Powerfleet, Inc 10-K, filed Mar 31, 2023

Powerfleet, Inc. (AIOT)

10-K 2023-03-31 For: 2022-12-31

Added on April 09, 2026

About this 10-K

Powerfleet, Inc filed this 10-K on March 31, 2023, covering the fiscal year ended December 31, 2022.

Headline figures

Fiscal year ended December 31, 2022, as reported in this filing, compared with the same period a year earlier where the filing states it.

Revenue: $135.16M; up 7.1% from $126.21M a year earlier
Net loss: $7M; compared with a net loss of $13.29M a year earlier

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☒	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

	For the fiscal year ended December 31, 2022.

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

	For the transition period from _______ to _______.

Delaware		83-4366463
(State or other jurisdiction of		(IRS Employer
incorporation or organization)		Identification No.)

123 Tice Boulevard, Woodcliff Lake, New Jersey		07677
(Address of principal executive offices)		(Zip Code)

Common Stock, par value $0.01 per share		PWFL		The NASDAQ Global Market
(Title of class)		(Trading Symbol)		(Name of exchange on which registered)

Large accelerated filer ☐	Accelerated filer ☒

Non-accelerated filer ☐	Smaller reporting company ☒

	Emerging growth Company ☐

Document		Part of Form 10-K

Portions of the Proxy Statement For the Registrant’s 2023 Annual Meeting of Stockholders		Part III

		Page

PART I.
Item 1.	Business	4
Item 1A.	Risk Factors	12
Item 1B.	Unresolved Staff Comments	33
Item 2.	Properties	33
Item 3.	Legal Proceedings	33
Item 4.	Mine Safety Disclosures	33

PART II.
Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	34
Item 6.	Reserved	34
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	35
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	42
Item 8.	Financial Statement and Supplementary Data	43
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	77
Item 9A.	Controls and Procedures	77
Item 9B.	Other Information	77
Item 9C.	Disclosure Regarding Foreign Jurisdictions that Prevent Inspections	77

PART III.
Item 10.	Directors, Executive Officers and Corporate Governance	78
Item 11.	Executive Compensation	78
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	78
Item 13.	Certain Relationships and Related Transactions, and Director Independence	79
Item 14.	Principal Accounting Fees and Services	79

PART IV.
Item 15.	Exhibits, Financial Statement Schedules	80
Item 16.	Form 10-K Summary	84

	●	future economic and business conditions;

	●	the loss of any of our key customers or reduction in the purchase of our products by any such customers;

	●	the failure of the markets for our products to continue to develop;

	●	our inability to adequately protect our intellectual property;

	●	our inability to manage growth;

	●	the effects of competition from a wide variety of local, regional, national and other providers of wireless solutions;

	●	changes in laws and regulations or changes in generally accepted accounting policies, rules and practices;

	●	changes in technology or products, which may be more difficult or costly, or less effective, than anticipated; and

	●	those risks and uncertainties set forth under the heading “Risk Factors” in Item 1A of this report.

	●	focusing our business solutions by vertical markets and go to market strategies to each market;

	●	positioning ourselves as an innovative thought leader;

	●	maintaining a world class sales and marketing team;

	●	identifying, seizing, and managing revenue opportunities;

	●	expanding our customer base, achieving wider market penetration and educating customers with mixed assets in their organization about our other applications;

	●	implementing improved marketing, sales and support strategies;

	○	identifying and quantifying benefits expected from our solutions;

	○	accelerating transitions from implementation to roll-out; and

	○	building service revenue through long-term SaaS contracts;

	●	differentiating our product offering through analytics, machine learning, unique sensors, and value-added services;

	●	producing incremental revenue at a high profit margin; and

	●	expanding our partnerships and integrations.

	○	OEMs;

	○	transportation management systems;

	○	warehouse management systems;

	○	labor and timecard systems;

	○	enterprise resource planning; and

	○	yard management systems.

	●	establishing relationships with global distributors; and

	●	evaluating and pursuing strategically sound acquisitions of companies.

	●	obtain licenses to continue offering such products without substantial reengineering;

	●	re-engineer our products successfully to avoid infringement;

	●	obtain licenses on commercially reasonable terms, if at all;

	●	litigate an alleged infringement successfully; or

	●	settle without substantial expense and damage awards.

	●	We have incurred significant losses and have a substantial accumulated deficit. If we cannot achieve profitability, the market price of our common stock could decline significantly.
	●	The inability of our supply chain to deliver certain key components, such as semiconductors, could materially adversely affect our business, financial condition and results of operations.
	●	We provide no assurance that we will be able to successfully integrate any businesses, products, technologies or personnel that we have acquired or might acquire in the future.
	●	Our expansion into new products, services, and technologies subjects us to additional risks.
	●	If we are unable to keep up with rapid technological change, we may be unable to meet the needs of our customers, which could materially and adversely affect our financial condition and results of operations and reduce our ability to grow our market share.
	●	We may be subject to breaches of our information technology systems, which could damage our reputation, vendor, and customer relationships, and our customers’ access to our services.
	●	The industry in which we operate is highly competitive, and competitive pressures from existing and new companies could have a material adverse effect on our financial condition and results of operations.
	●	We may not be able to successfully execute our strategic initiatives or meet our long-term financial goals.
	●	We are an international company and may be susceptible to a number of political, economic and geographic risks that could harm our business.
	●	Conditions and changes in the global economic environment may adversely affect our business and financial results.
	●	The international scope of our business exposes us to risks associated with foreign exchange rates.
	●	We may need to obtain additional capital to fund our operations that could have negative consequences on our business.
	●	If the market for our technology does not develop or become sustainable, expands more slowly than we expect or becomes saturated, our revenues will decline and our financial condition and results of operations could be materially and adversely affected.

	●	We may incur additional charges for excess and obsolete inventory, which could adversely affect our cost of sales and gross profit.
	●	The long and variable sales cycles for our solutions may cause our revenues and operating results to vary significantly from quarter to quarter or year to year.
	●	We rely significantly on channel partners to sell our products, and disruptions to, or our failure to develop and manage our channel partners would harm our business.
	●	If we are unable to protect our intellectual property rights, our financial condition and results of operations could be materially and adversely affected.
	●	We may become involved in an intellectual property dispute that could subject us to significant liability and divert the time and attention of our management and prevent us from selling our products.
	●	We rely on subcontractors to manufacture and deliver our products.
	●	Our manufacturers rely on a limited number of suppliers for several significant components used in our products.
	●	The federal government or independent standards organizations may implement significant regulations or standards that could adversely affect our ability to produce or market our products.
	●	Because our products are complex, they may have undetected errors or failures when they are introduced, which could seriously harm our business, and our product liability insurance may not adequately protect us.
	●	Changes in practices of insurance companies in the markets in which we provide and sell our SVR services and products could adversely affect our revenues and growth potential.
	●	A decline in sales of consumer or commercial vehicles in the markets in which we operate could result in reduced demand for our products and services.
	●	A reduction in vehicle theft rates may adversely impact demand for our SVR services and products.
	●	The increasing availability of handheld general packet radio service GPRS devices may reduce the demand for our products for small fleet management.
	●	The use of our products is subject to international regulations.
	●	The adoption of industry standards that do not incorporate the technology we use may decrease or eliminate the demand for our services or products and could harm our results of operations.
	●	Our financial statements may not reflect certain payments we may be required to make to employees.
	●	Some of our employees in our subsidiaries are members of labor unions and a dispute between us and any such labor union could result in a labor strike that could delay or preclude altogether our ability to generate revenues in the markets where such employees are located.
	●	Under the current laws in jurisdictions in which we operate, we may not be able to enforce non-compete covenants and therefore may be unable to prevent our competitors from benefiting from the expertise of some of our former employees.
	●	Manufacturing of many of our products is highly complex, and an interruption by suppliers, subcontractors or vendors could adversely affect our business, financial condition or results of operations.
	●	Our Israeli subsidiaries have incurred significant indebtedness to finance the Transactions.
	●	The terms of the Credit Agreement restrict Powerfleet Israel’s and Pointer’s current and future operations, particularly their ability to respond to changes or to take certain actions.
	●	If we lose our executive officers, or are unable to recruit additional personnel, our ability to manage our business could be materially and adversely affected.
	●	The unpredictability of our quarterly operating results could adversely affect the market price of our common stock.
	●	We provide financing to our customers for the purchase of our products, which may increase our credit risks in the event of a deterioration in a customer’s financial condition or in global credit conditions.
	●	Our cash and cash equivalents could be adversely affected by a downturn in the financial and credit markets.
	●	Goodwill impairment or intangible impairment charges may affect our results of operations in the future.
	●	In connection with the preparation of our annual financial statements for the fiscal year ended December 31, 2022, we identified material weaknesses in our internal control over financial reporting. Any failure to maintain effective internal control over financial reporting could harm us.
	●	We have operations located in Israel, and therefore our results may be adversely affected by political, military and economic conditions in Israel.
	●	Many of our employees in Israel are required to perform military reserve duty.
	●	We may be adversely affected by a change of the Israeli Consumer Price Index.
	●	The Argentine government may enact or enforce measures to preempt or respond to social unrest or economic turmoil which may adversely affect our business in Argentina.
	●	Economic uncertainty and volatility in Brazil may adversely affect our business.
	●	The Brazilian government has exercised, and may continue to exercise, significant influence over the Brazilian economy.
	●	Political instability in Brazil may adversely affect Brazil’s economy and investment levels and have a material adverse effect on the Company.
	●	Economic uncertainty and volatility in Mexico may adversely affect our business.
	●	Holders of our Series A Preferred Stock can exercise significant control over the Company, which could limit the ability of our stockholders to influence the outcome of key transactions, including a change of control.
	●	The Series A Preferred Stock has rights, preferences and privileges that are not held by, and are preferential to, the rights of holders of our common stock, which could adversely affect our liquidity and financial condition, and may result in the interests of the holders of Series A Preferred Stock differing from those of the holders of our common stock.
	●	Any issuance of our common stock upon conversion of the Series A Preferred Stock will cause dilution to then existing Company stockholders and may depress the market price of our common stock.
	●	The concentration of common stock ownership among our executive officers and directors could limit the ability of other stockholders of the Company to influence the outcome of corporate transactions or other matters submitted for stockholder approval.
	●	Future sales of our common stock, including sales of our common stock acquired upon the exercise of outstanding options, may cause the market price of our common stock to decline.
	●	Our Charter provides that the Court of Chancery of the State of Delaware will be the exclusive forum for certain legal actions between us and our stockholders, which could limit stockholders’ ability to obtain a judicial forum viewed by the stockholders as more favorable for disputes with us or our directors, officers or employees, and the enforceability of the exclusive forum provision may be subject to uncertainty.
	●	The Charter contains a provision renouncing our interest and expectancy in certain corporate opportunities which may prevent us from receiving the benefit of certain corporate opportunities.
	●	Provisions of Delaware law or the Charter could delay or prevent an acquisition of the Company, even if the acquisition would be beneficial to our stockholders, and could make it more difficult for stockholders to change our management.

	●	issue stock that would dilute our current stockholders’ percentage ownership;

	●	incur debt;

	●	assume liabilities;

	●	incur expenses related to the impairment of goodwill; or

	●	incur large and immediate write-offs.

	●	problems integrating the acquired operations, personnel, technologies or products;

	●	unanticipated costs;

	●	diversion of management’s time and attention from our core businesses;

	●	adverse effects on existing business relationships with suppliers and customers;

	●	risks associated with entering markets in which we have no or limited prior experience; and

	●	potential loss of key employees, particularly those of acquired companies.

	●	advances in technology;

	●	new product introductions;

	●	evolving industry standards;

	●	product improvements;

	●	rapidly changing customer needs;

	●	intellectual property invention and protection;

	●	marketing and distribution capabilities;

	●	ability to attract and retain highly skilled professionals;

	●	competition from highly capitalized companies;

	●	entrance of new competitors;

	●	ability of customers to invest in information technology; and

	●	price competition.

	●	unexpected changes in regulatory requirements;

	●	fluctuations in international currency exchange rates including its impact on unhedgeable currencies and our forecast variations for hedgeable currencies;

	●	imposition of tariffs and other barriers and restrictions;

	●	management and operation of an enterprise spread over various countries;

	●	the burden of complying with a variety of laws and regulations in various countries;

	●	application of the income tax laws and regulations of multiple jurisdictions, including relatively low-rate and relatively high-rate jurisdictions, to our sales and other transactions, which results in additional complexity and uncertainty;

	●	the conduct of unethical business practices in certain developing countries;

	●	general economic and geopolitical conditions, including inflation and trade relationships;

	●	war and acts of terrorism;

	●	kidnapping and high crime rate;

	●	natural disasters or pandemics (for example, the COVID-19 pandemic);

	●	availability of U.S. dollars especially in countries with economies highly dependent on resource exports, particularly oil; and

	●	changes in export regulations.

	●	pay substantial damages to the party making such claim;

	●	stop selling, making, having made or using products or services that incorporate the challenged intellectual property;

	●	obtain from the holder of the infringed intellectual property right a license to sell, make or use the relevant technology, which license may not be available on commercially reasonable terms, or at all; or

	●	redesign those products or services that incorporate such intellectual property.

	●	unavailability of materials and interruptions in delivery of components and raw materials from our suppliers, which could result in manufacturing delays; and

	●	fluctuations in the quality and price of components and raw materials.

	●	our insurance will provide adequate coverage against potential liabilities if our products cause harm or fail to perform as promised; or

	●	adequate product liability insurance will continue to be available to us in the future on commercially reasonable terms or at all.

	●	incur or guarantee additional indebtedness;

	●	incur liens;

	●	sell or otherwise dispose of assets;

	●	enter into transactions with affiliates; and

	●	enter into new lines of business.

	●	limited in our flexibility in planning for, or reacting to, changes in our business and the markets we serve;

	●	unable to raise additional debt or equity financing to fund working capital, capital expenditures, new product development expenses and other general corporate requirements; or

	●	unable to compete effectively or to take advantage of new business or strategic acquisition opportunities.

	●	variations in the sales of our products to our significant customers;

	●	variations in the mix of products and services provided by us;

	●	the timing and completion of initial programs and larger or enterprise-wide purchases of our products by our customers;

	●	the length and variability of the sales cycle for our products;

	●	the timing and size of sales;

	●	changes in market and economic conditions, including fluctuations in demand for our products; and

	●	announcements of new products by our competitors.

	●	devaluations and other exchange rate movements;
	●	inflation;
	●	investments;
	●	exchange control policies;
	●	employment levels;
	●	social instability;
	●	price instability;
	●	energy shortages;
	●	interest rates;
	●	liquidity of domestic capital and lending markets;
	●	tax policy; and
	●	other political, diplomatic, social and economic developments in or affecting Brazil, including election years for president, governors, and national congress.

	●	the election of directors;
	●	adoption of stock option or other equity incentive compensation plans;
	●	the amendment of our organizational documents; and
	●	the approval of certain mergers and other significant corporate transactions, including a sale of substantially all of our assets.

Period	Total Number of Shares Purchased		Average Price Paid per Share			Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs		Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs

October 1, 2022 - October 31, 2022		-	$	-		$	-	$	-
November 1, 2022 - November 30, 2022		6,000	$	2.76	(1)	$	-	$	-
December 1, 2022 - December 31, 2022		-	$	-		$	-	$	-
Total		6,000	$	2.76		$	-	$	-

	Year Ended December 31,
	2020			2021			2022

Revenue:
Products		40.2	%		42.0	%		41.7	%
Services		59.8	%		58.0	%		58.3	%
		100.0	%		100.0	%		100.0	%
Cost of Revenue:
Cost of products		26.6	%		31.2	%		31.5	%
Cost of services		21.4	%		21.1	%		21.0	%
		48.0	%		52.3	%		52.5	%

Gross profit		52.0	%		47.7	%		47.5	%

Operating expenses:
Selling, general and administrative expenses		45.7	%		45.2	%		46.6	%
Research and development expenses		9.3	%		8.8	%		6.7	%
Total operating expenses		55.0	%		54.0	%		53.3	%

Loss from operations		-3.0	%		-6.3	%		-5.8	%

Interest income		0.1	%		0.0	%		0.1	%
Interest expense		-3.9	%		-2.2	%		0.7	%
Other income (expenses) net,		-0.1	%		0.0	%		0.0	%
Net loss before income taxes		-7.0	%		-8.5	%		-5.0	%
Income tax benefit (expense)		-0.9	%		-2.0	%		-0.2	%
Net loss before non-controlling interest		-7.9	%		-10.5	%		-5.2	%
Non-controlling interest		0.0	%		0.0	%		0.0	%

Net loss		-7.9	%		-10.5	%		-5.2	%
Accretion of preferred stock		-0.6	%		-0.5	%		-0.5	%
Preferred stock dividend		-3.5	%		-3.3	%		-3.1	%
Net loss attributable to common shareholders		-11.9	%		-14.3	%		-8.8	%

	●	an increase in accounts receivable of $1.6 million;
	●	an increase in inventory of $4.5 million;
	●	a decrease in lease liabilities of $2.7 million;
	●	a decrease in accounts payable and accrued expenses of $0.5 million.

	●	an increase in accounts receivable of $9.7 million;
	●	an increase in inventory of $6.1 million; and
	●	an increase in accounts payable and accrued expenses of $8.3 million.

	Page

Report of Independent Registered Public Accounting Firm (PCAOB ID No. 42)	44
Consolidated Balance Sheets at December 31, 2021 and 2022	47
Consolidated Statements of Operations for the Years Ended December 31, 2020, 2021 and 2022	48
Consolidated Statements of Comprehensive Loss for the Years Ended December 31, 2020, 2021 and 2022	49
Consolidated Statements of Changes in Stockholders’ Equity for the Years Ended December 31, 2020, 2021 and 2022	50
Consolidated Statements of Cash Flows for the Years Ended December 31, 2020, 2021 and 2022	51
Notes to the Consolidated Financial Statements	52

Description of the Matter		At December 31, 2022, the Company’s goodwill was $83.5 million. As discussed in Note 2 and 7 to the consolidated financial statements, goodwill is tested for impairment at least annually at the reporting unit level. Auditing management’s annual goodwill impairment test was complex and highly judgmental due to the significant estimations required to determine the fair value of the reporting unit. In particular, the fair value estimates were sensitive to significant assumptions, including the weighted average cost of capital, revenues, cost growth and terminal growth rate all of which are affected by expectations about future operations and market conditions.

How We Addressed the Matter in Our Audit		We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over the Company’s goodwill impairment review process, including controls over management’s development and review of the significant assumptions described above and review of the reasonableness of the data utilized in the Company’s valuation analysis. To test the fair value of the Company’s reporting unit, we performed audit procedures that included, among others, assessing methodologies and testing the significant assumptions discussed above and the underlying data used by the Company in its analysis. We compared the significant assumptions used by management to current industry and economic trends, including key performance indicators, and evaluated whether changes in the company’s business would affect the significant assumptions. We assessed the historical accuracy of management’s estimates and performed sensitivity analyses of significant assumptions to evaluate the changes in the fair value of the reporting units that would result from changes in the assumptions. In performing our testing, we utilized internal valuation specialists to assist us in evaluating the Company’s valuation model and related significant assumptions

		Income Taxes – Uncertain Tax Positions

Description of the Matter		As discussed in Note 16 of the consolidated financial statements, the Company has recorded a liability of $0.4 million related to uncertain tax positions as of December 31, 2022. The Company conducts business in the US and various foreign countries and is therefore subject to US federal and state income taxes, as well as income taxes of multiple foreign jurisdictions. Due to the multinational operations of the Company and changes in global income tax laws and regulations, including those in the US, there is complexity in the accounting for and monitoring of the provision for uncertain tax positions. Auditing management’s identification and measurement of uncertain tax positions involved complex analysis and auditor judgment related to the evaluation of the income tax consequences of changes in income tax laws and regulations in various jurisdictions, which are often subject to interpretation.

How We Addressed the Matter in Our Audit		Our audit procedures included, among others, evaluating the Company’s assumptions and the underlying data used to identify its uncertain tax positions and to estimate the amount of the related unrecognized income tax benefits by jurisdiction. We obtained an understanding of the Company’s legal structure by reviewing its organizational charts and related legal documents. Due to the complexity of the tax law in various jurisdictions, we involved our income tax professionals to assess the Company’s interpretation of and compliance with tax laws in these jurisdictions, as well as to identify relevant tax law changes. In certain circumstances, we involved our income tax professionals to evaluate the technical merits of the Company’s tax positions and to evaluate income tax opinions or other third-party advice obtained by the Company.