Assets related to segments
|
|
$
|
81,537
|
(2)
|
|
$
|
-
|
|
|
|
59,807
|
(4)
|
|
$
|
141,344
|
|
Non allocated Assets
|
|
|
|
|
|
|
-
|
|
|
|
|
|
|
|
40,806
|
|
Liabilities related to segments
|
|
|
(25,198
|
)(3)
|
|
|
-
|
|
|
|
(644
|
)
|
|
|
(25,842
|
)
|
Non allocated liabilities
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(4,001
|
)
|
Total Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
152,307
|
|
(2)
|
Includes $12,906
of intangible assets and $19,788 goodwill, derived from GFHI’s acquisition.
|
(3)
|
Includes $3,322
of deferred tax liability, derived from GFHI acquisition.
|
(4)
|
Includes $989 of
intangible assets.
|
|
|
As of December 31, 2020
|
|
(USD in thousands)
|
|
Verticals
and
technology
|
|
|
Mobile
resource
management
|
|
|
Online
stock
trading
|
|
|
Consolidated
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
Assets related to segments
|
|
$
|
7,037
|
|
|
$
|
7,017
|
|
|
|
-
|
|
|
$
|
14,054
|
|
Non allocated Assets
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
63,679
|
|
Liabilities related to segments
|
|
|
(638
|
)
|
|
|
(2,861
|
)
|
|
|
-
|
|
|
|
(3,499
|
)
|
Non allocated liabilities
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(8,538
|
)
|
Total Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
65,696
|
|
NOTE
9 — INTENGABLE ASSETS
|
|
Useful life
|
|
|
September 30,
|
|
|
December 31,
|
|
(USD in thousands)
|
|
years
|
|
|
2021
|
|
|
2020
|
|
Original amount:
|
|
|
|
|
|
|
(Unaudited)
|
|
|
|
(Unaudited)
|
|
Technology know-how
|
|
|
5-6
|
|
|
$
|
11,490
|
|
|
$
|
13,070
|
|
Trade name/ trademarks
|
|
|
5-10
|
|
|
|
597
|
|
|
|
850
|
|
Customer relationship
|
|
|
5-6
|
|
|
|
4,500
|
|
|
|
4,910
|
|
License
|
|
|
|
|
|
|
5,787
|
|
|
|
-
|
|
Software
|
|
|
|
|
|
|
102
|
|
|
|
-
|
|
|
|
|
|
|
|
|
22,476
|
|
|
|
18,830
|
|
Accumulated amortization:
|
|
|
|
|
|
|
|
|
|
|
|
|
Technology know-how
|
|
|
|
|
|
|
(2,394
|
)
|
|
|
(1,116
|
)
|
trade name/ trademarks
|
|
|
|
|
|
|
(145
|
)
|
|
|
(71
|
)
|
Customer related intangible assets
|
|
|
|
|
|
|
(1,125
|
)
|
|
|
(484
|
)
|
Software
|
|
|
|
|
|
|
(4
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
(3,668
|
)
|
|
|
(1,671
|
)
|
Net
|
|
|
|
|
|
$
|
18,808
|
|
|
$
|
17,159
|
|
NOTE
10 — TRADE ACCOUNTS RECEIVABLE, NET
For
the nine months ended September 30, 2021 and the year ended December 31, 2020, accounts receivable were comprised of the following:
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2021
|
|
|
2020
|
|
|
|
USD
in thousands
|
|
|
USD
in thousands
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
Trade accounts receivable
|
|
$
|
20,644
|
|
|
$
|
528
|
|
Allowance for doubtful accounts
|
|
|
-
|
|
|
|
(5
|
)
|
|
|
$
|
20,644
|
|
|
$
|
523
|
|
Movement
of allowance for doubtful accounts for the nine months ended September 30, 2021 and the fiscal year ended December 31, 2020 are as follows:
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2021
|
|
|
2020
|
|
|
|
USD
in thousands
|
|
|
USD
in thousands
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
Beginning balance
|
|
$
|
5
|
|
|
$
|
116
|
|
Provision (recovery)
|
|
|
-
|
|
|
|
(111
|
)
|
Decrease due to deconsolidation of Micronet
|
|
|
(5
|
)
|
|
|
-
|
|
|
|
$
|
-
|
|
|
$
|
5
|
|
NOTE
11 — OTHER CURRENT ASSETS
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2021
|
|
|
2020
|
|
|
|
USD
in thousands
|
|
|
USD
in thousands
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
Prepaid expenses
|
|
$
|
3,627
|
|
|
$
|
1,300
|
|
Advance to suppliers
|
|
|
2,088
|
|
|
|
230
|
|
Government departments and agencies receivables
|
|
|
-
|
|
|
|
67
|
|
Prepaid tax
|
|
|
57
|
|
|
|
92
|
|
Others
|
|
|
4,442
|
|
|
|
67
|
|
|
|
$
|
10,214
|
|
|
$
|
1,756
|
|
NOTE
12 — RELATED PARTIES
Current
assets – related parties
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2021
|
|
|
2020
|
|
|
|
USD
in thousands
|
|
|
USD
in thousands
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
Shareholders of All Weather
|
|
$
|
776
|
|
|
$
|
-
|
|
Convertible loan to Micronet
|
|
|
534
|
|
|
|
-
|
|
Shareholders of Guangxi Zhongtong
|
|
|
857
|
|
|
|
-
|
|
|
|
$
|
2,167
|
|
|
$
|
-
|
|
Current
liabilities – related parties
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2021
|
|
|
2020
|
|
|
|
USD
in thousands
|
|
|
USD
in thousands
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
Yulan WU, legal representative of Beijing Fucheng
|
|
$
|
-
|
|
|
$
|
156
|
|
Beijing Internet New Network Technology Development Co., Ltd
|
|
|
-
|
|
|
|
7
|
|
|
|
$
|
-
|
|
|
$
|
163
|
|
NOTE
13 — OPERATING LEASES
The
Company follows ASC No. 842, Leases. The Company has operating leases for its office facilities. The Company’s leases have remaining
terms of approximately 4 years. Leases with an initial term of 12 months or less are not recorded on the balance sheet; the Company recognizes
lease expense for these leases on a straight-line basis over the lease term. The Company does not separate non-lease components from
the lease components to which they relate, and instead accounts for each separate lease and non-lease component associated with that
lease component as a single lease component for all underlying asset classes.
The
following table provides a summary of leases by balance sheet location for the nine months ended September 30, 2021 and the year ended
December 31, 2020:
Assets/liabilities
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2021
|
|
|
2020
|
|
|
|
USD
in thousands
|
|
|
USD
in thousands
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
Assets
|
|
|
|
|
|
|
Right-of-use assets
|
|
$
|
2,657
|
|
|
$
|
291
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
Lease liabilities- current portion
|
|
$
|
1,573
|
|
|
|
-
|
|
Lease liabilities- long term
|
|
$
|
1,132
|
|
|
$
|
164
|
|
Total Lease liabilities
|
|
$
|
2,705
|
|
|
|
164
|
|
The
operating lease expenses for the nine and three months ended September 30, 2021 and 2020 were as follows:
(USD in thousands)
|
|
Nine months ended
September 30,
|
|
|
Three months ended
September 30,
|
|
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
Operating lease cost
|
|
$
|
1,111
|
|
|
$
|
343
|
|
|
$
|
581
|
|
|
$
|
298
|
|
Maturities
of operating lease liabilities for the nine months ended September 30, 2021 were as follows:
Maturity of lease liabilities
(USD
in thousands)
12 months ending September 30,
|
|
Operating
leases
|
|
|
|
(Unaudited)
|
|
2022
|
|
$
|
1,573
|
|
2023
|
|
|
754
|
|
2024
|
|
|
328
|
|
2025
|
|
|
2
|
|
|
|
$
|
2,657
|
|
Lease term and discount rate
|
|
September 30,
2021
|
|
|
|
(Unaudited)
|
|
Weighted-average remaining lease term (years) – operating leases
|
|
|
2.276
|
|
Weighted average discount rate – operating leases
|
|
|
10.98
|
%
|
NOTE
14 — PROVISION FOR INCOME TAXES
United
States:
On December 22, 2017, the U.S. Tax Cuts and Jobs Act, or the Act, was enacted, which significantly changed U.S. tax laws. The Act lowered
the tax rate of the Company. The statutory federal income tax rate was 21% in 2019 and in the nine months ended September 30, 2021 and
2020. As of September 30, 2021 the operating loss carry forward were $30,552,000, among which there was $5,115,600 expiring from 2025
through 2037, and the remaining $25,406,400 has no expiration date.
Israel:
The
Company’s Israeli subsidiaries and associated are governed by the tax laws of the state of Israel which had a general tax rate
of 23% in the nine months ended September 30, 2021 and 2020. The Company is entitled to various tax benefits in Israel by virtue of
being granted the status of an “Approved Enterprise Industrial Company” as defined by the tax regulations. The benefits
include, among other things, a reduced tax rate. In addition, the tax rate that applies to Preferred Enterprises in preferred areas
is 16%. As of September 30, 2021 the operating loss carry forward were $6,289,000, which does not have an expiration
date.
China:
The
Company’s Chinese subsidiaries in the PRC are subject to the PRC Corporate Income Tax Law (“CIT Law”) and are
taxed at the statutory income tax rate of 25%. As of September 30, 2021 the operating loss carry forward
was $11,187 thousand, which will expire from 2025 through 2026.
(USD
in thousands)
|
|
Nine
months ended
September 30,
|
|
|
Three
months ended
September 30,
|
|
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
Current
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic
|
|
$
|
72
|
|
|
$
|
-
|
|
|
$
|
29
|
|
|
$
|
-
|
|
Foreign
|
|
|
123
|
|
|
|
-
|
|
|
|
92
|
|
|
|
(6
|
)
|
Total
|
|
$
|
195
|
|
|
|
|
|
|
$
|
121
|
|
|
$
|
(6
|
)
|
Deferred
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Foreign
|
|
|
(605
|
)
|
|
|
(219
|
)
|
|
|
(191
|
)
|
|
|
(219
|
)
|
Total
|
|
$
|
(605
|
)
|
|
$
|
(219
|
)
|
|
$
|
(191
|
)
|
|
$
|
(219
|
)
|
|
C.
|
Deferred
Tax Assets and Liabilities
|
Deferred
tax reflects the net tax effects of temporary differences between the carrying amounts of assets or liabilities for financial reporting
purposes and the amounts used for income tax purposes. For the nine months ended September 30, 2021 and the year ended December 31, 2020,
deferred tax assets were included in long-term deposit and prepaid expenses, and the Company’s deferred taxes were in respect of
the following:
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2021
|
|
|
2020
|
|
|
|
USD
in thousands
|
|
|
USD
in thousands
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
Deferred tax assets
|
|
|
|
|
|
|
Provisions for employee rights and other temporary differences
|
|
$
|
130
|
|
|
$
|
129
|
|
Net operating loss carry forward
|
|
|
10,219
|
|
|
|
9,564
|
|
Valuation allowance
|
|
|
(10,219
|
)
|
|
|
(9,564
|
)
|
Deferred tax assets, net of valuation allowance
|
|
|
130
|
|
|
|
129
|
|
Deferred tax liabilities
|
|
|
|
|
|
|
|
|
Recognition of intangible assets arising from business combinations
|
|
|
3,323
|
|
|
|
4,256
|
|
Deferred tax assets and liabilities, net
|
|
$
|
(3,193
|
)
|
|
$
|
(4,127
|
)
|
NOTE
15 — LEGAL PROCEEDINGS
In March 2017, MICT entered
into an agreement with Sunrise Securities LLC (“Sunrise”) through Sunrise’s principal, Amnon Mandelbaum (the “Sunrise
Agreement”), pursuant to which Sunrise agreed to assist MICT in identifying, analyzing, structuring, and negotiating suitable business
opportunities, such as a sale of stock or assets, merger, tender offer, joint venture, financing arrangement, private placement, or any
similar transaction or combination thereof. The parties initially disagreed as to the amount of the fee that would be payable upon the
closing of the transactions contemplated by the reinstated merger agreement. There were also questions about the applicability of the
Sunrise Agreement to the merger, and whether or not Sunrise was properly owed any transaction fee upon the closing of the said merger.
In order to resolve the matter, the parties have executed a settlement and release agreement for the release and waiver of the above claims
in consideration for the issuance of freely tradable shares of common stock of MICT worth no less than $1,500,000 (the “Shares”),
which Shares were delivered as follows: (i) 67.5% of the Shares to Amnon Mandelbaum; (ii) 7.5% of the Shares to INTE Securities LLC; and
(iii) 25% of the Shares to Amini LLC. In addition, by no later than February 16, 2021, MICT would issue 200,000 warrants to purchase 200,000
freely tradable registered shares of common stock of MICT and deliver original copies of such warrants within five business days of the
date of issuance of the warrants. The Shares issuable upon exercise of the warrants would be registered on a registration statement. 150,000
of these warrants were issued to Amnon Mandelbaum and 50,000 of these warrants were issued to Amini LLC, or its designee as named in writing.
Each warrant was exercisable into one share of registered common stock of MICT until one year after the date of issuance of the warrants
at an exercise price of $1.01 per share, and in any other respects, on the same material terms and conditions as are applicable to MICT’s
current outstanding warrants including, but not limited to: (i) cashless exercise at all times from the date of issuance of the warrants
until to the expiration dates of the warrants, (ii) certain exercise price adjustments, and (iii) other terms that are no less favorable
to MICT’s recently issued common stock purchase warrant agreements. MICT was not able to timely file a registration statement to
register the Shares, and Shares underlying the warrants per the settlement agreement. The Sunrise parties notified MICT that it has breached
the settlement agreement. Subsequently, on March 30, 2021, MICT and the Sunrise parties signed an amended settlement agreement whereby
MICT was obligated to make a $1,000,000 payment by March 31, 2021 and the share dollar amount set forth above was reduced from $1,500,000
to $500,000. MICT made the $1,000,000 payment. Furthermore, if MICT was not able to file a registration statement with the Securities
and Exchange Commission for the Shares by June 4, 2021, we were required to make a $600,000 payment to settle the matter in full and Sunrise
would not receive any MICT shares. On July 1, 2021, MICT made the $600,000 payment since there was a disagreement as to whether or not
the registration statement was timely filed. This matter with Sunrise is now fully settled.
On September 22, 2020, the
Company entered into a settlement and release agreement with Craig Marshak, (“Marshak”), in connection with a claim filed
by Marshak against the Company and additional defendants. Pursuant to the settlement, and in consideration for a customary release and
waiver for the benefit of MICT, MICT agreed to pay Marshak a sum of $125,000 in cash. Marshak then dismissed such claim. On January 15,
2021 the parties executed an amendment to the settlement and release agreement for the payment to Marshak of $315,000 in exchange for
the tender back of 60,000 of the Company’s shares that were promised to Marshak as part of the settlement and release agreement.
The $315,000 payment was made and this matter is settled in full.
On
December 31, 2017, MICT, Enertec Systems 2001 Ltd., (“Enertec Systems”), previously our wholly-owned subsidiary, and Enertec
Management Ltd., (“Enertec Management”) entered into a share purchase agreement (the “Share Agreement”), with
Coolisys Technologies Inc., (“Coolisys”), a subsidiary of DPW Holdings, Inc. (“DPW”). Per the Share Agreement,
Coolisys agreed to pay, at the closing (“Closing”) of the transaction, a purchase price of $5,250,000 and assume up to $4,000,000
of Enertec Systems’ debt. On May 22, 2018, MICT closed on the sale of all of the outstanding equity of Enertec Systems.
Upon
Closing, MICT received gross proceeds of approximately $4,700,000, of which 10% was to be held in escrow (“Escrow Amount’)
for up to 14 months after the Closing in order to satisfy any potential indemnification claims. The final consideration amount was adjusted
due to Enertec Systems’ debts at the Closing. In addition, Coolisys also assumed approximately $4,000,000 of Enertec Systems’
debt.
In
conjunction with, and as a condition to, the Closing, the Company, Enertec Systems, Coolisys, DPW and Mr. David Lucatz, our former Chief
Executive Officer and director, executed a consulting agreement, (the “Consulting Agreement”). Pursuant to the Consulting
Agreement, we, via Mr. Lucatz, provided Enertec Systems with certain consulting and transitional services over a 3 year period as necessary
(but in no event did the services exceed 20% of Mr. Lucatz’s time). Coolisys (via Enertec Systems) was obligated to pay us an annual
consulting fee of $150,000 and to issue to us 150,000 restricted shares of DPW Class A common stock, (the “DPW Shares”).
The DPW Shares were to be issued in three equal installments, with the initial installment vesting the day after the Closing and the
remaining installments vesting on each of the first two (2) anniversaries of the Closing. The rights and obligations under the Consulting
Agreement were assigned to Mr. Lucatz along with the DPW Shares.
Coolisys
alleged the Company was in breach of the Share Agreement, and the Escrow Amount remained in escrow. On July 21, 2020, MICT management
and MICT (the “Seller Parties”) received a statement of claim filed in the District Court of Tel Aviv (the “Court”)
by Coolisys against the Seller Parties and its Board members for the approximate amount of $2,500,000, (the “Claim”). Pursuant
to the Claim, Coolisys alleged that certain misrepresentations in the Share Agreement resulted in losses to Coolisys and requested, among
other things, that the Court instruct the release of the Escrow Amount held by the escrow agent to Coolisys.
The Company filed its defense
to the Claim on December 15, 2020. On September 14, 2021, the Court adopted a verdict giving effect to the parties settlement agreement
pursuant to which the Claim was rejected. The parties have mutually released and waived all claims against the other and in consideration
for the aforementioned, the Escrow Amount was released to Coolisys.
NOTE
16 — SUBSEQUENT EVENTS
On August 23, 2021, Beijing
Yibao , Guangxi Zhongtong, and two shareholders of Guangxi Zhongtong entered into a capital increase agreement, pursuant to which Beijing
Yibao will invest RMB30 million RMB (USD 4.7 million) into Guangxi Zhongtong. After the investment, Beijing Yibao will hold 60% of the
shares in Guangxi Zhongtong and be the controlling shareholder. The VIE agreements signed with Guangxi Zhongtong on January 1, 2021 would
become void once the full investment was received. On October 21, 2021, Guangxi Zhongtong received the funds transferred by Beijing
Yibao and the transaction was completed.
On
October 27, 2021, Bokefa transferred a loan to the shareholders of All Weather in the total amount of RMB 30 million (approximately $4.7
million). The loan was granted pursuant to the loan agreement signed on July 1, 2021, which is a part of a VIE Structure. The loan is
designated to be used as working capital for All Weather.