UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
(Amendment No. 1)2)
(Mark One)
| ☒ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
| For the fiscal year ended December 31, 2021. | |
| ☐ | 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: 001-39080
POWERFLEET, INC.
(Exact name of registrant as specified in its charter)
| Delaware | 83-4366463 | |
| (State or other jurisdiction of | (IRS Employer | |
| incorporation or organization) | Identification No.) |
| 123 Tice Boulevard, Woodcliff Lake, New Jersey | 07677 | |
| (Address of principal executive offices) | (Zip Code) |
(201) 996-9000
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| Common Stock, par value $0.01 per share | PWFL | 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 ☐ No ☒
Indicate by checkmark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes ☐ No ☒
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. Yes ☒ No ☐
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). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer ☐ | 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 ☐ No ☒
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 $237.7million.
The number of shares of the registrant’s Common Stock outstanding as of April 28,August 4, 2022 was shares.
DOCUMENTS INCORPORATED BY REFERENCE
None.
| Auditor Firm ID | Auditor | Auditor | ||
| 42 | Ernst & Young LLP | Iselin, New Jersey |
explanatory note
This Amendment No. 12 on Form 10-K/A (this “Amendment No. 1”2”) further amends the Annual Report on Form 10-K for the fiscal year ended December 31, 2021 (the “2021 Annual Report”) of PowerFleet, Inc. filed with the Securities and Exchange Commission (the “SEC”) on March 16, 2022 (the “Original Filing Date”), as amended by Amendment No. 1 on Form 10-K/A filed with the SEC on May 2, 2022. In this Amendment No. 1,2, unless the context indicates otherwise, the designations “PowerFleet,” the “Company,” “we,” “us” or “our” refer to PowerFleet, Inc. and its subsidiaries.
This Amendment No. 12 is being filed solely to includecorrect a typographical error in the information required by Item 10 - “Directors, Executive Officers and Corporate Governance”, Item 11 - “Executive Compensation”, Item 12 - “Security OwnershipReport of Certain Beneficial Owners and Management and Related Stockholder Matters”, Item 13 - “Certain Relationships and Related Transactions, and Director Independence” and Item 14 - “Principal Accountant Fees and Services”Independent Registered Public Accounting Firm (the “Audit Opinion”) of Part III of Form 10-K. The reference on the cover page ofErnst & Young LLP (“EY”) contained in the 2021 Annual Report, toby replacing “December 31, 2020” with “December 31, 2021” under the incorporation by reference of portions of our definitive proxy statement into Part III ofsection titled “Critical Audit Matters” in the 2021 Annual Report is hereby deleted. Items 10, 11, 13 and 14 of Part III of the 2021 Annual Report are amended and restated in their entirety and Item 12 of Part III of the 2021 Annual Report is supplemented as set forth inAudit Opinion. In addition, this Amendment No. 1. In addition,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 13a-14(a) of12b-15 promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), we are including with this Amendment No. 1 certain currently dated certifications. Because no financial statements have been includedrepeated the entire text of Item 8 of the 2021 Annual Report in this Amendment No. 1 and this Amendment No. 1 does not contain or amend any disclosure with respect to Items 307 and 308 of Regulation S-K, paragraphs 3, 4 and 5 of the certifications2. However, there have been omitted. We are not includingno changes to the certifications under Section 906 of the Sarbanes-Oxley Act of 2002 as noCompany’s financial statements are being filedand notes thereto or the text of such item (other than the change stated in the immediately preceding paragraph to replace “December 31, 2020” with this Amendment No. 1.“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. 12 does not reflect events occurring after the March 16, 2022 filing of the 2021 Annual ReportOriginal Filing Date or modify or update theany disclosure contained in the 2021 Annual Report in any way other than as required to reflect the amendments discussed above and reflected below. Accordingly, this Amendment No. 12 should be read in conjunction with the 2021 Annual Report and our other filings with the SEC.
| 2 |
POWERFLEET, INC.
TABLE OF CONTENTS
| 3 |
PART II
Item 8. Financial Statements and Supplementary Data.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
| 4 |
PART III.REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Item 10.To the Stockholders and the Board of Directors Executive Officersof PowerFleet, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of PowerFleet, Inc. and Corporate Governancesubsidiaries (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
Information About
These financial statements are the responsibility of the Company’s management. Our Directorsresponsibility 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 Executive Officersare 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.
The table below sets forth the names and ages of the directors and executive officers of the Company as of April 28, 2022, as well as the position(s) and office(s) with the Company held by those individuals. A summary of the background and experience of each of those individuals is set forth after the table.
| Income Taxes – Uncertain Tax Positions | |||
| Description of the Matter |
|
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. | ||
|
| |||
| 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 | $ | 18,127 | $ | 26,452 | ||||
| Restricted cash | 308 | 308 | ||||||
| Accounts receivable, net of allowance for doubtful accounts of $2,364 and $3,176 in 2020 and 2021, respectively | 24,147 | 32,094 | ||||||
| Inventory, net | 12,873 | 18,243 | ||||||
| Deferred costs - current | 3,128 | 1,762 | ||||||
| Prepaid expenses and other current assets | 6,184 | 9,051 | ||||||
| Total current assets | 64,767 | 87,910 | ||||||
| Deferred costs - less current portion | 2,233 | 249 | ||||||
| Fixed assets, net | 8,804 | 8,988 | ||||||
| Goodwill | 83,344 | 83,487 | ||||||
| Intangible assets, net | 31,276 | 26,122 | ||||||
| Right of use asset | 9,700 | 9,787 | ||||||
| Severance payable fund | 4,056 | 4,359 | ||||||
| Deferred tax asset | 12,269 | 4,262 | ||||||
| Other assets | 3,115 | 4,703 | ||||||
| Total assets | $ | 219,564 | $ | 229,867 | ||||
| LIABILITIES | ||||||||
| Current liabilities: | ||||||||
| Short-term bank debt and current maturities of long-term debt | 5,579 | 6,114 | ||||||
| Accounts payable and accrued expenses | 20,225 | 29,015 | ||||||
| Deferred revenue - current | 7,339 | 6,519 | ||||||
| Lease liability - current | 2,755 | 2,640 | ||||||
| Total current liabilities | 35,898 | 44,288 | ||||||
| Long-term debt, less current maturities | 23,179 | 18,110 | ||||||
| Deferred revenue - less current portion | 6,006 | 4,428 | ||||||
| Lease liability - less current portion | 7,050 | 7,368 | ||||||
| Accrued severance payable | 4,714 | 4,887 | ||||||
| Deferred tax liability | 10,763 | 5,220 | ||||||
| Other long-term liabilities | 674 | 706 | ||||||
| Total liabilities | 88,284 | 85,007 | ||||||
| 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 | 51,992 | 52,663 | ||||||
| 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 | 323 | 373 | ||||||
| Additional paid-in capital | 206,499 | 234,083 | ||||||
| Accumulated deficit | (121,150 | ) | (134,437 | ) | ||||
| Accumulated other comprehensive gain (loss) | 399 | 391 | ||||||
| Treasury stock; and common shares at cost at December 31, 2020 and December 31, 2021, respectively | (6,858 | ) | (8,299 | ) | ||||
| Total Powerfleet, Inc. stockholders’ equity | 79,213 | 92,111 | ||||||
| Non-controlling interest | 75 | 86 | ||||||
| Total equity | 79,288 | 92,197 | ||||||
| Total liabilities and stockholders’ equity | $ | 219,564 | $ | 229,867 | ||||
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 | $ | 45,416 | $ | 45,651 | $ | 52,981 | ||||||
| Services | 36,499 | 67,942 | 73,227 | |||||||||
| Total revenues | 81,915 | 113,593 | 126,208 | |||||||||
| Cost of Revenues: | ||||||||||||
| Cost of products | 29,982 | 30,219 | 39,445 | |||||||||
| Cost of services | 13,569 | 24,357 | 26,580 | |||||||||
| Total cost of revenue | 43,551 | 54,576 | 66,025 | |||||||||
| Gross profit | 38,364 | 59,017 | 60,183 | |||||||||
| Operating expenses: | ||||||||||||
| Selling, general and administrative expenses | 34,447 | 51,878 | 57,100 | |||||||||
| Research and development expenses | 8,540 | 10,597 | 11,058 | |||||||||
| Acquisition related expenses | 5,135 | - | - | |||||||||
| Total Operating expenses | 48,122 | 62,475 | 68,158 | |||||||||
| Loss from operations | (9,758 | ) | (3,458 | ) | (7,975 | ) | ||||||
| Interest income | 125 | 55 | 45 | |||||||||
| Interest expense | (1,373 | ) | (4,467 | ) | (2,764 | ) | ||||||
| Other (expense) income, net | (50 | ) | (102 | ) | 8 | |||||||
| Net loss before income taxes | (11,056 | ) | (7,972 | ) | (10,686 | ) | ||||||
| Income tax benefit (expense) | 75 | (1,038 | ) | (2,607 | ) | |||||||
| Net loss before non-controlling interest | (10,981 | ) | (9,010 | ) | (13,293 | ) | ||||||
| Non-controlling interest | 18 | 3 | 5 | |||||||||
| Net loss | (10,963 | ) | (9,007 | ) | (13,288 | ) | ||||||
| Accretion of preferred stock | (168 | ) | (672 | ) | (672 | ) | ||||||
| Preferred stock dividends | (916 | ) | (3,927 | ) | (4,112 | ) | ||||||
| Net loss attributable to common stockholders | $ | (12,047 | ) | $ | (13,606 | ) | $ | (18,072 | ) | |||
| Net loss per share attributable to common stockholders - basic and diluted | $ | (0.59 | ) | $ | (0.46 | ) | $ | (0.52 | ) | |||
| Weighted average common shares outstanding - basic and diluted | 20,476 | 29,703 | 34,571 | |||||||||
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 | $ | (12,047 | ) | $ | (13,606 | ) | $ | (18,072 | ) | |||
| Other comprehensive (loss) income, net: | ||||||||||||
| Unrealized (loss) gain on investments | 9 | - | - | |||||||||
| Reclassification of net realized investment loss (gain) included in net loss | 38 | - | - | |||||||||
| Foreign currency translation adjustment | 653 | 134 | (8 | ) | ||||||||
| Total other comprehensive income (loss), net | 700 | 134 | (8 | ) | ||||||||
| Comprehensive loss | $ | (11,347 | ) | $ | (13,472 | ) | $ | (18,080 | ) | |||
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 | 19,178 | $ | 192 | $ | 138,693 | $ | (101,180 | ) | $ | (435 | ) | $ | (5,736 | ) | $ | - | $ | 31,534 | ||||||||||||||
| Net loss attributable to common stockholders | - | - | (1,084 | ) | (10,963 | ) | - | - | - | (12,047 | ) | |||||||||||||||||||||
| Foreign currency translation adjustment | - | - | - | - | 653 | - | 8 | 661 | ||||||||||||||||||||||||
| Reclassification of realized losses on investments, net of unrealized amounts | - | - | - | - | 47 | - | - | 47 | ||||||||||||||||||||||||
| Shares issued pursuant to Pointer Transactions | 10,756 | 107 | 57,973 | - | - | - | - | 58,080 | ||||||||||||||||||||||||
| Share based awards assumed Pointer Transaction | - | 246 | - | - | - | - | 246 | |||||||||||||||||||||||||
| Shares issued relating to Keytroller acquisition consideration | 148 | 1 | 999 | - | - | - | - | 1,000 | ||||||||||||||||||||||||
| Shares issued pursuant to CarrierWeb acquisition | 71 | 1 | 405 | - | - | - | - | 406 | ||||||||||||||||||||||||
| Shares issued pursuant to exercise of stock options | 59 | 1 | 221 | - | - | - | - | 222 | ||||||||||||||||||||||||
| Shares withheld pursuant to exercise of stock options | ||||||||||||||||||||||||||||||||
| Issuance of restricted shares | 625 | 6 | (6 | ) | - | - | - | - | - | |||||||||||||||||||||||
| Forfeiture of restricted shares | (40 | ) | - | - | - | - | - | - | ||||||||||||||||||||||||
| Vesting of restricted stock units | 7 | - | - | - | - | - | - | - | ||||||||||||||||||||||||
| Shares withheld pursuant to vesting of restricted stock | - | - | - | - | - | (317 | ) | - | (317 | ) | ||||||||||||||||||||||
| 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 | - | - | 4,213 | - | - | - | - | 4,213 | ||||||||||||||||||||||||
| Net loss attributable to non-controlling interest | - | - | - | - | - | - | (18 | ) | (18 | ) | ||||||||||||||||||||||
| Other | - | - | 153 | - | - | - | - | 153 | ||||||||||||||||||||||||
| Balance at December 31, 2019 | 30,804 | $ | 308 | $ | 201,813 | $ | (112,143 | ) | $ | 265 | $ | (6,053 | ) | $ | (10 | ) | $ | 84,180 | ||||||||||||||
| Net loss attributable to common stockholders | - | - | (4,599 | ) | (9,007 | ) | - | - | - | (13,606 | ) | |||||||||||||||||||||
| Net loss attributable to non-controlling interest | - | - | - | - | - | - | (3 | ) | (3 | ) | ||||||||||||||||||||||
| Foreign currency translation adjustment | - | - | - | - | 134 | - | 88 | 222 | ||||||||||||||||||||||||
| Issuance of restricted shares | 461 | 4 | (4 | ) | - | - | - | - | - | |||||||||||||||||||||||
| Forfeiture of restricted shares | (143 | ) | (1 | ) | 1 | - | - | - | - | - | ||||||||||||||||||||||
| Vesting of restricted stock units | 149 | 1 | (1 | ) | - | - | - | - | - | |||||||||||||||||||||||
| Other | - | - | 62 | - | - | - | - | 62 | ||||||||||||||||||||||||
| Shares issued pursuant to exercise of stock options | 199 | 3 | 935 | - | - | - | - | 938 | ||||||||||||||||||||||||
| Shares withheld pursuant to exercise of stock options | - | - | - | - | - | (382 | ) | - | (382 | ) | ||||||||||||||||||||||
| Shares withheld pursuant to vesting of restricted stock | - | - | - | - | - | (423 | ) | - | (423 | ) | ||||||||||||||||||||||
| Common shares issued | 810 | 8 | 4,033 | - | - | - | - | 4,041 | ||||||||||||||||||||||||
| Stock based compensation | - | - | 4,259 | - | - | - | - | 4,259 | ||||||||||||||||||||||||
| Balance at December 31, 2020 | 32,280 | $ | 323 | $ | 206,499 | $ | (121,150 | ) | $ | 399 | $ | (6,858 | ) | $ | 75 | $ | 79,288 | |||||||||||||||
| Net loss attributable to common stockholders | - | - | (4,785 | ) | (13,287 | ) | - | - | - | (18,072 | ) | |||||||||||||||||||||
| Net loss attributable to non-controlling interest | - | - | - | - | - | - | (5 | ) | (5 | ) | ||||||||||||||||||||||
| Foreign currency translation adjustment | - | - | - | - | (8 | ) | - | 16 | 8 | |||||||||||||||||||||||
| Issuance of restricted shares | 449 | 5 | (4 | ) | - | - | - | - | 1 | |||||||||||||||||||||||
| Forfeiture of restricted shares | (89 | ) | (1 | ) | - | - | - | - | - | (1 | ) | |||||||||||||||||||||
| Vesting of restricted stock units | 39 | - | - | - | - | - | - | - | ||||||||||||||||||||||||
| Shares issued pursuant to exercise of stock options | 156 | 2 | 875 | - | - | - | - | 877 | ||||||||||||||||||||||||
| Shares withheld pursuant to exercise of stock options | - | - | - | - | - | (647 | ) | - | (647 | ) | ||||||||||||||||||||||
| Shares withheld pursuant to vesting of restricted stock | - | - | - | - | - | (794 | ) | - | (794 | ) | ||||||||||||||||||||||
| Common shares issued, net of issuance costs | 4,428 | 44 | 26,822 | - | - | - | - | 26,866 | ||||||||||||||||||||||||
| Stock based compensation | - | - | 4,676 | - | - | - | - | 4,676 | ||||||||||||||||||||||||
| Balance at December 31, 2021 | 37,263 | $ | 373 | $ | 234,083 | $ | (134,437 | ) | $ | 391 | $ | (8,299 | ) | $ | 86 | $ | 92,197 | |||||||||||||||
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 | $ | (10,963 | ) | $ | (9,007 | ) | $ | (13,288 | ) | |||
| Adjustments to reconcile net loss to cash (used in) provided by operating activities: | ||||||||||||
| Non-controlling interest | (18 | ) | (3 | ) | (5 | ) | ||||||
| Inventory reserve | 207 | 260 | (22 | ) | ||||||||
| Stock based compensation expense | 3,794 | 4,259 | 4,676 | |||||||||
| Depreciation and amortization | 3,347 | 8,425 | 8,553 | |||||||||
| Right-of-use assets, non-cash lease expense | 965 | 2,832 | 2,859 | |||||||||
| Bad debt expense | 474 | 1,035 | 1,442 | |||||||||
| Change in contingent consideration | 54 | - | - | |||||||||
| Deferred income taxes | - | 359 | 2,607 | |||||||||
| Other non-cash items | (40 | ) | 23 | 305 | ||||||||
| Changes in: | ||||||||||||
| Accounts receivable | (1,297 | ) | 2,168 | (9,643 | ) | |||||||
| Inventory | (3,283 | ) | 3,050 | (6,058 | ) | |||||||
| Prepaid expenses and other assets | 567 | 1,908 | (2,918 | ) | ||||||||
| Deferred costs | 539 | 3,169 | 3,349 | |||||||||
| Deferred revenue | (857 | ) | (4,326 | ) | (2,290 | ) | ||||||
| Accounts payable and accrued expenses | 360 | (2,392 | ) | 8,300 | ||||||||
| Lease liabilities | (1,106 | ) | (2,962 | ) | (2,741 | ) | ||||||
| Accrued severance payable, net | (12 | ) | 50 | (145 | ) | |||||||
| Net cash (used in) provided by operating activities | (7,269 | ) | 8,848 | (5,019 | ) | |||||||
| Cash flows from investing activities: | ||||||||||||
| Acquisitions, net of cash assumed | (69,005 | ) | - | - | ||||||||
| Proceeds from sale of property and equipment | 24 | 75 | - | |||||||||
| Capital expenditures | (1,042 | ) | (3,373 | ) | (3,398 | ) | ||||||
| Purchases of investments | (99 | ) | - | - | ||||||||
| Proceeds from the sale and maturities of investments | 4,638 | - | - | |||||||||
| Net cash (used in) provided by investing activities | (65,484 | ) | (3,298 | ) | (3,398 | ) | ||||||
| Cash flows from financing activities: | ||||||||||||
| Net proceeds from stock offering | 46,309 | 4,041 | 26,867 | |||||||||
| Payment of preferred stock dividends | - | - | (4,112 | ) | ||||||||
| Proceeds from convertible note | 5,000 | - | - | |||||||||
| Repayment of convertible note | - | (5,000 | ) | - | ||||||||
| Proceeds from long-term-debt | 30,000 | - | - | |||||||||
| Repayment of long-term debt | (2,010 | ) | (2,858 | ) | (5,709 | ) | ||||||
| Debt issuance costs | (742 | ) | - | - | ||||||||
| Short-term bank debt, net | 75 | (262 | ) | (270 | ) | |||||||
| Proceeds from exercise of stock options, net | 330 | 556 | 229 | |||||||||
| Purchase of treasury stock upon vesting of restricted stock | (317 | ) | (423 | ) | (794 | ) | ||||||
| Net cash (used in) provided by financing activities | 78,645 | (3,946 | ) | 16,211 | ||||||||
| Effect of foreign exchange rate changes on cash and cash equivalents | 345 | 128 | 531 | |||||||||
| Net (decrease) increase in cash, cash equivalents and restricted cash | 6,237 | 1,732 | 8,325 | |||||||||
| Cash, cash equivalents and restricted cash - beginning of period | 10,466 | 16,703 | 18,435 | |||||||||
| Cash, cash equivalents and restricted cash - end of period | $ | 16,703 | $ | 18,435 | $ | 26,760 | ||||||
| Reconciliation of cash, cash equivalents, and restricted cash, beginning of period | ||||||||||||
| Cash and cash equivalents | 10,159 | 16,395 | 18,127 | |||||||||
| Restricted cash | 307 | 308 | 308 | |||||||||
| Cash, cash equivalents, and restricted cash, beginning of period | $ | 10,466 | $ | 16,703 | $ | 18,435 | ||||||
| Reconciliation of cash, cash equivalents, and restricted cash, end of period | ||||||||||||
| Cash and cash equivalents | 16,395 | 18,127 | 26,452 | |||||||||
| Restricted cash | 308 | 308 | 308 | |||||||||
| Cash, cash equivalents, and restricted cash, end of period | $ | 16,703 | $ | 18,435 | $ | 26,760 | ||||||
| Supplemental disclosure of cash flow information: | ||||||||||||
| Cash paid for: | ||||||||||||
| Taxes | 605 | 47 | 58 | |||||||||
| Interest | 807 | 2,297 | 1,474 | |||||||||
| Noncash investing and financing activities: | ||||||||||||
| Unrealized (loss) gain on investments | $ | 47 | $ | - | $ | - | ||||||
| Value of shares withheld pursuant to exercise of stock options | $ | - | $ | 382 | $ | 647 | ||||||
| Value of shares issued relating to acquisition contingent consideration | $ | 1,000 | $ | - | $ | - | ||||||
| Value of shares issued pursuant to acquisitions | $ | (58,486 | ) | $ | - | $ | - | |||||
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 $26,760 and working capital of $43,622. The Company’s primary sources of cash are cash flows from operating activities, its holdings of cash, cash equivalents and investments from the sale of its capital stock and borrowings under its credit facility. To date, the Company has not generated sufficient cash flows solely from operating activities to fund its operations.
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 $30,000 (comprised of two facilities in the aggregate principal amount of $20,000 and $10,000) and a five-year revolving credit facility to Pointer in an aggregate principal amount of $10,000. The proceeds of the term loan facilities were used to finance a portion of the cash consideration payable in the Company’s acquisition of Pointer. The proceeds of the revolving credit facility may be used by Pointer for general corporate purposes. The Company has not borrowed under the revolving credit facility since its inception and does not have any borrowings as of December 31, 2021. See Note 11 for additional information.
| 12 |
The Company has on file a shelf registration statement on Form S-3 that was declared effective by the Securities and Exchange Commission (the “SEC”) on November 27, 2019. Pursuant to the shelf registration statement, the Company may offer to the public from time to time, in one or more offerings, up to $60,000 of its common stock, preferred stock, warrants, debt securities, and units, or any combination of the foregoing, at prices and on terms to be determined at the time of any such offering. The specific terms of any future offering will be determined at the time of the offering and described in a prospectus supplement that will be filed with the SEC in connection with such offering.
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 $4,200 in gross proceeds. We terminated the equity distribution agreement effective as of August 14, 2020. See Note 14 for additional information regarding the ATM Offering.
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 $28,800, before deducting the underwriting discounts and commissions and other offering expenses. The offer and sale of common stock in the ATM Offering and the Underwritten Public Offering were made pursuant to the Company’s shelf registration statement.
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
| 13 |
[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 $2,364 and $3,176 in 2020 and 2021, respectively. The Company does not have any off-balance sheet credit exposure related to its customers.
[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.
| 14 |
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 | 3 - 10 | |
| Furniture and fixtures | 5 - 7 | |
| Leasehold improvements | Shorter of useful life or lease term |
| 15 |
[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:
The Company typically provides a 1 – 3-year warranty on its products. Estimated future warranty costs are accrued in the period that the related revenue is recognized. These estimates are derived from historical data and trends of product reliability and costs of repairing and replacing defective products.
[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 $8,540, $10,597, and $11,058 in 2019, 2020 and 2021, respectively.
[M] Patent costs:
Cost incurred in connection with acquiring patent rights are charged to expense as incurred.
| 16 |
[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 10% of the Company’s consolidated accounts receivable.
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 10% of the Company’s consolidated accounts receivable.
For the year ended December 31, 2019, one customer accounted for 20% of the Company’s revenue.
[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.
| 17 |
[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 |
Directors
Steve Towe. Mr. Towe has served as our Chief Executive OfficerThe Company’s cash and a directorcash 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 since January 2022. Mr. Towe also servesCompany’s long term debt is based on the board of directors of PowerFleet Israel Ltd., a wholly-owned subsidiary of the Company (“PowerFleet Israel”). Mr. Towe has over twenty years’ of experience in senior leadership positions for global software companiesobservable relevant market information and previously served as President and Chief Operating Officer of Aptos, Inc., a global leader of unified commerce solutions in the retailer enterprise SaaS market, from 2016 to December 2021. Mr. Towe has vast knowledge of the IoT industry, having served from 2011 to 2016, as the Chief Commercial Officer of Masternaut, a global telematics provider. Before his tenurefuture cash flows discounted at Masternaut, Mr. Towe served as Managing Director, from 2006 to 2011, and Director of Group Operations, from 2002 to 2006, of Cybit Ltd, a market consolidating data company, and was a founding member and senior executive of Fleetstar Information Systems, the fleet management subsidiary of the Trafficmaster Group, from 2001 to 2002. Mr. Towe’s early career was spent in numerous leadership roles for global retailer WH Smith.current rates, which are Level 2 measurements.
Mr. Towe’s qualificationsSCHEDULE OF FAIR VALUE OF FINANCIAL INSTRUMENTS
| December 31, 2021 | ||||||||
Carrying Amount | Fair Value | |||||||
| Long term debt | $ | 24,224 | $ | 24,224 | ||||
[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 serve on our board of directors (the “Board”) include his years of experience scaling high value, global technology organizations. In addition, Mr. Towe’s role as the Chief Executive Officer of the Company provides the Board with invaluable insight into the management$1,228, $1,022, and daily operations of the Company.$1,185, respectively.
Anders Bjork. [U] Foreign currency translation:Mr. Bjork
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 servedbeen 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 directorcomponent of the Company and of Pointer Telocation Ltd., a wholly-owned subsidiary of the Company (“Pointer”), since October 2019. Mr. Bjork is a Partner at ABRY Partners, a private equity investment firm, which he joined in February 2017. Prior to joining ABRY Partners, he was a Principal at Fir Tree Partners, a private investment firm, from May 2014 to February 2017. He has also worked for private investment firms Guggenheim Partners and VSS and previously led corporate development at information services company IHS Markit. Mr. Bjork holds a B.S., with honors,accumulated other comprehensive income (loss). Net translation gains (losses) from the Universitytranslation of Denver, an M.S.F. fromforeign currency are $653, $134 and $(8) at December 31, 2019, 2020 and 2021, respectively, which are included in comprehensive loss in the Daniels CollegeConsolidated Statement of Business at the University of Denver, and an M.B.A. from the Wharton School at the University of Pennsylvania.
With Mr. Bjork’s many years of experience as an investment professional, he brings significant financial and capital markets expertise as well as a professional investor’s perspective to the Board. Mr. Bjork also possesses management experience through the leadership roles he has held at various investment firms and at a global information services company. We believe Mr. Bjork’s expertiseChanges in finance and capital markets and his business and management experience enable him to be an effective contributing member of the Board.
Michael Brodsky. Mr. Brodsky has served as a director of the Company since June 2014, as Chairman of the Board since December 2016 and as a director of Pointer since October 2019. Previously, Mr. Brodsky was the Lead Director of the Board from June 2014 until December 2016. Mr. Brodsky is the co-founder and Chief Executive Officer of Options Solutions, LLC, a specialized asset manager, and the Managing Partner of Vajra Asset Management, LLC, an investment firm. Mr. Brodsky also currently serves on the board of directors of EdgeCortix Inc., a firm specializing in semi-conductor technology, since March 2021, and on the board of advisors of Alpine Acquisition Corporation (Nasdaq: REVE), a special purpose acquisition company focused on the family leisure and hospitality industries, since July 2021. Previously, Mr. Brodsky served on the board of directors of Genesis Land Development Corporation (OTCMKTS: GNLAF), a residential land developer and homebuilder, from 2012 to May 2019, including as Chairman of the Board from September 2012 to May 2019, on the board of directors of Determine, Inc. (Nasdaq: DTRM), a provider of contract management, procurement and sourcing software, from October 2010 until its sale in April 2019, including as Chairman of the Board from August 2013 to April 2019 and as Chief Executive Officer from August 2013 until December 2013, on the board of directors of Trans World Corporation (OTCQB: TWOC), an owner and operator of hotels and casinos throughout Europe, from September 2013 until its sale in March 2018, including as Chairman of the Board from June 2014 to March 2018, and on the board of directors of Spark Networks, Inc. (AMEX: LOV), a collection of niche-oriented community websites, from November 2015 until its sale in November 2017. From February 2015 until its sale in July 2015, Mr. Brodsky also served on the board of directors of JPS Industries, Inc. (formerly OTCPK: JPST), a manufacturer of urethane film, sheet, tubing, and other highly-engineered components. From February 2013 to July 2014, he was a member of the board of directors of AltiGen Communications, Inc. (OTCPK: ATGN), a provider of Voice over Internet Protocol (VoIP) phone systems and call center solutions. Previously, he was a member of the board of directors and served as the President, Chief Executive Officer and Executive Chairman of Youbet.com, Inc. (formerly Nasdaq: UBET), an online horse racing wagering provider based in Woodland Hills, California. Following the June 2010 acquisition of Youbet.com, Inc. by Churchill Downs Incorporated (Nasdaq: CHDN), an industry-leading racing, gaming and online entertainment company headquartered in Louisville, Kentucky, Mr. Brodsky served on the board of directors of Churchill Downs until April 2012. From 2005 to 2011, Mr. Brodsky was the managing partner of New World Opportunity Partners, LLC, an investment firm. Mr. Brodsky holds a B.A. from Syracuse University, an M.B.A. from the Kellogg School of Management at Northwestern University, and a J.D. from Northwestern University Pritzker School of Law.Stockholders’ Equity.
Mr. Brodsky possesses extensiveForeign 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 $(42), $148 and $(128), respectively, are included in selling, general and administrative expenses in the Consolidated Statement of Operations. Foreign currency translation gains (losses) related to long-term debt of $(425), $(2,137) and $810, respectively, for the years ended December 31, 2019, 2020 and 2021, are included in interest expense in the Consolidated Statement of Operations.
[V] Commitments and contingencies:
From time to time, the Company is involved in various litigation matters involving claims incidental to its business operating and executive expertise. Amongacquisitions, including employment matters, acquisition related claims, patent infringement and contractual matters, among other things, Mr. Brodsky has served asissues. While the Chief Executive Officeroutcome of several companiesany 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 possesses skills in executive management and leadership. We believe Mr. Brodsky’s management and leadership skills and experience as a member of the board of directors of various companies enable him to be an effective contributing member of the Board.reasonably estimable.
Michael Casey. [W] Recently issued accounting pronouncements:Mr. Casey has served
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 a directorof January 1, 2021, with early adoption permitted. The adoption of the Company since September 2016 and as a director of Pointer since October 2019. Mr. Casey servedstandard did not have an impact on the board of directors and as a member of the nominating/corporate governance committee and as chairperson of the audit committee for Determine, Inc. from 2010 until its acquisition in April 2019 and has served as the Chairman of the Board of Determine, Inc. since April 2019. Mr. Casey also serves on the board of directors of Revegy, Inc., a privately held software business. Since 2006, Mr. Casey has been a partner at TechCXO, LLC, a professional services firm that providesCompany’s consolidated financial strategic and operational consulting services to businesses in the technology industry. Mr. Casey’s prior experience includes having served as chief financial officer for MAPICS, Inc., a publicly traded provider of enterprise resource planning software for the discrete manufacturing industries. Previously, Mr. Casey served as executive vice president, chief financial and administrative officer of iXL Enterprises, Inc., a publicly traded professional services firm, chief financial officer of Manhattan Associates, Inc., a publicly traded provider of supply chain execution solutions, and chief financial officer of IQ Software Corporation, a publicly traded provider of business intelligence software. Mr. Casey began his career as a CPA with Arthur Andersen & Co. and holds a B.B.A. degree in accounting from The University of Georgia.statements.
Mr. Casey possesses extensive business, operating and executive expertise. Mr. Casey’s experience includes more than twelve yearsIn June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments - Credit Losses (Topic 326) Measurement of service asCredit Losses on Financial Instruments,” which amends the chiefguidance on measuring credit losses on financial officer of several publicly traded software and services companies. In addition, Mr. Casey has served in various executive management roles, including as chief financial officer and chief operating officer, and asassets held at amortized cost. The amendment is intended to address the issue that the previous “incurred loss” methodology was restrictive for an advisor for software businesses inentity’s ability to record credit losses based on not yet meeting the asset performance management, supply chain and business intelligence and analytics sectors. We believe Mr. Casey’s management and leadership skills and experience with software businesses enable him“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 effective contributing memberentity 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 Board.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.
Charles Frumberg. [Y] ReclassificationsMr. Frumberg has served as a director of the Company since July 2018 and as a director of Pointer since October 2019. Mr. Frumberg has been the Managing Member of Emancipation Capital, a technology-focused group of funds, since its inception in 2003. Before founding Emancipation Capital, Mr. Frumberg served as Co-Head of Equities at SG Cowen Securities Corp. (“SG Cowen”), a leading technology and healthcare investment bank, and was a member of SG Cowen’s merchant banking and venture committees. Previously, Mr. Frumberg led U.S. Research and served as Co-Head of Global Research at UBS Securities, an investment bank, and served on its management and merchant banking committees. Mr. Frumberg has served as a member of the board of directors of multiple public and private technology companies. Mr. Frumberg earned a B.S. degree in economics at New York University and attended New York University’s Stern School of Business as part of its B.S./MBA program.:
Mr. Frumberg possesses extensive business, operating and executive expertise. Having servedCertain prior amounts have been reclassified to conform with the current year presentation for comparative purposes. These reclassifications had no effect on the boardspreviously reported results of many technology companies, Mr. Frumberg has extensive industry and technology expertise. As the managing member of Emancipation Capital and through his executive roles as various investment banks, Mr. Frumberg also possesses significant financial and capital markets experience. We believe Mr. Frumberg’s management skills and experience with technology companies and investment banks enable him to be an effective contributing member of the Board.
David Mahlab. Mr. Mahlab has served as a director of the Company and a director of the Company’s wholly owned subsidiaries, PowerFleet Israel and Pointer, since October 2019. Mr. Mahlab previously served as Chief Executive Officer International of the Company from October 2019 until January 2020, as the President and Chief Executive Officer of Pointer from February 1, 2011 until its acquisition by the Company in October 2019 and as the Chief Executive Officer International of Pointer from October 2019 until January 2020. Mr. Mahlab is the co-founder of Scopus Video Networks, a provider of digital video networking products, where he served as both its Chief Executive Officer from 1995 until January 2007 and the chairman of its board of directors from January 2007 until March 2009. Since November 2020, Mr. Mahlab has served as Chairman of the Board of Blitz Motors, an Israel-based developer and manufacturer of electric scooters. Since August 2020, Mr. Mahlab has also served as the Chief Executive Officer of Everest Technologies, an Israel-based company that provides automatic test equipment design. Mr. Mahlab holds a BSc. and a MSc. in Electrical Engineering from the Technion-Israel Institute of Technology, an MBA from Tel Aviv University and LLB from Tel Aviv University.operations.
Mr. Mahlab possesses over twenty years of experience serving as the chief executive of companies in the telematics and telecommunications technology sectors. In particular, as the former President and Chief Executive Officer of Pointer, Mr. Mahlab brings a unique perspective, including insight into Pointer’s operations, to the Board. We believe Mr. Mahlab’s management experience and industry expertise enable him to be an effective contributing member of the Board.NOTE 3 - ACQUISITIONS
Medhini Srinivasan. Ms. Srinivasan has served as a director of the Company and of Pointer since July 2020. Ms. Srinivasan is a Principal at ABRY Partners, a private equity investment firm, which she joined in 2016. Prior to joining ABRY Partners, she served as Vice President at Moelis Capital Partners, a private equity firm, from 2012 to 2015. She has also worked for The Edgewater Funds and J.P. Morgan. Ms. Srinivasan holds an M.B.A. with Honors from The Wharton School at the University of Pennsylvania and a B.B.A. with High Distinction from the Stephen M. Ross School of Business at the University of Michigan.
With her many years of experience as an investment professional, Ms. Srinivasan brings significant financial and capital markets expertise as well as a professional investor’s perspective to the Board. We believe Ms. Srinivasan’s expertise in finance and capital markets and her business and investment experience enable her to be an effective contributing member of the Board.
Executive Officers
Steve Towe. See narrative description under the caption “Directors” above.
Ned Mavrommatis. Mr. Mavrommatis has served as our Chief Financial Officer since joining us in August 1999, as our Treasurer since June 2001 and as our Corporate Secretary since November 2003. Mr. Mavrommatis is also the Managing Director of our wholly owned subsidiaries, PowerFleet GmbH and PowerFleet Systems Ltd. In addition, Mr. Mavrommatis currently serves on the board of directors of Duos Technologies Group, Inc. (Nasdaq: DUOT), a provider of intelligent analytical technology solutions. Prior to joining us, Mr. Mavrommatis worked in public accounting at the firm of Eisner LLP (currently known as EisnerAmper LLP). Mr. Mavrommatis received a Master of Business Administration in finance from New York University’s Leonard Stern School of Business and a Bachelor of Business Administration in accounting from Bernard M. Baruch College, The City University of New York. Mr. Mavrommatis is also a Certified Public Accountant. Mr. Mavrommatis has notified the Company of his resignation as Chief Financial Officer of the Company, which will become effective on May 15, 2022.
Board CompositionTransactions
On October 3, 2019, wethe Company completed the transactions (the “Transactions”) pursuant toTransactions, as a result of which we acquired Pointer. Upon the closing of the Transactions, each of I.D. Systems, Inc. (“I.D. Systems”) and PointerPowerFleet 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 | $ | 19,701 | ||
| Inventory | 8,666 | |||
| Other assets | 32,073 | |||
| Customer relationships | 15,610 | |||
| Trademark and tradename | 6,096 | |||
| Technology | 10,911 | |||
| Patents | ||||
| Goodwill (a) | 72,918 | |||
| Less: Current liabilities assumed | (21,055 | ) | ||
| Less: Non current liabilities assumed | (14,504 | ) | ||
| Net assets acquired | $ | 130,416 |
| (a) | The goodwill is not deductible for tax purposes. |
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 | $ | 18,594 | ||
| Operating loss | $ | (1,665 | ) |
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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 | $ | 192 | ||
| Inventory | 200 | |||
| Other assets | 26 | |||
| Customer relationships | 531 | |||
| Trademark and tradename | 90 | |||
| Patents | 628 | |||
| Goodwill (a) | 3,108 | |||
| Net assets acquired | $ | 4,775 |
| (a) | The goodwill is fully deductible for tax purposes. |
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 $3,809 to the Company’s revenues. Operating income contributed by the CarrierWeb Acquisitions was not separately identifiable due to Company’s integration activities and is impracticable to provide.
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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 | $ | 81,915 | $ | 135,126 | ||||
| Operating loss | (10,183) | (10,833 | ) | |||||
| Net loss per share - basic and diluted | $ | (0.59 | ) | $ | (0.66 | ) | ||
| (b) | Includes pro forma results for the Transactions. Pro forma results for the CarrierWeb Acquisitions are impracticable to provide as the acquisition was a carve-out from a bankruptcy transaction. |
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 | $ | 45,416 | $ | 45,651 | $ | 52,981 | ||||||
| Services | 36,499 | 67,942 | 73,227 | |||||||||
| $ | 81,915 | $ | 113,593 | $ | 126,208 | |||||||
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 | $ | 2,157 | $ | 3,045 | ||||
| Deferred costs | $ | 5,361 | $ | 2,011 | ||||
| Liabilities: | ||||||||
| Deferred revenue- services (1) | $ | 6,578 | $ | 8,401 | ||||
| Deferred revenue - products (1) | 6,767 | 2,546 | ||||||
| 13,345 | 10,947 | |||||||
| Less: Deferred revenue current portion | (7,339 | ) | (6,519 | ) | ||||
| Deferred revenue long term | $ | 6,006 | $ | 4,428 | ||||
| (1) | The Company record deferred revenues when cash payments are received or due in advance of the Company’s performance. For the years ended December 31, 2020 and 2021, the Company recognized revenue of $10,242 and $10,249, respectively, that was included in the deferred revenue balance at the beginning of each reporting period. The Company expects to recognize as revenue before year 2026, when it transfers those goods and services and, therefore, satisfies its performance obligation to the customers. |
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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 | $ | 692 | $ | 786 | ||||
| Prepaid expenses | 2,979 | 4,580 | ||||||
| Contract assets | 767 | 1,124 | ||||||
| Other current assets | 1,746 | 2,561 | ||||||
| Prepaid expenses and other current assets | $ | 6,184 | $ | 9,051 | ||||
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 $515 and $260 at December 31, 2020 and 2021, respectively.
Inventories consist of the following:
SCHEDULE OF INVENTORIES
| 2020 | 2021 | |||||||
| Year Ended December 31, | ||||||||
| 2020 | 2021 | |||||||
| Components | $ | 7,697 | $ | 11,137 | ||||
| Work in process | 237 | 699 | ||||||
| Finished goods, net | 4,939 | 6,407 | ||||||
| Inventory, Net | $ | 12,873 | $ | 18,243 | ||||
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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 | $ | 4,174 | $ | 6,190 | ||||
| Computer software | 5,882 | 6,732 | ||||||
| Computer and electronic equipment | 5,273 | 5,688 | ||||||
| Furniture and fixtures | 1,828 | 2,246 | ||||||
| Leasehold improvements | 1,353 | 1,445 | ||||||
| 18,510 | 22,301 | |||||||
| Accumulated depreciation and amortization | (9,706 | ) | (13,313 | ) | ||||
| $ | 8,804 | $ | 8,988 | |||||
Depreciation and amortization expense for the years ended December 31, 2019, 2020 and 2021 was $1,380, $3,097, and $3,399, respectively. This includes amortization of costs associated with computer software for the years ended December 31, 2019, 2020 and 2021 of $528, $515, and $426, respectively.
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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 | 9-12 | $ | 19,264 | $ | (4,356 | ) | $ | 14,908 | ||||||||
| Trademark and tradename | 3-15 | 7,553 | (2,096 | ) | 5,457 | |||||||||||
| Patents | 7-11 | 628 | (262 | ) | 366 | |||||||||||
| Technology | 7 | 10,911 | (5,709 | ) | 5,202 | |||||||||||
| Favorable contract interest | 4 | 388 | (388 | ) | - | |||||||||||
| Covenant not to compete | 5 | 208 | (184 | ) | 24 | |||||||||||
| 38,952 | (12,995 | ) | 25,957 | |||||||||||||
| Unamortized: | ||||||||||||||||
| Customer List | 104 | - | 104 | |||||||||||||
| Trademark and tradename | 61 | - | 61 | |||||||||||||
| 165 | - | 165 | ||||||||||||||
| Total | $ | 39,117 | $ | (12,995 | ) | $ | 26,122 | |||||||||
| December 31, 2020 | Useful Lives (In Years) | Gross Carrying Amount | Accumulated Amortization | Net Carrying Amount | ||||||||||||
| Amortized: | ||||||||||||||||
| Customer relationships | 9-12 | $ | 19,264 | $ | (2,732 | ) | $ | 16,532 | ||||||||
| Trademark and tradename | 3-15 | 7,553 | (1,292 | ) | 6,261 | |||||||||||
| Patents | 7-11 | 2,117 | (1,661 | ) | 456 | |||||||||||
| Technology | 7 | 10,911 | (3,172 | ) | 7,739 | |||||||||||
| Favorable contract interest | 4 | 388 | (331 | ) | 57 | |||||||||||
| Covenant not to compete | 5 | 208 | (142 | ) | 66 | |||||||||||
| 40,441 | (9,330 | ) | 31,111 | |||||||||||||
| Unamortized: | ||||||||||||||||
| Customer List | 104 | - | 104 | |||||||||||||
| Trademark and tradename | 61 | - | 61 | |||||||||||||
| 165 | - | 165 | ||||||||||||||
| Total | $ | 40,606 | $ | (9,330 | ) | $ | 31,276 | |||||||||
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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 9.1 years. At December 31, 2021, the weighted-average amortization periods for customer relationships, trademarks and trade names, patents, technology, favorable contract interests and covenant not to compete were 11.9, 9.6, 7.0, 4.3, 4.0 and 5.0 years, respectively.
Amortization expense for the years ended December 31, 2019, 2020 and 2021 was $1,967, $5,328, and $5,154, respectively. Estimated future amortization expense for each of the five succeeding fiscal years for these intangible assets is as follows:
SCHEDULE OF FINITE-LIVED INTANGIBLE ASSETS, FUTURE AMORTIZATION EXPENSE
| Year ending December 31: | ||||
| 2022 | $ | 5,080 | ||
| 2023 | 5,035 | |||
| 2024 | 2,622 | |||
| 2025 | 2,495 | |||
| 2026 | 2,413 | |||
| Thereafter | 8,312 | |||
| Finite-Lived Intangible Assets, Net, Total | $ | 25,957 | ||
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 | $ | 89,068 | ||
| PPA measurement period adjustment (a) | (5,724 | ) | ||
| Balance as of December 31, 2020 | 83,344 | |||
Other | 143 | |||
| Balance as of December 31, 2021 | $ | 83,487 |
| a) | After considering all information related to the finalization of income taxes the Company reduced certain provisionally recorded deferred tax liabilities due to the new information with a corresponding decrease in the Pointer acquisition goodwill |
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| December 31, | ||||||||||||
| Basic and diluted loss per share | 2019 | 2020 | 2021 | |||||||||
| Net loss attributable to common stockholders | $ | (12,047 | ) | $ | (13,606 | ) | $ | (18,072 | ) | |||
| Weighted-average common share outstanding - basic and diluted | 20,476 | 29,703 | 34,571 | |||||||||
| Net loss attributable to common stockholders - basic and diluted | $ | (0.59 | ) | $ | (0.46 | ) | $ | (0.52 | ) | |||
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.
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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 completionCompany’s acquisition of Pointer, the Company previously approved the grants of options to purchase shares of the Transactions, we amendedCompany’s common stock to Mr. Wolfe and restated our certificate of incorporation (the “Amended and Restated Certificate of Incorporation”). Our Amended and Restated Certificate of Incorporation provides that so long asoptions to purchase shares of our Series A Convertible Preferred Stock (“Series A Preferred Stock”the Company’s common stock to Mr. Mavrommatis on March 13, 2019 (the “Signing Bonus Options”) remain outstanding and represent 15% or more, on an as-converted basis,the grants of additional options to purchase shares of the voting power of ourCompany’s common stock the holders of at least a majorityto Mr. Wolfe and additional options to purchase shares of the outstandingCompany’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 Series A Preferred Stock, voting as a separate class, will be entitledthe Company’s common stock to elect two directorsMr. 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 Boardterms of the 2018 Plan, have an exercise price of $ per share, and will , and any committee or subcommittee thereof (subject(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 applicationterms of SECthe 2018 Plan, have an exercise price of $ per share, and Nasdaq independence requirements). So longwill
In connection with Mr. David Mahlab’s retirement from his role as any sharesthe Chief Executive Officer International of Series 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.
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[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 | 1,220 | $ | 5.37 | 4,078 | $ | 5.79 | 3,624 | $ | 5.85 | |||||||||||||||
| Share-based payments assumed | 127 | 4.35 | - | 0.00 | - | - | ||||||||||||||||||
| Granted | 2,829 | 5.99 | 1,230 | 6.08 | 120 | 7.77 | ||||||||||||||||||
| Exercised | (59 | ) | 3.79 | (199 | ) | 4.72 | (156 | ) | 5.60 | |||||||||||||||
| Forfeited or expired | (39 | ) | 6.22 | (1,485 | ) | 6.02 | (118 | ) | 6.34 | |||||||||||||||
| Outstanding at end of year | 4,078 | $ | 5.79 | 3,624 | $ | 5.85 | 3,470 | $ | 5.91 | |||||||||||||||
| Exercisable at end of year | 847 | $ | 5.71 | 1,247 | $ | 5.60 | 1,546 | $ | 5.67 | |||||||||||||||
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 | |||||||||||||||
| - | 16 | 2 | $ | 2 | 16 | $ | 2 | |||||||||||||
| - | 290 | 5 | 5 | 222 | 5 | |||||||||||||||
| - | 3,054 | 7 | 6 | 1,308 | 6 | |||||||||||||||
| - | 110 | 9 | 8 | - | - | |||||||||||||||
| 3,470 | 7 | $ | 6 | 1,546 | $ | 6 | ||||||||||||||
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SCHEDULE OF OPTIONS OUTSTANDING AND EXERCISABLE
| As of December 31, 2021 | ||||||||
| Aggregate Intrinsic Value | Weighted - Average Remaining Contractual Life in Years | |||||||
| Options outstanding | $ | 92 | 7 | |||||
| Options exercisable | $ | 77 | 6 | |||||
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 | $ | 2.20 | $ | 2.69 | $ | 3.81 | ||||||
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 less than 5%, on an as-converted basis, oflimited to, the voting power of ourCompany’s common stock price, risk-free rate (%), and expected stock price volatility (%) over the holdersexpected 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 least a majoritythe time of valuation and reduces expense ratably over the outstandingvesting period. This estimate is adjusted periodically based on the extent to which actual forfeitures differ, or are expected to differ, from the previous estimate.
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[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 Series A Preferred Stock, voting as a separate class, will be entitled to elect one Series A Director to the Board. For so long as any shares of Series A Preferred Stock remain outstandinggrant and, upon vesting, there are no Series A Directorslegal restrictions on the Board,stock. The fair value of each share is based on the holders of at least a majorityCompany’s closing stock price on the date of the outstanding shares of Seriesgrant. A Preferred Stock, voting as a separate class, will be entitled to designate one non-voting observer to attend all meetingssummary of the Boardnon-vested shares for the years ended December 31, 2019, 2020 and committees2021 is as follows:
Number of Non-Vested Shares | Weighted - Average Grant Date Fair Value | |||||||
| Non-vested, at January 1, 2019 | 568 | 6.65 | ||||||
| Granted | 625 | 5.82 | ||||||
| Vested | (276 | ) | 6.40 | |||||
| Forfeited or expired | (40 | ) | 5.88 | |||||
| Non-vested, at December 31, 2019 | 877 | 6.17 | ||||||
| Granted | 463 | 4.88 | ||||||
| Vested | (389 | ) | 6.01 | |||||
| Forfeited or expired | (145 | ) | 6.01 | |||||
| Non-vested, at December 31, 2020 | 806 | 5.54 | ||||||
| Granted | 450 | 7.63 | ||||||
| Vested | (537 | ) | 5.35 | |||||
| Forfeited or expired | (90 | ) | 6.51 | |||||
| Non-vested, at December 31, 2021 | 629 | 7.06 | ||||||
For the years ended December 31, 2019, 2020 and subcommittees thereof, although2021, the observer mayCompany 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 excluded from executive sessionsrecognized over a weighted-average period of any committee at the discretion of such committee. Mr. Bjork and Ms. Srinivasan have been appointed to the Board by the holders of our Series A Preferred Stock. years.
Audit Committee[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 | 260 | $ | 5.60 | |||||
| Vested | (7 | ) | 5.60 | |||||
| Forfeited or expired | - | |||||||
| Restricted stock-units, non-vested December 31, 2019 | 253 | $ | 5.60 | |||||
| Vested | (148 | ) | 5.60 | |||||
| Forfeited or expired | (30 | ) | 5.60 | |||||
| Restricted stock-units, non-vested, December 31, 2020 | 75 | $ | 5.60 | |||||
| Vested | (35 | ) | 5.60 | |||||
| Forfeited or expired | (4 | ) | 5.60 | |||||
| Restricted stock-units, non-vested, December 31, 2021 | 36 | $ | 5.60 | |||||
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
The audit committee ofSCHEDULE OF LONG TERM DEBT
| 2020 | 2021 | |||||||
| Year Ended December 31, | ||||||||
| 2020 | 2021 | |||||||
| Short-term bank debt | $ | 280 | $ | - | ||||
| Current maturities of long-term debt | $ | 5,299 | $ | 6,114 | ||||
| Long term debt - less current maturities | $ | 23,179 | $ | 18,110 | ||||
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Long term debt
In connection with the Board (the “Audit Committee”), which is a separately designated standing audit committee established Transactions, PowerFleet Israel incurred $30,000 in accordance with Section 3(a)(58)(A) ofterm loan borrowings on the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is composed of Messrs. Brodsky, Casey and Frumberg, each of whom is independent under Nasdaq Rule 5605(c)(2) and Rule 10A-3Closing Date under the Exchange Act.Credit Agreement, pursuant to which Hapoalim agreed to provide PowerFleet Israel with two senior secured term loan facilities in an aggregate principal amount of $30,000 (comprised of two facilities in the aggregate principal amount of $20,000 and $10,000, respectively (the “Term A Facility” and “Term B Facility”, respectively, and collectively, the “Term Facilities”)) and a five-year revolving credit facility(the “Revolving Facility”) to Pointer in an aggregate principal amount of $10,000 (collectively, the “Credit Facilities”).
The Board has determined that it has at least one “audit committee financial expert” servingCredit Facilities will mature on the Audit Committee. Mr. Casey serves asdate that is five years from the audit committee financial expert. Mr. Casey also serves as the Chairman of the Audit Committee.
Closing Date. The Board has adopted a written charterindicative interest rate provided for the Audit Committee, a copy of whichTerm Facilities in the original Credit Agreement was approximately 4.73% for the Term A Facility and 5.89% for the Term B Facility. The interest rate for the Revolving Facility is, publicly available on our website at https://ir.powerfleet.com/corporate-governance/board-committees. The Audit Committee’s charter sets forth the responsibilities, authority and specific duties of the Audit Committee and is reviewed and reassessed annually. The information on our website is not a part of this Annual Report on Form 10-K/A. The charter specifies, among other things, the structure and membership requirements of the Audit Committee, as well as the relationship of the Audit Committeewith respect to our independent registered public accounting firm and management.
In accordance with its written charter, the Audit Committee assists the Board in monitoring (i) the integrity of our financial reporting process including our internal controls regarding financial reporting, (ii) our compliance with legal and regulatory requirements and (iii) the independence and performance of our internal and external auditors, and serves as an avenue of communication among the independent registered public accounting firm, management and the Board.
Code of Ethics
We have a code of ethics (the “Code of Ethics”) that applies to our Chief Executive Officer, Chief Financial Officer, Chief Accounting Officer, Controller and Treasurer. A copy of our Code of Ethics can be found on our website at https://ir.powerfleet.com/corporate-governance/governance-documents. The Code of Ethics also is available in print, free of charge, to any stockholder who requests a copy by writing to the Company at the following address: PowerFleet, Inc.NIS-denominated loans, Hapoalim’s prime rate + 2.5%, 123 Tice Boulevard, Woodcliff Lake, New Jersey 07677, Attention: Corporate Secretary. Our Code of Ethics is intended to be a codification of the business and ethical principles that guide the Company, and to deter wrongdoing, to promote honest and ethical conduct, to avoid conflicts of interest, and to foster full, fair, accurate, timely and understandable disclosures, compliance with applicable governmental laws, rules and regulations, the prompt internal reporting of violations and accountability for adherence to this code. We will post any amendment to the Code of Ethics, as well as any waivers that are required to be disclosed by the rules of the SEC or The Nasdaq Stock Market LLC, on our website.
Delinquent Section 16(a) Reports
Section 16(a) of the Exchange Act requires our executive officers, directors and persons who own more than 10% of a registered class of our equity securities to file with the SEC statements on Form 3, Form 4 and Form 5 of ownership and changes in ownership. Officers, directors and greater than 10% stockholders are required by regulation to furnish us with copies of all Section 16(a) reports that they file.
Based solely upon a review of Forms 3, 4 and 5 and any amendments to those forms that have been furnished to us, we believe that all parties subject to the reporting requirements of Section 16(a) filed all such required reports during and with respect to US dollar-denominated loans, LIBOR + 4.6%. In addition, the fiscal year ended December 31, 2021, except that eachCompany agreed to pay a 1% commitment fee on the unutilized and uncancelled availability under the Revolving Facility. The Credit Facilities are secured by the shares held by PowerFleet Israel in Pointer and by Pointer over all of Ned Mavrommatis, our Chief Financial Officer, and Chris Wolfe, our former Chief Executive Officer, filed late a Form 4 with respect to transactions that occurred on November 5, 2021.
Item 11. Executive Compensation
Compensation Discussion and Analysis
Introduction
This discussion presents the principles underlying our executive officer compensation program. Our goal in this discussion is to provide the reasons why we award compensation as we do and to place in perspective the data presented in the tables that follow this discussion.its assets. The focus is primarily on compensation of our executive officers for the fiscal year ended December 31, 2021, but some historical and forward-looking information is also provided to put such year’s compensation information in context. The information presented herein relates tooriginal Credit Agreement includes customary representations, warranties, affirmative covenants, negative covenants (including the following individuals who are considered “named executive officers,” under applicable rulesfinancial covenants, tested quarterly: Pointer’s net debt to EBITDA; Pointer’s net debt to working capital; minimum equity of PowerFleet Israel; PowerFleet Israel equity to total assets; PowerFleet Israel net debt to EBITDA; and regulationsPointer EBITDA to current payments and events of the SEC, each of whom is sometimes referred to in this Amendment No. 1 as a “Named Executive Officer:” (i) Chris Wolfe, who served as the Company’s Chief Executive Officer during the fiscal year ended December 31, 2021, (ii) Ned Mavrommatis, who served as the Company’s Chief Financial Officer during the fiscal year ended December 31, 2021, and (iii) Elizabeth Elkins, who served as the Company’s Chief Product Officer through August 13, 2021. Following the accounting treatment of the Transactions, I.D. Systems was determined to be the accounting acquirer. As a result, for Messrs. Wolfe and Mavrommatis, who were executives of I.D. Systems prior to the completion of the Transactions, the following discussion and compensation tables reflect compensation related to their service with I.D. Systems and the Company during all of 2019. Mr. Wolfe retired from his position as Chief Executive Officer effective January 4, 2022.
Compensation Philosophy and Objectives
We attempt to apply a consistent philosophy to compensation for all employees, including senior management. This philosophy is based on the premises that our success is dependent upon the efforts of each employee and that a cooperative, team-oriented environment is an essential part of our culture. We believe in the importance of rewarding our employees for our successes, which is why we emphasize pay-for-performance incentive compensation. Particular emphasis is placed on broad employee equity participation through the use of stock options and restricted stock awards, as well as on annual cash bonuses linked to achievement of our corporate performance goals. We considered the results of the “say on pay” proposal with respect to executive compensation presented to the stockholders at our 2021 annual meeting held on July 20, 2021, and in light of the support the proposal received, we continue to emphasize pay-for-performance incentive compensation, as explained in detail in this Compensation Discussion and Analysis.
Our compensation programs for our Named Executive Officers are designed to achieve a variety of goals, including:
Total compensation paid to our executive officers is influenced significantly by the need to attract and retain management employees with a high level of expertise and to motivate and retain key executives for our long-term success. Some of the components of compensation, such as salary, are generally fixed and do not vary based on our financial and other performance. Some components, such as bonus and in some cases, such as our long-term incentive plans adopted in prior years, stock options and stock award grants, are dependent upon the achievement of certain goals approved by the compensation committee of the Board (the “Compensation Committee”); and for such purpose, the Compensation Committee considers goals for executive officers (other than our Chief Executive Officer) recommended by our Chief Executive Officer, and includes him in its discussions with respect to such goals. Furthermore, the value of certain of these components, such as stock options and restricted stock, is dependent upon our future stock price.
We compensate our executive officers in these different ways in order to achieve different goals. Cash compensation, for example, provides executive officers with a minimum base salary. Incentive bonus compensation is generally linked to the achievement of financial and business goals (as described in greater detail below), and is intended to reward executive officers for our overall performance. Stock options and grants of restricted stock are intended to link our executive officers’ longer-term compensation with the performance of our stock and to build executive ownership positions in our stock. This encourages our executive officers to remain with us and to act in ways intended to maximize stockholder value, and serves to penalize them if we and/or our stock fails to perform to expectations.
We view the three components of our executive officer compensation as related but distinct. Although the Compensation Committee does review total compensation, it does not believe that compensation derived from one component of compensation necessarily should negate or reduce compensation from other components. We determine the appropriate level for each compensation component based in part, but not exclusively, on its historical practices with the individual and our view of individual performance and other information we deem relevant. The Compensation Committee has not adopted any formal or informal policies or guidelines for allocating compensation between long-term and currently paid out compensation, between cash and non-cash compensation, or among different forms of compensation. We have not reviewed wealth and retirement accumulation as a result of employment with us and have only focused on fair compensation for the year in question.
The Compensation Committee monitors the results of the annual advisory “say-on-pay” proposal and incorporates such results as one of many factors considered in connection with the discharge of its responsibilities. At our 2021 annual meeting of stockholders, the stockholders approved, on an advisory basis, the compensation of the Named Executive Officers, and in light of such approval, the Compensation Committee continued with its performance-based compensation philosophy and its balanced approach to the components of its compensation program.
Elements of Executive Officer Compensation
Base Salary. We pay our executive officers a base salary, which we review and determine annually. We believe that a competitive base salary is a necessary element of any compensation program. We believe that attractive base salaries can motivate and reward executives for their overall performance. Base salaries are established in part based on the particular executive’s position, responsibility, experience, skills and expected contributions during the coming year and such individual’s performance during the prior year. We also have generally sought to align base compensation levels comparable to our competitors and other companies in similar stages of development. We do not view base salaries as primarily serving our objective of paying for performance, but in attracting and retaining the most qualified executives necessary to run the Company’s business. The Company continues to focus on pay-for-performance structure, which is discussed below.default.
On May 28,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 Board approved certain temporary compensation actions in responseinterest rate with respect to the impactTerm A Facility was reduced to a fixed rate of 3.65% per annum and uncertainty caused by the global outbreakinterest rate with respect to the Term B Facility was reduced to a fixed rate of COVID-19. Beginning4.5% per annum. The Amendment also provides, among other things, for (i) a reduction in the credit allocation fee on undrawn and uncancelled amounts of the Revolving Facility from 1% to 0.5% per annum, (ii) removal of the requirement that PowerFleet Israel maintain $3,000 on deposit in a separate reserve fund, and (iii) modifications to certain of the affirmative and negative covenants, including a financial covenant regarding the ratio of the Borrowers’ debt levels to Pointer’s EBITDA. The Company is in compliance with the pay period ending on May 31, 2020 and through the remaindercovenants as of the 2020 fiscal year, the base salaries of all salaried employees in the United States, including Chris Wolfe, our former Chief Executive Officer, Ned Mavrommatis, our Chief Financial Officer, and Elizabeth Elkins, our former Chief Product Officer, were reduced by 15%. We took these and other actions to preserve cash in 2020 and issued to each employee affected by such compensation changes restricted stock in an amount equivalent to such employee’s salary reduction, which grants vested in full on December 31, 2021.
In addition on May 28, 2020, following a reviewconnection with the Credit Facilities, the Company incurred debt issuance costs of peer group data provided by, and based on$742. For the advice of, Korn Ferry, the Company’s independent compensation consultant (“Korn Ferry”), the Board also approved an increase in Mr. Wolfe’s annual base salary from $325,000 to $400,000. However, in light of the impact of COVID-19, such increase did not go into effect until January 1, 2021.
Cash Incentive Bonus Programs. The primary objective of our annual cash incentive bonus program is to motivate and reward our employees, including our Named Executive Officers, for meeting our short-term objectives using a pay-for-performance program with objectively determinable performance goals. Each of Messrs. Wolfe and Mavrommatis was eligible to receive a cash incentive bonus under our Executive Incentive Plan (“EIP”) for the fiscal yearyears ended December 31, 2021, which is discussed below.
Executive Incentive Plan. On February 7,2019, 2020, and 2021 the Board approved the EIP for 2021. The objectivesCompany recorded $18, $31, and $290 respectively, of amortization of the EIP are to align the interests of senior management with the Company’s performance goals. The EIP focuses on rewarding executives for the achievement of financial objectives with competitive financial incentives and provides a systemic plan for establishing definitive performance goals. Under the EIP for 2021, the Company’s performance goals are based on (i) revenue growth, (ii) operating income, (iii) cash flow generation, and (iv) certain individual objectives for each executive. Executives are eligible to be awarded bonus compensation based on the Company’s annual results.
The EIP for 2021 may be modified or terminated by the Board at any time, but incentive awards that have been earned by the participating Named Executive Officers through the date of termination of the EIP will be payable. The Board has the authority to administer the EIP for 2021 and has the final decision on any discrepancies in interpretation of the EIP for 2021.
Awards under the EIP for 2021 were calculated as a percentage of the executive’s base salary. The target award under the EIP for 2021 for Chris Wolfe was set at 100% of his base salary and for Ned Mavrommatis was set at 75% of his base salary and may be payable in cash or restricted stock based on certain criteria. 25% of each executive’s target award under the EIP for 2021 could be earned based on each of the following metrics: (i) the Company having at least $(1.3) million in cash flow from operations less capital expenditures and scheduled amortization payments on the Company’s term loans for the 2021 fiscal year, (ii) the achievement of at least $0.8 million in operating income for the 2021 fiscal year, (iii) the achievement of at least $133 million in revenue for the 2021 fiscal year, and (iv) certain individual objectives. Based on the Company’s financial results for the fiscal year ended December 31, 2021 and the results of each executive’s applicable individual objectives, each of Chris Wolfe and Ned Mavrommatis received annual bonuses under the EIP for 2021 in the aggregate amount of $194,893 and $109,627, respectively.
Equity Compensation. We believe that stock options and restricted stock awards are an important long-term incentive for our executive officers and employees and that our stock option and restricted stock award program has been effective in aligning officer and employee interests with those of our stockholders. We review our equity compensation plans annually. Employees are eligible for annual stock option and restricted stock award grants. These options and grants are intended to produce value for each executive officer if (i) our stockholders derive significant sustained value and (ii) the executive officer remains employed with us.
Historically, other than the EIP, the Company did not have any program, plan or obligation under which it was required to grant equity compensation to any executive officer on specified dates or upon the achievement of certain performance goals. The authority to make equity grants to executive officers rests with the Compensation Committee and the Board, although, as noted, the Compensation Committee and the Board do consider the recommendations of our Chief Executive Officer in setting the compensation of our other executive officers.
The number of restricted shares of our common stock and options to purchase our common stock granted to and held by our Named Executive Officers are set forth in the “Summary Compensation Table” and the “Grants of Plan-Based Awards” table below.
Severance and Change-in-Control Benefits. Except for the severance and change-in-control benefits described below under the captions “Severance Arrangements” and “Potential Payments Upon Termination or Change in Control,” we do not provide to any of our executive officers any severance or change in control benefits in the event of termination or retirement, whether following a change in control or otherwise.
Benefits. The executive officers participate in all of our employee benefit plans, such as medical and 401(k) plans, on the same basis as our other employees, except that we pay 100% of the premiums for health and dental insurance of our executive officers and 75% of the premiums for health and dental insurance of our other employees.
Perquisites. Certain of our Named Executive Officers receive an allowance for automobile and related expenses, which amounts are reflected under column titled “All Other Compensation” in the “Summary Compensation Table” below. Our use of perquisites as an element of compensation is very limited. We do not view perquisites as a significant element of our comprehensive compensation structure.
Peer Group
In making decisions regarding the compensation of our executive officers, the Compensation Committee generally considers compensation and survey data for similarly situated executives at companies with comparable revenue, market capitalization and businesses as the Company. The Compensation Committee utilized as a reference for determining competitive total compensation packages for our Named Executive Officers for 2021, our peer group of companies that were identified by Korn Ferry, the compensation consultant retained by the Compensation Committee in 2020. These comparison data are primarily used to gauge the reasonableness and competitiveness of executive compensation decisions. The peer group of companies determined by Korn Ferry was based on revenue, market capitalization, business fit and peer groups identified by prior compensation consultants.
We believe that the compensation practices of our industry, in general, and of our select peer group, in particular, provide useful information to help us establish compensation practices that allow us to attract, retain, and motivate a highly talented executive team. We review the levels of cash, equity, and total compensation for comparable executives in our peer group relative to the elements of compensation paid to our executives. In considering how these data relate to our existing compensation structure, we take into account our size, performance, and geographic location as compared to these peer companies, as well as what we know about the comparable scope of responsibilities of our executives versus those of comparable executives at such peer group companies.
The following companies were identified as members of our peer group by Korn Ferry in 2020:
Regulatory Considerations
We account for the equity compensation expense for our employees under the rules of Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) Topic 718 (“ASC 718”), which requires us to estimate and record an expense for each award of equity compensation over the service period of the award. Accounting rules also require us to record cash compensation as an expense at the time the obligation is accrued.
Employment Agreements
debt issuance costs. The Company has not entered into employment agreements with anyrecorded charges of $379, $1,451, and $1,078 to interest expense on its executive officers.
Severance Agreements
The Company is a party to severance agreements with eachconsolidated statements of Messrs. Wolfe and Mavrommatis, which provide each such executive with certain severance and change in control benefits upon the occurrence of certain events.
The severance agreement with Mr. Wolfe provides Mr. Wolfe with certain severance and change in control benefits upon the occurrence of a “Trigger Event,” which will have occurred if the Company terminates Mr. Wolfe without cause, or upon the occurrence of a “Change in Control Trigger Event,” which will have occurred if the Company terminates Mr. Wolfe without cause or Mr. Wolfe resigns for good reason, each within six months following a change in control event (as defined in the severance agreement). Under the terms of the severance agreement with Mr. Wolfe, subject to Mr. Wolfe’s delivery of a general release to the Company, Mr. Wolfe is entitled to the following: (i) cash payments either (A) at the rate of Mr. Wolfe’s annual base salary, in the case of a Trigger Event, or (B) at twice the rate of Mr. Wolfe’s annual base salary, in the event of a Change in Control Trigger Event, in each case, as in effect immediately prior to such Trigger Event or Change in Control Trigger Event, as the case may be, for a period of 12 months, made as a series of payments that are payable in accordance with the Company’s standard payroll practices; (ii) a waiver of any remaining portion of Mr. Wolfe’s healthcare continuation payments under COBRA for the 12-month severance period, provided that Mr. Wolfe timely elects COBRA coverage and continues to make contributions for such coverage equal to his contribution amount in effect immediately preceding the date of his termination of employment; (iii) partial accelerated vesting of Mr. Wolfe previously granted stock options and restricted stock awards, such that (to the extent not already then vested) a portion of these awards shall vest and/or become exercisable, in each case on a pro-rated basis that takes into account the number of months elapsed since the date of grant as compared to the scheduled vesting date (provided that the terms of the Company’s equity incentive plans will continue to govern acceleration of vesting in the event of a change of control as defined in such plan); and (iv) in the event of a Change in Control Trigger Event, a pro rata portion of any bonus that would have been payable to Mr. Wolfe with respect to the year of termination based on the achievement of predetermined objectives used to determine the Company’s performance.
The severance agreement with Mr. Mavrommatis provides Mr. Mavrommatis with certain severance and change in control benefits upon the occurrence of a “Trigger Event,” which will have occurred if the Company terminates Mr. Mavrommatis without cause or Mr. Mavrommatis resigns for good reason within six months following a change in control event (as defined in the severance agreement). Under the terms of the severance agreements with Mr. Mavrommatis, subject to Mr. Mavrommatis’s delivery of a general release to the Company, Mr. Mavrommatis is entitled to the following: (i) cash payments at the rate of his annual base salary as in effect immediately prior to the Trigger Event for a period of 12 months, made as a series of payments that are payable in accordance with the Company’s standard payroll practices; (ii) a waiver of any remaining portion of his healthcare continuation payments under COBRA for the 12-month severance period, provided that Mr. Mavrommatis timely elects COBRA coverage and continues to make contributions for such coverage equal to his contribution amount in effect immediately preceding the date of his termination of employment; and (iii) partial accelerated vesting of his previously granted stock options and restricted stock awards, such that (to the extent not already then vested) a portion of these awards shall vest and/or become exercisable, in each case on a pro-rated basis that takes into account the number of months elapsed since the date of grant as compared to the scheduled vesting date (provided that the terms of the Company’s equity incentive plans will continue to govern acceleration of vesting in the event of a change of control as defined in such plan).
As a condition to the Company’s obligations under the severance agreements, each of Messrs. Wolfe and Mavrommatis executed and delivered to the Company a restrictive covenants agreement containing covenants regarding confidentiality, assignment of inventions, non-competition and non-solicitation. These restrictive covenants will remain in effect during the applicable severance period.
The Company had also entered into an employment offer letter with Ms. Elkins, which provided Ms. Elkins with six months’ cash severance payments in the event she was terminated by the Company without cause. As Ms. Elkins resigned from the Company, effective as of August 13, 2021, no severance payments were made to Ms. Elkins.
Additionally, the Company has also entered into a severance agreement with its current Chief Executive Officer, Steve Towe. The severance agreement with Mr. Towe provides Mr. Towe with certain severance and change in control benefits upon the occurrence of one of the following events: (i) the termination of Mr. Towe’s employment by the Company without cause (a “Trigger Event”) or (ii) the termination of Mr. Towe’s employment by the Company without cause or Mr. Towe’s resignation for good reason within six months following a change in control event (a “Change in Control Trigger Event”).
Under the terms of the severance agreement with Mr. Towe, subject to Mr. Towe’s delivery of a general release to the Company, Mr. Towe will be entitled to the following upon a Trigger Event or Change in Control Trigger Event: (i) cash payments either (a) in the case of a Trigger Event, at the rate of his annual base salary, or (b) in the case of a Change in Control Trigger Event, at twice the rate of his annual base salary, in each case as in effect immediately prior to the Trigger Event or Change in Control Trigger Event, as the case may be, for a period of 12 month, made as a series of separate payments that are payable in accordance with the Company’s standard payroll practices; (ii) a waiver of any remaining portion of Mr. Towe’s healthcare continuation payments under COBRA for the 12-month severance period, provided that he timely elects COBRA coverage and continues to make contributions for such coverage equal to his contribution amount in effect immediately preceding the date of his termination of employment; (iii) partial accelerated vesting of his previously granted stock options and restricted stock awards, such that (to the extent not already then vested) a portion of these awards shall vest and/or become exercisable, in each case on a pro-rated basis that takes into account the number of months elapsed since the date of grant as compared to the scheduled vesting date (provided that the terms of the Company’s equity compensation plans shall continue to govern acceleration of vesting in the event of a change of control as defined in such plan); (iv) any bonus that would have otherwise been payable to Mr. Towe for the calendar year prior to termination; and (v) if the Trigger Event or Change in Control Trigger Event occurs prior to January 1, 2024, payment of any remaining unpaid installment of Mr. Towe’s $650,000 retention bonus.
As a condition to the Company’s obligations under the severance agreement with Mr. Towe, Mr. Towe also executed and delivered to the Company a restrictive covenants agreement containing covenants regarding confidentiality, assignment of inventions, non-competition and non-solicitation.
Compensation Tables
The following table, which should be read in conjunction with the explanations provided above, sets forth summary compensation informationoperations for the years ended December 31, 2021,2019, 2020 and 2019 for our Named Executive Officers.2021, related to interest expense and amortization of debt issuance costs associated with the Credit Facilities.
Summary Compensation TableScheduled maturities of the long-term debt as of December 31, 2021, are as follows:
SCHEDULE OF MATURITIES OF LONG TERM DEBT
| Name and Principal Position | Year | Salary ($) | Bonus | Stock Awards | Option Awards ($)(2) | Non-Equity Incentive Plan Compensation ($)(3) | All Other Compensation ($)(4) | Total ($) | ||||||||||||||||||||||||
| Chris Wolfe, | 2021 | 400,000 | (5) | — | 688,550 | — | 194,893 | 19,790 | 1,303,233 | |||||||||||||||||||||||
| Former Chief Executive Officer(5) | 2020 | 424,675 | (6) | — | — | 885,500 | 297,000 | 10,505 | 1,617,680 | |||||||||||||||||||||||
| 2019 | 325,000 | — | 336,135 | 832,880 | 48,750 | 10,776 | 1,553,541 | |||||||||||||||||||||||||
| Ned Mavrommatis | 2021 | 300,000 | 57,686 | 317,791 | — | 109,627 | 26,727 | 811,831 | ||||||||||||||||||||||||
| Chief Financial Officer, | 2020 | 299,704 | (7) | — | — | 379,500 | 223,312 | 30,328 | 932,844 | |||||||||||||||||||||||
| Treasurer and Corporate Secretary | 2019 | 300,000 | (8) | — | 220,201 | 543,314 | 33,750 | 29,403 | 1,126,668 | |||||||||||||||||||||||
| Elizabeth Elkins, | 2021 | 178,221 | (9) | — | 218,481 | — | — | — | 396,702 | |||||||||||||||||||||||
| Former Chief Product Officer(9) | 2020 | 257,102 | (10) | — | 113,100 | 49,171 | — | — | 419,373 | |||||||||||||||||||||||
| Year ending December 31: | ||||
| 2022 | $ | 6,114 | ||
| 2023 | 5,200 | |||
| 2024 | 12,910 | |||
| Long term debt | 24,224 | |||
| Less: Current Portion | 6,114 | |||
| Total | $ | 18,110 | ||
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.
NOTE 12 - ACCOUNTS PAYABLE AND ACCRUED EXPENSES
GrantsAccounts payable and accrued expenses consist of Plan-Based Awards
The following table provides certain information with respect to restricted stock awards and options granted to our Named Executive Officers during the fiscal year ended December 31, 2021.
| Grant | Estimated Future Payouts Under Non-Equity Incentive Plan Awards ($)(1) | Estimated Future Payouts Under Equity Incentive Plan Awards (#) | All Other Stock Awards: Number of Shares of Stock or Units | All Other Option Awards: Number of Securities Underlying Options | Exercise or Base Price of Option Awards | Grant Date Fair Value of Stock and Option Awards | ||||||||||||||||||||||||||||||||||||
| Name | Date | Threshold | Target | Maximum | Threshold | Target | Maximum | (#)(2) | (#) | ($/Sh) | ($)(3) | |||||||||||||||||||||||||||||||
| Chris Wolfe | 2/7/2021 | 100,000 | 400,000 | 400,000 | - | - | - | - | - | - | - | |||||||||||||||||||||||||||||||
| 2/7/2021 | - | - | - | - | - | - | 89,655 | - | - | 688,550 | ||||||||||||||||||||||||||||||||
| Ned Mavrommatis | 2/7/2021 | 56,250 | 225,000 | 225,000 | - | - | - | - | - | - | - | |||||||||||||||||||||||||||||||
| 2/7/2021 | - | - | - | - | - | - | 41,379 | - | - | 317,791 | ||||||||||||||||||||||||||||||||
| Elizabeth Elkins | 2/7/2021 | - | - | - | - | - | - | 28,448 | - | - | 218,481 | |||||||||||||||||||||||||||||||
Stock Option Exercises and Vesting of Restricted Stock Awards
The following table provides certain information with respect to options that were exercised and shares of restricted stock that vested for each of our Named Executive Officers during the fiscal year ended December 31, 2021.
| Option Awards | Stock Awards | |||||||||||||||
Name | Number of Shares Acquired on Exercise (#) | Value Realized on Exercise ($)(1) | Number of Shares Acquired on Vesting (#) | Value Realized on Vesting($)(2) | ||||||||||||
| Chris Wolfe | - | - | 58,015 | 445,095 | ||||||||||||
| Ned Mavrommatis | 117,314 | 385,618 | 47,695 | 363,480 | ||||||||||||
| Elizabeth Elkins | - | - | 3,750 | 30,038 | ||||||||||||
Outstanding Equity Awards at Fiscal Year End
The following table provides certain information concerning outstanding equity awards held by each of our Named Executive Officers at December 31, 2021.
| Option Awards | Stock Awards | |||||||||||||||||||||||||||||||
| Name | Number of Securities Underlying Unexercised Options (#) Exercisable | Number of Securities Underlying Unexercised Options (#) Unexercisable | Option Exercise Price ($) | Option Expiration Date | Number of Shares or Units of Stock That Have Not Vested (#)(1) | Market Value of Shares or Units of Stock That Have Not Vested ($)(2) | Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested (#) | Equity Incentive Plan Awards: Market Value of Unearned Shares, Units or Other Rights That Have Not Vested ($) | ||||||||||||||||||||||||
| Chris Wolfe | 100,000 | - | 5.21 | 8/4/2026 | (3) | 135,806 | 643,720 | - | - | |||||||||||||||||||||||
| 100,000 | - | 4.70 | 12/7/2026 | (3) | - | - | - | - | ||||||||||||||||||||||||
| 81,250 | 81,250 | 6.08 | 1/30/2029 | (3) | - | - | - | - | ||||||||||||||||||||||||
| 78,788 | 78,788 | 5.87 | 11/5/2029 | (3) | - | - | - | - | ||||||||||||||||||||||||
| - | 350,000 | 6.28 | 5/28/2030 | (4) | - | - | - | - | ||||||||||||||||||||||||
| - | 350,000 | 6.00 | 5/28/2030 | (5) | - | - | - | - | ||||||||||||||||||||||||
| Ned Mavrommatis | 23,678 | - | 5.93 | 3/29/2022 | (6) | 73,521 | 348,489 | - | - | |||||||||||||||||||||||
| 16,503 | - | 5.71 | 4/4/2023 | (3) | - | - | - | - | ||||||||||||||||||||||||
| 3,888 | - | 6.00 | 2/17/2027 | (3) | - | - | - | - | ||||||||||||||||||||||||
| 50,000 | 50,000 | 6.08 | 1/30/2029 | (3) | - | - | - | - | ||||||||||||||||||||||||
| 54,546 | 54,545 | 5.87 | 11/5/2029 | (3) | - | - | - | - | ||||||||||||||||||||||||
| - | 150,000 | 6.28 | 5/28/2030 | (4) | - | - | - | - | ||||||||||||||||||||||||
| - | 150,000 | 6.00 | 5/28/2030 | (5) | - | - | - | - | ||||||||||||||||||||||||
| Elizabeth Elkins(7) | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||
Potential Payments Upon Termination or Change in Control
Potential Payments Upon Termination or Change in Control under Severance Arrangements
As described above under the caption “Severance Arrangements,” the Company has entered into severance agreements with Messrs. Wolfe and Mavrommatis. These severance agreements provide for severance payments or other compensation upon the termination of such executive’s employment or a change in control with respect to the Company.following:
The Company had also entered into an employment offer letter with Ms. Elkins, which provided Ms. Elkins with six months’ cash severance payments in the event she was terminated by the Company without cause. As Ms. Elkins resigned from the Company, effective as of August 13, 2021, no severance payments were made to Ms. Elkins.SCHEDULE OF ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
| 2020 | 2021 | |||||||
| Year Ended December 31, | ||||||||
| 2020 | 2021 | |||||||
| Accounts payable | $ | 9,877 | $ | 17,748 | ||||
| Accrued warranty | 705 | 1,146 | ||||||
| Accrued compensation | 5,581 | 6,644 | ||||||
| Government authorities | 3,047 | 2,080 | ||||||
| Other current liabilities | 1,015 | 1,397 | ||||||
| Accounts payable and accrued expenses | $ | 20,225 | $ | 29,015 | ||||
Potential Payments Upon Termination or ChangeThe Company’s products are warranted against defects in Control under Equity Compensation Plans
Our 2015 Plan provides that the Compensation Committee may, at the time of the grant of an award, provide for the effect of a “change in control” on any award, including (i) accelerating or extending the time periods for exercising, vesting in, or realizing gain from any award, (ii) eliminating or modifying the performance or other conditions of an award, (iii) providing for the cash settlement of an award for an equivalent cash value, as determined by the Compensation Committee, or (iv) such other modification or adjustment to an award as the Compensation Committee deems appropriate to maintainmaterials and protect the rights and interests of participants upon or following a change in control. The Compensation Committee may, in its discretion and without the need for the consent of any recipient of an award, also take one or more of the following actions contingent upon the occurrence of a change in control: (a) cause any or all outstanding options and stock appreciation rights to become immediately exercisable, in whole or in part; (b) cause any other awards to become non-forfeitable, in whole or in part; (c) cancel any option or stock appreciation right in exchangeworkmanship for a substitute option; (d) cancel any awardperiod of restricted stock, stock units, performance shares or performance units in exchange for a similar award of the capital stock of any successor corporation; (e) redeem any restricted stock for cash and/or other substitute consideration with a value equal to the fair market value of an unrestricted share of our common stock on1-3 years from the date of the change in control; (f) cancel any option or stock appreciation right in exchange for cash and/or other substitute consideration based on the value of our common stock on the dateacceptance of the change in control, and cancel any option or stock appreciation right without any payment if its exercise price exceeds the value of our common stock on the date of the change in control; (g) cancel any stock unit or performance units held by a participant affectedproduct by the changecustomer. The customers may purchase an extended warranty providing coverage up to a maximum of 60 months. A provision for estimated future warranty costs is recorded for expected or historical warranty matters related to equipment shipped and is included in control in exchange for cash and/or other substitute consideration with a value equal to the fair market value per share of common stock on the date of the change in control, or (h) make such other modifications, adjustments or amendments to outstanding awards as the Compensation Committee deems necessary or appropriate.
For purposes of the 2015 Plan, a “change in control” means the occurrence of any of the following events: (i) any person or group (as such terms are used in Section 13(d)accounts payable and 14(d) of the Exchange Act, but excluding the Company, its affiliates and any person holding securities under employee benefit plan or trust of the Company) is or becomes the beneficial owner of securities of the Company representing 50% or more of either the combined voting power of the Company’s then outstanding securities or the then outstanding shares of our common stock; (ii) any consolidation or merger of the Company where stockholders of the Company, immediately prior to such consolidation or merger, would not, immediately after such consolidation or merger, beneficially own shares representingaccrued expenses in the aggregate 50%Consolidated Balance Sheets as of more of the combined voting power of the securities of the corporation issuing cash or securities in the consolidation or merger; or (iii) any sale, lease, exchange or other transfer of all or substantially all of the Company’s assets, other than a sale or disposition by the Company of all or substantially all of the Company’s assets to an entity, at least 50% of the combined voting power of the voting securities of which are owned by persons in substantially the same proportion as their ownership of the Company immediately prior to such sale; (iv) the approval by stockholders of the Company of any plan or proposal for the liquidation or dissolution of the Company; or (v) the members of the Board at the beginning of any consecutive 24-calendar-month period (the “Incumbent Directors”) cease for any reason other than due to death to constitute at least a majority of the members of the Board; provided that any member of the Board whose election, or nomination for election by the Company’s stockholders, was approved or ratified by a vote of at least a majority of the members of the Board then still in office who were members of the Board at the beginning of such 24-calendar-month period, shall be deemed to be an Incumbent Director.
Our 2018 Plan provides that, unless the Compensation Committee provides otherwise in advance of the grant, in the event of a “change in control,” if the employee or service provider is terminated other than for “cause” (as defined in the 2018 Plan) within one year of such change in control or leaves for “good reason” (as defined in the 2018 Plan), optionsDecember 31, 2020 and restricted stock (including restricted stock units) shall vest. In addition, unless otherwise determined by the Compensation Committee, the payout of performance stock units and performance shares shall be determined exclusively by the attainment of the performance goals established by the Compensation Committee, which may not be modified after the change in control, and the Company will not have the right to reduce the awards for any other reason.
For purposes of the 2018 Plan, a “change in control” means the occurrence of any of the following events: (i) any person, other than a trustee or other fiduciary holding securities under an employee benefit plan of the Company or a corporation owned directly or indirectly by the stockholders of the Company in substantially the same proportions as their ownership of stock of the Company, becomes the beneficial owner (as such term is defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing fifty percent (50%) or more of the total voting power represented by the Company’s then outstanding voting securities; (ii) during any period of two consecutive years, individuals who at the beginning of such period constitute the board of directors of the Company and any new director whose election by the board of directors or nomination for election by the Company’s stockholders was approved by a vote of a majority of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved, cease for any reason to constitute a majority thereof; (iii) the consummation of a merger or consolidation of the Company with any other corporation, other than a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) at least 50% of the total voting power represented by the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation; or (iv) the stockholders of the Company approve a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company of all or substantially all the Company’s assets.
Estimated Payments Upon Termination or Change in Control2021.
The following table shows potential payments to Messrs. Wolfe and Mavrommatis under existing severance agreements, plans or arrangements in connection with a termination of employment or change in control with respect tosummarizes warranty activity during the Company. Ms. Elkins resigned, effective as of August 13, 2021, and did not receive any severance payments or benefits. The following table assumes ayears ended December 31, 2021 termination or change in control date2020 and uses the closing price of the Company’s common stock on the Nasdaq Global Market on December 31, 2021, $4.74. The disclosed amounts are estimates only and do not necessarily reflect the actual amounts that would be paid to the Named Executive Officer. These actual amounts would only be known at the time the Named Executive Officers become eligible for payment and would only be payable upon the termination of employment or change in control.2021:
| Name | Benefit | Non Change-in-Control Termination (Without Cause or for Good Reason) | Change-in-Control Termination (Without Cause or for Good Reason) | Change-in-Control Only | ||||||||||
| Chris Wolfe(1) | Severance Pay | $ | 400,000 | $ | 800,000 | $ | — | |||||||
| Exercise of Vested Stock Options Upon Termination | $ | — | $ | — | (2) | $ | — | (2) | ||||||
| Realization of Restricted Stock Awards Upon Termination | $ | 181,379 | (3) | $ | 643,716 | (4) | $ | 643,716 | (4) | |||||
| Benefit Continuation | $ | 22,272 | $ | 22,272 | $ | — | ||||||||
| Ned Mavrommatis | Severance Pay | $ | 300,000 | $ | 300,000 | $ | — | |||||||
| Exercise of Vested Stock Options Upon Termination | $ | — | $ | — | (2) | $ | — | (2) | ||||||
| Realization of Restricted Stock Awards Upon Termination | $ | 107,742 | (3) | $ | 348,390 | (4) | $ | 348,390 | (4) | |||||
| Benefit Continuation | $ | 42,072 | $ | 42,072 | $ | — | ||||||||
SCHEDULE OF PRODUCT WARRANTY LIABILITY
| Year Ended December 31, | ||||||||
| 2020 | 2021 | |||||||
| Accrued warranty reserve, beginning of year | $ | 742 | $ | 807 | ||||
| Accrual for product warranties issued | 784 | 1,335 | ||||||
| Product replacements and other warranty expenditures | (667 | ) | (411 | ) | ||||
| Expiration of warranties | (52 | ) | (398 | ) | ||||
| Accrued warranty reserve, end of period (a) | $ | 807 | $ | 1,333 | ||||
NOTE 13 - LEASES
The Company has operating leases for office space and office equipment. The Company’s leases have remaining lease terms of one year to seven years, some of which include options to extend the lease term for up to five years.
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: | $ | 584 | $ | 563 | ||||
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 | $ | 4,822 | $ | 2,695 | ||||
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 | 4.5 | |||
Risk ConsiderationsScheduled 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 | $ | 3,034 | ||
| 2023 | 2,620 | |||
| 2024 | 1,920 | |||
| 2025 | 1,780 | |||
| 2026 | 744 | |||
| Thereafter | 959 | |||
| Total lease payments | 11,057 | |||
| Less: Imputed interest | (1,050 | ) | ||
| Present value of lease liabilities | $ | 10,007 | ||
NOTE 14 - STOCKHOLDERS’ EQUITY
We do not believe that our compensation practices and policies for our employees, including our executive officers, create risks or are likely to create risks that are reasonably likely to have a material adverse effect on us or our results of operations or financial condition.
Compensation of Directors[A] Public Offering:
GeneralOn February 1, 2021 the Company closed an underwritten public offering of
All directors are entitled to reimbursement shares of common stock (which included the full exercise of the underwriters’ over-allotment option) for travelgross proceeds of approximately $28,800, before deducting the underwriting discounts and lodgingcommissions and other reasonable out-of-pocket expenses incurred by them in connection with their attendance at Board and/or Board committee meetings or other activities on our behalf.offering expenses.
Employee Directors[B]ATM Offering:
Directors who are current officers or employees of the Company or any subsidiary of the Company do not receive any additional compensation for their service as members of either the Board or any committees of the Board.
Non-Employee Directors
On August 1, 2017, the Board adopted a non-employee director compensation program pursuant to which non-employee directors are entitled to receive annual compensation having economic value of approximately $119,000, which includes a cash retainer of $59,000 and restricted stock grants with an economic value of approximately $60,000. The cash retainer may be paid, at each director’s election, in cash or in restricted shares of our common stock. Each of Mr. Bjork and Ms. Srinivasan, as the Series A Directors, agreed to waive participation in the Company’s non-employee director compensation program. Each of the non-employee directors, other than the Series A Directors, was paid his retainer for 2021 in cash. With respect to restricted stock awards, the number of shares issuable in 2021 was calculated based on the average of the reported closing price per share of our common stock on the Nasdaq Global Market over a twenty (20) consecutive trading day period ending on and including the 2021 annual meeting of stockholders.
The Chairman of the Board and the chairperson of each of the committees of the Board are also entitled to a supplemental retainer, which may be paid, at each director’s election, in cash or in restricted shares of our common stock. Specifically, the Chairman of the Board receives an additional $36,000 per year of service; the chairperson of the Audit Committee receives an additional $18,000 per year of service; the chairperson of the Compensation Committee receives an additional $12,000 per year of service; and the chairperson of the Nominating Committee receives an additional $10,000 per year of service. Each of the non-employee directors, other than the Series A Directors, was paid his supplemental retainer in 2021 in cash.
During the fiscal year ended December 31, 2021, Michael Brodsky, Michael Casey, Charles Frumberg and David Mahlab were paid cash retainers in the aggregate amounts of $105,000, $77,000, $59,000 and $59,000, respectively. In addition, each such non-employee director received an award of 8,556 restricted shares of common stock in consideration for his services as a director of the Company, which were granted on August 9, 2021, pursuant to the 2018 Plan. All such restricted stock awards vest as to 100% of such shares on the first anniversary of the date of grant, provided that the non-employee director is then serving as a director of the Company. Each of Mr. Bjork and Ms. Srinivasan, as the Series A Directors, did not receive any compensation for their service as directors during the fiscal year ended December 31, 2021.
Our non-employee directors are not entitled to retirement, benefit or other perquisite programs.
The following table provides certain information with respect to the compensation paid to our non-employee directors during the fiscal year ended December 31, 2021.
| Name | Fees Earned or | Stock Awards | Option Awards | Total ($) | ||||||||||||
| Anders Bjork(5) | - | - | - | - | ||||||||||||
| Michael Brodsky | $ | 105,000 | $ | 61,689 | - | $ | 166,689 | |||||||||
| Michael Casey | $ | 77,000 | $ | 61,689 | - | $ | 138,689 | |||||||||
| Charles Frumberg | $ | 59,000 | $ | 61,689 | - | $ | 120,689 | |||||||||
| David Mahlab | $ | 59,000 | $ | 61,689 | - | $ | 120,689 | |||||||||
| Medhini Srinivasan(5) | - | - | - | - | ||||||||||||
| |
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters[C]
Redeemable Preferred stock:
The following table sets forth information regarding ownership of shares of our common stock as of April 28, 2022 by:
| ||
| per share of which shares are designated Series A Preferred Stock and shares are undesignated.
|
| |
| 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 The Series A Preferred Stock has a liquidation preference equal to the greater of (i) the original issuance price of $1,000.00 per share, subject to certain adjustments (the “Series A Issue Price”), plus all accrued and unpaid dividends thereon (except in the case of Dividends Holders of Series A Preferred Stock are entitled to receive cumulative dividends at a |
To our knowledge, except as set forth in the footnotes to the table and subject to applicable community property laws, each person or entity named in the table has sole voting and disposition power with respect to the shares set forth opposite such person’s or entity’s name. The number of shares beneficially owned by each entity, person, director or executive officer is determined in accordance with the rules of the SEC, and the information is not necessarily indicative of beneficial ownership for any other purpose. Under such rules, beneficial ownership includes any shares over which the individual has the sole or shared voting power or investment power and any shares that the individual has the right to acquire within 60 days of April 28, 2022, through the exercise of stock options, warrants or other convertible securities or any other right. Shares of our common stock that a person has the right to acquire within 60 days of April 28, 2022 are deemed outstanding for purposes of computing the percentage ownership of the person holding such rights but are not deemed outstanding for purposes of computing the percentage ownership of any other person (except with respect to the percentage ownership of all directors and executive officers as a group). As used in this Amendment No. 1, “voting power” is the power to vote or direct the voting of shares and “investment power” includes the power to dispose or direct the disposition of shares.
The number and percentage of shares beneficially owned is computed on the basis of 36,145,889 shares of our common stock outstanding as of April 28, 2022. The information in the following table regarding the beneficial owners of more than 5% of our common stock is based upon information supplied by our principal stockholders or set forth in Schedules 13D and 13G filed with the SEC. The determination that there were no other persons, entities or groups known to the Company to beneficially own more than 5% of the Company’s outstanding common stock was based on a review of all statements filed with the SEC with respect to the Company pursuant to Section 13(d) or 13(g) of the Exchange Act.
The address for those persons for which an address is not otherwise provided is c/o PowerFleet, Inc., 123 Tice Boulevard, Woodcliff Lake, New Jersey 07677.
| Name and Address of Beneficial Owner | Number of Shares of Common Stock Beneficially Owned | Percentage of Shares of Common Stock Outstanding(1) | ||||||
| 5% Stockholders: | ||||||||
ABRY Senior Equity Holdings V, LLC c/o ABRY Partners II, LLC 888 Boylston Street, Suite 1600 Boston, MA 02199 | 7,617,408 | (2) | 17.41 | % | ||||
Lynrock Lake LP 2 International Drive Suite 130 Rye Brook, NY 10573 | 3,580,966 | (3) | 9.91 | % | ||||
North Run Capital, LP 62 Walnut Street Wellesley, MA 02481 | 2,233,173 | (4) | 6.18 | % | ||||
Private Capital Management, LLC 8889 Pelican Bay Boulevard Suite 500 Naples, FL 34108 | 2,229,699 | (5) | 6.17 | % | ||||
The Phoenix Holding Ltd. Derech Hashalom 53 Givataim, 53454, Israel | 2,169,632 | (6) | 6.00 | % | ||||
| Current Executive Officers: | ||||||||
| Steve Towe | 231,754 | (7) | * | |||||
| Ned Mavrommatis | 479,824 | (8) | 1.32 | % | ||||
| Former Executive Officers: | ||||||||
| Chris Wolfe | 150,567 | (9) | * | |||||
| Elizabeth Elkins | 3,750 | (10) | * | |||||
| Current Non-Employee Directors: | ||||||||
| Anders Bjork | — | * | ||||||
| Michael Brodsky | 397,885 | (11) | 1.10 | % | ||||
| Michael Casey | 173,431 | (12) | * | |||||
| Charles Frumberg | 187,825 | (13) | * | |||||
| David Mahlab | 616,552 | (14) | 1.70 | % | ||||
| Medhini Srinivasan | — | * | ||||||
| All current directors, and executive officers as a group (eight individuals) | 2,087,271 | 5.69 | % | |||||
* Represents less than 1% of the outstanding shares of our common stock.
|
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 Redemption At any time, each holder of Series A Preferred Stock may elect to convert each share of such At any time after the third anniversary of the Original Issuance Date, subject to certain conditions, the Company may redeem the Series A Preferred Stock for an amount per share, equal to the greater of (i) the product of (x) 1.5 multiplied by (y) the sum of the Series A Issue Price, plus all accrued and unpaid dividends and (ii) the product of (x) the number of shares of common stock issuable upon conversion of such Series A Preferred Stock multiplied by (y) the volume weighted average price of the common stock during the 30 consecutive trading day period ending on the trading date immediately prior to the date of such redemption notice or, if calculated in connection with a deemed liquidation event, the value ascribed to a share of common stock in such deemed liquidation event (the “Redemption Price”). 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 On June 9, 2021, the Company entered into a preferred stock redemption right agreement (the “Redemption Right Agreement”) with |
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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 | $ | (388 | ) | $ | (47 | ) | $ | (435 | ) | |||
| Net current period change | 653 | 47 | 700 | |||||||||
| Balance at December 31, 2019 | $ | 265 | $ | - | $ | 265 | ||||||
| Net current period change | 134 | - | 134 | |||||||||
| Balance at December 31, 2020 | 399 | - | 399 | |||||||||
| Net current period change | (8 | ) | - | (8 | ) | |||||||
| Balance at December 31, 2021 | $ | 391 | $ | - | $ | 391 | ||||||
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 | $ | 60,544 | $ | 46,047 | $ | 50,844 | ||||||
| Israel | 9,650 | 38,719 | 44,849 | |||||||||
| Other | 11,721 | 28,827 | 30,515 | |||||||||
| $ | 81,915 | $ | 113,593 | $ | 126,208 | |||||||
| Year Ended December 31, | ||||||||||||
| 2019 | 2020 | 2021 | ||||||||||
| Long lived assets by geographic region: | ||||||||||||
| United States | $ | 1,931 | $ | 1,425 | $ | 1,123 | ||||||
| Israel | 2,285 | 3,282 | 3,675 | |||||||||
| Other | 4,023 | 4,097 | 4,190 | |||||||||
| $ | 8,240 | $ | 8,804 | $ | 8,988 | |||||||
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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 | $ | (10,888 | ) | $ | (15,492 | ) | $ | (15,017 | ) | |||
| Foreign operations | (168 | ) | 7,520 | 4,331 | ||||||||
| Net loss before income tax | $ | (11,056 | ) | $ | (7,972 | ) | $ | (10,686 | ) | |||
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 | 119 | 45 | 16 | |||||||||
| Foreign | (44 | ) | 54 | 127 | ||||||||
| 75 | 99 | 143 | ||||||||||
| Deferred: | ||||||||||||
| Federal | - | - | - | |||||||||
| State | - | - | - | |||||||||
| Foreign | - | 939 | 2,464 | |||||||||
| - | 939 | 2,464 | ||||||||||
| Total (benefit) provision for income taxes | $ | 75 | $ | 1,038 | $ | 2,607 | ||||||
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 | $ | (2,317 | ) | $ | (1,674 | ) | $ | (2,243 | ) | |||
| State and local income taxes, net of federal taxes | (213 | ) | (421 | ) | 410 | |||||||
| Increase (decrease) in valuation allowance | 402 | 2,595 | (203 | ) | ||||||||
| Remeasurement of deferred tax adjustments | 1,032 | (48 | ) | 1,302 | ||||||||
| Permanent differences and other | 1066 | 138 | 269 | |||||||||
| Foreign rate differential | (38 | ) | (586 | ) | 1,681 | |||||||
| GILTI inclusion | - | 1,008 | 1,312 | |||||||||
| Other | (7 | ) | 26 | 79 | ||||||||
| Income tax benefit | $ | (75 | ) | $ | 1,038 | $ | 2,607 | |||||
| 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 | $ | 32,843 | $ | 28,042 | ||||
| Capital loss carryforwards | 11,025 | 11,398 | ||||||
| Deferred revenue | 1,775 | 2,097 | ||||||
| Stock-based compensation | 886 | 801 | ||||||
| Federal research and development tax credits | 1,058 | 1,058 | ||||||
| Intangibles, amortization | 1,718 | - | ||||||
| Inventories | 65 | 344 | ||||||
| Bad Debt Reserve | 98 | 785 | ||||||
| Deferred lease liability | 626 | 714 | ||||||
| Other deductible temporary differences | 3,429 | 3,880 | ||||||
| Total gross deferred tax assets | 53,523 | 49,119 | ||||||
| Less: valuation allowance | (46,070 | ) | (44,228 | ) | ||||
| Deferred tax assets, net of valuation allowance | 7,453 | 4,891 | ||||||
| Deferred tax liabilities: | ||||||||
| Intangible amortization | (5,151 | ) | (5,192 | ) | ||||
| ROU assets | (599 | ) | (657 | ) | ||||
| Fixed assets, depreciation | (197 | ) | - | |||||
| Total deferred tax liabilities | (5,947 | ) | (5,849 | ) | ||||
| Net deferred tax (liabilities)/assets | $ | 1,506 | $ | (958 | ) | |||
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 | $ | 390 | $ | 423 | ||||
| Additions based on tax provisions taken related to current year | 33 | 62 | ||||||
| Balance at the end of year | $ | 423 | $ | 485 | ||||
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 $83,085 for U.S. federal income tax purposes. At December 31, 2021, the Company had an aggregate net operating loss carryforward of approximately $35,037 for state income tax purposes and a foreign net operating loss carryforward of approximately $35,902. Substantially all of the net operating loss carryforwards expire from 2022 through 2037 for pre-2018 federal net operating loss carryforwards and from 2022 through 2041 for state purposes. The net operating loss carryforwards may be limited to use in any particular year based on Internal Revenue Code (“IRC”) Section 382 related to change of ownership restrictions. Section 382 of the IRC imposes an annual limitation on the utilization of NOL carryforwards based on long-term bond rates and the value of the corporation at the time of a change in ownership as defined by Section 382 of the IRC. In 2019, the Company incurred a change in ownership under Section 382 of the IRC and this change of ownership is not expected to materially impact the Company’s ability to utilize its net operating loss carryforward amounts in the future. In addition, future stock issuances may subject the Company to further limitations on the utilization of its net operating loss carryforwards under the same Internal Revenue Code provision.
At December 31, 2021, the Company has New Jersey net operating loss carryforwards (“NJ NOLs”) included above in the approximate amount of $5,071 expiring through 2041, which are available to reduce future earnings which would otherwise be subject to state income tax.
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 $44,228 compared to $46,070 as of December 31, 2020 primarily due to expiration of other net operating losses. The Company has provided a valuation allowance against the full amount of its domestic deferred tax assets and the majority of the foreign deferred tax assets. The valuation allowance was established because of the uncertainty of realization of the deferred tax assets due to lack of sufficient history of generating taxable income. Realization is dependent upon generating sufficient taxable income prior to the expiration of the net operating loss carryforwards in future periods. The valuation allowance increased in 2020 and decreased in 2021 by $3,953, and $1,842respectively.
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.
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NOTE 18 - COMMITMENTS AND CONTINGENCIESItem 13. Certain Relationships and Related Transactions, and Director Independence
Except for normal operating leases, the Company is not currently subject to any material commitments.
[A] Contingencies:
Certain Relationships and Related Transactions
Except for normal operating leases, the Company is not currently subject to any material commitments.
Our policy prohibits conflicts between
From time to time, the interestsCompany 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 our employees, officers and directors and our company. A conflictany such litigation matters cannot be predicted with certainty, management currently believes that the outcome of interest exists when an employee, officer,these proceedings, including the matters described below, either individually or director’s personal interest interferes or may interfere with the interests of the Company. When it is deemed to be in the best interestsaggregate, will not have a material adverse effect on its business, results of our companyoperations or financial condition. The Company records reserves related to legal matters when losses related to such litigation or contingencies are both probable and our stockholders, the Audit Committee may grant waivers to employees, officers and directors who have disclosed an actual or potential conflict of interest, which waivers are subject to approval by our Board. This policy is included in our Code of Business Conduct and Ethics for Employees, Officers and Directors.reasonably estimable.
In accordance with its charter,August 2014, Pointer do Brasil Comercial Ltda. (“Pointer Brazil”) received a notification of lack of payment of VAT tax (Brazilian ICMS tax) in the Audit Committeeamount of $190, plus $957 of interest and penalty, totaling $1,147 as of December 31, 2021. The Company is responsiblevigorously defending this tax assessment before the administrative court in Brazil, but in light of the administrative and judicial processes in Brazil, it could take up to 14 years before the dispute is finally resolved. In case the administrative court rules against the Company, the Company could claim before the judicial court, an appellate court in Brazil, a substantial reduction of interest charged, potentially reducing the Company’s total exposure. The Company’s legal counsel is of the opinion that the chance of loss is not probable and for annually reviewing any transactions or series of similar transactions to which we are or were a party and in which any director, executive officer or beneficial holder of more than 5% of any class of our voting securities, or members of any such person’s immediate family, have had or will have a direct or indirect material interest. Our Audit Committee’s procedures for reviewing related party transactions are not in writing. Except as described below, since January 1, 2020, therethis reason the Company has not been, nor is there currently proposed,made any transaction or series of similar transactions to which the Company is or was a party in which the amount involved exceeds $120,000 and in which any director, executive officer or beneficial holder of more than 5% of any class of our voting securities, or members of any such person’s immediate family, have had or will have a direct or indirect material interest. As of April 28, 2022, our common stock is the Company’s only class of voting securities.provision.
InvestmentIn July 2015, Pointer Brazil received a tax deficiency notice alleging that the services provided by Pointer Brazil should be classified as “telecommunication services” and Transaction Agreementtherefore Pointer Brazil should be subject to the state value-added tax. The aggregate amount claimed to be owed under the notice was approximately $10,476
as of December 31, 2021. On March 13, 2019, we entered into an InvestmentAugust 14, 2018, the lower chamber of the State Tax Administrative Court in São Paulo rendered a decision that was favorable to Pointer Brazil in relation to the ICMS demands, but adverse in regards to the clerical obligation of keeping in good order a set of ICMS books and Transaction Agreement (the “Investment Agreement”) byrelated tax receipts. The remaining claim after this administrative decision is $45. The state has the opportunity to appeal to the higher chamber of the State Tax Administrative Court. The Company’s legal counsel is of the opinion that the chance of loss is not probable and among I.D. Systems,that no material costs will arise in respect to these claims. For this reason, the Company PowerFleet US Acquisition Inc., and ASE, ASECF and ABRY Investment Partnership, L.P. (together with ASE and ASECF, the “Investors”), affiliates of ABRY Partners II, LLC, pursuant to which, on October 3, 2019, we issued and sold to the Investors (i) 50,000 shares of our Series A Preferred Stock for an aggregate purchase price of $50,000,000, and (ii) convertible unsecured promissory notes in the aggregate principal amount of $5,000,000 (the “Notes”). On May 13, 2020, the Company and the Investors amended and restated the Notes to, among other things, (i) remove the conversion feature of the Notes, (ii) provide for certain mandatory prepayment obligations of the Company on or following October 1, 2020, and (iii) extend the maturity date of the Notes to March 31, 2021. The Notes bore interest at 10% per annum. On October 1, 2020, we repaid in full the aggregate principal amount of $5,000,000 and accrued interest under the Notes. The net proceeds from the issuance and sale of the 50,000 shares of Series A Preferred Stock were used to fund our acquisition of Pointer. A portion of the proceeds from the Notes were used to pay expenses related to such acquisition and the remaining proceeds may be used for general corporate purposes. As a result of the issuance of the shares of Series A Preferred Stock to the Investors, ASE and ASEH became beneficial owners of more than 5% of our outstanding common stock.has not made any provision.
Director IndependenceNOTE 19 – SUBSEQUENT EVENTS
Our Board has determined that, withEffective January 5, 2022, Steve Towe was appointed as the exception of Messrs. Towe and Mahlab, each of our current directors satisfies the current “independent director” standards established by the Nasdaq rules and, as to the members of the Audit Committee, the additional independence requirements under applicable rules and regulations of the SEC. Thus, a majority of the Board is comprised of independent directors as required by the Nasdaq rules. The Audit Committee is composed of Messrs. Casey, Brodsky and Frumberg, each of whom is an independent director in accordance with Nasdaq Rule 5605(c). The Compensation Committee is composed of Messrs. Bjork, Casey and Frumberg, each of whom is an independent director in accordance with Nasdaq Rule 5605(d). The Nominating Committee of the Board is composed of Messrs. Brodsky, Bjork and Frumberg, each of whom is independent in accordance with Nasdaq Rule 5605(e).new Chief Executive Officer, succeeding Chris Wolfe.
Item 14. Principal Accounting Fees and Services
Audit Fees
The aggregate fees billed by Ernst & Young LLP (“EY”), our independent registered public accounting firm, for professional services rendered for the audit of our annual financial statements, comfort letters, statutory and subsidiary audits, consents and assistance with review of documents filed with the SEC for the fiscal years ended December 31, 2020 and December 31, 2021 were $550,000 and $800,000, respectively. For the fiscal year ended December 31, 2021, aggregate audit fees included fees for the audit of the effectiveness of the Company’s internal control over financial reporting required by the Sarbanes-Oxley Act.
Audit-Related Fees
There were no fees billed by EY for audit-related services reasonably related to the performance of the audit or review of our financial statements during the fiscal years ended December 31, 2020 and December 31, 2021.
Tax Fees
The aggregate fees billed by EY for professional services rendered for tax compliance, tax advice or tax planning during the fiscal years ended December 31, 2020 and December 31, 2021 were $279,000 and $222,000, respectively.
All Other Fees
The aggregate fees billed by EY for products or professional services rendered during the fiscal years ended December 31, 2020 and December 31, 2021 were $41,500 and $5,000, respectively, in addition to the services described under the captions “Audit Fees” and “Tax Fees” above, which primarily consist of fees related to financial reporting advisory services.
Audit Committee’s Pre-Approval Policies and Procedures
The Audit Committee pre-approves all services, including both audit and non-audit services, provided by our independent registered public accounting firm. For audit services, each year the independent registered public accounting firm provides the Audit Committee with an engagement letter outlining the scope of the audit services proposed to be performed during the year, which must be formally accepted by the Audit Committee before the audit commences. The independent registered public accounting firm also submits an audit services fee proposal, which also must be approved by the Audit Committee before the audit commences. None of the fees for services described above under the captions “Tax Fees” or “All Other Fees” approved by the Audit Committee were approved pursuant to the exception provided by paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X.
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.
| 43 |
| 44 |
| 45 |
| † | 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.
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: May 2,August 25, 2022
| POWERFLEET, INC. | ||
| By: | /s/ Steve Towe | |
| Steve Towe | ||
| Chief Executive Officer | ||
| (Principal Executive Officer) | ||
| By: | /s/ | |
| (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 | ||||
| Steve Towe | (Principal Executive Officer) | ||||
| /s/ | Global Controller | ||||
| (Principal Financial and Accounting Officer) | |||||
| /s/ Anders Bjork | Director | ||||
| Anders Bjork | |||||
| /s/ Michael Brodsky | Director | ||||
| Michael Brodsky | |||||
| /s/ Michael Casey | |||||
| Director | |||||
| Michael Casey | |||||
| /s/ Charles Frumberg | Director | ||||
| Charles Frumberg | |||||
| /s/ | Director | ||||
| Medhini Srinivasan |