Powerfleet, Inc. 10-Q

Item 1. Financial Statements POWERFLEET, INC. AND SUBSIDIARIES Condensed Balance Sheets (In thousands, except per share data) December 31, 2021 * June 30, 2022 (Unaudited) ASSETS Current assets: Cash and cash equivalents $ 26,452 $ 17,703 Restricted cash 308 309 Accounts receivable, net of allowance for doubtful accounts of $ 3,176 and $ 2,641 in 2021 and 2022, respectively 32,094 33,491 Inventory, net 18,243 23,540 Deferred costs - current 1,762 1,315 Prepaid expenses and other current assets 9,051 9,020 Total current assets 87,910 85,378 Deferred costs - less current portion 249 - Fixed assets, net 8,988 8,333 Goodwill 83,487 83,487 Intangible assets, net 26,122 24,022 Right of use asset 9,787 8,463 Severance payable fund 4,359 3,610 Deferred tax asset 4,262 4,395 Other assets 4,703 5,063 Total assets $ 229,867 $ 222,751 LIABILITIES Current liabilities: Short-term bank debt and current maturities of long-term debt 6,114 7,794 Accounts payable and accrued expenses 29,015 29,233 Deferred revenue - current 6,519 7,331 Lease liability - current 2,640 2,494 Total current liabilities 44,288 46,852 Long-term debt, less current maturities 18,110 13,408 Deferred revenue - less current portion 4,428 4,139 Lease liability - less current portion 7,368 6,237 Accrued severance payable 4,887 4,118 Deferred tax liability 5,220 5,091 Other long-term liabilities 706 647 Total liabilities 85,007 80,492 Commitments and Contingencies (note 20) - - MEZZANINE EQUITY Convertible redeemable preferred stock: Series A – 100 shares authorized, $ 0.01 par value; 55 and 57 shares issued and outstanding at December 31, 2021 and June 30, 2022 52,663 55,074 Preferred stock; authorized 50,000 shares, $ 0.01 par value; - - Common stock; authorized 75,000 shares, $ 0.01 par value; 37,263 and 37,546 shares issued at December 31, 2021 and June 30, 2022, respectively; shares outstanding, 35,882 and 36,119 at December 31, 2021 and June 30, 2022, respectively 373 375 Additional paid-in capital 234,083 233,756 Accumulated deficit ( 134,437 ) ( 137,484 ) Accumulated other comprehensive gain (loss) 391 ( 1,062 ) Treasury stock; 1,381 and 1,427 common shares at cost at December 31, 2021 and June 30, 2022, respectively ( 8,299 ) ( 8,485 ) Total PowerFleet, Inc. stockholders’ equity 92,111 87,100 Non-controlling interest 86 85 Total equity 92,197 87,185 Total liabilities and stockholders’ equity $ 229,867 $ 222,751 * Derived from audited balance sheet as of December 31, 2021. See accompanying notes to unaudited condensed consolidated financial statements. 3 POWERFLEET, INC. AND SUBSIDIARIES Condensed Consolidated Statements of Operations (In thousands, except per share data) (Unaudited) 2021 2022 2021 2022 Three Months Ended June 30, Six Months Ended June 30, 2021 2022 2021 2022 Revenues: Products $ 15,466 $ 14,818 $ 26,886 $ 29,210 Services 18,082 19,776 35,653 38,545 Total revenues 33,548 34,594 62,539 67,755 Cost of Revenues: Cost of products 10,862 11,336 19,014 23,314 Cost of services 6,641 7,028 13,010 13,812 Total cost of revenues 17,503 18,364 32,024 37,126 Gross profit 16,045 16,230 30,515 30,629 Operating expenses: Selling, general and administrative expenses 13,421 15,817 27,029 30,729 Research and development expenses 2,779 2,001 5,524 5,230 Total Operating expenses 16,200 17,818 32,553 35,959 Loss from operations ( 155 ) ( 1,588 ) ( 2,038 ) ( 5,330 ) Interest income 12 15 24 28 Interest expense ( 1,226 ) 1,493 ( 669 ) 1,593 Other (expense) income, net ( 2 ) 3 ( 2 ) 2 Net loss before income taxes ( 1,371 ) ( 77 ) ( 2,685 ) ( 3,707 ) Income tax benefit (expense) ( 67 ) ( 40 ) ( 540 ) 663 Net loss before non-controlling interest ( 1,438 ) ( 117 ) ( 3,225 ) ( 3,044 ) Non-controlling interest 1 ( 1 ) 1 ( 2 ) Net loss ( 1,437 ) ( 118 ) ( 3,224 ) ( 3,046 ) Accretion of preferred stock ( 168 ) ( 168 ) ( 336 ) ( 336 ) Preferred stock dividend ( 1,028 ) ( 1,048 ) ( 2,056 ) ( 2,076 ) Net loss attributable to common stockholders $ ( 2,633 ) $ ( 1,334 ) $ ( 5,616 ) $ ( 5,458 ) Net loss per share attributable to common stockholders - basic and diluted $ ( 0.08 ) $ ( 0.04 ) $ ( 0.16 ) $ ( 0.15 ) Weighted average common shares outstanding - basic and diluted 34,898 35,386 34,083 35,359 See accompanying notes to unaudited condensed consolidated financial statements. 4 POWERFLEET, INC. AND SUBSIDIARIES Condensed Consolidated Statements of Comprehensive Loss (In thousands, except per share data) (Unaudited) 2021 2022 2021 2022 Three Months Ended June 30, Six Months Ended June 30, 2021 2022 2021 2022 Net loss attributable to common stockholders $ ( 2,633 ) $ ( 1,334 ) $ ( 5,616 ) $ ( 5,458 ) Other comprehensive (loss) income, net: Foreign currency translation adjustment 1,003 ( 1,706 ) ( 331 ) ( 1,453 ) Total other comprehensive income (loss) 1,003 ( 1,706 ) ( 331 ) ( 1,453 ) Comprehensive loss $ ( 1,630 ) $ ( 3,040 ) $ ( 5,947 ) $ ( 6,911 ) See accompanying notes to unaudited condensed consolidated financial statements. 5 POWERFLEET, INC. AND SUBSIDIARIES Condensed Consolidated Statement of Changes in Stockholders’ Equity (In thousands, except per share data) (Unaudited) Number of Shares Amount Paid-in Capital Accumulated Deficit Comprehensive Income (Loss) Treasury Stock controlling Interest Stockholders’ Equity Common Stock Additional Other Non- Number of Shares Amount Paid-in Capital Accumulated Deficit Comprehensive Income (Loss) Treasury Stock controlling Interest Stockholders’ Equity Balance at January 1, 2022 37,263 $ 373 $ 234,083 $ ( 134,437 ) $ 391 $ ( 8,299 ) $ 86 $ 92,197 Net loss attributable to common stockholders - - ( 1,195 ) ( 2,929 ) - - - ( 4,124 ) Net loss attributable to non-controlling interest - - - - - - 1 1 Foreign currency translation adjustment - - - - 253 - 15 268 Issuance of restricted shares 398 4 ( 4 ) - - - - - Forfeiture of restricted shares ( 121 ) ( 1 ) 1 - - - - - Vesting of restricted stock units 30 - - - - - - - Shares withheld pursuant to vesting of restricted stock - - - - - ( 181 ) - ( 181 ) Stock based compensation - - 457 - - - - 457 Balance at March 31, 2022 37,570 $ 376 $ 233,342 $ ( 137,366 ) $ 644 $ ( 8,480 ) $ 102 $ 88,618 Net loss attributable to common stockholders - - ( 1,216 ) ( 118 ) - - - ( 1,334 ) Net loss attributable to non-controlling interest - - - - - - 1 1 Foreign currency translation adjustment - - - - ( 1,706 ) - ( 18 ) ( 1,724 ) Forfeiture of restricted shares ( 24 ) ( 1 ) 1 - - - - - Shares withheld pursuant to vesting of restricted stock - - - - - ( 5 ) - ( 5 ) Stock based compensation - - 1,629 - - - - 1,629 Balance at June 30, 2022 37,546 $ 375 $ 233,756 $ ( 137,484 ) $ ( 1,062 ) $ ( 8,485 ) $ 85 $ 87,185 Number of Shares Amount Paid-in Capital Accumulated Deficit Comprehensive Income (Loss) Treasury Stock controlling Interest Stockholders’ Equity Common Stock Accumulated Number of Shares Amount Additional Paid-in Capital Accumulated Deficit Other Comprehensive Income (Loss) Treasury Stock Non-controlling Interest Stockholders’ Equity Balance at January 1, 2021 32,280 $ 323 $ 206,499 $ ( 121,150 ) $ 399 $ ( 6,858 ) $ 75 $ 79,288 Net loss attributable to common stockholders - - ( 1,196 ) ( 1,787 ) - - - ( 2,983 ) Foreign currency translation adjustment - - - - ( 1,334 ) - ( 2 ) ( 1,336 ) Issuance of restricted shares 415 4 ( 4 ) - - - - - Forfeiture of restricted shares ( 6 ) - - - - - - - Vesting of restricted stock units 34 - - - - - - Shares issued pursuant to exercise of stock options 129 1 716 - - - - 717 Shares withheld pursuant to vesting of restricted stock - - - - - ( 347 ) - ( 347 ) Shares withheld pursuant to exercise of stock options - - - - - ( 647 ) - ( 647 ) Stock based compensation - - 1,357 - - - - 1,357 Common shares issued, net of issuance costs 4,428 44 26,822 - - - - 26,866 Balance at March 31, 2021 37,280 $ 372 $ 234,194 $ ( 122,937 ) $ ( 935 ) $ ( 7,852 ) $ 73 $ 102,915 Net loss attributable to common stockholders - - ( 1,195 ) ( 1,438 ) - - - ( 2,633 ) Net loss attributable to non-controlling interest - - - - - - ( 1 ) ( 1 ) Foreign currency translation adjustment - - - - 1,003 - 7 1,010 Forfeiture of restricted shares ( 14 ) - - - - - - - Vesting of restricted stock units - - - - - - - Shares issued pursuant to exercise of stock options 12 1 71 - - - - 72 Shares withheld pursuant to vesting of restricted stock - - - - - ( 15 ) - ( 15 ) Stock based compensation - - 1,095 - - - - 1,095 Balance at June 30, 2021 37,278 $ 373 $ 234,165 $ ( 124,375 ) $ 68 $ ( 7,867 ) $ 79 $ 102,443 See accompanying notes to unaudited condensed consolidated financial statements. 6 POWERFLEET, INC. AND SUBSIDIARIES Condensed Consolidated Statements of Cash Flows (In thousands, except per share data) (Unaudited) 2021 2022 Six Months Ended June 30, 2021 2022 Cash flows from operating activities Net loss $ ( 3,224 ) $ ( 3,046 ) Adjustments to reconcile net loss to cash (used in) provided by operating activities: Non-controlling interest ( 1 ) 2 Inventory reserve 135 119 Stock based compensation expense 2,452 2,086 Depreciation and amortization 4,231 4,133 Right-of-use assets, non-cash lease expense 1,503 1,382 Bad debt expense 531 ( 364 ) Deferred income taxes 540 ( 663 ) Other non-cash items 160 604 Changes in: Accounts receivable ( 6,355 ) ( 2,911 ) Inventory ( 797 ) ( 5,410 ) Prepaid expenses and other assets 485 ( 412 ) Deferred costs 1,397 696 Deferred revenue 962 533 Accounts payable and accrued expenses 2,637 1,856 Lease liabilities ( 1,453 ) ( 1,335 ) Accrued severance payable, net - 30 Net cash provided by (used in) operating activities 3,203 ( 2,700 ) Cash flows from investing activities: Proceeds from sale of property and equipment - - Capital expenditures ( 1,454 ) ( 2,013 ) Net cash (used in) investing activities ( 1,454 ) ( 2,013 ) Cash flows from financing activities: Net proceeds from stock offering 26,867 - Payment of preferred stock dividends ( 2,056 ) - Repayment of long-term debt ( 2,671 ) ( 2,897 ) Short-term bank debt, net 93 2,330 Proceeds from exercise of stock options, net 142 - Purchase of treasury stock upon vesting of restricted stock ( 362 ) ( 186 ) Net cash provided by (used in) financing activities 22,013 ( 753 ) Effect of foreign exchange rate changes on cash and cash equivalents ( 2,028 ) ( 3,282 ) Net (decrease) increase in cash, cash equivalents and restricted cash 21,734 ( 8,748 ) Cash, cash equivalents and restricted cash - beginning of period 18,435 26,760 Cash, cash equivalents and restricted cash - end of period $ 40,169 $ 18,012 Reconciliation of cash, cash equivalents, and restricted cash, beginning of period Cash and cash equivalents 18,127 26,452 Restricted cash 308 308 Cash, cash equivalents, and restricted cash, beginning of period $ 18,435 $ 26,760 Reconciliation of cash, cash equivalents, and restricted cash, end of period Cash and cash equivalents 39,861 17,703 Restricted cash 308 309 Cash, cash equivalents, and restricted cash, end of period $ 40,169 $ 18,012 Supplemental disclosure of cash flow information: Cash paid for: Taxes 48 48 Interest 757 639 Noncash investing and financing activities: Value of shares withheld pursuant to exercise of stock options $ 647 $ - See accompanying notes to unaudited condensed consolidated financial statements. 7 POWERFLEET, INC. AND SUBSIDIARIES Notes to Unaudited Condensed Consolidated Financial Statements June 30, 2022 In thousands (except per share data) NOTE 1 - DESCRIPTION OF THE COMPANY AND BASIS OF PRESENTATION Description of the Company The Company is a global leader of Internet-of-Things (“IoT”) solutions providing valuable business intelligence for managing high-value enterprise assets that improve operational efficiencies. I.D. Systems, Inc. (“I.D. 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 (the “Transactions”) pursuant to which the Company acquired Pointer Telocation Ltd. (“Pointer”) and commenced operations on October 3, 2019. Upon the closing of the Transactions, PowerFleet became the parent entity of I.D. Systems and Pointer. Impact of COVID-19 and Supply Chain Disruptions The ongoing COVID-19 pandemic, and mitigation efforts by governments to attempt to control its spread, has resulted in significant economic disruption and continues to adversely impact the broader global economy. The extent of the impact of the pandemic on our business and financial results will depend largely on the future developments that cannot be accurately predicted at this time, including the duration of the spread of the outbreak and COVID-19 variants, the extent and effectiveness of containment actions and vaccination campaigns, and the impact of these and other factors on capital and financial markets and the related impact on the financial circumstances of our employees, customers and suppliers. In addition, the Company has experienced a significant impact to its supply chain given COVID-19 and the related global semiconductor chip shortage, including delays in supply chain deliveries, extended lead times and shortages of certain key components, some raw material cost increases and slowdowns at certain production facilities. As a result of these supply chain issues, the Company has had to increase its volume of inventory to ensure supply. During the three- and six-month periods ended June 30, 2022, the Company incurred supply chain constraint expenses which lowered its gross margins and decreased its profitability. The supply chain disruptions and the related global semiconductor chip shortage have delayed and may continue to delay the timing of some orders and expected deliveries of the Company’s products. If the impact of the supply chain disruptions are more severe than the Company expects, it could result in longer lead times, inventory supply challenges and further increased costs, all of which could result in the deterioration of the Company’s results, potentially for a longer period than currently anticipated. As of the date of these unaudited consolidated financial statements, the full extent to which the COVID-19 pandemic and the related supply chain issues may materially impact the Company’s business, results of operations and financial condition is uncertain. Basis of presentation The unaudited interim condensed consolidated financial statements include the accounts of the Company and its wholly-owned and majority-owned subsidiaries. All material intercompany balances and transactions have been eliminated in consolidation. The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and the instructions to Form 10-Q. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, such statements include all adjustments (consisting only of normal recurring items) which are considered necessary for a fair presentation of the consolidated financial position of the Company as of June 30, 2022, the consolidated results of its operations for the three- and six-month periods ended June 30, 2021 and 2022, the consolidated change in stockholders’ equity for the three-month periods ended March 31 and June 30, 2021 and 2022, and the consolidated cash flows for the six-month periods ended June 30, 2021 and 2022. The results of operations for the three- and six-month periods ended June 30, 2022 are not necessarily indicative of the operating results for the full year. These financial statements should be read in conjunction with the audited consolidated financial statements and related disclosures for the year ended December 31, 2021 included in the Company’s Annual Report on Form 10-K for the year then ended. 8 Liquidity As of June 30, 2022, the Company had cash (including restricted cash) and cash equivalents of $ 18,012 and working capital of $ 38,526 . The Company’s primary sources of cash are cash flows from operating activities, its holdings of cash, cash equivalents and investments from the sale of its capital stock and borrowings under its credit facility. To date, the Company has not generated sufficient cash flows solely from operating activities to fund its operations. In addition, the Company’s subsidiaries, PowerFleet Israel Ltd. (“PowerFleet Israel”) and Pointer, are party to a Credit Agreement (the “Credit Agreement”) with Bank Hapoalim B.M. (“Hapoalim”), pursuant to which Hapoalim provided PowerFleet Israel with two senior secured term loan facilities in an aggregate principal amount of $ 30,000 (comprised of two facilities in the aggregate principal amount of $ 20,000 and $ 10,000 ) and a five-year revolving credit facility to Pointer in an aggregate principal amount of $ 10,000 . The proceeds of the term loan facilities were used to finance a portion of the cash consideration payable in the Company’s acquisition of Pointer. The proceeds of the revolving credit facility may be used by Pointer for general corporate purposes. The Company borrowed $ 2,330 under the revolving credit facility as of June 30, 2022. See Note 11 for additional information. In June 2012, Pointer entered into a one-year $ 1,000 revolving credit facility with Discount Bank, which renews annually, subject to the bank’s approval. The proceeds of the revolving credit facility may be used by Pointer for general corporate purposes. The Company did not have any borrowings outstanding under the revolving credit facility as of June 30, 2022. The Company has on file a shelf registration statement on Form S-3 that was declared effective by the Securities and Exchange Commission (the “SEC”) on November 27, 2019. Pursuant to the shelf registration statement, the Company may offer to the public from time to time, in one or more offerings, up to $60,000 of its common stock, preferred stock, warrants, debt securities, and units, or any combination of the foregoing, at prices and on terms to be determined at the time of any such offering. The specific terms of any future offering will be determined at the time of the offering and described in a prospectus supplement that will be filed with the SEC in connection with such offering. On February 1, 2021, the Company closed an underwritten public offering (the “Underwritten Public Offering”) of 4,428 shares of common stock (which included the full exercise of the underwriters’ over-allotment option) for gross proceeds of approximately $ 28,800 , before deducting the underwriting discounts and commissions and other offering expenses. The offer and sale of common stock in the Underwritten Public Offering were made pursuant to the Company’s shelf registration statement. Because of the COVID-19 pandemic, there continues to be significant uncertainty surrounding the potential impact on our results of operations and cash flows. During 2021 and 2022, we proactively took steps to increase available cash on hand including, but not limited to, targeted reductions in discretionary operating expenses and capital expenditures. The Company believes that its available working capital, anticipated level of future revenues, expected cash flows from operations and available borrowings under its revolving credit facility with Hapoalim will provide sufficient funds to cover capital requirements through at least August 9, 2023. NOTE 2 – USE OF ESTIMATES The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The Company continually evaluates estimates used in the preparation of the financial statements for reasonableness. The most significant estimates relate to realization of deferred tax assets, the impairment of intangible assets, and market-based stock compensation costs. Actual results could differ from those estimates. As of June 30, 2022, the impact of COVID-19 continues to unfold. In addition, the Company has experienced increased economic uncertainty due to rising interest rates, higher inflation and supply chain disruptions. As a result, many of our estimates and assumptions required increased judgment and carry a higher degree of variability and volatility. As events continue to evolve and additional information becomes available, our estimates may change materially in future periods. NOTE 3 – CASH AND CASH EQUIVALENTS The Company considers all highly liquid debt instruments with an original maturity of three months or less when purchased to be cash equivalents unless they are legally or contractually restricted. The Company’s cash and cash equivalent balances exceed Federal Deposit Insurance Corporation (FDIC) and other local jurisdictional limits. Restricted cash at December 31, 2021 and June 30, 2022 consists of cash held in escrow for purchases from a vendor. 9 NOTE 4 - REVENUE RECOGNITION The Company and its subsidiaries generate revenue from sales of systems and products and from customer SaaS and hosting infrastructure fees. Revenue is measured as the amount of consideration the Company expects to receive in exchange for transferring goods or providing services. Sales, value add, and other taxes the Company collects concurrently with revenue-producing activities are excluded from revenue. Incidental items that are immaterial in the context of the contract are recognized as expense. The expected costs associated with the Company’s base warranties continue to be recognized as expense when the products are sold (see Note 12). Revenue is recognized when performance obligations under the terms of a contract with our customer are satisfied. Product sales are recognized at a point in time when title transfers, when the products are shipped, or when control of the system is transferred to the customer, which usually is upon delivery of the system and when contractual performance obligations have been satisfied. For products which do not have stand-alone value to the customer separate from the SaaS services provided, the Company considers both hardware and SaaS services a bundled performance obligation. Under the applicable accounting guidance, all of the Company’s billings for equipment and the related cost for these systems are deferred, recorded, and classified as a current and long-term liability and a current and long-term asset, respectively. The deferred revenue and cost are recognized over the service contract life, ranging from one to five years, beginning at the time that a customer acknowledges acceptance of the equipment and service. The Company recognizes revenue for remotely hosted SaaS agreements and post-contract maintenance and support agreements beyond our standard warranties over the life of the contract. Revenue is recognized ratably over the service periods and the cost of providing these services is expensed as incurred. Amounts invoiced to customers which are not recognized as revenue are classified as deferred revenue and classified as short-term or long-term based upon the terms of future services to be delivered. Deferred revenue also includes prepayment of extended maintenance, hosting and support contracts. The Company earns other service revenues from installation services, training and technical support services which are short-term in nature and revenue for these services are recognized at the time of performance when the service is provided. The Company also derives revenue from leasing arrangements. Such arrangements provide for monthly payments covering product or system sale, maintenance, support and interest. These arrangements meet the criteria to be accounted for as sales-type leases. Accordingly, an asset is established for the “sales-type lease receivable” at the present value of the expected lease payments and revenue is deferred and recognized over the service contract, as described above. Maintenance revenues and interest income are recognized monthly over the lease term. The Company’s contracts with customers may include multiple performance obligations. For such arrangements, the Company allocates revenue to each performance obligation based on its relative standalone selling price. The Company generally determines standalone selling prices based on observable prices charged to customers or adjusted market assessment or using expected cost-plus margin when one is available. Adjusted market assessment price is determined based on overall pricing objectives taking into consideration market conditions and entity specific factors. The Company recognizes an asset for the incremental costs of obtaining the contract arising from the sales commissions to employees because the Company expects to recover those costs through future fees from the customers. The Company amortizes the asset over one to five years because the asset relates to the services transferred to the customer during the contract term of one to five years. The Company does not disclose the value of unsatisfied performance obligations for (i) contracts with an original expected length of one year or less and (ii) contracts for which the Company recognizes revenue at the amount to which the Company has the right to invoice for services performed. The following table presents the Company’s revenues disaggregated by revenue source for the three- and six-months ended June 30, 2021 and 2022: SCHEDULE OF REVENUE DISAGGREGATED BY REVENUE SOURCE Three Months Ended June 30 Six Months Ended June 30, 2021 2022 2021 2022 Products $ 15,466 $ 14,818 $ 26,886 $ 29,210 Services 18,082 19,776 35,653 38,545 $ 33,548 $ 34,594 $ 62,539 $ 67,755 10 The balances of contract assets, and contract liabilities from contracts with customers are as follows as of December 31, 2021 and June 30, 2022: SCHEDULE OF DEFERRED REVENUE December 31, 2021 June 30, 2022 (unaudited) Assets: Deferred contract costs $ 3,045 $ 2,789 Deferred costs $ 2,011 $ 1,315 Liabilities: Deferred revenue- services (1) $ 8,401 $ 9,435 Deferred revenue - products (1) 2,546 2,035 Deferred revenue 10,947 11,470 Less: Deferred revenue and contract liabilities - current portion ( 6,519 ) ( 7,331 ) Deferred revenue and contract liabilities - less current portion $ 4,428 $ 4,139 (1) The Company records deferred revenues when cash payments are received or due in advance of the Company’s performance. For the three- and six-month periods ended June 30, 2021 and 2022, the Company recognized revenue of $ 2,502 and $ 5,220 , respectively, and $ 2,659 and $ 4,867 , respectively, that was included in the deferred revenue balance at the beginning of each reporting period. The Company expects to recognize as revenue these deferred revenue balances before the year 2027, when the services are performed and, therefore, satisfies its performance obligation to the customers. NOTE 5 – PREPAID EXPENSES AND OTHER ASSETS Prepaid expenses and other current assets consist of the following: SCHEDULE OF PREPAID EXPENSES AND OTHER CURRENT ASSETS December 31, 2021 June 30, 2022 (Unaudited) Finance receivables, current $ 786 $ 992 Prepaid expenses 4,580 4,807 Contract assets 1,124 1,105 Other current assets 2,561 2,116 Prepaid expenses and other current assets $ 9,051 $ 9,020 NOTE 6 - INVENTORY Inventory, which primarily consists of finished goods and components used in the Company’s products, is stated at the lower of cost or net realizable value using the “moving average” cost method or the first-in first-out (FIFO) method. Inventory is shown net of a valuation reserve of $ 260 at December 31, 2021 and $ 346 at June 30, 2022. 11 Inventories consist of the following: SCHEDULE OF INVENTORIES December 31, 2021 June 30, 2022 (Unaudited) Components $ 11,137 $ 13,986 Work in process 699 219 Finished goods, net 6,407 9,335 Inventory, net $ 18,243 $ 23,540 NOTE 7 - FIXED ASSETS Fixed assets are stated at cost, less accumulated depreciation and amortization, and are summarized as follows: SCHEDULE OF FIXED ASSETS December 31, 2021 June 30, 2022 (Unaudited) Installed products $ 6,190 $ 7,039 Computer software 6,732 6,613 Computer and electronic equipment 5,688 5,560 Furniture and fixtures 2,246 1,954 Leasehold improvements 1,445 1,372 Property, plant and equipment, gross 22,301 22,538 Accumulated depreciation and amortization ( 13,313 ) ( 14,205 ) Property, plant and equipment, net $ 8,988 $ 8,333 Depreciation and amortization expense of fixed assets for the three- and six-month periods ended June 30, 2021 was $ 788 and $ 1,633 , respectively, and for the three- and six- month periods ended June 30, 2022 was $ 770 and $ 1,584 , respectively. This includes amortization of costs associated with computer software for the three- and six-month periods ended June 30, 2021 of $ 103 and $ 210 , respectively, and for the three- and six-month periods ended June 30, 2022 of $ 26 and $ 135 , respectively. 12 NOTE 8 - INTANGIBLE ASSETS AND GOODWILL The following table summarizes identifiable intangible assets of the Company as of December 31, 2021 and June 30, 2022: SCHEDULE OF INTANGIBLE ASSETS June 30, 2022 Useful Lives (In Years) Gross Carrying Amount Accumulated Amortization Net Carrying Amount Amortized: Customer relationships 9 - 12 $ 19,264 $ ( 5,169 ) $ 14,095 Trademark and tradename 3 - 15 7,553 ( 2,497 ) 5,056 Patents 7 - 11 628 ( 307 ) 321 Technology 7 10,911 ( 6,978 ) 3,933 Software to be sold or leased 3 - 6 449 - 449 Favorable contract interest 4 388 ( 388 ) - Covenant not to compete 5 208 ( 205 ) 3 39,401 ( 15,544 ) 23,857 Unamortized: Customer List 104 - 104 Trademark and tradename 61 - 61 165 - 165 Total $ 39,566 $ ( 15,544 ) $ 24,022 December 31, 2021 Useful Lives (In Years) Gross Carrying Amount Accumulated Amortization Net Carrying Amount Amortized: Customer relationships 9 - 12 $ 19,264 $ ( 4,356 ) $ 14,908 Trademark and tradename 3 - 15 7,553 ( 2,096 ) 5,457 Patents 7 - 11 628 ( 262 ) 366 Technology 7 10,911 ( 5,709 ) 5,202 Favorable contract interest 4 388 ( 388 ) - Covenant not to compete 5 208 ( 184 ) 24 38,952 ( 12,995 ) 25,957 Unamortized: Customer List 104 - 104 Trademark and tradename 61 - 61 165 - 165 Total $ 39,117 $ ( 12,995 ) $ 26,122 At June 30 2022, the weighted-average amortization period for the intangible assets was 9.1 years. At June 30, 2022, the weighted-average amortization periods for customer relationships, trademarks and trade names, patents, technology, favorable contract interests and covenant not to compete were 11.9 , 9.6 , 7.0 , 4.3 , 0.0 and 5.0 years, respectively. Amortization expense for the three- and six-month periods ended June 30, 2021 was $ 1,298 and $ 2,597 , respectively, and for the three- and six-month periods ended June 30, 2022 was $ 1,275 and $ 2,549 , respectively. Estimated future amortization expense for each of the five succeeding fiscal years for these intangible assets is as follows: SCHEDULE OF FINITE-LIVED INTANGIBLE ASSETS AMORTIZATION EXPENSE Year ending December 31: 2022 (remaining) $ 2,531 2023 5,035 2024 2,622 2025 2,495 2026 2,413 2027 2,233 Thereafter 6,528 Finite-Lived intangible assets $ 23,857 There have been no changes in the carrying amount of goodwill from January 1, 2021 to June 30, 2022. For the six-month period ended June 30, 2022, the Company did not identify any indicators of impairment. 13 NOTE 9 - STOCK-BASED COMPENSATION Stock Option Plans During the first fiscal quarter of 2022, the Company granted options to purchase 5,065,000 shares of the Company’s common stock to certain executives. The options have an exercise price that range from $ 2.85 to $ 21.00 . The options will vest and become exercisable if the volume weighted average price of the Company’s common stock during a consecutive 60-day trading period (the “60 Day VWAP”) ranges between $ 10.50 and $ 21.00 . The Company valued the market-based performance stock option awards using a Monte Carlo simulation model using a daily price forecast over ten years until expiration utilizing Geometric Brownian Motion that considers a variety of factors including, but not limited to, the Company’s common stock price, risk-free rate ( 1.7 %), and expected stock price volatility ( 51.7 %) over the expected life of awards ( 10 years ). The weighted average fair value of options granted during the period was $ 1.27 . [A] Stock options: The following table summarizes the activity relating to the Company’s market based stock options that were granted to certain executives for the six-month period ended June 30, 2022: SCHEDULE OF STOCK OPTIONS ACTIVITY Options Weighted- Average Exercise Price Weighted- Average Remaining Contractual Terms Aggregate Intrinsic Value Outstanding at beginning of year - $ - Granted 5,065 14.14 Exercised - - Forfeited or expired - - Outstanding at end of period 5,065 $ 14.14 9.5 years $ - Exercisable at end of period - $ - - $ - The following table summarizes the activity relating to the Company’s stock options, excluding the market-based stock options that were granted to certain executives, for the six-month period ended June 30, 2022: Options Weighted- Average Exercise Price Weighted- Average Remaining Contractual Terms Aggregate Intrinsic Value Outstanding at beginning of year 3,470 $ 5.91 Granted 895 4.08 Exercised - - Forfeited or expired ( 1,504 ) 5.94 Outstanding at end of period 2,861 $ 5.32 7.6 years $ 2 Exercisable at end of period 1,144 $ 5.80 6.1 years $ 2 The fair value of each option grant on the date of grant is estimated using the Black-Scholes option-pricing model reflecting the following weighted-average assumptions: SCHEDULE OF FAIR VALUE STOCK OPTION ASSUMPTIONS 2021 2022 June 30, 2021 2022 Expected volatility 50.2 % 49.4 % Expected life of options (in years) 7 7 Risk free interest rate 0.69 % 1.73 % Dividend yield 0 % 0 % Weighted-average fair value of options granted during year $ 3.81 $ 2.04 Expected volatility is based on historical volatility of the Company’s common stock and the expected life of options is based on historical data with respect to employee exercise periods. The Company recorded stock-based compensation expense of $ 339 and $ 716 , for the three- and six-month periods ended June 30, 2021, respectively, and $ 1,267 and $ 1,301 , for the three- and six-month periods ended June 30, 2022, respectively, in connection with awards made under the stock option plans. The fair value of options vested during the six-month periods ended June 30, 2021 and 2022 was $ 438 and $ 376 , respectively. The total intrinsic value of options exercised during the three-month periods ended June 30, 2021 and 2022 was $ 465 and $- 0 -, respectively. 14 As of June 30, 2022, there was approximately $ 7,110 of unrecognized compensation cost related to non-vested options granted under the Company’s stock option plans for the performance stock options that were granted to certain executives. That cost is expected to be recognized over a weighted-average period of 3.44 years. As of June 30, 2022, there was approximately $ 2,595 of unrecognized compensation cost related to non-vested options granted under the Company’s stock option plans that exclude the performance stock options. That cost is expected to be recognized over a weighted average period of 3.19 years. The Company estimates forfeitures at the time of valuation and reduces expense ratably over the vesting period. This estimate is adjusted periodically based on the extent to which actual forfeitures differ, or are expected to differ, from the previous estimate. [B] Restricted Stock Awards: The Company grants restricted stock to employees, whereby the employees are contractually restricted from transferring the shares until they are vested. The stock is unvested at the time of grant and, upon vesting, there are no legal restrictions on the stock. The fair value of each share is based on the Company’s closing stock price on the date of the grant. A summary of all non-vested restricted stock for the six-month period ended June 30, 2022 is as follows: SCHEDULE OF NON-VESTED RESTRICTED STOCK ACTIVITY Number of Non- Vested Shares Weighted- Average Grant Date Fair Value Restricted stock, non-vested, beginning of year 629 $ 7.06 Granted 398 3.99 Vested ( 153 ) 7.30 Forfeited ( 144 ) 7.09 Restricted stock, non-vested, end of period 730 $ 5.33 The Company recorded stock-based compensation expense of $ 710 and $ 1,375 , respectively, for the three- and six-month periods ended June 30, 2021 and $ 355 and $ 743 , respectively, for the three-and six-month periods ended June 30, 2022 in connection with restricted stock grants. As of June 30, 2022, there was $ 2,850 of total unrecognized compensation cost related to non-vested shares. That cost is expected to be recognized over a weighted-average period of 2.83 years. [C] Restricted Stock Units: The Company also has granted restricted stock units (RSUs) to employees. The following table summarizes the activity relating to the Company’s restricted stock units for the three-month period ended June 30, 2022: SCHEDULE OF NON-VESTED RESTRICTED STOCK ACTIVITY Number of Restricted Stock Units Weighted- Average Grant Date Fair Value Restricted stock units, non-vested, beginning of year 36 $ 5.60 Granted - - Vested ( 31 ) 5.60 Forfeited - - Restricted stock units, non-vested, end of period 5 $ 5.60 The Company recorded stock-based compensation expense of $ 46 and $ 101 , respectively, for the three- and six-month periods ended June 30, 2021 and $ 7 and $ 42 , respectively, for the three- and six-month periods ended June 30, 2022 in connection with the RSUs. As of June 30, 2022, there was $ 10 total unrecognized compensation cost related to non-vested RSUs. That cost is expected to be recognized over a weighted-average period of 0.38 years. 15 NOTE 10 - NET LOSS PER SHARE Net loss per share for the three- and six-month periods ended June 30, 2021 and 2022 are as follows: SCHEDULE OF NET LOSS PER SHARE BASIC AND DILUTED 2021 2022 2021 2022 Three Months Ended June 30, Six Months Ended June 30, 2021 2022 2021 2022 Basic and diluted loss per share Net loss attributable to common stockholders $ ( 2,633 ) $ ( 1,334 ) $ ( 5,616 ) $ ( 5,458 ) Weighted-average common share outstanding - basic and diluted 34,898 35,386 34,083 35,359 Net loss attributable to common stockholders - basic and diluted $ ( 0.08 ) $ ( 0.04 ) $ ( 0.16 ) $ ( 0.15 ) Basic loss per share is calculated by dividing net loss attributable to common shareholders by the weighted-average number of common shares outstanding during the period. Diluted loss per share reflects the potential dilution assuming common shares were issued upon the exercise of outstanding options and the proceeds thereof were used to purchase outstanding common shares. Dilutive potential common shares include outstanding stock options, warrants and restricted stock and performance share awards. We include participating securities (unvested share-based payment awards and equivalents that contain non-forfeitable rights to dividends or dividend equivalents) in the computation of earnings per share pursuant to the two-class method. Our participating securities consist solely of preferred stock, which have contractual participation rights equivalent to those of stockholders of unrestricted common stock. The two-class method of computing earnings per share is an allocation method that calculates earnings per share for common stock and participating securities. During periods of net loss, no effect is given to the participating securities because they do not share in the losses of the Company. For the six-month periods ended June 30, 2021 and 2022, the basic and diluted weighted-average shares outstanding are the same, since the effect from the potential exercise of outstanding stock options, conversion of preferred stock, and vesting of restricted stock and restricted stock units totaling 12,141 and 16,438 , respectively, would have been anti-dilutive due to the loss. NOTE 11 - SHORT-TERM BANK DEBT AND LONG-TERM DEBT SCHEDULE OF LONG TERM DEBT December 31, 2021 June 30, 2022 (Unaudited) Current maturities of long-term debt $ 6,114 $ 7,794 Long term debt - less current maturities $ 18,110 $ 13,408 16 Long-term debt In connection with the Transactions, PowerFleet Israel incurred $ 30,000 in term loan borrowings on the closing date of the Transactions (the “Closing Date”) under the Credit Agreement, pursuant to which Hapoalim agreed to provide PowerFleet Israel with two senior secured term loan facilities in an aggregate principal amount of $ 30,000 (comprised of two facilities in the aggregate principal amount of $ 20,000 and $ 10,000 , respectively (the “Term A Facility” and “Term B Facility”, respectively, and collectively, the “Term Facilities”)) and a five-year revolving credit facility (the “Revolving Facility”) to Pointer in an aggregate principal amount of $ 10,000 (collectively, the “Credit Facilities”). As of June 30, 2022, the Company borrowed $ 2,330 under the Revolving Facility. The Credit Facilities will mature on the date that is five years from the Closing Date. The indicative interest rate provided for the Term Facilities in the original Credit Agreement was approximately 4.73 % for the Term A Facility and 5.89 % for the Term B Facility. The interest rate for the Revolving Facility is, with respect to NIS-denominated loans, Hapoalim’s prime rate + 2.5%, and with respect to US dollar-denominated loans, LIBOR + 4.6%. In addition, the Company agreed to pay a 1% commitment fee on the unutilized and uncancelled availability under the Revolving Facility . The Credit Facilities are secured by the shares held by PowerFleet Israel in Pointer and by Pointer over all of its assets. The original Credit Agreement includes customary representations, warranties, affirmative covenants, negative covenants (including the following financial covenants, tested quarterly: Pointer’s net debt to EBITDA; Pointer’s net debt to working capital; minimum equity of PowerFleet Israel; PowerFleet Israel equity to total assets; PowerFleet Israel net debt to EBITDA; and Pointer EBITDA to current payments and events of default. On August 23, 2021, PowerFleet Israel and Pointer (the “Borrowers”) entered into an amendment (the “Amendment”), effective as of August 1, 2021, to the Credit Agreement with Hapoalim. The Amendment memorializes the agreements between the Borrowers and Hapoalim regarding a reduction in the interest rates of the two Term Facilities. Pursuant to the Amendment, commencing as of November 12, 2020, the interest rate with respect to the Term A Facility was reduced to a fixed rate of 3.65 % per annum and the interest rate with respect to the Term B Facility was reduced to a fixed rate of 4.5 % per annum. The Amendment also provides, among other things, for (i) a reduction in the credit allocation fee on undrawn and uncancelled amounts of the Revolving Facility from 1 % to 0.5 % per annum, (ii) removal of the requirement that PowerFleet Israel maintain $ 3,000 on deposit in a separate reserve fund, and (iii) modifications to certain of the affirmative and negative covenants, including a financial covenant regarding the ratio of the Borrowers’ debt levels to Pointer’s EBITDA. The Company is in compliance with the covenants as of June 30, 2022. In connection with the Credit Facilities, the Company incurred debt issuance costs of $ 742 . For the three- and six-month periods ended June 30, 2021, amortization of the debt issuance costs was $ 72 and $ 155 , respectively. For the three- and six-month periods ended June 30, 2022, amortization of the debt issuance costs was $ 55 and $ 119 , respectively. The Company recorded charges of $ 276 and $ 553 for the three- and six-month periods ended June 30, 2021, respectively, and $ 200 and $ 436 for the three- and six-month periods ended June 30, 2022, respectively, to interest expense on its consolidated statements of operations related to interest expense and amortization of debt issuance costs associated with the Credit Facilities. In June 2012, Pointer entered into a one-year $ 1,000 revolving credit facility with Discount Bank, which renews annually, subject to the bank’s approval. The proceeds of the revolving credit facility may be used by Pointer for general corporate purposes. The Company did not have any borrowings outstanding under the revolving credit facility as of June 30, 2022. Scheduled maturities of the long-term debt as of June 30, 2022 are as follows: SCHEDULE OF MATURITIES OF LONG TERM DEBT Year ending December 31: July - December 2022 $ 5,117 2023 4,619 2024 11,466 Long term debt 21,202 Less: Current Portion 7,794 Total $ 13,408 The Term B Facility is not subject to amortization over the life of the loan and instead the original principal amount is due in one installment on the fifth anniversary of the date of the consummation of the Transactions. 17 NOTE 12 - ACCOUNTS PAYABLE AND ACCRUED EXPENSES Accounts payable and accrued expenses consist of the following: SCHEDULE OF ACCOUNTS PAYABLE AND ACCRUED LIABILITIES December 31, 2021 June 30, 2022 (Unaudited) Accounts payable $ 17,748 $ 19,301 Accrued warranty 1,146 1,539 Accrued compensation 6,644 5,904 Government authorities 2,080 1,994 Other current liabilities 1,397 495 Accounts payable and accrued expenses $ 29,015 $ 29,233 The Company’s products are warranted against defects in materials and workmanship for a period of one to three years from the date of acceptance of the product by the customer . The customers may purchase an extended warranty providing coverage up to a maximum of 60 months. A provision for estimated future warranty costs is recorded for expected or historical warranty matters related to equipment shipped and is included in accounts payable and accrued expenses in the Condensed Consolidated Balance Sheets as of December 31, 2021 and June 30, 2022. The following table summarizes warranty activity for the six-month periods ended June 30, 2021 and 2022: SCHEDULE OF PRODUCT WARRANTY LIABILITY Six Months Ended June 30, 2021 2022 Accrued warranty reserve, beginning of year $ 807 $ 1,333 Accrual for product warranties issued 680 718 Product replacements and other warranty expenditures ( 220 ) ( 270 ) Expiration of warranties ( 216 ) ( 69 ) Accrued warranty reserve, end of period (a) $ 1,051 $ 1,712 (a) Includes non-current accrued warranty included in other long-term liabilities at December 31, 2021 and June 30, 2022 of $ 187 and $ 173 , respectively. 18 NOTE 13 - STOCKHOLDERS’ EQUITY [A] Public Offering: On February 1, 2021, the Company closed an underwritten public offering of 4,428 shares of common stock (which included the full exercise of the underwriters’ over-allotment option) for gross proceeds of approximately $ 28,800 , before deducting the underwriting discounts and commissions and other offering expenses. [B] Redeemable preferred stock The Company is authorized to issue 150 shares of preferred stock, par value $ 0.01 per share of which 100 shares are designated Series A Convertible Preferred Stock (“Series A Preferred Stock”) and 50 shares are undesignated. Series A Preferred Stock In connection with the completion of the Transactions, on October 3, 2019, the Company issued 50 shares of Series A Preferred Stock to ABRY Senior Equity V, L.P., ABRY Senior Equity Co-Investment Fund V, L.P and ABRY Investment Partnership, L.P. (the “Investors”). For the six-month periods ended June 30, 2021 and June 30, 2022, the Company issued - 0 - and 2 additional shares of Series A Preferred Stock, respectively. Liquidation The Series A Preferred Stock has a liquidation preference equal to the greater of (i) the original issuance price of $ 1,000.00 per share, subject to certain adjustments (the “Series A Issue Price”), plus all accrued and unpaid dividends thereon (except in the case of a deemed liquidation event, then 150% of such amount), and (ii) the amount such holder would have received if the Series A Preferred Stock had converted into common stock immediately prior to such liquidation. Dividends Holders of Series A Preferred Stock are entitled to receive cumulative dividends at a minimum rate of 7.5 % per annum (calculated on the basis of the Series A Issue Price), quarterly in arrears. The dividends are payable at the Company’s election, in kind, through the issuance of additional shares of Series A Preferred Stock, or in cash, provided no dividend payment failure has occurred and is continuing and that there has not previously occurred two or more dividend payment failures. Commencing on the 66-month anniversary of the date on which any shares of Series A Preferred Stock are first issued (the “Original Issuance Date”), and on each monthly anniversary thereafter, the dividend rate will increase by 100 basis points, until the dividend rate reaches 17.5 % per annum, subject to the Company’s right to defer the increase for up to three consecutive months on terms set forth in the Company’s Amended and Restated Certificate of Incorporation (the “Charter”). During the six-month period ended June 30, 2022, the Company paid dividends in the amounts of 2 shares to the holders of the Series A Preferred Stock. As of June 30, 2022, dividends in arrears were $- 0 -. Voting; Consent Rights The holders of Series A Preferred Stock will be given notice by the Company of any meeting of stockholders or action to be taken by written consent in lieu of a meeting of stockholders as to which the holders of common stock are given notice at the same time as provided in, and in accordance with, the Company’s Amended and Restated Bylaws. Except as required by applicable law or as otherwise specifically set forth in the Charter, the holders of Series A Preferred Stock are not entitled to vote on any matter presented to the Company’s stockholders unless and until any holder of Series A Preferred Stock provides written notification to the Company that such holder is electing, on behalf of all holders of Series A Preferred Stock, to activate their voting rights and in doing so rendering the Series A Preferred Stock voting capital stock of the Company (such notice, a “Series A Voting Activation Notice”). From and after the delivery of a Series A Voting Activation Notice, all holders of the Series A Preferred Stock will be entitled to vote with the holders of common stock as a single class on an as-converted basis (provided, however, that any holder of Series A Preferred Stock shall not be entitled to cast votes for the number of shares of common stock issuable upon conversion of such shares of Series A Preferred Stock held by such holder that exceeds the quotient of (1) the aggregate Series A Issue Price for such shares of Series A Preferred Stock divided by (2) $5.57 (subject to adjustment for stock splits, stock dividends, combinations, reclassifications and similar events, as applicable)). So long as shares of Series A Preferred Stock are outstanding and convertible into shares of common stock that represent at least 10% of the voting power of the 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 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 the Company to, among other things, (i) liquidate the Company or any operating subsidiary or effect any deemed liquidation event (as such term is 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 the Company’s 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 the Company’s board of directors to a number other than seven, or (vi) enter into certain affiliated arrangements or transactions . 19 Redemption At any time, each holder of Series A Preferred Stock may elect to convert each share of such holder’s then-outstanding Series A Preferred Stock into the number of shares of the Company’s common stock equal to the quotient of (x) the Series A Issue Price, plus any accrued and unpaid dividends, divided by (y) the Series A Conversion Price in effect at the time of conversion. The Series A Conversion Price is initially equal to $ 7.319 , subject to certain adjustments as set forth in the Charter. At any time after the third anniversary of the Original Issuance Date, subject to certain conditions, the Company may redeem the Series A Preferred Stock for an amount per share, equal to the greater of (i) the product of (x) 1.5 multiplied by (y) the sum of the Series A Issue Price, plus all accrued and unpaid dividends and (ii) the product of (x) the number of shares of common stock issuable upon conversion of such Series A Preferred Stock multiplied by (y) the volume weighted average price of the common stock during the 30 consecutive trading day period ending on the trading date immediately prior to the date of such redemption notice or, if calculated in connection with a deemed liquidation event, the value ascribed to a share of common stock in such deemed liquidation event (the “Redemption Price”) . Further, at any time (i) after the 66-month anniversary of the Original Issuance Date, (ii) following delivery of a mandatory conversion notice by us, or (iii) upon a deemed liquidation event, subject to Delaware law governing distributions to stockholders, the holders of the Series A Preferred Stock may elect to require us to redeem all or any portion of the outstanding shares of Series A Preferred Stock for an amount per share equal to the Redemption Price. NOTE 14 - ACCUMULATED OTHER COMPREHENSIVE LOSS Comprehensive income (loss) includes net loss and foreign currency translation gains and losses. The accumulated balances for each classification of other comprehensive loss for the six-month period ended June 30, 2022 are as follows: SCHEDULE OF ACCUMULATED OTHER COMPREHENSIVE LOSS Foreign currency translation adjustment Accumulated other comprehensive income/(loss) Balance at January 1, 2022 $ 391 $ 391 Net current period change ( 1,453 ) ( 1,453 ) Balance at June 30, 2022 $ ( 1,062 ) $ ( 1,062 ) The accumulated balances for each classification of other comprehensive loss for the six-month period ended June 30, 2021 are as follows: Foreign currency translation adjustment Accumulated other comprehensive income/(loss) Balance at January 1, 2021 $ 399 $ 399 Net current period change ( 331 ) ( 331 ) Balance at June 30, 2021 $ 68 $ 68 The Company’s reporting currency is the U.S. dollar (USD). For businesses where the majority of the revenues are generated in USD or linked to the USD and a substantial portion of the costs are incurred in USD, the Company’s management believes that the USD is the primary currency of the economic environment and thus their functional currency. Due to the fact that Argentina has been determined to be highly inflationary, the financial statements of our subsidiary in Argentina have been remeasured as if its functional currency was the USD. The Company also has foreign operations where the functional currency is the local currency. For these operations, assets and liabilities are translated using the end-of-period exchange rates and revenues, expenses and cash flows are translated using average rates of exchange for the period. Equity is translated at the rate of exchange at the date of the equity transaction. Translation adjustments are recognized in stockholders’ equity as a component of accumulated other comprehensive income (loss). Net translation gains/(losses) from the translation of foreign currency financial statements of $( 331 ) and $( 1,453 ) at June 30, 2021 and 2022, respectively, are included in comprehensive loss in the Consolidated Statement of Changes in Stockholders’ Equity. 20 Foreign currency translation gains and losses related to operational expenses denominated in a currency other than the functional currency are included in determining net income or loss. Foreign currency translation (losses) gains for the three- and six-month periods ended June 30, 2021 of $ 56 and $ 206 , respectively, and for the three- and six-month periods ended June 30, 2022 of $( 719 ) and $( 922 ), respectively, are included in selling, general and administrative expenses in the Consolidated Statement of Operations. Foreign currency translation gains (losses) related to long-term debt of $( 615 ) and $ 412 for the three- and six-month periods ended June 30, 2021, respectively, and $ 2,068 and $ 2,612 for the three- and six-month periods ended June 30, 2022, respectively, are included in interest expense in the Consolidated Statement of Operations. NOTE 15 – SEGMENT INFORMATION The Company operates in one reportable segment, wireless IoT asset management. The following table summarizes revenues by geographic region. SCHEDULE OF REVENUES AND LONG LIVED ASSETS BY GEOGRAPHICAL REGION 2021 2022 2021 2022 Three Months Ended June 30, Six Months Ended June 30, 2021 2022 2021 2022 United States $ 13,622 $ 15,064 $ 25,210 $ 28,122 Israel 11,641 10,902 22,688 23,082 Other 8,285 8,628 14,641 16,551 Total revenues $ 33,548 $ 34,594 $ 62,539 $ 67,755 December 31, 2021 June 30, 2022 (Unaudited) Long lived assets by geographic region: United States $ 1,123 $ 922 Israel 3,675 3,769 Other 4,190 4,091 Long lived assets $ 8,988 $ 8,782 NOTE 16 - INCOME TAXES The Company records its interim tax provision based upon a projection of the Company’s annual effective tax rate (“AETR”). This AETR is applied to the year-to-date consolidated pre-tax income to determine the interim provision for income taxes before discrete items. The Company updates the AETR on a quarterly basis as the pre-tax income projections are revised and tax laws are enacted. The effective tax rate (“ETR”) each period is impacted by a number of factors, including the relative mix of domestic and foreign earnings and adjustments to recorded valuation allowances. The currently forecasted ETR may vary from the actual year-end due to the changes in these factors. SCHEDULE OF INCOME BEFORE INCOME TAX DOMESTIC AND FOREIGN 2021 2022 2021 2022 Three Months Ended June 30, Six Months Ended June 30, 2021 2022 2021 2022 Domestic pre-tax book income/(loss) $ ( 1,877 ) $ ( 3,930 ) $ ( 4,471 ) $ ( 8,344 ) Foreign pre-tax book income/(loss) 506 3,853 1,786 4,637 Total income before income (loss) taxes ( 1,371 ) ( 77 ) ( 2,685 ) ( 3,707 ) Income tax benefit (expense) ( 67 ) ( 40 ) ( 540 ) 663 Total income (loss) after taxes ( 1,438 ) ( 117 ) ( 3,225 ) ( 3,044 ) Effective tax rate $ ( 4.89 )% $ ( 51.75 )% $ ( 20.11 )% $ ( 17.88 )% For the three- and six-month periods ended June 30, 2021 and June 30, 2022, the effective tax rate differed from the statutory tax rates primarily due to the mix of domestic and foreign earnings amongst taxable jurisdictions, recorded valuation allowances to fully reserve against deferred tax assets in non-Israel foreign jurisdictions and certain discrete items. On March 11, 2021, the President of the United States signed the American Rescue Plan Act (the “ARPA”) into law as a continuing response to the COVID-19 pandemic. The ARPA implemented new entity taxation provisions as well as extended unemployment benefits and related incentives to provide further economic relief to US businesses. The passage of the ARPA did not have a material impact to the Company nor its calculated AETR for the year. 21 NOTE 17 - LEASES The Company has operating leases for office space and office equipment. The Company’s leases have remaining lease terms of one year to seven years , some of which include options to extend the lease term for up to five years . The Company has lease arrangements which are classified as short-term in nature. These leases meet the criteria for operating lease classification. Lease costs associated with the short-term leases are included in selling, general and administrative expenses on the Company’s condensed consolidated statements of operations during the three- and six-months ended June 30, 2021 and 2022. Components of lease expense are as follows: SCHEDULE OF COMPONENTS OF LEASE EXPENSE Three Months Ended June 30, Six Months Ended June 30, 2021 2022 2021 2022 Short term lease cost: $ 177 $ 113 $ 355 $ 244 Supplemental cash flow information and non-cash activity related to our operating leases are as follows: SCHEDULE OF CASH FLOW INFORMATION AND NON-CASH ACTIVITY OF OPERATING LEASES 2021 2022 Six Months Ended June 30, 2021 2022 Non-cash activity: Right-of-use assets obtained in exchange for lease obligations $ 1,111 $ 777 Weighted-average remaining lease term and discount rate for our operating leases are as follows: SCHEDULE OF WEIGHTED AVERAGE REMAINING LEASE TERM AND DISCOUNT RATE June 30, 2022 Weighted-average remaining lease term (in years) 3.4 Weighted-average discount rate 4.5 % Scheduled maturities of operating lease liabilities outstanding as of June 30, 2022 are as follows: SCHEDULED MATURITIES OF OPERATING LEASE LIABILITIES Year ending December 31: July - December 2022 $ 1,493 2023 2,588 2024 1,911 2025 1,716 2026 803 Thereafter 1,167 Total lease payments 9,678 Less: Imputed interest ( 947 ) Present value of lease liabilities $ 8,731 22 NOTE 18 - FAIR VALUE OF FINANCIAL INSTRUMENTS The Company’s cash and cash equivalents are carried at fair value. The carrying value of financing receivables approximates fair value due to the interest rate implicit in the instruments approximating current market rates. The carrying value of accounts receivables, accounts payable and accrued liabilities and short term bank debt approximates their fair values due to the short period to maturity of these instruments. The fair value of the Company’s long term debt is based on observable relevant market information and future cash flows discounted at current rates, which are Level 2 measurements. SCHEDULE OF FAIR VALUE OF FINANCIAL INSTRUMENTS June 30, 2022 Carrying Amount Fair Value Long term debt $ 21,202 $ 21,202 NOTE 19 - CONCENTRATION OF CUSTOMERS For the six-month periods ended June 30, 2021 and 2022, there were no customers who generated revenues greater than 10% of the Company’s consolidated total revenues or generated greater than 10% of the Company’s consolidated accounts receivable. NOTE 20 - COMMITMENTS AND CONTINGENCIES Except for normal operating leases, the Company is not currently subject to any material commitments. From time to time, the Company is involved in various litigation matters involving claims incidental to its business and acquisitions, including employment matters, acquisition related claims, patent infringement and contractual matters, among other issues. While the outcome of any such litigation matters cannot be predicted with certainty, management currently believes that the outcome of these proceedings, including the matters described below, either individually or in the aggregate, will not have a material adverse effect on its business, results of operations or financial condition. The Company records reserves related to legal matters when losses related to such litigation or contingencies are both probable and reasonably estimable. In August 2014, Pointer do Brasil Comercial Ltda. (“Pointer Brazil”) received a notification of lack of payment of VAT tax (Brazilian ICMS tax) in the amount of $ 224 , plus $ 1,010 of interest and penalty, totaling $ 1,234 as of June 30, 2022. The Company is vigorously defending this tax assessment before the administrative court in Brazil, but in light of the administrative and judicial processes in Brazil, it could take up to 14 years before the dispute is finally resolved. In case the administrative court rules against the Company, the Company could claim before the judicial court, an appellate court in Brazil, a substantial reduction of interest charged, potentially reducing the Company’s total exposure. The Company’s legal counsel is of the opinion that the chance of loss is not probable and for this reason the Company has not made any provision. In July 2015, Pointer Brazil received a tax deficiency notice alleging that the services provided by Pointer Brazil should be classified as “telecommunication services” and therefore Pointer Brazil should be subject to the state value-added tax. The aggregate amount claimed to be owed under the notice was approximately $ 12,603 as of June 30, 2022. On August 14, 2018, the lower chamber of the State Tax Administrative Court in São Paulo rendered a decision that was favorable to Pointer Brazil in relation to the ICMS demands, but adverse in regards to the clerical obligation of keeping in good order a set of ICMS books and related tax receipts. The remaining claim after this administrative decision is $ 189 . The state has the opportunity to appeal to the higher chamber of the State Tax Administrative Court. The Company’s legal counsel is of the opinion that the chance of loss is not probable and that no material costs will arise in respect to these claims. For this reason, the Company has not made any provision. NOTE 21 - RECENT ACCOUNTING PRONOUNCEMENTS In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments - Credit Losses (Topic 326) Measurement of Credit Losses on Financial Instruments,” which amends the guidance on measuring credit losses on financial assets held at amortized cost. The amendment is intended to address the issue that the previous “incurred loss” methodology was restrictive for an entity’s ability to record credit losses based on not yet meeting the “probable” threshold. The new language will require these assets to be valued at amortized cost presented at the net amount expected to be collected with a valuation provision. This updated standard is effective for fiscal years beginning after December 15, 2022. The Company is currently evaluating the impact of this ASU on the consolidated financial statements. 23