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Powerfleet, Inc.

Powerfleet, Inc.AIOTEarnings & Financial Report

Nasdaq · Consumer Discretionary · Communications Equipment, NEC

Powerfleet, Inc. is an American company headquartered in Woodcliff Lake, New Jersey, that operates as a global provider of IoT and M2M solutions for securing, controlling, and tracking high-value enterprise assets. The company is a provider in the international telematics industry, providing fleet management, asset tracking, freight visibility, and driver behavior monitoring for industrial trucks, vehicle fleets, and shipping containers.

What changed in Powerfleet, Inc.'s 10-K — 2022 vs 2023

Top changes in Powerfleet, Inc.'s 2023 10-K

180 paragraphs added · 175 removed · 130 edited across 4 sections

Item 1. Business

Business — how the company describes what it does

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Having this information enables customers to increase capacity, speed of service, right-size their fleets, and improve communication internally and with customers. In addition, customers can reduce revenue per mile, reduce claims and claims processing times, and reduce the number of assets needed.
Having this information enables customers to increase capacity, speed of service, right-size their fleets, and improve communication internally and with customers. In addition, customers can increase revenue per mile, reduce claims and claims processing times, and reduce the number of assets needed.
To achieve this goal, we intend to prove value, retain, and grow business with existing customers and pursue opportunities with new customers by: ● focusing our business solutions by vertical markets and go to market strategies to each market; ● positioning ourselves as an innovative thought leader; ● maintaining a world class sales and marketing team; ● identifying, seizing, and managing revenue opportunities; ● expanding our customer base, achieving wider market penetration and educating customers with mixed assets in their organization about our other applications; ● implementing improved marketing, sales and support strategies; ● shortening our initial sales cycles by helping our customers through: 7 ○ identifying and quantifying benefits expected from our solutions; ○ accelerating transitions from implementation to roll-out; and ○ building service revenue through long-term SaaS contracts; ● differentiating our product offering through analytics, machine learning, unique sensors, and value-added services; ● producing incremental revenue at a high profit margin; and ● expanding our partnerships and integrations.
To achieve this goal, we intend to prove value, retain and grow business with existing customers and pursue opportunities with new customers by: ● focusing our business solutions by vertical markets and go to market strategies to each market; ● positioning ourselves as an innovative thought leader; ● maintaining a world class sales and marketing team; ● identifying, seizing, and managing revenue opportunities; ● expanding our customer base, achieving wider market penetration and educating customers with mixed assets in their organization about our other applications; ● implementing improved marketing, sales and support strategies; 7 ● shortening our initial sales cycles by helping our customers through: ○ identifying and quantifying benefits expected from our solutions; ○ accelerating transitions from implementation to roll-out; and ○ building service revenue through long-term SaaS contracts; ● differentiating our product offering through analytics, machine learning, unique sensors, and value-added services; ● producing incremental revenue at a high profit margin; and ● expanding our partnerships and integrations.
Our applications enable organizations to capture IoT data from various types of assets with devices and sensors creating a holistic view for analysis and action. 4 The core applications our IoT solutions address include: End-to-end Visibility: Organizations with expensive assets such as vehicles, machinery, or equipment need to keep track of where the assets are located, monitor for misuse, and understand how and when assets are being used.
Our applications enable organizations to capture IoT data from various types of assets with devices and sensors creating a holistic view for analysis and action. 4 The core applications that our IoT solutions address include: End-to-end Visibility: Organizations with expensive assets such as vehicles, machinery, or equipment need to keep track of where the assets are located, monitor for misuse, and understand how and when assets are being used.
We strive to establish long-term relationships with our customers in order to maximize opportunities for new application development and increased sales. Some of our global customers that benefit from the Company’s combined solutions to power their specific IoT and machine to machine mobility needs include Avis, Junghenrich, Walmart, Toyota, and XPO Logistics.
We strive to establish long-term relationships with our customers in order to maximize opportunities for new application development and increased sales. Some of our global customers that benefit from the Company’s combined solutions to power their specific IoT and machine to machine mobility needs include Avis, Walmart, Toyota, and XPO Logistics.
Our subsidiary Pointer Argentina S.A. (“Pointer Argentina”) obtains domestic licenses for the deployment of our SVR operation in Argentina and local operators are required to obtain a specific license for their operations. We are currently registered by the Federal Department of Security (“SEGOB”) in Mexico to provide our services. 11 Our subsidiary Pointer SA (PTY) Ltd.
Our subsidiary Pointer Argentina S.A. (“Pointer Argentina”) obtains domestic licenses for the deployment of our SVR operation in Argentina and local operators are required to obtain a specific license for their operations. We are currently registered by the Federal Department of Security in Mexico to provide our services. 11 Our subsidiary Pointer SA (PTY) Ltd.
We look for analytics, as well as the data contained therein, to differentiate us from our competitors, adding significant value to customers business operations, and helping to contribute to their bottom line. Our solutions also feature open application programming interfaces (APIs) for additional integrations and development to boost other enterprise management systems and third-party applications.
We look for analytics, as well as the data contained therein, to differentiate us from our competitors, adding significant value to customers’ business operations, and helping to contribute to their bottom line. Our solutions also feature open application programming interfaces (APIs) for additional integrations and development to boost other enterprise management systems and third-party applications.
In addition, our dash camera provides critical video capture that can be used to help exonerate drivers when in accidents or help bolster training and coaching programs of employees. We also offers preventative solutions such as safety warning products to alert vehicle operators of objects or pedestrians in their pathway to prevent accidents, injuries, and damage.
In addition, our dash camera provides critical video capture that can be used to help exonerate drivers when in accidents or help bolster training and coaching programs of employees. We also offer preventative solutions such as safety warning products to alert vehicle operators of objects or pedestrians in their pathway to prevent accidents, injuries, and damage.
Generally, our research and development efforts are focused on expanding the capabilities of our products, differentiating our offerings, simplifying the implementation, support and utilization of our solutions, reducing the cost of our solutions, increasing the reliability of our solutions, expanding the functionality of our solutions to meet customer and market requirements, applying new advances in technology to enhance existing solutions, and building further competitive advantages through our intellectual property portfolio. 9 Intellectual Property Patents We attempt to protect our technology and products through a variety of intellectual property protections, including the pursuit of patent protection in the United States and certain foreign jurisdictions.
Generally, our research and development efforts are focused on expanding the capabilities of our products; differentiating our offerings through our Unity platform build, simplifying the implementation, support and utilization of our solutions, reducing the cost of our solutions, increasing the reliability of our solutions, expanding the functionality of our solutions to meet customer and market requirements, applying new advances in technology to enhance existing solutions, and building further competitive advantages through our intellectual property portfolio. 9 Intellectual Property Patents We attempt to protect our technology and products through a variety of intellectual property protections, including the pursuit of patent protection in the United States and certain foreign jurisdictions.
Systems”) was incorporated in the State of Delaware in 1993. PowerFleet, Inc. was incorporated in the State of Delaware in February 2019 for the purpose of effectuating the transactions pursuant to which we acquired Pointer (the “Transactions”). Upon the closing of the Transactions, PowerFleet became the parent entity of I.D. Systems and Pointer. Our primary website is www.powerfleet.com.
PowerFleet, Inc. was incorporated in the State of Delaware in February 2019 for the purpose of effectuating the transactions pursuant to which we acquired Pointer (the “Transactions”). Upon the closing of the Transactions, Powerfleet became the parent entity of I.D. Systems and Pointer. Our primary website is www.powerfleet.com.
With 54 patents and patent applications and 25 years’ experience, we believe we are well positioned to evolve our offerings for even greater value to customers through our cloud-based applications for unified operations. We deliver advanced data solutions that connect mobile assets to increase visibility, operational efficiency and profitability.
With 46 patents and patent applications and over 25 years’ experience, we believe we are well positioned to evolve our offerings for even greater value to customers through our cloud-based applications for unified operations. We deliver advanced data solutions that connect mobile assets to increase visibility, operational efficiency and profitability.
We provide our consulting services both as a stand-alone service to study the potential benefits of implementing a IoT business intelligence solution and as part of the system implementation itself. In some instances, customers prepay us for extended maintenance, support and consulting services.
We provide our consulting services both as a standalone service to study the potential benefits of implementing a IoT business intelligence solution and as part of the system implementation itself. In some instances, customers prepay us for extended maintenance, support and consulting services.
Our analytics platform features dashboards with KPIs and can help manager identify patterns, trends and outliers that can be used as flags for interventions.
Our analytics platform features dashboards with KPIs and can help managers identify patterns, trends and outliers that can be used as flags for interventions.
With the timely payment of all maintenance fees, the U.S. patents have expiration dates falling between 2023 and 2039. No single patent or patent family is considered material to our business. Trademarks We have, or have applied for, U.S. and/or foreign trademark protection for I.D. SYSTEMS ® and Design, the I.D.
With the timely payment of all maintenance fees, the U.S. patents have expiration dates falling between 2024 and 2040. No single patent or patent family is considered material to our business. Trademarks We have, or have applied for, U.S. and/or foreign trademark protection for I.D. SYSTEMS ® and Design, the I.D.
Key Applications of our IoT Solutions: The Company provides real-time intelligence for organizations with high-value assets allowing them to make informed decisions and ultimately improve their operations, safety, and bottom line.
Key Applications of our IoT Solutions We provide real-time intelligence for organizations with high-value assets allowing them to make informed decisions and ultimately improve their operations, safety, and bottom line.
SYSTEMS Logo ® , VEHICLE ASSET COMMUNICATOR®, POWERFLEET ® , POWERFLEET VISION ® , POWERFLEET IQ ® , POWERFLEET YARD ® , VERIWISE IQ ® , ASSET INTELLIGENCE ® , didBOX®, FREIGHTCAM, KEYTROLLER®, REEFERMATE ® , POINTER ® and Design, and CELLOCATOR ® and Design.
SYSTEMS Logo ® , VEHICLE ASSET COMMUNICATOR ® , POWERFLEET ® , POWERFLEET VISION ® , POWERFLEET IQ ® , POWERFLEET YARD ® , VERIWISE IQ ® , ASSET INTELLIGENCE ® , didBOX ® , FREIGHTCAM, KEYTROLLER ® , REEFERMATE ® , POWERFLEET and Design ® and CAMERA Design ® .
This being said, we cannot guarantee that approvals already obtained are or will remain sufficient in the view of regulatory authorities indefinitely. Employees As of March 1, 2022, we had 669 total employees across the globe, all of whom are full-time employees. We believe that our relationships with our employees is good. Other Information I.D. Systems, Inc. (“I.D.
This being said, we cannot guarantee that approvals already obtained are or will remain sufficient in the view of regulatory authorities indefinitely. Employees As of March 9, 2023, we had 795 total employees globally, 100% of whom are full-time employees. We believe that our relationships with our employees is good.
We built a portfolio of patents and patent applications relating to various aspects of our technology products and solutions. As of February 25, 2022, our patent portfolio includes 42 U.S. patents, 4 pending U.S. patent applications, 2 pending foreign international applications, and 6 foreign patents.
We built a portfolio of patents and patent applications relating to various aspects of our technology and products, including our wireless asset management systems, connected car products, and vehicle management systems. As of March 9, 2023, our patent portfolio includes 38 U.S. patents, 3 pending U.S. patent applications, 3 pending foreign patent applications, and 2 foreign patents.
Added
Commencing in 2023 we plan to consolidate and augment many of our existing capabilities on a single customer software platform branded as “Unity.” We have designed our Unity platform to enable rapid and deep integration with IoT devices and third-party business systems to a highly scalable data pipeline that powers artificial intelligence-driven insights to help companies save lives, time, and money .
Added
Unity will be an increasingly important initiative to meet our objective of becoming a leading global provider of IoT SaaS solutions for high-value enterprise assets to drive optimized operations and create safer environments.
Added
Recent Developments Rising interest rates, higher inflation, fluctuations in currency values, supply chain disruptions and the conflict between Russia and Ukraine have resulted in significant economic disruption and adversely impacted the broader global economy, including our customers and suppliers.
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Given the dynamic and uncertain nature of the current macroeconomic environment, we cannot reasonably estimate the impact of such developments on our financial condition, results of operations or cash flows into the foreseeable future. The ultimate extent of the effects of these developments remain highly uncertain, and such effects could exist for an extended period of time.
Added
The Inflation Reduction Act of 2022 (the “IRA”) was signed into law in August 2022. The IRA is federal legislation designed to raise revenue from, among other things, the imposition of certain corporate tax measures, while authorizing spending on energy and climate change initiatives and subsidizing the Affordable Care Act.
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The IRA also introduced a 1% excise tax on certain corporate stock buybacks, which would impose a nondeductible 1% excise tax on the fair market value of certain stock that is “repurchased” during the taxable year by a publicly traded U.S. corporation or acquired by certain of its subsidiaries.
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Management continues to monitor any potential impact of the IRA on our results. No immediate or direct effect from the legislation has had a material impact on our results at this time. The CHIPS and Science Act (“CHIPS”) was signed into law in August 2022. CHIPS is a federal statue providing funding for research and domestic production of semiconductors.
Added
Additional funding can be provided through CHIPS to various federal agencies as well as towards climate science research. No immediate or direct material effect from the legislation has had a material impact on our results at this time. Other Information I.D. Systems, Inc. (“I.D. Systems”) was incorporated in the State of Delaware in 1993.

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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So long as shares of Series A Preferred Stock are outstanding and convertible into shares of our common stock that represent at least 10% of the voting power of our common stock, or the Investors or their affiliates continue to hold at least 33% of the aggregate amount of Series A Preferred Stock issued to the Investors on the date on which any shares of Series A Preferred Stock are first issued (the “Original Issuance Date”), the consent of the holders of at least a majority of the outstanding shares of Series A Preferred Stock will be necessary for us to, among other things, (i) liquidate the Company or any operating subsidiary or effect any Deemed Liquidation Event (as defined in the Charter), except for a Deemed Liquidation Event in which the holders of Series A Preferred Stock receive an amount in cash not less than the Redemption Price (as defined below), (ii) amend our organizational documents in a manner that adversely affects the Series A Preferred Stock, (iii) issue any securities that are senior to, or equal in priority with, the Series A Preferred Stock or issue additional shares of Series A Preferred Stock to any person other than the Investors or their affiliates, (iv) incur indebtedness above the agreed-upon threshold, (v) change the size of our board of directors to a number other than seven, or (vi) enter into certain affiliated arrangements or transactions. 35 The Series A Preferred Stock has rights, preferences and privileges that are not held by, and are preferential to, the rights of holders of our common stock, which could adversely affect our liquidity and financial condition, and may result in the interests of the holders of Series A Preferred Stock differing from those of the holders of our common stock.
So long as shares of Series A Preferred Stock are outstanding and convertible into shares of our common stock that represent at least 10% of the voting power of our common stock, or the Investors or their affiliates continue to hold at least 33% of the aggregate amount of Series A Preferred Stock issued to the Investors on the date on which any shares of Series A Preferred Stock are first issued (the “Original Issuance Date”), the consent of the holders of at least a majority of the outstanding shares of Series A Preferred Stock will be necessary for us to, among other things, (i) liquidate the Company or any operating subsidiary or effect any Deemed Liquidation Event (as defined in the Charter), except for a Deemed Liquidation Event in which the holders of Series A Preferred Stock receive an amount in cash not less than the Redemption Price (as defined below), (ii) amend our organizational documents in a manner that adversely affects the Series A Preferred Stock, (iii) issue any securities that are senior to, or equal in priority with, the Series A Preferred Stock or issue additional shares of Series A Preferred Stock to any person other than the Investors or their affiliates, (iv) incur indebtedness above the agreed-upon threshold, (v) change the size of our board of directors to a number other than seven, or (vi) enter into certain affiliated arrangements or transactions. 30 The Series A Preferred Stock has rights, preferences and privileges that are not held by, and are preferential to, the rights of holders of our common stock, which could adversely affect our liquidity and financial condition, and may result in the interests of the holders of Series A Preferred Stock differing from those of the holders of our common stock.
Although we plan to implement policies and procedures designed to ensure compliance with these laws and regulations, there can be no assurance that our employees, contractors, or agents will not violate our policies. 17 Some of the risks and challenges of doing business internationally include: ● unexpected changes in regulatory requirements; ● fluctuations in international currency exchange rates including its impact on unhedgeable currencies and our forecast variations for hedgeable currencies; ● imposition of tariffs and other barriers and restrictions; ● management and operation of an enterprise spread over various countries; ● the burden of complying with a variety of laws and regulations in various countries; ● application of the income tax laws and regulations of multiple jurisdictions, including relatively low-rate and relatively high-rate jurisdictions, to our sales and other transactions, which results in additional complexity and uncertainty; ● the conduct of unethical business practices in certain developing countries; ● general economic and geopolitical conditions, including inflation and trade relationships; ● war and acts of terrorism; ● kidnapping and high crime rate; ● natural disasters or pandemics (for example, the COVID-19 pandemic); ● availability of U.S. dollars especially in countries with economies highly dependent on resource exports, particularly oil; and ● changes in export regulations.
Although we plan to implement policies and procedures designed to ensure compliance with these laws and regulations, there can be no assurance that our employees, contractors, or agents will not violate our policies. 16 Some of the risks and challenges of doing business internationally include: ● unexpected changes in regulatory requirements; ● fluctuations in international currency exchange rates including its impact on unhedgeable currencies and our forecast variations for hedgeable currencies; ● imposition of tariffs and other barriers and restrictions; ● management and operation of an enterprise spread over various countries; ● the burden of complying with a variety of laws and regulations in various countries; ● application of the income tax laws and regulations of multiple jurisdictions, including relatively low-rate and relatively high-rate jurisdictions, to our sales and other transactions, which results in additional complexity and uncertainty; ● the conduct of unethical business practices in certain developing countries; ● general economic and geopolitical conditions, including inflation and trade relationships; ● war and acts of terrorism; ● kidnapping and high crime rate; ● natural disasters or pandemics (for example, the COVID-19 pandemic); ● availability of U.S. dollars especially in countries with economies highly dependent on resource exports, particularly oil; and ● changes in export regulations.
The main factors that may affect us include the following: ● variations in the sales of our products to our significant customers; ● variations in the mix of products and services provided by us; 29 ● the timing and completion of initial programs and larger or enterprise-wide purchases of our products by our customers; ● the length and variability of the sales cycle for our products; ● the timing and size of sales; ● changes in market and economic conditions, including fluctuations in demand for our products; and ● announcements of new products by our competitors.
The main factors that may affect us include the following: ● variations in the sales of our products to our significant customers; ● variations in the mix of products and services provided by us; ● the timing and completion of initial programs and larger or enterprise-wide purchases of our products by our customers; ● the length and variability of the sales cycle for our products; ● the timing and size of sales; ● changes in market and economic conditions, including fluctuations in demand for our products; and ● announcements of new products by our competitors.
In the event of any future acquisitions, we could: ● issue stock that would dilute our current stockholders’ percentage ownership; ● incur debt; ● assume liabilities; ● incur expenses related to the impairment of goodwill; or ● incur large and immediate write-offs.
In the event of any future acquisitions or combinations, we could: ● issue stock that would dilute our current stockholders’ percentage ownership; ● incur debt; ● assume liabilities; ● incur expenses related to the impairment of goodwill; or ● incur large and immediate write-offs.
Our board of directors believes that this provision, which is intended to provide that certain business opportunities are not subject to the “corporate opportunity” doctrine, is appropriate, as the Investors, who are the initial holders of the Series A Preferred Stock, and their affiliates invest in a wide array of companies, including companies with businesses similar to the Company, and without such assurances, the Investors would be unwilling or unable to enter into the Investment Agreement. 38 As a result of this provision, we may be not be offered certain corporate opportunities which could be beneficial to us and our stockholders.
Our board of directors believes that this provision, which is intended to provide that certain business opportunities are not subject to the “corporate opportunity” doctrine, is appropriate, as the Investors, who are the initial holders of the Series A Preferred Stock, and their affiliates invest in a wide array of companies, including companies with businesses similar to the Company, and without such assurances, the Investors would be unwilling or unable to enter into the Investment Agreement. 32 As a result of this provision, we may not be offered certain corporate opportunities which could be beneficial to us and our stockholders.
The industry in which we operate is highly competitive and influenced by the following: ● advances in technology; ● new product introductions; ● evolving industry standards; ● product improvements; ● rapidly changing customer needs; ● intellectual property invention and protection; ● marketing and distribution capabilities; ● ability to attract and retain highly skilled professionals; ● competition from highly capitalized companies; ● entrance of new competitors; ● ability of customers to invest in information technology; and ● price competition. 16 The products marketed by us and our competitors are becoming more complex.
The industry in which we operate is highly competitive and influenced by the following: ● advances in technology; ● new product introductions; ● evolving industry standards; ● product improvements; ● rapidly changing customer needs; ● intellectual property invention and protection; ● marketing and distribution capabilities; ● ability to attract and retain highly skilled professionals; ● competition from highly capitalized companies; ● entrance of new competitors; ● ability of customers to invest in information technology; and ● price competition. 15 The products marketed by us and our competitors are becoming more complex.
If we or our manufacturers are unable to obtain an ample supply of product or raw materials from our existing suppliers or alternative sources of supply, we may be unable to satisfy our customers’ orders, which could reduce our revenues, subject us to claims for damages and adversely affect our relationships with our customers. 23 The federal government or independent standards organizations may implement significant regulations or standards that could adversely affect our ability to produce or market our products.
If we or our manufacturers are unable to obtain an ample supply of product or raw materials from our existing suppliers or alternative sources of supply, we may be unable to satisfy our customers’ orders, which could reduce our revenues, subject us to claims for damages and adversely affect our relationships with our customers. 21 The federal government or independent standards organizations may implement significant regulations or standards that could adversely affect our ability to produce or market our products.
Our operation of any acquired business will also involve numerous risks, including: ● problems integrating the acquired operations, personnel, technologies or products; ● unanticipated costs; ● diversion of management’s time and attention from our core businesses; ● adverse effects on existing business relationships with suppliers and customers; ● risks associated with entering markets in which we have no or limited prior experience; and ● potential loss of key employees, particularly those of acquired companies.
Our operation of any acquired business, including Movingdots, will involve numerous risks, including: ● problems integrating the acquired operations, personnel, technologies or products; ● unanticipated costs; ● diversion of management’s time and attention from our core businesses; ● adverse effects on existing business relationships with suppliers and customers; ● risks associated with entering markets in which we have no or limited prior experience; and ● potential loss of key employees, particularly those of acquired companies.
Failure to realize the benefits of amounts we invest in new technologies, products, or services could result in the value of those investments being written down or written off. 15 If we are unable to keep up with rapid technological change, we may be unable to meet the needs of our customers, which could materially and adversely affect our financial condition and results of operations and reduce our ability to grow our market share.
Failure to realize the benefits of amounts we invest in new technologies, products, or services could result in the value of those investments being written down or written off. 14 If we are unable to keep up with rapid technological change, we may be unable to meet the needs of our customers, which could materially and adversely affect our financial condition and results of operations and reduce our ability to grow our market share.
The issuance of our common stock upon conversion of the Series A Preferred Stock will result in immediate and substantial dilution to the interests of holders of our common stock, and such dilution will increase over time in connection with the accrual of dividends on the Series A Preferred Stock. 36 The concentration of common stock ownership among our executive officers and directors could limit the ability of other stockholders of the Company to influence the outcome of corporate transactions or other matters submitted for stockholder approval.
The issuance of our common stock upon conversion of the Series A Preferred Stock will result in immediate and substantial dilution to the interests of holders of our common stock, and such dilution will increase over time in connection with the accrual of dividends on the Series A Preferred Stock. 31 The concentration of common stock ownership among our executive officers and directors could limit the ability of other stockholders of the Company to influence the outcome of corporate transactions or other matters submitted for stockholder approval.
This would have the effect of increasing the Dollar cost of our borrowings. 31 By administrative order, certain provisions of the collective bargaining agreements between the Histadrut (General Federation of Labor in Israel) and the Coordination Bureau of Economic Organizations, relating primarily to the length of the workday, pension contributions, insurance for work-related accidents, and other conditions of employment are applicable to our employees.
This would have the effect of increasing the Dollar cost of our borrowings. 27 By administrative order, certain provisions of the collective bargaining agreements between the Histadrut (General Federation of Labor in Israel) and the Coordination Bureau of Economic Organizations, relating primarily to the length of the workday, pension contributions, insurance for work-related accidents, and other conditions of employment are applicable to our employees.
As a result, our financial statements may not adequately reflect possible future severance payments. 26 Some of our employees in our subsidiaries are members of labor unions and a dispute between us and any such labor union could result in a labor strike that could delay or preclude altogether our ability to generate revenues in the markets where such employees are located.
As a result, our financial statements may not adequately reflect possible future severance payments. 23 Some of our employees in our subsidiaries are members of labor unions and a dispute between us and any such labor union could result in a labor strike that could delay or preclude altogether our ability to generate revenues in the markets where such employees are located.
If we cannot achieve profitability, the market price of our common stock could decline significantly. ● The inability of our supply chain to deliver certain key components, such as semiconductors, could materially adversely affect our business, financial condition and results of operations. ● Our expansion into new products, services, and technologies subjects us to additional risks. ● If we are unable to keep up with rapid technological change, we may be unable to meet the needs of our customers, which could materially and adversely affect our financial condition and results of operations and reduce our ability to grow our market share. ● We may be subject to breaches of our information technology systems, which could damage our reputation, vendor, and customer relationships, and our customers’ access to our services. ● The industry in which we operate is highly competitive, and competitive pressures from existing and new companies could have a material adverse effect on our financial condition and results of operations. ● We may not be able to successfully execute our strategic initiatives or meet our long-term financial goals. ● We are an international company and may be susceptible to a number of political, economic and geographic risks that could harm our business. ● Conditions and changes in the global economic environment may adversely affect our business and financial results. ● The international scope of our business exposes us to risks associated with foreign exchange rates. ● We expect that the impact of COVID-19 will continue to adversely affect our business, results of operations and financial condition. ● We may need to obtain additional capital to fund our operations that could have negative consequences on our business. ● If the market for our technology does not develop or become sustainable, expands more slowly than we expect or becomes saturated, our revenues will decline and our financial condition and results of operations could be materially and adversely affected. 12 ● We may incur additional charges for excess and obsolete inventory, which could adversely affect our cost of sales and gross profit. ● The long and variable sales cycles for our solutions may cause our revenues and operating results to vary significantly from quarter to quarter or year to year. ● We rely significantly on channel partners to sell our products, and disruptions to, or our failure to develop and manage our channel partners would harm our business. ● If we are unable to protect our intellectual property rights, our financial condition and results of operations could be materially and adversely affected. ● We may become involved in an intellectual property dispute that could subject us to significant liability and divert the time and attention of our management and prevent us from selling our products. ● We rely on subcontractors to manufacture and deliver our products. ● Our manufacturers rely on a limited number of suppliers for several significant components used in our products. ● The federal government or independent standards organizations may implement significant regulations or standards that could adversely affect our ability to produce or market our products. ● Because our products are complex, they may have undetected errors or failures when they are introduced, which could seriously harm our business, and our product liability insurance may not adequately protect us. ● Changes in practices of insurance companies in the markets in which we provide and sell our SVR services and products could adversely affect our revenues and growth potential. ● A decline in sales of consumer or commercial vehicles in the markets in which we operate could result in reduced demand for our products and services. ● A reduction in vehicle theft rates may adversely impact demand for our SVR services and products. ● The increasing availability of handheld GPRS devices may reduce the demand for our products for small fleet management. ● The use of our products is subject to international regulations. ● The adoption of industry standards that do not incorporate the technology we use may decrease or eliminate the demand for our services or products and could harm our results of operations. ● Our financial statements may not reflect certain payments we may be required to make to employees. ● Some of our employees in our subsidiaries are members of labor unions and a dispute between us and any such labor union could result in a labor strike that could delay or preclude altogether our ability to generate revenues in the markets where such employees are located. ● Under the current laws in jurisdictions in which we operate, we may not be able to enforce non-compete covenants and therefore may be unable to prevent our competitors from benefiting from the expertise of some of our former employees. ● Manufacturing of many of our products is highly complex, and an interruption by suppliers, subcontractors or vendors could adversely affect our business, financial condition or results of operations. ● Our Israeli subsidiaries have incurred significant indebtedness to finance the Transactions. ● The terms of the Credit Agreement restrict PowerFleet Israel’s and Pointer’s current and future operations, particularly their ability to respond to changes or to take certain actions. ● If we lose our executive officers, or are unable to recruit additional personnel, our ability to manage our business could be materially and adversely affected. ● We provide no assurance that we will be able to successfully integrate any businesses, products, technologies or personnel that we have acquired or might acquire in the future. ● The unpredictability of our quarterly operating results could adversely affect the market price of our common stock. ● We provide financing to our customers for the purchase of our products, which may increase our credit risks in the event of a deterioration in a customer’s financial condition or in global credit conditions. ● Interest rate fluctuations may adversely affect our income and results of operations. ● Our cash and cash equivalents could be adversely affected by a downturn in the financial and credit markets. ● Goodwill impairment or intangible impairment charges may affect our results of operations in the future. ● In connection with the preparation of our annual financial statements for the fiscal year ended December 31, 2021, we identified a material weakness in our internal control over financial reporting.
If we cannot achieve profitability, the market price of our common stock could decline significantly. ● The inability of our supply chain to deliver certain key components, such as semiconductors, could materially adversely affect our business, financial condition and results of operations. ● We provide no assurance that we will be able to successfully integrate any businesses, products, technologies or personnel that we have acquired or might acquire in the future. ● Our expansion into new products, services, and technologies subjects us to additional risks. ● If we are unable to keep up with rapid technological change, we may be unable to meet the needs of our customers, which could materially and adversely affect our financial condition and results of operations and reduce our ability to grow our market share. ● We may be subject to breaches of our information technology systems, which could damage our reputation, vendor, and customer relationships, and our customers’ access to our services. ● The industry in which we operate is highly competitive, and competitive pressures from existing and new companies could have a material adverse effect on our financial condition and results of operations. ● We may not be able to successfully execute our strategic initiatives or meet our long-term financial goals. ● We are an international company and may be susceptible to a number of political, economic and geographic risks that could harm our business. ● Conditions and changes in the global economic environment may adversely affect our business and financial results. ● The international scope of our business exposes us to risks associated with foreign exchange rates. ● We may need to obtain additional capital to fund our operations that could have negative consequences on our business. ● If the market for our technology does not develop or become sustainable, expands more slowly than we expect or becomes saturated, our revenues will decline and our financial condition and results of operations could be materially and adversely affected. 12 ● We may incur additional charges for excess and obsolete inventory, which could adversely affect our cost of sales and gross profit. ● The long and variable sales cycles for our solutions may cause our revenues and operating results to vary significantly from quarter to quarter or year to year. ● We rely significantly on channel partners to sell our products, and disruptions to, or our failure to develop and manage our channel partners would harm our business. ● If we are unable to protect our intellectual property rights, our financial condition and results of operations could be materially and adversely affected. ● We may become involved in an intellectual property dispute that could subject us to significant liability and divert the time and attention of our management and prevent us from selling our products. ● We rely on subcontractors to manufacture and deliver our products. ● Our manufacturers rely on a limited number of suppliers for several significant components used in our products. ● The federal government or independent standards organizations may implement significant regulations or standards that could adversely affect our ability to produce or market our products. ● Because our products are complex, they may have undetected errors or failures when they are introduced, which could seriously harm our business, and our product liability insurance may not adequately protect us. ● Changes in practices of insurance companies in the markets in which we provide and sell our SVR services and products could adversely affect our revenues and growth potential. ● A decline in sales of consumer or commercial vehicles in the markets in which we operate could result in reduced demand for our products and services. ● A reduction in vehicle theft rates may adversely impact demand for our SVR services and products. ● The increasing availability of handheld general packet radio service GPRS devices may reduce the demand for our products for small fleet management. ● The use of our products is subject to international regulations. ● The adoption of industry standards that do not incorporate the technology we use may decrease or eliminate the demand for our services or products and could harm our results of operations. ● Our financial statements may not reflect certain payments we may be required to make to employees. ● Some of our employees in our subsidiaries are members of labor unions and a dispute between us and any such labor union could result in a labor strike that could delay or preclude altogether our ability to generate revenues in the markets where such employees are located. ● Under the current laws in jurisdictions in which we operate, we may not be able to enforce non-compete covenants and therefore may be unable to prevent our competitors from benefiting from the expertise of some of our former employees. ● Manufacturing of many of our products is highly complex, and an interruption by suppliers, subcontractors or vendors could adversely affect our business, financial condition or results of operations. ● Our Israeli subsidiaries have incurred significant indebtedness to finance the Transactions. ● The terms of the Credit Agreement restrict Powerfleet Israel’s and Pointer’s current and future operations, particularly their ability to respond to changes or to take certain actions. ● If we lose our executive officers, or are unable to recruit additional personnel, our ability to manage our business could be materially and adversely affected. ● The unpredictability of our quarterly operating results could adversely affect the market price of our common stock. ● We provide financing to our customers for the purchase of our products, which may increase our credit risks in the event of a deterioration in a customer’s financial condition or in global credit conditions. ● Our cash and cash equivalents could be adversely affected by a downturn in the financial and credit markets. ● Goodwill impairment or intangible impairment charges may affect our results of operations in the future. ● In connection with the preparation of our annual financial statements for the fiscal year ended December 31, 2022, we identified material weaknesses in our internal control over financial reporting.
If the market for our products and services does not become sustainable, or becomes saturated with competing products or services, our revenues will decline and our financial condition and results of operations could be materially and adversely affected. 20 We may incur additional charges for excess and obsolete inventory, which could adversely affect our cost of sales and gross profit.
If the market for our products and services does not become sustainable, or becomes saturated with competing products or services, our revenues will decline and our financial condition and results of operations could be materially and adversely affected. 18 We may incur additional charges for excess and obsolete inventory, which could adversely affect our cost of sales and gross profit.
If any of these policies or practices changes, for regulatory or commercial reasons, or if market prices for these services fall, revenues from sales of our SVR services and products, primarily in Israel, could decline, which could adversely affect our revenues and growth potential. 25 A decline in sales of consumer or commercial vehicles in the markets in which we operate could result in reduced demand for our products and services.
If any of these policies or practices changes, for regulatory or commercial reasons, or if market prices for these services fall, revenues from sales of our SVR services and products, primarily in Israel, could decline, which could adversely affect our revenues and growth potential. 22 A decline in sales of consumer or commercial vehicles in the markets in which we operate could result in reduced demand for our products and services.
We cannot assure you that we will be able to obtain additional financing on terms acceptable to us or at all. 27 The terms of the Credit Agreement restrict PowerFleet Israel’s and Pointer’s current and future operations, particularly their ability to respond to changes or to take certain actions.
We cannot assure you that we will be able to obtain additional financing on terms acceptable to us or at all. 24 The terms of the Credit Agreement restrict Powerfleet Israel’s and Pointer’s current and future operations, particularly their ability to respond to changes or to take certain actions.
These restrictions may affect our ability to grow in accordance with our strategy. 28 If we lose our executive officers, or are unable to recruit additional personnel, our ability to manage our business could be materially and adversely affected. We are dependent on the continued employment and performance of our executive officers.
These restrictions may affect our ability to grow in accordance with our strategy. 25 If we lose our executive officers, or are unable to recruit additional personnel, our ability to manage our business could be materially and adversely affected. We are dependent on the continued employment and performance of our executive officers.
Economic uncertainty and volatility in Brazil may adversely affect our business. We operate through our wholly owned subsidiary Pointer do Brasil Comercial Ltda. (“Pointer Brazil”) in Brazil, which has periodically experienced extremely high rates of inflation. In 2021, Brazil reached the double-digit inflation rate.
Economic uncertainty and volatility in Brazil may adversely affect our business. We operate through our wholly owned subsidiary Pointer do Brasil Comercial Ltda. (“Pointer Brazil”) in Brazil, which has periodically experienced extremely high rates of inflation. In 2021, Brazil reached a double-digit inflation rate.
Our failure to establish and maintain successful relationships with channel partners would harm our business and operating results. 21 If we are unable to protect our intellectual property rights, our financial condition and results of operations could be materially and adversely affected.
Our failure to establish and maintain successful relationships with channel partners would harm our business and operating results. 19 If we are unable to protect our intellectual property rights, our financial condition and results of operations could be materially and adversely affected.
The failure to obtain the necessary licenses or other rights could preclude the sale, manufacture or distribution of our products and could materially and adversely affect our financial condition and results of operations. 22 We rely on subcontractors to manufacture and deliver our products.
The failure to obtain the necessary licenses or other rights could preclude the sale, manufacture or distribution of our products and could materially and adversely affect our financial condition and results of operations. 20 We rely on subcontractors to manufacture and deliver our products.
Despite the ongoing recovery of the Brazilian economy, weak macroeconomic conditions in Brazil are expected to continue in 2022, political uncertainty can result from the presidential elections and the transition to a new government could have an adverse effect on our business, results of operations and financial condition. 33 Any such new policies or changes to current policies may have a material adverse effect on the operations of our business in Brazil.
Despite the ongoing recovery of the Brazilian economy, weak macroeconomic conditions in Brazil are expected to continue in 2023, political uncertainty can result from the presidential elections and the transition to a new government could have an adverse effect on our business, results of operations and financial condition. 29 Any such new policies or changes to current policies may have a material adverse effect on the operations of our business in Brazil.
Such charges could have a material adverse effect on our results of operations in the period in which they are recorded. 30 In connection with the preparation of our annual financial statements for the fiscal year ended December 31, 2021, we identified a material weakness in our internal control over financial reporting.
Such charges could have a material adverse effect on our results of operations in the period in which they are recorded. 26 In connection with the preparation of our annual financial statements for the fiscal year ended December 31, 2022, we identified material weaknesses in our internal control over financial reporting.
Uncertainty about current global economic conditions, in particular as a result of the COVID-19 pandemic, continued global supply chain disruptions, inflation and other cost increases, and the conflict between Russia and Ukraine, could also cause volatility of our stock price.
Uncertainty about current global economic conditions, in particular as a result of the continued global supply chain disruptions, inflation and other cost increases, and the conflict between Russia and Ukraine and recent bank failures, could also cause volatility of our stock price.
We are still considering the full extent of the procedures to implement in order to remediate the material weakness described above; however, the current remediation plan includes: (i) utilizing external resources to support our efforts to rework certain control gaps across the various processes in Israel with identified deficiencies, (ii) implementing enhanced documentation associated with management review controls and validation of the completeness and accuracy of key reports in Israel, and (iii) training relevant personnel to reinforce existing policies and enhancing policies with regard to appropriate steps and procedures required to be performed related to the execution and documentation of internal controls.
We are still considering the full extent of the procedures to implement in order to remediate the material weaknesses described above; however, the current remediation plan includes: (i) implementation of a new enterprise resource planning (ERP) system (ii) utilizing external resources to support our efforts to rework certain control gaps across the various processes in Israel and the U.S. with identified deficiencies, (iii) implementing enhanced documentation associated with management review controls and validation of the completeness and accuracy of key reports in Israel and the U.S., and (iv) training relevant personnel to reinforce existing policies and enhancing policies with regard to appropriate steps and procedures required to be performed related to the execution and documentation of internal controls.
However, a significant portion of our net sales, assets, indebtedness and other liabilities, and costs are denominated in foreign currencies. These currencies include, among others, the Euro, Israeli shekel, British pound sterling, Mexican peso, Argentine peso, Brazilian real and South African rand.
We report our financial results in U.S. dollars. However, a significant portion of our net sales, assets, indebtedness and other liabilities, and costs are denominated in foreign currencies. These currencies include, among others, the Euro, Israeli shekel, British pound sterling, Mexican peso, Argentine peso, Brazilian real and South African rand.
Such indebtedness will have the effect, among other things, of reducing PowerFleet Israel’s and Pointer’s flexibility to respond to changing business and economic conditions, will increase our borrowing costs and, to the extent that such indebtedness is subject to floating interest rates, may increase PowerFleet Israel’s and Pointer’s vulnerability to fluctuations in market interest rates.
Such indebtedness will have the effect, among other things, of reducing Powerfleet Israel’s and Pointer’s flexibility to respond to changing business and economic conditions, will increase our borrowing costs and, because such indebtedness is subject to floating interest rates and exposed to foreign currency fluctuations, may increase Powerfleet Israel’s and Pointer’s vulnerability to fluctuations in market interest and foreign exchange rates.
In July 2015, Pointer Brazil received another tax deficiency notice alleging that the services provided by Pointer Brazil should be classified as “telecommunication services” and therefore Pointer Brazil should be subject to the state value-added tax. The aggregate amount claimed to be owed under the notice was approximately $10,476,000 as of December 31, 2021.
In July 2015, Pointer Brazil received another tax deficiency notice alleging that the services provided by Pointer Brazil should be classified as “telecommunication services” and therefore Pointer Brazil should be subject to the state value-added tax. The aggregate amount claimed to be owed under the notice was approximately $11,777,535 as of December 31, 2022.
Similarly, many of our customers are dependent on an ever-greater number of global suppliers to manufacture their products. These global supply chains have been, and may continue to be, adversely impacted by events outside of our control, including macroeconomic events, trade restrictions, economic recessions or natural occurrences, such as the ongoing disruptions from the COVID-19 pandemic.
Similarly, many of our customers are dependent on an ever-greater number of global suppliers to manufacture their products. These global supply chains have continued to be, adversely impacted by events outside of our control, including macroeconomic events, trade restrictions, economic recessions and ongoing disruptions from the COVID-19 pandemic.
The global economy continues to be adversely affected by stock market volatility, tightening of credit markets, concerns of inflation, adverse business conditions and liquidity concerns.
The global economy continues to be adversely affected by stock market volatility, tightening of credit markets, concerns of inflation, adverse business conditions and liquidity concerns as well as recent bank failures.
We incurred net losses of approximately $12 million, $13.6 million, and $18.1 million for the years ended December 31, 2019, 2020 and 2021, respectively, and have incurred additional net losses since inception. At December 31, 2021, we had an accumulated deficit of approximately $134.4 million.
We incurred net losses of approximately $13.6 million, $18.1 million and $11.9 million for the years ended December 31, 2020, 2021 and 2022, respectively, and have incurred additional net losses since inception. At December 31, 2022, we had an accumulated deficit of approximately $141.4 million.
We identified a material weakness in our internal control over financial reporting as of December 31, 2021, which has not been remediated (see Item 9A of this Annual Report on Form 10-K for more information).
We identified material weaknesses in our internal control over financial reporting as of December 31, 2022, which have not been remediated (see Item 9A of this Annual Report on Form 10-K for more information).
Based on an initial conversion price of $7.319, the Investors, who are the initial holders of the Series A Preferred Stock, own approximately 17% of the Company on an as-converted basis as of March 10, 2022.
Based on an initial conversion price of $7.319, the Investors, who are the initial holders of the Series A Preferred Stock, own approximately 18% of the Company on an as-converted basis as of March 20, 2023.
Technical products like ours often contain undetected errors or failures when first introduced. Despite our efforts to eliminate these flaws, there still may be errors or failures in our products, even after the commencement of commercial shipments. We provide a warranty reserve at the time of shipment, which may not be sufficient to cover actual repair costs.
Despite our efforts to eliminate these flaws, there still may be errors or failures in our products, even after the commencement of commercial shipments. We provide a reserve at the time of shipment, which may not be sufficient to cover actual repair costs.
However, if we are not able to mitigate the impact of the semiconductor chip shortage semiconductor shortage impact, any direct or indirect supply chain disruptions may have a material adverse impact on our business, financial condition and results of operations. Our expansion into new products, services, and technologies, subjects us to additional risks.
However, if we are not able to mitigate the impact of the semiconductor chip shortage semiconductor shortage impact, any direct or indirect supply chain disruptions may have a material adverse impact on our business, financial condition and results of operations.
(“Hapoalim”), pursuant to which Hapoalim agreed to provide PowerFleet Israel with two senior secured term loan facilities in an aggregate principal amount of $30,000,000 (comprised of two facilities in the aggregate principal amount of $20,000,000 and $10,000,000) and a five-year revolving credit facility to Pointer in an aggregate principal amount of $10,000,000.
(“Hapoalim”), pursuant to which Hapoalim agreed to provide Powerfleet Israel with two senior secured term loan facilities denominated in New Israeli Shekel (NIS) in an initial aggregate principal amount of $30,000,000 (comprised of two facilities in the initial aggregate principal amount of $20,000,000 and $10,000,000, (the “Term A Facility” and “Term B Facility,” respectively, and collectively, the “Term Facilities”)) and a five-year revolving credit facility to Pointer in an aggregate principal amount of $10,000,000.
If we cannot achieve profitability, the market price of our common stock could decline significantly. As of December 31, 2021, we had cash (including restricted cash,) and cash equivalents of $26.8 million and working capital of $43.6 million.
If we cannot achieve profitability, the market price of our common stock could decline significantly. As of December 31, 2022, we had cash (including restricted cash) and cash equivalents of $18.0 million and working capital of $35.5 million.
As of March 10, 2022, our executive officers and directors beneficially owned, in the aggregate, 8% of our outstanding common stock, not including 5,563,594 shares of common stock that our executive officers and directors may acquire upon the exercise of outstanding options or if they otherwise acquire additional shares of common stock in the future.
As of March 20, 2023, our executive officers and directors beneficially owned, in the aggregate, approximately 3% of our outstanding common stock, not including approximately 6,055,000 shares of common stock that our executive officers and directors may acquire upon the exercise of outstanding options or if they otherwise acquire additional shares of common stock in the future.
Any failure to maintain effective internal control over financial reporting could harm us. ● Holders of our Series A Preferred Stock can exercise significant control over the Company, which could limit the ability of our stockholders to influence the outcome of key transactions, including a change of control. ● The Series A Preferred Stock has rights, preferences and privileges that are not held by, and are preferential to, the rights of holders of our common stock, which could adversely affect our liquidity and financial condition, and may result in the interests of the holders of Series A Preferred Stock differing from those of the holders of our common stock. ● Any issuance of our common stock upon conversion of the Series A Preferred Stock will cause dilution to then existing Company stockholders and may depress the market price of our common stock. ● The concentration of common stock ownership among our executive officers and directors could limit the ability of other stockholders of the Company to influence the outcome of corporate transactions or other matters submitted for stockholder approval. ● Future sales of our common stock, including sales of our common stock acquired upon the exercise of outstanding options, may cause the market price of our common stock to decline. ● The issuance of equity or debt securities under our shelf registration statement could have a negative impact on the price of our common stock. ● Our Charter provides that the Court of Chancery of the State of Delaware will be the exclusive forum for certain legal actions between us and our stockholders, which could limit stockholders’ ability to obtain a judicial forum viewed by the stockholders as more favorable for disputes with us or our directors, officers or employees, and the enforceability of the exclusive forum provision may be subject to uncertainty. ● The Charter contains a provision renouncing our interest and expectancy in certain corporate opportunities which may prevent us from receiving the benefit of certain corporate opportunities. ● Provisions of Delaware law or the Charter could delay or prevent an acquisition of the Company, even if the acquisition would be beneficial to our stockholders, and could make it more difficult for stockholders to change our management. 13 Risks Related to the Transactions: We may not realize the anticipated benefits and cost savings of the Transactions.
Any failure to maintain effective internal control over financial reporting could harm us. ● We have operations located in Israel, and therefore our results may be adversely affected by political, military and economic conditions in Israel. ● Many of our employees in Israel are required to perform military reserve duty. ● We may be adversely affected by a change of the Israeli Consumer Price Index. ● The Argentine government may enact or enforce measures to preempt or respond to social unrest or economic turmoil which may adversely affect our business in Argentina. ● Economic uncertainty and volatility in Brazil may adversely affect our business. ● The Brazilian government has exercised, and may continue to exercise, significant influence over the Brazilian economy. ● Political instability in Brazil may adversely affect Brazil’s economy and investment levels and have a material adverse effect on the Company. ● Economic uncertainty and volatility in Mexico may adversely affect our business. ● Holders of our Series A Preferred Stock can exercise significant control over the Company, which could limit the ability of our stockholders to influence the outcome of key transactions, including a change of control. ● The Series A Preferred Stock has rights, preferences and privileges that are not held by, and are preferential to, the rights of holders of our common stock, which could adversely affect our liquidity and financial condition, and may result in the interests of the holders of Series A Preferred Stock differing from those of the holders of our common stock. ● Any issuance of our common stock upon conversion of the Series A Preferred Stock will cause dilution to then existing Company stockholders and may depress the market price of our common stock. ● The concentration of common stock ownership among our executive officers and directors could limit the ability of other stockholders of the Company to influence the outcome of corporate transactions or other matters submitted for stockholder approval. ● Future sales of our common stock, including sales of our common stock acquired upon the exercise of outstanding options, may cause the market price of our common stock to decline. ● Our Charter provides that the Court of Chancery of the State of Delaware will be the exclusive forum for certain legal actions between us and our stockholders, which could limit stockholders’ ability to obtain a judicial forum viewed by the stockholders as more favorable for disputes with us or our directors, officers or employees, and the enforceability of the exclusive forum provision may be subject to uncertainty. ● The Charter contains a provision renouncing our interest and expectancy in certain corporate opportunities which may prevent us from receiving the benefit of certain corporate opportunities. ● Provisions of Delaware law or the Charter could delay or prevent an acquisition of the Company, even if the acquisition would be beneficial to our stockholders, and could make it more difficult for stockholders to change our management. 13 Risks Related to Our Business: We have incurred significant losses and have a substantial accumulated deficit.
If we issue all of the remaining available securities included in the shelf registration statement, there could be a substantial dilutive effect on our common stock and an adverse effect on the price of our common stock. 37 Our Charter provides that the Court of Chancery of the State of Delaware will be the exclusive forum for certain legal actions between us and our stockholders, which could limit stockholders’ ability to obtain a judicial forum viewed by the stockholders as more favorable for disputes with us or our directors, officers or employees, and the enforceability of the exclusive forum provision may be subject to uncertainty.
Our Charter provides that the Court of Chancery of the State of Delaware will be the exclusive forum for certain legal actions between us and our stockholders, which could limit stockholders’ ability to obtain a judicial forum viewed by the stockholders as more favorable for disputes with us or our directors, officers or employees, and the enforceability of the exclusive forum provision may be subject to uncertainty.
We have 35,967,442 shares of common stock outstanding as of March 10, 2022, of which 33,263,698 shares are freely transferable without restriction, and 2,703,744 shares are held by our officers and directors and, as such, are subject to the applicable volume, manner of sale, holding period and other limitations of Rule 144 under the Securities Act.
We have 36,170,299 shares of common stock outstanding as of March 20, 2023, of which 35,088,407 shares are freely transferable without restriction, and 1,081,892 shares are held by our officers and directors and, as such, are subject to the applicable volume, manner of sale, holding period and other limitations of Rule 144 under the Securities Act.
The indebtedness is secured by first ranking and exclusive fixed and floating charges, including by PowerFleet Israel over the entire share capital of Pointer and by Pointer over all of its assets, as well as cross guarantees between PowerFleet Israel and Pointer.
The indebtedness is secured by first ranking and exclusive fixed and floating charges, including by Powerfleet Israel over the entire share capital of Pointer and by Pointer over all of its assets, and a first ranking fixed pledge and assignment by Pointer over its bank account that was opened in connection with the New Revolver and all of the rights relating thereunder, as well as cross guarantees between Powerfleet Israel and Pointer.
In addition, if we make changes to our business strategy or if external conditions adversely affect our business operations, we may be required to record an impairment charge for goodwill or intangibles, which would lead to decreased assets and reduced net operating performance. The unpredictability of our quarterly operating results could adversely affect the market price of our common stock.
In addition, if we make changes to our business strategy or if external conditions adversely affect our business operations, we may be required to record an impairment charge for goodwill or intangibles, which would lead to decreased assets and reduced net operating performance. Our expansion into new products, services, and technologies, subjects us to additional risks.
In addition, a substantial increase in inflation may weaken investor confidence in Brazil, impacting our ability to finance our operations in Brazil. 32 In August 2014, Pointer Brazil received a notice from the Brazilian tax authority alleging that it had not paid an aggregate of $190,000 in value-added tax, the Brazilian ICMS tax, plus $957,000 of interest and penalties, resulting in a total amount of $1,147,000 of alleged tax deficiency as of December 31, 2021.
In August 2014, Pointer Brazil received a notice from the Brazilian tax authority alleging that it had not paid an aggregate of $197,000 in value-added tax, the Brazilian ICMS tax, plus $1,057,000 of interest and penalties, resulting in a total amount of $1,254,000 of alleged tax deficiency as of December 31, 2022.
Many of our products are the result of complex manufacturing processes and are sometimes dependent on components with a limited source of supply. As a result, we can provide no assurances that supply sources will not be interrupted from time to time. Furthermore, our subcontractors or vendors may fail to obtain supply components and fail to deliver our products.
As a result, we can provide no assurances that supply sources will not be interrupted from time to time. Furthermore, our subcontractors or vendors may fail to obtain supply components and fail to deliver our products. As a result, a failure to deliver by our subcontractors or vendors can result in decreased revenues.
If a significant portion of these shares of common stock were sold in the public market, the market value of our common stock could be adversely affected. The issuance of equity or debt securities under our shelf registration statement could have a negative impact on the price of our common stock.
If a significant portion of these shares of common stock were sold in the public market, the market value of our common stock could be adversely affected.
Our Israeli subsidiaries have incurred significant indebtedness to finance the Transactions. In connection with the Transactions, PowerFleet Israel Ltd. (“PowerFleet Israel”) and Pointer entered into a credit agreement, dated August 19, 2019 (the “Credit Agreement”), with Bank Hapoalim B.M.
(“Powerfleet Israel”) and Pointer entered into a credit agreement, dated August 19, 2019 (the “Credit Agreement”), with Bank Hapoalim B.M.
Additionally, due to agreements with the Confederation of Workers of Mexico in Mexico and the country’s high inflation rate, we may be required to increase employee salaries at a rate which could adversely affect our business. 34 Risks Related to our Securities Holders of our Series A Preferred Stock can exercise significant control over the Company, which could limit the ability of our stockholders to influence the outcome of key transactions, including a change of control.
Additionally, due to agreements with the Confederation of Workers of Mexico in Mexico and the country’s high inflation rate, we may be required to increase employee salaries at a rate which could adversely affect our business.
In some circumstances, we may not be able to comply with such standards, which could materially and adversely affect our ability to generate revenues through the sale of our products. 24 Because our products are complex, they may have undetected errors or failures when they are introduced, which could seriously harm our business, and our product liability insurance may not adequately protect us.
In some circumstances, we may not be able to comply with such standards, which could materially and adversely affect our ability to generate revenues through the sale of our products.
In addition, as of December 31, 2021, options to purchase 3,470,000 shares of our common stock were issued and outstanding, of which 1,546,000 were vested. The weighted-average exercise price of the vested stock options is $5.67.
In addition, as of December 31, 2022, time-based options and market-based stock options subject to performance-based vesting conditions, to purchase 2,728,000 and 5,065,000 shares of our common stock, respectively, were issued and outstanding, of which 1,247,000 and 0, respectively were vested. The weighted-average exercise price of the vested non-market based stock options is $5.79.
As a result of COVID-19, we have experienced delays in supply chain deliveries, extended lead times and shortages of key components, some raw material cost increases and slowdowns at certain production facilities. These disruptions have delayed and may continue to delay the timing of some orders and expected deliveries of our products.
Over the past two years, we have experienced delays in supply chain deliveries, extended lead times and shortages of key components, some raw material cost increases and slowdowns at certain production facilities.
Our management has concluded that a material weakness in our internal control over financial reporting existed as of December 31, 2021 due to the lack of controls to ensure accurate reporting of financial results in Israel.
Our management has concluded that material weaknesses in our internal control over financial reporting existed as of December 31, 2022 due to the lack of controls related to the determination of standalone selling price, capitalized software costs and the financial statement close process.
Accordingly, if we are not successful in attracting or retaining qualified personnel in the future, our ability to manage our business could be materially and adversely affected. We provide no assurance that we will be able to successfully integrate any businesses, products, technologies or personnel that we have acquired or might acquire in the future.
Accordingly, if we are not successful in attracting or retaining qualified personnel in the future, our ability to manage our business could be materially and adversely affected. The unpredictability of our quarterly operating results could adversely affect the market price of our common stock.
As a result, a failure to deliver by our subcontractors or vendors can result in decreased revenues. Such interruption or delay of our suppliers to deliver components or interruption or delay of our vendors or subcontractors to deliver our products could affect our business, financial condition or results of operations.
Such interruption or delay of our suppliers to deliver components or interruption or delay of our vendors or subcontractors to deliver our products could affect our business, financial condition or results of operations. Our Israeli subsidiaries have incurred significant indebtedness to finance the Transactions. In connection with the Transactions, Powerfleet Israel Ltd.
We may require additional capital in the future to develop and commercialize additional products and technologies or take advantage of other opportunities that may arise, including potential acquisitions. We may seek to raise the necessary funds through public or private equity offerings, debt financings, additional operating improvements, asset sales or strategic alliances and licensing arrangements.
We may seek to raise the necessary funds through public or private equity offerings, debt financings, additional operating improvements, asset sales or strategic alliances and licensing arrangements. To the extent we raise additional capital by issuing equity securities, including pursuant to our shelf registration statement, our existing stockholders may experience substantial dilution.
If we cannot demonstrate that harm would be caused to us, we may be unable to prevent our competitors from benefiting from the expertise of our former employees. Manufacturing of many of our products is highly complex, and an interruption by suppliers, subcontractors or vendors could adversely affect our business, financial condition or results of operations.
If we cannot demonstrate that harm would be caused to us, we may be unable to prevent our competitors from benefiting from the expertise of our former employees. In January 2023, the U.S.
These risks include, among others, the following: ● We may not realize the anticipated benefits and cost savings of the Transactions. ● Integrating I.D. Systems’ and Pointer’s businesses may be more difficult, time-consuming or costly than expected. ● We have incurred significant losses and have a substantial accumulated deficit.
These risks include, among others, the following: ● We have incurred significant losses and have a substantial accumulated deficit.
Globally, there is an ongoing significant shortage of semiconductors. The semiconductor supply chain is complex, with capacity constraints occurring throughout.
These disruptions have delayed and may continue to delay the timing of some orders and expected deliveries of our products, which has impacted our business and results of operations. Many of the products we supply are reliant on semiconductors. Globally, there is an ongoing significant shortage of semiconductors. The semiconductor supply chain is complex, with capacity constraints occurring throughout.
If the current uncertainty in the general economy does not change or continue to improve, our business, financial condition and results of operations could be harmed. 18 The international scope of our business exposes us to risks associated with foreign exchange rates. We report our financial results in U.S. dollars.
If the current uncertainty in the general economy does not change or continue to improve, our business, financial condition and results of operations could be harmed. More recently, the closures of Silicon Valley Bank and Signature Bank and their placement into receivership with the Federal Deposit Insurance Corporation (“FDIC”) created bank-specific and broader financial institution liquidity risk and concerns.
We may, from time to time, continue to consider investments in or acquisitions of complementary companies, products or technologies.
We provide no assurance that we will be able to successfully integrate any businesses, products, technologies or personnel that we have acquired or might acquire in the future. We may, from time to time, consider combinations with or acquisitions of complementary companies, products, or technologies.
Removed
The success of the Transactions will depend, in part, on our ability to realize the anticipated benefits and cost savings from combining I.D. Systems’ and Pointer’s businesses. Our ability to realize these anticipated benefits and cost savings is subject to certain risks, including, among others: ● our ability to successfully combine I.D.
Added
For example, on March 6, 2023, we entered into a definitive share purchase and transfer agreement (the “SPA”) with Swiss Re Reinsurance Holding Company Ltd (“Swiss Re”) to acquire all of the outstanding shares of Movingdots GmbH (“Movingdots”), a leading provider of insurance telematics and sustainable mobility solutions and wholly owned subsidiary of Swiss Re.
Removed
Systems’ and Pointer’s businesses; ● the risk that the combined businesses will not perform as expected; ● the extent to which we will be able to realize the expected synergies, which include realizing potential savings from re-assessing priority assets and aligning investments, eliminating duplication and redundancy, adopting an optimized operating model between both companies and leveraging scale, and creating value resulting from the combination of I.D.
Added
Although the Department of the Treasury, the Federal Reserve, and the FDIC jointly released a statement that depositors at Silicon Valley Bank and Signature Bank would have access to their funds, even those in excess of the standard FDIC insurance limits, future adverse developments with respect to specific financial institutions or the broader financial services industry may lead to market-wide liquidity shortages.
Removed
Systems’ and Pointer’s businesses; ● the possibility that the aggregate consideration being paid for Pointer is greater than the value we will derive from the Transactions; ● the possibility that the combined company will not achieve the free cash flow that we have projected; ● the reduction of cash available for operations and other uses and the incurrence of indebtedness to finance the Transactions; ● the assumption of known and unknown liabilities of Pointer, including potential tax and employee-related liabilities; and ● the possibility of costly litigation challenging the Transactions.
Added
The failure of any bank in which we deposit our funds could reduce the amount of cash we have available for our operations or delay our ability to access such funds. Any such failure may increase the possibility of a sustained deterioration of financial market liquidity, or illiquidity at clearing, cash management and/or custodial financial institutions.
Removed
If I.D. Systems and Pointer are not able to successfully integrate their businesses within the anticipated time frame, or at all, the anticipated cost savings, synergies operational efficiencies and other benefits of the Transactions may not be realized fully or may take longer to realize than expected, and the combined company may not perform as expected. Integrating I.D.
Added
In the event we have a commercial relationship with a bank that has failed or is otherwise distressed, we may experience delays or other issues in meeting our financial obligations.
Removed
Systems’ and Pointer’s businesses may be more difficult, time-consuming or costly than expected. Prior to completion of the Transactions, I.D. Systems and Pointer operated independently, and there can be no assurances that their businesses can be integrated successfully.
Added
If other banks and financial institutions enter receivership or become insolvent in the future in response to financial conditions affecting the banking system and financial markets, our ability to access our cash and cash equivalents may be threatened and could have a material adverse effect on our business and financial condition. 17 The international scope of our business exposes us to risks associated with foreign exchange rates.
Removed
It is possible that the integration process could result in the loss of key employees, the disruption of either company’s or both companies’ ongoing businesses or unexpected integration issues, such as higher than expected integration costs and an overall post-completion integration process that takes longer than originally anticipated. Specifically, issues that must be addressed in integrating the operations of I.D.
Added
We may need to obtain additional capital to fund our operations that could have negative consequences on our business. We may require additional capital in the future to develop and commercialize additional products and technologies or take advantage of other opportunities that may arise, including potential acquisitions.
Removed
Systems and Pointer in order to realize the anticipated benefits of the Transactions, so the combined business performs as expected include, among others: ● combining the companies’ separate operational, financial, reporting and corporate functions; ● integrating the companies’ technologies, products and services; ● identifying and eliminating redundant and underperforming operations and assets; ● harmonizing the companies’ operating practices, employee development, compensation and benefit programs, internal controls and other policies, procedures and processes; ● addressing possible differences in corporate cultures and management philosophies; ● maintaining employee morale and retaining key management and other employees; ● attracting and recruiting prospective employees; ● consolidating the companies’ corporate, administrative and information technology infrastructure; ● coordinating sales, distribution and marketing efforts; ● managing the movement of certain businesses and positions to different locations; ● maintaining existing agreements with customers and vendors and avoiding delays in entering into new agreements with prospective customers and vendors; ● coordinating geographically dispersed organizations; and ● effecting potential actions that may be required in connection with obtaining regulatory approvals.
Added
Because our products are complex, they may have undetected errors or failures when they are introduced, which could seriously harm our business, and our product liability insurance may not adequately protect us. Technical products like ours often contain undetected errors or failures when first introduced.
Removed
In addition, at times, the attention of certain members of our management and our resources may be focused on the integration of the businesses of the two companies and diverted from day-to-day business operations, which may disrupt our business. 14 Risks Related to Our Business: We have incurred significant losses and have a substantial accumulated deficit.
Added
Federal Trade Commission (“FTC”) announced a Notice of Proposed Rulemaking for a broad ban on non-compete clauses between employers and workers and is currently seeking public comment on the proposed rule.
Removed
If the impact of the supply chain disruptions are more severe than we expect, it could result in longer lead times, inventory supply challenges and further increased costs, all of which could materially adversely affect our business, financial condition and results of operations. Many of the products we supply are reliant on semiconductors.
Added
Specifically, the proposed rule would make it illegal for an employer to, among other things, enter into or attempt to enter into a non-compete with a worker; maintain a non-compete with a worker; or represent to a worker, under certain circumstances, that the worker is subject to a non-compete.
Removed
We expect that the impact of COVID-19 will continue to adversely affect our business, results of operations and financial condition. The global outbreak of COVID-19, and mitigation efforts by governments to attempt to control its spread, has resulted in significant economic disruption and continues to adversely impact the broader global economy.
Added
While we cannot predict whether or when the FTC’s proposed ban on non-compete arrangements will be implemented, or the impact that such ban will have on our operations if implemented, there is now increased uncertainty regarding the long-term enforceability of our non-competition agreements with employees in the U.S.
Removed
COVID-19 may continue to negatively affect our future business, results of operations and financial condition.

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Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities. Market Information Our common stock is traded on the Nasdaq Global Market and the Tel Aviv Stock Exchange, in each case under the symbol “PWFL.” Holders As of March 10, 2022, there were 29 holders of record of our common stock.
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities. Market Information Our common stock is traded on the Nasdaq Global Market and the Tel Aviv Stock Exchange, in each case under the symbol “PWFL.” Holders As of March 20, 2023, there were 27 holders of record of our common stock.
The following table provides information regarding our share repurchase activity for each month of the quarterly period ended December 31, 2021: Period Total Number of Shares Purchased Average Price Paid per Share Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs October 1, 2021 - October 31, 2021 2,000 $ 6.65 (1) $ - $ - November 1, 2021 - November 30, 2021 11,000 $ 6.83 (1) $ - $ - December 1, 2021 - December 31, 2021 69,000 $ 4.75 (1) $ - $ - Total 82,000 $ 5.07 $ - $ - (1) Represents shares of common stock withheld to satisfy minimum tax withholding obligations in connection with the vesting of restricted stock.
The following table provides information regarding our share repurchase activity for each month of the quarterly period ended December 31, 2022: Period Total Number of Shares Purchased Average Price Paid per Share Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs October 1, 2022 - October 31, 2022 - $ - $ - $ - November 1, 2022 - November 30, 2022 6,000 $ 2.76 (1) $ - $ - December 1, 2022 - December 31, 2022 - $ - $ - $ - Total 6,000 $ 2.76 $ - $ - (1) Represents shares of common stock withheld to satisfy minimum tax withholding obligations in connection with the vesting of restricted stock.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Net loss attributable to common stockholders was $18.1 million, or $(0.52) per basic and diluted share, for 2021 as compared to net loss of $13.6 million, or $(0.46) per basic and diluted share, for the same period in 2020. The decrease in the net loss was due primarily to the reasons described above.
NET LOSS ATTRIBUTABLE TO COMMON STOCKHOLDERS. Net loss attributable to common stockholders was $18.1 million, or $(0.52) per basic and diluted share, for 2021 as compared to net loss of $13.6 million, or $(0.46) per basic and diluted share, for the same period in 2020. The decrease in the net loss was due primarily to the reasons described above.
Our primary sources of cash are cash flows from operating activities, our holdings of cash, cash equivalents and investments from the sale of our capital stock and borrowings under our credit facility. To date, we have not generated sufficient cash flow solely from operating activities to fund our operations.
Our primary sources of cash are cash flows from operating activities, our holdings of cash, cash equivalents and investments from the sale of our capital stock and borrowings under our credit facility. To date, we have not generated sufficient cash flow solely from operating activities to fund our operations.
Financing Activities Net cash provided by financing activities was $16.2 million for the year ended December 31, 2021, compared to net cash used in financing activities of $3.9 million for the same period in 2020.
Net cash provided by financing activities was $16.2 million for the year ended December 31, 2021, compared to net cash used in financing activities of $3.9 million for the same period in 2020.
The decrease in gross profit as a percentage of revenue was principally due to changes in product mix and higher costs for components as a result of the global supply chain issues. Cost of products increased by approximately $9.2 million, or 30.5%, to $39.4 million in 2021 from $30.2 million in 2020.
The decrease in gross profit as a percentage of revenue was principally due to changes in product mix and higher costs for components as a result of the global supply chain issues. 38 Cost of products increased by approximately $9.2 million, or 30.5%, to $39.4 million in 2021 from $30.2 million in 2020.
Across our vertical markets we differentiate ourselves by being OEM agnostic and helping mixed fleets view and manage their assets similarly. All of our solutions are paired with software as a service, or SaaS, analytics platforms to provide an even deeper layer of insights.
Across our vertical markets we differentiate ourselves by being OEM agnostic and helping mixed fleets view and manage their assets similarly. All of our solutions are paired with software as a service (SaaS) analytics platforms to provide an even deeper layer of insights.
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. 43 Goodwill and Intangibles Goodwill represents costs in excess of fair values assigned to the underlying net assets of acquired businesses.
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. Goodwill and Intangibles Goodwill represents costs in excess of fair values assigned to the underlying net assets of acquired businesses.
(together with its subsidiaries, “PowerFleet,” the “Company,” “we,” “our” or “us”) is a global leader of Internet-of-Things (“IOT”) solutions providing valuable business intelligence for managing high-value enterprise assets that improve operational efficiencies. We are headquartered in Woodcliff Lake, New Jersey, with offices located around the globe.
(together with its subsidiaries, “Powerfleet,” the “Company,” “we,” “our” or “us”) is a global leader of Internet-of-Things (IOT) solutions providing valuable business intelligence for managing high-value enterprise assets that improve operational efficiencies. We are headquartered in Woodcliff Lake, New Jersey, with offices located around the globe.
For the years ended December 31, 2019, 2020 and 2021, interest and penalties were immaterial. 44 Results of Operations The following table sets forth certain items related to our statement of operations as a percentage of revenues for the periods indicated and should be read in conjunction with our consolidated financial statements and the related notes included elsewhere in this Annual Report on Form 10-K.
For the years ended December 31, 2020, 2021 and 2022, interest and penalties were immaterial. 36 Results of Operations The following table sets forth certain items related to our statement of operations as a percentage of revenues for the periods indicated and should be read in conjunction with our consolidated financial statements and the related notes included elsewhere in this Annual Report on Form 10-K.
These insights include a full set of operational Key Performance Indicators, or KPI’s, to drive operational and strategic decisions. These KPI’s leverage industry comparisons to show how a company is performing versus their peers. The more data the system collects, the more accurate a client’s understanding becomes.
These insights include a full set of operational Key Performance Indicators (KPIs) to drive operational and strategic decisions. These KPIs leverage industry comparisons to show how a company is performing versus their peers. The more data the system collects, the more accurate a client’s understanding becomes.
This updated standard is effective for fiscal years beginning after December 15, 2021. The Company is currently evaluating the impact of this ASU on the consolidated financial statements.
This updated standard is effective for fiscal years beginning after December 15, 2022. The Company is currently evaluating the impact of this ASU on the consolidated financial statements.
Failure to generate positive cash flow from operations will have a material adverse effect on our business, financial condition and results of operations. 48 Operating Activities Net cash used in operating activities was $5.0 million for the year ended December 31, 2021, compared to net cash provided by operating activities of $8.8 million for the same period in 2020.
Failure to generate positive cash flow from operations will have a material adverse effect on our business, financial condition and results of operations. 40 Operating Activities Net cash provided by operating activities was $0.8 million for the year ended December 31, 2022, compared to net cash used in operating activities of $5.0 million for the same period in 2021.
The net cash used in operating activities for the year ended December 31, 2021, reflects a net loss of $18.1 million and includes non-cash charges of $4.7 million for stock-based compensation, $8.6 million for depreciation and amortization expense and $2.9 million for right of use asset amortization.
The net cash used in operating activities for the year ended December 31, 2021 reflects a net loss of $13.3 million and includes non-cash charges of $4.7 million for stock-based compensation, $8.6 million for depreciation and amortization expense and $2.9 million for right of use asset amortization.
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.
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.
Year Ended December 31, 2019 2020 2021 Revenue: Products 55.4 % 40.2 % 42.0 % Services 44.6 % 59.8 % 58.0 % 100.0 % 100.0 % 100.0 % Cost of Revenue: Cost of products 36.6 % 26.6 % 31.2 % Cost of services 16.6 % 21.4 % 21.1 % 53.2 % 48.0 % 52.3 % Gross profit 46.8 % 52.0 % 47.7 % Operating expenses: Selling, general and administrative expenses 42.1 % 45.7 % 45.2 % Research and development expenses 10.4 % 9.3 % 8.8 % Acquisition related expenses 6.3 % 0.0 % 0.0 % Total operating expenses 58.8 % 55.0 % 54.0 % Loss from operations -11.9 % -3.0 % -6.3 % Interest income 0.2 % 0.1 % 0.0 % Interest expense -1.7 % -3.9 % -2.2 % Other income (expenses) net, -0.1 % -0.1 % 0.0 % Net loss before income taxes -13.5 % -7.0 % -8.5 % Income tax benefit (expense) 0.1 % -0.9 % -2.0 % Net loss before non-controlling interest -13.4 % -7.9 % -10.5 % Non-controlling interest 0.0 % 0.0 % 0.0 % Net loss -13.4 % -7.9 % -10.5 % Accretion of preferred stock -0.2 % -0.6 % -0.5 % Preferred stock dividend -1.1 % -3.5 % -3.3 % Net loss attributable to common shareholders -14.7 % -11.9 % -14.3 % 45 Year Ended December 31, 2021, Compared to Year Ended December 31, 2020 REVENUES.
Year Ended December 31, 2020 2021 2022 Revenue: Products 40.2 % 42.0 % 41.7 % Services 59.8 % 58.0 % 58.3 % 100.0 % 100.0 % 100.0 % Cost of Revenue: Cost of products 26.6 % 31.2 % 31.5 % Cost of services 21.4 % 21.1 % 21.0 % 48.0 % 52.3 % 52.5 % Gross profit 52.0 % 47.7 % 47.5 % Operating expenses: Selling, general and administrative expenses 45.7 % 45.2 % 46.6 % Research and development expenses 9.3 % 8.8 % 6.7 % Total operating expenses 55.0 % 54.0 % 53.3 % Loss from operations -3.0 % -6.3 % -5.8 % Interest income 0.1 % 0.0 % 0.1 % Interest expense -3.9 % -2.2 % 0.7 % Other income (expenses) net, -0.1 % 0.0 % 0.0 % Net loss before income taxes -7.0 % -8.5 % -5.0 % Income tax benefit (expense) -0.9 % -2.0 % -0.2 % Net loss before non-controlling interest -7.9 % -10.5 % -5.2 % Non-controlling interest 0.0 % 0.0 % 0.0 % Net loss -7.9 % -10.5 % -5.2 % Accretion of preferred stock -0.6 % -0.5 % -0.5 % Preferred stock dividend -3.5 % -3.3 % -3.1 % Net loss attributable to common shareholders -11.9 % -14.3 % -8.8 % 37 Year Ended December 31, 2022 Compared to Year Ended December 31, 2021 REVENUES.
Research and development (“R&D”) expenses increased by approximately $0.5 million, or 4.4%, to $11.1 million in 2021 compared to $10.6 million in 2020 principally due to increased salaries due to the reversal of temporary cost reduction initiatives implemented during the first quarter of 2020 in response to the impact and uncertainty caused by COVID-19.
R&D expenses increased by approximately $0.5 million, or 4.4%, to $11.1 million in 2021 compared to $10.6 million in 2020 principally due to increased salaries due to the reversal of temporary cost reduction initiatives implemented during the first quarter of 2020 in response to the impact and uncertainty caused by COVID-19.
Selling, general and administrative (“SG&A”) expenses increased by approximately $5.2 million, or 10.0%, to $57.1 million in 2021 compared to $51.9 million in 2020 principally due to increased salaries due to the reversal of temporary cost reduction initiatives implemented during the first quarter of 2020 in response to the impact and uncertainty caused by COVID-19.
SG&A expenses increased by approximately $5.2 million, or 10.0%, to $57.1 million in 2021 compared to $51.9 million in 2020 principally due to increased salaries due to the reversal of temporary cost reduction initiatives implemented during the first quarter of 2020 in response to the impact and uncertainty caused by COVID-19.
We believe our available working capital, anticipated level of future revenues and expected cash flows from operations will provide sufficient funds to cover capital requirements through at least March 16, 2023.
We believe that our available working capital, anticipated level of future revenues and expected cash flows from operations will provide sufficient funds to cover capital requirements through at least March 31, 2024.
We incurred net losses of approximately, $12 million, $13.6 million, and $18.1 million for the years ended December 31, 2019, 2020 and 2021, respectively, and have incurred additional net losses since inception.
We incurred net losses of approximately $13.6 million, $18.1 million, and $11.9 million for the years ended December 31, 2020, 2021 and 2022, respectively, and have incurred additional net losses since inception.
Revenues from services increased by approximately $5.3 million, or 7.8%, to $73.2 million in 2021 from $67.9 million in 2020. The increase in services revenue is principally due to an increase in our install base that generates service revenue. COST OF REVENUES.
The increase in product revenue is attributable to an increase in sales by our Powerfleet for Logistics products. Revenues from services increased by approximately $5.3 million, or 7.8%, to $73.2 million in 2021 from $67.9 million in 2020. The increase in services revenue is principally due to an increase in our install base that generates service revenue. COST OF REVENUES.
Because of the nature of these judgments and assumptions, actual results could differ significantly from these judgments and estimates, which could have a material impact on the carrying values of our assets and liabilities and our results of operations. Our critical accounting policies are described below.
Because of the nature of these judgments and assumptions, actual results could differ significantly from these judgments and estimates, which could have a material impact on the carrying values of our assets and liabilities and our results of operations.
The net cash provided by operating activities for the year ended December 31, 2020, reflects a net loss of $13.6 million and includes non-cash charges of $4.6 million for preferred dividends, $4.3 million for stock-based compensation, $8.4 million for depreciation and amortization expense and $2.8 million for right of use asset amortization.
The net cash provided by operating activities for the year ended December 31, 2022 reflects a net loss of $7.0 million and includes non-cash charges of $4.3 million for stock-based compensation, $8.3 million for depreciation and amortization expense and $2.8 million for right of use asset amortization.
We are proactively taking steps to increase available cash on hand including, but not limited to, targeted reductions in discretionary operating expenses and capital expenditures and borrowing under the revolving credit facility. Capital Requirements As of December 31, 2021, we had cash (including restricted cash), cash equivalents and marketable securities of $26.8 million and working capital of $43.6 million.
We are proactively taking steps to increase available cash on hand including, but not limited to, targeted reductions in discretionary operating expenses and capital expenditures and borrowing under the revolving credit facility. Capital Requirements As of December 31, 2022, we had cash (including restricted cash), cash equivalents and marketable securities of $18.0 million and working capital of $35.5 million.
Net cash provided by operating activities was $8.8 million for the year ended December 31, 2020, compared to net cash used in operating activities of $7.3 million for the same period in 2019.
Net cash used in operating activities was $5.0 million for the year ended December 31, 2021, compared to net cash provided by operating activities of $8.8 million for the same period in 2020.
Income Taxes We use the asset and liability method of accounting for deferred income taxes. Deferred income taxes are measured by applying enacted statutory rates to net operating loss carryforwards and to the differences between the financial reporting and tax bases of assets and liabilities.
Deferred income taxes are measured by applying enacted statutory rates to net operating loss carryforwards and to the differences between the financial reporting and tax bases of assets and liabilities.
Investing Activities Net cash used in investing activities was $3.4 million for the year ended December 31, 2021, compared to net cash used in investing activities of $3.3 million for the same period in 2020. The cash used in investing activities for the year ended December 31, 2021, was for the purchase of fixed assets.
The cash used in investing activities for the years ended December 31, 2022 and 2021 was primarily for the purchase of fixed assets and capitalized software development. Net cash used in investing activities was $3.4 million for the year ended December 31, 2021, compared to net cash used in investing activities of $3.3 million for the same period in 2020.
We look for analytics, as well as the data contained therein, to differentiate us from our competitors, make a growing contribution to revenue, and add value to our solutions, and help keep us at the forefront of the wireless asset management markets we serve. 41 We sell our wireless mobility solutions to both corporate-level executives, division heads and site-level management within the enterprise.
We look for analytics, as well as the data contained therein, to differentiate us from our competitors, make a growing contribution to revenue, add value to our solutions, and help keep us at the forefront of the wireless asset management markets we serve.
The decrease in the net loss was due primarily to the reasons described above Liquidity and Capital Resources Historically, our capital requirements have been funded primarily from the net proceeds from the issuance of our securities, including any issuances of our common stock upon the exercise of options.
Liquidity and Capital Resources Historically, our capital requirements have been funded primarily from the net proceeds from the issuance of our securities, including any issuances of our common stock upon the exercise of options.
(“Hapoalim”), pursuant to which Hapoalim agreed to provide PowerFleet Israel with two senior secured term loan facilities in an aggregate principal amount of $30 million (comprised of two facilities in the aggregate principal amount of $20 million (the “Term A Facility”) and $10 million (the “Term B Facility”)) and a five-year revolving credit facility to Pointer in an aggregate principal amount of $10 million (the “Revolving Facility”).
In addition, our wholly owned subsidiaries, Powerfleet Israel and Pointer (collectively, the “Borrowers”) are party to the Credit Agreement with Hapoalim, pursuant to which Hapoalim agreed to provide Powerfleet Israel with two senior secured term loan facilities denominated in NIS in an initial aggregate principal amount of $30 million (comprised of the Term A Facility and the Term B Facility in the aggregate principal amount of $20 million and $10 million, respectively) and a five-year revolving credit facility to Pointer denominated in NIS in an initial aggregate principal amount of $10 million (the “Revolving Facility”).
Net cash used in financing activities was $3.9 million for the year ended December 31, 2020, compared to net cash provided by financing activities of $78.6 million for the same period in 2019.
Financing Activities Net cash used in financing activities was $0.3 million for the year ended December 31, 2022, compared to net cash provided by financing activities of $16.2 million for the same period in 2021.
Our customers operate in diverse markets, such as automotive manufacturing, heavy industry, retail food and grocery distribution, logistics, wholesale distribution, transportation, aviation, manufacturing, aerospace and defense, homeland security and vehicle rental.
We market and sell our solutions to a wide range of customers in the commercial and government sectors. Our customers operate in diverse markets, such as automotive manufacturing, heavy industry, retail food and grocery distribution, logistics, wholesale distribution, transportation, aviation, manufacturing, aerospace and defense, homeland security and vehicle rental.
Revenue Recognition We 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. 42 Revenue is recognized when performance obligations under the terms of a contract with our customer are satisfied.
Our critical accounting policies are described below. 35 Revenue Recognition We 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.
Revenues increased by approximately $12.6 million, or 11.1%, to $126.2 million in 2021 from $113.6 million in 2020. Revenues from products increased by approximately $7.3 million, or 16.1%, to $53.0 million in 2021 from $45.7 million in 2020. The increase in product revenue is attributable to an increase in sales by our PowerFleet for Logistics business.
Revenues increased by approximately $8.9 million, or 7.1%, to $135.2 million in 2022 from $126.2 million in 2021. Revenues from products increased by approximately $3.3 million, or 6.3%, to $56.3 million in 2022 from $53.0 million in 2021. The increase in product revenues is attributable to an increase in sales by our Powerfleet for Logistics and Powerfleet for Industrial products.
The cash used in investing activities in the same period in 2020 was primarily for the purchase of fixed assets. Net cash used in investing activities was $3.3 million for the year ended December 31, 2020, compared to net cash used in investing activities of $65.5 million for the same period in 2019.
Investing Activities Net cash used in investing activities was $5.8 million for the year ended December 31, 2022, compared to net cash used in investing activities of $3.4 million for the same period in 2021.
We also utilize channel partners such as independent dealers and original equipment manufacturers, or OEMs, who may opt for us to white label our product. Typically, our initial system deployment serves as a basis for potential expansion across the customer’s organization.
We sell our wireless mobility solutions to both corporate-level executives, division heads and site-level management within the enterprise. We also utilize channel partners such as independent dealers and OEMs who may opt for us to white label our product. Typically, our initial system deployment serves as a basis for potential expansion across the customer’s organization.
We work closely with customers to help maximize the utilization and benefits of our system and demonstrate the value of enterprise-wide deployments.
We work closely with customers to help maximize the utilization and benefits of our system and demonstrate the value of enterprise-wide deployments. Post-implementation, we consult with our customers to further extend and customize the benefits to the enterprise by delivering enhanced analytics capabilities.
Interest expense decreased by $1.7 million, or 38.1%, to $2.8 million in 2021 from $4.5 million in 2020, due to the continued paydown of principal on our credit facility with Bank Hapoalim and the full paydown in 2020 of the convertible unsecured promissory notes in the aggregate principal amount of $5,000,000 (the “Notes”) that we issued to ABRY Senior Equity V, L.P., ABRY Senior Equity Co-Investment Fund V, L.P and ABRY Investment Partnership, L.P.
Interest expense decreased by $1.7 million, or 38.1%, to $2.8 million in 2021 from $4.5 million in 2020, due to the continued paydown of principal on our credit facility with Hapoalim and the full pay down in 2020 of the convertible unsecured promissory notes in the aggregate principal amount of $5,000,000 (the “Notes”) that we issued to the Investors and a decrease in the foreign currency translation losses related to long-term debt included in interest expense.
As of December 31, 2021, we had cash (including restricted cash) and cash equivalents of $26.8 million, working capital of $43.6 million, and an accumulated deficit of $134.4 million.
As of December 31, 2022, we had cash (including restricted cash) and cash equivalents of $18.0 million, working capital of $35.5 million, and an accumulated deficit of $141.4 million.
Changes in working capital items included: ● a decrease in deferred revenue of $4.3 million; ● a decrease in inventory of $3.1 million; and ● a decrease in lease liabilities of $3.0 million.
Changes in working capital items included: ● an increase in accounts receivable of $1.6 million; ● an increase in inventory of $4.5 million; ● a decrease in lease liabilities of $2.7 million; ● a decrease in accounts payable and accrued expenses of $0.5 million.
The Amendment memorializes the agreements between the Borrowers and Hapoalim regarding a reduction in the interest rates of the Term A Facility and the Term B Facility.
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 Term A Facility and the Term B Facility.
As a percentage of revenues, gross profit increased to 52.0% in 2020 from 46.8% in 2019. Cost of products increased by approximately $0.2 million, or 0.8%, to $30.2 million in 2020 from $30.0 million in in 2019. Gross profit for products was $15.4 million in 2020 compared to $15.4 million in 2019.
Cost of services increased by approximately $1.8 million, or 6.7%, to $28.4 million in 2022 from $26.6 million in 2021. Gross profit for services was $50.5 million in 2022 compared to $46.6 million in 2021. As a percentage of service revenues, gross profit increased to 64.0% in 2022 from 63.7% in 2021.
Inflation Rising inflation and other macroeconomic conditions in the U.S. have resulted in higher costs of raw materials, freight, and labor, which has impacted our operating costs. In addition, we operate in several emerging market economies that are particularly vulnerable to the impact of inflationary pressures that could materially and adversely impact our operations in the foreseeable future.
Inflation Rising inflation and other macroeconomic conditions in the U.S. have resulted in higher costs of raw materials, freight, and labor, which has impacted our operating costs.
The outstanding amount under the term loan facilities was $24,400,000 as of December 31, 2021. The proceeds of the term loan facilities were used to finance a portion of the cash consideration payable in our acquisition of Pointer.
The outstanding amount under the term loan facilities was approximately NIS 55.3 million, or $15.9 million, as of December 31, 2022. The proceeds of the term loan facilities were used to finance a portion of the cash consideration payable in our acquisition of Pointer. The proceeds of the revolving credit facility may be used by Pointer for general corporate purposes.
Year Ended December 31, 2020 Compared to Year Ended December 31, 2019 REVENUES. Revenues increased by approximately $31.7 million, or 38.7%, to $113.6 million in 2020 from $81.9 million in 2019.
Year Ended December 31, 2021 Compared to Year Ended December 31, 2020 REVENUES. Revenues increased by approximately $12.6 million, or 11.1%, to $126.2 million in 2021 from $113.6 million in 2020. Revenues from products increased by approximately $7.3 million, or 16.1%, to $53.0 million in 2021 from $45.7 million in 2020.
NET LOSS ATTRIBUTABLE TO COMMON STOCKHOLDERS. Net loss attributable to common stockholders was $13.6 million, or $(0.46) per basic and diluted share, for 2020 as compared to net loss of $12.0 million, or $(0.59) per basic and diluted share, for the same period in 2019.
NET LOSS ATTRIBUTABLE TO COMMON STOCKHOLDERS. Net loss attributable to common stockholders was $11.9 million, or $(0.34) per basic and diluted share, for 2022 as compared to net loss of $18.1 million, or $(0.52) per basic and diluted share, for the same period in 2021. The decrease in the net loss was due primarily to the reasons described above.
The offer and sale of common stock in the ATM Offering and the Underwritten Public Offering were made pursuant to our shelf registration statement. As a result of the COVID-19 pandemic the related global supply chain disruptions, inflation and other cost increases, there remains uncertainty surrounding the potential impact of such events on our results of operations and cash flows.
As a result of global supply chain disruptions, the conflict between Russia and Ukraine, rising interest rates, fluctuations in currency values, inflation and other cost increases, there remains uncertainty surrounding the potential impact of such events on our results of operations and cash flows.
On October 3, 2019, in connection with the completion of the Transactions, we issued and sold 50,000 shares of the Series A Convertible Preferred Stock, par value $0.01 per share (the “Series A Preferred Stock”), to the Investors pursuant to the terms of an Investment and Transaction Agreement, dated as of March 13, 2019 (as such agreement has been amended from time to time, the “Investment Agreement”) for an aggregate purchase price of $50.0 million.
As of December 31, 2022, we had cash (including restricted cash) and cash equivalents of $18.0 million and working capital of $35.5 million, compared to cash (including restricted cash) and cash equivalents of $26.8 million and working capital of $43.6 million as of December 31, 2021. 39 On October 3, 2019, in connection with the completion of the Transactions, we issued and sold 50,000 shares of the Series A Preferred Stock to the Investors pursuant to the terms of the Investment Agreement for an aggregate purchase price of $50.0 million.
The change from the same period in 2019 was primarily due to net proceeds from our ATM Offering of $4 million in 2020 compared to net proceeds from our sale of Series A Preferred Stock to the Investors of $46.3 million in 2019, offset by the repayment of the Notes of $5 million and the repayment of long-term debt of $2.9 million.
The 2021 period was represented by net proceeds from our stock offering of $26.9 million offset by the net repayment of long-term debt of $5.7 million and the payment of preferred stock dividends of $4.1 million.
The increase in the gross profit was attributable to the increase in service revenue resulting from a full year of operations from our acquisition of Pointer. As a percentage of service revenues, gross profit increased to 64.2% in 2020 from 62.8% in 2019. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES.
The increase in gross profit as a percentage of services revenues was principally due to an increase in our install base that generates service revenue. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES.
We repaid in full the aggregate principal amount of $5.0 million and accrued interest under the Notes on October 1, 2020. In addition, our wholly owned subsidiaries, PowerFleet Israel Ltd. (“PowerFleet Israel”) and Pointer (the “Borrowers”) are party to a Credit Agreement (the “Credit Agreement”) with Bank Hapoalim B.M.
We repaid in full the aggregate principal amount of $5.0 million and accrued interest under the Notes on October 1, 2020.
Business Acquisitions In addition to focusing on our core applications, we adapt our systems to meet our customers’ broader asset management needs and seek opportunities to expand our solution offerings through strategic acquisitions. 49 On January 30, 2019, we completed the acquisition of substantially all of the assets of CarrierWeb, L.L.C., and on July 30, 2019, we complete the acquisition of substantially all of the assets of CarrierWeb Services Ltd.
In addition, we operate in several emerging market economies that are particularly vulnerable to the impact of inflationary pressures that could materially and adversely impact our operations in the foreseeable future. 41 Business Acquisitions In addition to focusing on our core applications, we adapt our systems to meet our customers’ broader asset management needs and seek opportunities to expand our solution offerings through strategic acquisitions.
As a percentage of product revenues, gross profit decreased to 33.8% in 2020 from 33.9% in 2019. Cost of services increased by approximately $10.8 million, or 79.5%, to $24.4 million in 2020 from $13.6 million in 2019. Gross profit for services was $43.6 million in 2020 compared to $22.9 million in 2019.
Cost of revenues increased by approximately $5.0 million, or 7.5%, to $71.0 million in 2022 from $66.0 million in 2021. Gross profit was $64.2 million in 2022 compared to $60.2 million in 2021. As a percentage of revenues, gross profit decreased to 47.5% in 2022 from 47.7% in 2021.
Research and development expenses increased by approximately $2.1 million, or 24.1%, to $10.6 million in 2020 compared to $8.5 million in 2019 principally due to our acquisition of Pointer. ACQUISITION-RELATED EXPENSES. Acquisition related expenses decreased to $-0- in 2020 from approximately $5.1 million in 2019 principally due to the completion of the Transactions in 2019. INTEREST EXPENSE.
Research and development (“R&D”) expenses decreased by approximately $2.1 million, or 18.9%, to $9.0 million in 2022 compared to $11.1 million in 2021, principally due to the capitalization of software development expenses for new product development, which increased by $2.2 million in 2022.
Removed
Post-implementation, we consult with our customers to further extend and customize the benefits to the enterprise by delivering enhanced analytics capabilities We market and sell our solutions to a wide range of customers in the commercial and government sectors.
Added
Our PowerFleet for Industrial solutions are designed to provide on-premise or in-facility asset and operator management, monitoring, and visibility for industrial trucks such as forklifts, man-lifts, tuggers and ground support equipment at airports. These solutions utilize a variety of communications capabilities such as Bluetooth ® , WiFi, and proprietary radio frequency.
Removed
The Company performed a market-based quantitative assessment utilizing the guideline public company and guideline transaction approaches by comparing revenue and adjusted EBITDA multiples of similar sized companies and similar sized transactions. For the years ended December 31, 2019, 2020, and 2021, the Company did not incur an impairment charge.
Added
Our PowerFleet for Logistics solutions are designed to provide bumper-to-bumper asset management, monitoring, and visibility for over-the-road based assets such as heavy trucks, dry-van trailers, refrigerated trailers and shipping containers and their associated cargo. These systems provide mobile-asset tracking and condition-monitoring solutions to meet the transportation market’s desire for greater visibility, safety, security, and productivity throughout global supply chains.
Removed
Our results reflect the operations of (i) Pointer Telocation Ltd. from October 3, 2019, the closing date of the transactions pursuant to which we acquired Pointer (the “Transactions”), (ii) the assets we acquired from CarrierWeb Services Ltd. from July 30, 2019, and (iii) the assets we acquired from CarrierWeb, L.L.C from January 30, 2019.
Added
Our PowerFleet for Vehicles solutions are designed both to enhance the vehicle fleet management process, whether it’s a rental car, a private fleet, or automotive original equipment manufacturer (OEM) partners. We achieve this by providing critical information that can be used to increase revenues, reduce costs and improve customer service.
Removed
(the “Investors” and a decrease in the foreign currency translation losses related to long-term debt included in interest expense. NET LOSS ATTRIBUTABLE TO COMMON STOCKHOLDERS.
Added
Revenue is recognized when performance obligations under the terms of a contract with our customer are satisfied.
Removed
The increase in revenue is attributable to a full year of revenue from the Pointer acquisition, which was completed on October 3, 2019, offset by a decrease in revenue in PowerFleet due to the impact COVID-19. Revenues from products increased by approximately $0.3 million, or 0.5%, to $45.7 million in 2020 from $45.4 million in 2019.
Added
The Company performed a quantitative assessment whereby the fair value of the reporting unit is calculated using a market approach and a discounted cash flow method, as a form of the income approach. The market approach includes the use of comparative revenue and adjusted EBITDA multiples to complement discounted cash flow results.
Removed
The increase in product revenue is attributable to a full year of product revenue from the Pointer acquisition, offset by a decrease in product revenue in PowerFleet due to the impact of COVID-19. Revenues from services increased by approximately $31.4 million, or 86.1%, to $67.9 million in 2020 from $36.5 million in 2019.
Added
The discounted cash flow method is based on the present value of the projected cash flows and a terminal value. The terminal value represents the expected normalized future cash flows of the reporting unit beyond the cash flows from the discrete projection period.
Removed
The increase in service revenue is attributable to a full year of service revenue resulting from our acquisition of Pointer. 46 COST OF REVENUES. Cost of revenues increased by approximately $11.0 million, or 25.3%, to $54.6 million in 2020 from $43.6 million in 2019. Gross profit was $59.0 million in 2020 compared to $38.4 million in 2019.
Added
The fair value of the reporting unit is calculated based on the sum of the present value of the cash flows from the discrete period and the present value of the terminal value. The discount rate represented our estimate of the WACC, or expected return, that a marketplace participant would have required as of the valuation date.
Removed
Selling, general and administrative (“SG&A”) expenses increased by approximately $17.4 million, or 50.6%, to $51.9 million in 2020 compared to $34.5 million in 2019. The increase was principally due to our acquisition of Pointer. RESEARCH AND DEVELOPMENT EXPENSES.
Added
The application of our goodwill impairment test required key assumptions underlying our valuation model. The discounted cash flow analysis factored in assumptions on discount rates and terminal growth rates to reflect risk profiles, as well as revenue and cost growth relative to history and market trends and expectations.
Removed
Interest expense increased by $3.1 million, or 225.3%, to $4.5 million in 2020 from $1.4 million in 2019, principally due to a full year of our credit facility with Bank Hapoalim and the “Notes” that we issued to the Investors, compared to a partial year of such interest expense in 2019 and an increase in the foreign currency translation losses related to long-term debt included in interest expense.
Added
The market multiples approach incorporated judgment involved in the selection of comparable public company multiples and benchmarks. The selection of companies and multiples was influenced by differences in growth and profitability, and volatility in market prices of peer companies.
Removed
As of December 31, 2021, we had cash (including restricted cash), and cash equivalents of $26.8 million and working capital of $43.6 million, compared to cash (including restricted cash) and cash equivalents of $18.4 million and working capital of $28.9 million as of December 31, 2020.
Added
These valuation inputs are inherently judgmental, and an adverse change in one or a combination of these inputs could trigger a goodwill impairment loss in the future. For the years ended December 31, 2020, 2021 and 2022, the Company did not incur an impairment charge. Income Taxes We use the asset and liability method of accounting for deferred income taxes.
Removed
The proceeds of the revolving credit facility may be used by Pointer for general corporate purposes. 47 On August 23, 2021, the Borrowers entered into an amendment (the “Amendment”), effective as of August 1, 2021, to the Credit Agreement with Hapoalim.
Added
Revenues from services increased by approximately $5.6 million, or 7.7%, to $78.8 million in 2022 from $73.2 million in 2021. The increase in services revenues is principally due to an increase in our install base that generates service revenue. COST OF REVENUES.
Removed
We have on file a shelf registration statement on Form S-3 that was declared effective by the Securities and Exchange Commission (the “SEC”) on November 27, 2019.
Added
The decrease in gross profit as a percentage of revenues was principally due to increases in raw material costs as a result of global supply chain issues. Cost of products increased by approximately $3.2 million, or 8.1%, to $42.6 million in 2022 from $39.4 million in 2021.
Removed
Pursuant to the shelf registration statement, we may offer to the public from time to time, in one or more offerings, up to $60.0 million of our common stock, preferred stock, warrants, debt securities, and units, or any combination of the foregoing, at prices and on terms to be determined at the time of any such offering.
Added
Gross profit for products was $13.7 million in 2022 compared to $13.5 million in 2021. As a percentage of product revenues, gross profit decreased to 24.3% in 2022 from 25.5% in 2021. The decrease in gross profit as a percentage of product revenues was impacted by product mix, higher costs associated with supply chain issues, electronic component shortages and inflation.
Removed
The specific terms of any future offering will be determined at the time of the offering and described in a prospectus supplement that will be filed with the SEC in connection with such offering.
Added
Selling, general and administrative (“SG&A”) expenses increased by approximately $5.9 million, or 10.3%, to $63.0 million in 2022 compared to $57.1 million in 2021, inclusive of higher foreign currency losses of $0.7 million and higher severance costs of $0.7 million. Other drivers of the increase in expenses include increased salaries and related expenses, professional fees, and marketing and travel expenses.

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