UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For
the quarterly period ended:
or
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from __________ to __________
Commission
File Number:
(Exact name of registrant as specified in its charter)
| (State or other jurisdiction of | (I.R.S. Employer | |
| incorporation or organization) | Identification No.) |
| (Address of principal executive offices) | (Zip Code) |
(Registrant’s telephone number, including area code)
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
| The
|
Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Indicate
by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule
405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant
was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer ☐ | 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 is a shell company (as defined in Rule 12b-2 of the Securities Exchange Act of 1934). Yes ☐
The number of shares of the registrant’s common stock, $0.01 par value per share, outstanding as of the close of business on August 6, 2021 was .
INDEX
PowerFleet, Inc. and Subsidiaries
| 2 |
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
POWERFLEET, INC. AND SUBSIDIARIES
Condensed Balance Sheets
(In thousands, except per share data)
| December 31, 2020* | June 30, 2021 | |||||||
| (Unaudited) | ||||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Restricted cash | ||||||||
| Accounts receivable, net of allowance for doubtful accounts of $ | ||||||||
| Inventory, net | ||||||||
| Deferred costs - current | ||||||||
| Prepaid expenses and other current assets | ||||||||
| Total current assets | ||||||||
| Deferred costs - less current portion | ||||||||
| Fixed assets, net | ||||||||
| Goodwill | ||||||||
| Intangible assets, net | ||||||||
| Right of use asset | ||||||||
| Severance payable fund | ||||||||
| Deferred tax asset | ||||||||
| Other assets | ||||||||
| Total assets | $ | $ | ||||||
| LIABILITIES | ||||||||
| Current liabilities: | ||||||||
| Short-term bank debt and current maturities of long-term debt | ||||||||
| Accounts payable and accrued expenses | ||||||||
| Deferred revenue - current | ||||||||
| Lease liability - current | ||||||||
| Total current liabilities | ||||||||
| Long-term debt, less current maturities | ||||||||
| Deferred revenue - less current portion | ||||||||
| Lease liability - less current portion | ||||||||
| Accrued severance payable | ||||||||
| Other long-term liabilities | ||||||||
| Total liabilities | ||||||||
| Commitments and Contingencies (note 21) | ||||||||
| MEZZANINE EQUITY | ||||||||
| Convertible redeemable preferred stock: Series A – shares authorized, $ par value; and shares issued and outstanding at December 31, 2020 and June 30, 2021 | ||||||||
| Preferred stock; authorized shares, $ par value; | - | - | ||||||
| Common stock; authorized shares, $ par value; and shares issued at December 31, 2020 and June 30, 2021, respectively; shares outstanding, and at December 31, 2020 and June 30, 2021, respectively | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Accumulated other comprehensive gain (loss) | ||||||||
| Treasury stock; and common shares at cost at December 31, 2020 and June 30, 2021, respectively | ( | ) | ( | ) | ||||
| Total Powerfleet, Inc. stockholders’ equity | ||||||||
| Non-controlling interest | ||||||||
| Total equity | ||||||||
| Total liabilities and stockholders’ equity | $ | $ | ||||||
*Derived from audited balance sheet as of December 31, 2020.
See accompanying notes to unaudited condensed consolidated financial statements.
| 3 |
POWERFLEET, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
(In thousands, except per share data)
(Unaudited)
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
| 2020 | 2021 | 2020 | 2021 | |||||||||||||
| Revenues: | ||||||||||||||||
| Products | $ | $ | $ | $ | ||||||||||||
| Services | ||||||||||||||||
| Total revenues | ||||||||||||||||
| Cost of Revenues: | ||||||||||||||||
| Cost of products | ||||||||||||||||
| Cost of services | ||||||||||||||||
| Gross profit | ||||||||||||||||
| Operating expenses: | ||||||||||||||||
| Selling, general and administrative expenses | ||||||||||||||||
| Research and development expenses | ||||||||||||||||
| Loss from operations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Interest income | ||||||||||||||||
| Interest expense | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other (expense) income, net | ( | ) | ( | ) | ||||||||||||
| Net loss before income taxes | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Income tax benefit (expense) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Net loss before non-controlling interest | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Non-controlling interest | ||||||||||||||||
| Net loss | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Accretion of preferred stock | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Preferred stock dividend | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Net loss attributable to common stockholders | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Net loss per share attributable to common stockholders - basic and diluted | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Weighted average common shares outstanding - basic and diluted | ||||||||||||||||
See accompanying notes to unaudited condensed consolidated financial statements.
| 4 |
POWERFLEET, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Comprehensive Loss
(In thousands, except per share data)
(Unaudited)
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
| 2020 | 2021 | 2020 | 2021 | |||||||||||||
| Net loss attributable to common stockholders | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Other comprehensive (loss) income, net: | ||||||||||||||||
| Foreign currency translation adjustment | ( | ) | ( | ) | ||||||||||||
| Total other comprehensive income (loss) | ( | ) | ( | ) | ||||||||||||
| Comprehensive loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
See accompanying notes to unaudited condensed consolidated financial statements.
| 5 |
POWERFLEET, INC. AND SUBSIDIARIES
Condensed Consolidated Statement of Changes in Stockholders’ Equity
(In thousands, except per share data)
(Unaudited)
| 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, 2021 | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | $ | |||||||||||||||||||||
| Net loss attributable to common stockholders | - | - | ( | ) | ( | ) | - | - | - | ( | ) | |||||||||||||||||||||
| Foreign currency translation adjustment | - | - | - | - | ( | ) | - | ( | ) | ( | ) | |||||||||||||||||||||
| Issuance of restricted shares | ( | ) | - | - | - | - | - | |||||||||||||||||||||||||
| Forfeiture of restricted shares | ( | ) | - | - | - | - | - | - | - | |||||||||||||||||||||||
| Vesting of restricted stock units | - | - | - | - | - | - | ||||||||||||||||||||||||||
| Shares issued pursuant to exercise of stock options | - | - | - | - | | |||||||||||||||||||||||||||
| Shares withheld pursuant to vesting of restricted stock | - | - | - | - | - | ( | ) | - | ( | ) | ||||||||||||||||||||||
| Shares withheld pursuant to exercise of stock options | - | - | - | - | - | ( | ) | - | ( | ) | ||||||||||||||||||||||
| Stock based compensation | - | - | - | - | - | - | ||||||||||||||||||||||||||
| Common shares issued, net of issuance costs | - | - | - | - | ||||||||||||||||||||||||||||
| Balance at March 31, 2021 | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | $ | |||||||||||||||||||
| Net loss attributable to common stockholders | - | - | ( | ) | ( | ) | - | - | - | ( | ||||||||||||||||||||||
| Net loss attributable to non-controlling interest | - | - | - | - | - | - | ( | ) | ( | ) | ||||||||||||||||||||||
| Foreign currency translation adjustment | - | - | - | - | - | |||||||||||||||||||||||||||
| Forfeiture of restricted shares | ( | ) | - | - | - | - | - | - | - | |||||||||||||||||||||||
| Vesting of restricted stock units | - | - | - | - | - | - | ||||||||||||||||||||||||||
| Shares issued pursuant to exercise of stock options | - | - | - | - | ||||||||||||||||||||||||||||
| Shares withheld pursuant to vesting of restricted stock | - | - | - | - | - | ( | ) | - | ( | ) | ||||||||||||||||||||||
| Stock based compensation | - | - | - | - | - | - | ||||||||||||||||||||||||||
| Balance at June 30, 2021 | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | $ | |||||||||||||||||||||
| 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, 2020 | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||||||
| Net loss attributable to common stockholders | - | - | ( | ) | ( | ) | - | - | - | ( | ) | |||||||||||||||||||||
| Net loss attributable to non-controlling interest | - | - | - | - | - | - | ( | ) | ( | ) | ||||||||||||||||||||||
| Foreign currency translation adjustment | - | - | - | - | ( | ) | - | ( | ) | ( | ) | |||||||||||||||||||||
| Issuance of restricted shares | - | - | - | - | - | - | - | |||||||||||||||||||||||||
| Forfeiture of restricted shares | ( | ) | - | - | - | - | - | - | - | |||||||||||||||||||||||
| Vesting of restricted stock units | ( | ) | - | - | - | - | - | |||||||||||||||||||||||||
| Other | - | - | - | - | - | |||||||||||||||||||||||||||
| Shares issued pursuant to exercise of stock options | - | - | - | - | ||||||||||||||||||||||||||||
| Shares withheld pursuant to exercise of stock options | - | - | - | - | - | ( | ) | - | ( | ) | ||||||||||||||||||||||
| Shares withheld pursuant to vesting of restricted stock | - | - | - | - | - | ( | ) | - | ( | ) | ||||||||||||||||||||||
| Stock based compensation | - | - | - | - | - | - | ||||||||||||||||||||||||||
| Balance at March 31, 2020 | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||||
| Net loss attributable to common stockholders | - | - | ( | ) | ( | ) | - | - | - | ( | ) | |||||||||||||||||||||
| Net loss attributable to non-controlling interest | - | - | - | - | - | - | ( | ) | ( | ) | ||||||||||||||||||||||
| Foreign currency translation adjustment | - | - | - | - | - | |||||||||||||||||||||||||||
| Issuance of restricted shares | ( | ) | - | - | - | - | - | |||||||||||||||||||||||||
| Forfeiture of restricted shares | ( | ) | - | - | - | - | - | - | - | |||||||||||||||||||||||
| Vesting of restricted stock units | - | - | - | - | - | - | - | |||||||||||||||||||||||||
| Shares issued pursuant to exercise of stock options | - | - | - | - | ||||||||||||||||||||||||||||
| Shares withheld pursuant to vesting of restricted stock | - | - | - | - | - | ( | ) | - | ( | ) | ||||||||||||||||||||||
| Common shares issued under the 2020 ATM | - | - | - | - | ||||||||||||||||||||||||||||
| Stock based compensation | - | - | - | - | - | - | ||||||||||||||||||||||||||
| Balance at June 30, 2020 | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||||
See accompanying notes to unaudited condensed consolidated financial statements.
| 6 |
POWERFLEET, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(In thousands, except per share data)
(Unaudited)
| Six Months Ended June 30, | ||||||||
| 2020 | 2021 | |||||||
| Cash flows from operating activities | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to cash (used in) provided by operating activities: | ||||||||
| Non-controlling interest | ( | ) | ( | ) | ||||
| Inventory reserve | ||||||||
| Stock based compensation expense | ||||||||
| Depreciation and amortization | ||||||||
| Right-of-use assets, non-cash lease expense | ||||||||
| Bad debt expense | ||||||||
| Deferred income taxes | ||||||||
| Other non-cash items | ( | ) | ||||||
| Changes in: | ||||||||
| Accounts receivable | ( | ) | ||||||
| Inventory | ( | ) | ||||||
| Prepaid expenses and other assets | ||||||||
| Deferred costs | ||||||||
| Deferred revenue | ( | ) | ||||||
| Accounts payable and accrued expenses | ( | ) | ||||||
| Lease liabilities | ( | ) | ( | ) | ||||
| Accrued severance payable, net | - | |||||||
| Net cash provided by operating activities | ||||||||
| Cash flows from investing activities: | ||||||||
| Proceeds from sale of property and equipment | - | |||||||
| Capital expenditures | ( | ) | ( | ) | ||||
| Net cash (used in) investing activities | ( | ) | ( | ) | ||||
| Cash flows from financing activities: | ||||||||
| Net proceeds from stock offering | ||||||||
| Payment of preferred stock dividends | - | ( | ) | |||||
| Repayment of long-term debt | ( | ) | ( | ) | ||||
| Short-term bank debt, net | ( | ) | ||||||
| Proceeds from exercise of stock options, net | ||||||||
| Purchase of treasury stock upon vesting of restricted stock | ( | ) | ( | ) | ||||
| Net cash provided by financing activities | ||||||||
| Effect of foreign exchange rate changes on cash and cash equivalents | ( | ) | ( | ) | ||||
| Net (decrease) increase in cash, cash equivalents and restricted cash | ||||||||
| Cash, cash equivalents and restricted cash - beginning of period | ||||||||
| Cash, cash equivalents and restricted cash - end of period | $ | $ | ||||||
| Reconciliation of cash, cash equivalents, and restricted cash, beginning of period | ||||||||
| Cash and cash equivalents | ||||||||
| Restricted cash | ||||||||
| Cash, cash equivalents, and restricted cash, beginning of period | $ | $ | ||||||
| Reconciliation of cash, cash equivalents, and restricted cash, end of period | ||||||||
| Cash and cash equivalents | ||||||||
| Restricted cash | ||||||||
| Cash, cash equivalents, and restricted cash, end of period | $ | $ | ||||||
| Supplemental disclosure of cash flow information: | ||||||||
| Cash paid for: | ||||||||
| Taxes | ||||||||
| Interest | ||||||||
| Noncash investing and financing activities: | ||||||||
| Value of shares withheld pursuant to exercise of stock options | $ | $ | ||||||
See accompanying notes to unaudited condensed consolidated financial statements.
| 7 |
POWERFLEET, INC. AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements
June 30, 2021
In thousands (except per share data)
NOTE 1 - DESCRIPTION OF THE COMPANY AND BASIS OF PRESENTATION
Description of the Company
On October 3, 2019, PowerFleet, Inc. (together with its subsidiaries, “PowerFleet,” the “Company,” “we,” “our” or “us”) completed the acquisition of Pointer Telocation Ltd. (the “Transactions”), as a result of which I.D. Systems, Inc. (“I.D. Systems”) and PowerFleet Israel Ltd. (“PowerFleet Israel”) each became direct, wholly-owned subsidiaries of the Company and Pointer Telocation Ltd. (“Pointer”) became an indirect, wholly-owned subsidiary of the Company. Prior to the Transactions, PowerFleet 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 PowerFleet and the results of Pointer have been included in the Company’s consolidated financial statements from the date of the Transactions.
The Company is a global leader and provider of subscription-based wireless Internet-of-Things (IoT) and machine-to-machine (M2M) solutions for securing, controlling, tracking, and managing high-value enterprise assets such as industrial trucks, tractor trailers, containers, cargo, and vehicles and truck fleets.
Impact of COVID-19
The global outbreak of a novel strain of coronavirus, 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. As of the date of these unaudited 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.
Basis of presentation
The unaudited interim condensed consolidated financial statements include the accounts of the Company and its wholly-owned and majority-owned subsidiaries. All material intercompany balances and transactions have been eliminated in consolidation. The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and the instructions to Form 10-Q. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, such statements include all adjustments (consisting only of normal recurring items) which are considered necessary for a fair presentation of the consolidated financial position of the Company as of June 30, 2021, the consolidated results of its operations for the three- and six-month periods ended June 30, 2020 and 2021, the consolidated change in stockholders’ equity for the three-month periods ended March 31 and June 30, 2020 and 2021 and the consolidated cash flows for the six-month periods ended June 30, 2020 and 2021. The results of operations for the three- and six-month periods ended June 30, 2021 are not necessarily indicative of the operating results for the full year. These financial statements should be read in conjunction with the audited consolidated financial statements and related disclosures for the year ended December 31, 2020 included in the Company’s Annual Report on Form 10-K for the year then ended.
Reclassifications
Certain prior amounts have been reclassified to conform with the current year presentation for comparative purposes. These reclassifications had no effect on the previously reported results of operations.
| 8 |
Liquidity
As
of June 30, 2021, the Company had cash and cash equivalents of $
In
addition, PowerFleet Israel and Pointer are party to a Credit Agreement (the “Credit Agreement”) with Bank Hapoalim B.M.
(“Hapoalim”), pursuant to which Hapoalim agreed to provide PowerFleet Israel with two senior secured term loan facilities
in an aggregate principal amount of $
On
May 14, 2020, the Company entered into an equity distribution agreement for an “at-the-market offering” program (the “ATM
Offering”) with Canaccord Genuity LLC (“Canaccord”) as sales agent, pursuant to which we issued and sold an aggregate
of shares of common stock for approximately $
On
February 1, 2021, the Company closed an underwritten public offering (the “Underwritten Public Offering”) of shares
of common stock (which included the full exercise of the underwriters’ over allotment option) for gross proceeds of approximately
$
Because of the recent outbreak of COVID-19, there is significant uncertainty surrounding the potential impact on our results of operations and cash flows. During 2020 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 August 10, 2022.
NOTE 2 – USE OF ESTIMATES
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 measurements of fair value of assets acquired and liabilities assumed, realization of deferred tax assets, the impairment of tangible and intangible assets, the assessment of the Company’s incremental borrowing rate used to determine its right-of-use asset and lease liability, deferred revenue and stock-based compensation costs. Actual results could differ from those estimates.
As of June 30, 2021, the impact of the outbreak of COVID-19 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.
NOTE 3 – 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 June 30, 2021 consists of cash held in escrow for purchases from a vendor.
| 9 |
NOTE 4 - 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 12).
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 recognizes revenue on non-recurring engineering services over time, on an input-cost method performance basis, as determined by the relationship of actual labor and material costs incurred to date compared to the estimated total project costs. Estimates of total project costs are reviewed and revised during the term of the project. Revisions to project costs estimates, where applicable, are recorded in the period in which the facts that give rise to such changes become known.
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.
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. The 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.
Deferred product costs consist of logistics visibility solutions 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.
The following table presents the Company’s revenues disaggregated by revenue source for the three- and six-months ended June 30, 2020 and 2021:
| Three Months Ended June 30 | Six Months Ended June 30, | |||||||||||||||
| 2020 | 2021 | 2020 | 2021 | |||||||||||||
| Products | $ | $ | $ | $ | ||||||||||||
| Services | ||||||||||||||||
| $ | $ | $ | $ | |||||||||||||
| 10 |
The balances of contract assets, and contract liabilities from contracts with customers are as follows as of December 31, 2020 and June 30, 2021:
| December 31, 2020 | June 30, 2021 | |||||||
| (unaudited) | ||||||||
| Assets: | ||||||||
| Deferred contract costs | $ | $ | ||||||
| Deferred costs | $ | $ | ||||||
| Liabilities: | ||||||||
| Deferred revenue- services (1) | $ | $ | ||||||
| Deferred revenue - products (1) | ||||||||
| Less: Deferred revenue and contract liabilities - current portion | ( | ) | ( | ) | ||||
| Deferred revenue and contract liabilities - less current portion | $ | $ | ||||||
| (1) |
NOTE 5 – PREPAID EXPENSES AND OTHER ASSETS
Prepaid expenses and other current assets consist of the following:
| December 31, 2020 | June 30, 2021 | |||||||
| (Unaudited) | ||||||||
| Finance receivables, current | $ | $ | ||||||
| Prepaid expenses | ||||||||
| Contract assets | ||||||||
| Other current assets | ||||||||
| $ | $ | |||||||
NOTE 6 - INVENTORY
Inventory,
which primarily consists of finished goods and components used in the Company’s products, is stated at the lower of cost or net
realizable value using the “moving average” cost method or the first-in first-out (FIFO) method. Inventory is shown net of
a valuation reserve of $
| 11 |
Inventories consist of the following:
| December 31, 2020 | June 30, 2021 | |||||||
| (Unaudited) | ||||||||
| Components | $ | $ | ||||||
| Work in process | ||||||||
| Finished goods, net | ||||||||
| $ | $ | |||||||
NOTE 7 - FIXED ASSETS
Fixed assets are stated at cost, less accumulated depreciation and amortization, and are summarized as follows:
| December 31, 2020 | June 30, 2021 | |||||||
| (Unaudited) | ||||||||
| Installed products | $ | $ | ||||||
| Computer software | ||||||||
| Computer and electronic equipment | ||||||||
| Furniture and fixtures | ||||||||
| Leasehold improvements | ||||||||
| Accumulated depreciation and amortization | ( | ) | ( | ) | ||||
| $ | $ | |||||||
Depreciation
and amortization expense of fixed assets for the three- and six-month periods ended June 30, 2020 was $
| 12 |
NOTE 8 - INTANGIBLE ASSETS AND GOODWILL
The following table summarizes identifiable intangible assets of the Company as of December 31, 2020 and June 30, 2021:
| June 30, 2021 (Unaudited) | Useful Lives (In Years) | Gross Carrying Amount | Accumulated Amortization | Net Carrying Amount | ||||||||||||
| Amortized: | ||||||||||||||||
| Customer relationships | $ | $ | ( | ) | $ | |||||||||||
| Trademark and tradename | ( | ) | ||||||||||||||
| Patents | ( | ) | ||||||||||||||
| Technology | ( | ) | ||||||||||||||
| Favorable contract interest | ( | ) | ||||||||||||||
| Covenant not to compete | ( | ) | ||||||||||||||
| ( | ) | |||||||||||||||
| Unamortized: | ||||||||||||||||
| Customer List | - | |||||||||||||||
| Trademark and tradename | - | |||||||||||||||
| - | ||||||||||||||||
| Total | $ | $ | ( | ) | $ | |||||||||||
| December 31, 2020 | Useful Lives (In Years) | Gross Carrying Amount | Accumulated Amortization | Net Carrying Amount | ||||||||||||
| Amortized: | ||||||||||||||||
| Customer relationships | $ | $ | ( | ) | $ | |||||||||||
| Trademark and tradename | ( | ) | ||||||||||||||
| Patents | ( | ) | ||||||||||||||
| Technology | ( | ) | ||||||||||||||
| Favorable contract interest | ( | ) | ||||||||||||||
| Covenant not to compete | ( | ) | ||||||||||||||
| ( | ) | |||||||||||||||
| Unamortized: | ||||||||||||||||
| Customer List | - | |||||||||||||||
| Trademark and tradename | - | |||||||||||||||
| - | ||||||||||||||||
| Total | $ | $ | ( | ) | $ | |||||||||||
| 13 |
At
June 30, 2021, the weighted-average amortization period for the intangible assets was
Amortization
expense for the three- and six-month periods ended June 30, 2020 was $
| Year ending December 31: | ||||
| 2021 (remaining) | $ | |||
| 2022 | ||||
| 2023 | ||||
| 2024 | ||||
| 2025 | ||||
| 2026 | ||||
| Thereafter | ||||
| $ |
There have been no changes in the carrying amount of goodwill from January 1, 2020 to June 30, 2021.
For the six-month period ended June 30, 2021, the Company did not identify any indicators of impairment.
| 14 |
Stock Option Plans
[A] Stock options:
| Options | Weighted- Average Exercise Price | Weighted-Average Remaining Contractual Terms | Aggregate Intrinsic Value | |||||||||||
| Outstanding at beginning of year | $ | |||||||||||||
| Granted | ||||||||||||||
| Exercised | ( | ) | ||||||||||||
| Forfeited or expired | ( | ) | ||||||||||||
| Outstanding at end of period | $ | years | $ | |||||||||||
| Exercisable at end of period | $ | years | $ | |||||||||||
| June 30, | ||||||||
| 2020 | 2021 | |||||||
| Expected volatility | % | % | ||||||
| Expected life of options (in years) | ||||||||
| Risk free interest rate | % | % | ||||||
| Dividend yield | % | % | ||||||
| Weighted-average fair value of options granted during year | $ | $ | ||||||
Expected volatility is based on historical volatility of the Company’s common stock and the expected life of options is based on historical data with respect to employee exercise periods.
The Company recorded stock-based compensation expense of $ and $ for the three- and six-month periods ended June 30, 2020, respectively and $ and $, for the three- and six-month periods ended June 30, 2021, respectively, in connection with awards made under the stock option plans.
The fair value of options vested during the six-month periods ended June 30, 2020 and 2021 was $and $, respectively. The total intrinsic value of options exercised during the six-month periods ended June 30, 2020 and 2021 was $and $, respectively.
| 15 |
As of June 30, 2021, there was approximately $ of unrecognized compensation cost related to non-vested options granted under the Company’s stock option plans. That cost is expected to be recognized over a weighted-average period of years.
The Company estimates forfeitures at the time of valuation and reduces expense ratably over the vesting period. This estimate is adjusted periodically based on the extent to which actual forfeitures differ, or are expected to differ, from the previous estimate.
[B] Restricted Stock Awards:
Number of Non-Vested Shares | Weighted-Average Grant Date Fair Value | |||||||
| Restricted stock, non-vested, beginning of year | $ | |||||||
| Granted | ||||||||
| Vested | ( | ) | ||||||
| Forfeited or expired | ( | ) | ||||||
| Restricted stock, non-vested, end of period | $ | |||||||
The Company recorded stock-based compensation expense of $and $, respectively, for the three- and six-month periods ended June 30, 2020, and $and $, respectively, for the three- and six-month periods ended June 30, 2021, in connection with restricted stock grants. As of June 30, 2021, there was $of total unrecognized compensation cost related to non-vested shares. That cost is expected to be recognized over a weighted-average period of years.
[C] Restricted Stock Units:
Number of Restricted Stock Units | Weighted-Average Grant Date Fair Value | |||||||
| Restricted stock units, non-vested, beginning of year | $ | |||||||
| Granted | ||||||||
| Vested | ( | ) | ||||||
| Forfeited | ( | ) | ||||||
| Restricted stock units, non-vested, end of period | $ | |||||||
The Company recorded stock-based compensation expense of $ and $, respectively, for the three- and six-month periods ended June 30, 2020, and $ and $, respectively, for the three- and six-month periods ended June 30, 2021, in connection with the RSUs. As of June30, 2021, there was $ total unrecognized compensation cost related to non-vested RSUs. That cost is expected to be recognized over a weighted-average period of years.
| 16 |
| Three Months Ended | Six Months Ended | |||||||||||||||
| June 30, | June 30, | |||||||||||||||
| 2020 | 2021 | 2020 | 2021 | |||||||||||||
| Basic and diluted loss per share | ||||||||||||||||
| Net loss attributable to common stockholders | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Weighted-average common share outstanding - basic and diluted | ||||||||||||||||
| Net loss attributable to common stockholders - basic and diluted | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
Basic loss per share is calculated by dividing net loss attributable to common shareholders by the weighted-average number of common shares outstanding during the period. Diluted loss per share reflects the potential dilution assuming common shares were issued upon the exercise of outstanding options and the proceeds thereof were used to purchase outstanding common shares. Dilutive potential common shares include outstanding stock options, warrants and restricted stock and performance share awards. We include participating securities (unvested share-based payment awards and equivalents that contain non-forfeitable rights to dividends or dividend equivalents) in the computation of earnings per share 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 six-month periods ended June 30, 2020 and June 30, 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.
NOTE 11 - SHORT-TERM BANK DEBT AND LONG-TERM DEBT
| December 31, 2020 | June 30, 2021 | |||||||
| (Unaudited) | ||||||||
| Short-term bank debt | $ | $ | ||||||
| Current maturities of long-term debt | $ | $ | ||||||
| Long term debt - less current maturities | $ | $ | ||||||
| 17 |
Short-term bank debt consists of bank revolving
credit/overdraft accounts bearing interest at
Long-term debt
In
connection with the Transactions, PowerFleet Israel incurred $
The
Credit Facilities will mature on the date that is five years from the Closing Date. The indicative interest rate provided for the Term
Facilities in the Credit Agreement is approximately
The
Company has been in discussions with Hapoalim regarding an amendment to the Credit Agreement with respect to a reduction in the interest
rates from approximately
In
connection with the Credit Facilities, the Company incurred debt issuance costs of $
Scheduled maturities of the Term A Facility and the Term B Facility as of June 30, 2021 are as follows:
| Year ending December 31: | ||||
| 2022 | $ | |||
| 2023 | ||||
| 2024 | ||||
| Less: Current Portion | ||||
| Total | $ | |||
The Term B Facility is not subject to amortization over the life of the loan and instead the original principal amount is due in one installment on the fifth anniversary of the date of the consummation of the Transactions.
| 18 |
NOTE 12 - ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consist of the following:
| December 31, 2020 | June 30, 2021 | |||||||
| (Unaudited) | ||||||||
| Accounts payable | $ | $ | ||||||
| Accrued warranty | ||||||||
| Accrued compensation | ||||||||
| Government authorities | ||||||||
| Other current liabilities | ||||||||
| $ | $ | |||||||
The following table summarizes warranty activity for the six-month periods ended June 30, 2020 and 2021:
| Six Months Ended June 30, | ||||||||
| 2020 | 2021 | |||||||
| Accrued warranty reserve, beginning of year | $ | $ | ||||||
| Accrual for product warranties issued | ||||||||
| Product replacements and other warranty expenditures | ( | ) | ( | ) | ||||
| Expiration of warranties | ( | ) | ( | ) | ||||
| Accrued warranty reserve, end of period (a) | $ | $ | ||||||
| (a) |
NOTE 13 - STOCKHOLDERS’ EQUITY
[A] Public Offering:
On
February 1, 2021, the Company closed an underwritten public offering of shares of common stock (which included the full exercise
of the underwriters’ over-allotment option) for gross proceeds of approximately $
| 19 |
[B] Redeemable preferred stock
The Company is authorized to issue shares of preferred stock, par value $ per share of which shares are designated Series A Preferred Convertible Stock (“Series A Preferred Stock”) and shares are undesignated.
Series A Preferred Stock
In connection with the completion of the Transactions, on October 3, 2019, the Company issued shares of Series A Preferred Stock to ABRY Senior Equity V, L.P., ABRY Senior Equity Co-Investment Fund V, L.P and ABRY Investment Partnership, L.P. (the “Investors”). For the six-month periods ended June 30, 2020 and June 30, 2021, the Company issued and -- additional shares of Series A Preferred Stock.
Liquidation
Dividends
Holders
of Series A Preferred Stock are entitled to receive cumulative dividends at a minimum rate of
Voting; Consent Rights
The
holders of Series A Preferred Stock will be given notice by the Company of any meeting of stockholders or action to be taken by written
consent in lieu of a meeting of stockholders as to which the holders of common stock are given notice at the same time as provided in,
and in accordance with, the Company’s Amended and Restated Bylaws. Except as required by applicable law or as otherwise specifically
set forth in the Charter, the holders of Series A Preferred Stock are not entitled to vote on any matter presented to the Company’s
stockholders unless and until any holder of Series A Preferred Stock provides written notification to the Company that such holder is
electing, on behalf of all holders of Series A Preferred Stock, to activate their voting rights and in doing so rendering the Series
A Preferred Stock voting capital stock of the Company (such notice, a “Series A Voting Activation Notice”).
| 20 |
Redemption
At
any time, each holder of Series A Preferred Stock may elect to convert each share of such holder’s then-outstanding Series A Preferred
Stock into the number of shares of the Company’s common stock equal to the quotient of (x) the Series A Issue Price, plus any accrued
and unpaid dividends, divided by (y) the Series A Conversion Price in effect at the time of conversion. The Series A Conversion Price
is initially equal to $
Further, at any time (i) after the 66-month anniversary of the Original Issuance Date, (ii) following delivery of a mandatory conversion notice by us, or (iii) upon a deemed liquidation event, subject to Delaware law governing distributions to stockholders, the holders of the Series A Preferred Stock may elect to require us to redeem all or any portion of the outstanding shares of Series A Preferred Stock for an amount per share equal to the Redemption Price.
. Our exercise of the redemption right under the Redemption Right Agreement is subject to, among other things, stockholder approval of an amendment to our Amended and Restated Certificate of Incorporation to modify certain terms of the Series A Preferred (the “Series A Preferred Amendment”), as described in detail in our definitive proxy statement on Schedule 14A filed with the SEC on June 11, 2021, and the decision of our board of directors to effect the Series A Preferred Amendment and the redemption. Our stockholders approved the Series A Preferred Amendment at our annual meeting of stockholders held on July 20, 2021. The closing of the redemption is also conditioned upon, among other things, our having sufficient “surplus” (as defined and calculated in the General Corporation Law of the State of Delaware) and funds lawfully available to pay the aggregate redemption price in cash and our, after giving effect to the redemption, having (i) net assets (as such term is defined and determined in accordance with Delaware law) greater than zero and greater than the amount which would be required as of the closing date of the redemption to pay the maximum amount which would be owed to stockholders with preferential rights in a liquidation of the Company and (ii) the requisite financial wherewithal to conduct our business, pay any and all liabilities as due and all then-incurred debts as they mature. The Redemption Right Agreement automatically terminates at 5:30 p.m. on October 1, 2021 if the redemption has not closed. As of August 9, 2021, we have not exercised our redemption right under Redemption Right Agreement.
NOTE 14 - ACCUMULATED OTHER COMPREHENSIVE LOSS
Comprehensive income (loss) includes net loss and foreign currency translation gains and losses.
The accumulated balances for each classification of other comprehensive loss for the six-month period ended June 30, 2021 are as follows:
| Foreign currency translation adjustment | Accumulated other comprehensive income | |||||||
| Balance at January 1, 2021 | $ | $ | ||||||
| Net current period change | ( | ) | ( | ) | ||||
| Balance at June 30, 2021 | $ | $ | ||||||
The accumulated balances for each classification of other comprehensive loss for the six-month period ended June 30, 2020 are as follows:
| Foreign currency translation adjustment | Accumulated other comprehensive income | |||||||
| Balance at January 1, 2020 | $ | $ | ||||||
| Net current period change | ( | ) | ( | ) | ||||
| Balance at June 30, 2020 | $ | ( | ) | $ | ( | ) | ||
The
Company’s reporting currency is the U.S dollar (USD). For businesses where the majority of the revenues are generated in USD or
linked to the USD and a substantial portion of the costs are incurred in USD, the Company’s management believes that the USD is
the primary currency of the economic environment and thus their functional currency. Due to the fact that Argentina has been determined
to be highly inflationary, the financial statements of our subsidiary in Argentina have been remeasured as if its functional currency
was the USD. The Company also has foreign operations where the functional currency is the local currency. For these operations, assets
and liabilities are translated using the end-of-period exchange rates and revenues, expenses and cash flows are translated using average
rates of exchange for the period. Equity is translated at the rate of exchange at the date of the equity transaction. Translation adjustments
are recognized in stockholders’ equity as a component of accumulated other comprehensive income (loss). Net translation losses
from the translation of foreign currency financial statements of $(
| 21 |
Foreign
currency translation gains and losses related to operational expenses denominated in a currency other than the functional currency are
included in determining net income or loss. Foreign currency translation (losses) gains for the three- and six-month periods ended June
30, 2020 of $
NOTE 15 – SEGMENT INFORMATION
The
Company operates in
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
| 2020 | 2021 | 2020 | 2021 | |||||||||||||
| United States | $ | $ | $ | $ | ||||||||||||
| Israel | ||||||||||||||||
| Other | ||||||||||||||||
| $ | $ | $ | $ | |||||||||||||
| December 31, 2020 | June 30, 2021 | |||||||
| (Unaudited) | ||||||||
| Long lived assets by geographic region: | ||||||||
| United States | $ | $ | ||||||
| Israel | ||||||||
| Other | ||||||||
| $ | $ | |||||||
NOTE 16 - INCOME TAXES
The Company records its interim tax provision based upon a projection of the Company’s annual effective tax rate (“AETR”). This AETR is applied to the year-to-date consolidated pre-tax income to determine the interim provision for income taxes before discrete items. The Company updates the AETR on a quarterly basis as the pre-tax income projections are revised and tax laws are enacted. The effective tax rate (“ETR”) each period is impacted by a number of factors, including the relative mix of domestic and foreign earnings and adjustments to recorded valuation allowances. The currently forecasted ETR may vary from the actual year-end due to the changes in these factors.
The
Company’s global ETR for the six months ended June 30, 2020 and 2021 was (
On March 27, 2020, the President of the United States signed the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) into law providing certain relief as a result of the COVID-19 pandemic. The CARES Act, among other things, includes provisions relating to the net operating loss carryback periods, alternative minimum tax credit refunds, modification to the net interest deduction limitations and technical corrections to tax depreciation methods for qualified improvement property. The CARES Act did not have a material impact on the Company’s consolidated financial statements.
On March 11, 2021, the President of the United States signed the American Rescue Plan Act (the “ARPA”) into law as a continuing response to the COVID-19 pandemic. The ARPA implemented new entity taxation provisions as well as extended unemployment benefits and related incentives to provide further economic relief to US businesses. The passage of the ARPA did not have a material impact to the Company nor its calculated AETR for the year.
| 22 |
NOTE 17 - LEASES
The
Company has operating leases for office space and office equipment. The Company’s leases have remaining lease terms of
The Company has lease arrangements which are classified as short-term in nature. These leases meet the criteria for operating lease classification. Lease costs associated with the short-term leases are included in selling, general and administrative expenses on the Company’s condensed consolidated statements of operations during the three- and six- months ended June 30, 2020 and 2021.
Components of lease expense are as follows:
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
| 2020 | 2021 | 2020 | 2021 | |||||||||||||
| Short term lease cost: | $ | $ | $ | $ | ||||||||||||
Supplemental cash flow information and non-cash activity related to our operating leases are as follows:
| Six Months Ended June 30, | ||||||||
| 2020 | 2021 | |||||||
| Non-cash activity: | ||||||||
| Right-of-use assets obtained in exchange for lease obligations | $ | $ | ||||||
Weighted-average remaining lease term and discount rate for our operating leases are as follows:
| June 30, 2021 | ||||
| Weighted-average remaining lease term (in years) | ||||
| Weighted-average discount rate | % | |||
Scheduled maturities of operating lease liabilities outstanding as of June 30, 2021 are as follows:
| Year ending December 31: | ||||
| July - December 2021 | $ | |||
| 2022 | ||||
| 2023 | ||||
| 2024 | ||||
| 2025 | ||||
| Thereafter | ||||
| Total lease payments | ||||
| Less: Imputed interest | ( | ) | ||
| Present value of lease liabilities | $ |
| 23 |