NOTE 7 —SUBSEQUENT EVENTS

On June 4,23, 2020, the company completed the special tender offer (the “Tender Offer”), in which the Company successfully 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, 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 3,100,000 (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 on previously held equity in Micronet.

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 substantial doubt upon Micronet’s ability to continue as a going concern.

The company income and net loss as presented if the Company's acquisition date had occurred at the beginning of the annual reporting period

NOTE 6 — GAIN OF CONTROL OF SUBSIDIARY- Micronet Acquisition (Cont.)

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

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

Micronet Ltd. Purchase Price Allocation

(USD In Thousands)

NOTE 7 — Loan to Micronet Ltd.

On September 19, 2019, MICT Telematics entered into a loan agreement with Micronet, pursuant to which MICT Telematics loaned Micronet $250,000 (the “First Loan”), on certain terms and conditions. The proceeds from the First Loan were designated, per the terms of the First Loan, for Micronet’s working capital and general corporate needs. The First Loan did not bear any interest and was due and payable upon the earlier of (i) December 31, 2019; or (ii) at such time Micronet receives an investment of at least $250,000 from non-related parties.

In view of Micronet’s working capital needs, on November 18, 2019, the Company entered into an additional loan agreement with Micronet for the loan of $125,000 (the “Second Loan”), pursuant to terms and conditions identical to those governing the First Loan, including the repayment terms. Accordingly, prior to the approval of the Convertible Loan by Micronet’s shareholders on January 1, 2020, the Company had transferred to Micronet, pursuant to the First Loan and Second Loan, a Securities Purchase Agreement,total sum of $375,000.

On November 13, 2019, the Company and Micronet executed a convertible loan agreement pursuant to which the Company agreed to sell 3,181,818loan 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 newly designated Series Aa conversion of the Initial Convertible Preferred Stock with a stated valueLoan (“Convertible Loan Warrant”), at an exercise price of $2.200.60 NIS per share, orexercisable for a period of 15 months. On January 1, 2020, the Preferred Stock. The Preferred Stock,Initial Convertible Loan transaction was approved at a general meeting of the Micronet shareholders and as a result thereof, Convertible Loan and the transactions contemplated thereby went into effect. As further amended on May 14, 2020 and on May 27, 2020, Micronet and the Company entered into amendments to the Initial Convertible Loan (the “Amended Convertible Loan”), to amend the conversion price and exercise price, as the case may be, to 0.14 NIS and subsequently to 0.16 NIS, which, is subject to the approval of the Micronet shareholders. On June 25, 2020 Micronet’s shareholders did not approve the Amendments to the Initial Convertible Loan and the Second Convertible Loan (as defined below). As a result of such voting results, the terms of the Initial Convertible Loan remained unchanged.

On January 1, 2020, the 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 Convertible Loan, in the sum of $125,000, was loaned to Micronet.

The Company recognized an impairment loss on financial assets derived from the measurement performed by comparing the quoted market price of Micronet’s shares on the TASE at its carrying value. As of March 30, 2020, the Company recorded a financial expense on the Convertible Loan in the amount of $272,000, and the company canceled the recording of this impairment in the second quarter of 2020 as a result of the consolidation Micronet.

NOTE 8 — Note Purchase Agreements

On April 21, 2020, the Company entered into the April Purchase Agreements with the PIPE Purchasers, pursuant to which, among other things, the PIPE Purchasers agreed, subject to the satisfaction or waiver of the conditions set forth in the April Purchase Agreement, to purchase from the Company April Convertible Notes, with an aggregate principal amount of approximately $11,000,000. The April Convertible Notes shall be convertible into up to 6,363,636 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. The Company is obligated to pay interest to the PIPE 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 its common stock. On April 2020, the Company Received an aggregate principal amount of approximately $5,400,000 and in May and June 2020, we 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 we will ever receive the proceeds expected to be realized in connection therewith.

NOTE 9 — SUBSEQUENT EVENTS

On July 1, 2020, the Company completed the Acquisition of GFH Intermediate Holdings Ltd., a British Virgin Islands company (“Intermediate”), pursuant to the previously announced Agreement and Plan of Merger entered into on November 7, 2019 by and between the Company, Intermediate, Global Fintech Holding Ltd., a British Virgin Islands company and the sole shareholder of Intermediate (“GFH”), 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, 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 sold together with certain warrants to purchase up to 4,772,727convertible 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 aggregate gross proceedsbusiness opportunities in various verticals and technology segments, including the online trading of $7,000stock, oil and gas, and recyclable metal and insurance brokerage (collectively, the “Platforms”). 

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 Company, or the Preferred Offering. Between July 29, 2019Platforms initially in China and, July 31, 2019, the Company completed closingsthereafter, to other areas of the Preferred Offering, pursuantworld.  MICT aims, and believes that Intermediate has been well positioned, to whichestablish itself as an operator of leading fin-tech platforms, and it sold 2,386,363 sharesintends to continuously improve the capabilities of Preferred Stock and 3,579,544 accompanying warrants for aggregate gross proceedssuch platforms through further acquisitions or license of $5,250.technologies. 

On July 18, 2019,8, 2020, the Company receivedentered into a written notice from Coolisys directed to the escrow agent, IBI Trust Management, regarding the funds being held in escrow relating to the Shareseries of additional Purchase Agreement relating to the sale of Enertec. The notice alleges thatAgreements with certain escrowed funds should not be released to the Company to satisfy certain claims for indemnity that are being asserted against Enertec Management Ltd. As a result, the escrow agent is therefore required to reserve all of the escrowed funds until the matter is resolved.

On July 29, 2019, the Company completed the first closing in the Preferred Offering,Purchasers pursuant to which it sold an aggregate of 2,386,363 shares of Preferred Stock and 3,579,544 accompanying warrants for aggregate gross proceeds of $5,250.

The Company received $1,500 on July 31, 2019 (after payment of certain offering expenses) in connection with the Convertible Notes – See note 3.

In ordersuch Purchasers agreed to mitigate the effect and manage the delays and decrease in its sales, Micronet intends to continue implementing operational and business processes with the aim of increasing its efficiency, particularly related to its manufacturing process, increasing credit lines and sources from banks or other funding sources (such as government grants) and engaging in the realization of its real estate asset. Micronet is also examining additional possibilities for raising capital in the public and private markets. In addition, it received a commitmentpurchase from the Company for financial supportConvertible 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).

On August 13, 2020, MICT Telematics extended to Micronet a loan in the aggregate amount of up to $500, in$175,000 (the “Loan” and the absence of its ability to secure other sources of financing.

“Loan Sum”, respectively) that will replace the existing 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.

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 on Form 10-Q 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, 2018.2019 (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 on Form 10-Q.Report.

Overview

The Company’s business relates to its ownership interest in its Israel-based subsidiary, Micronet Ltd., or (“Micronet in which the Company previously held a majority ownership interest that has since been diluted to a minority ownership interest.”). 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, wethe Company held 49.89% of Micronet’s issued and outstanding shares, and together with an irrevocable proxy in our benefit from Mr. David Lucatz, ourthe 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 or the TASE.(the “TASE”). As a result of Micronet’s offering, our ownership interest in Micronet was diluted from 49.89% to 33.88%. On February 24,September 5, 2019, Mr. David Lucatz, our President and Chief Executive Officer, executed an irrevocable proxy assigning his voting power over 1,980,000 shares of Micronet for our benefit.closed a public equity offering on the TASE. As a result, our current votingownership interest in Micronet stands at 39.53% of the issued and outstanding shares of 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 fromon February 24, 2019, the Company will accountaccounted for the investmentits ownership in Micronet in accordance with the equity method.

On December 31, 2017, the Company, 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 the Company 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. Enertec met the definition of a component as defined by Accounting Standards Codification Topic 205. The Company believes the sale represents a strategic shift in its business. Accordingly, its assets and liabilities were classified as held for sale and the results of operations in the statement of operations and prior periods’ results have been reclassified as a discontinued operation. On May 22, 2018, the Company closed on the sale, or the Closing, of all of the outstanding equity of Enertec pursuant to the Share Purchase Agreement.

At the Closing, the Company 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. Therefore, the Company has recorded such escrowed amount on its balance sheet as restricted cash and a liability. 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 $4,000,000deconsolidation, the Company recognized a net gain of Enertec’s debt. The Company’s capital gain from the sale of Enertec, based on the Company’s balance sheet at the closing date was $6,844,000.$299,000 in February 2019.

On July 18, 2019, the Company received a written notice from Coolisys directed to the escrow agent, IBI Trust Management, regarding the funds being held in escrow relating to the Share Purchase Agreement relating to the sale of Enertec. The notice alleges that certain escrowed funds should not be released to the Company to satisfy certain claims for indemnity that are being asserted against Enertec Management Ltd. As a result, the escrow agent is therefore required to reserve all of the escrowed funds until the matter is resolved.

On December 18, 2018, the Company, Global Fintech Holdings Ltd., a British Virgin Islands corporation, or BVI Pubco, GFH Merger Subsidiary, Inc., a Delaware corporation and a wholly-owned subsidiary of BVI Pubco, or Merger Sub, BNN Technology PLC, a United Kingdom Private limited company, or BNN, Brookfield Interactive (Hong Kong) Limited, a Hong Kong company and a subsidiary of BNN, or BI China, ParagonEx LTD, a British Virgin Islands company, or ParagonEx, certain holders of ParagonEx’s outstanding ordinary shares and a trustee thereof, and Mark Gershinson, in the capacity as the representative of the ParagonEx sellers, entered into an Acquisition Agreement, or the Acquisition Agreement, pursuant to which, among other things, subject to the satisfaction or waiver of the conditions set forth in the Acquisition Agreement, Merger Sub will merge with and into the Company, as a result of which each outstanding share of the Company’s common stock and warrant to purchase the same shall be cancelled in exchange for the right of the holders thereof to receive 0.93 substantially equivalent securities of BVI Pubco, after which BVI Pubco will acquire (i) all of the issued and outstanding securities of BI China in exchange for newly issued ordinary shares of BVI Pubco and (ii) all of the issued and outstanding ordinary shares of ParagonEx for a combination of cash in the amount equal to approximately $25 million (the majority of which was raised in a private placement by BVI Pubco), unsecured promissory notes and newly issued ordinary shares of BVI Pubco. On In June 5, 2019, BNN announced that it had terminated its tender offer to purchase up to 1,953,423 shares of the Company’s common stock in accordance with the Acquisition Agreement.

On June 4, 2019, the Company entered into a Securities Purchase Agreement, pursuant to which the Company agreed to sell 3,181,818 shares of newly designated Series A Convertible Preferred Stock with a stated value of $2.20 per share, or the Preferred Stock. The Preferred Stock, which shall be convertible into up to 6,363,636 shares of common stock of the Company, was sold together with certain common stock purchase warrants, or the Preferred Warrants, to purchase up to 4,772,727 shares of common stock, for aggregate gross proceeds of $7 million to the Company, or the Preferred Offering.

Concurrently with the Preferred Offering, the Company entered into a Securities Purchase Agreement, or the Note Purchase Agreement with BNN, pursuant to which BNN agreed to purchase from the Company $2 million$2,000,000 of convertible notes (the “BNN Notes”), which subscription amount shall be subject to increase by up to an additional $1 million as determined byissued on July 31, 2019. The BNN and the Company, or collectively, the Convertible Notes. The Convertible Notes, which shall be convertible into up to 2,727,272 shares of common stock, shall bewere sold together with certain common stock purchase warrants to purchase up to 2,727,272 shares of common stock. The ConvertibleBNN Notes shall haveinitially 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.

Loss of Control of Micronet Ltd.On November 7, 2019, the Company, Intermediate, and MICT Merger Subsidiary entered into the Original Agreement.

AsOn April 15, 2020, the Company, Intermediate, GFH, the sole shareholder of December 31, 2018, we held 49.89%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 issuedordinary shares (the “Ordinary Shares”), in the aggregate amount of NIS 1,800,000 (or $515,000) offered in the Tender Offer, and outstanding shares, and together with an irrevocable proxy in our benefit from Mr. David Lucatz, our President and Chief Executive Officer, we held 50.07%the closing of the votingpublic 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 asin 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 such date. On February 24, 2019, Micronet closedthe Acquisition, each outstanding share of Intermediate was cancelled in exchange for a public equity offering onconvertible promissory note in the TASE. As a resultprincipal amount of Micronet’s offering, our ownership interest in Micronet was diluted from 49.89% to 33.88%. On February 24, 2019, Mr. David Lucatz, our President and Chief Executive Officer, executed an irrevocable proxy assigning his voting power over 1,980,000$25,000,000 (the “Consideration Note”), which Convertible Note shall be convertible into shares of Micronet for our benefit. Ascommon stock of MICT at a result, our current voting interest in Micronet stands at 39.53%conversion price of the issued and outstanding shares of Micronet. The decrease$1.10 per share, subject to stockholder approval.

Intermediate is a financial technology company with a significant China marketplace. Intermediate is currently in the Company’s voting interestprocess of building various platforms for business opportunities in Micronet resulted invarious verticals and technology segments, including the lossonline trading of control of Micronet. As a result, effective as of February 24, 2019, we no longer include Micronet’s operating results in our financial statements. Therefore, commencing from February 24, 2019,stock, oil and gas, and recyclable metal and insurance brokerage (collectively, the Company will account for the investment in Micronet in accordance with the equity method.

While Micronet is a publicly traded company in Israel, its shareholder base is widely spread and we continue to be Micronet’s largest shareholder, controlling 39.53% of its issued and outstanding shares. We believe that since most items that may require shareholder approval required majority consent, we exert a high level of influence over such voting matters which may include the appointment and removal of directors. In that regard, to date, we have appointed a majority of the directors of Micronet’s board of directors.

Based on the above, although we are unable to fully consolidate Micronet’s financial statements according to U.S. GAAP, we also do not consider Micronet to be a discontinued operation since we consider ourselves in effective control of Micronet and the raising of equity by Micronet that diluted our interests was done in order to continue its operations.

The following is the composition from Micronet’s operation for the six months ended June 30, 2019 and June 30, 2018, respectively:

“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:

MicronetLTD Purchase Price Allocation

(USD In Thousands)

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 voting interestholding in Micronet (including voting power associated with an irrevocable proxy in our benefit from Mr. David Lucatz, our President and Chief Executive Officer) waswere reduced to 39.53%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 from January 1, 2019 until February 24, 2019 only.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, 2019,2020, Compared to Three and Six Months Ended June 30, 2018 2019

Revenues

Revenues for the three and six months ended June 30, 20192020 were $0 and $477,000,$0, respectively, compared to $4,701,000$0 and $10,681,000 for the three and six months ended June 30, 2018, respectively. This represents a decrease of $4,701,000 and $10,204,000, respectively, or 100% and 96%,$477,000 for the three and six months ended June 30, 2019, respectively. TheThis represents a decrease in revenuesof $0 and $477,000, respectively, or 0% and 100%, for the three and six months ended June 30, 20192020, 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 as well as a decrease in customer orders, and their value, a trend that has continued from the fiscal year ended December 31, 2018.up until June 23, 2020.

Gross Loss

Gross lossprofit for the three and six months ended June 30, 2019 decreased2020 increased by $1,532,000$0 and $3,623,000,$369,000, respectively, to $0 and $0. This is in comparison to gross loss of $0 and $369,000, and represents 0% and 77%, respectively of the revenues. This is in comparison to gross profit of $1,532,000 and $3,254,000, and represents 33% and 30% of the revenues for the three and six months ended June 30, 2018,2019, respectively. The increase in gross lossprofit for the three and six months ended June 30, 20192020, respectively is mainly a result of the deconsolidation ofdilution in our ownership and voting interests in Micronet, as well as the decreasecausing us to cease consolidating Micronet’s operations in revenues and slow inventory reduction at Micronet for the two month period that Micronet consolidated.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, 20192020 were $0 and $198,000,$0, respectively, compared to $380,000$0 and $834,000$198,000 for the three and six months ended June 30, 2018,2019, respectively. This represents a decrease of $380,000$0 and $636,000,$198,000, or 100%0% and 76%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 as well as a decrease in salary expenses due to the reduction of employees and subcontractors at Micronet.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, 20192020 were $668,000 and $1,438,000, respectively, compared to $670,000 and $1,660,000 respectively, compared to $1,314,000 and $2,526,000 for the three and six months ended June 30, 2018,2019, respectively. This represents a decrease of $644,000$2,000 and $866,000,$222,000, respectively, or 49%0% and 34%13%, for the three and six months ended June 30, 2019,2020, 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 as well as decreases in wages and professional services at Micronet and partially offset by (1) an increase associated with the issuance of options and shares to directors, employees and consultants, and (2) a provision for doubtful debts.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, 2019,2020, were $0 and $261,000,$0, respectively, compared to $505,000$0 and $1,032,000$261,000 for the three and six months ended June 30, 2018,2019, respectively. This represents a decrease of $505,000$0 and $771,000,$261,000, or 100%0% and 75%100%, for the three and six months ended June 30, 2019,2020, respectively. The decrease in research and development costs for the three and six months ended June 30, 20192020 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 as well as a decrease in salary expenses due to a decrease in the number of employees at Micronet.up until June 23, 2020.

Loss from Operations

Our loss from operations for the three and six months ended June 30, 20192020 was $670,000$668,000 and $2,508,000,$1,438,000, compared to a loss from operations of $883,000$670,000 and $1,576,000,$2,508,000, for the three and six months ended June 30, 2018,2019, respectively. The decrease in loss from operations for the three and six months ended June 30, 20192020 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 as well as the decrease in revenues described above.up until June 23, 2020.

Financial Income (Expenses), netNet

Financial (income) expenses, net for the three and six months ended June 30, 20192020 were $(381,000) and $(157,000) compared to $(22,000) and $54,000 compared to $460,000 and $852,000 for the three and six months ended June 30, 2018,2019, respectively. This represents a decreasean increase in financial expenses of $438,000$359,000 and $906,000,$211,000, for the three and six months ended June 30, 2019.2020. The decreaseincrease in financial income,(income) expenses, net for the threesix months ended June 30, 2019,2020, 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 Profit/LossIncome (Loss) Attributed to MICT Inc.

Our net lossincome (loss) attributed to MICT, Inc. for the three and six months ended June 30, 2019,2020, respectively, was $1,102,000$227,000 and $2,012,000,$(1,408,000), compared to net incomeloss of $3,496,000$1,102,000 and $2,646,000$2,012,000 for the three and six months ended June 30, 2018,2019, respectively. This represents a changean increase of $4,598,000$1,329,000 and $4,658,000$604,000 for the three and six months ended June 30, 2019,2020, respectively, as compared to the same period last year. The increase in net loss for the three and six months ended June 30, 20192020 is primarily attributable to the decreasemainly a result of gain on previously held equity in revenues and the changeMicronet in the consolidation period relating to the Company’s holdingsamount of Micronet’s equity securities.$665,000.