This Quarterly Report on Form 10-Q (the "Quarterly Report"), contains certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and other Federal securities laws, and is subject to the safe-harbor created by such Act and laws. In some cases, you can identify forward-looking statements by terminology such as "may," "will," "should," "expect," "intend," "plan," "anticipate," "believe," "estimate," "predict," "potential" or "continue," the negative of such terms, or other variations thereon or comparable terminology. The statements herein and their implications are merely predictions and therefore inherently subject to known and unknown risks, uncertainties, assumptions and other factors that may cause actual results to be materially different from those contemplated by the forward-looking statements. Such factors include, but are not limited to changes in economic conditions, government regulations, contract requirements and abilities, competitive pressures and constantly changing technology and market acceptance of our products and services and other risks and uncertainties discussed in this annual Form 10-K report. Such forward-looking statements appear in this Item 2 - "Management's Discussion and Analysis of Financial Condition and Results of Operations," and may appear elsewhere in this Quarterly Report and include, but are not limited to, statements regarding the following: ? our ownership position in Micronet's share capital;
? the impact of COVID-19 on both our operations and financial outlook and those
of Intermediate, Micronet andMICT ;
? our financing needs and strategies, and our ability to continue to raise
capital in the future; ? our corporate development objectives;
? our financial position and the value of and market for our common stock;
? use of proceeds from any future financing, if any; and ? the sufficiency of our capital resources. Our business is subject to substantial risks, which increase the uncertainty inherent in the forward-looking statements contained or implied in this report. Except as required by law, we assume no obligation to update these forward-looking statements to reflect actual results or changes in factors or assumptions affecting such forward-looking statements. Further information on potential factors that could affect our business is described in ourSEC filing and the risk factors included in Part II, Item IA below. Readers are also urged to carefully review and consider the various disclosures we have made below and in that report. The following discussion and analysis should be read in conjunction with the Consolidated Financial Statements and related notes included elsewhere in this Quarterly Report. OverviewMICT, Inc. ("MICT", the "Company", "we", "us", "our") was formed as aDelaware corporation onJanuary 31, 2002 under the nameLapis Technologies, Inc. OnMarch 14, 2013 , we changed our corporate name toMicronet Enertec Technologies, Inc. OnJuly 13, 2018 , following the sale of our former subsidiary,Enertec Systems Ltd. , we changed our name toMICT, Inc. Our shares have been listed for trading on The Nasdaq Capital Market under the symbol "MICT" sinceApril 29, 2013 .
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MICT is a holding company conducting financial technology business through its subsidiaries and entities controlled through various VIE arrangements ("VIE entities"). The company is principally focused on developing insurance broker business and products across approximately 120 cities inChina through its subsidiaries and VIE entities, with planned expansion into additional markets. The company has developed highly scalable proprietary platforms for insurance products (B2B, B2B2C and B2C) and financial services/products (B2C), the technology for which is highly adaptable for other applications and markets.MICT through its subsidiaries has also acquired and holds the requisite license and approvals with theHong Kong Securities and Futures Commission to deal in securities and provide securities advisory and asset management services.MICT also has memberships/registrations with theHong Kong Stock Exchange , theLondon Stock Exchange and the requisiteHong Kong and China Direct clearing companies.MICT's financial services business and first financial services product, the Magpie Invest app, is able to trade securities on NASDAQ, NYSE, TMX, HKSE,China Stock Connect, LSE, theFrankfurt Stock Exchange and theParis Stock Exchange . SinceJuly 1, 2020 , afterMICT completed its acquisition of GFHI (the "GFHI Acquisition") pursuant to that certain Agreement and Plan of Merger entered into onNovember 7, 2019 by and betweenMICT , GFHI,Global Fintech Holding Ltd. ("GFH"), aBritish Virgin Islands company and the sole shareholder ofGFH Intermediate Holdings Ltd. ("GFHI" or "Intermediate"), andMICT Merger Subsidiary Inc. , aBritish Virgin Islands company and a wholly owned subsidiary ofMICT ("Merger Sub"), as amended and restated onApril 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 inChina , as well as other areas of the world and is currently in the process of building various platforms for business opportunities in different insurance platform segments (formerly: verticals and technology segments) in order to capitalize on such technology and business. GFHI plans to increase its capabilities and its technological platforms through acquisition and licensing technologies to support its growth efforts in the different market segments. After the Merger,MICT included the business of Intermediate,MICT's wholly-owned subsidiary, operating through Intermediate operating subsidiaries. Following Intermediate's acquisition ofMagpie Securities Limited ("Magpie"), aHong Kong securities and investment services firm, onFebruary 26, 2021 and the subsequent receipt of regulatory approval from theHong Kong Securities and Futures Commission , Magpie is licensed to deal in securities, futures and options, and also undertake the business of securities advisory services and asset management. Intermediate launched Magpie Invest, a global stock trading app, onSeptember 15, 2021 , through its wholly owned subsidiary,Magpie Securities Limited ("Magpie"). It is a proprietary technology investment trading platform that is currently operational inHong Kong . Magpie Invest's technology allows the platform to connect to all major stock exchanges and we planned to expand intoAustralia andSwitzerland by Q4 2022. 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. We believe that this will allow the Company to enter into the market quickly and leverage existing assets in order to promote our growth strategy. Prior toJuly 1, 2020 ,MICT operated primarily through itsIsrael -based then majority-owned subsidiary, Micronet. Micronet, through both its Israeli andU.S. operational offices, designs, develops, manufactures and sells rugged mobile computing devices that provide fleet operators and field workforces with computing solutions in challenging work environments. Micronet's vehicle portable tablets are designed to increase workforce productivity and enhance corporate efficiency by offering computing power and communication capabilities that provide fleet operators with visibility into vehicle location, fuel usage, speed and mileage. Furthermore, users are able to manage the drivers in various aspects, such as: driver behavior, driver identification, reporting hours worked, customer/organization working procedures and protocols, route management and navigation based on tasks and time schedule. End users may also receive real time messages for various services, such as pickup and delivery, repair and maintenance, status reports, alerts, notices relating to the start and ending of work, digital forms, issuing and printing of invoices and payments. Through its SmartHub product, Micronet provides its consumers with services such as driver recognition, identifying and preventing driver fatigue, recognizing driver behavior, preventive maintenance, fuel efficiency and an advanced driver assistance system. In addition, Micronet provides TSPs a platform to offer services such as "Hours of Service." Micronet previously commenced and continues to evaluate integration with other TSPs. OnMay 9, 2021 , following the exercise of options by certain minority stockholders, the Company's ownership interest of Micronet was diluted to 49.88% and as a result the Company is no longer required to consolidate Micronet's financial statements with the Company's and include Micronet's operating results in its financial statements. the Company owned 31.47% of the outstanding ordinary shares of Micronet and 26.83% on a fully diluted basis as ofMarch 31, 2022 . 36
Potential Merger with Tingo, Inc.
OnMay 10, 2022 , Tingo, Inc., aNevada corporation ("Tingo" or the "Seller"), entered into an Agreement and Plan of Merger (the "Merger Agreement") withMICT Merger Sub, Inc. , aNevada corporation and a wholly-owned subsidiary ofMICT ("Merger Sub"), andMICT, Inc. , aDelaware corporation ("MICT"). Pursuant to the Merger Agreement, subject to the terms and conditions set forth therein, upon the consummation of the transactions contemplated by the Merger Agreement (the "Closing"), Merger Sub will merge with and into Tingo (the "Merger" and, together with the other transactions contemplated by the Merger Agreement, the "Transactions"), with the Seller continuing as the surviving corporation in the Merger and a wholly-owned subsidiary ofMICT . It is expected that current holders of Tingo Shares will own approximately 77% of the total shares of the post-merger company and the current shareholders ofMICT will own the remaining 23% of the Shares of the post-merger company. Tingo is the leading Agri fintech company operating inAfrica , with a marketplace platform that empowers social upliftment through mobile, technology and financial access for rural farming communities. Their 'device as a service' model allows them to add market leading applications to enable customers to trade, buy top ups, pay bills, access insurance and lending services. With 9.3 million existing customers, Tingo is seeking to expand its operations across select markets inAfrica . Tingo's strategic plan is to become the eminent Pan African Agri-Fintech business delivering social upliftment and financial inclusion to millions of SME farmers and women-led businesses. There can be no assurances given that the Company will consummate this merger since there are several conditions before the merger could be consummated including, but not limited to, the approval by the shareholders of the Company and Tingo, Regulatory approvals and other closing conditions. The following diagram illustrates the Company's current corporate structure, including its subsidiaries, and variable interest entities ("VIEs"), as of
March 31, 2022 : [[Image Removed]]
VIE agreements with Guangxi Zhongtong:
OnJanuary 1, 2021 , as amended onAugust 6, 2021 , Bokefa, our wholly foreign-owned enterprise ("WFOE"), Guangxi Zhongtong, and nominee shareholders of Guangxi Zhongtong entered into six agreements, (together, the "Guangxi Zhongtong VIE Agreements"), described below, pursuant to which Bokefa is deemed to have controlling financial interest and be the primary beneficiary ofGuangxi Zhogntong. Therefore, Guangxi Zhongtong is deemed a VIE of Bokefa. 37 Loan Agreement Pursuant to this agreement, Bokefa agreed to provide loans to the registered shareholders of Guangxi Zhongtong. The term of the loan shall start from the date when the loan is actually paid, until the date on which the loan is repaid in full. The agreement shall terminate when the shareholders repay the loan. The loan should be used solely for Guangxi Zhongtong's operating expenses and should be exclusively repaid by transferring shares of Guangxi Zhongtong to Bokefa
when PRC Law permits. Exclusive Option Agreement The effective term of the agreement is unlimited and the agreement shall terminate upon the transfer of all the equity interest of Guangxi Zhongtong to Bokefa in accordance with relevant laws and provisions as provided in the agreement, or upon written notice by Bokefa to shareholders. In consideration of Bokefa's loan arrangement, the shareholders have agreed to grant Bokefa an exclusive option to purchase their equity interest. Distribution of residual profits, if any, are restricted without the approval of Bokefa. Upon request by Bokefa, Guangxi Zhongtong is obligated to distribute profits to the shareholders of Guangxi Zhongtong, who must remit such profits to Bokefa immediately.Guangxi Zhongtong and its shareholders are required to act in a manner that is in the best interest of Bokefa with regards to Guangxi Zhongtong's business operation. Equity Pledge Agreement The agreement will be terminated upon such date when the other agreements have been terminated. Pursuant to the agreement, the nominee shareholders pledged all their equity interest in Guangxi Zhongtong to Bokefa as security for the obligations in the other agreements. Bokefa has the right to receive dividends on the pledged shares, and all shareholders are required to act in a manner that is in the best interest of Bokefa.
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 ofGuangxi 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. OnAugust 23, 2021 ,Beijing Yibao Technology Co., Ltd ("Beijing Yibao"),Guangxi Zhongtong Insurance Agency Co., Ltd ("Guangxi Zhongtong"), and two shareholders of Guangxi Zhongtong entered into a capital increase agreement pursuant to which Beijing Yibao will invest approximatelyRMB30 million (USD 4.7 million ) into Guangxi Zhongtong. OnOctober 21, 2021 , Beijing Yibao transferred the funds separately and the transaction closed. As a result of the transaction, Beijing Yibao now holds a sixty percent (60%) equity interest inGuangxi Zhongtong and is the controlling shareholder. As a condition of the closing, the previous agreements consummated onJanuary 1, 2021 per the GZ Frame Work Loan became null and void, and the loan should be repaid by the shareholders beforeDecember 31, 2022 . 38
VIE agreements with
OnDecember 31, 2020 , as amended onAugust 25, 2021 , Bokefa,Beijing Fucheng Lianbao Technology Co., Ltd. ("Beijing Fucheng"), and the shareholders of Beijing Fucheng entered into six agreements, described below, pursuant to which Bokefa is deemed to have a controlling financial interest and be the primary beneficiary of Beijing Fucheng,. Therefore, Beijing Fucheng is deemed a VIE of Bokefa. Beijing Fucheng was incorporated onDecember 29, 2020 and had no assets or liabilities as ofDecember 31, 2020 . Loan Agreement Pursuant to this agreement, Bokefa agreed to provide loans to the registered shareholders of Beijing Fucheng. The term of the loan under this agreement shall start from the date when the loan is actually paid and shall continue until the shareholders repay all the loan in accordance with this agreement. The agreement shall terminate when the shareholders repay the loan. The loan should be used solely for Beijing Fucheng's operating expenses, and should be exclusively repaid by transferring shares of Beijing Fucheng to Bokefa when PRC Law permits. As ofMarch 31, 2022 the loans were not drawn. 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 their obligations under the agreements. Bokefa has the right to receive dividends on the pledged shares, and all shareholders are required to act in a manner that is in the best interest of Bokefa.
Business Cooperation Agreement
The agreement is effective until terminated by both parties. Beijing Fucheng and its shareholders agree that the legal person, directors, general manager and other senior officers of Beijing Fucheng should be appointed or elected by Bokefa. Beijing Fucheng and its shareholders agree that all financial and operational decisions of Beijing Fucheng will be made by Bokefa. Exclusive Service Agreement
The effective term of this agreement is for one year and it can be extended an unlimited number of times if agreed by both parties. Bokefa agrees to provide exclusive technical consulting and support services to Beijing Fucheng and Beijing Fucheng agrees to pay service fees to Bokefa.
Entrustment and Power of Attorney Agreement
The shareholders of Beijing Fucheng agreed to entrust all the rights to exercise their voting power and any other rights as shareholders of Beijing Fucheng to Bokefa. The shareholders of Beijing Fucheng have each executed an irrevocable power of attorney to appoint Bokefa as their attorney-in-fact to vote on their behalf on all matters requiring shareholder approval. The agreement is effective until deregistration of Beijing Fucheng.
VIE agreements with All Weather:
OnJuly 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. 39 Loan Agreement Pursuant to this agreement, Bokefa agreed to provide loans to the shareholders of All Weather. The term of the loan shall start from the date when the loan is actually paid until the date on which the loan is repaid in full. The agreement shall terminate when the shareholders repay the loan. The loan should be used solely 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. Results of Operations
Three Months Ended
As ofJune 23, 2020 , we increased our ownership interest in Micronet to over 50% and started to consolidate Micronet's operations into our financial statements up untilMay 9, 2021 when our ownership in Micronet was diluted to less than 50%. In addition, onJuly 1, 2020 , we completed a merger transaction for the Acquisition of GFHI. We are consolidating the financial results of GFHI as of the date the Acquisition and for the period thereafter. BeginningDecember 2020 , we launched our insurance platform operated by GFHI for the Chinese market and have been generating revenues in GFHI in this segment of our operations. During the first quarter of 2021, as described above, we entered into a certain transaction with Guangxi Zhongtong,Beijing Fucheng Lianbao Technology Co., Ltd. and completed the acquisition of Magpie, which operates in the field of securities trading platforms. As a result of these transactions, we have started to consolidate the financial results of these companies and business lines into our business. OnJuly 1, 2021 , we entered into a VIE transaction with All Weather and started to consolidate the financial results and business lines of All Weather into our business once the transaction was consummated. OnOctober 21, 2021 we completed the transaction of Guangxi Zhongtong, we currently holds a sixty percent (60%) equity interest in Guangxi Zhongtong. 40
These business activities conducted by
Revenues Net revenues for the three months endedMarch 31, 2022 were$9,563,000 , compared to$8,935,000 for the three months endedMarch 31, 2021 ,. This represents an increase of$628,000 for the three months endedMarch 31, 2022 , as compared
to the same period last year. Net revenues related to the MRM segment for the three months endedMarch 31, 2022 were$0 , as compared to$726,000 for the three months endedMarch 31, 2021 and reflects a decrease of$726,000 for the three months endedMarch 31, 2022 . MRM revenues were solely contributed by Micronet. The change is attributed to the consolidation of the MRM segment (Micronet) results with the company during the first quarter of 2021 but not the first quarter of 2022 as described above. Net revenues related to the insurance platform segment for the three months endedMarch 31, 2022 were$9,533,000 , as compared to$8,209,000 revenues for the three months endedMarch 31, 2021 , and reflects an increase of$1,324,000 , for the three months endedMarch 31, 2022 . On the one hand we have increase from the VIE transaction with All Weather which we started to consolidate their financial results and business lines of All Weather into our business once the transaction was consummated onJuly 1, 2021 , on the other hand we have decrease in revenues from Guangxi Zhongtong as a result of the lockdown in certain cities and regions due to COVID-19. Net revenues related to the online stock trading platform segment for the three months endedMarch 31, 2022 was$30,000 as compared to$0 revenues for the three months endedMarch 31, 2021 , and reflects an increase of$30,000 , for the three months endedMarch 31, 2022 . The increase is attributed to the acquisition of Magpie that was finalized onFebruary 26, 2021 , (as further detailed above). As the global stock markets trading keep going downwards, we stopped market campaign in the beginning of the year. Cost of revenues
Cost of revenues for the three months ended
Cost of revenues related to the MRM segment for the three months endedMarch 31, 2022 were$0 , as compared to$716,000 for the three months endedMarch 31, 2021 and reflects a decrease of$716,000 for the three months endedMarch 31, 2022 . The change is attributed to the consolidation of the MRM segment (Micronet) results with the company during the first quarter of 2021 but not the first quarter of 2022 as described above Cost of revenues related to the insurance platform segment for the three months endedMarch 31, 2022 , were$8,293,000 , as compared to$6,276,000 for the three months endedMarch 31, 2021 , and reflects an increase of$2,017,000 , for the three months endedMarch 31, 2022 . The increase is attributed to the from the VIE transaction with All Weather which we started to consolidate their financial results and business lines of All Weather into our business once the transaction was consummated onJuly 1, 2021 . Cost of revenues related to the online stock trading platform segment for the three months endedMarch 31, 2022 was$4,000 as compared to$0 Cost of revenues for the three months endedMarch 31, 2021 , and reflects an increase of$4,000 , for the three months endedMarch 31, 2022 . The increase is attributed to the acquisition of Magpie that was finalized onFebruary 26, 2021 , (as further
detailed above). 41 Gross profit
Gross profit for the three months endedMarch 31, 2022 was$1,265,000 , and represents 13% of the revenues. This is in comparison to gross profit of$1,943,000 , representing 22% of the revenues, for the three months endedMarch 31, 2021 and reflects a decrease of$678,000 , for the three months endedMarch 31, 2022 as compared to the same period last year. The decrease was primarily attributable to the insurance platform segment as discussed below. Gross profit related to the MRM (Micronet) segment for the three months endedMarch 31, 2022 were$0 , as compared to gross profit of$10,000 for the three months endedMarch 31, 2021 and reflects a decrease of$10,000 for the three months endedMarch 31, 2022 . MRM Gross profit were solely contributed by Micronet The change is attributed to the consolidation of the MRM segment (Micronet) results with the company during the first quarter of 2021 but not the first quarter of 2022 as described above. Gross profit related to the insurance platform segment for the three months endedMarch 31, 2022 was$1,240,000 , as compared to$1,933,000 Gross profit for the three months endedMarch 31, 2021 , and reflects a decrease of$693,000 , for the three months endedMarch 31, 2022 as compared to the same period last year. The decrease is attributed to the Company stopped certain information drainage and online promotion business in the first quarter of 2022. These businesses had a higher margin and therefore resulted in a decreased gross profit as compared to the same period last year. Gross profit related to the online stock trading platform segment for the three months endedMarch 31, 2022 was$25,000 , as compared to no gross profit for the three months endedMarch 31, 2021 , and reflects an increase of$25,000 , for the three months endedMarch 31, 2022 as compared to the same period last year. The increase is attributed to the acquisition of Magpie that was finalized onFebruary 26, 2021 (as further detailed above).
Selling and Marketing Expenses
Selling and Marketing expenses are part of operating expenses. Selling and marketing cost for the three months endedMarch 31, 2022 , were$2,517,000 , as compared to expenses of$1,001,000 for three months endedMarch 31, 2021 . This represents a decrease of$1,516,000 , for the three months endedMarch 31, 2022 as compared to the same period last year. The increase is attributed to the increase in Selling and Marketing expenses related to the insurance companies as well as increase in the online stock trading platform. The increase is mainly a result of increase in: (i) increase in advertising promotion fee of$655,000 and; (ii) increase in sales technological development expense in an amount of$475,000 and (iii) increase from the acquisition of online stock trading platform segment that was finalized onFebruary 26, 2021 in a total amount
of$779,000 .
General and Administrative Expenses
General and administrative expenses are part of operating expenses. General and administrative expenses for the three months endedMarch 31, 2022 were$7,326,000 , compared to$4,568,000 for the three months endedMarch 31, 2021 . This represents an increase of$2,758,000 , for the three months endedMarch 31, 2022 as compared to the same period last year. The increase is attributed to the increase in general and administrative expenses related to the insurance companies as well as increase in the online stock trading platform. The increase is mainly a result of (i) an increase associated with the D&O insurance in a total amount of$456,000 ,and; (ii) increase in lease expenses in a total amount of$277,000 (iii) increase associated with the salary expenses following the acquisition of new subsidiaries and VIEs transactions during 2021 in a total amount of$1,923,000 ; (iv) a decrease in retainer for professional advice from various services providers, in connection with the completion of the public offering closed inFebruary 2021 andMarch 2021 . 42
Research and Development Expenses
Research and development expenses are part of operating expenses. Research and development costs, which mainly include wages, materials and sub-contractors, for the three months endedMarch 31, 2022 were$595,000 , compared to$231,000 for the three months endedMarch 31, 2021 , respectively. This represents an increase of$364,000 , for the three months endedMarch 31, 2022 , as compared to the same period last year. The increase is attributed to the (i) increase of$328,000 related to the development of the Stock trading application and; (ii) increase in$267,000 related to the development of the insurance core system and sales platform and; (iii) a decrease of$231,000 from consolidation of the MRM segment (Micronet) results with the company during the first quarter of 2021 but not the first quarter of 2022 as described above. Loss from Operations Our loss from operations for the three months endedMarch 31, 2022 were$9,970,000 , compared to loss from operations of$4,783,000 , for the three months endedMarch 31, 2021 . The increase in loss from operations is mainly a result of the acquisitions as mention above, as well as the increase in general and administrative costs.
Financial Income (Expense), Net
Financial income (expenses), net for the three months endedMarch 31, 2022 were income of$78,000 compared to an expenses of$566,000 for the three months endedMarch 31, 2021 . This represents a decrease in financial expenses of$644,000 , for the three months endedMarch 31, 2022 . The decrease in financial expenses, net for the three months endedMarch 31, 2022 , is primarily due to the exchange rate and income of interest of$174,000 .
Net Loss Attributed to
Our net loss attributed toMICT, Inc. for the three months endedMarch 31, 2022 , was$8,686,000 compared to 4,461,000, for the three months endedMarch 31, 2021 . This represents an increase of$4,225,000 for the three months endedMarch 31, 2022 , as compared to the same period last year. The change for the three months endedMarch 31, 2022 is mainly a result of the increase in operating expenses and decrease in gross profit.
Liquidity and Capital Resources
As ofMarch 31, 2022 , our total cash balance was$86,447,000 , as compared to$94,930,000 as ofDecember 31, 2021 . This reflects a decrease of$8,483,000 in cash for the reasons described below. Loans Provided byMICT
OnNovember 13, 2019 , the Company and Micronet executed a convertible loan agreement pursuant to which the Company agreed to loan 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 to0.38 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 of0.60 NIS per share, exercisable for a period of 15 months. OnJuly 5, 2020 , Micronet had a reverse split where the price of the Convertible Loan changed from0.08 NIS per Micronet share into5.7 NIS per Micronet share. The option's exercise price changed from0.6 NIS per share to9 NIS per Micronet share.
On
OnAugust 13, 2020 , MICT Telematics extended to Micronet an additional loan in the aggregate amount of$175,000 (the "Third Loan") which governed the existing outstanding intercompany debt. The Third Loan does not bear any interest and has a term of twelve (12) months. The Third Loan was extended for the purpose of supporting Micronet's working capital and general corporate needs. The loan
was repaid onAugust 25, 2021 . 43 Debt Repayment As ofMarch 31, 2021 , the Company had short-term loans from others of$1,138,000 comprised as follows:$949,000 loans ofAll Weather Insurance Agency that bear an interest of 0% will be repaid onDecember 31, 2022 . The$189,000 loan ofZhongtong Insurance that bears an interest of 10% will be repaid beforeDecember 31, 2022 .
Total Current Assets,
As ofMarch 31, 2022 , our total current assets were$115,179,000 , as compared to$127,497,000 as ofDecember 31, 2021 . The decrease is mainly due to the decrease in our cash as described above.
Our trade accounts receivable as of
As of
For the Three Months Ended March 31, 2022 2021 USD in thousands USD in thousands (unaudited) (unaudited) Net Cash Used in Operating Activities $ (8,362 ) $ (8,526 ) Net Cash Used in Investing Activities (49 ) (3,361 ) Net Cash Provided by Financing Activities 14 106,383 Translation adjustment on cash and restricted cash (74 ) (142 ) Cash and restricted cash at Beginning of Period 97,347 29,049 Cash and restricted cash at end of period $ 88,876 $ 123,403
Cash Flow from Operating Activities
For the three months endedMarch 31, 2022 , net cash used in operating activities was$8,362,000 , which primarily consists of net loss of$8,845,000 and various non-cash items of$(1,180,000) , as well as (1) changes in deferred tax, net of$1,073,000 , (2) changes in trade account receivable of$(3,464,000) , (3) changes in trade accounts payable of 3,606,000, (4) changes in deposit held on behalf of clients of$198,000 , (5) changes in other current assets of$ 640,000 , (6) changes in other current liabilities of$(401,000) , (7) changes in related party of$(737,000) , (8) changes in long-term deposit and prepaid expenses of$(203,000) , (9) changes in right of use assets of$(324,000) , and (10) change in lease liabilities of$ 309,000 . For the three months endedMarch 31, 2021 , net cash used in operating activities was$8,526,000 , which primarily consists of net loss of$4,906,000 and various non-cash items of$(819,000) , and changes in other assets and liabilities of$4,439,000 .
Cash Flow from Investing Activities
For the three months endedMarch 31, 2022 , we had net cash used in investing activities of$(49,000) , which consisted of the net cash used in investing of purchase of property and equipment of$(49,000) . 44 For the three months endedMarch 31, 2021 , we had net cash used in investing activities of$(3,361,000) , which consisted of the net cash used in additional investment of company of$(3,057,000) , and purchase of property and equipment of$(304,000) .
Cash Flow from Financing Activities
For the three months endedMarch 31, 2022 , we had net cash provided by financing activities of$14,000 , which primarily consisted of: (1) repayment of loan from related party from Micronet Ltd of$534,000 ; and (2) repayment of loan to others of$(520,000) . For the three months endedMarch 31, 2021 , we had net cash provided by financing activities of$106,383,000 , which primarily consisted of (1) proceeds from issuance of shares and warrants of$105,365,000 from our public offering in February andMarch 2021 ; (2) proceeds from the exercise of warrants and options of$1,213,000 ; and (3) repayment of current maturity of long-term bank loans of$(195,000) . Non-GAAP Financial Measures
In addition to providing financial measurements based on generally accepted accounting principles in theU.S. , or GAAP, we provide additional financial metrics that are not prepared in accordance with GAAP, or non-GAAP financial measures. Management uses non-GAAP financial measures, in addition to GAAP financial measures, to understand and compare operating results across accounting periods, for financial and operational decision making, for planning and forecasting purposes and to evaluate our financial performance. Management believes that these non-GAAP financial measures reflect our ongoing business in a manner that allows for meaningful comparisons and analysis of trends in our business, as they exclude expenses and gains that are not reflective of our ongoing operating results. Management also believes that these non-GAAP financial measures provide useful information to investors in understanding and evaluating our operating results and future prospects in the same manner as management and in comparing financial results across accounting periods and to those of peer companies.
The non-GAAP financial measures do not replace the presentation of our GAAP financial results and should only be used as a supplement to, not as a substitute for, our financial results presented in accordance with GAAP.
The non-GAAP adjustments, and the basis for excluding them from non-GAAP financial measures, are outlined below:
? Amortization of acquired intangible assets - We are required to amortize the
intangible assets, included in our GAAP financial statements, related to the
Transaction and the Acquisition. The amount of an acquisition's purchase price
allocated to intangible assets and term of its related amortization are unique
to these transactions. The amortization of acquired intangible assets are
non-cash charges. We believe that such charges do not reflect our operational
performance. Therefore, we exclude amortization of acquired intangible assets
to provide investors with a consistent basis for comparing pre- and post-transaction operating results.
? Expenses related to the settlement agreements - These expenses relate to a
settlement agreement as described in part III -Item 1. Legal Proceedings of
this reports. We believe that these expenses do not reflect our operational
performance. Therefore, we exclude them to provide the investors with a
consistent basis for comparing pre- and post-transaction operating results.
? Stock-based compensation - is share based awards granted to certain
individuals. They are non-cash and affected by our historical stock prices
which are irrelevant to forward-looking analyses and are not necessarily
linked to our operational performance.
? Options-based compensation - Refers to compensation components which includes
stock options awards granted to certain employees, officers, directors or
consultants of the Company. This is a non cash personal compensation component
for our employees, officers, directors or consultants and its cost to the
Company is calculated based on B&S. This these costs attributed to the grant
of stock options are irrelevant to the forward-looking analyses and are not
necessarily linked to our operational performance. 45 The following table reconciles, for the periods presented, GAAP net loss attributable toMICT to non-GAAP net income attributable toMICT . and GAAP loss per diluted share attributable toMICT to non-GAAP net loss per diluted share attributable toMICT . Three months ended March 31, (Dollars in Thousands, other than share and per share amounts) 2022 2021 GAAP net loss attributable to MICT, Inc.$ (8,686 ) $ (4,461 ) Amortization of acquired intangible assets 797 786 Expenses related to purchase of a business 143 465 Options- based compensation 125 - Stock-based compensation 0 - Income tax-effect of above non-GAAP adjustments (204 ) (199 ) Total Non-GAAP net loss attributable to MICT, Inc. $
(7,825 )
Non-GAAP net loss per diluted share attributable to
$
(0.06 )
122,435,576 85,554,624 GAAP net loss per diluted share attributable to MICT, Inc.$ (0.07 ) $ (0.83 ) Weighted average common shares outstanding used in per share calculations 122,435,576 85,554,624 Financing Needs The Company will be required to support its own operational financial needs, which include, among others, our general and administrative costs (such as for our various consultants in regulatory, tax, legal, accounting and other areas of business) and our financing costs related to the loans and funding instruments assumed by us.
We expect the net proceeds from the sale of the securities will be used to fund the growth and development of our business, as well as for working capital and for other general corporate purposes. We may also use a portion of the net proceeds to acquire or invest in businesses, products and technologies that are complementary to our business, but we currently have no commitments or agreements relating to any of these types of transactions. Based on our current business plan, and in view of our cash balance following the transactions described in this Item 2, we anticipate that our cash balances will be sufficient to permit us to conduct our operations and carry out our contemplated business plans for at least the next 12 months from the date of this Report.
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