Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

This Quarterly Report on Form 10-Q (the “Quarterly Report”), contains certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and other Federal securities laws, and is subject to the safe-harbor created by such Act and laws.  In some cases, you can identify forward-looking statements by terminology such as “may,” “will,” “should,” “expect,” “intend,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “potential” or “continue,” the negative of such terms, or other variations thereon or comparable terminology.  The statements herein and their implications are merely predictions and therefore inherently subject to known and unknown risks, uncertainties, assumptions and other factors that may cause actual results to be materially different from those contemplated by the forward-looking statements.  Such forward-looking statements appear in this Item 2 – “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and may appear elsewhere in this Quarterly Report and include, but are not limited to, statements regarding the following:

Our business is subject to substantial risks, which increase the uncertainty inherent in the forward-looking statements contained or implied in this report.  Except as required by law, we assume no obligation to update these forward-looking statements to reflect actual results or changes in factors or assumptions affecting such forward-looking statements. Further information on potential factors that could affect our business is described under the heading “Risk Factors” below, as well as in Part I, Item 1A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2019 (the “Annual Report”).  Readers are also urged to carefully review and consider the various disclosures we have made below and in that report. The following discussion and analysis should be read in conjunction with the Consolidated Financial Statements and related notes included elsewhere in this Quarterly Report.

Overview

The Company’s business relates to its ownership interest in its Israel-based subsidiary, Micronet Ltd., (“Micronet”). Micronet operates in the growing commercial Mobile Resource Management, or MRM, market. Micronet through both its Israeli and U.S. operational offices designs, develops, manufactures and sells rugged mobile computing devices that provide fleet operators and field workforces with computing solutions in challenging work environments.

As of December 31, 2018, the Company held 49.89% of Micronet’s issued and outstanding shares, and together with an irrevocable proxy in our benefit from Mr. David Lucatz, the Company’s President and Chief Executive Officer, we held 50.07% of the voting interest in Micronet as of such date. On February 24, 2019, Micronet closed a public equity offering on the Tel Aviv Stock Exchange (the “TASE”). As a result of Micronet’s offering, our ownership interest in Micronet was diluted from 49.89% to 33.88%. On September 5, 2019, Micronet closed a public equity offering on the TASE. As a result, our ownership interest in Micronet was further diluted from 33.88% to 30.48%. The initial decrease in the Company’s voting interest in Micronet resulted in the deconsolidation of Micronet’s operating results from our financial statements as of February 24, 2019. Therefore, commencing on February 24, 2019, the Company accounted for its ownership in Micronet in accordance with the equity method. As a result of the deconsolidation, the Company recognized a net gain of $299,000 in February 2019.

 In June 2019, the Company entered into a Securities Purchase Agreement with BNN, pursuant to which BNN agreed to purchase from the Company $2,000,000 of convertible notes (the “BNN Notes”), which issued on July 31, 2019. The BNN Notes, convertible into up to 2,727,272 shares of common stock, were sold together with certain common stock purchase warrants to purchase up to 2,727,272 shares of common stock. The BNN Notes initially had a duration of two years. On January 21, 2020, the Company entered into a Conversion Agreement (the “Conversion Agreement”), with BNN, pursuant to which BNN agreed to convert outstanding BNN Notes in the amount of $2,000,000 into 1,818,181 shares of the Company’s newly-designated Series B Convertible Preferred Stock, par value $0.001 per share, with a stated value of $1.10 per share (the “Series B Preferred Stock”).

On June 4, 2019, the Company commenced an offering of its Series A Preferred Stock (the “Series A Preferred Stock”), by entering into a securities purchase agreement, pursuant to which the Company sold, in multiple closings, 3,181,818 shares of Series A Preferred Stock (the “Preferred Offering”). The Series A Preferred Stock, convertible into up to 6,363,636 shares of common stock of the Company, was issued together with certain preferred warrants (the “Series A Preferred Warrants”) to purchase up to 4,772,727 shares of common stock, for aggregate gross proceeds of $7,000,000 to the Company.

On July 29, 2019, the Company completed the first closing in the Preferred Offering, pursuant to which it sold 2,386,363 shares of Series A Preferred Stock and 3,579,544 accompanying Series A Preferred Warrants for aggregate gross proceeds of $5,250,000. The Company paid an aggregate of $420,000 in fees with respect to this closing of the Preferred Offering. Additionally, in January 2020, the Company completed a second closing of the sale of Series A Convertible Preferred Stock, pursuant to which it sold 795,455 additional shares of Series A Preferred Stock and 1,193,183 accompanying Preferred Warrants to purchase up to 1,084,712 shares of the Company’s common stock, for aggregate gross proceeds of $1,750,000. The Company paid an aggregate of $140,000 in fees with respect to this closing of the Preferred Offering.

On November 7, 2019, the Company, Intermediate, and MICT Merger Subsidiary entered into the Original Agreement.

On April 15, 2020, the Company, Intermediate, GFH, the sole shareholder of Intermediate, and MICT Merger Subsidiary Inc., a British Virgin Islands company and a wholly owned subsidiary of MICT (“Merger Sub”) entered into the Restated Merger Agreement. The Restated Merger Agreement amended and restated the Original Agreement in its entirety.

On June 23, 2020, the company consummated the Tender Offer, pursuant to which it purchased 5,999,996 shares of Micronet’s ordinary shares (the “Ordinary Shares”), in the aggregate amount of NIS 1,800,000 (or $515,000) offered in the Tender Offer, and the closing of the public offering, in which the Company purchased 10,334,000 shares of Micronet’s Ordinary Shares in aggregate amount of NIS 3,100,200 (or $887,000), the Company currently owns 53.39% of the outstanding Ordinary Shares of Micronet. the company expects to continue to maintiena controlling interest in Micronet in the future.

On July 1, 2020, the Company completed the Acquisition, pursuant to the previously announced Restated Merger Agreement. As described in the Restated Merger Agreement, upon consummation of the Acquisition, each outstanding share of Intermediate was cancelled in exchange for a convertible promissory note in the principal amount of $25,000,000 (the “Consideration Note”), which Convertible Note shall be convertible into shares of common stock of MICT at a conversion price of $1.10 per share, subject to stockholder approval.

Intermediate is a financial technology company with a significant China marketplace. Intermediate is currently in the process of building various platforms for business opportunities in various verticals and technology segments, including the online trading of stock, oil and gas, and recyclable metal and insurance brokerage (collectively, the “Platforms”). 

On July 8, 2020, the Company entered into a series of additional Purchase Agreements with certain Purchasers pursuant to which such Purchasers agreed to purchase from the Company Convertible Notes with an aggregate principal amount of approximately $4,000,000. As of the date hereof, the Company has entered into Purchase Agreements to sell Convertible Notes with an aggregate principal amount of approximately $15,000,000 (collectively, the “Convertible Note Offering”).

The Convertible Notes shall be convertible into shares of common stock of the Company at a conversion price of $1.10 per share (the “Conversion Shares”). The Convertible Notes will generally be due two years from the date of issuance, except that certain convertible notes will be due five years from the date of issuance. The Company is obligated to pay interest to the Purchasers on the outstanding principal amount at the rate of 1.0% per annum, payable on each conversion date, in cash or, at the Company’s option, in shares of common stock. Subject to approval of the Company’s stockholders, the Convertible Notes shall be convertible into shares of common stock. Upon the occurrence of certain events, the Purchasers are permitted to require the Company to redeem the Convertible Notes, including any interest that has accrued thereunder, for cash.

The Purchase Agreements provide for customary registration rights, pursuant to which the Company will be obligated to, among other things, (i) file a registration statement (the “Resale Registration Statement”) with the SEC within 180 days following the closing of the Convertible Note Offering for purposes of registering the Conversion Shares and (ii) use its commercially reasonable efforts to cause the Resale Registration Statement to be declared effective by the SEC as soon as practicable after filing.

To date, the Company has raised an aggregate principal amount of approximately $8,850,000 pursuant to the Convertible Note Offering. The Company paid an aggregate of $400,000 in fees with respect to this closing of the April Convertible Notes and, approximately $2,150,000 of the April Convertible Notes have not yet been received.

The securities sold in the Convertible Note Offering shall be issued in reliance on an exemption from registration under Section 4(a)(2) the Securities Act of 1933, as amended, and Regulation D promulgated thereunder.

On August 13, 2020, MICT Telematics extended to Micronet a loan aggregate in amount of $175,000 (the “Loan” and the “Loan Sum”, respectively) that will replace the outstanding intercompany debt, which may be exercised by Micronet during such twelve month period. The Loan Sum will fund the working capital and general corporate purposes required by Micronet Ltd. and may only be used for such purpose. The Loan did not bear any interest.

Leveraging the Intermediate management team’s extensive business experience in China and its deep connections with certain of China’s leading government agencies and provincial and local government departments as well as the contracts secured in valuable market segments, MICT, through its acquisition of Intermediate, plans to launch the Platforms initially in China and, thereafter, to other areas of the world.  MICT aims, and believes, that Intermediate has been well positioned, to establish itself as an operator of leading fin-tech platforms, and it intends to continuously improve the capabilities of such platforms through further acquisitions or license of technologies. 

Intermediate has been in the process of developing an advanced technology platform capable of transforming the investing experience by offering a fully digitized and app-enabled brokerage service covering several markets. Harnessing the security, reliability and volume capabilities of this platform and its management’s longstanding commercial relationships in China, we will aim to provide investing services, including stock trading and clearing, margin financing, market data and information, and interactive social features to retail investors through our proprietary one-stop digital platform. The development of the platform is very advanced and is expected to be completed by within the next few months. Through our acquisition of Intermediate, we are in the process of obtaining licenses and permits for operating the platform and expect to launch the online stock trading platform initially in China once all necessary licenses and permits have been obtained.

In connection with our acquisition of Intermediate, we intend to seek licenses issued by appropriate authorities, initially in China and later in other jurisdictions, such as Hong Kong, the US and UK, for dealing in securities, advising on securities, dealing in futures contracts, advising on futures contracts, providing automated trading services and for asset management. We hope to establish our platform as a successful financial technology platform by maintaining a compelling user experience, driving constant product innovation and introducing additional services that benefit clients.

GAIN OF CONTROL OF SUBSIDIARY- Micronet Acquisition

On June 23, 2020, the company consummated the Tender Offer, pursuant to which it purchased 5,999,996 shares of Micronet’s ordinary shares in the aggregate amount of NIS 1,800,000 (or $515,000) offered in the Tender Offer, which brought MICT’s ownership interest up to 45.53%.

Also, on June 23, 2020, MICT purchased an additional 10,334,000 shares of Micronet’s Ordinary Shares in the aggregate amount of NIS 3,100,200 (or $887,000), which brought MICT’s ownership interest up to 53.39%. Accordingly, MICT obtained voting control over Micronet and, as a result, MICT applied purchase accounting (see the table below) and began to consolidate Micronet beginning on such date. MICT recognized a $665,000 gain from consolidation. 

There are material uncertainties related to events or conditions such as: (i) the effects of COVID-19 on Micronet’s overall business (ii) recent accumulated losses, (iii) historical working capital deficiencies, (iv) the significant decrease in demand for the company's products, which results in a delay in the receipt of new orders and, consequently, a lack of sufficient backlog, and (v) a significant slowdown in the business activities of the global economy. The above reasons, among others, create a material uncertainty and cast significant doubt upon Micronet’s ability to continue as a going concern.

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

Purchased identifiable intangible assets are amortized on a straight-line basis over their respective useful lives. The table set forth below summarizes the estimates of the fair value of assets acquired and liabilities assumed and resulting gain on bargain purchase. In addition, the following table summarizes the allocation of the preliminary purchase price as of the acquisition date:

Results of Operations

As discussed above and in the footnotes to our financial statements contained in Part I, Item 1 of this Quarterly Report on Form 10-Q, on February 24, 2019, as a result of a public offering by Micronet, our holding in Micronet were reduced to 33.88% of the issued and outstanding shares of Micronet, and on September 5, 2019, such holdings were further reduced to 30.48%. Therefore, Micronet’s reports are consolidated in our audited financial statements from January 1, 2019 until February 24, 2019 only. 

On June 23, 2020, the company consummated the Tender Offer, pursuant to which the Company purchased 5,999,996 shares of Micronet’s ordinary shares (the “Ordinary Shares”), in the aggregate amount of NIS 1,800,000 (or $515,000) offered in the Tender Offer, and the closing of the public offering, in which the Company purchased 10,334,000 shares of Micronet’s Ordinary Shares in aggregate amount of NIS 3,100,200 (or $887,000). The Company currently owns 53.39% of the outstanding Ordinary Shares of Micronet. Therefore, Micronet’s reports are consolidated in our financial statements as of June 23, 2020. and expects to continue to hold a majority voting interest in the future.

On July 1, 2020, the Company completed the Acquisition, pursuant to the previously announced Restated Merger Agreement. As described in the Restated Merger Agreement, upon consummation of the Acquisition, each outstanding share of Intermediate was cancelled in exchange for a convertible promissory note in the principal amount of $25,000,000 (the “Consideration Note”), which Convertible Note shall be convertible into shares of common stock of MICT at a conversion price of $1.10 per share, subject to stockholder approval.

Intermediate is a financial technology company with a significant China marketplace. Intermediate is currently in the process of building various platforms for business opportunities in various verticals and technology segments, including the online trading of stock, oil and gas, and recyclable metal and insurance brokerage (collectively, the “Platforms”). 

On July 8, 2020, the Company entered into a series of additional Purchase Agreements with certain Purchasers pursuant to which such Purchasers agreed to purchase from the Company Convertible Notes with an aggregate principal amount of approximately $4,000,000. As of the date hereof, the Company has entered into Purchase Agreements to sell Convertible Notes with an aggregate principal amount of approximately $15,000,000 (collectively, the “Convertible Note Offering”).

The Convertible Notes shall be convertible into shares of common stock of the Company at a conversion price of $1.10 per share (the “Conversion Shares”). The Convertible Notes will generally be due two years from the date of issuance, except that certain convertible notes will be due five years from the date of issuance. The Company is obligated to pay interest to the Purchasers on the outstanding principal amount at the rate of 1.0% per annum, payable on each conversion date, in cash or, at the Company’s option, in shares of common stock. Subject to approval of the Company’s stockholders, the Convertible Notes shall be convertible into shares of common stock. Upon the occurrence of certain events, the Purchasers are permitted to require the Company to redeem the Convertible Notes, including any interest that has accrued thereunder, for cash.

The Purchase Agreements provide for customary registration rights, pursuant to which the Company will be obligated to, among other things, (i) file a registration statement (the “Resale Registration Statement”) with the SEC within 180 days following the closing of the Convertible Note Offering for purposes of registering the Conversion Shares and (ii) use its commercially reasonable efforts to cause the Resale Registration Statement to be declared effective by the SEC as soon as practicable after filing.

To date, the Company has raised an aggregate principal amount of approximately $8,850,000 pursuant to the Convertible Note Offering. The Company paid an aggregate of $200,000 in fees with respect to this closing of the April Convertible Notes. As of June 30, 2020, approximately $2,650,000 of the April Convertible Notes have not yet been received.

The securities sold in the Convertible Note Offering shall be issued in reliance on an exemption from registration under Section 4(a)(2) the Securities Act of 1933, as amended, and Regulation D promulgated thereunder.

On August 13, 2020, MICT Telematics extended to Micronet a loan aggregate in amount of $175,000 (the “Loan” and the “Loan Sum”, respectively) that will replace the outstanding intercompany debt, which may be exercised by Micronet during such twelve month period,. The Loan Sum will fund the working capital and general corporate purposes required by Micronet Ltd. and may only be used for such purpose. The Loan did not bear any interest.

Three and Six Months Ended June 30, 2020, Compared to Three and Six Months Ended June 30, 2019

Revenues

Revenues for the three and six months ended June 30, 2020 were $0 and $0, respectively, compared to $0 and $477,000 for the three and six months ended June 30, 2019, respectively. This represents a decrease of $0 and $477,000, respectively, or 0% and 100%, for the three and six months ended June 30, 2020, respectively. The decrease in revenues for the six months ended June 30, 2020 is primarily due to the dilution in our ownership and voting interests in Micronet, causing us to cease consolidating Micronet’s operations in our financial statements commencing from February 24, 2019 up until June 23, 2020.

Gross Loss

Gross profit for the three and six months ended June 30, 2020 increased by $0 and $369,000, respectively, to $0 and $0. This is in comparison to gross loss of $0 and $369,000, and represents 0% and 77% of the revenues for the three and six months ended June 30, 2019, respectively. The increase in gross profit for the three and six months ended June 30, 2020, respectively is mainly a result of the dilution in our ownership and voting interests in Micronet, causing us to cease consolidating Micronet’s operations in our financial statements commencing from February 24, 2019 up until June 23, 2020.

Selling and Marketing

Selling and marketing costs are part of operating expenses. Selling and marketing costs for the three and six months ended June 30, 2020 were $0 and $0, respectively, compared to $0 and $198,000 for the three and six months ended June 30, 2019, respectively. This represents a decrease of $0 and $198,000, or 0% and 100%, for the three and six months ended June 30, 2019, respectively. The decrease is mainly due to the dilution in our ownership and voting interests in Micronet, causing us to cease consolidating Micronet’s operations in our financial statements commencing from February 24, 2019 up until June 23, 2020.

General and Administrative

General and administrative costs are part of operating expenses. General and administrative costs for the three and six months ended June 30, 2020 were $668,000 and $1,438,000, respectively, compared to $670,000 and $1,660,000 for the three and six months ended June 30, 2019, respectively. This represents a decrease of $2,000 and $222,000, respectively, or 0% and 13%, for the three and six months ended June 30, 2020, respectively. The decrease is mainly the result of the dilution in our ownership and voting interests in Micronet, causing us to cease consolidating Micronet’s operations in our financial statements commencing from February 24, 2019 up until June 23, 2020. 

Research and Development Costs

Research and development costs are part of operating expenses. Research and development costs, which mainly include wages, materials, and sub-contractors, for the three and six months ended June 30, 2020, were $0 and $0, respectively, compared to $0 and $261,000 for the three and six months ended June 30, 2019, respectively. This represents a decrease of $0 and $261,000, or 0% and 100%, for the three and six months ended June 30, 2020, respectively. The decrease in research and development costs for the three and six months ended June 30, 2020 is primarily a result of the dilution in our ownership and voting interests in Micronet, causing us to cease consolidating Micronet’s operations in our financial statements commencing from February 24, 2019 up until June 23, 2020.

Loss from Operations

Our loss from operations for the three and six months ended June 30, 2020 was $668,000 and $1,438,000, compared to a loss from operations of $670,000 and $2,508,000, for the three and six months ended June 30, 2019, respectively. The decrease in loss from operations for the three and six months ended June 30, 2020 is mainly a result of the dilution in our ownership and voting interests in Micronet, causing us to cease consolidating Micronet’s operations in our financial statements commencing from February 24, 2019 up until June 23, 2020.

Financial Income (Expenses), Net

Financial (income) expenses, net for the three and six months ended June 30, 2020 were $(381,000) and $(157,000) compared to $(22,000) and $54,000 for the three and six months ended June 30, 2019, respectively. This represents an increase in financial expenses of $359,000 and $211,000, for the three and six months ended June 30, 2020. The increase in financial (income) expenses, net for the six months ended June 30, 2020, is primarily due to changes in currency exchange rates. The increase in the three month ended June 30, 2020, is primarily due to the cancellation of the impairment of change in fair value in loan to Micronet from March 31, 2020 in the second quarter of 2020, in total amount of $272,000.

Net Income (Loss) Attributed to MICT

Our net income (loss) attributed to MICT, Inc. for the three and six months ended June 30, 2020, respectively, was $227,000 and $(1,408,000), compared to net loss of $1,102,000 and $2,012,000 for the three and six months ended June 30, 2019, respectively. This represents an increase of $1,329,000 and $604,000 for the three and six months ended June 30, 2020, respectively, as compared to the same period last year. The increase for the three and six months ended June 30, 2020 is mainly a result of gain on previously held equity in Micronet in the amount of $665,000.

Liquidity and Capital Resources

As of June 30, 2020, our total cash and cash equivalents balance was $9,707,000, as compared to $3,154,000 as of December 31, 2019. This reflects an increase of $6,553,000 in cash and cash equivalents. The increase in cash and cash equivalents is primarily a result of April Convertible Note transaction described below. As of the date of this Quarterly Report, COVID-19 and the resulting government actions enacted in Israel and elsewhere have not had a material adverse effect on our financial condition; however, there can be no assurance that our financial condition will not be affected in the future from COVID-19 or resulting government actions.

If the April Convertible Note transaction described below does not close or we do not receive the full proceeds provided for under these agreements, we may require additional financing. There can be no guarantee that we will be able to obtain additional financing, or if such additional financing will be available to us on favourable terms.

Sales of our Securities

On April 21, 2020, the Company entered into a series of Note Purchase Agreements (the “Note Purchase Agreements”), with certain investors, (the “Purchasers”), pursuant to which, among other things, the Purchasers agreed, subject to the satisfaction or waiver of the conditions set forth in the Note Purchase Agreement, to purchase from us certain convertible notes (the “April Convertible Notes”), with an aggregate principal amount of approximately $11,000,000 (the “Convertible Notes Offering”). The Convertible Notes shall be convertible into shares of common stock of the Company at a conversion price of $1.10 per share. Approximately $8,000,000 of the April Convertible Notes will be due two years from the date of issuance, while approximately $3,000,000 of the April Convertible Notes will be due five years from the date of issuance. We are 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 our option, in shares of common stock. 

In April 2020, the Company issued April Convertible Notes with an aggregate principal amount of approximately $5,400,000 and in May and June 2020, the Company received an aggregate principal amount of approximately $2,950,000, which will be due two years from the date of issuance. The Company paid an aggregate of $200,000 in fees with respect to this closing of the April Convertible Notes. As of June 30, 2020, approximately $2,650,000 of the Convertible Notes have not yet been received, and there can be no assurance that the Company will ever receive the proceeds expected to be realized in connection therewith.

Loans Provided by Us

On September 19, 2019, MICT Telematics Ltd., or MICT Telematics, a wholly owned subsidiary of the Company, entered into a loan agreement with Micronet, pursuant to which MICT Telematics loaned Micronet $250,000, on certain terms and conditions (the “First Loan”).

In view of Micronet’s working capital needs, on November 18, 2019, we entered into an additional loan agreement with Micronet for the loan of $125,000, pursuant to terms and conditions identical to those governing the First Loan, including the repayment terms (the “Second Loan”). Accordingly, prior to the approval of the Initial Convertible Loan by Micronet’s shareholders on January 1, 2020, we transferred to Micronet, pursuant to the First and Second Loan, a total sum of $375,000. On January 1, 2020, the Initial Convertible Loan agreement was approved at the general meeting of Micronet’s shareholders. At such time, the First Loan and Second Loan were repaid to us and the remaining amount due to be loaned under the Initial Convertible Loan, in the sum of $125,000, was loaned to Micronet.

The Company recognized a loss on financial assets derived from a measurement preformed to the Initial Convertible Loan. As of March 31, 2020, we recorded a financial expense on the Initial Convertible Loan of $272,000. The company canceled the recorded of this impairment in the second quarter of 2020.

On November 13, 2019, the Company and Micronet executed a convertible loan agreement pursuant to which the Company agreed to loan to Micronet $500,000 in the aggregate (the “Initial Convertible Loan”). The Initial Convertible Loan bears interest at a rate of 3.95% calculated and is paid on a quarterly basis. In addition, the Initial Convertible Loan, if not converted, shall be repaid in four equal installments, the first of such installment payable following the fifth quarter after the issuance of the Initial Convertible Loan, with the remaining three installments due on each subsequent quarter thereafter, such that the Initial Convertible Loan shall be repaid in full upon the lapse of 24 months from its grant. In addition, the outstanding principal balance of the Initial Convertible Loan, and all accrued and unpaid interest, is convertible at the Company’s option, at a conversion price equal to 0.38 NIS per Micronet share. Pursuant to the Initial Convertible Loan agreement, Micronet also agreed to issue the Company an option to purchase up to one of Micronet’s ordinary shares for each ordinary share that it issued as a result of a conversion of the Initial Convertible Loan (the “Convertible Loan Warrant”), at an exercise price of 0.60 NIS per share, exercisable for a period of 15 months. On May 14, 2020, as further amended on May 27, 2020, we and Micronet entered into an amendment to the Initial Convertible Loan (the “Amended Convertible Loan”), which is subject to the approval of the Micronet shareholders.

On May 14, 2020, as amended effective as of May 21, 2020, we entered into a loan agreement with Micronet, pursuant to which we agreed to loan Micronet $500,000 on certain terms and conditions (the “Second Convertible Loan”). The Second Convertible Loan bears interest at a rate of interest of 3.95% per year, calculated and paid on a quarterly basis. The Second Convertible Loan is due and payable in four equal installments, on a quarterly basis, with the first such payment due within 10 days after the end of Micronet’s fiscal quarter ending March 31, 2021 (such that the first repayment would be made by April 10, 2021), and in any event shall be paid in full by the 24 month anniversary of the grant date of the Second Convertible Loan; provided, however, that the Company, at its discretion, may convert any or all of the Second Convertible Loan into ordinary shares of Micronet at a conversion price of 0.16 NIS (and in accordance with the U.S. dollar to NIS exchange rate in effect as of the closing date of the Loan), per ordinary share of Micronet. In addition, the Company shall receive a warrant (the “Second Convertible Loan Warrant”), to purchase one ordinary share of Micronet for every ordinary share into which the Second Convertible Loan is converted. The Second Convertible Loan Warrants, if any, are exercisable for a term of 15 months from their date of grant at an exercise price of 0.16 NIS per Ordinary Share of Micronet.

On June 25, 2020 Micronet’s shareholders did not approve the Amendments to the Initial Convertible Loan and the Second Convertible Loan. As a result of such voting results, the terms of the Initial Convertible Loan will not change, and the Second Convertible Loan will not be subject to conversion by the Company, and no warrants were issued thereunder.

Further, effective as of May 27, 2020, the Company and Micronet entered into the Amended Convertible Loan, to amend the terms of the Initial Convertible Loan and the Convertible Loan Warrant so that the Conversion Price for the Initial Convertible Loan and the exercise price for the Amended Convertible Loan Warrant would each be 0.16 NIS per ordinary share of Micronet. The Amended Convertible Loan is subject to the receipt of the approval of Micronet’s shareholders.

On August 13, 2020, MICT Telematics extended to Micronet a loan aggregate in amount of $175,000 (the “Loan” and the “Loan Sum”, respectively) that will replace the outstanding intercompany debt, which may be exercised by Micronet during such twelve month period,. The Loan Sum will fund the working capital and general corporate purposes required by Micronet Ltd. and may only be used for such purpose. The Loan did not bear any interest.

Debt Repayment

As of June 30, 2020, our total debt was $9,337,000 as compared to $1,856,000 on December 31, 2019. The increase in total debt is due to: (i) the conversion of the BNN Note on January 21, 2020, previously issued on July 31, 2019, into 1,818,181 shares of the Company’s Series B Preferred Stock on February 3, 2020; (ii) the consolidation of Micronet Ltd. as from June 23, 2020; and (iii) the April Convertible Note, pursuant to which we issued April Convertible Notes with an aggregate principal amount of approximately $5,400,000, which will be due two years from the date of issuance.

Total Current Assets, Trade Accounts Receivable and Working Capital

As of June 30, 2020, our total current assets were $13,405,000, as compared to $4,417,000 on December 31, 2019. The increase is primarily due to (i) the increase in cash and cash equivalents as a result from the April Convertible Notes, and (ii) the consolidation of Micronet from June 23, 2020.

As of June 30, 2020, our working capital was $1,010,000, as compared to $4,127,000 at December 31, 2019. The decrease is mainly due to the consolidated of Micronet from June 23, 2020.

Our working capital would increase if the $477,000 of proceeds from the sale of our previously wholly owned subsidiary, Enertec, are released from escrow pursuant to a certain purchase agreement (the “Share Purchase Agreement”), with Coolisys Technologies Inc., or Coolisys, a subsidiary of DPW Holdings, Inc., or DPW.

In conjunction with, and as a condition to, the closing of such transaction, the Company, Enertec, Coolisys, DPW and Mr. David Lucatz, our former Chief Executive Officer and currently a director, executed a consulting agreement (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). Pursuant to the consulting agreement, Coolisys (via Enertec) is obligated to pay us an annual consulting fee of $150,000 (the “Annual Consulting Fee”), as well as issue us 150,000 restricted shares of DPW Class A common stock (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. 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.

As of the date of this Quarterly Report on Form 10-Q, Coolisys and the Company are in dispute in connection with the sale of the Enertec shares to Coolisys. As a result of such dispute, the Escrow Amount remains in escrow following an indemnification claim issued by Coolisys, alleging that certain misrepresentations in the Share Purchase Agreement resulted in losses to Coolisys of at least $4,000,000.

As a result of such dispute, the Annual Consulting Fee has not been paid and the DPW Equity was never issued to us. The Company reserve its rights against Coolisys in such matter.

On July 21, 2020, MICT Management Ltd ., a wholly owned subsidiary of the company and the company (the “seller parties”) received a statement of claim filed by Coolisys against the Seller Parties and the Board in the District Court of Tel Aviv in the amount of $2,500,000, asking, among other things, that the Court instruct the release of the Escrow Amount held by the Escrow Agent to Coolisys (the “Claim”). The Company intends to defend its position in court. An initial response is due to be filed on or before October 25, 2020. The Company and defendant directors have issued a notice of the Claim to its D&O insurance seeking for insurance coverage.

Financing Needs

The Company will be required to support its own operational financial needs, which include, among others, our general and administrative costs (such as for our various consultants in regulatory, tax, legal, accounting and other areas of business) and our financing costs related to the loans and funding instruments assumed by us.

The Company’s (and Micronet’s) operations and business have experienced disruptions due to, among other things, the unprecedented conditions surrounding the spread of the COVID-19 virus throughout North America, Israel and the world. While the Company expects the COVID-19 pandemic to have an impact on its (and Micronet’s) business operations and financial results, the extent of the impact on the Company’s (and Micronet’s) business, its corporate development objectives, its financial position and the value of and market for its common stock will depend on future developments that are highly uncertain and cannot be predicted with confidence at this time, such as the ultimate duration of the pandemic, travel restrictions, quarantines, social distancing and business closure requirements in the United States, Israel, or elsewhere, as well as the effectiveness of actions taken globally to contain and treat the disease. Notably, COVID-19 and measures implemented to reduce the spread of the virus have limited access to the Company’s offices and have disrupted its normal interactions with certain of its accounting personnel, legal advisors, auditors and others.  Additionally, the COVID-19 outbreak has adversely affected the global economy and financial markets, which may result in a long-term economic downturn that could negatively affect future performance. The extent to which COVID-19 will impact our business and our consolidated financial results in the future will depend on future developments related to the spread of COVID-19 which are highly uncertain and cannot be predicted at the time of the filing of this Quarterly Report on Form 10-Q. The consequences of COVID-19, when combined with other events or conditions over which we have little or no control, may create a material uncertainty as to Micronet’s ability to continue as a going concern. The Company will continue to monitor the situation closely, but given the uncertainty, management cannot estimate the impact of the COVID-19 pandemic on the Company's financial statements or operations.

Pursuant to the Tender Offer and the closing of the public offering, the Company currently owns 53.39% of the outstanding Ordinary Shares of Micronet. Therefore, Micronet’s reports are consolidated in our financial statements as of June 23, 2020. Micronet believes that its highly innovative products, integrating powerful computing power, enhanced user interface and complete telematics features may create a new value proposition to telematics customers and allow Micronet to expand its reach into the fast growing segment of the telematics market, while increasing its SaaS revenues through software services.

COVID-19 has resulted in a material adverse effect on Micronet’s business and operation, 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 (see “Risk Factors” below for additional information).    

Based on our current business plan, and in view of our cash balance following the transactions described in this Item 2, we anticipate that our cash balances will be sufficient to permit us to conduct our operations and carry out our contemplated business plans for at least the next 12 months from the date of this Quarterly Report. However, we do not know if as a result of COVID-19, or as a result of MICT Telematics purchasing all ordinary shares under the Amended Tender Offer, we may utilize our cash at a faster rate than currently anticipated. We may also satisfy our liquidity through the sale of our securities, either in public or private transactions, or through the closing of the transactions contemplated by the Acquisition. We intend to use such funds in order to sustain or expand our operations.