Powerfleet, Inc 10-K/A, filed Aug 26, 2022
Powerfleet, Inc. (AIOT)
About this 10-K/A
Powerfleet, Inc filed this 10-K/A on August 26, 2022, covering the fiscal year ended December 31, 2021.
Headline figures
Fiscal year ended December 31, 2021, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $126.21M
- up 11.1% from $113.59M a year earlier
- Net loss
- $13.29M
- compared with a net loss of $9.01M a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Amendment No. 2)
(Mark One)
| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
| For
the fiscal year ended | |
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
| For the transition period from _______ to _______. |
Commission
file number:
(Exact name of registrant as specified in its charter)
| (State or other jurisdiction of | (IRS Employer | |
| incorporation or organization) | Identification No.) |
| (Address of principal executive offices) | (Zip Code) |
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| The
| ||||
| (Title of class) | (Trading Symbol) | (Name of exchange on which registered) |
Securities registered pursuant to Section 12(g) of the Act: None
Indicate
by checkmark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐
Indicate
by checkmark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes ☐
Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Indicate
by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule
405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant
was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer ☐ | |
| Non-accelerated filer ☐ | Smaller
reporting company |
| Emerging
growth Company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate
by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness
of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered
public accounting firm that prepared or issued its audit report.
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐
The
aggregate market value of the registrant’s common stock, par value $0.01 per share (“Common Stock”), held by non-affiliates,
computed by reference to the price at which the Common Stock was last sold as of June 30, 2021, the last business day of the registrant’s
most recently completed second fiscal quarter, was approximately $
The number of shares of the registrant’s Common Stock outstanding as of August 4, 2022 was shares.
DOCUMENTS INCORPORATED BY REFERENCE
| Auditor Firm ID | Auditor Name | Auditor Location | ||
explanatory note
This Amendment No. 2 is being filed solely to correct a typographical error in the Report of Independent Registered Public Accounting Firm (the “Audit Opinion”) of Ernst & Young LLP (“EY”) contained in the 2021 Annual Report, by replacing “December 31, 2020” with “December 31, 2021” under the section titled “Critical Audit Matters” in the Audit Opinion. In addition, this Amendment No. 2 includes a new consent of EY as Exhibit 23.1 hereto and new certifications pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act of 2002 as Exhibits 31.1, 31.2, 32.1 and 32.2 hereto.
Pursuant to Rule 12b-15 promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), we have repeated the entire text of Item 8 of the 2021 Annual Report in this Amendment No. 2. However, there have been no changes to the Company’s financial statements and notes thereto or the text of such item (other than the change stated in the immediately preceding paragraph to replace “December 31, 2020” with “December 31, 2021” under the section titled “Critical Audit Matters” in the Audit Opinion).
Except as described above, no other amendments are being made to the 2021 Annual Report. This Amendment No. 2 does not reflect events occurring after Original Filing Date or modify or update any disclosure contained in the 2021 Annual Report in any way other than to reflect the amendments discussed above and reflected below. Accordingly, this Amendment No. 2 should be read in conjunction with the 2021 Annual Report and our other filings with the SEC.
| 2 |
POWERFLEET, INC.
TABLE OF CONTENTS
| Page | ||
| PART II. | ||
| Item 8. | Financial Statements and Supplementary Data | 4 |
| PART IV. | ||
| Item 15. | Exhibits, Financial Statement Schedules | 42 |
| 3 |
PART II
Item 8. Financial Statements and Supplementary Data.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
| 4 |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and the Board of Directors of PowerFleet, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of PowerFleet, Inc. and subsidiaries (the Company) as of December 31, 2021 and 2020, the related consolidated statements of operations, comprehensive loss, cash flows, and changes in stockholders’ equity for each of the three years in the period ended December 31, 2021, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2021, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated March 16, 2022 expressed an adverse opinion thereon.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
| Income Taxes – Uncertain Tax Positions | ||
| Description of the Matter | As discussed in Note 17 of the consolidated financial statements, the Company has recorded a liability of $0.5 million related to uncertain tax positions as of December 31, 2021. 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. We also evaluated the Company’s income tax disclosures included in Note 17 to the consolidated financial statements in relation to these matters. |
| /s/ Ernst & Young LLP | |
| We served as the Company’s auditor since 2019. | |
| Iselin, New Jersey | |
| March 16, 2022 |
| 5 |
Report of Independent Registered Public Accounting Firm
To the Stockholders and the Board of Directors of PowerFleet, Inc.
Opinion on Internal Control Over Financial Reporting
We have audited PowerFleet, Inc. and subsidiaries internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, because of the effect of the material weakness described below on the achievement of the objectives of the control criteria, PowerFleet, Inc. and subsidiaries (the Company) has not maintained effective internal control over financial reporting as of December 31, 2021, based on the COSO criteria.
A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company’s annual or interim financial statements will not be prevented or detected on a timely basis. The following material weakness has been identified and included in management’s assessment. Management has identified a material weakness in controls related to various processes at the company’s Israel component.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2021 and 2020, the related consolidated statements of operations, comprehensive loss, cash flows, and changes in stockholders’ equity for each of the three years in the period ended December 31, 2021, and the related notes. This material weakness was considered in determining the nature, timing and extent of audit tests applied in our audit of the 2021 consolidated financial statements, and this report does not affect our report dated March 16, 2022, which expressed an unqualified opinion thereon.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.
Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ Ernst & Young LLP
Iselin, New Jersey
March 16, 2022
| 6 |
POWERFLEET, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(In thousands, except per share data)
| As of December 31, | ||||||||
| 2020 | 2021 | |||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Restricted cash | ||||||||
| Accounts receivable, net
of allowance for doubtful accounts of $ | ||||||||
| Inventory, net | ||||||||
| Deferred costs - current | ||||||||
| Prepaid expenses and other current assets | ||||||||
| Total current assets | ||||||||
| Deferred costs - less current portion | ||||||||
| Fixed assets, net | ||||||||
| Goodwill | ||||||||
| Intangible assets, net | ||||||||
| Right of use asset | ||||||||
| Severance payable fund | ||||||||
| Deferred tax asset | ||||||||
| Other assets | ||||||||
| Total assets | $ | $ | ||||||
| LIABILITIES | ||||||||
| Current liabilities: | ||||||||
| Short-term bank debt and current maturities of long-term debt | ||||||||
| Accounts payable and accrued expenses | ||||||||
| Deferred revenue - current | ||||||||
| Lease liability - current | ||||||||
| Total current liabilities | ||||||||
| Long-term debt, less current maturities | ||||||||
| Deferred revenue - less current portion | ||||||||
| Lease liability - less current portion | ||||||||
| Accrued severance payable | ||||||||
| Deferred tax liability | ||||||||
| Other long-term liabilities | ||||||||
| Total liabilities | ||||||||
| Commitments and Contingencies (note 21) | ||||||||
| MEZZANINE EQUITY | ||||||||
| Convertible redeemable preferred stock: Series A – shares authorized, $ par value; and shares issued and outstanding at December 31, 2020 and December 31, 2021 | ||||||||
| Preferred stock; authorized shares, $ par value; | ||||||||
| Common stock; authorized shares, $ par value; and shares issued at December 31, 2020 and December 31, 2021, respectively; shares outstanding, and at December 31, 2020 and December 31, 2021, respectively | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Accumulated other comprehensive gain (loss) | ||||||||
| Treasury stock; and common shares at cost at December 31, 2020 and December 31, 2021, respectively | ( | ) | ( | ) | ||||
| Total Powerfleet, Inc. stockholders’ equity | ||||||||
| Non-controlling interest | ||||||||
| Total equity | ||||||||
| Total liabilities and stockholders’ equity | $ | $ | ||||||
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
| 7 |
POWERFLEET, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
(In thousands, except per share data)
| Year Ended December 31, | ||||||||||||
| 2019 | 2020 | 2021 | ||||||||||
| Revenues: | ||||||||||||
| Products | $ | $ | $ | |||||||||
| Services | ||||||||||||
| Total revenues | ||||||||||||
| Cost of Revenues: | ||||||||||||
| Cost of products | ||||||||||||
| Cost of services | ||||||||||||
| Total cost of revenue | ||||||||||||
| Gross profit | ||||||||||||
| Operating expenses: | ||||||||||||
| Selling, general and administrative expenses | ||||||||||||
| Research and development expenses | ||||||||||||
| Acquisition related expenses | ||||||||||||
| Total Operating expenses | ||||||||||||
| Loss from operations | ( | ) | ( | ) | ( | ) | ||||||
| Interest income | ||||||||||||
| Interest expense | ( | ) | ( | ) | ( | ) | ||||||
| Other (expense) income, net | ( | ) | ( | ) | ||||||||
| Net loss before income taxes | ( | ) | ( | ) | ( | ) | ||||||
| Income tax benefit (expense) | ( | ) | ( | ) | ||||||||
| Net loss before non-controlling interest | ( | ) | ( | ) | ( | ) | ||||||
| Non-controlling interest | ||||||||||||
| Net loss | ( | ) | ( | ) | ( | ) | ||||||
| Accretion of preferred stock | ( | ) | ( | ) | ( | ) | ||||||
| Preferred stock dividends | ( | ) | ( | ) | ( | ) | ||||||
| Net loss attributable to common stockholders | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||
| Net loss per share attributable to common stockholders - basic and diluted | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||
| Weighted average common shares outstanding - basic and diluted | ||||||||||||
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
| 8 |
POWERFLEET, INC. AND SUBSIDIARIES
Consolidated Statements of Comprehensive Loss
(In thousands, except per share data)
| December 31, | ||||||||||||
| 2019 | 2020 | 2021 | ||||||||||
| Net loss attributable to common stockholders | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||
| Other comprehensive (loss) income, net: | ||||||||||||
| Unrealized (loss) gain on investments | ||||||||||||
| Reclassification of net realized investment loss (gain) included in net loss | ||||||||||||
| Foreign currency translation adjustment | ( | ) | ||||||||||
| Total other comprehensive income (loss), net | ( | ) | ||||||||||
| Comprehensive loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
| 9 |
POWERFLEET, INC. AND SUBSIDIARIES
Consolidated Statements of Changes in Stockholders’ Equity
(In thousands, except per share data)
| Common Stock | Accumulated | |||||||||||||||||||||||||||||||
| Number of Shares | Amount | Additional Paid-in Capital | Accumulated Deficit | Other Comprehensive Income (Loss) | Treasury Stock | Non-controlling Interest | Stockholders’ Equity | |||||||||||||||||||||||||
| Balance at January 1, 2019 | | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | $ | ||||||||||||||||||
| Net loss attributable to common stockholders | - | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||
| Foreign currency translation adjustment | - | |||||||||||||||||||||||||||||||
| Reclassification of realized losses on investments, net of unrealized amounts | - | |||||||||||||||||||||||||||||||
| Shares issued pursuant to Pointer Transactions | ||||||||||||||||||||||||||||||||
| Share based awards assumed Pointer Transaction | ||||||||||||||||||||||||||||||||
| Shares issued relating to Keytroller acquisition consideration | ||||||||||||||||||||||||||||||||
| Shares issued pursuant to CarrierWeb acquisition | ||||||||||||||||||||||||||||||||
| Shares issued pursuant to exercise of stock options | ||||||||||||||||||||||||||||||||
| Shares withheld pursuant to exercise of stock options | ||||||||||||||||||||||||||||||||
| Issuance of restricted shares | ( | ) | ||||||||||||||||||||||||||||||
| Forfeiture of restricted shares | ( | ) | ||||||||||||||||||||||||||||||
| Vesting of restricted stock units | ||||||||||||||||||||||||||||||||
| Shares withheld pursuant to vesting of restricted stock | - | ( | ) | ( | ) | |||||||||||||||||||||||||||
| Common shares issued | ||||||||||||||||||||||||||||||||
| Common shares issued, shares | ||||||||||||||||||||||||||||||||
| Common shares issued, net of issuance costs | ||||||||||||||||||||||||||||||||
| Common shares issued, net of issuance costs,shares | ||||||||||||||||||||||||||||||||
| Stock based compensation | - | |||||||||||||||||||||||||||||||
| Net loss attributable to non-controlling interest | - | ( | ) | ( | ) | |||||||||||||||||||||||||||
| Other | - | |||||||||||||||||||||||||||||||
| Balance at December 31, 2019 | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||||||
| Net loss attributable to common stockholders | - | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||
| Net loss attributable to non-controlling interest | - | ( | ) | ( | ) | |||||||||||||||||||||||||||
| Foreign currency translation adjustment | - | |||||||||||||||||||||||||||||||
| Issuance of restricted shares | ( | ) | ||||||||||||||||||||||||||||||
| Forfeiture of restricted shares | ( | ) | ( | ) | ||||||||||||||||||||||||||||
| Vesting of restricted stock units | ( | ) | ||||||||||||||||||||||||||||||
| Other | - | |||||||||||||||||||||||||||||||
| Shares issued pursuant to exercise of stock options | ||||||||||||||||||||||||||||||||
| Shares withheld pursuant to exercise of stock options | - | ( | ) | ( | ) | |||||||||||||||||||||||||||
| Shares withheld pursuant to vesting of restricted stock | - | ( | ) | ( | ) | |||||||||||||||||||||||||||
| Common shares issued | ||||||||||||||||||||||||||||||||
| Stock based compensation | - | |||||||||||||||||||||||||||||||
| Balance at December 31, 2020 | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | $ | |||||||||||||||||||||
| Net loss attributable to common stockholders | - | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||
| Net loss attributable to non-controlling interest | - | ( | ) | ( | ) | |||||||||||||||||||||||||||
| Foreign currency translation adjustment | - | ( | ) | |||||||||||||||||||||||||||||
| Issuance of restricted shares | ( | ) | ||||||||||||||||||||||||||||||
| Forfeiture of restricted shares | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Vesting of restricted stock units | ||||||||||||||||||||||||||||||||
| Shares issued pursuant to exercise of stock options | ||||||||||||||||||||||||||||||||
| Shares withheld pursuant to exercise of stock options | - | ( | ) | ( | ) | |||||||||||||||||||||||||||
| Shares withheld pursuant to vesting of restricted stock | - | ( | ) | ( | ) | |||||||||||||||||||||||||||
| Common shares issued, net of issuance costs | ||||||||||||||||||||||||||||||||
| Stock based compensation | - | |||||||||||||||||||||||||||||||
| Balance at December 31, 2021 | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | $ | |||||||||||||||||||||
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
| 10 |
POWERFLEET, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
In thousands (except per share data)
| Year Ended December 31, | ||||||||||||
| 2019 | 2020 | 2021 | ||||||||||
| Cash flows from operating activities (net of net assets acquired): | ||||||||||||
| Net loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||
| Adjustments to reconcile net loss to cash (used in) provided by operating activities: | ||||||||||||
| Non-controlling interest | ( | ) | ( | ) | ( | ) | ||||||
| Inventory reserve | ( | ) | ||||||||||
| Stock based compensation expense | ||||||||||||
| Depreciation and amortization | ||||||||||||
| Right-of-use assets, non-cash lease expense | ||||||||||||
| Bad debt expense | ||||||||||||
| Change in contingent consideration | ||||||||||||
| Deferred income taxes | ||||||||||||
| Other non-cash items | ( | ) | ||||||||||
| Changes in: | ||||||||||||
| Accounts receivable | ( | ) | ( | ) | ||||||||
| Inventory | ( | ) | ( | ) | ||||||||
| Prepaid expenses and other assets | ( | ) | ||||||||||
| Deferred costs | ||||||||||||
| Deferred revenue | ( | ) | ( | ) | ( | ) | ||||||
| Accounts payable and accrued expenses | ( | ) | ||||||||||
| Lease liabilities | ( | ) | ( | ) | ( | ) | ||||||
| Accrued severance payable, net | ( | ) | ( | ) | ||||||||
| Net cash (used in) provided by operating activities | ( | ) | ( | ) | ||||||||
| Cash flows from investing activities: | ||||||||||||
| Acquisitions, net of cash assumed | ( | ) | ||||||||||
| Proceeds from sale of property and equipment | ||||||||||||
| Capital expenditures | ( | ) | ( | ) | ( | ) | ||||||
| Purchases of investments | ( | ) | ||||||||||
| Proceeds from the sale and maturities of investments | ||||||||||||
| Net cash (used in) provided by investing activities | ( | ) | ( | ) | ( | ) | ||||||
| Cash flows from financing activities: | ||||||||||||
| Net proceeds from stock offering | ||||||||||||
| Payment of preferred stock dividends | ( | ) | ||||||||||
| Proceeds from convertible note | ||||||||||||
| Repayment of convertible note | ( | ) | ||||||||||
| Proceeds from long-term-debt | ||||||||||||
| Repayment of long-term debt | ( | ) | ( | ) | ( | ) | ||||||
| Debt issuance costs | ( | ) | ||||||||||
| Short-term bank debt, net | ( | ) | ( | ) | ||||||||
| Proceeds from exercise of stock options, net | ||||||||||||
| Purchase of treasury stock upon vesting of restricted stock | ( | ) | ( | ) | ( | ) | ||||||
| Net cash (used in) provided by financing activities | ( | ) | ||||||||||
| Effect of foreign exchange rate changes on cash and cash equivalents | ||||||||||||
| Net (decrease) increase in cash, cash equivalents and restricted cash | ||||||||||||
| Cash, cash equivalents and restricted cash - beginning of period | ||||||||||||
| Cash, cash equivalents and restricted cash - end of period | $ | $ | $ | |||||||||
| Reconciliation of cash, cash equivalents, and restricted cash, beginning of period | ||||||||||||
| Cash and cash equivalents | ||||||||||||
| Restricted cash | ||||||||||||
| Cash, cash equivalents, and restricted cash, beginning of period | $ | $ | $ | |||||||||
| Reconciliation of cash, cash equivalents, and restricted cash, end of period | ||||||||||||
| Cash and cash equivalents | ||||||||||||
| Restricted cash | ||||||||||||
| Cash, cash equivalents, and restricted cash, end of period | $ | $ | $ | |||||||||
| Supplemental disclosure of cash flow information: | ||||||||||||
| Cash paid for: | ||||||||||||
| Taxes | ||||||||||||
| Interest | ||||||||||||
| Noncash investing and financing activities: | ||||||||||||
| Unrealized (loss) gain on investments | $ | $ | $ | |||||||||
| Value of shares withheld pursuant to exercise of stock options | $ | $ | $ | |||||||||
| Value of shares issued relating to acquisition contingent consideration | $ | $ | $ | |||||||||
| Value of shares issued pursuant to acquisitions | $ | ( | ) | $ | $ | |||||||
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
| 11 |
POWERFLEET, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2020 and 2021
In thousands (except per share data)
NOTE 1 - DESCRIPTION OF BUSINESS AND LIQUIDITY
The Company is a global leader of Internet-of-Things (“IoT”) solutions providing valuable business intelligence for managing high-value enterprise assets that improve operational efficiencies.
I.D. Systems, Inc. was incorporated in the State of Delaware in 1993. PowerFleet, Inc. was incorporated in the State of Delaware in February 2019 for the purpose of effectuating the transactions pursuant to which the Company acquired Pointer Telocation Ltd. (the “Transactions”) and commenced operations on October 3, 2019, upon the closing of the Transactions.
Impact of COVID-19 and Supply Chain Disruptions
The global outbreak of COVID-19, and mitigation efforts by governments to attempt to control its spread, has resulted in significant economic disruption and continues to adversely impact the broader global economy. The extent of the impact on the Company’s business and financial results will depend largely on future developments that cannot be accurately predicted at this time, including the duration of the spread of the outbreak, the extent and effectiveness of containment actions and the impact of these and other factors on capital and financial markets and the related impact on the financial circumstances of our employees, customers and suppliers.
In addition, the Company has experienced a significant impact to its supply chain given COVID-19 and the related global semiconductor chip shortage, including delays in supply chain deliveries, extended lead times and shortages of certain key components, some raw material cost increases and slowdowns at certain production facilities. As a result of these supply chain issues, the Company has had to increase its volume of inventory to ensure supply. The Company incurred supply chain constraint expenses which lowered its gross margins and decreased its profitability primarily during the last six months of 2021. The supply chain disruptions and the related global semiconductor chip shortage have delayed and may continue to delay the timing of some orders and expected deliveries of the Company’s products. If the impact of the supply chain disruptions are more severe than the Company expects, it could result in longer lead times, inventory supply challenges and further increased costs, all of which could result in the deterioration of the Company’s results, potentially for a longer period than currently anticipated.
As of the date of these audited consolidated financial statements, the full extent to which the COVID-19 pandemic may materially impact the Company’s business, results of operations and financial condition is uncertain.
Liquidity
As
of December 31, 2021, the Company had cash (including restricted cash) and cash equivalents of $
In
addition, the Company’s subsidiaries, PowerFleet Israel Ltd. (“PowerFleet Israel”) and Pointer Telocation
Ltd. (“Pointer”) are party to a Credit Agreement (the “Credit Agreement”) with Bank Hapoalim B.M. (“Hapoalim”),
pursuant to which Hapoalim provided PowerFleet Israel with two senior secured term loan facilities in an aggregate principal amount of
$
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On
May 14, 2020, we entered into an equity distribution agreement for an “at-the-market offering” program (the “ATM Offering”)
with Canaccord Genuity LLC, (“Canaccord”) as sales agent pursuant to which we issued and sold an aggregate of shares of common stock for approximately
$
On
February 1, 2021, the Company closed an underwritten public offering (the “Underwritten Public Offering”) of shares
of common stock (which included the full exercise of the underwriters’ over-allotment option) for gross proceeds of approximately
$
Because of the COVID-19 pandemic, there is significant uncertainty surrounding the potential impact on our results of operations and cash flows. During 2020 and 2021 we proactively took steps to increase available cash on hand including, but not limited to, targeted reductions in discretionary operating expenses and capital expenditures.
The Company believes that its available working capital, anticipated level of future revenues, expected cash flows from operations and available borrowings under its revolving credit facility with Hapoalim will provide sufficient funds to cover capital requirements through at least March 16, 2023.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
[A] Principles of consolidation:
The consolidated financial statements include the accounts of PowerFleet Inc. and its subsidiaries (which, as noted above, are collectively referred to herein as the “Company”). All material intercompany balances and transactions have been eliminated in consolidation.
[B] :
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The Company continually evaluates estimates used in the preparation of the financial statements for reasonableness. The most significant estimates relate to realization of deferred tax assets, accounting for uncertain tax positions, the impairment of intangible assets, including goodwill, and stand-alone selling price related to multiple element revenue arrangements. Actual results could differ from those estimates.
As of December 31, 2021, the impact of the COVID-19 pandemic continues to unfold. As a result, many of our estimates and assumptions required increased judgment and carry a higher degree of variability and volatility. As events continue to evolve and additional information becomes available, our estimates may change materially in future periods.
[C] Cash and cash equivalents:
The Company considers all highly liquid debt instruments with an original maturity of three months or less when purchased to be cash equivalents unless they are legally or contractually restricted. The Company’s cash and cash equivalent balances exceed Federal Deposit Insurance Corporation (“FDIC”) and other local jurisdictional limits. Restricted cash at December 31, 2020 and 2021 consists of cash held in escrow for purchases from a vendor
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[D] Accounts receivable:
Accounts
receivable are recorded at the invoiced amount and do not bear interest. Amounts collected on trade accounts receivable are included
in net cash provided by operating activities in the consolidated statements of cash flows. The Company maintains reserves against its
accounts receivable for potential losses. Allowances for uncollectible accounts are estimated based on the Company’s periodic review
of accounts receivable balances. In establishing the required allowance, management considers our customers’ financial condition,
the amount of receivables in dispute, and the current receivables aging and current payment patterns. Account balances are charged off
against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. Accounts
receivable are net of an allowance for doubtful accounts in the amount of $
[E] Revenue recognition:
The Company and its subsidiaries generate revenue from sales of systems and products and from customer SaaS and hosting infrastructure fees. Revenue is measured as the amount of consideration the Company expects to receive in exchange for transferring goods or providing services. Sales, value add, and other taxes the Company collects concurrently with revenue-producing activities are excluded from revenue. Incidental items that are immaterial in the context of the contract are recognized as expense. The expected costs associated with the Company’s base warranties continue to be recognized as expense when the products are sold (see Note 13).
Revenue is recognized when performance obligations under the terms of a contract with our customer are satisfied. Product sales are recognized at a point in time when title transfers, when the products are shipped, or when control of the system is transferred to the customer, which usually is upon delivery of the system and when contractual performance obligations have been satisfied. For products which do not have stand-alone value to the customer separate from the SaaS services provided, the Company considers both hardware and SaaS services a bundled performance obligation. Under the applicable accounting guidance, all of the Company’s billings for equipment and the related cost for these systems are deferred, recorded, and classified as a current and long-term liability and a current and long-term asset, respectively. The deferred revenue and cost are recognized over the service contract life, ranging from one to five years, beginning at the time that a customer acknowledges acceptance of the equipment and service.
The Company recognizes revenue for remotely hosted SaaS agreements and post-contract maintenance and support agreements beyond our standard warranties over the life of the contract. Revenue is recognized ratably over the service periods and the cost of providing these services is expensed as incurred. Amounts invoiced to customers which are not recognized as revenue are classified as deferred revenue and classified as short-term or long-term based upon the terms of future services to be delivered. Deferred revenue also includes prepayment of extended maintenance, hosting and support contracts.
The Company earns other service revenues from installation services, training and technical support services which are short-term in nature and revenue for these services are recognized at the time of performance when the service is provided.
The Company also derives revenue from leasing arrangements. Such arrangements provide for monthly payments covering product or system sale, maintenance, support and interest. These arrangements meet the criteria to be accounted for as sales-type leases. Accordingly, an asset is established for the “sales-type lease receivable” at the present value of the expected lease payments and revenue is deferred and recognized over the service contract, as described above. Maintenance revenues and interest income are recognized monthly over the lease term.
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The Company’s contracts with customers may include multiple performance obligations. For such arrangements, the Company allocates revenue to each performance obligation based on its relative standalone selling price. The Company generally determines standalone selling prices based on observable prices charged to customers or adjusted market assessment or using expected cost-plus margin when one is available. Adjusted market assessment price is determined based on overall pricing objectives taking into consideration market conditions and entity specific factors.
The Company recognizes an asset for the incremental costs of obtaining the contract arising from the sales commissions to employees because the Company expects to recover those costs through future fees from the customers. The Company amortizes the asset over one to five years because the asset relates to the services transferred to the customer during the contract term of one to five years.
The Company does not disclose the value of unsatisfied performance obligations for (i) contracts with an original expected length of one year or less and (ii) contracts for which the Company recognizes revenue at the amount to which the Company has the right to invoice for services performed.
[F] Deferred costs:
Deferred product costs consist of Powerfleet for Logistics equipment costs deferred in accordance with our revenue recognition policy. The Company evaluates the realizability of the carrying amount of the deferred contract costs. To the extent the carrying value of the deferred contract costs exceed the contract revenue, an impairment loss will be recognized.
[G] Inventory:
Inventories are stated at the lower of cost or net realizable value. Cost is determined using the “moving average” cost method or the first-in first-out (“FIFO”) method. Inventory consists of components, work in process and finished products
Inventory valuation reserves are established in order to report inventories at the lower of cost or net realizable value in the consolidated balance sheet. The determination of inventory valuation reserves requires management to make estimates and judgments on the future salability of inventories. Valuation reserves for obsolete and slow-moving inventory are estimated based on assumptions of future sales forecasts, product life cycle expectations, the impact of new product introductions, production requirements, and specific identification of items, such as product discontinuance or engineering/material changes and by comparing the inventory levels to historical usage rates
[H] Fixed assets and depreciation:
Fixed assets are recorded at cost, net of accumulated depreciation. Depreciation and amortization are recognized using the straight-line method over the estimated useful lives of the assets. The following table provides the range of estimated useful lives used for each asset type:
SCHEDULE OF ESTIMATED USEFUL LIVES OF ASSET
Useful Life (years) | ||
| Computer software | ||
| Installed products | ||
| Computers and electronic equipment | ||
| Furniture and fixtures | ||
| Leasehold improvements |
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[I] Long-lived assets:
Long-lived assets, which includes definite lived intangible assets and fixed assets, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is assessed by a comparison of the carrying amount of the assets to the future undiscounted net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets and would be charged to earnings. Fair value is determined through various valuation techniques including discounted cash flow models, quoted market values and third-party independent appraisals, as considered necessary.
[J] Goodwill and intangibles:
Goodwill represents costs in excess of fair values assigned to the underlying net assets of acquired businesses. Goodwill and intangible assets deemed to have indefinite lives are not amortized and are tested for impairment on an annual basis and between annual tests whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. Intangible assets other than goodwill are amortized over their useful lives unless the lives are determined to be indefinite. Intangible assets are carried at cost, less accumulated amortization. Intangible assets consist of trademarks and trade name, patents, customer relationships and other intangible assets. Goodwill is tested at the reporting unit level, which is defined as an operating segment or one level below the operating segment. The Company operates in one operating segment which is its only reporting unit. The Company tests its goodwill for impairment annually which is the first day of the Company’s fourth quarter or when an indicator of impairment exists, by comparing the fair value of the reporting unit to its carrying value
In the evaluation of goodwill for impairment, the Company has the option to perform a qualitative assessment to determine whether further impairment testing is necessary or to perform a quantitative assessment by comparing the fair value of a reporting unit to its carrying amount, including goodwill. Under the qualitative assessment, an entity is not required to calculate the fair value of a reporting unit unless the entity determines that it is more likely than not that its fair value is less than its carrying amount. By eliminating “Step 2” from the goodwill impairment test, the quantitative analysis of goodwill will result in an impairment loss for the amount that the carrying value of the reporting unit exceeds its fair value which is limited to the total amount of goodwill allocated to the reporting unit. The Company performed a market-based quantitative assessment utilizing the guideline public company and guideline transaction approaches by comparing revenue and adjusted EBITDA multiples of similar sized companies and similar sized transactions. For the years ended December 31, 2019, 2020, and 2021, the Company did not incur an impairment charge.
[K] Product warranties:
[L] Research and development:
Research
and development costs are charged to expense as incurred and consists primarily of salaries and related expenses, supplies and contractor
costs. Research and development costs were $
[M] Patent costs:
Cost incurred in connection with acquiring patent rights are charged to expense as incurred.
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[N] Concentrations of credit risk:
Financial instruments that potentially subject the Company and its subsidiaries to concentrations of credit risk consist principally of cash and cash equivalents, trade receivables and trade payables
The Company’s cash and cash equivalents are invested primarily in deposits with major banks worldwide. Generally, these deposits may be redeemed upon demand and, therefore, bear low risk. Management believes that the financial institutions that hold the Company’s investments have a high credit rating.
For
the year ended December 31, 2021, there were no customers who generated revenues greater than 10% of the Company’s consolidated
total revenues or generated greater than
For
the year ended December 31, 2020, there were no customers who generated revenues greater than 10% of the Company’s consolidated
total revenues or generated greater than
For
the year ended December 31, 2019, one customer accounted for
[O] Benefit plan:
The Company maintains a retirement plan under Section 401(k) of the Internal Revenue Code, which covers all eligible employees. All employees with U.S. source income are eligible to participate in the plan immediately upon employment. The Company did not make any contributions to the plan during the years ended December 31, 2019, 2020 and 2021.
[P] Severance pay:
The liability of the Company’s subsidiaries in Israel for severance pay is calculated pursuant to Israel’s Severance Pay Law 5273-1963 (the “Severance Law”) based on the most recent salary of the employees multiplied by the number of years of employment as of balance sheet date and are presented on an undiscounted basis (the “Shut Down Method”). Employees are entitled to one month’s salary for each year of employment, or a portion thereof. The liability for the Company and its subsidiaries in Israel is fully provided by monthly deposits with insurance policies and by accrual. The value of these policies is recorded as an asset in the Company’s balance sheet.
The deposited funds may be withdrawn only upon the fulfillment of the obligation pursuant to the Severance Law or labor agreements. The value of the deposited funds is based on the cash surrendered value of these policies, and includes profits or losses accumulated to balance sheet date.
Some of the Company’s employees are subject to Section 14 of the Severance Law and the General Approval of the Labor Minister dated June 30, 1998, issued in accordance to the said Section 14, mandating that upon termination of such employees’ employment, all the amounts accrued in their insurance policies shall be released to them. The severance pay liabilities and deposits covered by these plans are not reflected in the balance sheet as the severance pay risks have been irrevocably transferred to the severance funds.
[Q] Stock-based compensation:
The Company accounts for stock-based employee compensation for all share-based payments, including grants of stock options and restricted stock, as an operating expense based on their fair values on grant date. The Company recorded stock-based compensation expense of $, $, and $ for the years ended December 31, 2019, 2020 and 2021, respectively.
The Company estimates the fair value of share-based option awards on the grant date using an option pricing model. The value of the portion of the award that is ultimately expected to vest is recognized as expense over the requisite service period in the Company’s consolidated statement of operations. The Company estimates forfeitures at the time of grant in order to estimate the amount of share-based awards that will ultimately vest. The estimate is based on the Company’s historical rates of forfeitures. Estimated forfeitures are revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates.
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[R] Income taxes:
The Company uses the asset and liability method of accounting for deferred income taxes. Deferred income taxes are measured by applying enacted statutory rates to net operating loss carryforwards and to the differences between the financial reporting and tax bases of assets and liabilities. Deferred tax assets are reduced, if necessary, by a valuation allowance if it is more likely than not that some portion or all of the deferred tax assets will not be realized.
The Company recognizes uncertainty in income taxes in the financial statements using a recognition threshold and measurement attribute of a tax position taken or expected to be taken in a tax return. The Company applies the “more-likely-than-not” recognition threshold to all tax positions, commencing at the adoption date of the applicable accounting guidance, which resulted in no unrecognized tax benefits as of such date. Additionally, there have been no unrecognized tax benefits subsequent to adoption. The Company has opted to classify interest and penalties that would accrue according to the provisions of relevant tax law as selling, general, and administrative expenses and incomes taxes, respectively, in the consolidated statement of operations. For the years ended December 31, 2019, 2020 and 2021, interest and penalties were immaterial.
[S] Fair value of financial instruments:
The Company utilizes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. The following is a brief description of those levels
| ● | Level 1: Unadjusted quoted prices in active markets for identical assets or liabilities | |
| ● | Level 2: Inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly. These include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active. | |
| ● | Level 3: Unobservable inputs that reflect the reporting entity’s estimates of market participant assumptions |
The Company’s cash and cash equivalents and investments in securities are carried at fair value. The carrying value of financing receivables approximates fair value due to the interest rate implicit in the instruments approximating current market rates. The carrying value of accounts receivables, accounts payable and accrued liabilities and short term bank debt approximates their fair values due to the short period to maturity of these instruments. The fair value of the Company’s long term debt is based on observable relevant market information and future cash flows discounted at current rates, which are Level 2 measurements.
SCHEDULE OF FAIR VALUE OF FINANCIAL INSTRUMENTS
| December 31, 2021 | ||||||||
Carrying Amount | Fair Value | |||||||
| Long term debt | $ | $ | ||||||
[T] Advertising and marketing expense:
Advertising
and marketing costs are expensed as incurred. Advertising and marketing expense for the years ended December 31, 2019, 2020 and 2021
amounted to $
[U] Foreign currency translation:
The
Company’s reporting currency is the U.S dollar (“USD”). For businesses where the majority of the revenues are
generated in USD or linked to the USD and a substantial portion of the costs are incurred in USD, the Company’s management believes
that the USD is the primary currency of the economic environment and thus their functional currency. Due to the fact that Argentina has
been determined to be highly inflationary, the financial statements of our subsidiary in Argentina have been remeasured as if its functional
currency was the USD. The Company also has foreign operations where the functional currency is the local currency. For these operations,
assets and liabilities are translated using the end-of-period exchange rates and revenues, expenses and cash flows are translated using
average rates of exchange for the period. Equity is translated at the rate of exchange at the date of the equity transaction. Translation
adjustments are recognized in stockholders’ equity as a component of accumulated other comprehensive income (loss). Net translation
gains (losses) from the translation of foreign currency are $
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Foreign
currency translation gains and losses related to operational expenses denominated in a currency other than the functional currency are
included in determining net income or loss. Foreign currency translation gains (losses) for the years ended December 31, 2019, 2020 and
2021 of $(
[V] Commitments and contingencies:
From time to time, the Company is involved in various litigation matters involving claims incidental to its business and acquisitions, including employment matters, acquisition related claims, patent infringement and contractual matters, among other issues. While the outcome of any such litigation matters cannot be predicted with certainty, management currently believes that the outcome of these proceedings, including the matters described below, either individually or in the aggregate, will not have a material adverse effect on its business, results of operations or financial condition. The Company records reserves related to legal matters when losses related to such litigation or contingencies are both probable and reasonably estimable.
[W] Recently issued accounting pronouncements:
In December 2019, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2019-12, Simplifying the Accounting for Income Taxes which removes certain exceptions related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period, the recognition of deferred tax liabilities for outside basis differences and clarifies the accounting for transactions that result in a step-up in the tax basis of goodwill. The guidance is generally effective as of January 1, 2021, with early adoption permitted. The adoption of the standard did not have an impact on the Company’s consolidated financial statements.
In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments - Credit Losses (Topic 326) Measurement of Credit Losses on Financial Instruments,” which amends the guidance on measuring credit losses on financial assets held at amortized cost. The amendment is intended to address the issue that the previous “incurred loss” methodology was restrictive for an entity’s ability to record credit losses based on not yet meeting the “probable” threshold. The new language will require these assets to be valued at amortized cost presented at the net amount expected to be collected with a valuation provision. This updated standard is effective for fiscal years beginning after December 15, 2021. The Company is currently evaluating the impact of this ASU on the consolidated financial statements.
In January 2017, the FASB issued ASU No. 2017-04, “Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment,” which simplifies how an entity is required to test goodwill for impairment by eliminating Step 2 from the goodwill impairment test. Step 2 measures a goodwill impairment loss by comparing the implied fair value of a reporting unit’s goodwill with the carrying amount of that goodwill. Under the amendments in ASU 2017-04, an entity should recognize an impairment charge for the amount by which the carrying amount of a reporting unit exceeds its fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. The updated guidance requires a prospective adoption. The adoption of this standard did not have an impact on the Company’s consolidated financial statements.
[Y] Reclassifications:
Certain prior amounts have been reclassified to conform with the current year presentation for comparative purposes. These reclassifications had no effect on the previously reported results of operations.
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NOTE 3 - ACQUISITIONS
Pointer Transactions
On October 3, 2019, the Company completed the Transactions, as a result of which I.D. Systems, Inc. (“I.D. Systems”) and PowerFleet Israel each became direct wholly-owned subsidiaries of the Company and Pointer became an indirect, wholly-owned subsidiary of the Company. Prior to the Transactions, PowerFleet, Inc. had no material assets, did not operate any business and did not conduct any activities, other than those incidental to its formation and the Transactions. I.D. Systems was determined to be the accounting acquirer in the Transactions. As a result, the historical financial statements of I.D. Systems for the periods prior to the Transactions are considered to be the historical financial statements of the Company and the results of Pointer have been included in the Company’s consolidated financial statements from the date of the Transactions.
The purchase method of accounting in accordance with ASC805, Business Combinations, was applied for the Transactions. This requires the total cost of an acquisition to be allocated to the tangible and identifiable intangible assets acquired and liabilities assumed based on their respective fair values at the date of acquisition with the excess cost accounted for as goodwill. Goodwill arising from the acquisition is attributable to expected product and sales synergies from combining the operations of the acquired business with those of the Company. I.D. Systems has been determined to be the accounting acquirer in the Transactions.
The following table summarizes the final purchase price allocation based on estimated fair values of the net assets acquired at the acquisition date:
SCHEDULE OF PURCHASE PRICE ALLOCATION ON NET ASSETS ACQUIRED
| Accounts receivable | $ | |||
| Inventory | ||||
| Other assets | ||||
| Customer relationships | ||||
| Trademark and tradename | ||||
| Technology | ||||
| Patents | ||||
| Goodwill (a) | ||||
| Less: Current liabilities assumed | ( | ) | ||
| Less: Non current liabilities assumed | ( | ) | ||
| Net assets acquired | $ |
| (a) |
The results of operations of Pointer have been included in the consolidated statement of operations as of the effective date of the Transactions. The following revenue and operating income of Pointer are included in the Company’s consolidated results of operations for the year ended December 31, 2019:
SCHEDULE OF PRO FORMA REVENUE AND EARNINGS
| Revenues | $ | |||
| Operating loss | $ | ( | ) |
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CarrierWeb Acquisitions
On January 30, 2019, the Company completed the acquisition of substantially all of the assets of CarrierWeb, L.L.C. and on July 30, 2019, the Company completed the acquisition of substantially all of the assets of CarrierWeb Services Ltd. (collectively, the “CarrierWeb Acquisitions”).
The purchase method of accounting in accordance with ASC805, Business Combinations, was applied for the CarrierWeb Acquisitions. This requires the total cost of an acquisition to be allocated to the tangible and identifiable intangible assets acquired and liabilities assumed based on their respective fair values at the date of acquisition with the excess cost accounted for as goodwill. Goodwill arising from the acquisition is attributable to expected product and sales synergies from combining the operations of the acquired business with those of the Company.
The following table summarizes the final purchase price allocation of the CarrierWeb Acquisitions based on the fair values of the net assets acquired at the acquisition date:
SCHEDULE OF PURCHASE PRICE ALLOCATION ON NET ASSETS ACQUIRED
| Accounts receivable | $ | |||
| Inventory | ||||
| Other assets | ||||
| Customer relationships | ||||
| Trademark and tradename | ||||
| Patents | ||||
| Goodwill (a) | ||||
| Net assets acquired | $ |
| (a) |
The
results of operations from each of the CarrierWeb Acquisitions have been included in the consolidated statement of operations as of the
effective date of each such acquisition. For the year ended December 31, 2019, the CarrierWeb Acquisitions contributed an aggregate of
approximately $
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The following table represents the combined pro forma revenue and earnings for the year ended December 31, 2019:
SCHEDULE OF PRO FORMA REVENUE AND EARNINGS
| Year Ended | ||||||||
| December 31, 2019 (b) | ||||||||
| Historical | Pro Forma Combined | |||||||
| (Unaudited) | ||||||||
| Revenues | $ | $ | ||||||
| Operating loss | ( | ( | ) | |||||
| Net loss per share - basic and diluted | $ | ( | ) | $ | ( | ) | ||
| (b) |
The combined pro forma revenue and earnings for the year ended 2019 for the Transactions were prepared as though such transactions had occurred as of January 1, 2019. The pro forma results do not include any anticipated cost synergies or other effects of the planned integration of Pointer. This summary is not necessarily indicative of what the results of operations would have been had the Transactions occurred during such period, nor does it purport to represent results of operations for any future periods.
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NOTE 4 - REVENUE RECOGNITION
The following table presents the Company’s revenues disaggregated by revenue source for the years ended December 31, 2019, 2020 and 2021.
SCHEDULE OF REVENUE DISAGGREGATED BY REVENUE SOURCE
| Year Ended December 31, | ||||||||||||
| 2019 | 2020 | 2021 | ||||||||||
| Products | $ | $ | $ | |||||||||
| Services | ||||||||||||
| $ | $ | $ | ||||||||||
The balances of contract assets and contract liabilities from contracts with customers are as follows as of December 31, 2020 and 2021 are as follows:
SCHEDULE OF DEFERRED REVENUE
| Year Ended December 31, | ||||||||
| 2020 | 2021 | |||||||
| Assets: | ||||||||
| Deferred contract costs | $ | $ | ||||||
| Deferred costs | $ | $ | ||||||
| Liabilities: | ||||||||
| Deferred revenue- services (1) | $ | $ | ||||||
| Deferred revenue - products (1) | ||||||||
| Less: Deferred revenue current portion | ( | ) | ( | ) | ||||
| Deferred revenue long term | $ | $ | ||||||
| (1) |
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NOTE 5 – PREPAID EXPENSES AND OTHER ASSETS
Prepaid expenses and other current assets consist of the following:
SCHEDULE OF PREPAID EXPENSES AND OTHER CURRENT ASSETS
| 2020 | 2021 | |||||||
| Year Ended December 31, | ||||||||
| 2020 | 2021 | |||||||
| Finance receivables, current | $ | $ | ||||||
| Prepaid expenses | ||||||||
| Contract assets | ||||||||
| Other current assets | ||||||||
| Prepaid expenses and other current assets | $ | $ | ||||||
NOTE 6 - INVENTORIES
Inventories
are stated at the lower of cost or net realizable value. Cost is determined using the “moving average” cost method or the
first-in first-out (FIFO) method. Inventory consists of components, work in process and finished products. Inventories are shown net
of valuation reserves of $
Inventories consist of the following:
SCHEDULE OF INVENTORIES
| 2020 | 2021 | |||||||
| Year Ended December 31, | ||||||||
| 2020 | 2021 | |||||||
| Components | $ | $ | ||||||
| Work in process | ||||||||
| Finished goods, net | ||||||||
| Inventory, Net | $ | $ | ||||||
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NOTE 7 - FIXED ASSETS
Fixed assets are stated at cost, less accumulated depreciation and amortization, and are summarized as follows:
SCHEDULE OF FIXED ASSETS
| Year Ended December 31, | ||||||||
| 2020 | 2021 | |||||||
| Installed products | $ | $ | ||||||
| Computer software | ||||||||
| Computer and electronic equipment | ||||||||
| Furniture and fixtures | ||||||||
| Leasehold improvements | ||||||||
| Accumulated depreciation and amortization | ( | ) | ( | ) | ||||
| $ | $ | |||||||
Depreciation
and amortization expense for the years ended December 31, 2019, 2020 and 2021 was $
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NOTE 8 - INTANGIBLE ASSETS AND GOODWILL
The following table summarizes identifiable intangible assets of the Company as of December 31, 2021 and 2020:
SCHEDULE OF INTANGIBLE ASSETS
| December 31, 2021 | Useful Lives (In Years) | Gross Carrying Amount | Accumulated Amortization | Net Carrying Amount | ||||||||||||
| Amortized: | ||||||||||||||||
| Customer relationships | $ | $ | ( | ) | $ | |||||||||||
| Trademark and tradename | ( | ) | ||||||||||||||
| Patents | ( | ) | ||||||||||||||
| Technology | ( | ) | ||||||||||||||
| Favorable contract interest | ( | ) | ||||||||||||||
| Covenant not to compete | ( | ) | ||||||||||||||
| ( | ) | |||||||||||||||
| Unamortized: | ||||||||||||||||
| Customer List | - | |||||||||||||||
| Trademark and tradename | - | |||||||||||||||
| - | ||||||||||||||||
| Total | $ | $ | ( | ) | $ | |||||||||||
| December 31, 2020 | Useful Lives (In Years) | Gross Carrying Amount | Accumulated Amortization | Net Carrying Amount | ||||||||||||
| Amortized: | ||||||||||||||||
| Customer relationships | $ | $ | ( | ) | $ | |||||||||||
| Trademark and tradename | ( | ) | ||||||||||||||
| Patents | ( | ) | ||||||||||||||
| Technology | ( | ) | ||||||||||||||
| Favorable contract interest | ( | ) | ||||||||||||||
| Covenant not to compete | ( | ) | ||||||||||||||
| ( | ) | |||||||||||||||
| Unamortized: | ||||||||||||||||
| Customer List | - | |||||||||||||||
| Trademark and tradename | - | |||||||||||||||
| - | ||||||||||||||||
| Total | $ | $ | ( | ) | $ | |||||||||||
| 26 |
COVID-19 continues to adversely impact the broader global economy and has caused significant volatility in financial markets. If there is a lack of recovery or further global softening in certain markets, or a sustained decline in the value of the Company’s common stock, the Company may conclude that indicators of impairment exist and would then be required to calculate whether or not an impairment exists for its goodwill, other intangibles, and long-lived assets, the results of which could result in material impairment charges. The Company tests goodwill and other indefinite lives intangible assets on an annual basis in the fourth quarter and more frequently if the Company believes indicators of impairment exists. As of December 31, 2020, and 2021, the Company determined that no impairment existed to the goodwill, customer list and trademark and trade name of its acquired intangibles.
At
December 31, 2021, the weighted-average amortization period for the intangible assets was
Amortization
expense for the years ended December 31, 2019, 2020 and 2021 was $
SCHEDULE OF FINITE-LIVED INTANGIBLE ASSETS, FUTURE AMORTIZATION EXPENSE
| Year ending December 31: | ||||
| 2022 | $ | |||
| 2023 | ||||
| 2024 | ||||
| 2025 | ||||
| 2026 | ||||
| Thereafter | ||||
| Finite-Lived Intangible Assets, Net, Total | $ | |||
The change in goodwill from January 1, 2020 to December 31, 2021 is as follows:
SCHEDULE OF CHANGES IN GOODWILL
| Balance as of January 1, 2020 | $ | |||
| PPA measurement period adjustment (a) | ( | ) | ||
| Balance as of December 31, 2020 | ||||
Other | ||||
| Balance as of December 31, 2021 | $ |
| a) |
| 27 |
| December 31, | ||||||||||||
| Basic and diluted loss per share | 2019 | 2020 | 2021 | |||||||||
| Net loss attributable to common stockholders | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||
| Weighted-average common share outstanding - basic and diluted | ||||||||||||
| Net loss attributable to common stockholders - basic and diluted | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||
Basic loss per share is calculated by dividing net loss attributable to common shareholders by the weighted-average number of common shares outstanding during the period. Diluted loss per share reflects the potential dilution assuming common shares were issued upon the exercise of outstanding options and the proceeds thereof were used to purchase outstanding common shares. Dilutive potential common shares include outstanding stock options, warrants and restricted stock and performance share awards. We include participating securities (unvested share-based payment awards and equivalents that contain non-forfeitable rights to dividends or dividend equivalents) in the computation of EPS pursuant to the two-class method. Our participating securities consist solely of preferred stock, which have contractual participation rights equivalent to those of stockholders of unrestricted common stock. The two-class method of computing earnings per share is an allocation method that calculates earnings per share for common stock and participating securities. During periods of net loss, no effect is given to the participating securities because they do not share in the losses of the Company. For the years ended December 31, 2019, 2020 and 2021, the basic and diluted weighted-average shares outstanding are the same, since the effect from the potential exercise of outstanding stock options, conversion of preferred stock and vesting of restricted stock and restricted stock units totaling , and , respectively, would have been anti-dilutive due to the loss.
| 28 |
The Company’s stockholders have approved the Company’s 2018 Incentive Plan (as amended the “2018 Plan”) pursuant to which the Company may grant stock options, restricted stock and other equity-based awards with respect to up to an aggregate of shares of the Company’s common stock with a vesting period of approximately to . There were shares available for future issuance under the 2018 Plan as of December 31, 2021.
The 2018 Plan is administered by the Compensation Committee of the Company’s Board of Directors, which has the authority to determine, among other things, the term during which an option may be exercised (not more than years), the exercise price of an option and the vesting provisions.
The Company recognizes all employee share-based payments in the statement of operations as an operating expense, based on their fair values on the applicable grant date.
In connection with the Company’s acquisition of Pointer, the Company previously approved the grants of options to purchase shares of the Company’s common stock to Mr. Wolfe and options to purchase shares of the Company’s common stock to Mr. Mavrommatis on March 13, 2019 (the “Signing Bonus Options”) and the grants of additional options to purchase shares of the Company’s common stock to Mr. Wolfe and additional options to purchase shares of the Company’s common stock to Mr. Mavrommatis on October 3, 2019 (the “Closing Bonus Options” and together with the Signing Bonus Options, the “Original Bonus Options”). The Original Bonus Options were subject to the terms of the Company’s 2018 Incentive Plan (the “2018 Plan”), vested upon the attainment of adjusted EBITDA targets for the fiscal years ending December 31, 2020 and December 31, 2021 and became exercisable 180 days after vesting, subject to acceleration in the event of certain change of control transactions. The Signing Bonus Options had an exercise price of $ per share and the Closing Bonus Options had an exercise price of $ per share.
In response to the impact of COVID-19, the Board terminated and cancelled the Original Bonus Options and approved the following grants to replace the Original Bonus Options: (i) options to purchase shares of the Company’s common stock to Mr. Wolfe and options to purchase shares of the Company’s common stock to Mr. Mavrommatis (the “New Signing Options”), which options are subject to the terms of the 2018 Plan, have an exercise price of $ per share, and will , and (ii) options to purchase shares of the Company’s common stock to Mr. Wolfe and options to purchase shares of the Company’s common stock to Mr. Mavrommatis (the “New Closing Options”), which options are subject to the terms of the 2018 Plan, have an exercise price of $ per share, and will
In connection with Mr. David Mahlab’s retirement from his role as the Chief Executive Officer International of the Company, the Company modified the vesting and exercise period of all unvested restricted stock, stock options and restricted stock units previously granted to Mr. Mahlab. Due to the modification of the terms of Mr. Mahlab’s stock options, restricted stock and restricted stock units, the Company recognized additional stock-based compensation expense of $, $-- and $ for the years ended December 31, 2019, December 31, 2020 and December 31, 2021 respectively.
| 29 |
[A] Stock options:
SCHEDULE OF STOCK OPTIONS ACTIVITY
| 2019 | 2020 | 2021 | ||||||||||||||||||||||
| Number of Shares | Weighted- Average Exercise Price | Number of Shares | Weighted- Average Exercise Price | Number of Shares | Weighted- Average Exercise Price | |||||||||||||||||||
| Outstanding at beginning of year | $ | $ | $ | |||||||||||||||||||||
| Share-based payments assumed | ||||||||||||||||||||||||
| Granted | ||||||||||||||||||||||||
| Exercised | ( | ) | ( | ) | ( | ) | ||||||||||||||||||
| Forfeited or expired | ( | ) | ( | ) | ( | ) | ||||||||||||||||||
| Outstanding at end of year | $ | $ | $ | |||||||||||||||||||||
| Exercisable at end of year | $ | $ | $ | |||||||||||||||||||||
SUMMARY OF STOCK OPTION INFORMATION BY EXERCISE PRICE RANGE
| Options Outstanding | Options Exercisable | |||||||||||||||||||
| Exercise Prices ($) | Number Outstanding | Weighted - Average Remaining Contractual Life in Years | Weighted- Average Exercise Price | Number Outstanding | Weighted - Average Exercise Price | |||||||||||||||
| - | $ | $ | ||||||||||||||||||
| - | ||||||||||||||||||||
| - | ||||||||||||||||||||
| - | ||||||||||||||||||||
| $ | $ | |||||||||||||||||||
| 30 |
SCHEDULE OF OPTIONS OUTSTANDING AND EXERCISABLE
| As of December 31, 2021 | ||||||||
| Aggregate Intrinsic Value | Weighted - Average Remaining Contractual Life in Years | |||||||
| Options outstanding | $ | |||||||
| Options exercisable | $ | |||||||
SCHEDULE OF FAIR VALUE STOCK OPTION ASSUMPTIONS
| Year Ended December 31, | ||||||||||||
| 2019 | 2020 | 2021 | ||||||||||
| Expected volatility | % | % | % | |||||||||
| Expected life of options | years | years | years | |||||||||
| Risk free interest rate | % | % | % | |||||||||
| Dividend yield | % | % | % | |||||||||
| Weighted-average fair value of options granted during year | $ | $ | $ | |||||||||
Expected volatility is based on historical volatility of the Company’s common stock and the expected life of options is based on historical data with respect to employee exercise periods.
The Company valued the New Signing Options and the New Closing Options market-based performance stock option awards using a Monte Carlo simulation model using a daily price forecast over ten years until expiration utilizing Geometric Brownian Motion that considers a variety of factors including, but not limited to, the Company’s common stock price, risk-free rate (%), and expected stock price volatility (%) over the expected life of awards ( years). The weighted average fair value of options granted during the period was $.
For the years ended December 31, 2019, 2020 and 2021, the Company recorded $, $, and $, respectively, of stock-based compensation expense in connection with the stock option grants.
The fair value of options vested during the years ended December 31, 2019, 2020 and 2021 was $, $, and $, respectively. The total intrinsic value of options exercised during the years ended December 31, 2019, 2020 and 2021 was $, $, and $, respectively.
As of December 31, 2021, there was $ of total unrecognized compensation costs related to non-vested options granted under the Company’s stock option plans. That cost is expected to be recognized over a weighted-average period of years.
The Company estimates forfeitures at the time of valuation and reduces expense ratably over the vesting period. This estimate is adjusted periodically based on the extent to which actual forfeitures differ, or are expected to differ, from the previous estimate.
| 31 |
[B] Restricted Stock Awards:
The Company grants restricted stock to employees, whereby the employees are contractually restricted from transferring the shares until they are vested. The stock is unvested at the time of grant and, upon vesting, there are no legal restrictions on the stock. The fair value of each share is based on the Company’s closing stock price on the date of the grant. A summary of the non-vested shares for the years ended December 31, 2019, 2020 and 2021 is as follows:
Number of Non-Vested Shares | Weighted - Average Grant Date Fair Value | |||||||
| Non-vested, at January 1, 2019 | ||||||||
| Granted | ||||||||
| Vested | ( | ) | ||||||
| Forfeited or expired | ( | ) | ||||||
| Non-vested, at December 31, 2019 | ||||||||
| Granted | ||||||||
| Vested | ( | ) | ||||||
| Forfeited or expired | ( | ) | ||||||
| Non-vested, at December 31, 2020 | ||||||||
| Granted | ||||||||
| Vested | ( | ) | ||||||
| Forfeited or expired | ( | ) | ||||||
| Non-vested, at December 31, 2021 | ||||||||
For the years ended December 31, 2019, 2020 and 2021, the Company recorded $, $, and $ respectively, of stock-based compensation expense in connection with the restricted stock grants. As of December 31, 2021, there was $ of total unrecognized compensation cost related to non-vested shares. That cost is expected to be recognized over a weighted-average period of years.
[C] Restricted Stock Units:
The Company also grants restricted stock units (“RSUs”) to employees. The following table summarizes the activity relating to the Company’s RSUs for the years ended December 31, 2019, 2020 and 2021:
| Number of Restricted Stock Units | Weighted - Average Grant Date Fair Value | |||||||
| Pointer share-based payments assumed | $ | |||||||
| Vested | ( | ) | ||||||
| Forfeited or expired | ||||||||
| Restricted stock-units, non-vested December 31, 2019 | $ | |||||||
| Vested | ( | ) | ||||||
| Forfeited or expired | ( | ) | ||||||
| Restricted stock-units, non-vested, December 31, 2020 | $ | |||||||
| Vested | ( | ) | ||||||
| Forfeited or expired | ( | ) | ||||||
| Restricted stock-units, non-vested, December 31, 2021 | $ | |||||||
For the years ended December 31, 2019, 2020 and 2021 the Company recorded $, $, and $ respectively, of stock-based compensation expense in connection with the RSUs. As of December 31, 2021, there was $ of total unrecognized compensation cost related to non-vested RSUs. That cost is expected to be recognized over a weighted-average period of years.
NOTE 11 – SHORT-TERM BANK DEBT AND LONG-TERM DEBT
SCHEDULE OF LONG TERM DEBT
| 2020 | 2021 | |||||||
| Year Ended December 31, | ||||||||
| 2020 | 2021 | |||||||
| Short-term bank debt | $ | $ | ||||||
| Current maturities of long-term debt | $ | $ | ||||||
| Long term debt - less current maturities | $ | $ | ||||||
| 32 |
Long term debt
In
connection with the Transactions, PowerFleet Israel incurred $
The
Credit Facilities will mature on the date that is five years from the Closing Date. The indicative interest rate provided for the Term
Facilities in the original Credit Agreement was approximately
On
August 23, 2021, PowerFleet Israel and Pointer (the “Borrowers”) entered into an amendment (the “Amendment”),
effective as of August 1, 2021, to the Credit Agreement with Hapoalim. The Amendment memorializes the agreements between the Borrowers
and Hapoalim regarding a reduction in the interest rates of the two Term Facilities. Pursuant to the Amendment, commencing as of November
12, 2020, the interest rate with respect to the Term A Facility was reduced to a fixed rate of
In
connection with the Credit Facilities, the Company incurred debt issuance costs of $
Scheduled maturities of the long-term debt as of December 31, 2021, are as follows:
SCHEDULE OF MATURITIES OF LONG TERM DEBT
| Year ending December 31: | ||||
| 2022 | $ | |||
| 2023 | ||||
| 2024 | ||||
| Long term debt | ||||
| Less: Current Portion | ||||
| Total | $ | |||
The Term B Facility is not subject to amortization over the life of the loan and instead the original principal amount is to be due in one installment on the fifth anniversary of the date of the consummation of the Transactions.
| 33 |
NOTE 12 - ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consist of the following:
SCHEDULE OF ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
| 2020 | 2021 | |||||||
| Year Ended December 31, | ||||||||
| 2020 | 2021 | |||||||
| Accounts payable | $ | $ | ||||||
| Accrued warranty | ||||||||
| Accrued compensation | ||||||||
| Government authorities | ||||||||
| Other current liabilities | ||||||||
| Accounts payable and accrued expenses | $ | $ | ||||||
The following table summarizes warranty activity during the years ended December 31, 2020 and 2021:
SCHEDULE OF PRODUCT WARRANTY LIABILITY
| Year Ended December 31, | ||||||||
| 2020 | 2021 | |||||||
| Accrued warranty reserve, beginning of year | $ | $ | ||||||
| Accrual for product warranties issued | ||||||||
| Product replacements and other warranty expenditures | ( | ) | ( | ) | ||||
| Expiration of warranties | ( | ) | ( | ) | ||||
| Accrued warranty reserve, end of period (a) | $ | $ | ||||||
| (a) |
NOTE 13 - LEASES
The
Company has operating leases for office space and office equipment. The Company’s leases have remaining lease terms of
The Company has lease agreements which are classified as short-term in nature. These leases meet the criteria for operating lease classification. Lease cost associated with the short-term leases are included in selling, general and administrative expenses on the Company’s condensed consolidated statements of operations during years ended December 31, 2019, 2020, and 2021.
Components of lease expense are as follows:
SCHEDULE OF COMPONENTS OF LEASE EXPENSE
Year Ended December 31, 2020 | Year Ended December 31, 2021 | |||||||
| Short term lease cost: | $ | $ | ||||||
Supplemental cash flow information and non-cash activity related to the Company’s operating leases are as follows:
SCHEDULE OF CASH FLOW INFORMATION AND NON-CASH ACTIVITY OF OPERATING LEASES
Year Ended December 31, 2020 | Year Ended December 31, 2021 | |||||||
| Non-cash activity: | ||||||||
| Right-of-use assets obtained in exchange for lease obligations | $ | $ | ||||||
Weighted-average remaining lease term and discount rate for the Company’s operating leases are as follows:
SCHEDULE OF WEIGHTED AVERAGE REMAINING LEASE TERM AND DISCOUNT RATE
| December 31, 2021 | ||||
| Weighted-average remaining lease term (in years) | ||||
| Weighted-average discount rate | % | |||
| 34 |
Scheduled maturities of operating lease liabilities outstanding as of December 31, 2021 are as follows:
SCHEDULED MATURITIES OF OPERATING LEASE LIABILITIES
| Year ending December 31: | ||||
| 2022 | $ | |||
| 2023 | ||||
| 2024 | ||||
| 2025 | ||||
| 2026 | ||||
| Thereafter | ||||
| Total lease payments | ||||
| Less: Imputed interest | ( | ) | ||
| Present value of lease liabilities | $ | |||
NOTE 14 - STOCKHOLDERS’ EQUITY
[A] Public Offering:
On
February 1, 2021 the Company closed an underwritten public offering of shares of common stock (which included the full exercise
of the underwriters’ over-allotment option) for gross proceeds of approximately $
[B] ATM Offering:
On
May 14, 2020, we entered into an equity distribution agreement (the “Sales Agreement”) with Canaccord, pursuant to which
we could offer and sell, from time to time through an “at-the-market offering” program, with Canaccord as sales agent,
shares of our common stock having an aggregate offering price of up to $ |
[C] Redeemable Preferred stock:
The Company is authorized to issue shares of preferred stock, par value $ per share of which shares are designated Series A Preferred Stock and shares are undesignated.
Series A Preferred Stock
In connection with the completion of the Transactions, on October 3, 2019, the Company issued shares of Series A Preferred Stock to ABRY Senior Equity V, L.P., ABRY Senior Equity Co-Investment Fund V, L.P and ABRY Investment Partnership, L.P. (the “Investors”). For the year ended December 31, 2020, and December 31, 2021, the Company issued and -- additional shares of Series A Preferred Stock.
Liquidation
Dividends
Holders
of Series A Preferred Stock are entitled to receive cumulative dividends at a minimum rate of |
| 35 |
Voting; Consent Rights
The
holders of Series A Preferred Stock will be given notice by the Company of any meeting of stockholders or action to be taken by written
consent in lieu of a meeting of stockholders as to which the holders of common stock are given notice at the same time as provided
in, and in accordance with, the Company’s Amended and Restated Bylaws. Except as required by applicable law or as otherwise
specifically set forth in the Charter, the holders of Series A Preferred Stock are not entitled to vote on any matter presented to
the Company’s stockholders unless and until any holder of Series A Preferred Stock provides written notification to the Company
that such holder is electing, on behalf of all holders of Series A Preferred Stock, to activate their voting rights and in doing
so rendering the Series A Preferred Stock voting capital stock of the Company (such notice, a “Series A Voting Activation Notice”).
Redemption
At
any time, each holder of Series A Preferred Stock may elect to convert each share of such holder’s then-outstanding Series
A Preferred Stock into the number of shares of the Company’s common stock equal to the quotient of (x) the Series A Issue Price,
plus any accrued and unpaid dividends, divided by (y) the Series A Conversion Price in effect at the time of conversion. The Series
A Conversion Price is initially equal to $
Further, at any time (i) after the 66-month anniversary of the Original Issuance Date, (ii) following delivery of a mandatory conversion notice by us, or (iii) upon a deemed liquidation event, subject to Delaware law governing distributions to stockholders, the holders of the Series A Preferred Stock may elect to require us to redeem all or any portion of the outstanding shares of Series A Preferred Stock for an amount per share equal to the Redemption Price.
On June 9, 2021, the Company entered into a preferred stock redemption right agreement (the “Redemption Right Agreement”) with the Investors, pursuant to which the Company had the right to redeem shares of Series A Preferred Stock at a price of $ per share plus all accrued and unpaid dividends, to be paid in cash. The Company did not exercise its redemption right and the Redemption Right Agreement automatically terminated on October 1, 2021. |
| 36 |
NOTE 15 - ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
Comprehensive income (loss) includes net loss and unrealized gains or losses on available-for-sale investments and foreign currency translation gains and losses. Cumulative unrealized gains and losses on available-for-sale investments are reflected as accumulated other comprehensive loss in stockholders’ equity on the Company’s Consolidated Balance Sheets.
The accumulated balances for each classification of other comprehensive income (loss) are as follows:
SCHEDULE OF ACCUMULATED OTHER COMPREHENSIVE LOSS
| Foreign currency translation adjustment | Unrealized gain (losses) on investments | Accumulated other comprehensive income | ||||||||||
| Balance at January 1, 2019 | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||
| Net current period change | ||||||||||||
| Balance at December 31, 2019 | $ | $ | $ | |||||||||
| Net current period change | ||||||||||||
| Balance at December 31, 2020 | ||||||||||||
| Net current period change | ( | ) | ( | ) | ||||||||
| Balance at December 31, 2021 | $ | $ | $ | |||||||||
NOTE 16 – SEGMENT INFORMATION
The Company operates in one reportable segment, wireless IoT asset management. The following table summarizes revenues on a percentage basis by geographic region.
SCHEDULE OF REVENUES AND LONG LIVED ASSETS BY GEOGRAPHICAL REGION
| Year Ended December 31, | ||||||||||||
| 2019 | 2020 | 2021 | ||||||||||
| United States | $ | $ | $ | |||||||||
| Israel | ||||||||||||
| Other | ||||||||||||
| $ | $ | $ | ||||||||||
| Year Ended December 31, | ||||||||||||
| 2019 | 2020 | 2021 | ||||||||||
| Long lived assets by geographic region: | ||||||||||||
| United States | $ | $ | $ | |||||||||
| Israel | ||||||||||||
| Other | ||||||||||||
| $ | $ | $ | ||||||||||
| 37 |
NOTE 17 - INCOME TAXES
Loss before income taxes consists of the following:
SCHEDULE OF LOSS BEFORE INCOME TAXES
| 2019 | 2020 | 2021 | ||||||||||
| Year Ended December 31, | ||||||||||||
| 2019 | 2020 | 2021 | ||||||||||
| U.S. operations | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||
| Foreign operations | ( | ) | ||||||||||
| Net loss before income tax | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||
The provision for income taxes consist of the following:
SCHEDULE OF PROVISION FOR INCOME TAXES
| 2019 | 2020 | 2021 | ||||||||||
| Year Ended December 31, | ||||||||||||
| 2019 | 2020 | 2021 | ||||||||||
| Current: | ||||||||||||
| Federal | $ | $ | $ | |||||||||
| State | ||||||||||||
| Foreign | ( | ) | ||||||||||
| 75 | 99 | 143 | ||||||||||
| Deferred: | ||||||||||||
| Federal | ||||||||||||
| State | ||||||||||||
| Foreign | ||||||||||||
| - | 939 | 2,464 | ||||||||||
| Total (benefit) provision for income taxes | $ | $ | $ | |||||||||
The difference between income taxes at the statutory federal income tax rate and income taxes reported in the Consolidated Statements of Operations is attributable to the following:
SCHEDULE OF STATUTORY FEDERAL INCOME TAX RATE
| 2019 | 2020 | 2021 | ||||||||||
| Year Ended December 31, | ||||||||||||
| 2019 | 2020 | 2021 | ||||||||||
| Income tax benefit at the federal statutory rate | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||
| State and local income taxes, net of federal taxes | ( | ) | ( | ) | ||||||||
| Increase (decrease) in valuation allowance | ( | ) | ||||||||||
| Remeasurement of deferred tax adjustments | ( | ) | ||||||||||
| Permanent differences and other | ||||||||||||
| Foreign rate differential | ( | ) | ( | ) | ||||||||
| GILTI inclusion | ||||||||||||
| Other | ( | ) | ||||||||||
| Income tax benefit | $ | ( | ) | $ | $ | |||||||
| 38 |
The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at December 31, 2020 and 2021 are presented below:
SCHEDULE OF DEFERRED TAX ASSETS AND LIABILITIES
| 2020 | 2021 | |||||||
| Year Ended December 31, | ||||||||
| 2020 | 2021 | |||||||
| Deferred tax assets: | ||||||||
| Net operating loss carryforwards | $ | $ | ||||||
| Capital loss carryforwards | ||||||||
| Deferred revenue | ||||||||
| Stock-based compensation | ||||||||
| Federal research and development tax credits | ||||||||
| Intangibles, amortization | ||||||||
| Inventories | ||||||||
| Bad Debt Reserve | ||||||||
| Deferred lease liability | ||||||||
| Other deductible temporary differences | ||||||||
| Total gross deferred tax assets | ||||||||
| Less: valuation allowance | ( | ) | ( | ) | ||||
| Deferred tax assets, net of valuation allowance | ||||||||
| Deferred tax liabilities: | ||||||||
| Intangible amortization | ( | ) | ( | ) | ||||
| ROU assets | ( | ) | ( | ) | ||||
| Fixed assets, depreciation | ( | ) | ||||||
| Total deferred tax liabilities | ( | ) | ( | ) | ||||
| Net deferred tax (liabilities)/assets | $ | $ | ( | ) | ||||
A reconciliation of the beginning and ending amount of unrecognized tax positions is as follows:
SCHEDULE OF UNRECOGNIZED TAX POSITIONS
| 2020 | 2021 | |||||||
| Year Ended December 31, | ||||||||
| 2020 | 2021 | |||||||
| Balance at the beginning of the year | $ | $ | ||||||
| Additions based on tax provisions taken related to current year | ||||||||
| Balance at the end of year | $ | $ | ||||||
The unrecognized tax benefits, if recognized, would reduce the Company’s annual effective tax rate. The Company does not expect any significant changes to its unrecognized tax positions during the next twelve months.
At
December 31, 2021, the Company had an aggregate net operating loss carryforward of approximately $
| 39 |
At
December 31, 2021, the Company has New Jersey net operating loss carryforwards (“NJ NOLs”) included above in the approximate
amount of $
The Company is asserting permanent reinvestment of all accumulated undistributed earnings of its foreign subsidiaries as of December 31, 2021 in excess of annual debt service costs requirements.
For
the year ended December 31, 2021, the Company’s valuation allowance decreased to $
Audits for federal income tax returns are closed for the years through 2017. However, the Internal Revenue Service (“IRS”) can audit the NOL’s generated during those years in the years that the NOL’s are utilized. State income tax returns are generally subject to examination for a period of three to six years after the filing of the respective tax return. The state impact of any federal changes remains subject to examination by various states for a period of up to one year after formal notification to the states. Foreign income tax returns are generally subject to examination based on the tax laws of the respective jurisdictions.
| 40 |
NOTE 18 - COMMITMENTS AND CONTINGENCIES
Except for normal operating leases, the Company is not currently subject to any material commitments.
[A] Contingencies:
Except for normal operating leases, the Company is not currently subject to any material commitments.
From time to time, the Company is involved in various litigation matters involving claims incidental to its business and acquisitions, including employment matters, acquisition related claims, patent infringement and contractual matters, among other issues. While the outcome of any such litigation matters cannot be predicted with certainty, management currently believes that the outcome of these proceedings, including the matters described below, either individually or in the aggregate, will not have a material adverse effect on its business, results of operations or financial condition. The Company records reserves related to legal matters when losses related to such litigation or contingencies are both probable and reasonably estimable.
In
August 2014, Pointer do Brasil Comercial Ltda. (“Pointer Brazil”) received a notification of lack of payment of VAT tax (Brazilian
ICMS tax) in the amount of $
In
July 2015, Pointer Brazil received a tax deficiency notice alleging that the services provided by Pointer Brazil should be classified
as “telecommunication services” and therefore Pointer Brazil should be subject to the state value-added tax. The aggregate
amount claimed to be owed under the notice was approximately $
NOTE 19 – SUBSEQUENT EVENTS
Effective January 5, 2022, Steve Towe was appointed as the new Chief Executive Officer, succeeding Chris Wolfe.
| 41 |
PART IV.
Item 15. Exhibits, Financial Statement Schedules
(a) List of Financial Statements, Financial Statement Schedules, and Exhibits.
(1) Financial Statements. The following financial statements of PowerFleet, Inc. are included in Item 8 of Part II of this Amendment No. 2:
(2) Financial Statement Schedule.
None.
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(3) Exhibits. The following exhibits are filed with this Amendment No. 2 or are incorporated herein by reference, as indicated.
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| † | We have omitted certain schedules and exhibits to this agreement in accordance with Item 601(b)(2) of Regulation S-K, and we will supplementally furnish a copy of any omitted schedule and/or exhibit to the Securities and Exchange Commission upon request. |
| * | Management contract or compensatory plan or arrangement. |
(b) Exhibits. The exhibits required by Item 601 of Regulation S-K are filed herewith or incorporated herein by reference. Please see the Index to Exhibits to this Amendment No. 2, which is incorporated into this Item 15(b) by reference.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Date: August 25, 2022
| POWERFLEET, INC. | ||
| By: | /s/ Steve Towe | |
| Steve Towe | ||
| Chief Executive Officer | ||
| (Principal Executive Officer) | ||
| By: | /s/ Joaquin Fong | |
| Joaquin Fong | ||
| Global Controller | ||
| (Principal Financial and Accounting Officer) | ||
Pursuant to the requirements of the Securities Exchange Act of 1934, this report is signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
| Signature | Title | Date | ||
| /s/ Steve Towe | Chief Executive Officer | August 25, 2022 | ||
| Steve Towe | (Principal Executive Officer) | |||
| /s/ Joaquin Fong | Global Controller | August 25, 2022 | ||
| Joaquin Fong | (Principal Financial and Accounting Officer) | |||
| /s/ Anders Bjork | Director | August 25, 2022 | ||
| Anders Bjork | ||||
| /s/ Michael Brodsky | Director | August 25, 2022 | ||
| Michael Brodsky | ||||
| /s/ Michael Casey | Director | August 25, 2022 | ||
| Michael Casey | ||||
| /s/ Charles Frumberg | Director | August 25, 2022 | ||
| Charles Frumberg | ||||
| /s/ Medhini Srinivasan | Director | August 25, 2022 | ||
| Medhini Srinivasan |
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Exhibit 23.1
Consent of Independent Registered Public Accounting Firm
We consent to the incorporation by reference in the following Registration Statements:
| (1) | Registration Statement on Form S-3 (No. 333-234703) of PowerFleet, Inc. | |
| (2) | Registration Statement on Form S-8 (No. 333-234079) pertaining to the PowerFleet, Inc. 2018 Incentive Plan, I.D. Systems, Inc. 2015 Equity Compensation Plan, I.D. Systems, Inc. 2009 Non-Employee Director Equity Compensation Plan and I.D. Systems, Inc. 2007 Equity Compensation Plan | |
| (3) | Registration Statement on Form S-8 (No. 333-234081) pertaining to the I.D. Systems, Inc. 401(k) Plan | |
| (4) | Registration Statement on Form S-8 (No. 333-258715) pertaining to the PowerFleet, Inc. 2018 Incentive Plan | |
| (5) | Registration Statement on Form S-8 (No. 333-263625) pertaining to the PowerFleet, Inc. Stock Option Inducement Awards; | |
| of our reports dated March 16, 2022, with respect to the consolidated financial statements of PowerFleet, Inc. and the effectiveness of internal control over financial reporting of PowerFleet, Inc. included in this Amendment No. 2 to the Annual Report on Form 10-K/A for the year ended December 31, 2021. |
| /s/ Ernst & Young LLP | |
| Iselin, New Jersey | |
| August 25, 2022 |
Exhibit 31.1
CERTIFICATIONS
I, Steve Towe, as Chief Executive Officer (Principal Executive Officer), certify that:
1. I have reviewed this Amendment No. 2 to the Annual Report on Form 10-K/A of PowerFleet, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
| Date: August 25, 2022 | By: | /s/ Steve Towe |
| Name: | Steve Towe | |
| Title: | Chief Executive Officer | |
| (Principal Executive Officer) |
Exhibit 31.2
CERTIFICATIONS
I, Joaquin Fong, as Principal Financial Officer, certify that:
1. I have reviewed this Amendment No. 2 to the Annual Report on Form 10-K/A of PowerFleet, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
| Date: August 25, 2022 | By: | /s/ Joaquin Fong |
| Name: | Joaquin Fong | |
| Title: | Global Controller | |
| (Principal Financial and Accounting Officer) |
Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Amendment No. 2 to the Annual Report on Form 10-K/A (the “Report”) of PowerFleet, Inc. (the “Corporation”) for the year ended December 31, 2021, as filed with the Securities and Exchange Commission on the date hereof, I, Steve Towe, Chief Executive Officer of the Corporation, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, to my knowledge, that:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Corporation.
| Dated: August 25, 2022 | By: | /s/ Steve Towe |
| Name: | Steve Towe | |
| Title: | Chief Executive Officer | |
| (Principal Executive Officer) |
The foregoing certification is being furnished solely pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code) and is not being filed as part of the Report or as a separate disclosure document.
A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to the Corporation and will be retained by the Corporation and furnished to the Securities and Exchange Commission or its staff upon request.
Exhibit 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Amendment No. 2 to the Annual Report on Form 10-K/A (the “Report”) of PowerFleet, Inc. (the “Corporation”) for the year ended December 31, 2021, as filed with the Securities and Exchange Commission on the date hereof, I, Joaquin Fong, Principal Financial Officer of the Corporation, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, to my knowledge, that:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Corporation.
| Date: August 25, 2022 | By: | /s/ Joaquin Fong |
| Name: | Joaquin Fong | |
| Title: | Global Controller | |
| (Principal Financial and Accounting Officer) |
The foregoing certification is being furnished solely pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code) and is not being filed as part of the Report or as a separate disclosure document.
A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to the Corporation and will be retained by the Corporation and furnished to the Securities and Exchange Commission or its staff upon request.