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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

 

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

 

For the quarterly period ended: June 30, 2023

 

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: 001-39080

 

POWERFLEET, INC.

(Exact name of registrant as specified in its charter)

 

Delaware   83-4366463
(State or other jurisdiction   (I.R.S. Employer
of 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)

 

 

(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
Common Stock, par value $0.01 per share   PWFL   The Nasdaq Global Market

 

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, 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
   
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 is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No

 

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 7, 2023, was 36,235,012.

 

 

 

   

 

 

INDEX

 

PowerFleet, Inc. and Subsidiaries

 

  Page
   
PART I - FINANCIAL INFORMATION 3
   
Item 1. Financial Statements 3
   
Condensed Consolidated Balance Sheets as of December 31, 2022 and June 30, 2023 (unaudited) 3
   
Condensed Consolidated Statements of Operations (unaudited) - for the three and six months ended June 30, 2022 and 2023 4
   
Condensed Consolidated Statements of Comprehensive Loss (unaudited) - for the three and six months ended June 30, 2022 and 2023 5
   
Condensed Consolidated Statement of Changes in Stockholders’ Equity (unaudited) - for the periods January 1, 2022 through June 30, 2022 and January 1, 2023 through June 30, 2023 6
   
Condensed Consolidated Statements of Cash Flows (unaudited) - for the six months ended June 30, 2022 and 2023 7
   
Notes to Unaudited Condensed Consolidated Financial Statements 8
   
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations 29
   
Item 3. Quantitative and Qualitative Disclosures About Market Risk 41
   
Item 4. Controls and Procedures 41
   
PART II - OTHER INFORMATION 42
   
Item 1. Legal Proceedings 42
   
Item 1A. Risk Factors 42
   
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 42
   
Item 6. Exhibits 43
   
Signatures 44

 

2
 

 

PART I - FINANCIAL INFORMATION

 

Item 1. Financial Statements

 

POWERFLEET, INC. AND SUBSIDIARIES

Condensed Balance Sheets

(In thousands, except per share data)

 

   December 31, 2022 *   June 30, 2023 
       (Unaudited) 
ASSETS          
Current assets:          
Cash and cash equivalents  $17,680   $21,729 
Restricted cash   309    309 
Accounts receivable, net of allowance for credit losses of $2,567 and $2,555 in 2022 and 2023, respectively   32,493    31,318 
Inventory, net   22,272    22,125 
Deferred costs - current   762    338 
Prepaid expenses and other current assets   7,709    7,298 
Total current assets   81,225    83,117 
           
Fixed assets, net   9,249    10,226 
Goodwill   83,487    83,487 
Intangible assets, net   22,908    21,871 
Right of use asset   7,820    6,936 
Severance payable fund   3,760    3,566 
Deferred tax asset   3,225    1,942 
Other assets   5,761    6,131 
Total assets  $217,435   $217,276 
           
LIABILITIES          
Current liabilities:          
Short-term bank debt and current maturities of long-term debt   10,312    11,197 
Accounts payable and accrued expenses   26,598    24,960 
Deferred revenue - current   6,363    6,193 
Lease liability - current   2,441    2,448 
Total current liabilities   45,714    44,798 
           
Long-term debt, less current maturities   11,403    9,940 
Deferred revenue - less current portion   4,390    4,582 
Lease liability - less current portion   5,628    4,715 
Accrued severance payable   4,365    4,284 
Deferred tax liability   4,919    4,030 
Other long-term liabilities   636    668 
           
Total liabilities   77,055    73,017 
           
MEZZANINE EQUITY          
Convertible redeemable preferred stock: Series A – 100 shares authorized, $0.01 par value; 59 and 60 shares issued and outstanding at December 31, 2022 and June 30, 2023   57,565    59,008 
           
Preferred stock; authorized 50,000 shares, $0.01 par value;   -    - 
Common stock; authorized 75,000 shares, $0.01 par value; 37,605 and 37,717 shares issued at December 31, 2022 and June 30, 2023, respectively; shares outstanding, 36,170 and 36,265 at December 31, 2022 and June 30, 2023, respectively   376    377 
Additional paid-in capital   233,521    234,015 
Accumulated deficit   (141,440)   (139,648)
Accumulated other comprehensive loss   (1,210)   (998)
Treasury stock; 1,435 and 1,453 common shares at cost at December 31, 2022 and June 30, 2023, respectively   (8,510)   (8,558)
           
Total PowerFleet, Inc. stockholders’ equity   82,737    85,188 
Non-controlling interest   78    63 
Total equity   82,815    85,251 
Total liabilities and stockholders’ equity  $217,435   $217,276 

 

*Derived from audited balance sheet as of December 31, 2022.

 

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)

 

   2022   2023   2022   2023 
   Three Months Ended June 30,   Six Months Ended June 30, 
   2022   2023   2022   2023 
                 
Revenues:                    
Products  $14,818   $11,012   $29,210   $23,416 
Services   19,776    21,038    38,545    41,473 
Total revenues   34,594    32,050    67,755    64,889 
                     
Cost of revenues:                    
Cost of products   11,336    8,550    23,314    17,552 
Cost of services   7,028    7,467    13,812    14,686 
Total cost of revenues   18,364    16,017    37,126    32,238 
                     
Gross profit   16,230    16,033    30,629    32,651 
                     
Operating expenses:                    
Selling, general and administrative expenses   15,817    16,987    30,729    33,774 
Research and development expenses   2,001    2,179    5,230    3,902 
Total operating expenses   17,818    19,166    35,959    37,676 
                     
Loss from operations   (1,588)   (3,133)   (5,330)   (5,025)
Interest income   15    22    28    46 
Interest expense, net   1,493    (173)   1,593    (310)
Bargain purchase - Movingdots   -    283    -    7,517 
Other income, net   3    69    2    3 
                     
Net income (loss) before income taxes   (77)   (2,932)   (3,707)   2,231 
                     
Income tax benefit (expense)   (40)   (39)   663    (436)
                     
Net income (loss) before non-controlling interest   (117)   (2,971)   (3,044)   1,795 
Non-controlling interest   (1)   (6)   (2)   (3)
                     
Net income (loss)   (118)   (2,977)   (3,046)   1,792 
Accretion of preferred stock   (168)   (168)   (336)   (336)
Preferred stock dividend   (1,048)   (1,129)   (2,076)   (2,236)
                     
Net loss attributable to common stockholders  $(1,334)  $(4,274)  $(5,458)  $(780)
                     
Net income (loss) per share attributable to common stockholders - basic  $(0.04)  $(0.12)  $(0.15)  $0.01
Net income (loss) per share attributable to common stockholders - diluted  $(0.04)  $(0.12)  $(0.15)  $0.01 
                     
Weighted average common shares outstanding - basic   35,386    35,605    35,359    35,577 
Weighted average common shares outstanding - diluted   35,386    35,605    35,359    35,670 

 

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)

 

   2022   2023   2022   2023 
   Three Months Ended   Six Months Ended 
   June 30,   June 30, 
   2022   2023   2022   2023 
                 
Net loss attributable to common stockholders  $(1,334)  $(4,274)  $(5,458)  $(780)
                     
Other comprehensive (loss) income, net:                    
                     
Foreign currency translation adjustment   (1,706)   100    (1,453)   212 
                     
Total other comprehensive income (loss)   (1,706)   100    (1,453)   212 
                     
Comprehensive loss  $(3,040)  $(4,174)  $(6,911)  $(568)

 

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, 2023   37,605   $376   $233,521   $(141,440)  $(1,210)  $(8,510)  $78   $82,815 
Net income (loss) attributable to common stockholders   -    

-

    (1,275)   4,769    

-

    

-

    

-

    3,494 
Net loss attributable to non-controlling interest   -    -    -    -    -    -    (3)   (3)
Foreign currency translation adjustment   -    -    -    -    112    -    (9)   103 
Issuance of restricted shares   75    -    -    -    -    -    -    - 
Forfeiture of restricted shares   (59)   -    -    -    -    -    -    - 
Shares withheld pursuant to vesting of restricted stock   -    -    -    -    -    (44)   -    (44)
Stock based compensation   -    -    832    -    -    -    -    832 
Warrant issuance in connection with acquisition   -    -    1,347    -    -    -    -    1,347 
Balance at March 31, 2023   37,621   $376   $234,425   $(136,671)  $(1,098)  $(8,554)  $66   $88,544 
Net loss attributable to common stockholders   -    -    (1,297)   (2,977)   -    -    -    (4,274)
Net income attributable to non-controlling interest   -    -    -    -    -    -    6    6 
Foreign currency translation adjustment   -    -    -    -    100    -    (9)   91 
Issuance of restricted shares   162    1    (1)   -    -    -    -    - 
Forfeiture of restricted shares   (82)   -    -    -    -    -    -    - 
Exercise of stock options   16    -    36    -    -    -    -    36 
Shares withheld pursuant to vesting of restricted stock   -    -    -    -    -    (4)   -    (4)
Stock based compensation   -    -    852    -    -    -    -    852 
Balance at June 30, 2023   37,717   $377   $234,015   $(139,648)  $(998)  $(8,558)  $63   $85,251 

 

   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, 2022   37,263   $373   $234,083   $(134,437)  $391   $(8,299)  $86   $92,197 
Net loss attributable to common stockholders   -    -    (1,195)   (2,929)   -    -    -    (4,124)
Net income attributable to non-controlling interest   -    -    -    -    -    -    1    1 
Foreign currency translation adjustment   -    -    -    -    253    -    15    268 
Issuance of restricted shares   398    4    (4)   -    -    -    -    - 
Forfeiture of restricted shares   (121)   (1)   1    -    -    -    -    - 
Vesting of restricted stock units   30    -    -    -    -    -    -    - 
Shares withheld pursuant to vesting of restricted stock   -    -    -    -    -    (181)   -    (181)
Stock based compensation   -    -    457    -    -    -    -    457 
Balance at March 31, 2022   37,570   $376   $233,342   $(137,366)  $644   $(8,480)  $102   $88,618 
Net loss attributable to common stockholders   -    -    (1,216)   (118)   -    -    -    (1,334)
Net income attributable to non-controlling interest   -    -    -    -    -    -    1    1 
Foreign currency translation adjustment   -    -    -    -    (1,706)   -    (18)   (1,724)
Forfeiture of restricted shares   (24)   (1)   1    -    -    -    -    - 
Shares withheld pursuant to vesting of restricted stock   -    -    -    -    -    (5)   -    (5)
Stock based compensation   -    -    1,629    -    -    -    -    1,629 
Balance at June 30, 2022   37,546   $375   $233,756   $(137,484)  $(1,062)  $(8,485)  $85   $87,185 

 

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)

 

   2022   2023 
   Six Months Ended June 30, 
   2022   2023 
         
Cash flows from operating activities          
Net income (loss)  $(3,046)  $1,792 
Adjustments to reconcile net income (loss) to cash (used in) provided by operating activities:          
Non-controlling interest   2    3 
Gain on bargain purchase   -    (7,517)
Inventory reserve   119    375 
Stock based compensation expense   2,086    1,684 
Depreciation and amortization   4,133    4,498 
Right-of-use assets, non-cash lease expense   1,382    1,318 
Bad debt expense   (364)   826 
Deferred income taxes   (663)   398 
Other non-cash items   604    73 
Changes in:          
Accounts receivable   (2,911)   (37)
Inventory   (5,410)   152 
Prepaid expenses and other assets   (412)   500 
Deferred costs   696    424 
Deferred revenue   533    (53)
Accounts payable and accrued expenses   1,856    (1,840)
Lease liabilities   (1,335)   (1,344)
Accrued severance payable, net   30    88 
           
Net cash (used in) provided by operating activities   (2,700)   1,340 
           
Cash flows from investing activities:          
Acquisitions, net of cash assumed   -    8,722 
Purchase of investments   -    (100)
Capitalized software development costs   -    (1,677)
Capital expenditures   (2,013)   (2,108)
           
Net cash (used in) provided by investing activities   (2,013)   4,837 
           
Cash flows from financing activities:          
Repayment of long-term debt   (2,897)   (2,658)
Short-term bank debt, net   2,330    2,736 
Purchase of treasury stock upon vesting of restricted stock   (186)   (48)
Payment of preferred stock dividend        (1,128)
Proceeds from exercise of stock options        36 
           
Net cash used in financing activities   (753)   (1,062)
           
Effect of foreign exchange rate changes on cash and cash equivalents   (3,282)   (1,066)
Net (decrease) increase in cash, cash equivalents and restricted cash   (8,748)   4,049 
Cash, cash equivalents and restricted cash - beginning of period   26,760    17,989 
           
Cash, cash equivalents and restricted cash - end of period  $18,012   $22,038 
           
Reconciliation of cash, cash equivalents, and restricted cash, beginning of period          
Cash and cash equivalents   26,452    17,680 
Restricted cash   308    309 
Cash, cash equivalents, and restricted cash, beginning of period  $26,760   $17,989 
           
Reconciliation of cash, cash equivalents, and restricted cash, end of period          
Cash and cash equivalents   17,703    21,729 
Restricted cash   309    309 
Cash, cash equivalents, and restricted cash, end of period  $18,012   $22,038 
           
Supplemental disclosure of cash flow information:          
Cash paid for:          
Taxes   48    106 
Interest   639    621 
           
Noncash investing and financing activities:          
Value of warrant issued in connection with Movingdots acquisition  $-   $1,347 

 

See accompanying notes to unaudited condensed consolidated financial statements.

 

7
 

 

POWERFLEET, INC. AND SUBSIDIARIES

Notes to Unaudited Condensed Consolidated Financial Statements

June 30, 2023

In thousands (except per share data)

 

NOTE 1 - DESCRIPTION OF THE COMPANY AND BASIS OF PRESENTATION

 

Description of the Company

 

PowerFleet, Inc. (the “Company” or “Powerfleet”) 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. (“I.D. Systems”) was incorporated in the State of Delaware in 1993. Powerfleet was incorporated in the State of Delaware in February 2019 for the purpose of effectuating the transactions (the “Transactions”) pursuant to which the Company acquired Pointer Telocation Ltd. (“Pointer”) and commenced operations on October 3, 2019. Upon the closing of the Transactions, Powerfleet became the parent entity of I.D. Systems and Pointer.

 

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, 2023, the consolidated results of its operations for the three- and six-month periods ended June 30, 2022 and 2023, the consolidated change in stockholders’ equity for the three-month periods ended March 31 and June 30, 2022 and 2023, and the consolidated cash flows for the six-month periods ended June 30, 2022 and 2023. The results of operations for the three- and six- month periods ended June 30, 2023 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, 2022 included in the Company’s Annual Report on Form 10-K for the year then ended.

 

8
 

 

Liquidity

 

As of June 30, 2023, the Company had cash (including restricted cash) and cash equivalents of $22,038 and working capital approximately $38,319. 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” and, together with Powerfleet Israel, the “Borrowers”) 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 denominated in New Israeli Shekels (NIS) in an initial 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 initial 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 borrowed net NIS11,800, or $3,200, under the revolving credit facility as of June 30, 2023. See Note 13 for additional information.

 

On October 31, 2022, the Borrowers entered into a third amendment to the Credit Agreement (the “Third Amendment”) with Hapoalim. The Third Amendment provides for, among other things, a new revolving credit facility to Pointer denominated in NIS in an initial aggregate principal amount of $10,000 (the “New Revolver”). The New Revolver is available for a period of one month that commenced on October 31, 2022, and will continue to be available for successive one-month periods until and including October 30, 2023, unless the Borrowers deliver a notice to Hapoalim of their request not to renew the New Revolver. The Company borrowed net NIS19,200, or $5,200, under the New Revolver facility as of June 30, 2023. See Note 13 for additional information.

 

The New Revolver initially bears interest at the Secured Overnight Financing Rate (“SOFR”) plus 2.59%. Such interest is subject to monthly changes by Hapoalim, provided that Hapoalim gives Pointer advance notice regarding such change prior to the end of the applicable calendar month.

 

The New Revolver is secured by a first ranking fixed pledge and assignment by Pointer over its new bank account, which was opened in connection with the New Revolver, and all of the rights relating thereunder as well as a cross guarantee by Powerfleet Israel.

 

Pointer is required to pay a credit allocation fee equal to 0.5% per annum on undrawn and uncancelled amounts of the New Revolver.

 

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, 2024.

 

9
 

 

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 realization of deferred tax assets, accounting for uncertain tax positions, the impairment of intangible assets, including goodwill, capitalized software development costs, stock-based compensation costs related to market based awards, warrant assumptions, and standalone selling price related to multiple element revenue arrangements. Actual results could differ from those estimates.

 

NOTE 3 – ACQUISITION

 

On March 6, 2023, the Company entered into a share purchase and transfer agreement (the “Agreement”) with Swiss Re Reinsurance Holding Company Ltd (the “Seller”), pursuant to which the Company would acquire all of the outstanding shares of Movingdots GmbH (“Movingdots”), a wholly owned subsidiary of the Seller, for consideration consisting of €1 and the issuance by the Company of a ten-year warrant to purchase 800,000 shares of the Company’s common stock at an exercise price of $7.00 per share (the “Common Stock Warrants”) and with fair value of approximately $1,300 at March 31, 2023 and noncash consideration with an immaterial fair value in the form of a non-exclusive irrevocable, perpetual, fully paid-up, royalty free license agreement between Movingdots and the Seller for certain of the acquired intellectual property (the “Acquisition”). The Acquisition was consummated on March 31, 2023 (the “Movingdots Closing”).

 

As a result of the Acquisition, Movingdots, a German company providing insurance telematics and sustainable mobility solutions, became a direct, wholly owned subsidiary of Powerfleet. Movingdots end-to-end telematics app solution will enhance Powerfleet’s SaaS-based fleet intelligence platform, Unity, with additional customization capabilities and insurance risk insights. Movingdots’ expertise in safety and sustainability aligns with Unity’s focus on data-powered applications. The Acquisition also strengthens Powerfleet’s global reach, particularly in Europe.

 

As part of the Agreement the Seller was also obligated to (i) transfer certain intellectual property rights from the Seller to Movingdots, (ii) enter into a distribution agreement pursuant to which the Seller is allowed to promote the Movingdots solutions, and (iii) grant a license agreement between the Seller’s affiliates and Movingdots.

 

The warrant was valued using the Black-Scholes Model using the following assumptions at the date of issuance:

 

      
Expected volatility   50%
Expected term (in years)   10 
Risk free interest rate   3.50%
Dividend yield   0%
Fair value per share  $1.68 

 

Purchase Price Allocation

 

The Acquisition met the criteria for a business combination to be accounted for using the acquisition method under ASC 805, Business Combinations (“ASC 805”), with the Company identified as the legal and the accounting acquirer. There was certain information that was not readily available at the time the financial statements of Movingdots were prepared as the Acquisition closed on March 31, 2023. For provisional purchase price allocation purposes, the assets acquired and liabilities assumed are stated at their carrying values which management assumed approximates their fair values given their short-term nature. Also, the Company recognized approximately $200 and $500 of acquisition-related costs which were expensed in the consolidated statement of operations for the three- and -six-month periods ending June 30, 2023, respectively.

 

10
 

 

The following table details the provisional allocation of the purchase price to the assets acquired and liabilities assumed in connection with the acquisition of Movingdots:

 

      
Consideration:     
Cash  $- 
Fair value of Powerfleet warrants on March 31, 2023   1,347 
Total consideration  $1,347 
      
Assets acquired:     
Cash  $8,722 
Accounts receivable   247 
Prepaid expenses   103 
Other assets   270 
Inventory   96 
Fixed assets   372 
Total assets acquired   9,810 
      
Liabilities assumed:     
Accounts payable and accrued expenses   946 
Total liabilities assumed   946 
      
Total identifiable net assets acquired   8,864 
Gain on bargain purchase   (7,517)
Purchase price consideration  $1,347 

 

The provisional fair value estimates of the assets acquired and liabilities assumed, including intangibles, income taxes, and the non-cash consideration, are subject to subsequent adjustments as additional information is obtained during the applicable measurement period. Determining the fair values of the assets and liabilities of Movingdots required certain assumptions and judgment. During the second quarter of 2023, the valuation of certain assets acquired and liabilities assumed were revised resulting in an increase in the gain on bargain purchase of $283.

 

Consistent with the requirements of ASC 805, the Company assessed whether all assets acquired and liabilities assumed have been appropriately identified, measured and recognized, and performed re-measurements to verify that the consideration paid, assets acquired and liabilities assumed have been properly valued. After applying the requirements of ASC 805-30-25-4, the Company recognized a gain on bargain purchase as the estimated fair value of the identifiable net assets acquired exceeded the purchase consideration transferred by approximately $7,500. Management believes that the recognized gain on bargain purchase represents the best estimates of the economic effect of the Acquisition based on all information that was available and existed as of the dates the financial statements were issued.

 

The gain on bargain purchase primarily resulted from the Seller’s motivation to divest its investment in Movingdots and its telematic business, which was deemed a non-core business of the Seller on a go-forward basis. The sale of Movingdots was not subject to a competitive bidding process. Under the Agreement, the Seller also agreed to make a cash injection into Movingdots prior to the Movingdots Closing in a form of additional paid in capital to ensure Movingdots had available cash in the amount of €8,000 to be used to ensure the liquidity of Movingdots and for broader combined business activities.

 

If the Company makes an on-sale transfer of any shares of Movingdots that were acquired in connection with the Acquisition at any time between the signing date of the Agreement and through twelve months after the Movingdots Closing, to any third-party purchaser (an “on-sale transfer”), for an amount that is in excess of the purchase price consideration transferred, then the Company shall pay the Seller an amount in cash (“on sale compensation”) equal to (i) €8,000, plus (ii) the difference between such on-sale transfer price less the purchase price net of the net present value of the Common Stock Warrants. The Company does not currently intend to enter into an on-sale transfer.

 

Management views that the insurance telematics and sustainability are important spaces for the Company to have propositions to enable future strategic value, supporting the more evolved, IOT data-rich mass subscription space. The acquisition of Movingdots and its business will, among other things:

 

open strategic relationships with some key customers such as Mercedes, BMW and Vodafone;
   
provide greater go-to-market opportunity to the Company with the European beachhead for future regional expansion, customer acquisition tool to upsell the Company’s portfolio into German and European markets, and maintain a distribution channel and partnership with the Seller; and
   
provide the Company with access to a team with technical skillsets across application development and management, cloud platform development, user experience/user interface design development and technical product management;

 

11
 

 

The following table represents the combined pro forma revenue and earnings for the three-and six-month periods ended June 30, 2022:

 

                         
   Three Months Ended
June 30, 2022
    Six Months Ended
June 30, 2022
 
   Historical   Pro forma combined    Historical     Pro forma combined  
                         
Revenues  $34,594   $36,322    $ 67,755     $ 71,214  
Operating loss  $(1,588)  $(1,277)   $ (5,330 )   $ (5,039 )
Net loss per share – basic and diluted  $(0.04)  $(0.03)   $ (0.15 )   $ (0.11 )

 

The following table represents the combined pro forma revenue and earnings for the three- and six-month periods ended June 30, 2023:

 

                         
   Three Months Ended
June 30, 2023
    Six Months Ended
June 30, 2023
 
   Historical   Pro forma combined    Historical     Pro forma combined  
                         
Revenues  $32,050   $32,050    $ 64,889     $ 67,409  
Operating loss  $(3,133)  $(3,133)   $ (5,025 )   $ (4,509 )
Net income (loss) per share - basic  $(0.12)  $(0.12)   $ 0.01     $ 0.02  
Net income (loss) per share - diluted  $(0.12)  $(0.12)   $ 0.01     $ 0.02  

 

The unaudited combined pro forma revenue and earnings for the three and six-month periods ended June 30, 2022 and 2023 were prepared as though the Acquisition had occurred as of January 1, 2022. This summary is not necessarily indicative of what the results of operations would have been had the Acquisition occurred as of such date, nor does it purport to represent results of operations for any future periods.

 

NOTE 4 – 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 (in Israel and Germany). Restricted cash at December 31, 2022 and June 30, 2023 consists of cash held in escrow for purchases from a vendor.

 

12
 

 

NOTE 5 - 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 14).

 

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 standalone 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 operating or sales-type leases. Accordingly, for sales-type leases 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. 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.

 

The following table presents the Company’s revenues disaggregated by revenue source for the three-and six-months ended June 30, 2022 and 2023:

 

   Three Months Ended June 30,   Six Months Ended June 30, 
   2022   2023   2022   2023 
                 
Products  $14,818   $11,012   $29,210   $23,416 
Services   19,776    21,038    38,545    41,473 
                     
   $34,594   $32,050   $67,755   $64,889 

 

13
 

 

The balances of contract assets and contract liabilities from contracts with customers are as follows as of December 31, 2022 and June 30, 2023:

 

         
   December 31, 2022   June 30, 2023 
       (Unaudited) 
Assets:          
Deferred contract cost  $2,740   $2,680 
Deferred cost  $762   $338 
           
Liabilities          
Deferred revenue - services (1)  $9,815   $10,356 
Deferred revenue - products (1)   938    419 
           
Deferred revenue   10,753    10,775 
Less: Deferred revenue and contract liabilities - current portion   (6,363)   (6,193)
           
Deferred revenue and contract liabilities - less current portion  $4,390   $4,582 

 

(1) The Company records deferred revenues when cash payments are received or due in advance of the Company’s performance. For the three-month periods ended June 30, 2022 and 2023, the Company recognized revenue of $1,719 and $1,766, respectively, which was included in the deferred revenue balance at the beginning of each reporting period. For the six-month periods ended June 30, 2022 and 2023, the Company recognized revenue of $3,892 and $4,007, respectively, which was included in the deferred revenue balance at the beginning of each reporting period. The Company expects to recognize as revenue these deferred revenue balances before the year 2028, when the services are performed and, therefore, satisfies its performance obligation to the customers.

 

NOTE 6 – ALLOWANCE FOR CREDIT LOSSES

 

The Company’s receivables were evaluated to determine an appropriate allowance for credit losses. For trade receivables, the Company’s historical collections were analyzed by the number of days past due to determine the uncollectible rate in each range of days past due and considerations of any changes expected in the future. The estimate of the allowance for credit losses is charged to the allowance for credit losses based on the age of receivables multiplied by the historical uncollectible rate for the range of days past due or earlier if the account is deemed uncollectible for other reasons. Recoveries of amounts previously charged as uncollectible are credited to the allowance for credit losses.

 

An analysis of the allowance for credit losses for the period ended June 30, 2023 is as follows:

 

      
Allowance for credit losses, December 31, 2022
  $2,567 
Current period provision for expected credit losses   826 
Write-offs charged against the allowance   (947)
Foreign currency translation   109 
Recoveries   - 
Allowance for credit losses, June 30, 2023  $2,555 

 

During the six-months ended June 30, 2023, the change in the allowance for credit losses was due to the change in the age of trade receivables.

 

NOTE 7 – PREPAID EXPENSES AND OTHER ASSETS

 

Prepaid expenses and other current assets consist of the following:

 

   December 31, 2022   June 30, 2023 
       (Unaudited) 
Sales-type lease receivables, current  $1,161   $1,175 
Prepaid expenses   4,047    3,896 
Contract assets   1,131    1,115 
Other current assets   1,370    1,112 
           
Prepaid expenses and other current assets  $7,709   $7,298 

 

14
 

 

NOTE 8 - 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 $453 at December 31, 2022 and $673 at June 30, 2023.

 

Inventories consist of the following:

 

   December 31, 2022   June 30, 2023 
       (Unaudited) 
Components  $12,443   $10,994 
Work in process   462    73 
Finished goods, net   9,367    11,058 
           
Inventory, Net  $22,272   $22,125 

 

NOTE 9 - FIXED ASSETS

 

Fixed assets are stated at cost, less accumulated depreciation and amortization, and are summarized as follows:

 

 

   December 31, 2022   June 30, 2023 
       (Unaudited) 
Installed products  $8,586   $10,224 
Computer software   7,195    8,157 
Computer and electronic equipment   5,658    6,545 
Furniture and fixtures   2,041    2,217 
Leasehold improvements   1,415    1,473 
           
    24,895    28,616 
Accumulated depreciation and amortization   (15,646)   (18,390)
   $9,249   $10,226 

 

Depreciation and amortization expense of fixed assets for the three- and six-month periods ended June 30, 2022 was $770 and $1,584, respectively, and for the three- and six-month periods ended June 30, 2023 was $955 and $1,981, respectively. This includes amortization of costs associated with computer software for the three- and six-month periods ended June 30, 2022 of $26 and $135, respectively, and for the three- and six-month periods ended June 30, 2023 of $24 and $59, respectively.

 

15
 

 

NOTE 10 - INTANGIBLE ASSETS AND GOODWILL

 

Costs incurred internally in researching and developing software products are charged to expense until technological feasibility has been established for the product. Once technological feasibility is established, software costs are capitalized until the product is available for general release to customers. Judgment is required in determining when technological feasibility of a product is established. The amortization of these costs will be included in cost of revenue over the estimated life of the products.

 

The following table summarizes identifiable intangible assets of the Company as of December 31, 2022 and June 30, 2023:

 

June 30, 2023  Useful Lives (In Years)   Gross Carrying Amount   Accumulated Amortization   Net Carrying Amount 
Amortized:                    
Customer relationships   9-12   $19,264   $(6,794)  $12,470 
Trademark and tradename   3-15    7,553    (3,291)   4,262 
Patents   7-11    628    (396)   232 
Technology   7    10,911    (9,515)   1,396 
Favorable contract interest   4    388    (388)   - 
Covenant not to compete   5    208    (208)   - 
Software to be sold or leased   3-6    3,346    -    3,346 
         42,298    (20,592)   21,706 
                     
Unamortized:                    
Customer list        104    -    104 
Trademark and tradename        61    -    61 
                     
         165    -    165 
                     
Total       $42,463   $(20,592)  $21,871 

 

December 31, 2022  Useful Lives (In Years)   Gross Carrying Amount   Accumulated Amortization   Net Carrying Amount 
Amortized:                    
Customer relationships   9-12   $20,031   $(6,830)  $13,201 
Trademark and tradename   3-15    7,589    (2,990)   4,599 
patents   7-11    628    (351)   277 
Technology   7    10,667    (7,866)   2,801 
Favorable contract interest   4    388    (388)   - 
Covenant not to compete   5    208    (208)   - 
Software to be sold or leased   3-6    1,865    -    1,865 
         41,376    (18,633)   22,743 
                     
Unamortized                    
Customer list        104    -    104 
Trademark and tradename        61    -    61 
                     
         165    -    165 
                     
Total       $41,541   $(18,633)  $22,908 
                     

 

16
 

 

Global uncertainties continue to adversely impact the broader global economy and have 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, 2022 and June 30, 2023, the Company determined that no impairment existed to the goodwill, customer list and trademark and trade name of its acquired intangibles.

 

At June 30, 2023, the weighted-average amortization period for the intangible assets was 8.6 years. At June 30, 2023, the weighted-average amortization periods for customer relationships, trademarks and trade names, patents, technology, and capitalized software to be sold or leased were 11.9, 9.6, 7.0, 4.3, and 3.0 years, respectively.

 

Amortization expense for the three- and six-month periods ended June 30, 2022 was $1,275 and $2,549, respectively, and for the three- and six-month periods ended June 30, 2023 was $1,311 and $2,518, respectively. Estimated future amortization expense for each of the five succeeding fiscal years for these intangible assets is as follows:

 

      
2023 (remaining)  $3,074 
2024   3,738 
2025   3,610 
2026   2,692 
2027   2,233 
Thereafter   6,359 
Finite-Lived intangible assets  $21,706 

 

There have been no changes in the carrying amount of goodwill from January 1, 2023 to June 30, 2023.

 

For the six-month period ended June 30, 2023, the Company did not identify any indicators of impairment.

 

17
 

 

NOTE 11 - STOCK-BASED COMPENSATION

 

During the first fiscal quarter of 2023, the Company granted 75 shares of restricted stock to certain executives, which vests in four equal installments over a four year period, provided that the executive is employed by the Company on each scheduled vesting date.

 

During the first fiscal quarter of 2023, the Company granted options to purchase 405 shares of the Company’s common stock to certain executives, consisting of options to purchase 130 shares of common stock with time-based vesting conditions and options to purchase 275 shares of common stock with performance-based vesting conditions (which we refer to as “market-based stock options”). The options have an exercise price of $3.00. The market-based stock options will vest and become exercisable if the volume weighted average price of the Company’s common stock during a consecutive 60-day trading period (the “60 Day VWAP”) reaches $12.00. The Company valued the market-based stock option awards using a Monte Carlo simulation model using a daily price forecast over ten years until expiration utilizing Geometric Brownian Motion that considers a variety of factors including, but not limited to, the Company’s common stock price, risk-free rate (3.7%), and expected stock price volatility (50%) over the expected life of awards (5.1 years). The weighted average fair value of market-based stock options granted during the period was $1.38.

 

During the second fiscal quarter of 2023, the Company issued 162 shares of restricted stock to certain employees, which vests over four equal installments over a four year period, provided that the employee is employed by the Company on each scheduled vesting date.

 

During the second fiscal quarter of 2023, the Company issued options to purchase 930 shares of the Company’s common stock to certain employees, consisting of options to purchase 340 shares of common stock with time-based vesting conditions and options to purchase 590 shares of common stock with performance-based vesting conditions (which we refer to as “market-based stock options”). The options have an exercise price of $3.13. The market-based stock options will vest and become exercisable if the 60 Day VWAP reaches $12.00. The Company valued the market-based stock option awards using a Monte Carlo simulation model using a daily price forecast over ten years until expiration utilizing Geometric Brownian Motion that considers a variety of factors including, but not limited to, the Company’s common stock price, risk-free rate (3.7%), and expected stock price volatility (50%) over the expected life of awards (5.1 years). The weighted average fair value of market-based stock options issued during the period was $1.56.

 

[A] Stock Options:

 

The following table summarizes the activity relating to the Company’s market-based stock options that were granted to certain executives and employees for the six-month period ended June 30, 2023:

 

   Options   Weighted- Average Exercise Price   Weighted- Average Remaining Contractual Terms  

Aggregate

Intrinsic Value

 
                 
Outstanding at beginning of year   5,065   $14.14        $- 
Granted   865    3.09           
Exercised   -    -           
Forfeited or expired   (450)   2.85         54 
                     
Outstanding at end of period   5,480   $13.32    8.7 years   $206 
                     
Exercisable at end of period   -   $-    -   $      - 

 

18
 

 

The following table summarizes the activity relating to the Company’s stock options, excluding the market-based stock options that were granted to certain executives and employees, for the six-month period ended June 30, 2023:

 

   Options   Weighted-
Average
Exercise Price
   Weighted-
Average
Remaining
Contractual
Terms
   Aggregate
Intrinsic Value
 
                 
Outstanding at beginning of year   2,727   $5.29        $795 
Granted   470    3.09           
Exercised   16    2.33         9 
Forfeited or expired   (823)   5.48         14 
                     
Outstanding at end of period   2,358   $4.80    7.1 years   $124 
                     
Exercisable at end of period   1,176   $5.53    5.4 years   $22 

 

The fair value of each option grant on the date of grant is estimated using the Black-Scholes option-pricing model reflecting the following weighted-average assumptions:

         
   June 30, 
   2022   2023 
         
Expected volatility   49.4%   55.64%
Expected life of options (in years)   7    6.10 
Risk free interest rate   1.73%   3.87%
Dividend yield   0%   0%
Weighted-average fair value of options granted during year  $2.04   $1.66 

 

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 $1,267 and $1,301 for the three- and six-month periods ended June 30, 2022, respectively, and $585 and $1,203 for the three- and six-month periods ended June 30, 2023, 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, 2022 and 2023 was $376 and $562, respectively.

 

19
 

 

As of June 30, 2023, there was $1,784 of total unrecognized compensation cost related to non-vested options granted under the Company’s stock option plans excluding the market-based stock options that were granted to certain senior managers, including the Company’s executive officers. That cost is expected to be recognized over a weighted-average period of 2.71 years.

 

As of June 30, 2023, there was $5,781 of total unrecognized compensation cost related to non-vested options granted under the Company’s stock option plans for the market-based stock options that were granted to certain senior managers, including the Company’s executive officers. That cost is expected to be recognized over a weighted-average period of 4.21 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:

 

The Company grants restricted stock to employees, whereby the employees are contractually restricted from transferring the shares until they are vested. The stock is unvested at the time of grant and, upon vesting, there are no legal restrictions on the stock. The fair value of each share is based on the Company’s closing stock price on the date of the grant. A summary of all non-vested restricted stock for the six-month period ended June 30, 2023 is as follows:

 

   Number of Non-
Vested Shares
   Weighted-
Average Grant
Date Fair Value
 
         
Restricted stock, non-vested, beginning of year   706   $4.75 
Granted   237    2.97 
Vested   (150)   5.11 
Forfeited   (141)   5.50 
           
Restricted stock, non-vested, end of period   652   $3.86 

 

The Company recorded stock-based compensation expenses of $335 and $743 for the three- and six-month periods ended June 30, 2022, respectively, and $267 and $481 for the three-and six-month periods ended June 30, 2023, respectively, in connection with restricted stock grants. As of June 30, 2023, there was $1,758 of total unrecognized compensation cost related to non-vested shares. That cost is expected to be recognized over a weighted-average period of 2.62 years.

 

20
 

 

NOTE 12 - NET INCOME (LOSS) PER SHARE

 

Net income (loss) per share for the three- and six-month periods ended June 30, 2022 and 2023 are as follows:

 

    2022     2023     2022     2023  
    Three Months Ended     Six Months Ended  
    June 30,     June 30,  
    2022     2023     2022     2023  
Basic and diluted loss per share                                
Net income (loss) attributable to common stockholders   $ (1,334 )   $ (4,274 )   $ (5,458 )   $ (780 )
Addback: Preferred stock dividend and accretion   -    -    -    2,572 
Less: Preferred stock dividend paid   

-

    

-

    

-

    

(1,128

)
Less: Preferred stock dividend accretion   

-

    

-

    

-

    

(336

)
Allocation of earning to participating securities   -    -    -    (62)
Numerator for basic EPS – income available to common stockholders   (1,334)   (4,274)   (5,458)   266 
                     
Weighted-average common share outstanding - basic     35,386       35,605       35,359       35,577  
Effect of dilutive securities   -    -    -    93 
Weighted-average common share outstanding - diluted   35,386    35,605    35,359    35,670 
                     
Net income (loss) attributable to common stockholders - basic  $(0.04)  $(0.12)  $(0.15)  $0.01
Net income (loss) attributable to common stockholders - diluted   $ (0.04 )   $ (0.12 )   $ (0.15 )   $ 0.01  

 

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 period ended June 30, 2022, 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 16,438 would have been anti-dilutive due to the loss. For the six-month period ended June 30, 2023, the two-class method of computing earnings per share was anti-dilutive. As a result, the weighted-average number of shares outstanding used in the computation of diluted earnings per share does not include 9,484 shares from the conversion of preferred stock, warrants, stock options and restricted stock awards because the effect would have been anti-dilutive.

 

NOTE 13 - SHORT-TERM BANK DEBT AND LONG-TERM DEBT

 

   December 31, 2022   June 30, 2023 
         (Unaudited) 
Short-term bank debt  $5,709   $8,445 
Current maturities of long-term debt  $4,603   $2,752 
Long term debt - less current maturities  $11,403   $9,940 

 

21
 

 

Long-Term debt

 

In connection with the Transactions, Powerfleet Israel incurred NIS denominated debt in term loan borrowings on October 3, 2019 which was the closing date of the Transactions (the “Closing Date”), under the Credit Agreement, pursuant to which Hapoalim agreed to provide Powerfleet Israel with two senior secured term loan facilities in an initial 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 denominated in NIS in an initial aggregate principal amount of $10,000 (collectively, the “Credit Facilities”). As of June 30, 2023, the Company borrowed NIS11,800, or $3,200, under the Revolving Facility.

 

The Credit Facilities will mature on the date that is five years from the Closing Date, or October 3, 2024. The indicative interest rate provided for the Term 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, with respect to NIS-denominated loans, Hapoalim’s prime rate + 2.5%, and with respect to US dollar-denominated loans, LIBOR + 4.6% (amended to SOFR + 2.15%). In addition, the Company 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 its assets. The original Credit Agreement includes customary representations, warranties, affirmative covenants, negative covenants (including the following financial 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 Pointer EBITDA to current payments and events of default).

 

On August 23, 2021, the Borrowers entered into an amendment (the “Amendment”), effective as of August 1, 2021, to the Credit Agreement with Hapoalim. The Amendment memorializes the agreements between the Borrowers and Hapoalim regarding a reduction in the interest rates of the two Term Facilities. Pursuant to the Amendment, commencing as of November 12, 2020, the interest rate with respect to the Term A Facility was reduced to a fixed rate of 3.65% per annum and the interest rate with respect to the Term B Facility was reduced to a fixed rate of 4.5% 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 $