Results of Operations
Year 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
These business activities conducted by
Revenues Net revenues for the year endedDecember 31, 2021 were$55,676,000 , compared to$1,173,000 for the year endedDecember 31, 2020 . This represents an increase of$54,503,000 , for the year endedDecember 31, 2021 as compared to the same period last year. Net revenues related to the MRM (Micronet) segment for the year endedDecember 31, 2021 were$726,000 , as compared to$874,000 for the year endedDecember 31, 2020 and reflects a decrease of$148,000 for the year endedDecember 31, 2021 . MRM revenues were solely contributed by Micronet. The changes is attributed to the consolidation of the MRM Segment (Micronet) results as of the second quarter of 2020 and the dilution in our ownership and voting interests in Micronet, causing us to cease consolidating Micronet's operations in our financial statements commencing fromMay 9, 2021 . Micronet did not generate any revenue during the second quarter of 2020 or since the beginning of the second quarter of 2021 until its deconsolidation. 61
Net revenues related to the Fintech business and insurance agency business for the year endedDecember 31, 2021 was$54,932,000 , as compared to$299,000 revenues for the year endedDecember 31, 2020 , and reflects an increase of$54,633,000 , for the year endedDecember 31, 2021 as compared to the same period last year. The increase is attributed to several acquisition transactions in 2021, including the acquisition ofBeijing Fucheng Insurance Brokerage Co. Ltd. ,Guangxi Zhongtong Insurance Agency Co., Ltd. , and All Weather insurance agency Co., Ltd. Through these transactions, the company has quickly established the insurance business and generated considerable revenue in 2021. b. the information promotion services provided to insurance companies and car service companies through our own technology platform, which was developed and implemented in 2021. Net revenues related to the online stock trading platform segment for the year endedDecember 31, 2021 was$18,000 , as compared to no revenues for the year endedDecember 31, 2020 , and reflects an increase of$18,000 , for the year endedDecember 31, 2021 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). Cost of revenues Cost of revenues for the year endedDecember 31, 2021 was$46,456,000 , compared to$1,231,000 for the year endedDecember 31, 2020 . This represents an increase of$45,225,000 , for the year endedDecember 31, 2021 as compared to the same period last year.
Cost of revenues related to the MRM segment for the year endedDecember 31, 2021 was$716,000 , as compared to$939,000 for the year endedDecember 31, 2020 and reflects a decrease of$223,000 , for the year endedDecember 31, 2021 . The decrease is attributed to the consolidation of the MRM segment (Micronet) results as of the second quarter of 2020 and the dilution in our ownership and voting interests in Micronet, causing us to cease consolidating Micronet's operations in our financial statements commencing fromMay 9, 2021 . Cost of revenues related to the Fintech business and insurance agency business for the year endedDecember 31, 2021 , respectively, was$45,740,000 , as compared to$292,000 for the year endedDecember 31, 2020 , respectively, and reflects an increase of$45,448,000 , for the year endedDecember 31, 2021 . The increase is attributed to the commercial and business combination transaction entered by the Company during 2021 (as further detailed above). Gross profit Gross profit for the year endedDecember 31, 2021 was$9,220,000 , and represents 16% of the revenues. This is in comparison to gross loss of$58,000 for the year endedDecember 31, 2020 and reflects an increase of$9,278,000 , for the year endedDecember 31, 2021 as compared to the same period last year. The increase is attributed to the transactions and development of our Fintech business and insurance agency business and the online stock trading platform segment. Gross profit related to the MRM (Micronet) segment for the year endedDecember 31, 2021 were$10,000 , as compared to gross loss of$65,000 for the year endedDecember 31, 2020 and reflects an increase of$75,000 for the year endedDecember 31, 2021 . MRM Gross profit were solely contributed by Micronet. The changes is attributed to the consolidation of the MRM Segment (Micronet) results as of the second quarter of 2020 and the dilution in our ownership and voting interests in Micronet, causing us to cease consolidating Micronet's operations in our financial statements commencing fromMay 9, 2021 . Micronet did not generate any revenue during the second quarter of 2020 or since the beginning of the second quarter of 2021 until its deconsolidation. Gross profit related to the verticals and technology segment for the year endedDecember 31, 2021 was$9,192,000 , as compared to$7,000 Gross profit for the year endedDecember 31, 2020 , and reflects an increase of$9,185,000 , for the year endedDecember 31, 2021 as compared to the same period last year. The increase is attributed to the consolidation of the GFHI results as ofJuly 1, 2020 and revenues generated as a result of certain commercial and business combination transaction entered by the Company during 2021 (as further detailed above). Gross profit related to the online stock trading platform segment for the year endedDecember 31, 2021 was$18,000 , as compared to no Gross profit for the year endedDecember 31, 2020 , and reflects an increase of$18,000 , for the year endedDecember 31, 2021 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 year endedDecember 31, 2021 , was$6,814,000 , as compared to income of$38,000 for year endedDecember 30, 2020 . This represents an increase of$6,852,000 , for the year endedDecember 31, 2021 as compared to the same period last year. The increase is mainly a result of increase in : (i) advertising promotion fee of$1,621,000 and; (ii) sales technological development expense in an amount of$694,000 and; (iii) marketing service charge in an amount of$1,624,000 and; (iv) sales technical service fee in an amount of$517,000 and (v) increase from the acquisition of online stock trading platform segment that was finalized onFebruary 26, 2021 . 62
General and Administrative Expenses
General and administrative expenses are part of operating expenses. General and administrative expenses for the year endedDecember 31, 2021 was$36,488,000 , compared to$14,228,000 for the year endedDecember 31, 2020 . This represents an increase of$22,260,000 , for the year endedDecember 31, 2021 as compared to the same period last year. The increase is mainly a result of (i) One time acquisitions as noted above, and (ii) an increase in retainer for professional advice from various services providers, in connection with the completion of the public offering closed inFebruary 2021 andMarch 2021 ; and (iii) an increase associated with the D&O insurance in a total amount of$1,337,000 ; and (iv) an increase associated with the issuance costs of shares and options to Directors officers and employees in a total amount of$8,313,000 a non-cash expenses; and (v) Bad debt provision of$2,606,000 and; (vi) an increase associated with the salary expenses following the acquisition of new subsidiaries and VIEs transactions during 2021 in a total amount of$7,624,000 , and; (vii) an increase associated with the rent and maintenance expenses following the acquisition of new subsidiaries and VIEs transactions during 2021 in a total amount of$2,108,000 .
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 year endedDecember 31, 2021 was$889,000 , compared to$484,000 for the year endedDecember 31, 2020 . This represents an increase of$405,000 , for the year endedDecember 3, 2021 , as compared to the same period last year. On one hand, the acquisition ofMagpie Securities Limited , onFebruary 26, 2021 caused an increase in our research and development expenses for the year endedDecember 31, 2021 as compared to the same period last year. This was offset by the fact that most of our research and development expenses in 2020 were related to Micronet. Our ownership and voting interests in Micronet was diluted and caused us to cease consolidating Micronet's operations in our financial statements commencing fromMay 9, 2021 , which caused a decrease in our research and development expenses for the year endedDecember 31, 2021 as compared to the same period last year. Loss from Operations Our loss from operations for the year endedDecember 31, 2021 was$37,896,000 , compared to loss from operations of$16,579,000 , for the year endedDecember 31, 2020 . The increase in loss from operations is mainly a result of the acquisitions mentioned above, as well as the increase in general and administrative costs and increase in selling and marketing costs as explained in the section above. Finance Income (Expense), Net Financial income (expenses), net for the year endedDecember 31, 2021 was$395,000 compared to$(7,462,000) for the year endedDecember 31, 2020 . This represents a decrease in financial expenses of$7,857,000 , for the year endedDecember 31, 2021 . The decrease in financial expenses, net for the year endedDecember 31, 2021 , is primarily due to the recognition of beneficial conversion expense of approximately$8,482,000 in 2020.
Net Loss Attributed to
Our net loss attributed toMICT, Inc. for the year endedDecember 31, 2021 , was$36,428,000 , compared to 22,992,000, for the year endedDecember 31, 2020 . This represents an increase of$13,436,000 for the year endedDecember 31, 2021 , as compared to the same period last year. The increase for the year endedDecember 31, 2021 is mainly a result of the increase in operating expenses (as further detailed above) , from loss of controlling equity investment held in Micronet in an amount of$1,934 and loss from decrease in holding percentage in an amount of$1,128 .
Liquidity and Capital Resources
As of
Sales of our Securities OnNovember 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 onNovember 4, 2020 . ByDecember 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 onMarch 1, 2021 and in consideration for such proceeds, the Company issued the remaining 2,400,000 units. OnFebruary 11, 2021 , the Company announced that it has 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 are 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 are 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 onFebruary 16, 2021 after deducting the placement agent's fees and other expenses. 63
OnMarch 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 March Purchase Agreement was onMarch 4, 2021 . The Company received net proceeds of$48.69 million onMarch 4, 2021 , after deducting the placement agent's fees and other expenses. Contractual Obligations
We have certain fixed contractual obligations and commitments that include future estimated payments. Changes in our business needs, cancellation provisions, and other factors may result in actual payments differing from the estimates. The following tables summarize our contractual obligations as ofDecember 31, 2021 , and the effect these obligations are expected to have on our liquidity and cash flows in future periods. Contractual Obligation: Total Less than 1 year 1-3 year 3-5 year 5+ year Office leases commitment 2,137,944 1,130,285 987,363 20,296 - Short-term debt obligations Commitment 1,657,252 1,657,252 - - - Services Contract Commitment 405,600 405,600 - - - Total 4,200,796 3,193,137 987,363 20,296 - 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 . As ofDecember 31, 2021 , the Company had short-term loans from others of$1,657 comprised as follows:$1,155 loans ofAll Weather Insurance Agency bear interest of 0%, of which$1,088 will be repaid onDecember 31, 2022 and$67 will be repaid onAugust 3, 2022 . The$314 loans ofZhongtong Insurance that bear interest of 10% has been repaid subsequently onJanuary 11, 2022 , and the remaining loans ofZhongtong Insurance in amount of$188 loans that bear interest of 10% will be repaid beforeDecember 31, 2022 . Debt Repayment For the year endedDecember 31, 2021 , our total debt was$1,657,000 as compared to$884,000 for the year endedDecember 31, 2020 . The change in total debt is primarily due to the dilution in our ownership and voting interests in Micronet, causing us to cease consolidating Micronet's operations in our financial statements commencing fromMay 9, 2021 and a new loan that All weather received from others. 64
For the year endedDecember 31, 2021 , our working capital was$102,107,000 , compared to$26,693,000 for the year endedDecember 31, 2020 . The increase is mainly due to the increase in our cash as described above. Based on our current business plan, and in view of our cash balance following the transactions described in this Item 2, we anticipate that our cash balances will be sufficient to permit us to conduct our operations and carry out our contemplated business plans for at least the next 12 months from the date of this Report. For the year EndedDecember 31, 2021 2020 USD in USD in thousands thousands
Net Cash Used in Operating Activities$ (33,025 ) $ (8,300 ) Net Cash Used in Investing Activities (8,853 ) (3,279 ) Net Cash Provided by Financing Activities 109,602
37,430
Translation adjustment on cash and restricted cash 97 (1 ) Cash and restricted cash at Beginning of Period 29,526
3,676
Cash and restricted cash at end of period$ 97,347
$ 29,526
Cash Flow from Operating Activities
For the year endedDecember 31, 2021 , net cash used in operating activities was$33,025,000 , which primarily consists of net loss of$37,158,000 and various non-cash items of$(18,979,000) , as well as (1) changes in deferred tax, net of$2,539,000 , (2) changes in trade account receivable of$19,579,000 , (3) changes in trade accounts payable of$(13,846,000) , (4) changes in deposit held on behalf of clients of$(3,101,000) , (5) changes in other current assets of$ 4,878,000 , (6) changes in other current liabilities of$4,099,000 , (7) changes in related party of$163,000 , (8) changes in long-term deposit and prepaid expenses of$542,000 , (9) changes in right of use assets of$(486,000) , and (10) change in lease liabilities of$ 479,000 . For the year endedDecember 31, 2020 , net cash used in operating activities was$8,300,000 , which primarily consists of net loss of$23,636,000 and various non-cash items of$(6,227,000) , as well as (1) finance cost related to the convertible notes conversion of$(8,877,000) , and (2) changes in other assets and liabilities of$(232,000) .
Cash Flow from Investing Activities
For the year endedDecember 31, 2021 , we had net cash used in investing activities of$8,853,000 , which consisted of (1) deconsolidation of Micronet operations of$2,466,000 , (2) loan to related party of$4,265,000 , (3) purchase of property and equipment of$689,000 and (4) investment in new companies and expansion of business activities of$913,000 and (5) additional intangible assets of$520,000 . For the year endedDecember 31, 2020 , we had net cash used in investing activities of$3,279,000 , which consisted of the net cash used in additional investment of Micronet of$247,000 , loan to Micronet of$125,000 , and purchase of property and equipment of$32,000 , and loan to Magpie of$3,038,000 and loan received by related party of$(163,000) .
Cash Flow from Financing Activities
For the year ended
For the year endedDecember 31, 2020 , we had net cash provided by financing activities of$37,430,000 , which primarily consisted of (1) Proceeds from issuance of shares and warrants of$17,004,000 (2) proceeds from the exercise of warrants and options of$3,979,000 (3) issuance of convertible preferred shares net of$409,000 (4) receipt of convertible note of$ 14,796,000 (5) repayment of bank loans of$(496,000) (6) receipt of loan from bank of$124,000 (7) issuance of shares by subsidiary of$1,614,000 . 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. 65
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect that is material to investors on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources. 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 beneficial conversion feature expense - Those expenses are non-cash expenses and are related to the difference between the stock price at the closing of the Note Purchase
Agreements
and the conversion price of$1.10 per share.
? Stock-based compensation is share based awards granted to certain
individuals. They are non-cash and affected by our historical
stock
prices which are irrelevant to forward-looking analyses and are not necessarily linked to our operational performance.
? Expenses related to the purchase of a business - These expenses relate
directly to the purchase of the GFH I transaction and consist
mainly of
legal and accounting fees, insurance fees and other consultants.
We
believe that these expenses do not reflect our operational
performance.
Therefore, we exclude them to provide investors with a
consistent basis
for comparing pre- and post-Vehicle Business purchase operating results. ? Expenses related to settlement agreement - These expenses relate directly to the settlement agreement with Maxim and Sunrise. More information can be found in the legal proceeding part. The following table reconciles, for the periods presented, GAAP net loss attributable toMICT to non-GAAP net income attributable toMICT . and GAAP loss per diluted share attributable toMICT to non-GAAP net loss per diluted share attributable toMICT .: Year ended December 31, (Dollars in Thousands, other than share and per share amounts) 2021 2020 GAAP net loss attributable to MICT, Inc.$ (36,428 ) $ (22,992 ) Amortization of acquired intangible assets 2,925 1,572 Expenses related to beneficial conversion feature expense - 8,482 Stock-based compensation 10,580 3,571 Expenses related to purchase of a business - 3,364 One time expenses relates to settlement agreement 303 2,440 Income tax effect of above non-GAAP adjustments (773 ) (398 ) Total Non-GAAP net loss attributable to MICT, Inc. $
(23,393 )
Non-GAAP net loss per diluted share attributable to
$
(0.20 )
112,562,199 27,623,175 GAAP net loss per diluted share attributable to MICT, Inc.$ (0.32 ) $ (0.83 ) Weighted average common shares outstanding used in per share calculations 112,562,199 27,623,175 66
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