UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

 

SCHEDULE 14A INFORMATION

 

Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934

 

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  Preliminary Proxy Statement
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  Definitive Proxy Statement
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MICT, INC.

(Name of Registrant as Specified in Its Charter)

 

 

(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

 

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MICT, Inc.

28 West Grand Avenue, Suite 3

Montvale, NJ 07645

 

To the Stockholders of MICT, Inc.:

  

You are cordially invited to attend the special meeting of the stockholders (the “Special Meeting”) of MICT, Inc. (“MICT” or the “Company”) to be held at 9:00 a.m. Eastern Time on Thursday, September 3, 2020. As a result of the public health and travel guidance and concerns due to COVID-19, this year’s meeting will be a virtual meeting via live webcast on the Internet. You will be able to attend our annual meeting, vote and submit your questions during the annual meeting by visiting www.virtualshareholdermeeting.com/MICT2020. You will not be able to attend the annual meeting in person.

 

At the Special Meeting, MICT stockholders will be asked to consider and vote upon the following proposals:

 

  (1) To approve, in accordance with Nasdaq Listing Rule 5635(a), the issuance of approximately 22,727,272 shares of common stock, par value of $0.001 per share (the “Common Stock”), upon conversion of the convertible promissory note (the “Consideration Note”) issued to Global Fintech Holdings Ltd., a British Virgin Islands company (“GFH”) in connection with the Agreement and Plan of Merger, entered into on November 7, 2019 and amended and restated on April 15, 2020 (the “Merger Agreement”, a copy which is attached to the accompanying proxy statement as Annex A), by and among MICT, GFH Intermediate Holdings Ltd., a British Virgin Islands company (“Intermediate”), MICT Merger Subsidiary Inc., a British Virgin Islands company and a wholly-owned subsidiary of MICT (“Merger Sub”) and GHF, as the sole shareholder of Intermediate (“GFH”), pursuant to which the Merger Sub merged with and into Intermediate, with Intermediate continuing as the surviving entity, as a result of which GFH became a wholly owned subsidiary of MICT (the “Merger”) (the “Nasdaq Proposal – Consideration Note”);
     
  (2) To approve, in accordance with Nasdaq Listing Rule 5635(a), the issuance of approximately 13,636,363 shares of common stock, par value of $0.001 per share (the “Common Stock”), upon conversion of the convertible promissory notes (the “Convertible Notes”) issued or to be issued to certain investors in the aggregate principal amount of approximately $15 million (the “Nasdaq Proposal – Convertible Notes”);

 

  (3) To approve, in accordance with Nasdaq Listing Rule 5635(a), the issuance of 3,636,362 shares of Common Stock, upon conversion of Series B Convertible Preferred Stock (the “Series B Preferred Shares”) and exercise of the warrants (“Note Warrants”) initially issued to BNN Technology PLC (and subsequently transferred to GFH) (the “Nasdaq Proposal – Preferred Stock and Warrants,” collectively with the Nasdaq Proposal – Consideration Note and the Nasdaq Proposal – Convertible Notes, the “Nasdaq Proposals”);

 

  (4) To approve and adopt an amendment to the certificate of incorporation of MICT, as amended, a form of which is attached as Annex B to the accompanying proxy statement, to increase the number of authorized shares of (i) Common Stock, from 25,000,000 to 250,000,000 and (ii) preferred stock from 5,000,000 to 15,000,000, for the purpose of the issuance of shares of Common Stock upon conversion of the Consideration Note, the Convertible Notes, the Series B Preferred Shares, the exercise of the Note Warrants and the conversion or exercise of other outstanding securities of MICT, as well as for future financings to raise capital and for possible additional future acquisition transactions, joint ventures and other general corporate purposes (the “Charter Amendment Proposal”);

  

  (5) To approve and adopt the 2020 Equity Incentive Plan of MICT, a copy of which is attached to the accompanying proxy statement as Annex C (the “EIP Proposal”);

 

  (6) To consider and vote, on an advisory basis, upon a proposal to approve a “golden parachute” payment to David Lucatz, the former President and Chief Executive Officer of MICT in connection with the Merger (the “Golden Parachute Proposal”); and

 

 

 

  (7)  To consider and vote upon a proposal to adjourn the Special Meeting to a later date or dates, if necessary to permit further solicitation and vote of proxies if it is determined by MICT that more time is necessary or appropriate to approve one or more proposals presented at the Special Meeting (the “Adjournment Proposal”, collectively with all other proposals, the “Proposals”). 

 

The board of directors of MICT has fixed the close of business on July 29, 2020 as the record date (the “Record Date”) for the Special Meeting and only stockholders who held Common Stock of MICT as of the Record Date will be entitled to vote at the Special Meeting and at any adjournments and postponements thereof.

 

MICT’s board of directors has unanimously determined that the Proposals are advisable, fair to and in the best interests of MICT and its stockholders and unanimously recommends that MICT’s stockholders vote “FOR” the the Nasdaq Proposals, the Charter Amendment Proposal, the EIP Proposal and the Golden Parachute Proposal, and “FOR” the Adjournment Proposal, if presented.

 

Your vote is important. More information about MICT, the Special Meeting and the proposals presented, is contained in the accompanying proxy statement. You are encouraged to read the accompanying proxy statement in its entirety, including the section entitled “Risk Factors” beginning on page 22.

 

Very truly yours,

 

   
Darren Mercer  
Chief Executive Officer  

 

The accompanying proxy statement is dated August 12, 2020.

 

 

 

MICT, Inc.

 

28 West Grand Avenue, Suite 3

Montvale, NJ 07645

 

NOTICE OF SPECIAL MEETING
OF STOCKHOLDERS
TO BE HELD ON SEPTEMBER 3, 2020

 

TO THE STOCKHOLDERS OF MICT, INC.:

 

NOTICE IS HEREBY GIVEN that a special meeting of stockholders (the “Special Meeting”) of MICT, Inc. (“MICT” or the “Company”), a Delaware corporation, will be held at 9:00 a.m. Eastern Time, on September 3, 2020. This year’s annual meeting will be a virtual meeting via live webcast on the Internet. You will be able to attend our annual meeting, vote and submit your questions during the meeting by visiting www.virtualshareholdermeeting.com/MICT2020. You are cordially invited to attend the Special Meeting, which will be held for the following purposes:

 

  (1) To approve, in accordance with Nasdaq Listing Rule 5635(a), the issuance of approximately 22,727,272 shares of common stock, par value of $0.001 per share (the “Common Stock”), upon conversion of the convertible promissory note (the “Consideration Note”) issued to Global Fintech Holdings Ltd., a British Virgin Islands company (“GFH”) in connection with the Agreement and Plan of Merger, entered into on November 7, 2019 and amended and restated on April 15, 2020 (the “Merger Agreement”, a copy which is attached to the accompanying proxy statement as Annex A), by and among MICT, GFH Intermediate Holdings Ltd., a British Virgin Islands company (“Intermediate”), MICT Merger Subsidiary Inc., a British Virgin Islands company and a wholly-owned subsidiary of MICT (“Merger Sub”) and GHF, as the sole shareholder of Intermediate (“GFH”), pursuant to which the Merger Sub merged with and into Intermediate, with Intermediate continuing as the surviving entity, as a result of which GFH became a wholly owned subsidiary of MICT (the “Merger”) (the “Nasdaq Proposal – Consideration Note”);
     
  (2) To approve, in accordance with Nasdaq Listing Rule 5635(a), the issuance of approximately 13,636,363 shares of common stock, par value of $0.001 per share (the “Common Stock”), upon conversion of the convertible promissory notes (the “Convertible Notes”) issued or to be issued to certain investors in the aggregate principal amount of approximately $15 million (the “Nasdaq Proposal – Convertible Notes”);

 

  (3) To approve, in accordance with Nasdaq Listing Rule 5635(a), the issuance of 3,636,362 shares of Common Stock, upon conversion of Series B Convertible Preferred Stock (the “Series B Preferred Shares”) and exercise of the warrants (“Note Warrants”) initially issued to BNN Technology PLC (and subsequently transferred to GFH) (the “Nasdaq Proposal – Preferred Stock and Warrants,” collectively with the Nasdaq Proposal – Consideration Note and the Nasdaq Proposal – Convertible Notes, the “Nasdaq Proposals”);

 

  (4) To approve and adopt an amendment to the certificate of incorporation of MICT, as amended, a form of which is attached as Annex B to the accompanying proxy statement, to increase the number of authorized shares of (i) Common Stock, from 25,000,000 to 250,000,000 and (ii) preferred stock from 5,000,000 to 15,000,000, for the purpose of the issuance of shares of Common Stock upon conversion of the Consideration Note, the Convertible Notes and the Series B Preferred Shares, the exercise of the Note Warrants and the conversion or exercise of other outstanding securities of MICT, as well as for future financings to raise capital and for possible additional future acquisition transactions, joint ventures and other general corporate purposes (the “Charter Amendment Proposal”);

  

  (5) To approve and adopt the 2020 Equity Incentive Plan of MICT, a copy of which is attached to the accompanying proxy statement as Annex C (the “EIP Proposal”);

 

  (6) To consider and vote, on an advisory basis, upon a proposal to approve a “golden parachute” payment to David Lucatz, the former President and Chief Executive Officer of MICT in connection with the Merger (the “Golden Parachute Proposal”); and

 

  (7)  To consider and vote upon a proposal to adjourn the Special Meeting to a later date or dates, if necessary to permit further solicitation and vote of proxies if it is determined by MICT that more time is necessary or appropriate to approve one or more proposals presented at the Special Meeting (the “Adjournment Proposal”, collectively with all other proposals, the “Proposals”). 

 

 

 

The Proposals are described in the accompanying proxy statement, which we encourage you to read in its entirety before voting. Only holders of record of Common Stock or Series A Preferred Stock of MICT at the close of business on July 29, 2020 are entitled to notice of the Special Meeting and to vote and have their votes counted at the Special Meeting and any adjournments or postponements of the Special Meeting. A complete list of MICT’s stockholders of record entitled to vote at the Special Meeting will be available for ten days before the Special Meeting at the principal executive offices of MICT for inspection by stockholders during ordinary business hours for any purpose germane to the Special Meeting.

  

After careful consideration, MICT’s board of directors has determined that the Proposals are fair to and in the best interests of MICT and its stockholders and unanimously recommends that you vote or give instruction to vote “FOR” the : Nasdaq Proposals, the Charter Amendment Proposal, the EIP Proposal, and the Golden Parachute Proposal, and “FOR” the Adjournment Proposal, if presented.

 

The existence of any financial and personal interests of one or more of MICT’s officers or directors may be argued to result in a conflict of interest on the part of such officers or directors between what he, she or they may believe is in the best interests of MICT and its stockholders and what he, she or they may believe is best for himself, herself or themselves in determining to recommend that stockholders vote for the proposals. See the section entitled “Interests of MICT’s Directors and Officers in the Proposals” in the accompanying proxy statement for a further discussion of this issue.

 

The affirmative vote of the holders of a majority of the shares of Common Stock (and Series A Preferred Stock voting together with the holders of Common Stock as a single class on an as-converted basis) entitled to vote at the Special Meeting is required to approve the Charter Amendment Proposal. The affirmative vote of a majority of the votes cast at the Special Meeting is required for the approval of the Nasdaq Proposals, the EIP Proposal, the Golden Parachute Proposal and the Adjournment Proposal, if presented. If the Nasdaq Proposals are not approved, the EIP Proposal, the Golden Parachute Proposal, and the Charter Amendment Proposal will not be presented to the MICT stockholders for a vote.

 

All stockholders of MICT are cordially invited to attend the Special Meeting virtually over the internet. To ensure your representation at the Special Meeting, however, you are urged to mark, sign and date the enclosed proxy card and return it as soon as possible in the pre-addressed postage paid envelope provided. If you are a stockholder of record of Common Stock, you may also cast your vote over the internet during the Special Meeting. If your shares are held in an account at a brokerage firm or bank, or by a nominee, you must instruct your broker, bank or nominee on how to vote your shares or, if you wish to attend the Special Meeting and vote at the meeting, obtain a proxy from your broker, bank or nominee. Abstentions and broker non-votes will have no effect on the outcome of the Nasdaq Proposals, the EIP Proposal, the EIP Sub-Plan Proposal, the Golden Parachute Proposal, and the Adjournment Proposal.

 

Whether or not you plan to attend the Special Meeting, we urge you to read the accompanying proxy statement (and any documents incorporated into the accompanying proxy statement by reference) carefully. Please pay particular attention to the section entitled “Risk Factors” in the accompanying proxy statement.

 

Your vote is important regardless of the number of shares you own. Whether you plan to attend the Special Meeting or not, please mark, sign and date the enclosed proxy card and return it as soon as possible in the envelope provided. If your shares are held in “street name” or are in a margin or similar account, you should contact your broker to ensure that votes related to the shares you beneficially own are properly counted.

 

Thank you for your participation. We look forward to your continued support.

 

By Order of the Board of Directors of MICT, Inc.  
   
 
   

Darren Mercer

Chief Executive Officer

 

 

August 12, 2020

 

IF YOU RETURN YOUR PROXY CARD WITHOUT AN INDICATION OF HOW YOU WISH TO VOTE, YOUR SHARES WILL BE VOTED IN FAVOR OF EACH OF THE PROPOSALS.

 

This proxy statement is dated August 12, 2020.

  

 

  

TABLE OF CONTENTS

 

FREQUENTLY USED TERMS iv
   
REFERENCES TO ADDITIONAL INFORMATION vii
   
NOTE ON PRESENTATION OF FINANCIAL STATEMENTS AND DISCLOSURE IN THIS PROXY STATEMENT viii
   
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS ix
   
SUMMARY OF THE MATERIAL TERMS OF THE PROXY STATEMENT 1
   
QUESTIONS AND ANSWERS FOR ALL MICT STOCKHOLDERS 5
   
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA OF MICT 8
   
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA OF MICRONET 9
   
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA OF INTERMEDIATE 10
   
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION 11
   
MARKET PRICE AND DIVIDEND INFORMATION 21
   
RISK FACTORS 22
   
SPECIAL MEETING OF THE STOCKHOLDERS OF MICT 42
   
THE NASDAQ PROPOSAL – CONSIDERATION NOTE 44
   
THE NASDAQ PROPOSAL – CONVERTIBLE NOTES 49
   
THE NASDAQ PROPOSAL – PREFERRED STOCK AND WARRANTS 51
   
THE CHARTER AMENDMENT PROPOSAL 52
   
THE EIP PROPOSAL 53
   
THE GOLDEN PARACHUTE PROPOSAL 59
   
THE ADJOURNMENT PROPOSAL 60
   
DESCRIPTION OF THE BUSINESS OF MICT 61

  

i

 

  

DIRECTORS, EXECUTIVE OFFICERS, EXECUTIVE COMPENSATION AND CORPORATE GOVERNANCE OF THE COMBINED ENTITY 94
   
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION OF MICT 109
   
BENEFICIAL OWNERSHIP OF SECURITIES OF MICT 156
   
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS OF MICT 157
   
DESCRIPTION OF MICT SECURITIES 159
   
OTHER STOCKHOLDER COMMUNICATIONS 166
   
DELIVERY OF DOCUMENTS TO STOCKHOLDERS 166
   
TRANSFER AGENT AND REGISTRAR 166
   
SUBMISSION OF PROPOSAL TO MICT STOCKHOLDERS 166
   
FUTURE STOCKHOLDER PROPOSALS 166
   
WHERE YOU CAN FIND MORE INFORMATION 166

 

ii

 

  

ANNEX A Merger Agreement Annex A-1
     
ANNEX B Amendment to the Certificate of Incorporation to Increase Number of Authorized Shares Annex B-1
     
ANNEX C 2020 Equity Incentive Plan Annex C-1
     
ANNEX D Consideration Note Annex D-1
     
ANNEX E Securities Purchase Agreement Annex E-1
     
ANNEX F Certificate of Designation for Series B Convertible Preferred Stock Annex F-1
     
ANNEX G From of Note Warrant Annex G-1
     
ANNEX H Convertible Promissory Note Annex H-1

 

iii

 

 

FREQUENTLY USED TERMS

 

Unless otherwise stated or unless the context otherwise requires, the terms “we,” “us,” “our,” “the Company,” and “MICT” refer to MICT, Inc.

 

  “2012 Awards” refers to any share-based award granted under the 2012 Incentive Plan other than the 2012 Options;
     
  “2012 Incentive Plan” refers to the 2012 MICT Stock Incentive Plan;

 

  “2012 Options” refers to the options to purchase Common Stock awarded under the 2012 Incentive Plan;

 

  “2014 Incentive Plan” refers to the 2014 MICT Stock Incentive Plan;
     
  “2014 Awards” refers to any share-based award granted under the 2014 Incentive Plan other than the 2012 Options;

 

  “2014 Options” refers to the options to purchase Common Stock awarded under the 2014 = Incentive Plan;

 

  “Adjournment Proposal” refers to the proposal to adjourn the Special Meeting to a later date or dates, if necessary to permit further solicitation and vote of proxies if it is determined by MICT that more time is necessary or appropriate to approve one or more proposals presented at the Special Meeting;

 

  “BNN” refers to BNN Technology PLC, a United Kingdom private limited company;

 

  “Charter Amendment Proposal” refers to a proposal to adopt an amendment to the certificate of incorporation of MICT, as amended, a form of which is attached as Annex B to the accompanying proxy statement, to increase the number of authorized shares of (i) Common Stock, from 25,000,000 to 250,000,000 and (ii) preferred stock from 5,000,000 to 15,000,000, to be effective at the closing of the Merger, for the purpose of carrying out the Merger and the issuance of shares of Common Stock upon conversion of the Consideration Note and the Convertible Notes, the Series B Preferred Stock, the exercise of the Note Warrants and the conversion or exercise of other outstanding securities of MICT, as well as for future financings to raise capital and for possible additional future acquisition transactions, joint ventures and other general corporate purposes;

  

  “Closing” refers to the closing of the Merger;

 

  “Code” refers to the Internal Revenue Code of 1986, as amended;

 

  “Common Stock” refers to common stock of MICT, par value $0.001 per share;

 

  “Compensation Committee” refers to the compensation committee of the board of directors of MICT;

 

  “Consideration Note” refers to that certain convertible promissory note issued by MICT to GFH with a principal of $25 million, which is convertible into an aggregate of 22,727,272 shares of Common Stock at a conversion price of $1.10 per share;

 

  “Consulting Agreement” refers to the Consulting Services Agreement by and between DL Capital and MICT, dated November 26, 2012;
     
  “Convertible Notes” refers to those certain convertible promissory notes with an aggregate principal amount of approximately $15 million, convertible into shares of Common Stock at a conversion price of $1.10 per share;
     
  “Convertible Note Purchasers” refers to those certain investors who participated in the Convertible Note Offering;

 

iv

 

 

  “Conversion Shares” refers to the shares of Common Stock issuable upon Conversion of the Convertible Notes;

 

  “EIP Proposal” refers to a proposal to approve and adopt the 2020 Equity Incentive Plan of MICT, a copy of which is attached to the accompanying proxy statement as Annex C;

  

  “EIP” refers to the 2020 Equity Incentive Plan of MICT;

 

  “Enertec” refers to Enertec Systems 2001 Ltd.;

 

  “Exchange Act” refers to the Securities Exchange Act of 1934, as amended;

 

  “Forced Conversion” refers to the automatic conversion of the Convertible Notes into shares of Common Stock at the Conversion Price;
     
 

“IFRS” refers to the International Financial Reporting Standard;

 

  “Intermediate” refers to GFH Intermediate Holdings Ltd., a British Virgin Islands company;
     
  “GFH” means Global Fintech Holding Ltd., a British Virgin Islands business company;

 

  “Golden Parachute Proposal” refers to a proposal to approve a “golden parachute” payment to David Lucatz, the former President and Chief Executive Officer of MICT in connection with the Merger, the vote on which proposal is on an advisory basis only;

 

  “IRS” refers to the Internal Revenue Service of the United States;

 

  “Long Term Incentive Plan” or “LTIP” refers to the shares reserved for issuance under the EIP for awards to incentivize certain Company insiders to meet critical commercial milestones;
     
  “Maturity Date” refers to the maturity date of the Consideration Note, July 1, 2022;
     
  “Merger Agreement” refers to the Agreement and Plan of Merger, dated as of November 7, 2019, as amended on April 15, 2020 (a copy which is attached to the accompanying proxy statement as Annex A), by and among MICT, GFH and Merger Sub, pursuant to which Merger Sub merged with and into GFH, with GFH continuing as the surviving entity, as a result of which GFH became a wholly owned subsidiary of MICT;

  

  “Merger Sub” refers to MICT Merger Subsidiary Inc., a British Virgin Islands company and a wholly-owned subsidiary of MICT;

 

  “Merger” refers the business combination pursuant to the Merger Agreement;

 

  “Micronet” refers to Micronet Ltd.;

 

  “Micronet Agreement” refers to a management and consulting services agreement between Micronet and DLC, pursuant to which, effective November 1, 2012 Mr. David Lucatz agreed to devote 60% of his time to Micronet matters for the three year term of the agreement and Micronet agreed to pay the entities controlled by Mr. Lucatz management fees of NIS 65,000 (approximately $18,172) on a monthly basis and cover other monthly expenses;

 

  “Micronet Management Fees” refers to the management fees being paid to Mr. David Lucatz under the Micronet Agreement;

 

  “MICT Board” refers to the board of directors of MICT;
     
 

“MICT Telematics” refers to MICT Telematics Ltd.; 

 

v

 

 

 

“MRM” refers to mobile resource management;

 

  “Nasdaq” refers to The Nasdaq Stock Market;

 

  “Nasdaq Proposal – Consideration Note” refers to a proposal to approve, in accordance with Nasdaq Listing Rule 5635(a), the issuance of 22,727,272 shares of Common Stock, upon conversion of the Consideration Note;

 

  “Nasdaq Proposal – Convertible Notes” refers to a proposal to approve, in accordance with Nasdaq Listing Rule 5635(a), the issuance of 13,636,363 shares of Common Stock, upon conversion of the Convertible Notes;

 

  “Nasdaq Proposal – Preferred Stock and Warrants” refers to a proposal to approve, in accordance with Nasdaq Listing Rule 5635(a), the issuance of 3,636,364 shares of Common Stock, upon conversion of Series B Convertible Preferred Stock and exercise of the Note Warrants initially issued to BNN Technology PLC (and subsequently transferred to GFH);

 

  “Nasdaq Proposals” means, collectively, the Nasdaq Proposal – Preferred Stock and Warrants, the Nasdaq Proposal – Consideration Note, and the Nasdaq Proposal – Convertible Debentures;

  

  “Note Warrants” means the common stock purchase warrants accompanying the BNN Convertible Notes;

 

 

“Preferred Warrants” refers to those certain warrants to purchase up to 6,590,907 shares of common stock for aggregate gross proceeds of $7 million;

 

  “Proposals” means, collectively, the Nasdaq Proposals, the Charter Amendment Proposal, the EIP Proposal, the Golden Parachute Proposal and the Adjournment Proposal;

 

  “Record Date” means July 29, 2020;
     
 

“Resale Registration Statement” refers to a registration statement required by the Merger Agreement to be filed with the SEC following the consummation of the Merger for purposes of registering the shares of Common Stock underlying the Consideration Note;

 

  “Restricted Stock” refers to shares of restricted stock of MICT purchased under the 2014 Incentive Plan;

 

  “SEC” refers to the U.S. Securities and Exchange Commission;
     
  “Securities Act” refers to the Securities Act of 1933, as amended;

 

  “Series A Certificate of Designation” refers to the amended certificate of designation for the Series A Preferred Shares;

 

  “Series A Preferred Shares” refers to an aggregate of 3,181,818 shares of Series A Convertible Preferred Stock issued in connection with that certain Series A SPA;

 

  “Series B Certificate of Designation” refers to the amended certificate of designation for the Series B Preferred Shares;

 

  “Series B Preferred Shares” refers to an aggregate to 1,818,181 shares of Common Stock issued upon conversion of the Series B Preferred Stock;

 

  “Special Meeting” refers to the special meeting of stockholders of MICT to be held on September 3, 2020 to vote on the Proposals;

  

 

“Stock Rights” refers to the 2014 Options, 2014 Awards and Restricted Stock, collectively;

     
  “U.S. GAAP” refers to United States Generally Accepted Accounting Principles;

 

  “USD” refers to the United States Dollar;

 

vi

 

 

REFERENCES TO ADDITIONAL INFORMATION

 

The accompanying document is the proxy statement of MICT for a Special Meeting of its stockholders. The proxy statement incorporates by reference important business and financial information about MICT that is not included in or delivered with this proxy statement. This information is available without charge to stockholders of MICT upon request. You can obtain the documents incorporated by reference into the accompanying proxy statement through the Securities and Exchange Commission website at www.sec.gov (if publicly filed) or by requesting them in writing or by telephone at the address or telephone number below:

 

Darren Mercer

Chief Executive Officer

MICT, Inc.  

 

28 West Grand Avenue, Suite 3

Montvale, NJ 07645

(201) 225-0190

 

In addition, if you have questions about the accompanying proxy statement, would like additional copies of the accompanying proxy statement or need to obtain proxy cards or other information related to the proxy solicitation, please contact MICT, Inc. at the address provided above. You will not be charged for any of these documents that you request.

 

See the section entitled “Where You Can Find More Information” beginning on page 166 of the accompanying proxy statement for further information.

 

Information contained on the MICT website are expressly not incorporated by reference into this proxy statement.

 

To obtain timely delivery of the documents, you must request them no later than five business days before the date of the applicable Special Meeting, or no later than August 27, 2020.

 

vii

 

  

NOTE ON PRESENTATION OF FINANCIAL STATEMENTS AND DISCLOSURE

 

IN THIS PROXY STATEMENT

 

MICT’s audited financial statements as of and for the years ended December 31, 2019 and 2018 and unaudited financial statements as of March 31, 2020 and for the three months ended March 31, 2020 and 2019 included in this proxy statement, were prepared, as stated therein, in accordance with U.S. Generally Accepted Accounting Principles (“U.S. GAAP”). 

 

Intermediate’s audited financial statements as of and for the years ended December 31, 2019 and 2018 and unaudited financial statements as of March 31, 2020 and for the three months ended March 31, 2020 and 2019 included in this proxy statement, were prepared, as stated therein, in accordance with U.S. GAAP.

 

Micronet’s audited financial statements as of and for the years ended December 31, 2019 and 2018 and unaudited financial statements as of March 31, 2020 and for the three months ended March 31, 2020 and 2019 included in this proxy statement, were prepared, as stated therein, in accordance with International Financial Reporting Standards. 

 

This proxy statement also includes unaudited pro forma condensed combined financial information as of and for the year ended December 31, 2019 and for the three months ended March 31, 2020 of MICT to give effect to events that are directly attributable to the Merger (as defined herein) and that shall have a continuing impact on the operations of MICT (with respect to the unaudited pro forma condensed combined Statements of Operations for the periods presented) and are based on available data and certain assumptions that management believes are factually supportable. See “Unaudited Pro Forma Condensed Combined Financial Information” included elsewhere in this proxy statement.

 

Rounding

 

Rounding adjustments have been made in calculating some of the financial information included in this proxy statement. As a result, figures shown as totals in some tables and elsewhere may not be exact arithmetic aggregations of the figures that precede them.

 

Percentages and amounts reflecting changes over time periods relating to financial and other data set forth in the sections entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” are calculated using the numerical data in the consolidated financial statements or the tabular presentation of other data (subject to rounding) contained in this proxy statement, as applicable, and not using the numerical data in the narrative description thereof.

 

viii

 

 

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

 

MICT believes that some of the information in this proxy statement constitutes forward-looking statements within the definition of the Private Securities Litigation Reform Act of 1995. You can identify these statements by forward-looking words such as “estimates,” “projected,” “expects,” “anticipates,” “forecasts,” “plans,” “intends,” “believes,” “seeks,” “may,” “will,” “should,” “future,” “propose” and variations of these words or similar expressions (or the negative versions of such words or expressions) that are intended to identify forward-looking statements. You should read statements that contain these words carefully because they:

 

  discuss future expectations;

 

  contain projections of future results of operations or financial condition; or

 

  state other “forward-looking” information.

 

MICT believes it is important to communicate its expectations to its stockholders. However, there may be events in the future that MICT is not able to predict accurately or over which it has no control. The risk factors and cautionary language discussed in this proxy statement provide examples of risks, uncertainties and events that may cause actual results to differ materially from the expectations described by MICT in such forward-looking statements, including among other things:

 

  our history of losses;

 

  litigation;

 

  the effect of government regulation and taxation on our businesses, including regulatory developments related to lottery and other industries in China that Intermediate plans to conduct business in;

 

  political and economic conditions affecting countries in which we currently do business or into which we may expand;

 

  reduction in demand for services affecting future revenues;

 

  loss of key personnel and ability to attract qualified personnel;

 

  the impact of the COVID-19 pandemic on our business and operations;

 

  our ability to compete for acquisition opportunities and our ability to integrate and operate acquired businesses; and

 

  other factors.

 

You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this proxy statement.

 

All forward-looking statements included herein attributable to any of MICT or any person acting on its behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this section. Except to the extent required by applicable laws and regulations, MICT undertakes no obligations to update these forward-looking statements to reflect events or circumstances after the date of this proxy statement or to reflect the occurrence of unanticipated events.

 

Before a stockholder grants its proxy or instructs how its vote should be cast or vote on the Proposals, it should be aware that the occurrence of the events described in the “Risk Factors” section and elsewhere in this proxy statement may adversely affect MICT and Intermediate.

  

ix

 

 

SUMMARY OF THE MATERIAL TERMS OF THE PROXY STATEMENT

 

This summary, together with the sections titled “Questions and Answers for All the MICT Stockholders,” summarizes information contained in this proxy statement, but do not contain all of the information that is important to you. You should carefully read this entire proxy statement, including the attached annexes, for a more complete understanding of the matters to be considered at the Special Meeting. In addition, for definitions of terms commonly used throughout this proxy statement, including in this summary, see the section entitled “Frequently Used Terms.”

 

The Nasdaq Proposals

 

The Consideration Note Proposal

 

Upon the consummation of the Merger, pursuant to the Agreement and Plan of Merger, entered into on November 7, 2019 and amended and restated as of April 15, 2020 (the “Merger Agreement”), by and among MICT, Inc., a Delaware corporation (“MICT” or the “Company”), GFH Intermediate Holdings Ltd., a British Virgin Islands company (“Intermediate”), MICT Merger Subsidiary Inc., a British Virgin Islands company and a wholly-owned subsidiary of MICT (“Merger Sub”), and Global Fintech Holdings Ltd., a British Virgin Islands company as the sole shareholder of Intermediate (“GFH”), pursuant to which the Merger Sub merged with and into Intermediate, with Intermediate continuing as the surviving entity, as a result of which Intermediate became a wholly owned subsidiary of MICT (the “Merger”), and MICT issued to GFH a convertible promissory note (the “Consideration Note”) with a principal of $25 million. The Consideration Note is convertible into an aggregate of 22,727,272 shares of common stock, par value $0.001 per share of MICT (the “Common Stock”) at a conversion price of $1.10 per share.

 

Under Nasdaq Listing Rule 5635(a)(1), stockholder approval is required prior to the issuance of securities in connection with the acquisition of another company if such securities are not issued in a public offering and (A) have, or will have upon issuance, voting power equal to or in excess of 20% of the voting power outstanding before the issuance of common stock (or securities convertible into or exercisable for common stock) or (B) the number of shares of common stock to be issued is or will be equal to or in excess of 20% of the number of shares of common stock outstanding before the issuance of the stock or securities. As a result of the Company’s issuance of shares of Common Stock upon the Forced Conversion of the Consideration Note, the Company will issue shares of Common Stock representing 20% or more of the number of outstanding shares of Common Stock of the Company prior to the issuance, or 20% or more of its voting power prior to the issuance. Additionally, under Nasdaq Listing Rule 5635(a)(2), stockholder approval is required prior to the issuance of securities in the event that any director, officer or substantial shareholder of the Company has a 5% or greater interest in the Company or assets to be acquired or in consideration to be paid in the transaction or series of related transactions. As described herein, Darren Mercer presently owns approximately one third of the issued and outstanding shares of GFH; and is the sole officer and one of the directors of GFH. In addition, prior to the closing of the Merger, Mr. Mercer was the sole officer and director of Global Fintech Holdings Intermediate. Please see section titled “The Nasdaq Proposal - Consideration Note Proposal

 

Ownership Structure 

 

MICT’s pro forma capitalization immediately following the issuance of Common Stock upon conversion or exercise of the Consideration Note, Convertible Notes, the Series A Preferred Stock, the Series A Warrants, the Series B Preferred Stock and the Note Warrants, exclusive of any shares reserved under the EIP as described in the EIP Proposal, shall be as follows:

 

Stockholder   Shares of Common Stock     Percentage Ownership  
GFH     27,726,636 (i)     44.1 %
MICT Public Stockholders     10,335,714       16.4 %
Holders of Series A Preferred Stock     6,363,636       10.1 %
Holders of Series A Warrants     4,772,727       7.6 %
Holders of Convertible Notes     13,636,363       21.7 %

  

(i) Includes shares of Common Stock issuable upon conversion or exercise, as applicable, of the Series B Preferred Stock (convertible into 1,818,181 shares of Common Stock) and the Note Warrants (convertible into 1,818,181 shares of Common Stock), which have since been transferred to GFH. Includes 1,363,000 shares that transferred to GFH from BNN.

 

1

 

 

The Convertible Notes Proposal

 

Pursuant to a series of securities purchase agreements that the Company entered into with certain investors identified therein (the “Purchasers”), the Company issued or intends to issue convertible notes (the “Convertible Notes”) with an aggregate principal amount of approximately $15 million (the “Convertible Notes Offering”). The Convertible Notes shall be convertible into shares of Common Stock at a conversion price of $1.10 per share (the “Conversion Shares”). As the Company will issue shares of Common Stock representing 20% or more of the number of outstanding shares of Common Stock of the Company prior to the issuance upon the Forced Conversion of the Convertible Notes, MICT is seeking stockholder approval to satisfy the requirements pursuant to Nasdaq Listing Rules 5635(a). Please see the section entitled “The Nasdaq Proposal – Convertible Notes.”

 

The Preferred Stock and Warrants Proposal

 

MICT stockholders will be asked to approve the issuance of 3,636,364 shares of Common Stock upon conversion of Series B Preferred Shares and exercise of the Note Warrants initially issued to BNN Technology PLC, a United Kingdom private company (“BNN”), pursuant to a securities purchase agreement dated June 4, 2019. All of the Series B Preferred Shares and the Note Warrants were subsequently transferred to GFH. 

 

The Charter Amendment Proposal

 

MICT stockholders will be asked to approve and adopt an amendment to the certificate of incorporation of MICT, as amended, a form of which is attached as Annex B to the accompanying proxy statement, to increase the number of authorized shares of (i) Common Stock, from 25,000,000 to 250,000,000 and (ii) preferred stock from 5,000,000 to 15,000,000, for the purpose of carrying out the issuance of shares of Common Stock upon conversion of the Consideration Note, the Convertible Notes, the Series A Preferred Shares, the Series A Warrants, the Series B Preferred Shares, the Note Warrants and the conversion or exercise of other outstanding securities of MICT, as well as for future financings to raise capital and for possible additional future acquisition transactions, joint ventures and other general corporate purposes.

  

The EIP Proposal

 

MICT is seeking stockholder approval of the 2020 Equity Incentive Plan which be used by MICT on a going-forward basis. A summary of the 2020 Equity Incentive Plan is set forth in the section entitled “The EIP Proposal” of the accompanying proxy statement and a complete copy of the 2020 Equity Incentive Plan is attached hereto as Annex C.

 

The Golden Parachute Proposal

 

The purpose of the Golden Parachute Proposal is to approve, on an advisory basis, the golden parachute compensation that may be paid or become payable to David Lucatz, former President and Chief Executive Officer of MICT, as disclosed in this proxy statement. Please see the section entitled “Golden Parachute Proposal.”

 

The Adjournment Proposal

 

The Adjournment Proposal, if adopted, will allow the MICT Board to adjourn the Special Meeting of stockholders to a later date or dates to permit further solicitation of proxies. The Adjournment Proposal will only be presented to MICT’s stockholders in the event that, based on the tabulated votes, there are not sufficient votes at the time of the Special Meeting to approve one or more of the proposals presented at such meeting.

 

Date, Time and Place of Special Meeting

 

The Special Meeting will be held at 9:00 a.m. Eastern time, on September 3, 2020. As a result of the public health and travel guidance and concerns due to COVID-19, this year’s meeting will be a virtual meeting via live webcast on the Internet. You will be able to attend our annual meeting, vote and submit your questions during the annual meeting by visiting www.virtualshareholdermeeting.com/MICT2020. You will not be able to attend the annual meeting in person. The Special Meeting may be adjourned or postponed to a later time to consider and vote upon the proposals.

 

Record Date; Outstanding Shares; Stockholders Entitled to Vote

 

MICT has fixed the close of business on July 29, 2020, as the Record Date for determining MICT stockholders entitled to notice of and to attend and vote at the Special Meeting. As of the close of business on July 29, 2020, there were 11,298,714 shares of Common Stock outstanding and entitled to vote and 3,181,818 shares of Series A Preferred Stock outstanding and entitled to vote. Each share of Common Stock is entitled to one vote per share at the Special Meeting and each share of Series A Preferred Stock is entitled to two votes per share at the Special Meeting.

 

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Proxy Solicitation

 

MICT will bear the cost of printing and filing of this proxy statement and the proxy card. Arrangements will also be made with brokerage firms and other custodians, nominees and fiduciaries who are record holders of Common Stock for the forwarding of solicitation materials to the beneficial owners of Common Stock. Proxies with respect to the Special Meeting may be solicited by telephone, by facsimile, by mail, on the Internet or in person. If a stockholder grants a proxy, it may still vote its shares in person if it revokes its proxy before the Special Meeting. A stockholder may also change its vote by submitting a later-dated proxy, as described in the section entitled “Special Meeting of the Stockholders of MICT — Revoking Your Proxy and Changing Your Vote.”

 

Interests of MICT’s Directors and Officers in the Proposals

 

MICT had previously issued to Jeffrey Bialos and Yehezkel (Chezy) Ofir, each a member of the MICT Board, David Lucatz, MICT’s former President and Chief Executive Officer and a member of the MICT Board, and former director Miki Balin, 300,000 options to purchase common stock of MICT (1,200,000 options in the aggregate), with an exercise price of $1.41, which vested upon the consummation of the Merger. Additionally, on July 1, 2020, John Scott, a member of the MICT Board was granted options to purchase 100,000 shares of common stock. Such options vested upon the Closing. Additionally, on July 1, 2020, non-executive directors Jeffrey Bialos, Chezy Ofir and John Scott each received an aggregate of 100,000 restricted shares of the Company’s common stock, 50,000 of which vested on the grant date, and 50,000 of which shall vest on January 1, 2021, so long as each respective individual continues to serve as a director of the Company on such date.

 

Darren Mercer presently owns approximately one third of the issued and outstanding shares of GFH; and is the sole officer and one of the directors of GFH. In addition, prior to the closing of the Merger, Mr. Mercer was the sole officer and director of Global Fintech Holdings Intermediate.

 

Pursuant to a severance agreement entered into by and between the Company and Mr. Lucatz on April 2, 2020, Mr. Lucatz was entitled to receive a one-time bonus equal to 0.5% of the purchase price paid upon Closing in connection with the transactions contemplated by the Merger Agreement. Mr. Lucatz agreed, directly or through his affiliates to receive this payment in shares of the Company’s common stock, and on July 1, 2020, Mr. Lucatz through his affiliates was granted 400,000 shares of the Company’s common stock. Furthermore, Mr. Lucatz shall retain his options to purchase shares of common stock of the Company with the expiration date of such options extended until the earlier of October 30, 2021 or the expiration of the original term of each such option.

 

In addition, Mr. Lucatz has certain holdings through his affiliates which constitute approximately 8.22% of MICT’s outstanding common stock, not including options and restricted stock set forth above (and 9.14% on a fully diluted basis, including the issuances described herein). Upon Mr. Lucatz’s resignation as Chief Executive Officer, the right and obligations under the Consulting Agreement entered into by and between MICT, Enertec, Coolisys, DPW Holdings, Inc. and Mr. Lucatz, pursuant to which MICT, via Mr. Lucatz, agreed to provide Enertec with certain consulting and transitional services over a three year period in exchange for an annual consulting fee of $150,000 (the “Annual Consulting Fee”) plus certain issuances of restricted stock, was assigned to Mr. Lucatz, including the DPW Equity. In the event of a change of control in the Company, or if Mr. Lucatz shall not longer be employed by us, the rights and obligations under the Consulting Agreement shall be assigned to Mr. Lucatz along with the DPW Equity. Although Mr. Lucatz is no longer an employee of the Company, because he currently serves as a director, we continue to expect Coolisys (via Enertec) to be obligated to pay us for the Annual Consulting Fee.

 

Of the 16,000,000 new shares of our common stock that will be reserved for issuance under the EIP, 13,000,000 of such shares shall be reserved for awards to incentivize certain Company insiders to meet critical commercial milestones (collectively, the “Long Term Incentive Plan”, or the “LTIP”). Examples of such milestones include: negotiation and entry by MICT into certain material agreements in the recycled metal industry, negotiation and entry by MICT into certain material agreements in the oil and gas industry, negotiation and entrance by Micronet into certain transformative agreements or other arrangements, certain significant acquisitions of other businesses, and stock price and overall performance of the Company. Individuals contemplated to receive awards under the LTIP include Darren Mercer, the Chief Executive Officer, and certain individuals associated with Intermediate before the completion of the Merger and who are now employed by or consultants of the Company. Awards granted under the LTIP shall be subject to the satisfaction of certain performance vesting conditions.

  

3

 

 

It is currently contemplated that, subject to Board approval, Darren Mercer shall be eligible to receive grants of up to 6,000,000 restricted shares of common stock (which shall vest subject to satisfaction of applicable performance conditions), and certain individuals associated with Intermediate before the completion of the Merger and who are now employed by or consultants of the Company shall be eligible to receive grants of up to 7,000,000 restricted shares of common stock (which shall vest subject to satisfaction of applicable performance conditions).

 

Recommendation to MICT Stockholders

 

The board of directors of MICT (the “MICT Board”) believes that the Proposals are in the best interest of MICT’s stockholders and recommends that its stockholders vote “FOR” the Nasdaq Proposals, the Charter Amendment Proposal, the EIP Proposal, and the Golden Parachute Proposal and “FOR” the Adjournment Proposal, if presented.

 

The existence of any financial and personal interests of one or more members of the MICT Board may be argued to result in a conflict of interest on the part of such director(s) between what he, she or they may believe is in the best interests of MICT and its stockholders and what he, she or they may believe is best for himself, herself or themselves in determining to recommend that stockholders vote for the proposals. See the section entitled “Interests of MICT’s Directors and Officers in the Proposals” above.

 

Quorum and Vote of MICT Stockholders

 

The holders of a majority of shares of Common Stock (and Series A Preferred Stock voting together with the holders of Common Stock as a single class on an as-converted basis) issued, outstanding and entitled to vote, present at the meeting or represented by proxy, shall constitute a quorum at all meetings of the stockholders and shall be required for the transaction of business, except as otherwise provided by law, by the certificate of incorporation or the bylaws of MICT. If, however, such majority shall not be present or represented at any meeting of the stockholders, the stockholders entitled to vote at such meeting, present in person or by proxy, shall have the power to adjourn the meeting from time to time, without notice other than announcement at the meeting unless the adjournment is for more than thirty (30) days or after the adjournment a new record date is set, until the required amount of voting stock shall be present. At such adjourned meeting at which a quorum shall be present in person or by proxy, any business may be transacted that might have been transacted at the meeting originally called.

 

As of the Record Date for the Special Meeting, an aggregate of 8,831,176 shares of Common Stock and Series A Preferred Stock on an as-converted to Common Stock basis would be required to achieve a quorum.

 

The affirmative vote of the holders of a majority of the shares of Common Stock (and Series A Preferred Stock voting together with the holders of Common Stock as a single class on an as-converted basis), entitled to vote at the Special Meeting, is required to approve the Charter Amendment Proposal. The affirmative vote of a majority of the votes cast at the Special Meeting is required for the approval of the Nasdaq Proposals, the EIP Proposal, the Golden Parachute Proposal and the Adjournment Proposal, if presented. If the Nasdaq Proposals are not approved, the EIP Proposal, the Golden Parachute Proposal and the Charter Amendment Proposal will not be presented to the MICT stockholders for a vote.

 

Risk Factors

 

In evaluating the Proposals set forth in this proxy statement, you should carefully read this proxy statement, including the annexes, and especially consider the factors discussed in the section entitled “Risk Factors.”

  

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QUESTIONS AND ANSWERS FOR ALL MICT STOCKHOLDERS

 

Q. Why am I receiving this proxy statement?

 

A. You are receiving this proxy statement in connection with the Special Meeting of MICT stockholders. MICT is holding the Special Meeting of its stockholders to consider and vote upon the following Proposals. MICT will bear the cost of this solicitation. Your vote is important. You are encouraged to vote as soon as possible after carefully reviewing this proxy statement.

 

  (1) The Nasdaq Proposal – Consideration Note – to approve, in accordance with Nasdaq Listing Rule 5635(a), the issuance of approximately 22,727,272 shares of Common Stock, upon conversion of the Consideration Note;

 

  (2) The Nasdaq Proposal – Convertible Notes – to approve, in accordance with Nasdaq Listing Rule 5635(a), the issuance of approximately 13,636,363 shares of Common Stock, upon conversion of the Convertible Notes;

 

  (3) The Nasdaq Proposal – Preferred Stock and Warrants – to approve, in accordance with Nasdaq Listing Rule 5635(a), the issuance of 3,636,364 shares of Common Stock, upon conversion of Series B Preferred Shares and exercise of the Note Warrants initially issued to BNN Technology PLC (and subsequently transferred to GFH);

 

  (4) The Charter Amendment Proposal – to approve and adopt an amendment to the certificate of incorporation of MICT, as amended, to increase the number of authorized and issued and outstanding shares of (i) Common Stock from 25,000,000 to 250,000,000 and (ii) preferred stock from 5,000,000 to 15,000,000;

  

  (5) The EIP Proposal – to approve and adopt the 2020 Equity Incentive Plan of MICT;

 

  (6) The Golden Parachute Proposal – to consider and vote, on an advisory basis, upon a proposal to approve a “golden parachute” payment to David Lucatz, the former President and Chief Executive Officer of MICT in connection with the Merger;

 

  (7) The Adjournment Proposal – to consider and vote upon a proposal to adjourn the Special Meeting to a later date or dates, if necessary to permit further solicitation and vote of proxies if it is determined by MICT that more time is necessary or appropriate to approve one or more proposals presented at the Special Meeting.

  

Why is the Company Holding a Virtual Annual Meeting?

 

Due to the emerging public health impact of COVID-19 and to support the health and well-being of our stockholders, this year’s annual meeting will be held in a virtual meeting format only. We have designed our virtual format to enhance, rather than constrain, stockholder access, participation and communication. For example, the virtual format allows stockholders to communicate with us in advance of, and during, the annual meeting so they can ask questions of our board of directors or management, as time permits. It is the present expectation of the board of directors that future annual meetings will have an in-person format.

 

What Happens If There Are Technical Difficulties During the Annual Meeting?

 

We will have technicians ready to assist you with any technical difficulties you may have accessing the virtual annual meeting, voting at the annual meeting or submitting questions at the annual meeting. If you encounter any difficulties accessing the virtual meeting during the check-in or meeting time, please call the technical support number that will be posted on the Virtual Shareholder Meeting log in page.

 

Q. What constitutes a quorum?

 

A. The presence, in person or by proxy, of MICT stockholders representing a majority of the issued and outstanding shares of MICT on the Record Date and entitled to vote on the resolutions to be considered at the Special Meeting will constitute a quorum for the Special Meeting.

 

Q. What vote is required to approve each Proposal at the Special Meeting?

 

A.

The affirmative vote of the holders of a majority of the shares of Common Stock (and Series A Preferred Stock voting together with the holders of Common Stock as a single class on an as-converted basis), entitled to vote at the Special Meeting, is required to approve the Charter Amendment Proposal. The affirmative vote of a majority of the votes cast at the Special Meeting is required for the approval of the Nasdaq Proposals, the EIP Proposal, the Golden Parachute Proposal and the Adjournment Proposal, if presented. If the Nasdaq Proposals are not approved, the EIP Proposal, the Golden Parachute Proposal and the Charter Amendment Proposal will not be presented to the MICT stockholders for a vote.

  

As of the Record Date, there were 11,298,714 shares of Common Stock outstanding and entitled to vote and 3,181,818 shares of Series A Preferred Stock outstanding and entitled to vote. Each share of Common Stock is entitled to one vote per share at the Special Meeting and each share of Series A Preferred Stock is entitled to two votes per share at the Special Meeting.

 

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Q. What equity stake will current MICT stockholders hold in the combined entity immediately after the consummation of the Merger?

 

A.

Immediately following the conversion or exercise, as applicable, of the Consideration Note, the Convertible Notes, the Series A Preferred Shares, the Series A Warrants, the Series B Preferred Shares, the exercise of the Note Warrants and the conversion or exercise of other outstanding securities of MICT, the current stockholders of MICT are expected to own approximately 16.4% in the combined entity.

 

Q. When and where will the Special Meeting be held?

 

A.

The Special Meeting will be held at 9:00 a.m. Eastern Time on September 3, 2020. As a result of the public health and travel guidance and concerns due to COVID-19, this year’s meeting will be a virtual meeting via live webcast on the Internet. You will not be able to attend the annual meeting in person. Only stockholders who held Common Stock at the close of business on July 29, 2020 will be entitled to vote at the Special Meeting and at any adjournments and postponements thereof.

 

Q. Who is entitled to vote at the Special Meeting?

 

A. MICT has fixed July 29, 2020 as the Record Date. If you were a stockholder of MICT on the Record Date, you are entitled to vote on matters that come before the Special Meeting. However, a stockholder may only vote his, her or its shares if he, she or it is present in person or is represented by proxy at the Special Meeting.
   
Q. How do I vote?
   
A. If you are a record owner of your shares, there are two ways to vote your shares of Common Stock at the Special Meeting:

 

You Can Vote By Signing and Returning the Enclosed Proxy Card. If you vote by proxy card, your “proxy,” whose name is listed on the proxy card, will vote your shares as you instruct on the proxy card. If you sign and return the proxy card but do not give instructions on how to vote your shares, your shares will be voted as recommended by the MICT Board “FOR” each of the Proposals. Votes received after a matter has been voted upon at the Special Meeting will not be counted.

 

You Can Attend the Special Meeting and Vote by Internet or Phone. Follow the instructions included in the Notice or, if you received printed materials, in the proxy card to vote over the Internet or by telephone.

 

Telephone and Internet voting facilities for stockholders of record will be available 24 hours a day and will close at 11:59 p.m. ET on September 2, 2020.

 

If your shares are held in “street name” or are in a margin or similar account, you should contact your broker to ensure that votes related to the shares you beneficially own are properly counted. If you wish to attend the meeting and vote at the meeting and your shares are held in “street name,” you must obtain a legal proxy from your broker, bank or nominee. That is the only way MICT can be sure that the broker, bank or nominee has not already voted your shares.

 

Q: What if I do not vote my shares of Common Stock or if I abstain from voting?

 

A:

The affirmative vote of the holders of a majority of the shares of Common Stock (and Series A Preferred Stock voting together with the holders of Common Stock as a single class on an as-converted basis), entitled to vote at the Special Meeting, is required to approve the Charter Amendment Proposal.

 

With respect to the Nasdaq Proposals, the EIP Proposal, the Golden Parachute Proposal and the Adjournment Proposal, abstentions will not be counted as votes properly cast for purposes of these proposals. As a result, if you abstain from voting on these proposals, your MICT shares will be counted as present for purposes of establishing a quorum (if so present in accordance with the terms of the Charter), but the abstention will have no effect on the outcome of these proposals. Similarly, broker non-votes will have no effect on the outcome of such proposals. Abstentions and broker non-votes will, however, have the same effect as voting against the Charter Amendment Proposal.

 

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Q: What is “golden parachute” compensation and why I am being asked to vote on it?

 

A: The Securities and Exchange Commission (the “SEC”) has adopted rules that require MICT to seek an advisory (non-binding) vote on “golden parachute” compensation. “Golden parachute” compensation is compensation that is tied to or based on the Merger and that will or may be paid by MICT to its former President and Chief Executive Officer in connection with the Merger.

 

Q: How does the Board recommend that I vote on the Proposals?

 

A: The Board unanimously recommends that you vote “FOR” all the Proposals presented at the Special Meeting.

 

Q: How many votes do I have?

 

A: MICT stockholders have one vote per each share of Common Stock held by them on the Record Date on each proposal to be voted upon.

 

Q. What do I need to do now?

 

A. MICT urges you to read carefully and consider the information contained in this proxy statement, including the annexes, and to consider how the proposals presented in this proxy statement will affect you as a stockholder of MICT. Stockholders should then vote as soon as possible in accordance with the instructions provided in this proxy statement and on the enclosed proxy card.

 

Q. What happens if I sell my MICT shares before the Special Meeting?

 

A. The Record Date for the Special Meeting is earlier than the date of the Special Meeting. If you transfer your MICT shares after the applicable Record Date, but before the Special Meeting, unless you grant a proxy to the transferee, you will retain your right to vote at such Special Meeting.

 

Q. May I change my vote after I have mailed my signed proxy card?

 

A. Yes. Stockholders may send a later-dated, signed proxy card to MICT’s secretary at the address set forth below so that it is received by MICT’s secretary prior to the vote at the Special Meeting or attend the Special Meeting virtually or by proxy and vote. Stockholders also may revoke their proxy by sending a notice of revocation to MICT’s secretary, which must be received by MICT’s secretary prior to the vote at the Special Meeting.

 

Q. What should I do if I receive more than one set of voting materials?

 

A. MICT stockholders may receive more than one set of voting materials, including multiple copies of this proxy statement and multiple proxy cards or voting instruction cards. If you are a holder of record and your shares are registered in more than one name, you will receive more than one proxy card. Please complete, sign, date and return each proxy card and voting instruction card that you receive in order to cast a vote with respect to all of your MICT shares.

 

Q. Who can help answer my questions?

 

A. If you have any questions about how to vote or direct a vote in respect of your MICT shares, you may contact:

 

Darren Mercer

MICT, Inc.

28 West Grand Avenue, Suite 3

Montvale, NJ 07645

 

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SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA OF MICT

 

The following selected historical consolidated financial and other data should be read together with MICT’s audited consolidated financial statements and accompanying notes and the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations of MICT” herein. MICT’s consolidated financial statements, and the data derived therefrom included in this proxy statement, were prepared in accordance with U.S. GAAP and are presented in U.S. dollars. MICT’s and Intermediate’s U.S. GAAP historical financial statements and information are not comparable to Micronet’s historical financial statements which are prepared based on International Financial Reporting Standards as issued by the International Accounting Standards Board (“IFRS”).

 

The consolidated statements of operations data for the years ended December 31, 2019 and 2018 and the consolidated balance sheet data as of December 31, 2019 and 2018 are derived from MICT’s audited consolidated financial statements appearing elsewhere herein. The consolidated statements of operations data for the three months ended March 31, 2020 and 2019 and the consolidated balance sheet data as of March 31, 2020 are derived from MICT’s unaudited interim consolidated financial statements appearing elsewhere herein. MICT’s unaudited interim consolidated financial statements were prepared on a basis consistent with its audited consolidated financial statements and include, in management’s opinion, all adjustments, consisting only of normal recurring adjustments, that MICT considers necessary for a fair presentation of the financial information set forth in those statements included elsewhere in this proxy statement/prospectus. MICT’s historical results are not necessarily indicative of the results that may be expected in any future period.

 

    As of December 31,  
Balance Sheet Data (in thousands, other than number of shares)   2019     2018  
             
Total assets   $ 5,917     $ 10,143  
Total liabilities   $ 2,673     $ 9,139  
Total equity   $ 3,244     $ 1,004  
Share capital (a)   $ 20,148     $ 11,914  
Number of issued and outstanding shares of common stock     11,089,532       9,342,088  

  

    As of March 31,  
Balance Sheet Data (in thousands, other than number of shares)   2020     2019  
             
Total assets   $ 4,994     $ 2,671  
Total liabilities   $ 1,067     $ 2,809  
Total equity   $ 3,927     $ (138 )
Share capital (a)   $ 20,622     $ 13,529  
Number of issued and outstanding shares of common stock     11,089,532       9,342,088  

 

(a) Comprised of preferred stock, common stock and additional paid in capital.

 

    For the years ended
December 31,
 
Statement of Operations Data (in thousands, other than per share data)   2019     2018  
             
Revenue   $ 477     $ 14,162  
Net loss from continuing operations   $ (4,770 )   $ (10,960 )
Basic and diluted loss per common share from continuing operations   $ (0.39 )   $ (0.81 )

 

    For the quarter ended
March 31,
 
Statement of Operations Data (in thousands, other than per share data)   2020     2019  
             
Revenue   $ 0     $ 477  
Net loss from continuing operations   $ (1,635 )   $ (1,466 )
Basic and diluted loss per common share from continuing operations   $ (0.15 )   $ (0.09 )

 

8

 

 

SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA OF MICRONET

 

The following selected historical consolidated financial and other data, presented below in New Israeli Shekels (“NIS”), should be read together with Micronet’s consolidated financial statements and accompanying notes and the section entitled “Management’s Discussion and Analysis of Financial Conditions and Results of Operations of Micronet LTD” appearing elsewhere herein. Micronet’s consolidated financial statements, and the data derived therefrom, included in this proxy statement/prospectus were prepared in accordance with IFRS. Micronet’s IFRS historical financial statements and information are not comparable to MICT’s U.S. GAAP historical financial statements and information included in this proxy statement/prospectus. Furthermore, because Micronet’s consolidated financial statements and information are in NIS and not in U.S. dollars, they are not directly comparable to the other financial statements and information included in this proxy statement/prospectus.

 

On June 23, 2020, Micronet announced that, as a result of the consummation of the special tender offer, or the Tender Offer, in which MICT purchased 5,999,996 Ordinary Shares in the aggregate amount of NIS 1,800,000 (or $515,000) offered in the Tender Offer, and the closing of the public offering, in which MICT purchased 10,334,000 shares of Micronet’s Ordinary Shares in the aggregate amount of NIS 3,100,200 (or $887,000), MICT owned 53.39% of the outstanding Ordinary Shares of Micronet.

 

The consolidated statements of operations data for the years ended December 31, 2019 and 2018 and the consolidated balance sheets data as of December 31, 2019 and 2018 are derived from Micronet’s audited consolidated financial statements appearing elsewhere herein. The consolidated income statements data for the three months ended March 31, 2020 and 2019 and the consolidated balance sheet data as of March 31, 2020 and 2019 are derived from Micronet’s unaudited interim condensed consolidated financial statements appearing elsewhere herein. Micronet’s unaudited interim condensed consolidated financial statements were prepared in accordance with IAS 34 Interim Financial Reporting and include, in management’s opinion, all adjustments, consisting only of normal recurring adjustments, that Micronet considers necessary for a fair presentation of the financial information set forth in those statements included elsewhere in this proxy statement/prospectus. Micronet’s historical results are not necessarily indicative of the results that may be expected in any future period, and interim financial results are not necessarily indicative of the results that may be expected for a full year.

 

    As of December 31,  
Balance Sheet Data (in thousands, other than number of shares)   2019     2018  
Total assets   NIS 27,702     NIS 32,728  
Total liabilities   NIS 21,175     NIS 20,374  
Net assets   NIS 6,527     NIS 12,354  
Share capital   NIS 40,692     NIS 34,190  
Number of issued and outstanding ordinary shares     39,853,811       24,346,811  

  

    As of March 31,  
Balance Sheet Data (in thousands)   2020     2019  
    (Unaudited)     (Unaudited)  
Total assets   NIS 20,772     NIS 32,280  
Total liabilities   NIS 19,156     NIS 19,518  
Net assets   NIS 1,616     NIS 12,762  
Share capital   NIS 40,692     NIS 39,263  

 

    For the Twelve Months Ended
December 31,
 
Statement of Operations Data (in thousands)   2019     2018  
Revenue   NIS 31,177     NIS 50,608  
Net (loss) from continuing operations   NIS (11,072 )   NIS (24,557 )

 

    For the Three Months Ended
March 31,
 
Statement of Operations Data (in thousands)   2020     2019  
    (Unaudited)     (Unaudited)  
Revenue   NIS 2,161     NIS 5,650  
Net (loss) from continuing operations   NIS (4,986 )   NIS (3,960 )

 

9

 

  

SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA OF INTERMEDIATE

 

The following selected historical financial and other data should be read together with Intermediate’s audited financial statements and accompanying notes and the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations of Intermediate” herein. Intermediate’s financial statements, and the data derived therefrom included in this proxy statement, were prepared in accordance with U.S. GAAP and are presented in U.S. dollars.

 

The statement of operations data for the period from November 4, 2019 through December 31, 2019 and the balance sheet data as of December 31, 2019 are derived from Intermediate’s audited financial statements appearing elsewhere herein. The statement of operations data for the three months ended March 31, 2020 and the balance sheet data as of March 31, 2020 are derived from Intermediate’s unaudited interim financial statements appearing elsewhere herein. Intermediate’s unaudited interim financial statements were prepared on a basis consistent with its audited financial statements and include, in management’s opinion, all adjustments, consisting only of normal recurring adjustments, that Intermediate considers necessary for a fair presentation of the financial information set forth in those statements included elsewhere in this proxy statement/prospectus. Intermediate’s historical results are not necessarily indicative of the results that may be expected in any future period.

 

    As of  
Balance Sheet Data (in thousands, other than number of shares)   December 31, 2019  
Total assets   $ 656  
Total liabilities   $ 2,981  
Net assets   $ (2,325 )
Share capital   $ -  
Number of issued and outstanding ordinary shares     1  

 

    As of  
Balance Sheet Data (in thousands, other than number of shares)   March 31, 2020  
    (Unaudited)  
Total assets   $ 1,240  
Total liabilities   $ 4,104  
Net assets   $ (2,864 )
Share capital   $ -  
Number of issued and outstanding ordinary shares     1  

 

    For The Period From  
    November 4,
2019
 
    (Inception) through  
Statement of Operations Data (in thousands)   December 31,
2019
 
Net loss from continuing operations   $ (2,307 )

 

    For the Three  
    Months Ended  
Statement of Operations Data (in thousands)   March 31,
2020
 
    (Unaudited)  
Net loss from continuing operations   $ (688 )

 

10

 

 

UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION

 

On June 23, 2020, Micronet Ltd. (“Micronet”), announced that the consummation of the special tender offer, or the Tender Offer, in which MICT, Inc. (“MICT”) purchased 5,999,996 shares of Micronet’s ordinary shares, or the Ordinary Shares, in the aggregate amount of New Israeli Shekels (“NIS”) 1,800,000 (or U.S. Dollars (“USD”) $515,000) offered in the Tender Offer, and the closing of the public offering, in which MICT purchased 10,334,000 shares of Micronet’s Ordinary Shares in the aggregate amount of NIS 3,100,200 (or $887,000), MICT regained voting control of Micronet, owning 53.39% of the outstanding Ordinary Shares of Micronet.

 

On July 1, 2020, MICT completed its acquisition (the “Acquisition”) of GFH Intermediate Holdings Ltd. (“GFHI”), pursuant to the previously announced Agreement and Plan of Merger entered into on November 7, 2019 by and between MICT, Micronet, GFHI, Global Fintech Holding Ltd. (“GFH”), a British Virgin Islands company and the sole shareholder of GFHI, and MICT Merger Subsidiary Inc., a British Virgin Islands company and a wholly owned subsidiary of MICT (“Merger Sub”), as amended and restated on April 15, 2020 (the “Restated Merger Agreement”). As described in the Restated Merger Agreement, upon consummation of the Acquisition, the outstanding share of GFHI was cancelled in exchange for a convertible promissory note in the principal amount of $25,000,000 (the “Consideration Note”) issued to GFH by MICT, which Consideration Note shall be convertible into shares of common stock of MICT at a conversion price of $1.10 per share, subject to stockholder approval. 

 

The unaudited pro forma condensed combined balance sheet as of March 31, 2020, the unaudited pro forma condensed combined statement of operations for the three months ended March 31, 2020, and the unaudited pro forma condensed combined statement of operations for the year ended December 31, 2019 combine the financial statements of MICT, Micronet and GFHI, giving effect to the transactions described above, as if they had occurred on January 1, 2019 in respect of the unaudited pro forma condensed combined statement of operations for the three months ended March 31, 2020, and for the year ended December 31, 2019, and on March 31, 2020 in respect of the unaudited pro forma condensed combined balance sheet.

 

The unaudited pro forma condensed combined financial information should be read in conjunction with the accompanying notes to the unaudited pro forma condensed combined financial information and:

 

  MICT’s consolidated financial statements as well as the related “Management’s Discussion and Analysis of Financial Condition and Results of Operations of MICT” contained elsewhere herein;

 

  Micronet’s consolidated financial statements, as well as the related “Management’s Discussion and Analysis of Financial Condition and Results of Operations of Micronet” contained elsewhere herein;

 

  GFHI’s financial statements, as well as the related “Management’s Discussion and Analysis of Financial Condition and Results of Operations of GFHI” contained elsewhere herein;

 

  the other information contained in or incorporated by reference into this proxy statement.

 

The consolidated financial statements of Micronet were prepared in accordance with IFRS. The consolidated financial statements of MICT and GFHI were prepared in accordance with U.S. GAAP. The unaudited pro forma condensed combined financial information includes adjustments to convert the financial information of Micronet to U.S. GAAP from IFRS, as well as reclassifications to conform each entity’s historical accounting presentation to MICT’s accounting presentation.

 

In addition, the consolidated financial statements of MICT and GFHI are presented in USD, whereas, the consolidated financial statements of Micronet are presented in NIS. Therefore, the unaudited pro forma condensed combined financial information includes adjustments to convert Micronet’s financial information from NIS to USD.

 

The unaudited pro forma condensed combined financial information has been prepared using the acquisition method of accounting in accordance with Accounting Standards Codification 805 - Business Combinations (“ASC 805”), which requires that one company is designated as the acquirer for accounting purposes. It has been determined that MICT is the accounting acquirer of both Micronet and GFHI. Accordingly, the assets acquired and liabilities assumed of Micronet and GFHI are recorded based on preliminary estimates of fair value. Any excess of the purchase price over the fair value of identified assets acquired and liabilities assumed is recognized as goodwill. 

 

The final purchase consideration and the allocation of the purchase consideration may materially differ from that reflected in the unaudited pro forma condensed combined financial information after final valuation procedures are performed and amounts are finalized following the completion of the acquisition.

 

The unaudited pro forma adjustments give effect to events that are directly attributable to the transaction and are based on available data and certain assumptions that management believes are factually supportable. In addition, with respect to the unaudited pro forma condensed combined statements of operations, the unaudited pro forma adjustments are expected to have a continuing impact on the combined results.

 

The unaudited pro forma condensed combined financial information is presented for informational purposes only and to aid you in your analysis of the financial aspects of the transactions described above. The unaudited pro forma condensed combined financial information described above has been derived from the historical financial statements of MICT, Micronet and GFHI and the related notes included elsewhere in this proxy statement. The unaudited pro forma condensed combined financial information has been conformed to MICT’s accounting policies. Further review may identify additional differences between the accounting policies of MICT, Micronet and GFHI. The unaudited pro forma adjustments and the unaudited pro forma condensed combined financial information do not reflect the impact of synergies or post-transaction management actions and are not necessarily indicative of the financial position or results of operations that may have actually occurred had the transactions taken place on the dates noted.

 

11

 

 

MICT, Inc.

Unaudited Pro Forma Condensed Combined Balance Sheet

March 31, 2020

(USD 000’s except for shares and per share amounts)

 

          Pro Forma Adjustments                    
    MICT     Micronet     GFHI     Micronet Tender Offer     Micronet
Transaction
    GFHI
Transaction
    Financing Transaction     Preliminary Pro Forma Combined     Subsequent Pro Forma Adjustments     Final Pro Forma Combined  
    Note A     Note B     Note C     Note D     Note E     Note F     Note G           Note H        
Assets                                                            
Current assets:                                                            
Cash and cash equivalents   $ 2,826     $ 282     $ -     $ (515 )   $ (887 )   $ -     $ 15,000     $ 16,706     $ -     $ 16,706  
Restricted cash     45       -       -       -       -       -       -       45       -       45  
Deposit     -       706       -       -       -       -       -       706       -       706  
Inventories     -       1,905       -       -       -       -       -       1,905       -       1,905  
Trade receivables     -       265       -       -       -       -       -       265       -       265  
Other current assets     1,132       402       -       -       (75 )     -       -       1,459       -       1,459  
                              -                                       -          
Total current assets     4,003       3,560       -       (515 )     (962 )     -       15,000       21,086       -       21,086  
                                                                                 
Non-current assets:                                                                                
Property and equipment     26       699       -       -       -       -       -       725       -       725  
Right of use assets     -       891       -       -       -       -       -       891       -       891  
Goodwill     -       -       -       -       1,096       10,060       -       11,156       -       11,156  
Intangible assets     -       634       1,240       -       686       13,700       -       16,260       -       16,260  
Restricted cash escrow     477       -       -       -       -       -       -       477       -       477  
Other assets     134       25       -       -       (134 )     -       -       25       -       25  
Investments in associates     354       -       -       515       (869 )     -       -       -       -       -  
Total non current assets     991       2,249       1,240       515       779       23,760       -       29,534       -       29,534  
                                                                                 
Total assets   $ 4,994     $ 5,809     $ 1,240     $ -     $ (183 )   $ 23,760     $ 15,000     $ 50,620     $ -     $ 50,620  
                                                                                 
Liabilities and shareholders’ equity                                                                                
                                                                                 
Current liabilities:                                                                                
Trade accounts payable   $ -     $ 835     $ -     $ -     $ -     $ -     $ -     $ 835     $ -     $ 835  
Due to related parties     -       -       4,104       -       -       (4,104 )     -       -       -       -  
Borrowings - current portion     -       1,912       -       -       -       -       -       1,912       -       1,912  
Convertible notes - current portion     -       -       -       -       -       -       15,000       15,000       (15,000 )     -  
Other current liabilities     540       1,454       -       -       (75 )     -       -       1,919       -       1,919  
Total current liabilities     540       4,201       4,104       -       (75 )     (4,104 )     15,000       19,666       (15,000 )     4,666  
                                                                                 
Non current liabilities:                                                                                
Borrowings - non-current portion     -       436       -       -       (437 )     -       -       (1 )     -       (1 )
Long-term escrow     477       -       -       -       -       -       -       477       -       477  
Accrued severance pay, net     50       77       -       -       -       -       -       127       -       127  
Convertible notes - non-current     -       -       -       -       -       25,000       -       25,000       (25,000 )     -  
Lease liabilities - non-current     -       548       -       -       -       -       -       548       -       548  
Total non current liabilities     527       1,061       -       -       (437 )     25,000       -       26,151       (25,000 )     1,151  
Total liabilities     1,067       5,262       4,104       -       (512 )     20,896       15,000       45,817       (40,000 )     5,817  
                                                                                 
Shareholders’ equity:                                                                                
Convertible preferred stock - Series A     3       -       -       -       -       (3 )     -       -       -       -  
Convertible preferred stock - Series B     2       -       -       -       -       (2 )     -       -       -       -  
Common stock     11       1,118       -       -       (1,118 )     7       -       18       36       54  
Additional paid-in capital     22,520       9,641       -       -       (9,641 )     1,235       -       23,755       39,964       63,719  
Other reserves     -       -       -       -       -       -       -       -       -       -  
Accumulated deficit     (18,609 )     (11,832 )     (3,013 )     -       11,979       1,776       -       (19,699 )     -       (19,699 )
Accumulated other comprehensive income     -       1,620       149       -       (1,620 )     (149 )     -       -       -       -  
Noncontrolling interest     -       -       -       -       729       -       -       729       -       729  
Total shareholders’ equity (deficiency)     3,927       547       (2,864 )     -       329       2,864       -       4,803       40,000       44,803  
Total liabilities and shareholders’ equity   $ 4,994     $ 5,809     $ 1,240     $ -     $ (183 )   $ 23,760     $ 15,000     $ 50,620     $ -     $ 50,620  

 

See notes to the unaudited pro forma condensed combined financial information

 

12

 

 

MICT, Inc.

Unaudited Pro Forma Condensed Combined Statement of Operations

For the Three Months Ended March 31, 2020

(USD 000’s except for shares and per share amounts)

 

                      Pro Forma Adjustments                    
    MICT     Micronet     GFHI     Micronet Tender Offer     Micronet
Transaction
    GFHI
Transaction
    Financing Transaction     Preliminary Pro Forma Combined     Subsequent Pro Forma Adjustments     Final Pro Forma Combined  
    Note A     Note B     Note C     Note D     Note E     Note F     Note G           Note H        
                                                             
Revenue   $ -     $ 617     $ -     $     -     $ -     $ -     $      -     $ 617     $ -     $ 617  
Cost of revenues     -       (947 )     -       -       -       -       -       (947 )     -       (947 )
General and administrative expenses     (770 )     (480 )     (688 )     -       (10 )     (664 )     -       (2,612 )     -       (2,612 )
Sales and marketing espenses     -       (267 )     -       -       -       -       -       (267 )     -       (267 )
Research and development espenses     -       (353 )     -       -       -       -       -       (353 )     -       (353 )
Net operating loss     (770 )     (1,430 )     (688 )     -       (10 )     (664 )     -       (3,562 )     -       (3,562 )
                                                                                 
Finance (costs) income     (224 )     (22 )     -       -       272       -       -       26       -       26  
Other income     -       18       -       -       -       -       -       18       -       18  
Share of results of associates     (640 )     -       -       -       640       -       -       -       -       -  
Net loss before income tax     (1,634 )     (1,434 )     (688 )     -       902       (664 )     -       (3,518 )     -       (3,518 )
Income tax provision     (1 )     (1 )     -       -       -       -       -       (2 )     -       (2 )
Net loss from continuing operations   $ (1,635 )   $ (1,435 )   $ (688 )   $ -     $ 902     $ (664 )   $ -     $ (3,520 )   $ -     $ (3,520 )
                                                                                 
Earnings (loss) per share from continuing operations                                                                                
Basic-   $ (0.15 )                                                                   $ (0.07 )
Diluted-   $ (0.15 )                                                                   $ (0.07 )
                                                                                 
Number of common shares outstanding                                                                                
Basic-     11,089,532       -       -       -       -       6,650,000       -       17,739,532       36,363,637       54,103,169  
Diluted-     11,089,532       -       -       -       -       6,650,000       -       17,739,532       36,363,637       54,103,169  

 

See notes to the unaudited pro forma condensed combined financial information

 

13

 

 

MICT, Inc.

Unaudited Pro Forma Condensed Combined Statement of Operations

For the Year Ended December 31, 2019

(USD 000’s except for shares and per share amounts)

 

                      Pro Forma Adjustments                    
    MICT     Micronet     GFHI     Micronet Tender Offer     Micronet
Transaction
    GFHI
Transaction
    Financing Transaction     Preliminary Pro Forma Combined     Subsequent Pro Forma Adjustments     Final Pro Forma Combined  
    Note A     Note B     Note C     Note D     Note E     Note F     Note G           Note H        
                                                             
Revenue   $ 477     $ 8,270     $ -     $      -     $ -     $ -     $        -     $ 8,747     $ -     $ 8,747  
Cost of revenues     (846 )     (6,518 )     -       -       -       -       -       (7,364 )     -       (7,364 )
General and administrative expenses     (3,047 )     (1,344 )     (2,307 )     -       (94 )     (2,657 )     -       (9,449 )     -       (9,449 )
Sales and marketing espenses     (198 )     (1,082 )     -       -       -       -       -       (1,280 )     -       (1,280 )
Research and development espenses     (255 )     (1,354 )     -       -       -       -       -       (1,609 )     -       (1,609 )
Net operating loss     (3,869 )     (2,028 )     (2,307 )     -       (94 )     (2,657 )     -       (10,955 )     -       (10,955 )
                                                                                 
Finance (costs) income     (388 )     (56 )     -       -       94       -       -       (350 )     -       (350 )
Share of results of associates     (795 )     -       -       -       795       -       -       -       -       -  
Other income     299       12       -       -       (299 )     -       -       12       -       12  
Net loss before income tax     (4,753 )     (2,072 )     (2,307 )     -       496       (2,657 )     -       (11,293 )     -       (11,293 )
Income tax provision     (17 )     (68 )     -       -       -       -       -       (85 )     -       (85 )
Net loss from continuing operations   $ (4,770 )   $ (2,140 )   $ (2,307 )   $ -     $ 496     $ (2,657 )   $ -     $ (11,378 )   $ -     $ (11,378 )
                                                                                 
Earnings (loss) per share from continuing operations                                                                                
Basic-   $ (0.45 )                                                                   $ (0.21 )
Diluted-   $ (0.45 )                                                                   $ (0.21 )
                                                                                 
Number of common shares outstanding                                                                                
Basic-     10,697,329       -       -       -       -       6,650,000       -       17,347,329       36,363,637       53,710,966  
Diluted-     10,697,329       -       -       -       -       6,650,000       -       17,347,329       36,363,637       53,710,966  

 

See notes to the unaudited pro forma condensed combined financial information

 

14

 

 

MICT Inc.

Notes to Unaudited Pro Forma Condensed Combined Financial Information

(USD in 000’s except for share and per share amounts)

 

Basis of Presentation

 

The unaudited pro forma condensed combined financial information set forth herein is based upon the historical financial statements of MICT, Micronet and GFHI. The unaudited pro forma condensed combined financial information is presented as if the transactions had been completed on January 1, 2019 with respect to the unaudited pro forma condensed combined statements of operations for the three months ended March 31, 2020 and for the year ended December 31, 2019, and on March 31, 2020 in respect to the unaudited pro forma condensed combined balance sheet.

 

The unaudited pro forma condensed combined financial information is presented for informational purposes only and is not necessarily indicative of the combined financial position or results of operations had the transactions occurred as of the dates indicated, nor is it meant to be indicative of any anticipated combined financial position or future results of operations that the combined company will experience after the completion of the transactions.

 

The unaudited pro forma condensed combined financial information has been prepared using the acquisition method of accounting in accordance with ASC 805, which requires that one company is designated as the acquirer for accounting purposes. It has been determined that MICT is the accounting acquirer in both transactions. Accordingly, the assets acquired and liabilities assumed of Micronet and GFHI are recorded based on preliminary estimates of fair value. Any excess of the purchase price over the fair value of identified assets acquired and liabilities assumed is recognized as goodwill.

 

MICT’s consolidated financial information was prepared in accordance with U.S. GAAP and is presented in USD. Any entity historically presented otherwise has been converted for the purpose of this unaudited pro forma condensed consolidated financial information.

 

Pro forma adjustments reflected in the unaudited pro forma condensed combined balance sheet are based on items that are factually supportable and directly attributable to the transactions. Pro forma adjustments reflected in the pro forma condensed combined statements of operations are based on items that are factually supportable, directly attributable to the transactions and expected to have a continuing impact on the combined results. The unaudited pro forma condensed combined financial information does not reflect the cost of any integration activities or benefits from the transactions, including potential synergies that may be generated in future periods.

 

All Monetary Amounts Other Than Per Share Information Are Presented in 000’s Unless Otherwise Indicated

 

Pro Forma Adjustments

 

The following pro forma adjustments give effect to the transactions.

 

Unaudited Pro Forma Condensed Combined Balance Sheet – As of March 31, 2020

 

  Note A Derived from the consolidated financial statements of MICT, Inc. as of March 31, 2020, included elsewhere in this proxy statement/prospectus.

 

  Note B Derived from the unaudited consolidated historical financial statements of Micronet as of March 31, 2020, included elsewhere in this proxy statement, translated from NIS to USD at an exchange rate of 0.2805 at March 31, 2020, as set out in the table below, and prepared in accordance with IFRS and adjusted to conform with U.S. GAAP. The tables below provide a reconciliation between the historical financial statements and the unaudited pro forma condensed combined financial information and presents a reconciliation between the impacted line items within the historical financial statements and the unaudited pro forma condensed combined financial information.

 

15

 

 

NIS to USD Translation:

 

    Micronet     EXCHANGE     Micronet             Micronet  
    (IFRS)     RATE     (IFRS)     GAAP       (U.S. GAAP)  
    (NIS 000)     0.2805     ($000)     Adjustments       ($000)  
Assets                                
Current assets:                                
Cash and cash equivalents   NIS 1,006                           $ 282       -       $ 282  
Inventories     6,792               1,905       -         1,905  
Deposits     2,518               706       -         706  
Trade receivables     1,004               282       (17 ) (3)     265  
Other current assets     1,432               402       -         402  
Total current assets     12,752               3,577       (17 )       3,560  
Non-current assets:                                          
Property and equipment     3,241               909       (210 ) (1)     699  
Intangible assets     1,512               424       210   (1)     634  
Right of use assets     3,177               891       -         891  
Other assets     90               25       -         25  
Total non-current assets     8,020               2,249       -         2,249  
Total assets   NIS 20,772             $ 5,826       (17 )     $ 5,809  
                                           
Liabilities and shareholders’ equity                                          
Current liabilities:                                          
Borrowings - current portion   NIS 6,818             $ 1,912       -       $ 1,912  
Trade and other accounts payable     2,978               835       -         835  
Other current liabilities     5,330               1,495       (41 ) (3)     1,454  
Total current liabilities     15,126               4,242       (41 )       4,201  
Non-current liabilities:                                          
Borrowings non-current     1,555               436       -         436  
Accrued severance pay, net     418               117       (40 ) (2)     77  
Lease liabilities - non-current     1,954               548       -         548  
Other non-current liabilities     103               29       (29 ) (3)     -  
Total non-current liabilities     4,030               1,130       (69 )       1,061  
Total liabilities     19,156               5,372       (110 )       5,262  
                                           
Shareholders’ equity:                                          
Common stock     4,230       (a)       1,118       -         1,118  
Additional paid in capital     36,703       (a)       9,641       -         9,641  
Other reserves     (732 )     (a)       (205 )     205   (4)     -  
Accumulated deficit     (40,284 )     (a)       (11,720 )     (112 ) (2), (3), (4)     (11,832 )
Accumulated other comprehensive income     1,699       (a)       1,620       -         1,620  
Total shareholders’ equity     1,616               454       93         547  
Total liabilities and shareholders’ equity   NIS 20,772             $ 5,826       (17 )     $ 5,809  

 

(a) Not based on the above stated exchange rate, equity accounts are recorded at historical exchange rates.

 

During the conversion from IFRS to U.S. GAAP there were several adjustments that needed to be posted to convert the provided IFRS financial statements into U.S. GAAP financial statements, which were as follows:

 

(1) Denotes the reclassification of $210 from property and equipment (IFRS) to intangible assets (U.S. GAAP) with respect to Micronet’s rights to utilize the floor of an office building.

 

(2) Denotes the GAAP adjustments relating to accrued severance pay.

 

(3) Denotes the GAAP adjustments attributed to the treatment of liabilities to the chief scientist, which reduces $41 of current liabilities and $29 of non-current liabilities, with an offsetting credit to accumulated deficit. The $17 reduction of trade receivables denotes the GAAP adjustments relates to the recognition of a provision for doubtful accounts.

 

(4) Denotes the GAAP adjustments attributed to eliminating the IFRS employee benefits reserve, with an offset to accumulated deficit.

 

  Note C  Derived from the financial statements of GFHI as of March 31, 2020, included elsewhere in this proxy statement/prospectus.

 

16

 

 

Pro Forma Adjustments:

 

  Note D During the second quarter of 2020, MICT purchased 5,999,996 Micronet ordinary shares for $515 of cash consideration pursuant to a tender offer, which brought MICT’s ownership interest up to 45.53%.

 

  Note E

On June 23, 2020, MICT purchased an additional 10,334,000 Micronet ordinary shares for $887 of cash consideration pursuant to a public offering, which brought MICT’s ownership interest up to 53.39%.  Accordingly, MICT obtained voting control over Micronet and, as a result, MICT applied purchase accounting (see the table below) and began to consolidate Micronet. MICT recognized a $156 loss on consolidation.  

 

In connection with the consolidation of Micronet, we made pro forma adjustments to eliminate Micronet’s historical equity balances, which resulted in decreases of $1,118 of common stock, $9,641 of additional paid in capital and $1,620 of accumulated other comprehensive income, offset by an increase in the accumulated deficit of $11,832.  

 

Also, we eliminated $437 (after writing up MICT’s receivable by $303, from $134 to $437) and $75 of MICT/Micronet intercompany debt in consolidation.  

 

The following table details the adjustments to accumulated deficit:

 

Pro Forma Adjustments
Eliminate historical accumulated deficit   $ 11,832  
Write-up intercompany receivables     303  
Loss on consolidation     (156 )
    $ 11,979  

 

Management engaged a third-party valuation firm to assist them with the valuation of the intangible assets that are detailed in the schedule below.  

 

In addition, the following table summarizes the allocation of the preliminary purchase price as of the acquisition date:

 

Micronet LTD Purchase Price Allocation    

(000’s) USD        

 

Total cash consideration (1)     887  
Total Purchase Consideration   $ 887  
         
Less:        
         
Net working capital (2)   $ 1,271  
Property and equipment (2)     699  
Right of use assets (2)     891  
Other assets (2)     25  
Borrowings (2)     (2,348 )
Severance payable (2)     (77 )
Lease liabilities (2)     (548 )
Intangible assets - trade name/ trademarks     220  
Intangible assets - developed technology     770  
Intangible assets - customer relationship     330  
Fair value of net assets acquired   $ 1,233  
         
Noncontrolling interest     (729 )
Loss on equity interest     156  
Equity investment     (869 )
Change in investment     (1,442 )
         
Goodwill value   $ 1,096  

 

(1) Cash paid at the closing of the Micronet public offering.

 

(2) Book value used as a proxy for fair value.

 

17

 

 

  Note F

On July 1, 2020, MICT completed the acquisition of GFHI, pursuant to the previously announced Agreement and Plan of Merger entered into on November 7, 2019 by and between MICT, Micronet, GFHI, GFH, and Merger Sub, as amended and restated on April 15, 2020 (the “Restated Merger Agreement”). As described in the Restated Merger Agreement, upon consummation of the Acquisition, the outstanding share of GFHI was cancelled in exchange for a convertible promissory note in the principal amount of $25,000 (the “Consideration Note”) issued to GFH by MICT. The Consideration Note is automatically convertible into shares of common stock of MICT at a conversion price of $1.10 per share, subject to stockholder approval.

 

The convertible notes are generally due two years from the date of issuance, but certain notes will be due five years from the date of issuance.

 

A pro forma adjustment was made to reflect the fact that MICT did not assume GFHI’s $4,104 of indebtedness to its former parent GFH.

 

The transaction between GFHI and MICT also resulted in the granting of an aggregate of 1,650,000 ordinary shares of MICT stock, including 1,250,000 shares issued to the transaction advisors and 400,000 ordinary shares issued to the former MICT CEO pursuant to his golden parachute agreement. As of March 31, 2020, the closing price of MICT ordinary shares was $0.75 per share, which resulted in a pro forma adjustment to record $2 of common stock, $1,235 of additional-paid-in-capital and $1,237 of stock-based compensation expense (accumulated deficit).

 

 

In connection with the consolidation of GFHI, we made pro forma adjustments to eliminate GFHI’s historical equity balances which resulted an adjustment of $3,013 in accumulated deficit, partially offset by an adjustment of $149 of accumulated other comprehensive income.

 

Also, in connection with the closing of the acquisition, the 3,181,818 shares of Convertible Preferred Stock – Series A and 1,818,182 shares of Convertible Preferred Stock – Series B automatically converted into 5,000,000 ordinary shares of MICT. Given that the par value of MICT’s preferred stock and ordinary shares each have a par value of $0.001, the conversion resulted in reductions of the preferred stock of $3 (Series A) and $2 (Series B), with a corresponding increase of $5 for the common stock.

 

Management engaged a third-party valuation firm to assist them with the valuation of the intangible assets that are detailed in the schedule below.

 

In addition, the following table summarizes the allocation of the preliminary purchase price as of the acquisition date.

 

Global FinTech Holdings Purchase Price Allocation

(000’s) USD      

 

Total share consideration (1)     25,000  
Total Purchase Consideration   $ 25,000  
         
Less:        
         
Customer Database (2)     4,500  
Trade name/ trademarks     520  
Developed technology     9,920  
Fair value of net assets acquired   $ 14,940  
         
Goodwill value   $ 10,060  

 

(1) The purchase consideration represents the face value of the Convertible Promissory Notes that are convertible into common stock of MICT Inc.

 

(2) The Customer Database value is based on the cost to recreate, as indicated by Management.

 

  Note G To record the issuance of  convertible notes for aggregate gross proceeds (the “Investor Notes”) of $15,000, which convert automatically upon the closing of MICT’s acquisition of GFHI, subject to stockholder approval,  at a conversion price of $1.10 per share; par value $0.001 per share. These convertible notes are currently classified as convertible notes – current portion on the pro forma balance sheet, because the shareholders have the ability to redeem the notes for their original investment until shareholder approval is obtained.

 

  Note H To give effect to the automatic conversion of the $25,000 Consideration Note and the $15,000 of Investor Notes into 22,727,723 and 13,636,364 ordinary shares of MICT common stock, respectively, par value $0.001 per share, upon MICT stockholder approval and amendment of its Certificate of Incorporation to authorize and reserve for a sufficient number of shares of MICT common stock upon conversion of the Consideration Note and the Investor Notes. This transaction resulted in a credit of $36 to common stock and a $39,964 credit to additional paid in capital.

 

18

 

 

Unaudited Pro Forma Condensed Combined Statement of Operations - For The Three Months Ended March 31, 2020

 

  Note A Derived from the unaudited interim condensed consolidated financial statements of MICT, Inc. for the period ended March 31, 2020, which is included elsewhere in this proxy statement.

 

  Note B Derived from the unaudited interim condensed consolidated financial statements of Micronet for the three months ended March 31, 2020 prepared in accordance with IFRS, and included elsewhere in this proxy statement, adjusted to conform with U.S. GAAP. The average exchange rate used to translate NIS to USD for the three months ended March 31, 2020 was the rate of 0.2856 as set out in the table below.

 

NIS to USD Translation:

 

    Micronet       EXCHANGE     Micronet     (a)     Micronet  
    IFRS      RATE     (IFRS)     GAAP     (U.S. GAAP)  
    (NIS 000)     0.2856     ($000)     Adjustments     ($000)  
Revenue                              
Revenues   NIS  2,161                     $ 617     $ -     $ 617  
Cost of revenues     (3,323 )             (949 )     2       (947 )
Research and development     (1,416 )             (405 )     52       (353 )
Sales and marketing     (934 )             (267 )     -       (267 )
General and administrative     (1,453 )             (415 )     (65 )     (480 )
Net operating loss     (4,965 )             (1,419 )     (11 )     (1,430 )
                      -                  
Finance costs     (78 )             (22 )     -       (22 )
Other income     62               18                -       18  
Loss before income tax     (4,981 )             (1,423 )     (11 )     (1,434 )
Income tax benefit (provision)     (5 )             (1 )     -       (1 )
Net loss from continuing operations   NIS (4,986)             $ (1,424 )   $ (11 )   $ (1,435 )

 

a) The Company recorded U.S. GAAP adjustments, including a decrease in cost of revenues of $2, which was offset by a net increase of $13 of operating expenses related to depreciation, interest, bad debt and rent expense adjustments.

 

  Note C Derived from the unaudited interim condensed financial statements of GFHI for the three months ended March 31, 2020, which are included elsewhere in this proxy statement.

 

Pro Forma Adjustments:

 

  Note D No adjustments.

 

  Note E

To record $58 of amortization of the fair value of internally developed technology with a useful life of 5 years, customer relationships with a useful life of 6 years plus tradenames and trademarks with a useful life of 10 years. Also, to eliminate the historical intangible asset amortization of $48.

 

Additionally, we offset $272 of previously recorded finance costs related to the impact of the impairment of MICT’s loan to Micronet and we offset $640 of MICT’s previously recorded share of Micronet’s operating results.

 

  Note F To record $664 of amortization of the fair value of internally developed technology with a useful life of 6 years, a customer database with a useful life of 5 years, plus tradenames and trademarks with a useful life of 5 years.

 

  Note G No adjustments.

 

  Note H No adjustments.

 

19

 

 

Unaudited Pro Forma Condensed Combined Statement of Operations - For The Year Ended December 31, 2019

 

  Note A Derived from the audited consolidated financial statements of MICT, Inc. for the period ended December 31, 2019, which is included elsewhere in this proxy statement.

 

  Note B Derived from the audited consolidated financial statements of Micronet for the year ended December 31, 2019 prepared in accordance with IFRS, and included elsewhere in this proxy statement, adjusted to conform with U.S. GAAP. The average exchange rate used to translate NIS to USD for the year ended December 31, 2019 was the rate of 0.2806 as set out in the table below.

 

NIS to USD Translation:

 

    Twelve Months Ended December 31, 2019     (b)        
    Micronet       EXCHANGE     Micronet     (a)     Micronet     Removal of     Final  
    IFRS     RATE     (IFRS)     GAAP     (U.S. GAAP)     Control Period     Micronet  
    (NIS 000)     0.2806     ($000)     Adjustments     ($000)     ($000)     ($000)  
Revenue                                          
Revenues   NIS 31,177                        $ 8,747     $ -     $ 8,747     $ (477 )   $ 8,270  
Cost of revenues     (26,271 )             (7,370 )     6       (7,364 )     846       (6,518 )
Research and development     (5,584 )             (1,567 )     (42 )     (1,609 )     255       (1,354 )
Sales and marketing     (4,557 )             (1,279 )     (1 )     (1,280 )     198       (1,082 )
General and administrative     (5,118 )             (1,436 )     (135 )     (1,571 )     227       (1,344 )
Net operating loss     (10,353 )             (2,905 )     (172 )     (3,077 )     1,049       (2,028 )
                      -                                  
Finance costs     (517 )             (145 )     34       (111 )     55       (56 )
Other income     42               12       -       12       -       12  
Loss before income tax     (10,828 )             (3,038 )     (138 )     (3,176 )     1,104       (2,072 )
Income tax benefit (provision)     (244 )             (68 )     -       (68 )     -       (68 )
Net loss from continuing operations   NIS (11,072)             $ (3,106 )   $ (138 )   $ (3,244 )   $ 1,104     $ (2,140 )

 

a) The Company recorded a decrease in cost of revenues of $6, offset by a net increase of $178 of operating expenses and $34 of finance costs related to depreciation, interest, bad debt and rent expense adjustments.

 

b) These adjustments represent the elimination of Micronet’s operating results for the period from January 1, 2019 to February 24, 2019 (the “Control Period”) during which time Micronet was consolidated into MICT.

 

  Note C Derived from the audited financial statements of GFHI for the year ended December 31, 2019, which are included elsewhere in this proxy statement.

 

Pro Forma Adjustments:

 

  Note D No adjustments.

 

  Note E

To record $231 of amortization of the fair value of internally developed technology with a useful life of 5 years, customer relationships with a useful life of 6 years plus tradenames and trademarks with a useful life of 10 years. Also, to eliminate the historical intangible asset amortization of $137.

 

Additionally, we offset $795 consisting of $608 of previously recognized MICT share in Micronet’s losses and $187 related to the impairment of MICT’s equity method investment in Micronet LTD. Also, we offset $299 of gains previously recorded related to the deconsolidation of Micronet on February 24, 2019. Finally, we offset $94 of previously recorded finance costs related to the impact of the impairment of MICT’s loan to Micronet.

 

  Note F To record $2,657 of amortization of the fair value of internally developed technology with a useful life of 6 years, a customer database with a useful life of 5 years, plus tradenames and trademarks with a useful life of 5 years.

 

  Note G No adjustments.

 

  Note H No adjustments.

 

20

 

 

MARKET PRICE AND DIVIDEND INFORMATION

 

MICT

 

Market Price of Common Stock

 

MICT’s Common Stock is traded on Nasdaq under the symbol “MICT.”

 

On March 31, 2020, 7,778,407 unregistered warrants to purchase MICT’s Common Stock were outstanding. On August 10, 2020, the MICT Common Stock had a closing price of $3.40.

 

Holders of Common Stock should obtain current market quotations for their securities. The market price of Common Stock could vary at any time before the Merger.

 

Holders

 

As of the Record Date, there were 18 holders of record of MICT’s Common Stock.

 

Dividends

 

MICT has not paid any cash dividends on its shares in 2019 and 2018. The payment of cash dividends in the future will be dependent upon its revenues and earnings, if any, capital requirements and general financial condition subsequent to the completion of a business combination. In addition, the MICT Board is not currently contemplating and does not anticipate declaring any share dividends in the foreseeable future. Further, if MICT incurs any indebtedness, its ability to declare dividends may be limited. 

 

21

 

  

RISK FACTORS

 

You should carefully consider all the following risk factors, together with all of the other information included or incorporated by reference in this proxy statement, including the financial information, before deciding whether or how to vote or instruct your vote to be cast to approve the Proposals described in this proxy statement.

 

The value of your investment is subject to significant risks affecting, among other things, the Company’s business, financial condition or results of operations. If any of the events described below occur, the Company’s business and financial results could be adversely affected in material respects. This could result in a decline, which may be significant, in the trading price of the Common Stock and you therefore may lose all or part of your investment. The risk factors described below are not necessarily exhaustive and you are encouraged to perform your own investigation with respect to the business of MICT.

 

Risk Factors Related to the Merger and Ownership of MICT’s Securities

 

The combined entity may be unable to successfully execute its growth strategy.

 

One of the combined entity’s strategies is to pursue organic growth by increasing product offerings, expanding into new verticals and new markets such as China. The combined entity may not be able to successfully execute all or any of these initiatives, and the results may vary from the expectations of the combined entity or others. Further, even if these initiatives are successful, the combined entity may not be able to expand and upgrade its technology systems and infrastructure to accommodate increases in the business activity in a timely manner, which could lead to operational breakdowns and delays, loss of customers, a reduction in the growth of its customer base, increased operating expenses, financial losses, increased litigation or customer claims, regulatory sanctions or increased regulatory scrutiny. In addition, the combined entity will need to continue to attract, hire and retain highly skilled and motivated executives and employees to both execute the growth strategy and to manage the resulting growth effectively.

 

Prior to completion of the Merger, Intermediate did not have any formal risk management policies or procedures which may leave Intermediate exposed to unidentified or unexpected risks.

 

Prior to the Merger, Intermediate was dependent on the professional expertise and experience of its management and staff to assess risks. Intermediate did not have any formal written policies or procedures for identifying, monitoring or controlling risks, including risks related to human error, customer defaults, market movements, technology, fraud or money-laundering, and such risks are evaluated by their respective management teams and boards of directors on an ad-hoc basis. Such practices and methods have historically been discretionary by nature and based on internally developed controls and observed historical market behavior. These methods may not adequately prevent losses, particularly as they relate to extreme market movements, which may be significantly greater than historical fluctuations in the market. The risk-management methods utilized by Intermediate also may not adequately prevent losses due to technical errors if its testing and quality control practices are not effective in preventing failures.

 

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MICT may be required to take write-downs or write-offs, restructuring and impairment or other charges that could have a significant negative effect on its financial condition and its share price, which could cause you to lose some or all of your investment.

 

MICT cannot assure you that the due diligence MICT has conducted on Intermediate and GFH has revealed all material issues that may be present with regard to such companies, or that it would be possible to uncover all material issues through a customary amount of due diligence or that risks outside of MICT’s control will not later arise. Each of MICT and Intermediate therefore has made its decision to complete the Merger on the basis of limited information, and the business combination may not be as profitable as expected, if at all. As a result of these factors, MICT may be forced to later write-down or write-off assets, restructure operations, or incur impairment or other charges that could result in reporting losses. Even if MICT’s due diligence successfully identified certain risks, unexpected risks may arise and previously known risks may materialize in a manner not consistent with MICT’s preliminary risk analysis. Even though these charges may be non-cash items and would not have an immediate impact on MICT’s liquidity, the fact that MICT reports charges of this nature could contribute to negative market perceptions about MICT or MICT’s securities. Accordingly, MICT cannot predict the impact that the consummation of the Merger will have on MICT’s securities.

 

MICT’s ability to be successful following the Merger will be dependent upon the efforts of the MICT Board and key personnel and the loss of such persons could negatively impact the operations and profitability of MICT’s post-combination business.

 

MICT’s ability to be successful following the Merger will be dependent upon the efforts of the MICT Board and key personnel. Furthermore, the business of MICT following the Merger is made up in part of Intermediate’s business, and is entirely different from MICT’s current business. Individuals associated with Intermediate may be unfamiliar with the requirements of operating a U.S. public company, which could cause MICT’s management to have to expend time and resources helping them become familiar with such requirements.

 

Provisions in MICT’s certificate of incorporation and under Delaware law could make a future acquisition of MICT, which may be beneficial to stockholders, more difficult and may prevent attempts by MICT stockholders to replace or remove the current management.

 

Provisions in MICT’s certificate of incorporation, as amended, and MICT’s amended and restated bylaws may discourage, delay or prevent a merger, acquisition or other change in control that stockholders may consider favorable, including transactions in which you might otherwise receive a premium for Common Stock. These provisions could also limit the price that investors might be willing to pay in the future for MICT securities, thereby depressing the market price of MICT’s securities. In addition, these provisions may frustrate, deter or prevent any attempts by MICT stockholders to replace or remove current management by making it more difficult for stockholders to replace members of the MICT Board. Because the board of directors is responsible for appointing the members of the MICT management team, these provisions could in turn affect any attempt by stockholders to replace current members of the MICT management team.

 

Moreover, because MICT is incorporated in Delaware, it is governed by the provisions of Section 203 of the General Corporation Law of the State of Delaware, or the DGCL, which prohibits a person who owns in excess of 15% of outstanding voting stock from merging or combining with MICT for a period of three years after the date of the transaction in which the person acquired in excess of 15% of outstanding voting stock, unless the merger or combination is approved in a prescribed manner. MICT has not opted out of the restrictions under Section 203.

 

We may need a significant amount of additional capital, which could substantially dilute your investment.

 

We may need significant additional capital in the future to continue our planned operations. No assurance can be given that we will be able to obtain such funds upon favorable terms and conditions, if at all. Failure to do so could have a material adverse effect on our business. To the extent we raise additional capital by issuing equity securities, our stockholders may experience substantial dilution. We may sell common stock, convertible securities, or other equity securities in one or more transactions that may include voting rights (including the right to vote as a series on particular matters), preferences as to dividends and liquidation, and conversion and redemption rights, subject to applicable law, and at prices and in a manner we determine from time to time.

 

Such issuances and the exercise of any convertible securities will dilute the percentage ownership of our stockholders, and may affect the value of our capital stock and could adversely affect the rights of the holders of such stock, thereby reducing the value of such stock. Moreover, any exercise of convertible securities may adversely affect the terms upon which we will be able to obtain additional equity capital, since the holders of such convertible securities can be expected to exercise them at a time when we would, in all likelihood, be able to obtain any needed capital on terms more favorable to us than those provided in such convertible securities.

 

If we sell shares or other equity securities in one or more other transactions, or issue stock or stock options pursuant to any future employee equity incentive plan, investors may be materially diluted by such subsequent issuances.

 

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If the price of the Common Stock is volatile, purchasers of its common stock could incur substantial losses.

 

The price of the Common Stock has been and may continue to be volatile. The market price of MICT’s Common Stock may be influenced by many factors, including but not limited to the following:

 

  developments regarding the Merger and the transactions contemplated thereby;

 

  announcements of developments related to MICT’s business (including those aspects of MICT’s business received in connection with the acquisition);

 

  quarterly fluctuations in actual or anticipated operating results;

 

  announcements of technological innovations;

 

  new products or product enhancements introduced by Micronet or its competitors;

 

  developments in patents and other intellectual property rights and litigation;

 

  developments in relationships with third party manufacturers and/or strategic partners;

 

  developments in relationships with customers and/or suppliers;

 

  regulatory or legal developments in the United States, Israel and other countries;

 

  general conditions in the global economy; and

 

  the other factors described in this “Risk Factors” section.

 

For these reasons and others, you should consider an investment in Common Stock as risky and invest only if you can withstand a significant loss and wide fluctuations in the value of such investment.

 

A sale by MICT of a substantial number of shares of the Common Stock or securities convertible into or exercisable for Common Stock may cause the price of the Common Stock to decline and may impair the ability to raise capital in the future.

 

The Common Stock is traded on Nasdaq and despite certain increases of trading volume from time to time, there have been periods when it could be considered “thinly-traded,” meaning that the number of persons interested in purchasing Common Stock at or near bid prices at any given time may have been relatively small or non-existent. Financing transactions resulting in a large amount of newly-issued securities, or other events that cause current stockholders to sell shares, could place downward pressure on the trading price of Common Stock. In addition, the lack of a robust resale market may require a stockholder who desires to sell a large number of shares of common stock to sell those shares in increments over time to mitigate any adverse impact of the sales on the market price of MICT stock. If MICT stockholders sell, or the market perceives that its stockholders intend to sell for various reasons, including the ending of restriction on resale, substantial amounts of common stock in the public market, including shares issued upon the exercise of outstanding options or warrants, the market price of Common Stock could fall. Sales of a substantial number of shares of Common Stock may make it more difficult for MICT to sell equity or equity-related securities in the future at a time and price that MICT deems reasonable or appropriate. Moreover, MICT may become involved in securities class action litigation arising out of volatility resulting from such sales that could divert management’s attention and harm MICT’s business.

 

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If securities or industry analysts do not publish research or reports or publish unfavorable research about MICT’s business, the price of its common stock could decline.

 

MICT does not currently have any significant research coverage by securities and industry analysts and may never obtain such research coverage. If securities or industry analysts do not commence or maintain coverage of MICT, the trading price for its common stock might be negatively affected. In the event such securities or industry analyst coverage is obtained, if one or more of the analysts who covers MICT or will cover MICT downgrades its securities, the price of Common Stock would likely decline. If one or more of these analysts ceases to cover MICT or fails to publish regular reports on it, interest in the purchase of Common Stock could decrease, which could cause the price of Common Stock and trading volume to decline.

 

If MICT fails to meet all applicable Nasdaq requirements, Nasdaq may delist its common stock, which could have an adverse impact on its liquidity and market price.

 

MICT’s common stock is currently listed on Nasdaq, which has qualitative and quantitative listing criteria. If MICT is unable to comply with Nasdaq’s listing requirements, including, for example, if the closing bid price for Common Stock continues to fall below $1.00 per share in breach of Nasdaq Listing Rule 5550(a)(2), Nasdaq could determine to delist the Common Stock, which could adversely affect its market liquidity market price. In that regard, on September 1, 2017, and again on July 22, 2019, MICT received written notice from Nasdaq indicating that it was not in compliance with Nasdaq Listing Rule 5550(a)(2), as the closing bid price of its common stock had been below $1.00 per share for each of the consecutive 30 business days preceding both September 1, 2017 and July 22, 2019. On both occasions, MICT was able to regain compliance by maintaining a minimum closing bid price of at least $1.00 for a minimum of 10 consecutive trading days; however there can be no assurance that MICT will be able to maintain compliance with the Nasdaq listing requirements, or that the common stock will not be delisted from Nasdaq in the future. Such delisting could adversely affect the ability to obtain financing for the continuation of MICT’s operations, and could result in the loss of confidence by investors, customers and employees and cause its shareholders to incur substantial losses.

 

If Nasdaq delists MICT’s securities from trading on its exchange and MICT is not able to list its securities on another national securities exchange, MICT expects its securities could be quoted on an over-the-counter market. If this were to occur, MICT could face significant material adverse consequences, including:

 

a limited availability of market quotations for its securities;

 

reduced liquidity for its securities;

 

a determination that the MICT’s common stock is a “penny stock” which will require brokers trading in the MICT’s common stock to adhere to more stringent rules and possibly result in a reduced level of trading activity in the secondary trading market for MICT’s securities;

 

a limited amount of news and analyst coverage; and

 

a decreased ability to issue additional securities or obtain additional financing in the future.

 

The unaudited pro forma condensed combined financial information included in the section entitled “Unaudited Pro Forma Condensed Combined Financial Information” may not be representative of MICT’s results upon consummation of the Merger.

 

MICT and Intermediate have historically operated as separate companies. The unaudited pro forma condensed combined financial information is presented for informational purposes only and is not necessarily indicative of the financial position or results of operations that would have actually occurred as of the dates indicated, nor is it indicative of the future operating results or financial position of MICT. The pro forma statement of operations does not reflect future nonrecurring charges resulting from the Merger. The unaudited pro forma condensed combined financial information does not reflect future events that may occur after the Merger and does not consider potential impacts of current market conditions on revenues or expenses. The unaudited pro forma condensed combined financial information included in the section entitled “Unaudited Pro Forma Condensed Combined Financial Information” has been derived from MICT’s and Intermediate’s historical financial statements and related notes contained elsewhere within this proxy statement and certain adjustments and assumptions have been made regarding the combined organization after giving effect to the transaction.

 

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In addition, the assumptions used in preparing the unaudited pro forma condensed combined financial information may not prove to be accurate and other factors may affect MICT’s financial condition or results of operations following the Closing. Any potential decline in MICT’s financial condition or results of operations may cause significant variations in the share price of MICT.

 

MICT’s stockholders may not realize a benefit from the Merger commensurate with the ownership dilution they will experience in connection with the Merger.

 

If MICT is unable to realize the full strategic and financial benefits currently anticipated from the Merger, MICT’s stockholders will have experienced substantial dilution of their ownership interests in MICT without receiving any commensurate benefit, or only receiving part of the commensurate benefit to the extent MICT is able to realize only part of the strategic and financial benefits currently anticipated from the Merger.

 

The COVID-19 pandemic, or any other pandemic, epidemic or outbreak of an infectious disease, may materially and adversely affect MICT’s business and operations.

 

The recent outbreak of COVID-19 originated in Wuhan, China, in December 2019 and has since spread to multiple countries, including the United States, Israel and many European countries in which MICT operates. On March 11, 2020, the World Health Organization declared the outbreak a pandemic. While COVID-19 is still spreading and the final implications of the pandemic are difficult to estimate at this stage, it is clear that it has affected the lives of a large portion of the global population. At this time, the pandemic has caused states of emergency to be declared in various countries, travel restrictions imposed globally, quarantines established in certain jurisdictions and various institutions and companies being closed. MICT is actively monitoring the pandemic and is taking any necessary measures to respond to the situation in cooperation with the various stakeholders.

 

MICT’s operations and business have experienced disruptions due to the unprecedented conditions surrounding the spread of COVID-19 throughout North America, Israel and the world. In particular, COVID-19 and measures implemented to reduce the spread of the virus have limited access to the MICT’s offices and disrupted its normal interactions with its accounting personnel, legal advisors, auditors and others involved in the preparation of the Proxy Statement in which these financial statements are included.

 

Due to the uncertainty surrounding the COVID-19 pandemic, MICT will continue to assess the situation, including government-imposed restrictions, market by market. It is not possible at this time to estimate the full impact that the COVID-19 pandemic could have on MICT’s business, the continued spread of COVID-19, and any additional measures taken by governments, health officials or by MICT in response to such spread, could have on MICT’s business, results of operations and financial condition. The COVID-19 pandemic and mitigation measures have also negatively impacted global economic conditions, which, in turn, could adversely affect MICT’s business, results of operations and financial condition. The extent to which the COVID-19 outbreak continues to impact MICT’s financial condition will depend on future developments that are highly uncertain and cannot be predicted, including new government actions or restrictions, new information that may emerge concerning the severity, longevity and impact of the COVID-19 pandemic on economic activity.

 

The COVID-19 pandemic, or any other pandemic, epidemic or outbreak of an infectious disease, may materially and adversely affect GFH’s and Micronet’s business and thereby have a material adverse effect on MICT’s investment in GFH and Micronet.

 

MICT may not realize the benefits of its investment in GFH and Micronet if as a result of, among other things, COVID-19, GFH’s and Micronet’s business and operations suffer a material adverse effect. During the COVID-19 pandemic, Micronet has suffered a material adverse impact on its business and operations, results of operations and financial condition due to, among other things, a delay in receiving customers’ orders and the general negative economic climate that has resulted from COVID-19. In addition, the COVID-19 pandemic has resulted in a material adverse change in the general business and economic atmosphere in the world and in Israel and a negative sentiment in both the business and capital markets, which includes a substantial and significant decrease in demand for the products offered by Micronet, leading to a slowdown in production and delivery, as well as the cancellation of orders by its customers or rejection of development by manufacturers and suppliers.  

 

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Moreover, government restrictions imposed in China impacted Micronet’s manufacturing and subcontracting operations in China were affected for a certain period of time due to COVID-19. Similarly, GFH’s business and operations in China have been impacted by COVID-19 as well. In addition, activities related to the development of various components of Micronet’s products have not yet returned to regular levels. Although the facilities overseeing a portion of these activities have returned to operation, GFH and Micronet do not know if limitations that were previously lifted will be reinstated or whether limitations that are still in effect will be lifted in the near term. As such, Micronet’s management believes that there will be a delay in launching its new products to the market and they will not be completed before Q4 2020.

 


We have issued and may issue additional preferred stock in the future, and the terms of the preferred stock may reduce the value of our common stock.

 

Following the approval Charter Amendment Proposal, if approved, we will be authorized to issue up to fifteen million shares of preferred stock in one or more series. Our board of directors may determine the terms of future preferred stock offerings without further action by our stockholders. If we issue shares of preferred stock, it could affect stockholder rights or reduce the market value of our outstanding common stock. In particular, specific rights granted to future holders of preferred stock may include voting rights, preferences as to dividends and liquidation, conversion and redemption rights, sinking fund provisions, and restrictions on our ability to merge with or sell our assets to a third party.

 

Risks Related to Doing Business in China

 

Changes in China’s economic, political or social conditions or government policies could have a material adverse effect on our business and operations.

 

Our Intermediate division’s principal executive office and operations are located in China. We also plan to launch various platforms which are being built initially in China. Accordingly, MICT’s business, financial condition, results of operations and prospects may be influenced to a significant degree by political, economic, social conditions and government policies in China generally. The Chinese economy differs from the economies of most developed countries in many respects, including the level of government involvement, level of development, growth rate, control of foreign exchange and allocation of resources. Although the PRC government has implemented measures emphasizing the utilization of market forces for economic reform, the reduction of state ownership of productive assets, and the establishment of improved corporate governance in business enterprises, a substantial portion of productive assets in China is still owned by the government. In addition, the PRC government continues to play a significant role in regulating industry development by imposing industrial policies. The PRC government also exercises significant control over China’s economic growth through allocating resources, controlling payment of foreign currency-denominated obligations, setting monetary policy, and providing preferential treatment to particular industries or companies.

 

While the Chinese economy has experienced significant growth over the past decades, such growth has been uneven, both geographically and among various sectors of the economy, and the rate of growth has been slowing since 2012. Any adverse changes in economic conditions in China, in the policies of the PRC government or in the laws and regulations in China, could have a material adverse effect on the overall economic growth of China. Such developments could adversely affect MICT’s business and operating results, lead to reduction in demand for MICT’s services and adversely affect MICT’s competitive position. COVID-19 had a severe and negative impact on Chinese and global economy in the first half of 2020. Whether this will lead to a prolonged downturn in the economy is still unknown. The PRC government has implemented various measures to encourage economic growth and guide the allocation of resources. Some of these measures may benefit the overall Chinese economy, but may have a negative effect on us. For example, our Intermediate division’s financial condition and results of operations may be adversely affected by government control over capital investments or changes in tax regulations. In addition, in the past the PRC government has implemented certain measures, including interest rate adjustment, to control the pace of economic growth. These measures may cause decreased economic activity in China, which may adversely affect our Intermediate division’s business and operating results.

 

The PRC legal system embodies uncertainties which could limit the legal protections available to us.

 

PRC laws and the PRC legal system in general may have a significant impact on our business operations in China. Although China’s legal system has developed over the last several decades, PRC laws, regulations and legal requirements remain underdeveloped relative to the United States of America. Moreover, PRC laws and regulations change frequently and their interpretation and enforcement involve uncertainties. For example, the interpretation or enforcement of PRC laws and regulations may be subject to government rules or policies, some of which are not published on a timely basis or at all. In addition, the relative inexperience of China’s judiciary system in some cases may create uncertainty as to the outcome of litigation. These uncertainties could limit our ability to enforce certain legal or contractual rights or otherwise adversely affect our business and operations.

 

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Furthermore, due to the existence of unpublished rules and policies, and since newly issued PRC laws and regulations may have expected and unexpected retrospective effects, we may not be aware of a violation of certain PRC laws, regulations, policies or rules until after the event.

 

The complexities, uncertainties and rapid changes in PRC regulation of the Internet-related businesses and companies require significant resources for compliance. 

 

The PRC government extensively regulates the Internet industries, including foreign ownership of, and the licensing and permit requirements pertaining to, companies doing business in the internet industry. These laws and regulations are relatively new and evolving, and their interpretation and enforcement involve significant uncertainty. As a result, in certain circumstances it may be difficult to determine what actions or omissions may be deemed to be in violation of applicable laws and regulations. Issues, risks and uncertainties relating to PRC regulation of these businesses include, but are not limited to, the following:

 

There are uncertainties relating to the regulation of the Internet-related businesses in China, including evolving licensing practices. This means that certain of our permits, licenses or operations may be subject to challenge, or we may fail to obtain permits or licenses that may be deemed necessary for operations.

 

New laws and regulations that regulate Internet activities, including operating online platforms for stock trading, oil and gas trading, insurance brokerage or recyclable metal trading may be promulgated. If these new laws and regulations are promulgated, additional licenses may be required for operations. If our operations do not comply with these new regulations after they become effective, or if we fail to obtain any licenses required under these new laws and regulations, MICT or its subsidiaries could be subject to penalties.

 

The interpretation and application of existing PRC laws, regulations and policies and any new laws, regulations or policies relating to the Internet-related industries have created substantial uncertainties regarding the legality of existing and future foreign investments in, and the businesses and activities of companies in these industries. We cannot assure you that Intermediate had obtained all the permits or licenses required for conducting its business in China or will be able to maintain existing licenses or obtain any new licenses required under any new laws or regulations. There are also risks associated with being found in violation of existing or future laws and regulations given the uncertainty and complexity of China’s regulation of these businesses.

 

In addition, new laws and regulations applicable to the Internet-related industries could be issued at the national or provincial level, or existing regulations could be interpreted more strictly. No assurance can be given that business on these industries in general or our prospective services in particular will not be adversely impacted by further regulations. In particular, technical limitations on Internet use can also be developed or implemented. For example, restrictions can be implemented on personal Internet use in the workplace in general or access to Intermediate’s sites in particular. All such regulations, restrictions and limitations could lead to a reduction of user activities or a loss of users, and restrict the types of products and services we may be able to offer in China, which in turn could have a material adverse effect on our financial condition and results of operations in China.

 

The 2006 M&A Rules establish complex procedures for some acquisitions of Chinese companies by foreign investors, which could make it difficult to pursue growth through acquisitions in China.

 

On August 8, 2006, six PRC regulatory authorities promulgated the Regulations on Mergers and Acquisitions of Domestics Enterprises by Foreign Investors (the “2006 M&A Rules”), which were later amended on June 22, 2009. The 2006 M&A Rules and some other regulations and rules concerning mergers and acquisitions established additional procedures and requirements that could make merger and acquisition activities by foreign investors more time consuming and complex, including requirements in some instances that the MOFCOM be notified in advance of any change-of-control transaction in which a foreign investor takes control of a PRC domestic enterprise. Moreover, the Anti-Monopoly Law requires that the anti-monopoly law enforcement authority shall be notified in advance of any concentration of undertaking if certain thresholds are triggered. In addition, the security review rules issued by the State Council that became effective in March 2011 specify that mergers and acquisitions by foreign investors that raise “national defense and security” concerns and mergers and acquisitions through which foreign investors may acquire de facto control over domestic enterprises that raise “national security” concerns are subject to strict review by the MOFCOM, and the rules prohibit any activities attempting to bypass a security review, including by structuring the transaction through a proxy or contractual control arrangement. In the future, we may grow our business by acquiring complementary businesses. Complying with the requirements of the above-mentioned regulations and other relevant rules to complete such transactions could be time consuming, and any required approval processes, including obtaining approval from the MOFCOM or its local counterparts may delay or inhibit our ability to complete such transactions, which could affect our ability to expand our business or maintain our market share.

 

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Governmental control of currency conversion may affect the value of business in China.

 

The PRC government imposes controls on the convertibility of the Renminbi into foreign currencies and, in certain cases, the remittance of foreign currency out of China. Certain revenues may be received in Renminbi. Shortages in the availability of foreign currency may restrict our or our partners’ ability in China to remit sufficient foreign currency to pay dividends or other payments, or otherwise satisfy their foreign currency-denominated obligations. Under existing PRC foreign exchange regulations, payments of current account items, including profit distributions, interest payments, expenditures from trade related transactions and services-related foreign exchange transactions, can be made in foreign currencies without prior approval from SAFE by complying with certain procedural requirements. However, approval from SAFE or its local branch is required where Renminbi is to be converted into foreign currency and remitted out of China to pay capital expenses such as the repayment of loans denominated in foreign currencies. The PRC government may also at its discretion restrict access to foreign currencies for current account transactions in the future.

 

Fluctuations in exchange rates of the Renminbi could materially affect financial results. 

 

The exchange rates between the Renminbi and the U.S dollars and other foreign currencies are affected by, among other things, changes in China’s political and economic conditions. The People’s Bank of China regularly intervenes in the foreign exchange market to limit fluctuations in Renminbi exchange rates and achieve policy goals.

   

Regulation and censorship of information disseminated over the internet in China may adversely affect our business, and may cause liability for content that is displayed on any of its websites.

 

China has enacted laws and regulations governing internet access and the distribution of products, services, news, information, audio-video programs and other content through the internet. In the past, the PRC government has prohibited the distribution of information through the internet that it deems to be in violation of PRC laws and regulations. If any of Intermediate’s internet information on its online platforms is deemed by the PRC government to violate any content restrictions, we or our partners may not be able to continue to display such content and could become subject to penalties, including confiscation of income, fines, suspension of business and revocation of required licenses, which could materially and adversely affect our business, financial condition and results of operations. We or our partners may also be subjected to liability for any unlawful actions of their customers or users of their websites or for content distributed by such subsidiaries or partners that is deemed inappropriate. It may be difficult to determine the type of content that may result in liability.

  

It may be difficult for overseas regulators to conduct investigation or collect evidence within China.

 

Shareholder claims or regulatory investigation that are common in the United States generally are difficult to pursue as a matter of law or practicality in China. For example, in China, there are significant legal and other obstacles to providing information needed for regulatory investigations or litigation initiated outside China. Although the authorities in China may establish a regulatory cooperation mechanism with the securities regulatory authorities of another country or region to implement cross-border supervision and administration, such cooperation with the securities regulatory authorities in the Unities States may not be efficient in the absence of mutual and practical cooperation mechanism. Furthermore, according to Article 177 of the PRC Securities Law, or Article 177, which became effective in March 2020, no overseas securities regulator is allowed to directly conduct investigation or evidence collection activities within the territory of the PRC. While detailed interpretation of or implementation rules under Article 177 have yet to be promulgated, the inability for an overseas securities regulator to directly conduct investigation or evidence collection activities within China may further increase difficulties faced by you in protecting your interests.

 

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Under the EIT Law, we may be classified as a “resident enterprise” of China. Such classification would likely result in unfavorable tax consequences.

 

Under the enterprise income tax law (“EIT Law”), which has been revised effective as of December 29, 2018, and its implementation rules, (the “Implementation Rules”), which has been revised and effective as April 23, 2019, an enterprise established outside of the PRC with “de facto management bodies” within the PRC is considered a resident enterprise and is subject to enterprise income tax, or EIT, at the rate of 25% on its global income. The Implementation Rules define the term “de facto management bodies” as “establishments that carry out substantial and overall management and control over the manufacturing and business operations, personnel, accounting, properties, etc. of an enterprise.” The State Administration of Taxation issued the Notice Regarding the Determination of Chinese-Controlled Offshore Incorporated Enterprises as PRC Tax Resident Enterprises on the Basis of De Facto Management Bodies, or Circular 82, on April 22, 2009. Circular 82 provides that a foreign enterprise controlled by a PRC company or a PRC company group will be classified as a “resident enterprise” with its “de facto management bodies” located within China if the following criteria are satisfied: (i) the place where the senior management and core management departments that are in charge of its daily operations perform their duties is mainly located in the PRC; (ii) its financial and human resources decisions are made by or are subject to approval by persons or bodies in the PRC; (iii) its major assets, accounting books, company seals, and minutes and files of its board and shareholders’ meetings are located or kept in the PRC; and (iv) more than half of the enterprise’s directors or senior management with voting rights frequently reside in the PRC.

 

Currently, we do not believe we meet all of the criteria above. If the PRC authorities consider that we meet all of the criteria above and treat us, in connection with our acquisition of Intermediate, as a resident enterprise, a 25% EIT on global income could significantly increase our tax burden and materially and adversely affect its financial condition and results of operations.

 

In addition, even if we, in connection with our acquisition of Intermediate, are not deemed as a resident enterprise by the PRC authorities, pursuant to the EIT Law, dividends generated after January 1, 2008 and payable by a foreign-invested enterprise in China to its foreign investors will be subject to a 10% withholding tax, unless any such foreign investor’s jurisdiction of incorporation has a tax treaty with China that provides for a different withholding arrangement and provided that relevant tax authorities approved the foreign investors as the beneficial owners of such dividends under applicable tax regulations.

 

We face uncertainty with respect to indirect transfers of equity interests in PRC resident enterprises by non-PRC holding companies.

 

On February 3, 2015, the SAT issued the Circular on issues of enterprise Income Tax on Indirect Transfer of Assets by Non-PRC Resident Enterprise, or the SAT Circular 7 pursuant to which if a non-resident enterprise transfers the equity interests of a PRC resident enterprise indirectly by transfer of the equity interests of an offshore holding company (other than the purchase and sale of shares in public securities market) without a reasonable commercial purpose, the PRC tax authorities have the power to reassess the nature of the transaction and the indirect equity transfer might be treated as a direct transfer. As a result, the gain derived from such transfer, which means the equity transfer price minus the cost of equity, will be subject to the PRC withholding tax at a rate of up to 10%. SAT Circular 7 also brings challenges to both foreign transferor and transferee (or other person who is obligated to pay for the transfer) of taxable assets. Under the SAT Circular 7, the transfer which meets all of the following circumstances shall be deemed as having no reasonable commercial purpose: (i) over 75% of the value of the equity interests of the offshore holding company are directly or indirectly derived from PRC taxable properties; (ii) at any time during the year before the indirect transfer, over 90% of the total properties of the offshore holding company are investments within PRC territory, or in the year before the indirect transfer, over 90% of the offshore holding company’s total income is directly or indirectly derived from within PRC territory; (iii) the function performed and risks assumed by the offshore holding company are insufficient to substantiate its corporate existence; or (iv) the foreign income tax imposed on the indirect transfer is lower than the PRC tax imposed on the direct transfer of the PRC taxable properties. In October 2017, SAT issued the Announcement of the State Administration of Taxation on Issues Concerning the Withholding of Non-resident Enterprise Income Tax at Source, or SAT Circular 37, which came into effect on December 1, 2017. The SAT Circular 37 further clarifies the practice and procedure of the withholding of nonresident enterprise income tax. Where a non-resident enterprise transfers taxable assets indirectly by disposing of the equity interests of an overseas holding company, which is an indirect transfer, the non-resident enterprise as either transferor or transferee, or the PRC entity that directly owns the taxable assets, may report such indirect transfer to the relevant tax authority. Using a “substance over form” principle, the PRC tax authority may disregard the existence of the overseas holding company if it lacks a reasonable commercial purpose and was established for the purpose of reducing, avoiding or deferring PRC tax.

 

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We face uncertainties as to the reporting and other implications of certain past and future transactions that involve PRC taxable assets, such as offshore restructuring, sale of the shares in our offshore subsidiaries and investments. We may be subject to filing obligations or taxed if we are transferors in such transactions, and may be subject to withholding obligations if we are transferees in such transactions, under SAT Circular 7 or SAT Circular 37, or both.

 

The enforcement of the PRC Labor Contract Law and other labor-related regulations in the PRC may adversely affect MICT’s business and results of operations.

 

The SCNPC, enacted the Labor Contract Law in 2008 and amended it on December 28, 2012. The Labor Contract Law introduced specific provisions related to fixed-term employment contracts, part-time employment, probationary periods, consultation with labor unions and employee assemblies, employment without a written contract, dismissal of employees, severance, and collective bargaining to enhance previous PRC labor laws. Under the Labor Contract Law, an employer is obligated to sign an unlimited- term labor contract with any employee who has worked for the employer for ten consecutive years. Further, if an employee requests or agrees to renew a fixed-term labor contract that has already been entered into twice consecutively, the resulting contract, with certain exceptions, must have an unlimited term, subject to certain exceptions. With certain exceptions, an employer must pay severance to an employee where a labor contract is terminated or expires. In the case of retrenching 20 or more employees or where the number of employees to be retrenched is less than 20 but comprises 10% or more of the total number of employees of such employer under certain circumstances, the employer shall explain the situation to the labor union or all staff 30 days in advance and seek the opinion of the labor union or the employees, the employer may carry out the retrenchment exercise upon reporting the retrenchment scheme to the labor administrative authorities. In addition, the PRC governmental authorities have continued to introduce various new labor-related regulations since the effectiveness of the Labor Contract Law.

 

Under the PRC Social Insurance Law and the Administrative Measures on Housing Fund, employees are required to participate in pension insurance, work-related injury insurance, medical insurance, unemployment insurance, maternity insurance, and housing funds and employers are required, together with their employees or separately, to pay the social insurance premiums and housing funds for their employees. If we fail to make adequate social insurance and housing fund contributions, or fail to withhold individual income tax adequately, we may be subject to fines and legal sanctions, and our business, financial conditions and results of operations may be adversely affected.

 

These laws designed to enhance labor protection tend to increase our labor costs. In addition, as the interpretation and implementation of these regulations are still evolving, our employment practices may not be at all times be deemed in compliance with the regulations. As a result, we could be subject to penalties or incur significant liabilities in connection with labor disputes or investigations.

 

Risk Factors Relating to MICT’s Business Following Acquisition of Intermediate

 

MICT’s prospective trading platforms have no operating history, which makes it difficult to evaluate MICT’s future prospects.

 

In connection with its acquisition of Intermediate, MICT is focused on developing its various trading platforms and technology infrastructure, which have not launched. As MICT’s prospective platforms will be built on technology and a significant portion of MICT’s staff come from internet and technology companies, MICT has limited experience in most aspects of its prospective trading platform business operation, such as trading of stock, oil and gas, and recycled metal and insurance brokerage. Any aspect of MICT’s prospective business model that does not achieve expected results may have a material and adverse impact on MICT’s prospective financial condition and results of operations. It is therefore difficult to effectively assess MICT’s future prospects.

 

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Our targeted markets, including online stock trading, oil and gas trading, recycled metal trading and insurance brokerage may not develop as expected. Prospective users and clients of MICT’s prospective services may not be familiar with the development of these markets and may have difficulty distinguishing MICT’s prospective services from those of MICT’s prospective competitors. Convincing prospective users and clients of the value of using MICT’s prospective services will be critical to increasing the amount of transactions on MICT’s prospective platforms and to the success of MICT’s prospective businesses.

 

You should consider MICT’s prospective businesses as it pertains to the completion of the Intermediate acquistioin and prospects in light of the risks and challenges they encounter or may encounter given the rapidly evolving markets in which we will be operating and our lack of operating history. These risks and challenges include our ability to, among other things:

 

manage the launch of our trading platforms and their future growth;

 

navigate a complex and evolving regulatory environment;

 

offer personalized and competitive services;

 

increase the utilization of our services by users and clients;

 

maintain and enhance our prospective relationships with our prospective business partners;

 

enhance our prospective technology infrastructure to support the growth of our prospective business and maintain the security of our systems and the confidentiality of the information provided and utilized across our systems;

 

improve our operational efficiency;

 

attract, retain and motivate talented employees to support our prospective business growth;

 

navigate economic condition and fluctuation; and

 

defend ourselves against legal and regulatory actions, such as actions involving intellectual property or privacy claims.

 

MICT may not be able to manage its launch and expansion effectively.

 

MICT’s current and planned personnel, systems, resources and controls, particularly as they pertain to the acquisition of Intermediate, may not be adequate to support and effectively manage its launch and future operations. MICT’s launch and plans for continuous expansion may increase the complexity of its prospective business and may place a strain on its management, operations, technical systems, financial resources and internal control functions. MICT intends to upgrade its systems from time to time to cater to the need of launching new services, and the process of upgrading its prospective systems may disrupt its ability to timely and accurately process information, which could adversely affect its results of operations and cause harm to its prospective business.

 

If MICT is unable to attract and retain clients, or if it fails to offer services to address the needs of its prospective clients as they evolve, particularly as it pertains to the acquisition of Intermediate, MICT’s prospective business and results of operations may be materially and adversely affected.

 

If there is insufficient demand for MICT’s prospective services, it might not be able to achieve and increase its prospective transaction volume and revenues as it expects, and its prospective business and results of operations may be adversely affected.

 

MICT’s success, particularly as its pertains to the acquisition of Intermediate, will depend largely on its ability to attract and retain clients, in particular those that have highly frequent transactions. Failure to deliver services in a timely manner at competitive prices with satisfactory experience will cause clients to lose confidence in MICT and use its prospective platforms less frequently or even stop using its prospective platforms altogether, which in turn will materially and adversely affect MICT’s prospective business. Even if MICT is able to provide high-quality and satisfactory services on its prospective platforms in a timely manner and at favorable price terms, MICT cannot assure you that it will be able to attract and retain clients, encourage repeat and increase trading transactions due to reasons out of its control, such as MICT’s prospective clients’ personal financial reasons or the deterioration of the market conditions.

 

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If MICT are unable to generate clients and increase its prospective client retention rates in a cost-effective manner, MICT’s prospective business, financial condition and results of operations are likely to be adversely affected. Although MICT expects to spend significant financial resources on marketing expenses and plan to continue to do so in the future, these efforts may not be cost-effective to attract clients. MICT cannot assure its investors that it will be able to gain, maintain, or grow a client base in a cost-effective way.

 

MICT will depend on its proprietary technology, and its future results may be impacted if it cannot maintain technological superiority in its industry.

 

MICT’s potential success, particularly as it pertains to our acquisition of Intermediate, depends its sophisticated proprietary technology to empower the efficient operations of its prospective platforms. If MICT’s technology becomes more widely available to its current or future competitors for any reason, its operating results may be adversely affected.

 

Additionally, to keep pace with changing technologies and client demands, MICT must correctly interpret and address market trends and enhance the features and functionality of its technology in response to these trends, which may lead to significant research and development costs. MICT may be unable to accurately determine the needs of its prospective users and clients or the trends of the various industries it anticipates to enter or to design and implement the appropriate features and functionality of its technology in a timely and cost-effective manner, which could result in decreased demand for its services and a corresponding decrease in its revenue. Also, any adoption or development of similar or more advanced technologies by its competitors may require that MICT devotes substantial resources to the development of more advanced technology to remain competitive. The markets in which MICT competes are characterized by rapidly changing technology, evolving industry standards and changing trading systems, practices and techniques. MICT may not be able to keep up with these rapid changes in the future, develop new technology, realize a return on amounts invested in developing new technologies or remain competitive in the future.

 

In addition, MICT must protect its systems against physical damage from fire, earthquakes, power loss, telecommunications failures, computer viruses, hacker attacks, physical break-ins and similar events. Any software or hardware damage or failure that causes interruption or an increase in response time of its proprietary technology could reduce client satisfaction and decrease usage of its services.

 

Unexpected network interruptions, security breaches or computer virus attacks and failures in MICT’s information technology systems could have a material adverse effect on its prospective business, financial condition and results of operations.

 

MICT’s anticipated information technology systems will support all phases of its operations and will be an essential part of its technology infrastructure. If MICT’s systems fail to perform, it could experience disruptions in operations, slower response time or decreased customer satisfaction. MICT must be able to process, record and monitor a large number of transactions and its operations are highly dependent on the integrity of its technology systems and its ability to make timely enhancements and additions to its systems. System interruptions, errors or downtime can result from a variety of causes, including unexpected interruptions to the internet infrastructure, technological failures, changes to MICT’s systems, changes in customer usage patterns, linkages with third-party systems and power failures. MICT’s systems will also be vulnerable to disruptions from human error, execution errors, errors in models such as those used for risk management and compliance, employee misconduct, unauthorized trading, external fraud, computer viruses, distributed denial of service attacks, computer viruses or cyberattacks, terrorist attacks, natural disaster, power outage, capacity constraints, software flaws, events impacting MICT’s key business partners and vendors, and other similar events.

 

MICT’s internet-based businesses depend on the performance and reliability of the internet infrastructure. MICT cannot assure its investors that the internet infrastructure it depends on will remain sufficiently reliable for its needs. Any failure to maintain the performance, reliability, security or availability of MICT’s network infrastructure may cause significant damage to its ability to attract and retain users and clients. Major risks involving MICT’s network infrastructure include:

 

breakdowns or system failures resulting in a prolonged shutdown of its servers;

 

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disruption or failure in the national backbone networks in the PRC, which would make it impossible for users and clients to access its platforms;

 

damage from natural disasters or other catastrophic events such as typhoon, volcanic eruption, earthquake, flood, telecommunications failure, or other similar events; and

 

any infection by or spread of computer viruses or other system failures.

 

Any network interruption or inadequacy that causes interruptions in the availability of MICT’s platforms or deterioration in the quality of access to its platforms could reduce user and client satisfaction and result in a reduction in the activity level of its prospective users and clients as well as the number of clients making trading transactions on its prospective platforms. Furthermore, increases in the volume of traffic on MICT’s platforms could strain the capacity of its computer systems and bandwidth, which could lead to slower response times or system failures. This could cause a disruption or suspension in MICT’s service delivery, which could hurt its brand and reputation. MICT may need to incur additional costs to upgrade its technology infrastructure and computer systems in order to accommodate increased demand if it anticipates that its systems cannot handle higher volumes of traffic and transaction in the future. In addition, it could take an extended period of time to restore full functionality to its technology or other operating systems in the event of an unforeseen occurrence, which could affect its ability to process and settle client transactions. Despite MICT’s efforts to identify areas of risk, oversee operational areas involving risks, and implement policies and procedures designed to manage these risks, there can be no assurance that ir will not suffer unexpected losses, reputational damage or regulatory actions due to technology or other operational failures or errors, including those of its vendors or other third parties.

 

Failure or poor performance of third-party software, infrastructure or systems on which MICT relies could adversely affect its prospective business.

 

MICT will rely on third parties to provide and maintain certain infrastructure that will be critical to its prospective business. For example, a strategic partner provides services to MICT in connection with various aspects of MICT’s operations and systems. If such services become limited, restricted, curtailed or less effective or more expensive in any way or become unavailable to MICT for any reason, its prospective business may be materially and adversely affected. The infrastructure of MICT’s third-party service providers may malfunction or fail due to events out of its control, which could disrupt its operations and have a material adverse effect on its prospective business, financial condition, results of operations and cash flows. Any failure to maintain and renew MICT’s relationships with these third parties on commercially favorable terms, or to enter into similar relationships in the future, could have a material adverse effect on its prospective business, financial condition, results of operations and cash flows.

 

MICT also relies on certain third-party software, third-party computer systems and service providers. Any interruption in these third-party services or software, deterioration in their performance, or other improper operation could interfere with its trading activities, cause losses due to erroneous or delayed responses, or otherwise be disruptive to its prospective business. If MICT’s arrangements with any third party are terminated, it may not be able to find an alternative source of software or systems support on a timely basis or on commercially reasonable terms. This could also have a material adverse effect on MICT’s prospective business, financial condition, results of operations and cash flows.

 

If MICT fails to protect its prospective platform resulting from the acquisition of Intermediate or the confidential information of its prospective users and clients, whether due to cyber-attacks, computer viruses, physical or electronic break-ins or other reasons, it may be subject to liabilities imposed by relevant laws and regulations, and its reputation and business may be materially and adversely affected.

 

MICT’s and Intermediate’s computer system, the networks it uses, the networks and online trading platforms of the exchanges and other third parties with whom it interacts, are potentially vulnerable to physical or electronic computer break-ins, viruses and similar disruptive problems or security breaches. A party that is able to circumvent MICT’s security measures could misappropriate proprietary information or customer information, jeopardize the confidential nature of the information MICT transmits over the Internet and mobile network or cause interruptions in its operations. MICT or its service providers may be required to invest significant resources to protect against the threat of security breaches or to alleviate problems caused by any breaches.

 

In addition, MICT will collect, store and process certain personal and other sensitive data from its prospective users and clients, which makes MICT a potentially vulnerable target to cyber-attacks, computer viruses, physical or electronic break-ins or similar disruptions. While MICT will take steps to protect the confidential information that it expects to have access to, its security measures could be breached. Because the techniques used to sabotage or obtain unauthorized access to systems change frequently and generally are not recognized until they are launched against a target, MICT may not be able to anticipate these techniques or implement adequate preventative measures. Any accidental or willful security breaches or other unauthorized access to MICT’s system could cause confidential user and client information to be stolen and used for criminal purposes. Security breaches or unauthorized access to confidential information could also expose MICT to liability related to the loss of the information, time-consuming and expensive litigation and negative publicity. If security measures are breached because of third-party action, employee error, malfeasance or otherwise, or if design flaws in MICT’s technology infrastructure are exposed and exploited, its relationships with users and clients could be severely damaged, it could incur significant liability and its prospective stock trading platform business and operations could be adversely affected. Furthermore, MICT’s corporate clients may utilize its technology to serve their own employees and customers. Any failure or perceived failure by MICT to prevent information security breaches or to comply with privacy policies or privacy-related legal obligations, or any compromise of security that results in the unauthorized release or transfer of personally identifiable information or other customer data, could cause MICT’s prospective clients to lose trust in it and could expose MICT to legal claims.

 

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There are uncertainties as to the interpretation and application of laws in one jurisdiction which may be interpreted and applied in a manner inconsistent to another jurisdiction and may conflict with MICT’s policies and practices or require changes to the features of its system. MICT cannot assure that its prospective user information protection system and technical measures will be considered sufficient under applicable laws and regulations. If MICT is unable to address any information protection concerns, any compromise of security that results unauthorized disclosure or transfer of personal data, or to comply with the then applicable laws and regulations, it may incur additional costs and liability and result in governmental enforcement actions, litigation, fines and penalties or adverse publicity and could cause its prospective users and clients to lose trust in us, which could have a material adverse effect on its prospective stock trading platform business, results of operations, financial condition and prospects. MICT may also be subject to new laws, regulations or standards or new interpretations of existing laws, regulations or standards, including those in the areas of data security and data privacy, which could require MICT to incur additional costs and restrict its prospective stock trading platform business operations.

 

Employee misconduct could expose MICT to significant legal liability and reputational harm.

 

MICT’s prospective platforms will operate in industries in which integrity and the confidence of its prospective users and clients are of critical importance. During MICT’s daily operations, it will be subject to the risks of errors and misconduct by its employees, which include:

 

engaging in misrepresentation or fraudulent activities when marketing or performing services to users and clients;

 

improperly using or disclosing confidential information of its prospective users and clients or other parties;

 

concealing unauthorized or unsuccessful activities; or

 

otherwise not complying with applicable laws and regulations or its internal policies or procedures.

 

If any of MICT’s employees engages in illegal or suspicious activities or other misconduct, it could suffer serious harm to its reputation, financial condition, client relationships and ability to attract new clients and even be subject to regulatory sanctions and significant legal liability. MICT may also be subject to negative publicity from the sanction that would adversely affect its brand, public image and reputation, as well as potential challenges, suspicions, investigations or alleged claims against us. It is not always possible to deter misconduct by its employees or senior management during the operations of its prospective business or uncover any misconduct occurred in their past employment, and the precautions MICT takes to detect and prevent any misconduct may not always be effective. Misconduct by MICT’s employees, or even unsubstantiated allegations of misconduct, could result in a material adverse effect on its reputation and its prospective business.

 

Darren Mercer may have a conflict of interest with respect to our acquisition of GFH Intermediate

 

Darren Mercer, our interim Chief Executive Officer and a director, is also a director and the sole officer of GFH and was the sole officer and director of Intermediate.  Prior to Mr. Mercer becoming a director and interim Chief Executive Officer of the Company, the Board of Directors of the Company established a special committee of the Board to optimize the consideration to be received by the shareholders and to negotiate the Merger Agreement with GFHI.  One of the actions taken by the special committee to optimize the consideration and to ensure that it was fair to the shareholders was to engage Coview to conclude whether a transaction was fair to all shareholders other than (i) MICT shareholders affiliated with BNN, GFH and/or Intermediate, and (ii) holders of the Series A Preferred and Series B Preferred.  For the process taken by the special committee to optimize shareholder value and for Coview’s determination that the Merger was fair, see The Nasdaq Proposal – Consideration Note – Opinion of MICT’s Financial Advisor.

 

Following Mr. Mercer’s election to the Board and appointment as interim Chief Executive Officer, Mr. Mercer was not present during special committee meetings and was not part of the special committee’s deliberations and negotiations.  Following the merger of its only operating subsidiary, Intermediate, GFH is now a holding company with no operations of its own, and other than with respect to the Merger, GFH has no further conflicts with the Company.  To ensure that the Company and its stockholders are protected by any future claims by or against GFH with respect to the Merger, the Board shall retain a special committee consisting solely of independent directors to address any potential future disputes with GFH. Mr. Mercer will not be permitted, other than as an invited guest, to be present for any such special committee meetings or deliberations.

 

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MICT anticipates that its operating costs and expenses will increase.

 

MICT anticipates that its operating costs and expenses will increase in the foreseeable future as it endeavors to launch and grow its prospective business, attract users and clients, enhance and develop its service offerings, enhance its technology capabilities, and increase its brand recognition. These efforts may prove more costly than MICT’s anticipates, and it may not succeed in generating revenues sufficiently to offset these higher expenses. There are other external and internal factors that could negatively affect MICT’s financial condition. For example, the transaction volume achieved on MICT’s platforms may be lower than expected, which may lead to lower than expected revenues. Furthermore, MICT has adopted a share incentive plan in the past and may adopt new share incentive plans in the future, which have caused, and will result in, significant share-based compensation expenses to us. As a result of the foregoing and other factors, MICT may incur net losses in the future.

 

If there is any negative publicity with respect to MICT, its industry peers or its industries in general, MICT’s prospective business and results of operations may be materially and adversely affected.

 

MICT’s reputation and brand recognition plays an important role in earning and maintaining the trust and confidence of its current and potential users and clients. MICT’s reputation and brand are vulnerable to many threats that can be difficult or impossible to control, and costly or impossible to remediate. Regulatory inquiries or investigations, lawsuits initiated by prospective clients or other third parties, employee misconduct, perceptions of conflicts of interest and rumors, among other things, could substantially damage MICT’s reputation, even if they are baseless or satisfactorily addressed. In addition, any perception that the quality of its services may not be the same as or better than that of other companies can also damage its reputation. Moreover, any negative media publicity about the industries in general or product or service quality problems of other firms in these industries, including MICT’s competitors, may also negatively impact MICT’s reputation and brand. If MICT is unable to maintain a good reputation or further enhance its brand recognition, its ability to attract and retain users, clients, third-party partners and key employees could be harmed and, as a result, its prospective business and revenues would be materially and adversely affected.

 

MICT may not succeed in promoting and sustaining its brand, which could have an adverse effect on its future growth and business.

 

A critical component of MICT’s launch and growth, particularly as it pertains to the acquisition of Intermediate, will be its ability to promote and sustain its brand. Promoting and positioning MICT’s brand and platforms will depend largely on the success of its marketing efforts, its ability to attract users and clients cost-efficiently and its ability to consistently provide high-quality services and a superior experience. MICT expects to incur significant expenses related to advertising and other marketing efforts, which may not be effective and may adversely affect its net margins.

 

In addition, to provide a high-quality user and client experience, MICT expects to invest substantial amounts of resources in the development and functionality of its prospective platforms, websites, technology infrastructure and client service operations. MICT’s ability to provide a high-quality user and client experience will also be highly dependent on external factors over which it may have little or no control, including, without limitation, the reliability and performance of software vendors and business partners. Failure to provide MICT’s prospective users and clients with high quality services and experience for any reason could substantially harm its reputation and adversely impact its efforts to develop a trusted brand, which could have a material adverse effect on its prospective stock trading platform business, results of operations, financial condition and prospects.

 

MICT’s prospective platform and internal systems rely on software and technological infrastructure that is highly technical, and if they contain undetected errors, its prospective business could be adversely affected.

 

MICT’s prospective platforms and internal systems rely on software that is highly technical and complex. In addition, MICT’s prospective platforms and internal systems depend on the ability of the software to store, retrieve, process and manage immense amounts of data. The software may now or in the future contain, undetected errors or bugs. Some errors may only be discovered after the code has been released for external or internal use. Errors or other design defects within the software on which MICT relies may result in a negative experience for users and clients, delay introductions of new features or enhancements, result in errors or compromise MICT’s ability to protect data or its intellectual property. Any errors, bugs or defects discovered in the software on which it relies could result in harm to MICT’s reputation, loss of users or financial service providers or liability for damages, any of which could adversely affect its prospective business, results of operations and financial conditions.

 

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Any failure to protect MICT’s intellectual property could harm its prospective business and competitive position.

 

MICT expects to rely primarily on trade secret, contract, copyright, trademark and patent law to protect its proprietary technology. It is possible that third parties may copy or otherwise obtain and use MICT’s proprietary technology without authorization or otherwise infringe on its rights. MICT may not be able to successfully pursue claims for infringement that interfere with its ability to use its technology, website or other relevant intellectual property or have adverse impact on its brand. MICT cannot assure its investors that any of its intellectual property rights would not be challenged, invalidated or circumvented, or such intellectual property will be sufficient to provide MICT with competitive advantages. In addition, other parties may misappropriate its intellectual property rights, which would cause it to suffer economic or reputational damages. Because of the rapid pace of technological change, nor can MICT assure you that all of its proprietary technologies and similar intellectual property will be patented in a timely or cost-effective manner, or at all. Furthermore, parts of its prospective business rely on technologies developed or licensed by other parties, or co-developed with other parties, and MICT may not be able to obtain or continue to obtain licenses and technologies from these other parties on reasonable terms, or at all.

 

MICT may be subject to litigation and regulatory investigations and proceedings, and may not always be successful in defending itself against such claims or proceedings.

 

Our prospective business operations entail substantial litigation and regulatory risks, including the risk of lawsuits and other legal actions relating to information disclosure, client on boarding procedures, sales practices, product design, fraud and misconduct, and control procedures deficiencies, as well as the protection of personal and confidential information of MICT’s prospective clients. MICT may be subject to arbitration claims and lawsuits in the ordinary course of its prospective business. MICT may also be subject to inquiries, inspections, investigations and proceedings by regulatory and other governmental agencies. MICT will be subject to extensive and evolving regulatory requirements, non-compliance with which, may result in penalties, limitations and prohibitions on its future business activities or suspension or revocation of its prospective licenses and trading rights, and consequently may materially and adversely affect its prospective business, financial condition, operations and prospects. Actions brought against MICT may result in settlements, injunctions, fines, penalties, suspension or revocation of licenses, reprimands or other results adverse to it that could harm its reputation. Even if MICT is successful in defending ourselves against these actions, the costs of such defense may be significant to us. In market downturns, the number of legal claims and the amount of damages sought in legal proceedings may increase.

 

In addition, MICT may face arbitration claims and lawsuits brought by its prospective users and clients who use its services and find them unsatisfactory. MICT may also encounter complaints alleging misrepresentation with regard to its prospective platforms and/or services. Actions brought against MICT may result in settlements, awards, injunctions, fines, penalties or other results adverse to it including harm to its reputation. Even if MICT is successful in defending against these actions, the defense of such matters may result in its incurring significant expenses. Predicting the outcome of such matters is inherently difficult, particularly where claimants seek substantial or unspecified damages, or when arbitration or legal proceedings are at an early stage. A significant judgement or regulatory action against MICT or a material disruption in MICT’s prospective stock trading platform business arising from adverse adjudications in proceedings against the directors, officers or employees would have a material adverse effect on its liquidity, business, financial condition, results of operations and prospects.

 

From time to time MICT may evaluate and potentially consummate investments and acquisitions or enter into alliances, which may require significant management attention, disrupt its prospective stock trading platform business and adversely affect its financial results.

 

MICT may evaluate and consider strategic investments, combinations, acquisitions or alliances to further increase the value of its prospective platforms and better serve its prospective users and clients. These transactions could be material to its financial condition and results of operations if consummated. MICT may not have the financial resources necessary to consummate any acquisitions in the future or the ability to obtain the necessary funds on satisfactory terms. Any future acquisitions may result in significant transaction expenses and risks associated with entering new markets in addition to integration and consolidation risks. MICT may not have sufficient management, financial and other resources to integrate any such future acquisitions or to successfully operate new businesses, and it may be unable to profitably operate its expanded company.

 

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Internet-related issues may reduce or slow the growth in the use of our services in the future. In particular, our future growth depends on the further acceptance of the internet in China and particularly the mobile internet as an effective platform for assessing trading and other financial services and content.

 

Critical issues concerning the commercial use of the internet, such as ease of access, security, privacy, reliability, cost, and quality of service, remain unresolved and may adversely impact the growth of internet use. If internet usage continues to increase rapidly, the internet infrastructure may not be able to support the demands placed on it by this growth, and its performance and reliability may decline. Continuous rapid growth in internet traffic may cause decreased performance, outages and delays. Our ability to increase the speed with which we provide services to users and clients and to increase the scope and quality of such services is limited by and dependent upon the speed and reliability of our prospective users’ and clients’ access to the internet, which is beyond our control. If periods of decreased performance, outages or delays on the internet occur frequently or other critical issues concerning the internet are not resolved, overall internet usage or usage of our web-based services could increase more slowly or decline, which would cause our prospective stock trading platform business, results of operations and financial condition to be materially and adversely affected.

 

MICT face risks related to natural disasters, health epidemics and other outbreaks, which could significantly disrupt its operations.

 

MICT’s prospective stock trading platform business could be materially and adversely affected by natural disasters, health epidemics or other public safety concerns. Natural disasters may give rise to server interruptions, breakdowns, system failures, technology platform failures or internet failures, which could cause the loss or corruption of data or malfunctions of software or hardware as well as adversely affect its ability to operate its prospective platform and provide services and solutions. MICT’s prospective stock trading platform business could also be adversely affected if its employees are affected by health epidemics. In addition, MICT’s results of operations could be adversely affected to the extent that any health epidemic harms the economy in general. If any natural disasters, health epidemics or other public safety concerns were to affect the locations where MICT operates, its operation may experience material disruptions, which may materially and adversely affect its prospective stock trading platform business, financial condition and results of operations.

 

Risk Factors Relating to MICT’s Existing Business and Industry

 

Potential political, economic and military instability in Israel could adversely affect operations.

 

Certain of MICT and Micronet’s principal offices and operating facilities are located in Israel. Accordingly, with respect to such Israeli facilities, political, economic and military conditions in Israel directly affect the operations of MICT and Micronet. Since the establishment of the State of Israel in 1948, a number of armed conflicts have taken place between Israel and its Arab neighbors. A state of hostility varying in degree and intensity has led to security and economic problems for Israel. Since October 2000, there has been an increase in hostilities between Israel and Palestinians, which has adversely affected the peace process and has negatively influenced Israel’s relationship with its Arab citizens and several Arab countries, including the Gaza Strip, the West Bank, Lebanon and Syria. Such ongoing hostilities may hinder Israel’s international trade relations and may limit the geographic markets where Micronet can sell its products and solutions. Hostilities involving or threatening Israel, or the interruption or curtailment of trade between Israel and its present trading partners, could materially and adversely affect operations.

 

In addition, Israel-based companies and companies doing business with Israel have been subject to an economic boycott by members of the Arab League and certain other predominantly Muslim countries since Israel’s establishment, along with other private organizations around the world. Although Israel has entered into various agreements with certain Arab countries and the Palestinian Authority, and various declarations have been signed in connection with efforts to resolve some of the economic and political problems in the Middle East, whether or in what manner these problems will be resolved is unpredictable. Wars and acts of terrorism have resulted in significant damage to the Israeli economy, including reducing the level of foreign and local investment.

 

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Furthermore, certain of MICT and Micronet’s officers and employees may be obligated to perform annual reserve duty in the Israel Defense Forces and are subject to being called up for active military duty at any time. All Israeli male citizens who have served in the army are subject to an obligation to perform reserve duty until they are between 40 and 49 years old, depending upon the nature of their military service.

 

Micronet is unable to develop new products and maintain a qualified workforce it may not be able to meet the needs of customers in the future.

 

Virtually all of the products produced and sold by Micronet are highly engineered and require employees with sophisticated manufacturing and system-integration techniques and capabilities. The markets and industry in which Micronet operates are characterized by rapidly changing technologies. The products, systems, solutions and needs of Micronet customers change and evolve regularly. Accordingly, the future performance of Micronet depends on its ability to develop and manufacture competitive products and solutions, and bring those products to market quickly at cost-effective prices. In addition, because of the highly specialized nature of Micronet’s business, the hiring and retention of skilled and qualified personnel is necessary to perform the services required by customers. If Micronet is unable to develop new products that meet customers’ changing needs or successfully attract and retain qualified personnel, its future revenues and earnings may be adversely affected, and therefore the value of MICT’s equity interest in Micronet may be adversely affected.

  

MICT is dependent on the services of its executive officers, whose potential conflicts of interest may not permit MICT to effectively execute its business strategy.

 

MICT is currently dependent on the continued services and performance of its executive officers, particularly Darren Mercer, MICT’s Chief Executive Officer and David Lucatz,a member of the MICT Board. In addition, Darren Mercer, MICT’s Chief Executive Officer, who is also the Chief Executive Officer of GFH, could have a potential conflict of interest in carrying out his duties as a member of the MICT Board. See the section entitled “Interests of MICT’s Directors and Officers in the Merger” in this proxy statement.

 

Developing new technologies entails significant risks and uncertainties that may cause Micronet to incur significant costs and could have a material adverse effect on its operating results, financial condition, and/or cash flows, and as a result thereof, adversely affect the value of MICT’s equity interest in Micronet.

 

A significant portion of Micronet’s business relates to developing sophisticated products and applications. New technologies may be untested or unproven. In addition, Micronet may incur significant liabilities that are unique to its products and services. While Micronet maintains insurance for some business risks, there is no guarantee that the insurance policies currently in place, or as may be added from time to time, will be sufficient to cover all risks or liabilities that may be incurred. Accordingly, Micronet may be forced to bear substantial costs resulting from risks and uncertainties of its products and products under development, which could have a material adverse effect on its operating results, financial condition and/or cash flows, and therefore the value of MICT’s equity interest in Micronet may be adversely affected.

 

If Micronet is unable to effectively protect proprietary technology, its business and competitive position may be harmed, which would have an adverse effect on MICT’s business and financial position.

 

Micronet’s success and ability to compete is dependent on its proprietary technology. The steps Micronet has taken to protect its proprietary rights may not be adequate and Micronet may not be able to prevent others from using its proprietary technology. The methodologies and proprietary technology that constitute the basis of Micronet’s solutions and products are not protected by patents. Existing trade secret, copyright and trademark laws and non-disclosure agreements to which Micronet is a party offer only limited protection. Therefore, others, including Micronet’s competitors, may develop and market similar solutions and products, copy or reverse engineer elements of Micronet’s production lines, or engage in the unauthorized use of Micronet’s intellectual property. Any misappropriation of Micronet’s proprietary technology or the development of competitive technology may have a significant adverse effect on Micronet’s ability to compete and may harm the value of MICT’s equity interest in Micronet.

 

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Substantial costs as a result of litigation or other proceedings relating to intellectual property rights may be incurred, which would have an adverse effect on the value of MICT’s equity interest in Micronet.

 

Third parties may challenge the validity of Micronet’s intellectual property rights or bring claims regarding Micronet’s infringement of a third party’s intellectual property rights. This may result in costly litigation or other time-consuming and expensive judicial or administrative proceedings, which could deprive Micronet of valuable rights, cause them to incur substantial expenses and cause a diversion for technical and management personnel. An adverse determination may subject Micronet to significant liabilities or require it to seek licenses that may not be available from third parties on commercially favorable terms, if at all. Further, if such claims are proven valid, through litigation or otherwise, Micronet may be required to pay substantial financial damages or be required to discontinue or significantly delay the development, marketing, sale or licensing of the affected products and intellectual property rights. The occurrence of any of the foregoing could have an adverse effect on the value of MICT’s equity interest in Micronet.

 

Earnings and margins may be negatively impacted if MICT unable to perform under its contracts.

 

When agreeing to contractual terms, MICT’s and/or Micronet’s management makes assumptions and projections about future conditions or events. These projections assess:

 

  the productivity and availability of labor;

 

  the complexity of the work to be performed;
     
  the cost and availability of materials;

 

  the impact of delayed performance; and

 

  the timing of product deliveries.

 

If there is a significant change in one or more of these circumstances or estimates, or if faced with unexpected contract costs, the profitability of one or more of these contracts may be adversely affected and could affect, among other things, earnings and margins, due to the fact that Micronet’s contracts are often made on a fixed-price basis.

 

Earnings and margins could be negatively affected by deficient subcontractor performance or the unavailability of raw materials or components.

 

MICT, in connection with Micronet’s operations, relies on other companies to provide raw materials, major components and subsystems for its products. Subcontractors perform some of the services that provided by Micronet to its customers. MICT, in connection with Micronet’s operations, depends on these subcontractors and vendors to meet contractual obligations in full compliance with customer requirements. Occasionally, MICT, in connection with Micronet’s operations, relies on only one or two sources of supply that, if disrupted, could have an adverse effect on MICT’s ability to meet commitments to customers. Micronet’s ability to perform its obligations as a prime contractor may be adversely affected if one or more of these suppliers is unable to provide the agreed-upon supplies or perform the agreed-upon services in a timely and cost-effective manner. Further, deficiencies in the performance of subcontractors and vendors could result in a customer terminating a contract for default. A termination for default could expose Micronet to liability and adversely affect financial performance and Micronet’s ability to win new contracts, and in turn, adversely affect the value of MICT’s equity interest in Micronet.

 

Micronet is dependent on major customers for a significant portion of revenues, and therefore, future revenues and earnings could be negatively impacted by the loss or reduction of the demand for Micronet’s products or services by such customers.

 

A significant portion of MRM annual revenues derived from a few leading customers.

 

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Most of Micronet’s major customers do not have any obligation to purchase additional products or services from it. Therefore, there can be no assurance that any of Micronet’s leading customers will continue to purchase solutions, products or services at levels comparable to previous years. A substantial loss or reduction in Micronet’s existing programs could adversely affect future revenues and earnings.

 

Micronet operates in a highly competitive and fragmented market and may not be able to maintain a competitive position in the future. Any such failure to successfully compete could have a material adverse effect on the value of MICT’s equity interest in Micronet.

 

A number of larger competitors have recently entered the MRM market in which Micronet operates. These large companies have far greater development and capital resources than Micronet. Further, there are competitors of Micronet that offer solutions, products and services similar to those offered by Micronet. If they continue, these trends could undermine Micronet’s competitive strength and position and adversely affect earnings and financial condition, which could have a material adverse effect on the value of MICT’s equity interest in Micronet.

 

Micronet may cease to be eligible for, or receive reduced, tax benefits under Israeli law, which could negatively impact profits in the future.

 

Micronet currently receives certain tax benefits under the Israeli Law Encouragement of Capital Investments of 1959, as a result of the designation of its production facility as an “Approved Enterprise.” To maintain their eligibility for these tax benefits, Micronet must continue to meet several conditions including, among others, generating more than 25% of its gross revenues outside the State of Israel and continuing to qualify as an “Industrial Company” under Israeli tax law. An Industrial Company, according to the applicable Israeli law (Law for the Encouragement of Industry (Taxes), 1969), is a company that resides in Israel (either incorporated in Israel or managed and controlled from Israel) that, during the relevant tax year, derives at least 90% of its income from an Industrial Factory. An Industrial Factory means a factory that is owned by an Industrial Company and where its manufacturing operations constitute a vast majority of the factory’s total operations/business. The tax benefits of qualifying as an Industrial Company include a reduction of the corporate tax from 24% for “Regular Entities” and 16% or 7.5% for “Preferred Enterprises” (depending on the location of industry) in 2017. In addition, in recent years the Israeli government has reduced the benefits available under this program and has indicated that it may further reduce or eliminate benefits in the future. There is no assurance that Micronet will continue to qualify for these tax benefits or that such tax benefits will continue to be available. The termination or reduction of these tax benefits would increase the amount of tax payable by Micronet and, accordingly, reduce MICT’s net profit after tax and negatively impact profits, if any, which may adversely affect the value of MICT’s equity interest in Micronet.

  

Because almost all of MICT’s officers and directors are located in non-U.S. jurisdictions, you may have no effective recourse against management for misconduct.

 

Currently, a majority of MICT’s directors and officers are or will be nationals and/or residents of countries other than the United States, and all or a substantial portion of their assets are located outside the United States. As a result, it may be difficult for investors to enforce within the United States any judgments obtained against such officers or directors, including judgments predicated upon the civil liability provisions of the securities laws of the United States or any U.S. state. Additionally, it may be difficult to enforce civil liabilities under U.S. securities law in original actions instituted in Israel. Israeli courts may refuse to hear a claim based on a violation of U.S. securities laws because Israel is not the most appropriate forum to bring such a claim. In addition, even if an Israeli court agrees to hear a claim, it may determine that Israeli law and not U.S. law is applicable to hear the claim. If U.S. law is found to be applicable, the content of applicable U.S. law must be proved as a fact, which can be a time-consuming and costly process. Certain matters of procedure will also be governed by Israeli law.

 

MICT’s financial results may be negatively affected by foreign exchange rate fluctuations.

 

MICT’s revenues are mainly denominated in U.S. Dollars and costs are mainly denominated in New Israeli Shekels (NIS). Where possible, MICT matches sales and purchases in these and other currencies to achieve a natural hedge. Currently, Micronet does not have a policy with respect to the use of derivative instruments for hedging purposes, except that Micronet will consider engaging in such hedging activities on a case by case basis. To the extent MICT is unable to fully match sales and purchases in different currencies, its business will be exposed to fluctuations in foreign exchange rates.

 

Micronet is subject to regulations in the United States and Europe, which if failed to be met, could negatively impact Micronet’s and MICT’s business and reputation.

 

Micronet’s business is subject to certain international standards such as U.S. Federal Communications Commission, or FCC, Part 15B, FCC ID, CE and Restriction of Hazardous Substances, or RoHS, which define compatibility of interface and telecommunications standards to those implemented in the United States by the FCC and in Europe by the European Commission, respectively. Micronet’s solutions and products also need to comply with the E-Mark European standard, which is the standard that defines the compatibility of interface and telecommunications to all appliances installed in and around an automobile. Micronet is exposed to risks from regulators, arising from Micronet’s failure to comply with the aforementioned international standards, which define interface and communication standards, compliance with the standards of the European Common Market, European Conformity, or the CE, and the requirements of the U.S. Communications Regulatory Commission, the FCC, inclusive of the ELD mandate. If Micronet does not adhere to these international standards, Micronet may be limited in marketing its products in such markets, and face fines and/or risks to both MICT’s and Micronet’s reputation, and which may also adversely affect MICT’s and Micronet’s future revenues and earnings and the value of MICT’s equity interest in Micronet.

  

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SPECIAL MEETING OF THE STOCKHOLDERS OF MICT

 

General

 

MICT is furnishing this proxy statement to its stockholders as part of the solicitation of proxies by its Board for use at the Special Meeting to be held on September 3, 2020, and at any adjournment or postponement thereof. This proxy statement is first being furnished to MICT stockholders on or about . This proxy statement provides you with information you need to know to be able to vote or instruct your vote to be cast at the Special Meeting.

 

Date, Time and Place of Special Meeting

 

The Special Meeting will be held at 9:00 a.m. Eastern time, on , September 3, 2020. As a result of the public health and travel guidance and concerns due to COVID-19, this year’s meeting will be a virtual meeting via live webcast on the Internet. You will be able to attend our annual meeting, vote and submit your questions during the annual meeting by visiting www.virtualshareholdermeeting.com/MICT2020. You will not be able to attend the annual meeting in person. The Special Meeting may be adjourned or postponed to a later time to consider and vote upon the proposals.

 

Voting Power; Record Date

 

You will be entitled to vote or direct votes to be cast at the Special Meeting if you owned shares of Common Stock or Series A Preferred Stock at the close of business on July 29, 2020, which is the Record Date for the Special Meeting. You are entitled to one vote for each share of Common Stock that you owned as of the close of business on the Record Date and two votes for each shares of Series A Preferred Stock that you owned as of the close of business on the Record Date. If your shares are held in “street name” or are in a margin or similar account, you should contact your broker, bank or other nominee to ensure that votes related to the shares you beneficially own are properly counted. On the Record Date, there were 11,298,714 shares of Common Stock outstanding and 3,181,818 shares of Series A Preferred Stock outstanding and entitled to vote.

 

Quorum and Required Vote for Proposals for the Special Meeting

 

The holders of a majority of shares of Common Stock (and Series A Preferred Stock voting together with the holders of Common Stock as a single class on an as-converted basis)issued, outstanding and entitled to vote, present at the meeting or represented by proxy, shall constitute a quorum at all meetings of the stockholders and shall be required for the transaction of business, except as otherwise provided by law, by the certificate of incorporation or the bylaws of MICT. If, however, such majority shall not be present or represented at any meeting of the stockholders, the stockholders entitled to vote at such meeting, present at the meeting or by proxy, shall have the power to adjourn the meeting from time to time, without notice other than announcement at the meeting unless the adjournment is for more than thirty (30) days or after the adjournment a new Record Date is set, until the required amount of voting stock shall be present. At such adjourned meeting at which a quorum shall be present at the meeting or by proxy, any business may be transacted that might have been transacted at the meeting originally called.

 

As of the Record Date for the Special Meeting, an aggregate of 8,831,176 shares of Common Stock and Series A Preferred Stock on an as-converted to Common Stock basis would be required to achieve a quorum.

 

The affirmative vote of the holders of a majority of the shares of Common Stock (and Series A Preferred Stock voting together with the holders of Common Stock as a single class on an as-converted basis), entitled to vote at the Special Meeting, is required to approve the Charter Amendment Proposal. The affirmative vote of a majority of the votes cast at the Special Meeting is required for the approval of the Nasdaq Proposals, the EIP Proposal, the Golden Parachute Proposal and the Adjournment Proposal, if presented. If the Nasdaq Proposals are not approved, the EIP Proposal, the Golden Parachute Proposal and the Charter Amendment Proposal will not be presented to the MICT stockholders for a vote.

 

Recommendation to MICT Stockholders

 

The MICT Board believes that each of the Proposals to be presented at the Special Meeting is in the best interests of MICT and its stockholders and unanimously recommends that its stockholders vote “FOR” each of the Proposals.

 

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Broker Non-Votes and Abstentions

 

Under the rules of various national and regional securities exchanges your broker, bank or nominee cannot vote your shares with respect to non-routine matters unless you provide instructions on how to vote in accordance with the information and procedures provided to you by your broker, bank or nominee. MICT believes some of the Proposals presented to its stockholders will be considered non-routine and therefore your broker, bank or nominee cannot vote your shares without your instruction. If you do not provide instructions with your proxy, your bank, broker or other nominee may deliver a proxy card expressly indicating that it is NOT voting your shares; this indication that a bank, broker or nominee is not voting your shares is referred to as a “broker non-vote.”

 

Abstentions are considered present for the purposes of establishing a quorum. Neither abstentions nor broker non-votes will have any effect on the Nasdaq Proposals, the EIP Proposal, the Golden Parachute Proposal or the Adjournment Proposal. Abstentions and broker non-votes will, however, have the same effect as voting against the Charter Amendment Proposal.

 

Voting Your Shares

 

Each share of Common Stock that you own in your name entitles you to one vote on each of the Proposals for the Special Meeting. Your one or more proxy cards show the number of shares of Common Stock that you own. There are several ways to have your shares voted:

 

  You can submit your vote by completing, signing, dating and returning the enclosed proxy card in the postage-paid envelope provided. If you hold your shares in “street name” through a bank, broker or other nominee, you will need to follow the instructions provided to you by your bank, broker or other nominee to ensure that your shares are represented and voted at the Special Meeting. If you vote by proxy card, your “proxy,” whose name is listed on the proxy card, will vote your shares as you instruct on the proxy card. If you sign and return the proxy card but do not give instructions on how to vote your shares, your shares of Common Stock will be voted, as recommended by the MICT Board. Our board of directors recommends voting “FOR” all the Proposals.

 

  You can attend the Special Meeting and vote even if you have previously voted by submitting a proxy. You will be given a ballot when you arrive. However, if your shares of Common Stock are held in the name of your broker, bank or other nominee, you must get a proxy from the broker, bank or other nominee. That is the only way we can be sure that the broker, bank or nominee has not already voted your shares of Common Stock.

 

Revoking Your Proxy and Changing Your Vote

 

If you give a proxy, you may revoke it at any time before the Special Meeting, or at such meeting by doing any one of the following:

 

  you may send another proxy card with a later date;

 

  you may notify MICT’s secretary, in writing before the Special Meeting that you have revoked your proxy; or

 

  you may attend the Special Meeting, revoke your proxy, and vote, as indicated above.

 

Additional Matters May Be Presented at the Special Meeting

 

The Special Meeting has been called to consider the approval of the Nasdaq Proposals, the Charter Amendment Proposal, the EIP Proposal, the Golden Parachute Proposal and if needed, the Adjournment Proposal. The stockholder may also consider and transact such other procedural matters as may properly come before the Special Meeting.

 

Who Can Answer Your Questions about Voting

 

If you have any questions about how to vote or direct a vote in respect of your shares of Common Stock, you may contact MICT, Inc. MICT, Inc. at 28 West Grand Avenue, Suite 3 Montvale, NJ 07645.

 

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THE NASDAQ PROPOSAL – CONSIDERATION NOTE

 

General

 

Stockholders of MICT are being asked to approve the issuance of 22,727,272 shares of Common Stock issuable upon the conversion of the Consideration Note issued in connection with the Merger. MICT stockholders should read carefully this proxy statement in its entirety for more detailed information concerning the Consideration Note and the Merger Agreement, which are attached as Annex D and Annex A, respectively, to this proxy statement. Please see the sections entitled “The Consideration Note” and “The Merger Agreement” below for additional information and a summary of certain terms of the Consideration Note and the Merger Agreement. You are urged to read carefully the Consideration Note and the Merger Agreement in its entirety before voting on this proposal.

 

The Consideration Note

 

In connection with and upon the consummation of the Merger, the Company issued to GFH the Consideration Note, in the principal amount of approximately $25,000,000, due July 1, 2022 (the “Maturity Date”), which is convertible into shares of Common Stock. The Consideration Note bears interest at a rate of 1.0% per annum, payable upon conversion of the Consideration Note or on the Maturity Date, if not converted into Common Stock by their terms in advance of such date.

 

Subject to approval of the Nasdaq Proposal – Consideration Note and the Charter Amendment Proposal, the Consideration Note shall be converted, automatically and without any further action required by GFH, into 22,727,272 shares of Common Stock.  

 

The Company may voluntarily prepay any portion of the principal amount of the Consideration Note without the prior written consent of GFH.

 

The Consideration Note contains anti-dilution provisions and standard negative covenants customary for transactions of this type. The events of default are also customary for transactions of this type, including default in timely payment of principal or interest, failure to observe or perform any covenant or agreement contained in the Consideration Note or any other transaction documents, the commencement of bankruptcy or insolvency proceedings, ineligibility of Common Stock for listing or quotation on a trading market or failure to timely deliver conversion shares underlying the Consideration Note.

 

The Merger Agreement provides for customary registration rights, pursuant to which the Company is obligated to, among other things, (i) file a registration statement (the “Resale Registration Statement”) with the SEC within 180 days following the consummation of the Merger for purposes of registering the shares of Common Stock underlying the Consideration Note, and (ii) use its commercially reasonable efforts to cause the Resale Registration Statement to be declared effective by the SEC as soon as practicable after filing.

  

The Merger Agreement

 

The subsections that follow this subsection describe the material provisions of the Merger Agreement (as amended and restated), but do not purport to describe all of the terms thereof. The following summary is qualified in its entirety by reference to the complete text of the Merger Agreement (as amended and restated), a copy of which is attached as Annex A hereto, which is incorporated herein by reference. In considering the Nasdaq Proposal – Consideration Note, stockholders and other interested parties are urged to read the Merger Agreement, carefully and in its entirety (and, if appropriate, with the advice of financial and legal counsel).

 

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The Merger Agreement contains representations, warranties and covenants that the respective parties made to each other as of the date of the Merger Agreement or other specific dates. The assertions embodied in those representations, warranties and covenants were made for purposes of the contract among the respective parties and are subject to important qualifications and limitations agreed to by the parties in connection with negotiating the Merger Agreement. The representations, warranties and covenants in the Merger Agreement are also modified in important part by the disclosure schedules and exhibits attached thereto which are not filed publicly and which may be subject to contractual standards of materiality or material adverse effect applicable to the contracting parties that differ from what may be viewed as material to investors. The representations and warranties in the Merger Agreement and the items listed in the disclosure schedules were used for the purpose of allocating risk among the parties rather than establishing matters as facts. We do not believe that the disclosure schedules contain information that is material to an investment decision. Accordingly, the representations and warranties and other provisions of the Merger Agreement should not be read alone, but instead should be read in conjunction with the information provided elsewhere in this proxy statement.

 

Description of the Merger Agreement

 

The initial Merger Agreement was amended and restated on April 15, 2020. Intermediate is a wholly owned subsidiary of GFH. Capitalized terms used but not defined herein shall have the meanings ascribed to them in the Merger Agreement.

 

Pursuant to the Merger Agreement, a business combination transaction was effected whereby, among other things, Merger Sub merged with and into Intermediate, with Intermediate continuing as the surviving entity, as a result of which each share of Intermediate that was issued and outstanding immediately prior to the Effective Time (as defined in the Merger Agreement) was cancelled, in exchange for the right of GFH to receive the Consideration Note. Such Consideration Note was issued to GFH upon the consummation of the Merger on July 1, 2020.

 

The Merger Agreement provided that all options to purchase shares of the Company’s Common Stock that were outstanding and unexercised were to be accelerated in full effective as of immediately prior to the effective time of the Merger. The options shall survive the closing of the Merger for a period of 15 months from the date of the closing of the Merger and all equity incentive plans of the Company shall remain in effect.

   

In connection with the execution of the Merger Agreement, MICT entered into securities purchase agreements with certain investors (“Convertible Note Purchasers”) pursuant to which such investors have made or will make investments in MICT in a private placement transaction in the aggregate amount of approximately $15.0 million (the “Convertible Note Offering”), in consideration for the issuance of the Convertible Notes. See the section titled “The Nasdaq Proposal – Convertible Notes.” 

 

Post-Merger Ownership of MICT 

 

After giving effect to the conversion or exercise of the Consideration Note, the Convertible Notes, the Series A Preferred Stock, the Series A Warrants, the Series B Preferred Stock and the Note Warrants, exclusive of any shares reserved under the EIP as described in the EIP Proposal, MICT’s stockholders who owned Common Stock before the Closing will own approximately 16.4% of MICT, GFH will own approximately 44.1% of MICT (including the shares underlying the Series B Preferred Stock and the Note Warrants that have since been transferred to GFH), the holders of Convertible Notes will own approximately 21.7% of MICT, and the holders of Series A Preferred Stock and Warrants will own approximately 17.7% of MICT.

 

Governing Law and Dispute Resolution

 

The Merger Agreement is governed by Delaware law. Any claims that are brought before a court will be subject to the exclusive jurisdiction of the state and federal courts in New York, New York (and appeals courts), and each party waived its rights to a jury trial in connection therewith. The parties are entitled to an injunction, specific performance and other equitable relief to prevent breaches of the Merger Agreement in addition to any other remedy to which they are entitled at law or in equity.

 

Opinion of MICT’s Financial Advisor

 

In connection with the Merger, CoView Capital was engaged by the Special Committee of the Board of Directors to evaluate the fairness, from a financial point of view, of the Merger, to the holders of Common Stock, as set forth in the Merger Agreement.

 

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At the meeting of the Special Committee of the Board of Directors of MICT held on May 6, 2020, representatives of CoView Capital rendered its oral opinion, which was subsequently confirmed by delivery of a written opinion to the Special Committee of the Board of Directors dated May 6, 2020, as to the fairness of the Merger to the holders of the Company’s Common Stock (excluding (i) MICT stockholders affiliated with BNN, Intermediate or GFH, and (ii) holders of Series A Preferred and Series B Preferred), based upon and subject to the qualifications, assumptions and other matters considered and described in connection with the preparation of the written opinion rendered by CoView Capital.

 

Interests of MICT’s Directors and Officers in the Merger

  

MICT had previously issued to Jeffrey Bialos, Yehezkel (Chezy) Ofir, each a member of the MICT Board, David Lucatz, MICT’s former President and Chief Executive Officer and a member of the MICT Board, and former director Miki Balin, 300,000 options to purchase common stock of MICT (1,200,000 options in the aggregate), with an exercise price of $1.41, which vested upon the consummation of the Merger. Additionally, on July 1, 2020, John Scott, a member of the MICT Board was granted options to purchase 100,000 shares of common stock. Such options vested upon the Closing. Additionally, on July 1, 2020, non-executive directors Jeffrey Bialos, Chezy Ofir and John Scott each received an aggregate of 100,000 restricted shares of the Company’s common stock, 50,000 of which vested on the grant date, and 50,000 of which shall vest on January 1, 2021, so long as each respective individual continues to serve as a director of the Company on such date.

 

Darren Mercer presently owns approximately one third of the issued and outstanding shares of GFH; and is the sole officer and one of the directors of GFH. In addition, prior to the closing of the Merger, Mr. Mercer was the sole officer and director of Global Fintech Holdings Intermediate.

 

Pursuant to a severance agreement entered into by and between the Company and Mr. Lucatz on April 2, 2020, Mr. Lucatz was entitled to receive a one-time bonus equal to 0.5% of the purchase price paid upon Closing in connection with the transactions contemplated by the Merger Agreement. Mr. Lucatz agreed, directly or through his affiliates, to receive this payment in shares of the Company’s common stock, and on July 1, 2020, Mr. Lucatz through his affiliates was granted 400,000 shares of the Company’s common stock. Furthermore, Mr. Lucatz shall retain his options to purchase shares of common stock of the Company with the expiration date of such options extended until the earlier of October 30, 2021 or the expiration of the original term of each such option.

 

In addition, Mr. Lucatz has certain holdings through his affiliates which constitute approximately 8.22% of MICT’s outstanding common stock, not including options and restricted stock set forth above (and 9.14% on a fully diluted basis, including the issuances described herein). Upon Mr. Lucatz’s resignation as Chief Executive Officer, the right and obligations under the Consulting Agreement entered into by and between MICT, Enertec, Coolisys, DPW Holdings, Inc. and Mr. Lucatz, pursuant to which MICT, via Mr. Lucatz, agreed to provide Enertec with certain consulting and transitional services over a three year period in exchange for an annual consulting fee of $150,000 plus certain issuances of restricted stock, was assigned to Mr. Lucatz, including the DPW Equity. In the event of a change of control in the Company, or if Mr. Lucatz shall not longer be employed by us, the rights and obligations under the Consulting Agreement shall be assigned to Mr. Lucatz along with the DPW Equity. Although Mr. Lucatz is no longer an employee of the Company, because he currently serves as a director, we continue to expect Collisys (via Enertec) to be obligation to pay us for the Annual Consulting Fee.

 

Of the 16,000,000 new shares of our common stock that will be reserved for issuance under the EIP, 13,000,000 of such shares shall be reserved for awards to incentivize certain Company insiders to meet critical commercial milestones (collectively, the “Long Term Incentive Plan”, or the “LTIP”). Examples of such milestones include: negotiation and entrance by MICT into certain material agreements in the recycled metal industry, negotiation and entrance by MICT into certain material agreements in the oil and gas industry, negotiation and entrance by Micronet into certain transformative agreements or other arrangements, certain significant acquisitions of other businesses, and stock price and overall performance of the Company. Individuals contemplated to receive awards under the LTIP include Darren Mercer, and certain individuals associated with Intermediate before the completion of the Merger and who are now employed by or consultants of the Company. Awards granted under the LTIP shall be subject to the satisfaction of certain performance vesting conditions.

 

It is currently contemplated that, subject to Board approval, Darren Mercer shall be eligible to receive grants of up to 6,000,000 restricted shares of common stock (which shall vest subject to satisfaction of applicable performance conditions), and certain individuals associated with Intermediate before the completion of the Merger and who are now employed by or consultants of the Company shall be eligible to receive grants of up to 7,000,000 restricted shares of common stock (which shall vest subject to satisfaction of applicable performance conditions).

 

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Golden Parachute Compensation

 

This section sets forth the information required by Item 402(t) of Regulation S-K regarding the compensation that is based on or otherwise relates to the Merger that was paid to the MICT named executive officers, in accordance with SEC rules and as determined as of the end of MICT’s 2019 fiscal year. This compensation is referred to as “golden parachute” compensation by the applicable SEC disclosure rules, and in this section MICT uses this term to describe this Merger-related compensation paid to MICT’s named executive officers, who are MICT’s former President and Chief Executive Officer and Controller. The tables below summarize golden parachute compensation, if any, that each named executive officer received from MICT upon the consummation of the Merger. Please note that the amounts indicated below are estimates based on multiple assumptions that may or may not actually occur, including assumptions described herein.

  

    All Golden Parachute Compensation(5)  
    Cash     Equity     COBRA
Benefits
    Total  
David Lucatz   $     $ 426,400 (2)   $     $ 426,400  
Moran Amran(3)   $     $     $     $  

 
  (1) Pursuant to a severance agreement entered into by and between the Company and Mr. Lucatz on April 2, 2020, Mr. Lucatz was entitled to receive a one-time bonus equal to 0.5% of the purchase price paid upon Closing in connection with the transactions contemplated by the Merger Agreement.  Mr. Lucatz agreed, directly or through his affiliates to receive this payment in shares of the Company’s common stock, and on July 1, 2020, Mr. Lucatz through his affiliates was granted 400,000 shares of the Company’s common stock. These shares of common stock are valued at $1.066 (the average closing market price per share of MICT’s common stock over the first five business days following the public announcement of the merger). Furthermore, Mr. Lucatz was granted 300,000 options to purchase shares of common stock of MICT, with an exercise price of $1.41, which vested upon the consummation of the Merger. These value of such options represents the estimated intrinsic value of Mr. Lucatz’s in-the-money stock options that were granted to Mr. Lucatz in connection with the Merger. The options held by Mr. Lucatz have an exercise price above $1.066 (the average closing market price per share of the Common Stock over the first five business days following the public announcement of the Merger), and therefore, based on the difference between $1.066 and the option exercise price, no intrinsic value is attributed to these options.

 

Fully Diluted Capitalization of the Company

 

Beneficial ownership of the Company following the issuance of the Common Stock upon conversion or exercise of the Consideration Note, Convertible Notes, the Series A Preferred Stock, the Series A Warrants, the Series B Preferred Stock and the Note Warrants, exclusive of any shares reserved under the EIP as described in the EIP Proposal, shall be as follows:

 

Stockholder   Shares of Common Stock     Percentage Ownership  
GFH     27,726,636 (i)     44.1 %
MICT Public Stockholders     10,335,714       16.4 %
Holders of Series A Preferred Stock     6,363,636       10.1 %
Holders of Series A Warrants     4,772,727       7.6 %
Holders of Convertible Notes     13,636,363       21.7 %

  

(i) Includes shares of Common Stock issuable upon conversion or exercise, as applicable, of the Series B Preferred Stock (convertible into 1,818,181 shares of Common Stock) and the Note Warrants (convertible into 1,818,181 shares of Common Stock), which have since been transferred to GFH.

 

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Why the Company Needs Stockholder Approval

 

We are seeking stockholder approval for this proposal in order to comply with Nasdaq Listing Rules 5635(a). Under Nasdaq Listing Rule 5635(a)(1), stockholder approval is required prior to the issuance of securities in connection with the acquisition of another company if such securities are not issued in a public offering and (A) have, or will have upon issuance, voting power equal to or in excess of 20% of the voting power outstanding before the issuance of common stock (or securities convertible into or exercisable for common stock) or (B) the number of shares of common stock to be issued is or will be equal to or in excess of 20% of the number of shares of common stock outstanding before the issuance of the stock or securities. As a result of the Company’s issuance of shares of Common Stock upon the conversion of the Consideration Note, the Company will issue shares of Common Stock representing 20% or more of the number of outstanding shares of Common Stock of the Company prior to the issuance, or 20% or more of its voting power prior to the issuance. Additionally, under Nasdaq Listing Rule 5635(a)(2), stockholder approval is required prior to the issuance of securities in the event that any director, officer or substantial shareholder of the Company has a 5% or greater interest in the Company or assets to be acquired or in consideration to be paid in the transaction or series of related transactions. As described herein, Darren Mercer presently owns approximately one third of the issued and outstanding shares of GFH; and is the sole officer and one of the directors of GFH. In addition, prior to the closing of the Merger, Mr. Mercer was the sole officer and director of Global Fintech Holdings Intermediate.

 

Effect of Proposal on Current Stockholders

 

Upon the conversion of the Consideration Note, GFH will be issued 22,727,272 shares of the Company’s Common Stock, or 44.1% of the total voting power of the Company, including shares of common issuable upon conversion or exercise, as applicable, of the Series B and the Note Warrants, as well as the 1,363,000 shares that were transferred from GFH to BNN (assuming conversion or exercise of the Convertible Notes, the Series A Preferred Stock, the Series A Warrants, the Series B Preferred Stock and the Note Warrants). The issuance of shares of Common Stock upon the conversion or exercise of the Convertible Notes, the Series A Preferred Stock, the Series A Warrants, the Series B Preferred Stock and the Note Warrants would result in further dilution to the Company’s current stockholders and would afford our stockholders a smaller percentage interest in the voting power and liquidation value of the Company following the conversion of the Consideration Note. In addition, the resale of the shares of Common Stock issuable upon the conversion of the Consideration Note upon their registration for resale could result in unpredictable trading volumes, which could cause the market price of the Company’s Common Stock to decline.

 

As described herein, the Series B Preferred Stock and the Note Warrants were transferred to, and are currently held by, GFH.

 

Vote Required for Approval

 

The approval of this proposal requires the affirmative vote of a majority of the votes cast at the Special Meeting, assuming that a quorum is present. Abstentions and broker non-votes will have no effect with respect to the approval of this proposal.

 

Recommendation of the Board

 

OUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT OUR STOCKHOLDERS VOTE
“FOR” THE APPROVAL OF THIS PROPOSAL.

 

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THE NASDAQ PROPOSAL – CONVERTIBLE NOTES

  

Background and Overview

 

On April 21, 2020, the Company entered into a series of securities purchase agreements with certain investors identified therein (the “Purchasers”) pursuant to which, among other things, the Purchasers purchased or will purchase from the Company certain convertible notes (the “Convertible Notes”) with an aggregate principal amount of approximately $15 million (the “Convertible Notes Offering”). The Convertible Notes are convertible into shares of Common Stock at a conversion price of $1.10 per share (the “Conversion Shares”). The Convertible Notes are generally due two years from the date of issuance, except that a certain convertible note is due five years from the date of issuance. The Company is obligated to pay interest to the Purchasers on the outstanding principal amount at the rate of 1.0% per annum, payable on each conversion date, in cash or, at the Company’s option, in shares of Common Stock.

 

Subject to approval of this Nasdaq Proposal – Convertible Notes and an amendment to the Company’s Certificate of Incorporation to increase the authorized shares of Common Stock to allow for the full conversion of the Convertible Notes into Common Stock, the Convertible Note shall be automatically, and without any further action required by GFH, converted into an aggregate of 13,636,363 shares of Common Stock (the “Forced Conversion”).

 

The Convertible Notes contain anti-dilution provisions and standard negative covenants customary for transactions of this type. The events of default are also customary for transactions of this type, including default in timely payment of principal or interest, failure to observe or perform any covenant or agreement contained in the Convertible Notes or any other transaction documents, the commencement of bankruptcy or insolvency proceedings, ineligibility of Common Stock for listing or quotation on a trading market or failure to timely deliver conversion shares underlying the Consideration Note. Upon the occurrence of certain events, the Purchasers are permitted to require the Company to redeem the Convertible Notes, including any interest that has accrued thereunder, for cash.

 

The securities purchase agreements provide for customary registration rights, pursuant to which the Company is obligated to, among other things, (i) file the Resale Registration Statement with the SEC within 180 days following the consummation of the Merger for purposes of registering the shares of Common Stock underlying the Convertible Notes, and (ii) use its commercially reasonable efforts to cause the Resale Registration Statement to be declared effective by the SEC as soon as practicable after filing.

 

The Company may voluntarily prepay any portion of the principal amount of the Convertible Notes without the prior written consent of the holders of the Convertible Notes.

 

Why the Company Needs Stockholder Approval

 

We are seeking stockholder approval in order to comply with Nasdaq Listing Rules 5635(a). Under Nasdaq Listing Rule 5635(a), stockholder approval is required prior to the issuance of securities in connection with the acquisition of another company if such securities are not issued in a public offering and (A) have, or will have upon issuance, voting power equal to or in excess of 20% of the voting power outstanding before the issuance of common stock (or securities convertible into or exercisable for common stock) or (B) the number of shares of common stock to be issued is or will be equal to or in excess of 20% of the number of shares of common stock outstanding before the issuance of the stock or securities. As a result of the Company’s issuance of shares of Common Stock upon the Forced Conversion of the Convertible Notes, the Company will issue shares of Common Stock representing 20% or more of the number of outstanding shares of Common Stock of the Company prior to the issuance, or 20% or more of its voting power prior to the issuance.

  

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Effect of Proposal on Current Stockholders

 

Upon the conversion of the Convertible Notes, the Purchasers will hold 13,636,363 shares of the Company’s Common Stock, or 21% of the total voting power of the Company (assuming no conversion or exercise of the Consideration Note, the Series A Preferred Stock, the Series A Warrants, the Series B Preferred Stock and the Note Warrants). The issuance of shares of Common Stock upon the conversion or exercise of the Consideration Note, the Series A Preferred Stock, the Series A Warrants, the Series B Preferred Stock and the Note Warrants would result in further dilution to the Company’s current stockholders and would afford our stockholders a smaller percentage interest in the voting power and liquidation value of the Company following the conversion of the Convertible Notes. In addition, the resale of the shares of Common Stock issuable upon the conversion of the Convertible Notes upon their registration for resale could result in unpredictable trading volumes, which could cause the market price of the Company’s Common Stock to decline.

 

Vote Required for Approval

 

The approval of this proposal requires the affirmative vote of a majority of the votes cast by the stockholders represented at the meeting or by proxy and entitled to vote thereon at the Special Meeting, assuming that a quorum is present. Abstentions and broker non-votes will have no effect with respect to the approval of this proposal.

 

Recommendation of the Board

 

OUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT OUR STOCKHOLDERS VOTE
“FOR” THE APPROVAL OF THIS PROPOSAL.

 

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THE NASDAQ PROPOSAL – PREFERRED STOCK AND WARRANTS

  

Background and Overview

 

On June 4, 2019, the Company entered into a securities purchase agreement with BNN, pursuant to which BNN purchased from the Company $2 million of convertible notes (the “BNN Convertible Notes”). The BNN Convertible Notes, which were initially convertible into 1,818,182 shares of Common Stock (using the applicable conversion ratio of $1.10 per share), are accompanied by certain Common Stock purchase warrants (the “Note Warrants”) to purchase 1,818,182 shares of Common Stock (representing 100% of the aggregate number of shares of Common Stock into which the BNN Convertible Notes were initially convertible) (the “BNN Convertible Note Offering”). Upon issuance, the BNN Convertible Notes had a duration of two years.

 

Pursuant to that certain conversion agreement by and between the Company and BNN, BNN converted the BNN Convertible Notes into 1,818,182 shares of newly designated Series B Preferred Shares. Subject to stockholder approval of the BNN Convertible Note Offering, the Series B Preferred Shares shall be initially convertible into 1,818,182 shares of Common Stock (subject to adjustment as provided in the certificate of designation for the Series B Preferred Shares). In connection with the issuance of BNN Convertible Notes, Darren Mercer, former Chief Executive Officer of BNN (and current Chief Executive Officer of MICT), was appointed to the Company’s board of directors. The securities purchase agreement provides for customary registration rights.

 

The Note Warrants have an exercise price of $1.01 (subject to customary adjustment in the event of future stock dividends, splits and the like), and shall be exercisable immediately upon receipt of stockholder approval of the Convertible Note Offering, until the earlier of (i) two years from the date of issuance or (ii) the later of (a) 180 days after the closing by the Company of a change of control transaction, or (b) the Company’s next debt or equity financing of at least $20 million.

 

The Series B Preferred Shares and the Note Warrants have since been transferred to GFH, of which Darren Mercer serves as the sole director and Chief Executive Officer.

 

Copies of the form of securities purchase agreement, Certificate of Designation of Series B Preferred Shares and the Note Warrant are attached hereto as Annex E, Annex F, and Annex G, respectively.

  

Why the Company Needs Stockholder Approval

 

We are seeking stockholder approval in order to comply with Nasdaq Listing Rules 5635(a). Under Nasdaq Listing Rule 5635(a), stockholder approval is required prior to the issuance of securities in connection with the acquisition of another company if such securities are not issued in a public offering and (A) have, or will have upon issuance, voting power equal to or in excess of 20% of the voting power outstanding before the issuance of common stock (or securities convertible into or exercisable for common stock) or (B) the number of shares of common stock to be issued is or will be equal to or in excess of 20% of the number of shares of common stock outstanding before the issuance of the stock or securities. As a result of the Company’s issuance of shares of Common Stock upon the conversion of the Series B Preferred and the exercise of the Note Warrants, the Company will issue shares of Common Stock representing 20% or more of the number of outstanding shares of Common Stock of the Company prior to the issuance, or 20% or more of its voting power prior to the issuance. Additionally, under Nasdaq Listing Rule 5635(a)(2), stockholder approval is required prior to the issuance of securities in the event that any director, officer or substantial shareholder of the Company has a 5% or greater interest in the Company or assets to be acquired or in consideration to be paid in the transaction or series of related transactions. As described herein, Darren Mercer presently owns approximately one third of the issued and outstanding shares of GFH; and is the sole officer and one of the directors of GFH. In addition, prior to the closing of the Merger, Mr. Mercer was the sole officer and director of Global Fintech Holdings Intermediate.

 

Effect of Proposal on Current Stockholders

 

The issuance of an aggregate of 3,636,364 shares of Common Stock upon conversion of Series B Preferred Shares and exercise of the Note Warrants would result in further dilution to the Company’s current stockholders, and would afford our stockholders a smaller percentage interest in the voting power of the Company following the issuance.

 

Vote Required for Approval

 

The approval of this proposal requires the affirmative vote of a majority of the votes cast by the stockholders represented at the meeting or by proxy and entitled to vote thereon at the Special Meeting, assuming that a quorum is present. Abstentions and broker non-votes will have no effect with respect to the approval of this proposal.

 

Recommendation of the Board

 

OUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT OUR STOCKHOLDERS VOTE “FOR” THE APPROVAL OF THIS PROPOSAL.

  

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CHARTER AMENDMENT PROPOSAL

  

Background and Overview

 

We are seeking stockholder approval of an amendment of the Certificate of Incorporation of MICT, as amended, to increase the number of authorized shares of (i) Common Stock from 25,000,000 to 250,000,000 and (ii) preferred stock from 5,000,000 to 15,000,000, for the purpose of issuance of shares of Common Stock upon conversion of the Consideration Note issued in connection with the Merger, the Convertible Notes, the Series A Preferred and the Series B Preferred Shares, exercise of the Note Warrants and the Preferred Warrants, and the conversion or exercise of other outstanding securities of MICT as well as for future financings to raise capital and for possible additional future acquisition transactions, joint ventures and other general corporate purposes.

 

Why the Company Needs Stockholder Approval

 

Based on the number of shares of Common Stock that MICT expects to issue upon conversion of the Consideration Note, the Convertible Notes the Series A Preferred Shares and the Series B Preferred Shares, exercise of the Note Warrants and the Preferred Warrants, and the conversion or exercise of other outstanding securities of MICT, MICT does not currently have sufficient shares of Common Stock authorized to issue the shares of Common Stock deliverable upon conversion or exercise, as applicable, of all such securities. Additionally, in the future, the Company may issue securities in connection with future financings and/or for acquisition transactions, joint ventures, and other general corporate purposes. Accordingly, we are seeking stockholder approval to increase the authorized Common Stock from 25,000,000 to 250,000,000 shares. We are also seeking stockholder approval to increase the authorized preferred stock from 5,000,000 to 15,000,000.

 

Effect of Proposal

 

If approved, the number of authorized shares of Common Stock will increase from 25,000,000 to 250,000,000 and the number of shares of preferred stock will increase from 5,000,000 to 15,000,000.

 

Vote Required for Approval

 

The Nasdaq Proposals, the EIP Proposal, the Golden Parachute Proposal and the Adjournment Proposal, if presented, are conditioned on the approval of the Charter Amendment Proposal at the Special Meeting.

 

This Charter Amendment Proposal will be approved and adopted only if the holders of at least a majority of the issued and outstanding shares of Common Stock and Series A Preferred Stock voting together with the holders of Common Stock as a single class on an as-converted basis vote for the Charter Amendment Proposal. Failure to vote by proxy or to vote at the Special Meeting or an abstention from voting will have the same effect as a vote against the Charter Amendment Proposal.

 

Recommendation of the Board

 

OUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT OUR
STOCKHOLDERS VOTE “FOR” THE APPROVAL OF THE CHARTER AMENDMENT PROPOSAL.

 

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THE EIP PROPOSAL

 

Overview

 

The following is a summary description of the 2020 Equity Incentive Plan (the “EIP”) as proposed to be adopted by MICT. This summary is not a complete statement of the EIP and is qualified in its entirety by reference to the complete text of the EIP, a copy of which is attached hereto as Annex C. MICT stockholders should refer to the EIP for more complete and detailed information about the terms and conditions of the EIP.

 

The purpose of the EIP is to attract and retain the best available personnel for positions of substantial responsibility, provide additional incentive to employees, directors and consultants and promote the success of MICT’s business.

 

Approval of the EIP by MICT stockholders is required, among other things, in order to: (i) comply with Nasdaq rules requiring stockholder approval of equity compensation plans; and (ii) allow the grant of incentive stock options to participants in the EIP. The EIP will become effective upon approval by the MICT stockholders and will be adopted by MICT on a going-forward basis.

 

If this proposal is approved:

 

  16,000,000 new shares of our common stock will be reserved for issuance under the EIP;

 

our 2014 Stock Incentive Plan (the “2014 Stock Incentive Plan”) will be terminated; and

 

up to 76,755 additional shares may be issued if awards outstanding under the 2014 Incentive Plan are cancelled or expire on or after the date of the annual meeting of stockholders.

 

Of the 16,000,000 new shares of our common stock that will be reserved for issuance under the EIP, 13,000,000 of such shares shall be reserved for awards to incentivize certain Company insiders to meet critical commercial milestones (collectively, the “Long Term Incentive Plan”, or the “LTIP”). Examples of such milestones include: negotiation and entrance by MICT into certain material agreements in the recycled metal industry, negotiation and entrance by MICT into certain material agreements in the oil and gas industry, negotiation and entrance by Micronet into certain transformative agreements or other arrangements, certain significant acquisitions of other businesses, and stock price and overall performance of the Company. Individuals contemplated to receive awards under the LTIP include Darren Mercer, and certain individuals associated with Intermediate before the completion of the Merger and who are now employed by or consultants of the Company. Awards granted under the LTIP shall be subject to the satisfaction of certain performance vesting conditions.

 

As of the date of this proxy statement, a total of 76,755 shares of our common stock remain available for issuance under the 2014 Incentive Plan. As of the date of this proxy statement, 748,782 shares have been issued upon the exercise of options granted under the 2014 Incentive Plan and the Company’s 2012 Stock Incentive Plan, collectively.

 

Reasons for Approval of the EIP

 

The EIP includes the following provisions:

 

No Liberal Share Recycling: Shares that are withheld to satisfy any tax withholding obligation related to any stock award or for payment of the exercise price or purchase price of any stock award under the EIP will not again become available for issuance under the EIP.

 

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No Discounted Options or Stock Appreciation Rights: Stock options and stock appreciation rights may not be granted with exercise prices lower than the fair market value of the underlying shares on the grant date except to replace equity awards due to a corporate transaction.

 

No Repricing without Stockholder Approval: Other than in connection with corporate reorganizations or restructurings, at any time when the exercise price of a stock option is above the fair market value of a share, the Company will not, without stockholder approval, reduce the exercise price of such stock option and will not exchange such stock option for a new award with a lower (or no) purchase price or for cash.

 

No Transferability: Equity awards generally may not be transferred, except by will or the laws of descent and distribution, unless approved by the Compensation committee.

 

Reasons for Approval of the EIP

 

Our Board, the Compensation committee and management believe that the effective use of stock-based long-term incentive compensation is vital to our ability to achieve strong performance in the future. The EIP will maintain and enhance the key policies and practices adopted by our management and Board of Directors to align employee and stockholder interests and to link compensation to Company performance. In addition, our future success depends, in large part, upon our ability to maintain a competitive position in attracting, retaining and motivating key personnel. We believe that our EIP is essential to permit our management to continue to provide long-term, equity-based incentives to present and future key employees, consultants and directors. Our board of directors believes that the number of shares currently remaining available for issuance pursuant to future awards under the 2014 Incentive Plan is not sufficient for future granting needs.

 

Additionally, of the 16,000,000 new shares of our common stock that will be reserved for issuance under the EIP, 13,000,000 of such shares shall be reserved for awards to incentivize certain Company insiders to meet critical commercial milestones. Such milestones include: negotiation and entrance by MICT into certain material agreements in the recycled metal industry, negotiation and entrance by MICT into certain material agreements in the oil and gas industry, negotiation and entrance by Micronet into certain transformative agreements or other arrangements, certain significant acquisitions of other businesses, and stock price and overall performance of the Company.

 

Individuals contemplated to receive awards under the LTIP include Darren Mercer, the Chief Executive Officer, and certain individuals associated with Intermediate before the completion of the Merger and who are now employed by or consultants of the Company. Awards granted under the LTIP shall be subject to the satisfaction of certain performance vesting conditions.

 

The EIP is being submitted to you for approval at the special meeting in order to ensure favorable federal income tax treatment for grants of incentive stock options under Section 422 of the Internal Revenue Code of 1986, as amended (the “Code”). Approval by our stockholders of the EIP is also required by the listing rules of The Nasdaq Stock Market.

 

The following is a brief summary of the EIP. This summary is qualified in its entirety by reference to the text of the EIP, a copy of which is attached as Annex C to this Proxy Statement.

 

Summary of Material Features of the EIP

 

Eligibility. The EIP allows us, under the direction of our Compensation committee, to make grants of stock options, restricted and unrestricted stock awards and other stock-based awards to employees, consultants and directors who, in the opinion of the Compensation committee, are in a position to make a significant contribution to our long-term success. All employees, directors and consultants of the Company and its affiliates are eligible to participate in the EIP. As of the date hereof, there are approximately 25 individuals eligible to participate in the EIP.

 

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Shares Available for Issuance. The EIP provides for the issuance of up to 16,000,000 shares of our common stock plus a number of additional shares to be issued if awards outstanding under our 2014 Incentive Plan are cancelled or expire on or after the date of the special meeting of stockholders. Generally, shares of common stock reserved for awards under the EIP that lapse or are canceled (other than by exercise) will be added back to the share reserve available for future awards. However, shares of common stock tendered in payment for an award or shares of common stock withheld for taxes are not available again for future awards. In addition, Shares repurchased by the Company with the proceeds of the option exercise price may not be reissued under the EIP.

 

Stock Options. Stock options granted under the EIP may either be incentive stock options, which are intended to satisfy the requirements of Section 422 of the Code, or non-qualified stock options, which are not intended to meet those requirements. Incentive Stock Options may be granted to employees of the Company and its affiliates. Non-qualified options may be granted to employees, directors and consultants of the Company and its affiliates and the term of the option may not be longer than ten years. The exercise price of a stock option may not be less than 100% of the fair market value of our common stock on the date of grant. If an incentive stock option is granted to an individual who owns more than 10% of the combined voting power of all classes of our capital stock, the exercise price may not be less than 110% of the fair market value of our common stock on the date of grant and the term of the option may not be longer than five years.

 

Award agreements for stock options include rules for exercise of the stock options after termination of service. Options may not be exercised unless they are vested, and no option may be exercised after the end of the term set forth in the award agreement. Generally, stock options will be exercisable for three months after termination of service for any reason other than death or total and permanent disability, and for 12 months after termination of service on account of death or total and permanent disability but will not be exercisable if the termination of service was due to cause.

 

Restricted Stock. Restricted stock is common stock that is subject to restrictions, including a prohibition against transfer and a substantial risk of forfeiture, until the end of a “restricted period” during which the grantee must satisfy certain time or performance-based vesting conditions. If the grantee does not satisfy the vesting conditions by the end of the restricted period, the restricted stock is forfeited.

 

During the restricted period, the holder of restricted stock has the rights and privileges of a regular stockholder, except that the holder of such restricted stock is not entitled to receive dividends during the restricted period and the restrictions set forth in the applicable award agreement apply. For example, the holder of restricted stock may vote the restricted shares; but he or she may not sell the shares until the restrictions are lifted.

 

Other Stock-Based Awards. The EIP also authorizes the grant of other types of stock-based compensation including, but not limited to stock appreciation rights, phantom stock awards, and stock unit awards. Our Board of Directors or an authorized committee may award such stock-based awards subject to such conditions and restrictions as it may determine. These conditions and restrictions may include continued employment with us through a specified restricted period or achievement of one or more performance goals.

 

Restricted Stock Units. Restricted stock units are phantom shares that vest in accordance with terms and conditions established by the Compensation committee and when the applicable restrictions lapse, the grantee shall be entitled to receive a payout in cash, shares or a combination thereof based on the number of restricted stock units as specified in the award agreement. Dividend equivalents may accrue but shall not be paid prior to and only to the extent that, the restricted stock unit award vests.

 

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Plan Administration. In accordance with the terms of the EIP, our Board of Directors has authorized our Compensation committee to administer the EIP. The Compensation committee may delegate part of its authority and powers under the EIP to one or more of our directors and/or officers, but only the Compensation committee can make awards to participants who are subject to the reporting and other requirements of Section 16 of the Securities Exchange Act of 1934. In accordance with the provisions of the EIP, our Compensation committee determines the terms of awards, including:

 

which employees, directors and consultants will be granted awards;

 

the number of shares subject to each award;

 

the vesting provisions of each award;

 

the termination or cancellation provisions applicable to awards; and

 

all other terms and conditions upon which each award may be granted in accordance with the EIP.

 

In addition, our Compensation committee may, in its discretion, amend any term or condition of an outstanding award provided (i) such term or condition as amended is permitted by the EIP, and (ii) any such amendment shall be made only with the consent of the participant to whom such award was made, if the amendment is adverse to the participant unless such amendment is required by applicable law or necessary to preserve the economic value of such award; and provided, further, that, without the prior approval of our stockholders, options and stock appreciation rights will not be repriced, replaced or regranted through cancellation or by lowering the exercise price of a previously granted award.

 

Stock Dividends and Stock Splits. If our common stock shall be subdivided or combined into a greater or smaller number of shares or if we issue any shares of common stock as a stock dividend, the number of shares of our common stock deliverable upon exercise of an option issued or upon issuance of an award shall be appropriately increased or decreased proportionately, and appropriate adjustments shall be made in the exercise price per share of stock options or purchase price, if any, and performance goals applicable to performance-based awards, if any, to reflect such subdivision, combination or stock dividend.

 

Corporate Transactions. Upon a merger or other reorganization event, our Board of Directors may, in its sole discretion, take any one or more of the following actions pursuant to our EIP, as to some or all outstanding awards:

 

provide that all outstanding options shall be assumed or substituted by the successor corporation;

 

upon written notice to a participant provide that the participant’s unexercised options will terminate immediately prior to the consummation of such transaction unless exercised by the participant;

 

in the event of a merger pursuant to which holders of our common stock will receive a cash payment for each share surrendered in the merger, make or provide for a cash payment to the participants equal to the difference between the merger price times the number of shares of our common stock subject to such outstanding options, and the aggregate exercise price of all such outstanding options, in exchange for the termination of such options;

 

provide that outstanding awards shall be assumed or substituted by the successor corporation, become realizable or deliverable, or restrictions applicable to an award will lapse, in whole or in part, prior to or upon the merger or reorganization event; and

 

with respect to stock grants and in lieu of any of the foregoing, our Board of Directors or an authorized committee may provide that, upon consummation of the transaction, each outstanding stock grant shall be terminated in exchange for payment of an amount equal to the consideration payable upon consummation of such transaction to a holder of the number of shares of common stock comprising such award (to the extent such stock grant is no longer subject to any forfeiture or repurchase rights then in effect or, at the discretion of our board of directors or an authorized committee, all forfeiture and repurchase rights being waived upon such transaction).

 

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Amendment and Termination. The EIP may be amended by our stockholders. It may also be amended by our Compensation committee, provided that any amendment approved by our Compensation committee which is of a scope that requires stockholder approval as required by (i) the rules of The Nasdaq Stock Market, (ii) in order to ensure favorable federal income tax treatment for any incentive stock options under Code Section 422 or (iii) for any other reason, is subject to obtaining such stockholder approval. In addition, other than in connection with stock dividends, stock splits, recapitalizations or reorganizations, at any time when the exercise price of a stock option is above the fair market value of a share, the Compensation committee may not without stockholder approval reduce the exercise price or cancel any outstanding option in exchange for a replacement option having a lower exercise price, or for any other equity award or for cash. In addition, the Compensation committee may not take any other action that is considered a direct or indirect “repricing” for purposes of the stockholder approval rules of the applicable securities exchange or inter-dealer quotation system on which the Shares are listed, including any other action that is treated as a repricing under generally accepted accounting principles. However, no such action may adversely affect any rights under any outstanding award without the holder’s consent unless such amendment is required by applicable law or necessary to preserve the economic value of such award.

 

Duration of Plan. The EIP will expire by its terms on July 24, 2030.

 

Federal Income Tax Considerations

 

The material federal income tax consequences of the issuance and exercise of stock options and other awards under the EIP, based on the current provisions of the Code and regulations, are as follows. Changes to these laws could alter the tax consequences described below. This summary assumes that all awards granted under the EIP are exempt from or comply with, the rules under Section 409A of the Code related to nonqualified deferred compensation.

 

  Incentive Stock Options: Incentive stock options are intended to qualify for treatment under Section 422 of the Code.  An incentive stock option does not result in taxable income to the optionee or deduction to us at the time it is granted or exercised, provided that no disposition is made by the optionee of the shares acquired pursuant to the option within two years after the date of grant of the option nor within one year after the date of issuance of shares to the optionee (referred to as the “ISO holding period”).  However, the difference between the fair market value of the shares on the date of exercise and the option price will be an item of tax preference includible in “alternative minimum taxable income” of the optionee.  Upon disposition of the shares after the expiration of the ISO holding period, the optionee will generally recognize long term capital gain or loss based on the difference between the disposition proceeds and the option price paid for the shares.  If the shares are disposed of prior to the expiration of the ISO holding period, the optionee generally will recognize taxable compensation, and we will have a corresponding deduction, in the year of the disposition, equal to the excess of the fair market value of the shares on the date of exercise of the option over the option price.  Any additional gain realized on the disposition will normally constitute capital gain.  If the amount realized upon such a disqualifying disposition is less than fair market value of the shares on the date of exercise, the amount of compensation income will be limited to the excess of the amount realized over the optionee’s adjusted basis in the shares.

 

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  Non-Qualified Options: Options otherwise qualifying as incentive stock options, to the extent the aggregate fair market value of shares with respect to which such options are first exercisable by an individual in any calendar year exceeds $100,000, and options designated as non-qualified options will be treated as options that are not incentive stock options.
     
    A non-qualified option ordinarily will not result in income to the optionee or deduction to us at the time of grant.  The optionee will recognize compensation income at the time of exercise of such non-qualified option in an amount equal to the excess of the then value of the shares over the option price per share.  Such compensation income of optionees may be subject to withholding taxes, and a deduction may then be allowable to us in an amount equal to the optionee’s compensation income.
     
    An optionee’s initial basis in shares so acquired will be the amount paid on exercise of the non-qualified option plus the amount of any corresponding compensation income.  Any gain or loss as a result of a subsequent disposition of the shares so acquired will be capital gain or loss.
     
  Stock Grants: With respect to stock grants under the EIP that result in the issuance of shares that are either not restricted as to transferability or not subject to a substantial risk of forfeiture, the grantee must generally recognize ordinary income equal to the fair market value of shares received.  Thus, deferral of the time of issuance will generally result in the deferral of the time the grantee will be liable for income taxes with respect to such issuance.  We generally will be entitled to a deduction in an amount equal to the ordinary income recognized by the grantee.
     
    With respect to stock grants involving the issuance of shares that are restricted as to transferability and subject to a substantial risk of forfeiture, the grantee must generally recognize ordinary income equal to the fair market value of the shares received at the first time the shares become transferable or are not subject to a substantial risk of forfeiture, whichever occurs earlier.  A grantee may elect to be taxed at the time of receipt of shares rather than upon lapse of restrictions on transferability or substantial risk of forfeiture, but if the grantee subsequently forfeits such shares, the grantee would not be entitled to any tax deduction, including as a capital loss, for the value of the shares on which he previously paid tax.  The grantee must file such election with the IRS within 30 days of the receipt of the shares.  We generally will be entitled to a deduction in an amount equal to the ordinary income recognized by the grantee.
     
  Stock Units: The grantee recognizes no income until the issuance of the shares.  At that time, the grantee must generally recognize ordinary income equal to the fair market value of the shares received.  We generally will be entitled to a deduction in an amount equal to the ordinary income recognized by the grantee.

 

On July 23, the closing market price per share of our common stock was $2.52, as reported by The Nasdaq Stock Market.

 

The affirmative vote of a majority of the shares cast affirmatively or negatively at the annual meeting is required for the adoption of the EIP.

 

Recommendation of the Board

 

OUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT OUR STOCKHOLDERS
VOTE “FOR” THE APPROVAL OF THE EIP PROPOSAL.

 

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THE GOLDEN PARACHUTE PROPOSAL

  

Overview

 

Section 14A of the Exchange Act and Rule 14a-21(c) under the Exchange Act requires that MICT seek a non-binding advisory vote from the holders of its common stock to approve the compensation that was paid to David Lucatz, the President and Chief Executive Officer of MICT in connection with the Merger. As required by these provisions, MICT is asking its stockholders to vote on the adoption of the following resolution.

 

“RESOLVED, that the compensation that paid to David Lucatz, the former President and Chief Executive Officer of MICT in connection with or subsequent to the Merger, as disclosed in this proxy statement and the agreements or understandings pursuant to which such compensation will be paid or may become payable, are hereby APPROVED and RATIFIED.”

 

As this vote is advisory, it will not be binding upon the MICT Board and the MICT Board will not be required to take any action as a result of the outcome of this vote. Approval of this proposal is not a condition to completion of the Merger. The vote with respect to this proposal is an advisory vote and will not be binding on MICT.

 

Vote Required for Approval

 

The affirmative vote of a majority of the voting power of the votes cast at the Special Meeting is required for the Golden Parachute Proposal. Abstentions and broker-non votes will have no effect on the outcome of the vote on this proposal.

  

Recommendation of the Board

 

OUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT OUR STOCKHOLDERS
VOTE “FOR” THE APPROVAL OF THE GOLDEN PARACHUTE PROPOSAL.

  

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THE ADJOURNMENT PROPOSAL

 

The Adjournment Proposal, if adopted, will allow the MICT Board to adjourn the Special Meeting to a later date or dates. The Adjournment Proposal will only be presented to stockholders if MICT determines that there are not sufficient votes to approve one or more proposals presented at the Special Meeting. In no event will the MICT Board adjourn the Special Meeting beyond the date by which it may properly do so under its certificate of incorporation and Delaware law.

 

Consequences if the Adjournment Proposal is Not Approved

 

If the Adjournment Proposal is not approved by MICT’s Stockholders, the MICT Board may not be able to adjourn the Special Meeting to a later date, if MICT determines that there are not sufficient votes to approve one or more proposals presented at the Special Meeting.

 

Required Vote

 

The affirmative vote of a majority of the voting power of the votes cast at the Special Meeting is required for the Adjournment Proposal. Adoption of the Adjournment Proposal is not conditioned upon the adoption of any of the other proposals.

 

Recommendation of the Board

 

OUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT OUR STOCKHOLDERS
VOTE “FOR” THE APPROVAL OF THE ADJOURNMENT PROPOSAL.

 

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DESCRIPTION OF THE BUSINESS

 

MICT’s Historical Business

 

MICT was formed as a Delaware corporation on January 31, 2002. On March 14, 2013, MICT changed its corporate name from Lapis Technologies, Inc. to Micronet Enertec Technologies, Inc. On July 13, 2018, following the sale of its former subsidiary Enertec Systems Ltd., MICT changed its name from Micronet Enertec Technologies, Inc. to MICT, Inc. MICT’s shares have been listed for trade on the Nasdaq Capital Market, or Nasdaq, since April 29, 2013.

 

Prior to completion of the Merger, MICT operated primarily thorugh its Israel-bsed subsidiary, Micronet.

 

Micronet, through both its Israeli and U.S. operational offices, designs, develops, manufactures and sells rugged mobile computing devices that provide fleet operators and field workforces with computing solutions in challenging work environments. Micronet’s vehicle portable tablets are designed to increase workforce productivity and enhance corporate efficiency by offering computing power and communication capabilities that provide fleet operators with visibility into vehicle location, fuel usage, speed and mileage. Furthermore, users are able to manage the drivers in various aspects, such as: driver behavior, driver identification, reporting hours worked, customer/organization working procedures and protocols, route management and navigation based on tasks and time schedule. End users may also receive real time messages for various services, such as pickup and delivery, repair and maintenance, status reports, alerts, notices relating to the start and ending of work, digital forms, issuing and printing of invoices and payments. Through its SmartHub product, Micronet provides its consumers with services such as driver recognition, identifying and preventing driver fatigue, recognizing driver behavior, preventive maintenance, fuel efficiency and an advanced driver assistance system. In addition, Micronet provides third party telematics service providers, or TSPs, a platform to offer services such as “Hours of Service.” Micronet previously commenced and continues to evaluate integration with other TSPs.

 

Micronet is currently entering the video analytics device market by developing an all in-one video telematics device known as Micronet SmartCam. Micronet SmartCam is based on the powerful and flexible Android platform, and is expected to be a ruggedized, integrated, and ready-to-go smart camera supporting complete telematics features designed for in-vehicle use. Coupled with vehicle-connected interfaces, state of the art diagnostic capabilities, and two cameras, it offers video analytics and telematics services addressing safety, vehicle health, and tracking needs of commercial fleets. We believe that Micronet SmartCam provides a versatile, advanced, and affordable mobile computing platform for a variety of fleet management and video analytics solutions. The powerful computing platform, coupled with the Android 9 operating system, allows our customers to run their applications or pick and choose a set of applications and services from the Micronet marketplace. Micronet’s customers consist primarily of application service providers, or ASPs, and solution providers specializing in the MRM market. These companies sell Micronet’s products as part of their MRM systems and solutions. Currently, Micronet does not sell directly to end users. Micronet customers are generally MRM solution and service providers, ASP providers in the transportation market, including long haul, local fleets’ student transportation (yellow busses) and fleet and field management systems for construction and heavy equipment. Micronet products are used by customers worldwide.

 

Sale of Enertec Systems 2001 Ltd.

 

On December 31, 2017, MICT, Enertec Systems 2001 Ltd., or Enertec, previously our wholly owned subsidiary, and Enertec Management Ltd., entered into a Share Purchase Agreement, or the Share Purchase Agreement, with Coolisys Technologies Inc., or Coolisys, a subsidiary of DPW Holdings, Inc., or DPW, pursuant to which we agreed to sell the entire share capital of Enertec to Coolisys. As consideration for the sale of Enertec’s entire share capital, Coolisys agreed to pay, at the closing of the transaction, a purchase price of $5,250,000 as well as assume up to $4,000,000 of Enertec debt. On May 22, 2018, MICT closed on the sale of all of the outstanding equity of Enertec pursuant to the Share Purchase Agreement.

 

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At the closing, MICT received aggregate gross proceeds of approximately $4,700,000 of which 10% will be held in escrow for up to 14 months after the closing to satisfy certain potential indemnification claims. The final consideration amount was adjusted, pursuant to the terms of the Share Purchase Agreement, as a result of adjustments relating to certain Enertec debts at the closing. In addition, Coolisys also assumed approximately $4,000,000 of Enertec’s debt.

 

In conjunction with, and as a condition to, the closing, the Company, Enertec, Coolisys, DPW and Mr. David Lucatz, our former Chief Executive Officer, executed a consulting agreement, or the Consulting Agreement, whereby we, via Mr. Lucatz, will provide Enertec with certain consulting and transitional services over a 3 year period as necessary and requested by the Coolisys (but in no event to exceed 20% of Mr. Lucatz’s time). Coolisys (via Enertec) will pay us an annual consulting fee of $150,000 as well as issue us 150,000 restricted shares of DPW Class A common stock, or the DPW Equity, for such services, to be vested and released from restriction in three equal installments, with the initial installment vesting the day after the closing and the remaining installments vesting on each of the first 2 anniversaries of the closing. In the event of a change of control in the Company, or if Mr. Lucatz shall no longer be employed by us, the rights and obligations under the Consulting Agreement shall be assigned to Mr. Lucatz along with the DPW Equity.   

 

Micronet 

 

Micronet currently operates via its Israeli and U.S. facilities, the first located in Azur, Israel, near Tel Aviv, and the latter located in Salt Lake City, Utah, from which Micronet operates. Micronet operates in the MRM market as a global developer, manufacturer and provider of mobile computing platforms, designed for integration into fleet management and mobile workforce management solutions. The products and solutions designed, developed and manufactured by Micronet include rugged mobile computing devices (tablets and on-board-computers) that provide fleet operators and field workforces with computing solutions for challenging work environments, such as extreme temperatures, repeated vibrations or dirty and wet or dusty conditions.

 

Micronet’s connected tablets collect data from the vehicle’s environment, upload the data to the customer’s cloud and are designed to increase workforce productivity, enhance corporate efficiency and customer service by offering computing power and communication capabilities. Micronet products provide fleet operators with, among other things, data on vehicle location, fuel usage, speed and mileage and allow the installation of software applications and communication integration enabling the users to manage the drivers in various aspects such as: driver behavior (including through real-time video analytics), driver identification, hourly working reports, customer/organization working procedures and protocols, rout management, electronic logging and navigation based on tasks and time schedules and other insights into their mobile workforce, allowing customers to reduce operating and capital costs while increasing revenue. End users of Micronet’s products may now also receive real time messages for various services such as pickup and delivery, repair and maintenance, status reports, alerts, notices relating to start and ending of work, digital forms, issuing and printing of invoices and payments.

 

Micronet conducts its sales and support activities mainly through its U.S.-based facilities. Micronet’s customers include leading international MRM solution and service providers as well as Value Added Resellers, or VARs. Micronet maintains an in-house research and development staff and operates an ISO 9001-2008 certified manufacturing facility.

 

Micronet’s products are used in and/or targeted to a wide range of MRM industry sectors, including:

 

haulage and distribution, which includes short- and long- haul trucking and distribution servicing of urban retail and wholesale needs, such as delivery of packages, parts and similar items;

 

public transportation, which refers mainly to buses, para-transit, taxis and limousine services;

 

construction, which refers to vehicle fleets that are involved in the construction industry such as cement trucks and heavy equipment;

 

service industries, which include insurance companies, rental car companies and other companies operating large mobile service force of technicians, installers and similar personnel;

 

municipalities, which include waste management and field workers such as public works; and

 

public safety services, which includes fire departments, ambulances, police and forestry.

 

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Micronet’s products are fully programmable and provide customers with the operational flexibility to customize such products for their ongoing needs via a comprehensive development tool kit package that enables them to develop independently and support their own industry-specific applications and solutions.

 

Micronet believes that awareness and demand for MRM solutions is significantly increasing, as customers seek to optimize workforce productivity and customer satisfaction. In addition, Micronet believes that the local fleet market is considered to be among the leading, largest and fastest growing segments of the MRM market

 

Micronet currently offers its customers optional third party software services based on Android platform devices, which enable customer management and control (configuration and updates) of the products, including updates for the operational system, distance diagnostics of the product and similar services. These services are based on Micronet’s business cooperation with third party software vendors, which are integrated into the Micronet offered solutions and include guardian system design, or GSD, a cloud based system. Such solutions offer customers and fleets the ability to manage, control and operate their equipment from a distance, perform malfunction diagnostics and improve their efficiency and provide a cost saving solution for the duration of the life of the installed products.

 

Micronet is also developing its own software which will enable the customers to receive reports related to specific data directly from the vehicle computers.

 

In early 2019, Micronet launched its new business and technological services which may include an MRM application store service for the MRM market, which is anticipated to include applications specifically designed for fleet management and workforce management purposes.

 

Micronet is also focusing on adding application layers to its open hardware platforms in order to provide a comprehensive solution for its customers by integrating and developing a dedicated MRM application store that will be open to Micronet’s customers, and will enable Micronet to capitalize on the software as a service component of its business model, increasing hardware sales and increasing demand for its services. To this end, Micronet focuses on creating technological and commercial collaborations with MRM applications and application providers to provide comprehensive solutions for its own hardware solutions.

 

We believe that these new products and solutions will further improve the performance and respond to additional specific MRM requirements, allowing Micronet’s customers to better achieve their desired results and performance.

 

Micronet’s key initiatives for future revenue growth include the following:

 

expanding sales activities in the North American and European markets, which will include establishing strong relationships with new customers and partners;

 

addressing the local fleet vertical of the MRM market with tablets that are specifically designed to support sales to local fleets through multiple value added resellers by offering advanced features at competitive prices;

 

supporting Android OS, to satisfy a wider customer base, enabling independent application programming and integration with various mission critical automotive system and enterprise-level software solutions;

 

upgrading and enhancing current products and engaging in new product development and launching based on input from clients and partners; and

 

partnering with major truck manufacturers to develop a built-in, telematics platform.

 

Developments in the communications market in recent years have enabled Micronet to integrate its products into new standard technologies, which have reduced communication costs and extended availability, thereby increasing the demand for Micronet’s products and solutions. Micronet has made significant investments in its facilities, infrastructure and manufacturing capabilities and has made product enhancements and strengthened functionality.

 

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Market Opportunity

 

Micronet operates in the MRM market. Micronet’s customers are located around the world and are telematics service providers that provide fleet management solutions and services, including cloud services, with emphasis on specific vertical markets such as transportation and distribution (short and long distances), passenger transportation (buses, taxis, special transportation), various types of technical services (communications, maintenance), emergency services (police, firefighters, ambulances), etc. The range of replacement products for Micronet’s products in the MRM market includes retail products such as smartphones, tablets and navigation devices, through Original Equipment Manufacturers’, or OEMs, products that are manufactured according to specific specifications for the customer, at various price and performance levels, to products developed and manufactured by customers themselves in-house. On the basis of market data held by Micronet, the size of the global market relevant to Micronet, in terms of the number of vehicles with telematics systems for managing fleet fleets, was approximately 30 million units at the end of 2018. The United States and Europe are leading the market with 13 million and 7 million installed vehicles, respectively, with an average annual growth rate of 17% and 14.2%, respectively. Historically, the United States has been the largest market in which Micronet operates and sells its products. Based on the current information known to us as published by market analysis reports, 13 million GPS devices / mobile devices are used in service with MRM systems to monitor and track fleet of vehicles, carriers, equipment and employees. This number is expected to grow to more than 14 million units by the end of 2019 and to 16 million units at the end of 2020. In 2018, the global penetration rate of MRM systems for fleet management was 15%. In the United States alone, the rate of penetration is expected to increase from 30% at the end of 2018 to about 40% in the years 2019-2020.

 

Most of the products manufactured or marketed by Micronet are intended for sale abroad, in particular to North America, which is currently Micronet’s main geographical target market. The MRM market is a growing market and accordingly Micronet believes that it can grow in the coming years as a result thereof.

 

Products and Services

 

Micronet’s products are devices and services for the management of commercial vehicle fleets and the management of mobile resources, and are designed to make the work environment of commercial fleets accessible and convenient, while maintaining the full management and control capability of fleet managers and task managers. Micronet’s hardware product is a rugged computer / tablet designed for installation in the vehicle (i.e., a cab) as part of an advanced technological solution including fleet management. The company’s products include software development tools and various interfaces that support solutions for vertical markets for transportation, buses, service technicians and the like. The company’s products, design and development products are based on and support the Android operating system. The handsets enable connection to in-vehicle and out-of-the-box products via wireless communication (via Bluetooth, 3G, 3.5G, LTE, NFC, Wi-Fi) and landline connections such as USB, Serial Ports, Ethernet LAN and GPS.

 

In addition to selling its devices, Micronet now offers its customers with ancillary optional services for its Android-based devices, enabling the customer remote management and control, remote updating of the operating system, remote diagnostics of the device, etc. This service is based on a business cooperation between Micronet and third party specialized software manufacturers in the field of Over The Air service. These software manufacturers fully integrate their software products with Micronet’s Android-based product line, including the GSD cloud computing system that provides advanced software tools to manage and support Over The Air updates, thereby enabling remote equipment management and fault diagnosis. Micronet’s GSD solutions offer operational advantages and cost savings over the period of use of Micronet’s products.

 

An additional software service offered by Micronet on the basis of dedicated software developed by Micronet, enables its customers to receive reports of specific data they require from their computers. The software is installed on Micronet’s computers and regularly monitors the data that passes through the computer network, such as reports of technical problems in the engine, the status of the fuel tank, the mileage, and the speed of the vehicle.

  

Currently, Micronet offers products based on Android OS versions 4, 5.1 and 9 which are expected to be launched in the coming months. Micronet’s product line includes several product families including SmarTab, SmartHub, TREQ317 and the TREQ 317OBC. These products have similar characteristics, but are designed for different customer requirements and among other, are based on different price levels. In light of the existing trend of organizations and end users to expand and accelerate the use of the Android operating system, Micronet is focusing on establishing its products on this system, which is an open, flexible and powerful software system that enables innovation and creativity in application development in target markets. Micronet intends to cease supporting its older products which are Windows CE-based products under its end of life policy.

 

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Micronet has begun, and intends to continue, to implement a business activity plan and new technologies, based on an MRM application store service, especially for fleet management and personnel management applications. Micronet is collaborating with several application providers in the market to create integrated solutions on the company’s hardware platforms based on the open operating system (Android) and offers a multi-layer solution that includes hardware, operating system and dedicated software that enables its customers to integrate it into the service system in a quick way, while significantly reducing the return on investment time and reducing development and support costs. By implementing this business model, Micronet is interested in expanding its customer base, turning to new marketing and distribution channels and adding a layer of recurring revenue from licensing and software services.

 

Micronet’s products are currently used by leading vehicle fleet service providers in the United States in the areas of vehicle tracking, navigation, task management, safety, driving improvement, fuel savings, support, etc. The company has products that support the new regulation that has entered into force, or the Electronic Logging Device, or ELD, mandate in relation to the duty of fleet operators to monitor the driving hours of drivers in their vehicles.

 

Strategy

 

Micronet’s strategy focuses on three major vertical markets: (1) traditional long haul, (2) local fleets and (3) heavy equipment. In each vertical market, Micronet implements the delivery of a comprehensive product offering that satisfies the particular needs of that market, and target potentially larger scale transactions that Micronet expects could result in higher revenue as well as increased gross margin and overall profitability. Micronet continuously analyzes the needs of the markets in which it operates in order to best serve its customers’ needs.

 

Micronet’s strategy is driven by, and focused on, both continued internal growth of its business through gaining a larger market share and the development of new potential markets, new technologies and innovative systems and products as well as through acquisitions. The key elements of Micronet’s strategy include:

 

continuing to invest efforts in its technology and product development, through collaborations with its partners, customers and potential customers;

 

focusing on offering innovative reliable solutions at a competitive price which will target the replacement of in house solutions of the service providers;

 

expanding the sales channels through telecom operators or carriers;

 

penetrating and developing the truck OEM market;

 

partnering with and/or acquiring complementary technology to broaden and deepen its offerings and customer base; and

 

integrating with third party application service providers in order to provide comprehensive solutions, which include hardware and advanced telematics services.

 

Micronet believes that one of its core competitive strengths is the breadth of its expertise in mobile data technologies, particularly in MRM technologies for the management of vehicle fleets and mobile workforces.

 

Micronet intends to enhance its existing products and develop new products by continuing to make investments in research and development. Micronet further intends to continue its strategy of internally developing products in order to enter new market segments, while continuing to leverage its market position in the United States and other global markets, to become a market leader for MRM products and services.

 

Sales and Marketing

 

Micronet’s customers consist primarily of TSPs and VARs specializing in the fleet and MRM markets. Currently, Micronet does not sell directly to the end users’ fleets. Micronet’s customers are generally leading TSPs and service providers of commercial solutions that integrate a wide range of positioning technologies and computing fleet communications in the MRM market.

 

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Micronet products are used by customers worldwide. The United States currently constitutes Micronet’s largest market, representing approximately 89% of Micronet’s revenue for the year ended December 31, 2019 and 76% for the year ended December 31, 2018. In any given year, a single Micronet customer may account for a significant portion of Micronet’s revenues. For the year ended December 31, 2019, Micronet’s three largest customers represented approximately individually 46%, 35%, 16%, of Micronet’s revenues, respectively.

 

Research and Development

 

In order to keep up with the rapid technology evolution and the changing needs of the markets in which it operates, Micronet continues to focus on its innovation and the development of new products and technologies, by continuing to make the necessary investments in research and development.

 

Micronet upgrades and enhances its existing products on an on-going basis, including based on input from its clients and partners and from other sources. Enhancements include the addition of capabilities, improvement of product functionality and performance, and adding features to the existing hardware in order to offer customers a variety of solutions, while continuing to decrease costs to enhance its profit margins and create a competitive market pricing position.

 

In addition, Micronet seeks to design and manage product life cycles through a controlled and structured process. It involves customers and industry experts from its target markets in the definition and refinement of its product development. Product development emphasis is placed on meeting industry standards, ease of integration, cost reduction, design-for manufacturability, versatility and innovation, and quality and reliability.

  

During the fiscal years ended December 31, 2018 and 2017, Micronet spent NIS 7.1 million (approximately $2 million) and NIS 7 million (approximately $1.9 million), respectively, on research and development activities. Micronet uses its own resources to finances its research and development activities.

 

To date, Micronet has received an aggregate of NIS 5.6 million (approximately $1.4 million) from the Israeli Innovation Authority, or IIA, under these three grants. Micronet is obligated to pay royalties to the IIA amounting to 3%-3.5% of the sales of the products and other related revenues generated from such projects linked to the dollar plus Libor interest rate.

 

Competition

 

Micronet operates in a highly competitive industry. Further, during the last few years, competition in the field of mobile computers has significantly increased with the mass entrance and introduction to the market of smart phones, tablets, and laptops, as well as various GPS-based hand-held devices featuring additional functionalities.

 

The direct competition in the field of dedicated laptops for the management of fleets is held primarily with OEMs, which provide products that enable application development and functional integration according to customer needs. To the best of Micronet’s knowledge, there are half a dozen such direct competitors operating in Micronet’s main geographical target market, North America. Most of the competitors are private companies or those who do not publish sales data specific to their products in this field, so the company does not have specific information to estimate its relative share in the market or to directly compare its size or position relative to a particular competitor.

 

Micronet believes that there are several products in the market that compete with its products including mobile devices, which differ among themselves in various parameters. Micronet estimates that its products are competitive in the market and offer customers a beneficial solution in view of the advanced technology implemented in such products. Micronet’s competitive position is also effected by its market positioning and the reputation it has acquired over the years through its dealings with a wide range of customers and products. Micronet estimates that its Android open operating platform based products provides for a technological edge in the market over a number of competitors, which still base their devices on their internal proprietary operating systems. These systems are closed systems and with the transformation of the world to the use of the Android system becoming the dominant operating system among customers, such vendors may be in an inferior position. Micronet’s products align with the trend of the increasing demand in the market for Android-based products, which enable each customer to develop its applications and functionalization according to its needs.

 

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A large number of Micronet’s competitors are private companies or companies that do not disclose their sales or other financial information, making it difficult to estimate Micronet’s market share and position in the market. Micronet believes that its most significant competitors include the following: CalAmp Corp., Mobile Devices (France), TomTom (Holland), Garmin USA, Inc. and Samsung. In addition, some service providers consider the use of their in-house development capabilities for the supply of their internal needs for mobile devices.

 

This intensely competitive industry is characterized by rapidly changing technologies, evolving industry standards, frequent new product introductions and changes in customer requirements. In order to maintain its competitive strength, Micronet must continue to develop and introduce on a timely and cost-effective basis, new products and product features which are in line with the technological developments and emerging industry standards and address the increasingly sophisticated needs of its customers.

 

Micronet’s management believes its strongest competitive advantages are the durability of its products and reputation in the industry. Its competitive strengths include the following:

 

30 years of field-proven experience, including engineering and manufacturing know-how;

 

ability to deliver solutions and products to organizations and customers that are leaders in their respective industries;

 

ability to integrate advanced technological capabilities to develop new solutions and products with its own manufacturing infrastructures and facilities, as well as leverage overseas manufacturing partners, to have greater control over the end-to-end production process and cost-efficiencies;

 

professional and direct marketing methodology focused on main target customers;

 

reputation as a leading supplier in relevant markets;

 

lasting working relationships with customers;

 

an experienced, dedicated and competent management team;

 

ELD mandate compliant products; and

 

proprietary technology and know-how that allows rapid configuration and implementation of new solutions to meet the special customer needs.

 

Micronet currently operates via two facilities, the first located in Azur, Israel, near Tel Aviv, and the second located in Salt Lake City, Utah. These two operating facilities give Micronet additional manufacturing and marketing flexibility to serve the market’s needs, reduce its operational risk, improve its U.S. presence and provide management with additional tools to support the business.

 

Manufacturing

 

Micronet conducts its manufacturing activities mainly through third party subcontractors in Israel and outside of Israel and also using its own U.S. and Israel based facilities. Micronet operates an ISO 9001-2008 certified manufacturing facility.

 

During the past few years, with the exception of certain components purchased from subcontractors, Micronet has relied on itself to manufacture its products and solutions using its own facilities, capabilities and resources, which enable it to control and manage the manufacturing process.

 

However, Micronet has gradually begun utilizing overseas manufacturers and subcontractors for its new product offerings, in combination with its internal manufacturing facilities. As of December 31, 2018, as part of its strategy, Micronet is focused on its core competence, which includes research, development, marketing and support activities.

 

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Accordingly with respect to its new product offerings, Micronet has shifted significant parts of its manufacturing activities from its Israeli manufacturing activity to trusted third party manufacturers and subcontractors in and outside of Israel, while increasing its operational flexibility and reducing its fixed costs attributed to the production lines. In addition, Micronet is utilizing overseas manufacturing in conjunction with its internal assembly test lines in Salt Lake City for final provisioning and shipping.

 

Following certain enhancements in its manufacturing and production capabilities, Micronet has manufacturing capacity and has the ability to meet current or foreseeable manufacturing needs without making any significant investments. Implemented enhancements include:

 

upgraded production and assembly line and purchased new machinery with significant higher component implementation scale;

 

increased factory facilities and upgraded various infrastructures;

 

entered into agreements with subcontractors in the field that operate additional manufacturing facilities, and have significant procurement and manufacturing capabilities and resources that are available to Micronet; and

 

certified subcontractors to perform manufacturing process to ensure flexible manufacturing infrastructures and deployment that can be used for disaster recovery scenarios or rapid increase in production needs.

 

If additional manufacturing resources are needed to meet increased demand for Micronet’s products, manufacturing capacity can be enhanced by adjusting the outsourcing manufacturing processes, recruiting and training additional employees, adding shifts to the labor cycles.

 

Intellectual Property

 

Proprietary rights are important to Micronet’s business because its ability to remain competitive in the market is dependent to a significant degree on its proprietary solutions and products and the technology on which they are based. To protect its proprietary rights, Micronet primarily relies on a combination of copyright and trade secret laws, internal know-how, and agreements with third parties, such as license agreements. In addition, Micronet employs internal controls such as the use of confidentiality and non-disclosure agreements. Micronet believes its proprietary technology incorporates processes, know-how, methods, algorithms, hardware and software that are the result of more than 20 years of experience and in-house expertise and thus are not easily copied. There is a significant amount of litigation with respect to intellectual property in the industry in which Micronet operates. Micronet has not, to date, been the subject of any claims or proceedings with regards to infringement of third party’s proprietary rights and it believes that its products, solutions and services do not violate or infringe any third party’s intellectual property rights. In light of the strong competition in the industry and the innovative solutions and technologies incorporated by Micronet into its recent products, Micronet has been exploring the use of patent applications and is in the process of filing certain patent applications related to its products in the United States, solutions and proprietary technologies. These patents, to the extent granted, are expected to assist Micronet to maintain its technological and competitive position in the market. Micronet’s management, together with its research and development team, monitor closely and continuously all technological developments in the market. Micronet considers and evaluates on an ad hoc basis whether technology and proprietary assets should be acquired through independent in-house development or through the purchase of patents or other technological licenses. Where the purchase of third party proprietary technology, solution or products is required and can be of advantage to its business, Micronet would purchase a license and pay appropriate royalties or license fees. Micronet currently has all third-party licenses or is in the process of acquiring licenses that it believes are necessary to maintain and develop its business.

 

Government Regulation

 

Micronet’s business is subject to certain international standards such as U.S. Federal Communications Commission, or FCC, Part 15B, FCC ID, European Conformity, or CE, and Restriction of Hazardous Substances, or RoHS, which define compatibility of interface and telecommunications standards to those implemented in Europe by the European Commission and in the United States by the FCC. Its solutions and products also comply with the E-Mark European standard, which is the standard that defines the compatibility of interface and telecommunications to all appliances installed in and around an automobile.

 

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Employees

 

As of July 23, 2019, the Company had approximately six full-time employees. Our employees are not represented by any collective bargaining agreement, and we have never experienced a work stoppage. To the best of our knowledge, we have good and sustainable relations with our employees, respectively. Israeli labor laws and regulations apply to all employees based in Israel. The laws principally address matters such as paid vacation, paid sick days, length of the workday, payment for overtime and severance payments upon the retirement or death of an employee or termination of employment under specified circumstances. The severance payments may be funded, in whole or in part, through a managers’ insurance fund or a pension fund. The payments to the managers’ insurance fund or pension fund toward severance amount to 8.3% of wages. Furthermore, Israeli employees and employers are required to pay predetermined sums to the National Insurance Institute of Israel. Since January 1, 1995, these amounts also include payments for health insurance.

 

Description of Property