Powerfleet, Inc. 10-K

Item 8. Financial Statements and Supplementary Data. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Page Report of Independent Registered Public Accounting Firm (PCAOB ID No. 42 ) 44 Consolidated Balance Sheets at December 31, 2021 and 2022 47 Consolidated Statements of Operations for the Years Ended December 31, 2020, 2021 and 2022 48 Consolidated Statements of Comprehensive Loss for the Years Ended December 31, 2020, 2021 and 2022 49 Consolidated Statements of Changes in Stockholders’ Equity for the Years Ended December 31, 2020, 2021 and 2022 50 Consolidated Statements of Cash Flows for the Years Ended December 31, 2020, 2021 and 2022 51 Notes to the Consolidated Financial Statements 52 43 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Stockholders and the Board of Directors of PowerFleet, Inc. and subsidiaries Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of PowerFleet, Inc. and subsidiaries (the Company) as of December 31, 2022 and 2021, the related consolidated statements of operations, comprehensive loss, cash flows, and changes in stockholders’ equity for each of the three years in the period ended December 31, 2022, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2022 and 2021, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2022, in conformity with U.S. generally accepted accounting principles. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated March 31, 2023 expressed an adverse opinion thereon. Basis for Opinion These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matters The critical audit matters communicated below are matters arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of the critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing a separate opinion on the critical audit matters or on the accounts or disclosures to which they relate. 44 Valuation of Goodwill Description of the Matter At December 31, 2022, the Company’s goodwill was $83.5 million. As discussed in Note 2 and 7 to the consolidated financial statements, goodwill is tested for impairment at least annually at the reporting unit level. Auditing management’s annual goodwill impairment test was complex and highly judgmental due to the significant estimations required to determine the fair value of the reporting unit. In particular, the fair value estimates were sensitive to significant assumptions, including the weighted average cost of capital, revenues, cost growth and terminal growth rate all of which are affected by expectations about future operations and market conditions. How We Addressed the Matter in Our Audit We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over the Company’s goodwill impairment review process, including controls over management’s development and review of the significant assumptions described above and review of the reasonableness of the data utilized in the Company’s valuation analysis. To test the fair value of the Company’s reporting unit, we performed audit procedures that included, among others, assessing methodologies and testing the significant assumptions discussed above and the underlying data used by the Company in its analysis. We compared the significant assumptions used by management to current industry and economic trends, including key performance indicators, and evaluated whether changes in the company’s business would affect the significant assumptions. We assessed the historical accuracy of management’s estimates and performed sensitivity analyses of significant assumptions to evaluate the changes in the fair value of the reporting units that would result from changes in the assumptions. In performing our testing, we utilized internal valuation specialists to assist us in evaluating the Company’s valuation model and related significant assumptions Income Taxes – Uncertain Tax Positions Description of the Matter As discussed in Note 16 of the consolidated financial statements, the Company has recorded a liability of $0.4 million related to uncertain tax positions as of December 31, 2022. The Company conducts business in the US and various foreign countries and is therefore subject to US federal and state income taxes, as well as income taxes of multiple foreign jurisdictions. Due to the multinational operations of the Company and changes in global income tax laws and regulations, including those in the US, there is complexity in the accounting for and monitoring of the provision for uncertain tax positions. Auditing management’s identification and measurement of uncertain tax positions involved complex analysis and auditor judgment related to the evaluation of the income tax consequences of changes in income tax laws and regulations in various jurisdictions, which are often subject to interpretation. How We Addressed the Matter in Our Audit Our audit procedures included, among others, evaluating the Company’s assumptions and the underlying data used to identify its uncertain tax positions and to estimate the amount of the related unrecognized income tax benefits by jurisdiction. We obtained an understanding of the Company’s legal structure by reviewing its organizational charts and related legal documents. Due to the complexity of the tax law in various jurisdictions, we involved our income tax professionals to assess the Company’s interpretation of and compliance with tax laws in these jurisdictions, as well as to identify relevant tax law changes. In certain circumstances, we involved our income tax professionals to evaluate the technical merits of the Company’s tax positions and to evaluate income tax opinions or other third-party advice obtained by the Company. /s/ Ernst & Young LLP We served as the Company’s auditor since 2019. Iselin, New Jersey March 31, 2023 45 Report of Independent Registered Public Accounting Firm To the Stockholders and the Board of Directors of PowerFleet, Inc. and subsidiaries Opinion on Internal Control Over Financial Reporting We have audited PowerFleet, Inc. and subsidiaries internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, because of the effect of the material weaknesses described below on the achievement of the objectives of the control criteria, PowerFleet, Inc. and subsidiaries (the Company) has not maintained effective internal control over financial reporting as of December 31, 2022, based on the COSO criteria. A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company’s annual or interim financial statements will not be prevented or detected on a timely basis. The following material weaknesses have been identified and included in management’s assessment. Management has identified material weaknesses in controls related to the determination of standalone selling price, capitalized software costs and the financial statement close process. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2022 and 2021, the related consolidated statements of operations, comprehensive loss, cash flows, and changes in stockholders’ equity for each of the three years in the period ended December 31, 2022, and the related notes. These material weaknesses were considered in determining the nature, timing and extent of audit tests applied in our audit of the 2022 consolidated financial statements, and this report does not affect our report dated March 31, 2023, which expressed an unqualified opinion thereon. Basis for Opinion The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Definition and Limitations of Internal Control Over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. /s/ Ernst & Young LLP Iselin, New Jersey March 31, 2023 46 POWERFLEET, INC. AND SUBSIDIARIES Consolidated Balance Sheets (In thousands, except per share data) 2021 2022 As of December 31, 2021 2022 ASSETS Current assets: Cash and cash equivalents $ 26,452 $ 17,680 Restricted cash 308 309 Accounts receivable, net of allowance for doubtful accounts of $ 3,176 and $ 2,567 in 2021 and 2022, respectively 32,094 32,493 Inventory, net 18,243 22,272 Deferred costs - current 1,762 762 Prepaid expenses and other current assets 9,051 7,709 Total current assets 87,910 81,225 Deferred costs - less current portion 249 - Fixed assets, net 8,988 9,249 Goodwill 83,487 83,487 Intangible assets, net 26,122 22,908 Right of use asset 9,787 7,820 Severance payable fund 4,359 3,760 Deferred tax asset 4,262 3,225 Other assets 4,703 5,761 Total assets $ 229,867 $ 217,435 LIABILITIES Current liabilities: Short-term bank debt and current maturities of long-term debt 6,114 10,312 Accounts payable and accrued expenses 29,015 26,598 Deferred revenue - current 6,519 6,363 Lease liability - current 2,640 2,441 Total current liabilities 44,288 45,714 Long-term debt, less current maturities 18,110 11,403 Deferred revenue - less current portion 4,428 4,390 Lease liability - less current portion 7,368 5,628 Accrued severance payable 4,887 4,365 Deferred tax liability 5,220 4,919 Other long-term liabilities 706 636 Total liabilities 85,007 77,055 Commitments and Contingencies (note 17) - MEZZANINE EQUITY Convertible redeemable preferred stock: Series A – 100 shares authorized, $ 0.01 par value; 55 and 59 shares issued and outstanding at December 31, 2021 and December 31, 2022, respectively 52,663 57,565 Preferred stock; authorized 50,000 shares, $ 0.01 par value; - - Common stock; authorized 75,000 shares, $ 0.01 par value; 37,263 and 37,605 shares issued at December 31, 2021 and December 31, 2022, respectively; shares outstanding, 35,882 and 36,170 at December 31, 2021 and December 31, 2022, respectively 373 376 Additional paid-in capital 234,083 233,521 Accumulated deficit ( 134,437 ) ( 141,440 ) Accumulated other comprehensive gain (loss) 391 ( 1,210 ) Treasury stock; 1,381 and 1,435 common shares at cost at December 31, 2021 and December 31, 2022, respectively ( 8,299 ) ( 8,510 ) Total Powerfleet, Inc. stockholders’ equity 92,111 82,737 Non-controlling interest 86 78 Total equity 92,197 82,815 Total liabilities and stockholders’ equity $ 229,867 $ 217,435 SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 47 POWERFLEET, INC. AND SUBSIDIARIES Consolidated Statements of Operations (In thousands, except per share data) 2020 2021 2022 Year Ended December 31, 2020 2021 2022 Revenues: Products $ 45,651 $ 52,981 $ 56,313 Services 67,942 73,227 78,844 Total revenues 113,593 126,208 135,157 Cost of Revenues: Cost of products 30,219 39,445 42,636 Cost of services 24,357 26,580 28,350 Total cost of revenues 54,576 66,025 70,986 Gross profit 59,017 60,183 64,171 Operating expenses: Selling, general and administrative expenses 51,878 57,100 63,001 Research and development expenses 10,597 11,058 8,964 Total Operating expenses 62,475 68,158 71,965 Loss from operations ( 3,458 ) ( 7,975 ) ( 7,794 ) Interest income 55 45 71 Interest expense ( 4,467 ) ( 2,764 ) 994 Other (expense) income, net ( 102 ) 8 24 Net loss before income taxes ( 7,972 ) ( 10,686 ) ( 6,705 ) Income tax benefit (expense) ( 1,038 ) ( 2,607 ) ( 296 ) Net loss before non-controlling interest ( 9,010 ) ( 13,293 ) ( 7,001 ) Non-controlling interest 3 5 ( 2 ) Net loss ( 9,007 ) ( 13,288 ) ( 7,003 ) Accretion of preferred stock ( 672 ) ( 672 ) ( 671 ) Preferred stock dividends ( 3,927 ) ( 4,112 ) ( 4,231 ) Net loss attributable to common stockholders $ ( 13,606 ) $ ( 18,072 ) $ ( 11,905 ) Net loss per share attributable to common stockholders - basic and diluted $ ( 0.46 ) $ ( 0.52 ) $ ( 0.34 ) Weighted average common shares outstanding - basic and diluted 29,703 34,571 35,393 SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 48 POWERFLEET, INC. AND SUBSIDIARIES Consolidated Statements of Comprehensive Loss (In thousands, except per share data) 2020 2021 2022 December 31, 2020 2021 2022 Net loss attributable to common stockholders $ ( 13,606 ) $ ( 18,072 ) $ ( 11,905 ) Other comprehensive (loss) income, net: Foreign currency translation adjustment 134 ( 8 ) ( 1,601 ) Total other comprehensive income (loss), net 134 ( 8 ) ( 1,601 ) Comprehensive loss $ ( 13,472 ) $ ( 18,080 ) $ ( 13,506 ) SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 49 POWERFLEET, INC. AND SUBSIDIARIES Consolidated Statements of Changes in Stockholders’ Equity (In thousands, except per share data) Common Stock Additional Accumulated Other Non- Number of Shares Amount Paid-in Capital Accumulated Deficit Comprehensive Income (Loss) Treasury Stock controlling Interest Stockholders’ Equity Balance at January 1, 2020 30,804 $ 308 $ 201,813 $ ( 112,143 ) $ 265 $ ( 6,053 ) $ ( 10 ) $ 84,180 Net loss attributable to common stockholders - - ( 4,599 ) ( 9,007 ) - - - ( 13,606 ) Net loss attributable to non-controlling interest - - - - - - ( 3 ) ( 3 ) Foreign currency translation adjustment - - - - 134 - 88 222 Issuance of restricted shares 461 4 ( 4 ) - - - - - Forfeiture of restricted shares ( 143 ) ( 1 ) 1 - - - - - Vesting of restricted stock units 149 1 ( 1 ) - - - - - Other - - 62 - - - - 62 Shares issued pursuant to exercise of stock options 199 3 935 - - - - 938 Shares withheld pursuant to exercise of stock options - - - - - ( 382 ) - ( 382 ) Shares withheld pursuant to vesting of restricted stock - - - - - ( 423 ) - ( 423 ) Common shares issued 810 8 4,033 - - - - 4,041 Stock based compensation - - 4,259 - - - - 4,259 Balance at December 31, 2020 32,280 $ 323 $ 206,499 $ ( 121,150 ) $ 399 $ ( 6,858 ) $ 75 $ 79,288 Net loss attributable to common stockholders - - ( 4,785 ) ( 13,287 ) - - - ( 18,072 ) Net loss attributable to non-controlling interest - - - - - - ( 5 ) ( 5 ) Foreign currency translation adjustment - - - - ( 8 ) - 16 8 Issuance of restricted shares 449 5 ( 4 ) - - - - 1 Forfeiture of restricted shares ( 89 ) ( 1 ) - - - - - ( 1 ) Vesting of restricted stock units 39 - - - - - - - Shares issued pursuant to exercise of stock options 156 2 875 - - - - 877 Shares withheld pursuant to exercise of stock options - - - - - ( 647 ) - ( 647 ) Shares withheld pursuant to vesting of restricted stock - - - - - ( 794 ) - ( 794 ) Common shares issued, net of issuance costs 4,428 44 26,822 - - - - 26,866 Stock based compensation - - 4,676 - - - - 4,676 Balance at December 31, 2021 37,263 $ 373 $ 234,083 $ ( 134,437 ) $ 391 $ ( 8,299 ) $ 86 $ 92,197 Balance 37,263 $ 373 $ 234,083 $ ( 134,437 ) $ 391 $ ( 8,299 ) $ 86 $ 92,197 Net loss attributable to common stockholders - - ( 4,902 ) ( 7,003 ) - - - ( 11,905 ) Net income attributable to non-controlling interest - - - - - - 2 2 Net income (loss) attributable to non-controlling interest - - - - - - 2 2 Foreign currency translation adjustment - - - - ( 1,601 ) - ( 10 ) ( 1,611 ) Issuance of restricted shares 492 5 ( 5 ) - - - - - Forfeiture of restricted shares ( 186 ) ( 2 ) 2 - - - - - Vesting of restricted stock units 36 - - - - - - - Shares withheld pursuant to vesting of restricted stock - - - - - ( 211 ) - ( 211 ) Stock based compensation - - 4,343 - - - - 4,343 Balance at December 31, 2022 37,605 $ 376 $ 233,521 $ ( 141,440 ) $ ( 1,210 ) $ ( 8,510 ) $ 78 $ 82,815 Balance 37,605 $ 376 $ 233,521 $ ( 141,440 ) $ ( 1,210 ) $ ( 8,510 ) $ 78 $ 82,815 SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 50 POWERFLEET, INC. AND SUBSIDIARIES Consolidated Statements of Cash Flows In thousands (except per share data) Year Ended December 31, 2020 2021 2022 Cash flows from operating: Net loss $ ( 9,007 ) $ ( 13,288 ) $ ( 7,003 ) Adjustments to reconcile net loss to cash (used in) provided by operating activities: Non-controlling interest ( 3 ) ( 5 ) 2 Inventory reserve 260 ( 22 ) 149 Stock based compensation expense 4,259 4,676 4,343 Depreciation and amortization 8,425 8,553 8,262 Right-of-use assets, non-cash lease expense 2,832 2,859 2,756 Bad debt expense 1,035 1,442 66 Deferred income taxes 359 2,607 134 Other non-cash items 23 305 707 Changes in: Accounts receivable 2,168 ( 9,643 ) ( 1,638 ) Inventory 3,050 ( 6,058 ) ( 4,473 ) Prepaid expenses and other assets 1,908 ( 2,918 ) ( 374 ) Deferred costs 3,169 3,349 1,249 Deferred revenue ( 4,326 ) ( 2,290 ) ( 158 ) Accounts payable and accrued expenses ( 2,392 ) 8,300 ( 484 ) Lease liabilities ( 2,962 ) ( 2,741 ) ( 2,739 ) Accrued severance payable, net 50 ( 145 ) ( 42 ) Net cash (used in) provided by operating activities 8,848 ( 5,019 ) 757 Cash flows from investing activities: Capital expenditures ( 3,184 ) ( 2,771 ) ( 3,519 ) Capitalized software development ( 189 ) ( 627 ) ( 2,219 ) Proceeds from the sale of property and equipment 75 - - Purchase of investment - - ( 100 ) Net cash (used in) provided by investing activities ( 3,298 ) ( 3,398 ) ( 5,838 ) Cash flows from financing activities: Net proceeds from stock offering 4,041 26,867 - Repayment of convertible note ( 5,000 ) - - Payment of preferred stock dividends - ( 4,112 ) - Repayment of long-term debt ( 2,858 ) ( 5,571 ) ( 5,659 ) Repayment of financing lease - ( 138 ) ( 121 ) Short-term bank debt, net ( 262 ) ( 270 ) 5,709 Proceeds from exercise of stock options, net 556 229 Purchase of treasury stock upon vesting of restricted stock ( 423 ) ( 794 ) ( 211 ) Net cash (used in) provided by financing activities ( 3,946 ) 16,211 ( 282 ) Effect of foreign exchange rate changes on cash and cash equivalents 128 531 ( 3,408 ) Net (decrease) increase in cash, cash equivalents and restricted cash 1,732 8,325 ( 8,771 ) Cash, cash equivalents and restricted cash - beginning of period 16,703 18,435 26,760 Cash, cash equivalents and restricted cash - end of period $ 18,435 $ 26,760 $ 17,989 Reconciliation of cash, cash equivalents, and restricted cash, beginning of period Cash and cash equivalents 16,395 18,127 26,452 Restricted cash 308 308 308 Cash, cash equivalents, and restricted cash, beginning of period $ 16,703 $ 18,435 $ 26,760 Reconciliation of cash, cash equivalents, and restricted cash, end of period Cash and cash equivalents 18,127 26,452 17,680 Restricted cash 308 308 309 Cash, cash equivalents, and restricted cash, end of period $ 18,435 $ 26,760 $ 17,989 Supplemental disclosure of cash flow information: Cash paid for: Taxes 47 58 63 Interest 2,297 1,474 1,308 Noncash investing and financing activities: Value of shares withheld pursuant to exercise of stock options $ 382 $ 647 $ - SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 51 POWERFLEET, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2021 and 2022 In thousands (except per share data) NOTE 1 - DESCRIPTION OF BUSINESS AND LIQUIDITY The Company is a global leader of Internet-of-Things (“IoT”) solutions providing valuable business intelligence for managing high-value enterprise assets that improve operational efficiencies. I.D. Systems, Inc. was incorporated in the State of Delaware in 1993. PowerFleet, Inc. was incorporated in the State of Delaware in February 2019 for the purpose of effectuating the transactions pursuant to which the Company acquired Pointer Telocation Ltd. (the “Transactions”) and commenced operations on October 3, 2019, upon the closing of the Transactions. Impact of COVID-19 and Supply Chain Disruptions The 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. The Company incurred supply chain constraint expenses which lowered its gross margins and decreased its profitability primarily during the last six months of 2021 and first nine months of 2022. The supply chain disruptions and the related global semiconductor chip shortage have delayed and may continue to delay the timing of some orders and expected deliveries of the Company’s products. If the impact of the supply chain disruptions are more severe than the Company expects, it could result in longer lead times, inventory supply challenges and further increased costs, all of which could result in the deterioration of the Company’s results, potentially for a longer period than currently anticipated. As of the date of these audited consolidated financial statements, the full extent to which the COVID-19 pandemic and the related supply chain disruptions, may materially impact the Company’s business, results of operations and financial condition is uncertain. Basis of presentation The audited 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 consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for financial information and the instructions to Form 10-K. 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 December 31, 2022, the consolidated results of its operations for the twelve-month periods ended December 31, 2021 and 2022, the consolidated change in stockholders’ equity for the twelve-month periods ended December 31, 2021 and 2022, and the consolidated cash flows for the twelve-month periods ended December 31, 2021 and 2022. Liquidity As of December 31, 2022, the Company had cash (including restricted cash) and cash equivalents of $ 18.0 million and working capital of $ 35.5 million. The Company’s primary sources of cash are cash flows from operating activities, its holdings of cash, cash equivalents and investments from the sale of its capital stock and borrowings under its credit facility. To date, the Company has not generated sufficient cash flows solely from operating activities to fund its operations. In addition, the Company’s subsidiaries, PowerFleet Israel Ltd. (“PowerFleet Israel”) and Pointer Telocation Ltd. (“Pointer” and, together with PowerFleet Israel, the “Borrowers”) are party to a Credit Agreement (the “Credit Agreement”) with Bank Hapoalim B.M. (“Hapoalim”), pursuant to which Hapoalim provided PowerFleet Israel with two senior secured term loan facilities denominated in New Israeli Shekels (NIS) in an initial aggregate principal amount of $ 30,000 (comprised of two facilities in the aggregate principal amount of $ 20,000 and $ 10,000 ) and a five-year revolving credit facility to Pointer in an initial aggregate principal amount of $ 10,000 . The proceeds of the term loan facilities were used to finance a portion of the cash consideration payable in the Company’s acquisition of Pointer. The proceeds of the revolving credit facility may be used by Pointer for general corporate purposes. The Company borrowed net NIS 20,091 , or $ 5,709 , under the revolving credit facility as of December 31. See Note 10 for additional information. On October 31, 2022, the Borrowers entered into a third amendment to the Credit Agreement (the “Third Amendment”) with Hapoalim. The Third Amendment provides for, among other things, a new revolving credit facility to Pointer denominated in NIS in an initial aggregate principal amount of $ 10 million (the “New Revolver”). The New Revolver will be available for a period of one month, commencing on October 31, 2022, and will continue to be available for successive one-month periods until and including October 30, 2023, unless the Borrowers deliver a notice to Hapoalim of their request not to renew the New Revolver. The New Revolver will initially bear interest at the Secured Overnight Financing Rate plus 2.59%. Such interest is subject to monthly changes by Hapoalim, provided that Hapoalim gives Pointer advance notice regarding such change prior to the end of the applicable calendar month . The New Revolver is secured by a first ranking fixed pledge and assignment by Pointer over its new bank account, which was opened in connection with the New Revolver, and all of the rights relating thereunder as well as a cross guarantee by Powerfleet Israel. Pointer is required to pay a credit allocation fee equal to 0.5 % per annum on undrawn and uncancelled amounts of the New Revolver. Pointer has a one-year $ 1,000 revolving credit facility available for use with Discount Bank, which renews annually, subject to the bank’s approval. Pointer did not have any borrowings outstanding under the revolving credit facility with Discount Bank as of December 31, 2022. 52 Because of the COVID-19 pandemic, there is significant uncertainty surrounding the potential impact on our results of operations and cash flows. During 2020, 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 March 31, 2024. NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES [A] Principles of consolidation : The consolidated financial statements include the accounts of PowerFleet, Inc. and its subsidiaries (which, as noted above, are collectively referred to herein as the “Company”). All material intercompany balances and transactions have been eliminated in consolidation. [B] Use of estimates : The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The Company continually evaluates estimates used in the preparation of the financial statements for reasonableness. The most significant estimates relate to realization of deferred tax assets, accounting for uncertain tax positions, the impairment of intangible assets, including goodwill, capitalized software development costs, stock-based compensation costs and standalone selling price related to multiple element revenue arrangements. Actual results could differ from those estimates. As of December 31, 2022, the impact of global uncertainties continue to unfold. As a result, many of our estimates and assumptions required increased judgment and carry a higher degree of variability and volatility. As events continue to evolve and additional information becomes available, our estimates may change materially in future periods. [C] Cash and cash equivalents : The Company considers all highly liquid debt instruments with an original maturity of three months or less when purchased to be cash equivalents unless they are legally or contractually restricted. The Company’s cash and cash equivalent balances exceed Federal Deposit Insurance Corporation (“FDIC”) and other local jurisdictional limits. Restricted cash at December 31, 2021 and 2022 consists of cash held in escrow for purchases from a vendor. 53 [D] Accounts receivable : Accounts receivable are recorded at the invoiced amount and do not bear interest. Amounts collected on trade accounts receivable are included in net cash provided by operating activities in the consolidated statements of cash flows. The Company maintains reserves against its accounts receivable for potential losses. Allowances for uncollectible accounts are estimated based on the Company’s periodic review of accounts receivable balances. In establishing the required allowance, management considers our customers’ financial condition, the amount of receivables in dispute, and the current receivables aging and current payment patterns. Account balances are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. Accounts receivable are net of an allowance for doubtful accounts in the amount of $ 3,176 and $ 2,567 in 2021 and 2022, respectively. The Company does not have any off-balance sheet credit exposure related to its customers. [E] Revenue recognition : The Company and its subsidiaries generate revenue from sales of systems and products and from customer SaaS and hosting infrastructure fees. Revenue is measured as the amount of consideration the Company expects to receive in exchange for transferring goods or providing services. Sales, value add, and other taxes the Company collects concurrently with revenue-producing activities are excluded from revenue. Incidental items that are immaterial in the context of the contract are recognized as expense. The expected costs associated with the Company’s base warranties continue to be recognized as expense when the products are sold (see Note 11). Revenue is recognized when performance obligations under the terms of a contract with our customer are satisfied. Product sales are recognized at a point in time when title transfers, when the products are shipped, or when control of the system is transferred to the customer, which usually is upon delivery of the system and when contractual performance obligations have been satisfied. For products which do not have standalone value to the customer separate from the SaaS services provided, the Company considers both hardware and SaaS services a bundled performance obligation. Under the applicable accounting guidance, all of the Company’s billings for equipment and the related cost for these systems are deferred, recorded, and classified as a current and long-term liability and a current and long-term asset, respectively. The deferred revenue and cost are recognized over the service contract life, ranging from one to five years, beginning at the time that a customer acknowledges acceptance of the equipment and service. The Company recognizes revenue for remotely hosted SaaS agreements and post-contract maintenance and support agreements beyond our standard warranties over the life of the contract. Revenue is recognized ratably over the service periods and the cost of providing these services is expensed as incurred. Amounts invoiced to customers which are not recognized as revenue are classified as deferred revenue and classified as short-term or long-term based upon the terms of future services to be delivered. Deferred revenue also includes prepayment of extended maintenance, hosting and support contracts. The Company earns other service revenues from installation services, training and technical support services which are short-term in nature and revenue for these services are recognized at the time of performance when the service is provided. The Company also derives revenue from leasing arrangements. Such arrangements provide for monthly payments covering product or system sale, maintenance, support and interest. These arrangements meet the criteria to be accounted for as operating or sales-type leases. Accordingly, for sales-type leases an asset is established for the “sales-type lease receivable” at the present value of the expected lease payments and revenue is deferred and recognized over the service contract, as described above. Maintenance revenues and interest income are recognized monthly over the lease term. 54 The Company’s contracts with customers may include multiple performance obligations. For such arrangements, the Company allocates revenue to each performance obligation based on its relative standalone selling price. The Company generally determines standalone selling prices based on observable prices charged to customers or adjusted market assessment or using expected cost-plus margin when one is available. Adjusted market assessment price is determined based on overall pricing objectives taking into consideration market conditions and entity specific factors. The Company recognizes an asset for the incremental costs of obtaining the contract arising from the sales commissions to employees because the Company expects to recover those costs through future fees from the customers. The Company amortizes the asset over one to five years because the asset relates to the services transferred to the customer during the contract term of one to five years. The Company does not disclose the value of unsatisfied performance obligations for (i) contracts with an original expected length of one year or less and (ii) contracts for which the Company recognizes revenue at the amount to which the Company has the right to invoice for services performed. [F] Deferred costs : Deferred product costs consist of Powerfleet for Logistics equipment costs deferred in accordance with our revenue recognition policy. The Company evaluates the realizability of the carrying amount of the deferred contract costs. To the extent the carrying value of the deferred contract costs exceed the contract revenue, an impairment loss will be recognized. [G] Inventory : Inventories are stated at the lower of cost or net realizable value. Cost is determined using the “moving average” cost method or the first-in first-out (“FIFO”) method. Inventory consists of components, work in process and finished products. Inventory valuation reserves are established in order to report inventories at the lower of cost or net realizable value in the consolidated balance sheet. The determination of inventory valuation reserves requires management to make estimates and judgments on the future salability of inventories. Valuation reserves for obsolete and slow-moving inventory are estimated based on assumptions of future sales forecasts, product life cycle expectations, the impact of new product introductions, production requirements, and specific identification of items, such as product discontinuance or engineering/material changes and by comparing the inventory levels to historical usage rates. [H] Fixed assets and depreciation : Fixed assets are recorded at cost, net of accumulated depreciation. Depreciation and amortization are recognized using the straight-line method over the estimated useful lives of the assets. The following table provides the range of estimated useful lives used for each asset type: SCHEDULE OF ESTIMATED USEFUL LIVES OF ASSET Useful Life (years) Computer software 3 - 5 Installed products 3 - 5 Computers and electronic equipment 3 - 10 Furniture and fixtures 5 - 7 Leasehold improvements Shorter of useful life or lease term 55 [I] Long-lived assets : Long-lived assets, which includes definite lived intangible assets and fixed assets, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is assessed by a comparison of the carrying amount of the assets to the future undiscounted net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets and would be charged to earnings. Fair value is determined through various valuation techniques including discounted cash flow models, quoted market values and third-party independent appraisals, as considered necessary. [J] Goodwill and intangibles : Goodwill represents costs in excess of fair values assigned to the underlying net assets of acquired businesses. Goodwill and intangible assets deemed to have indefinite lives are not amortized and are tested for impairment on an annual basis and between annual tests whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. Intangible assets other than goodwill are amortized over their useful lives unless the lives are determined to be indefinite. Intangible assets are carried at cost, less accumulated amortization. Intangible assets consist of trademarks and trade name, patents, customer relationships, software to be sold or leased, and other intangible assets. Goodwill is tested at the reporting unit level, which is defined as an operating segment or one level below the operating segment. The Company operates in one operating segment which is its only reporting unit. The Company tests its goodwill for impairment annually which is the first day of the Company’s fourth quarter or when an indicator of impairment exists, by comparing the fair value of the reporting unit to its carrying value. In the evaluation of goodwill for impairment, the Company has the option to perform a qualitative assessment to determine whether further impairment testing is necessary or to perform a quantitative assessment by comparing the fair value of a reporting unit to its carrying amount, including goodwill. Under the qualitative assessment, an entity is not required to calculate the fair value of a reporting unit unless the entity determines that it is more likely than not that its fair value is less than its carrying amount. By eliminating “Step 2” from the goodwill impairment test, the quantitative analysis of goodwill will result in an impairment loss for the amount that the carrying value of the reporting unit exceeds its fair value which is limited to the total amount of goodwill allocated to the reporting unit. The Company performed a 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. 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. 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. 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. 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. 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. [K] Product warranties : The Company typically provides a 1 – 8 year warranty on its products . Estimated future warranty costs are accrued in the period that the related revenue is recognized. These estimates are derived from historical data and trends of product reliability and costs of repairing and replacing defective products. [L] Research and development : Research and development costs are charged to expense as incurred and consists primarily of salaries and related expenses, supplies and contractor costs. Research and development costs were $ 10,597 , $ 11,058 , and $ 8,964 in 2020, 2021 and 2022, respectively. [ M] Patent costs : Cost incurred in connection with acquiring patent rights are charged to expense as incurred. 56 [N] Concentrations of credit risk : Financial instruments that potentially subject the Company and its subsidiaries to concentrations of credit risk consist principally of cash and cash equivalents, trade receivables and trade payables. The Company’s cash and cash equivalents are invested primarily in deposits with major banks worldwide. Generally, these deposits may be redeemed upon demand and, therefore, bear low risk. Management believes that the financial institutions that hold the Company’s investments have a high credit rating. For the years ended December 31, 2022, 2021, and 2020, there were no customers who generated revenues greater than 10% of the Company’s consolidated total revenues or generated greater than 10 % of the Company’s consolidated accounts receivable. [O] Benefit plan : The Company maintains a retirement plan under Section 401(k) of the Internal Revenue Code, which covers all eligible employees. All employees with U.S. source income are eligible to participate in the plan immediately upon employment. The Company did not make any contributions to the plan during the years ended December 31, 2020 and 2021. In 2022, the Company contributed $285 to the plan. [P] Severance pay : The liability of the Company’s subsidiaries in Israel for severance pay is calculated pursuant to Israel’s Severance Pay Law 5273-1963 (the “Severance Law”) based on the most recent salary of the employees multiplied by the number of years of employment as of balance sheet date and are presented on an undiscounted basis. Employees are entitled to one month’s salary for each year of employment, or a portion thereof. The liability for the Company and its subsidiaries in Israel is fully provided by monthly deposits with insurance policies and by accrual. The value of these policies is recorded as an asset in the Company’s balance sheet. The deposited funds may be withdrawn only upon the fulfillment of the obligation pursuant to the Severance Law or labor agreements. The value of the deposited funds is based on the cash surrendered value of these policies, and includes profits or losses accumulated to balance sheet date. Some of the Company’s employees are subject to Section 14 of the Severance Law and the General Approval of the Labor Minister dated June 30, 1998, issued in accordance to the said Section 14, mandating that upon termination of such employees’ employment, all the amounts accrued in their insurance policies shall be released to them. The severance pay liabilities and deposits covered by these plans are not reflected in the balance sheet as the severance pay risks have been irrevocably transferred to the severance funds. [Q] Stock-based compensation : The Company accounts for stock-based employee compensation for all share-based payments, including grants of stock options and restricted stock, as an operating expense based on their fair values on grant date. The Company recorded stock-based compensation expense of $ 4,142 , $ 4,416 , and $ 4,343 for the years ended December 31, 2020, 2021 and 2022, respectively. The Company estimates the fair value of share-based option awards on the grant date using an option pricing model. The value of the portion of the award that is ultimately expected to vest is recognized as expense over the requisite service period in the Company’s consolidated statement of operations. The Company estimates forfeitures at the time of grant in order to estimate the amount of share-based awards that will ultimately vest. The estimate is based on the Company’s historical rates of forfeitures. Estimated forfeitures are revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. 57 [R] Income taxes : The Company uses the asset and liability method of accounting for deferred income taxes. Deferred income taxes are measured by applying enacted statutory rates to net operating loss carryforwards and to the differences between the financial reporting and tax bases of assets and liabilities. Deferred tax assets are reduced, if necessary, by a valuation allowance if it is more likely than not that some portion or all of the deferred tax assets will not be realized. The Company recognizes uncertainty in income taxes in the financial statements using a recognition threshold and measurement attribute of a tax position taken or expected to be taken in a tax return. The Company applies the “more-likely-than-not” recognition threshold to all tax positions, commencing at the adoption date of the applicable accounting guidance, which resulted in no unrecognized tax benefits as of such date. Additionally, there have been no unrecognized tax benefits subsequent to adoption. The Company has opted to classify interest and penalties that would accrue according to the provisions of relevant tax law as selling, general, and administrative expenses and incomes taxes, respectively, in the consolidated statement of operations. For the years ended December 31, 2020, 2021 and 2022, interest and penalties were immaterial. [S] Fair value of financial instruments : The Company utilizes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. The following is a brief description of those levels: ● Level 1: Unadjusted quoted prices in active markets for identical assets or liabilities ● Level 2: Inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly. These include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active. ● Level 3: Unobservable inputs that reflect the reporting entity’s estimates of market participant assumptions The Company’s cash and cash equivalents and investments in securities are carried at fair value. The carrying value of financing receivables approximates fair value due to the interest rate implicit in the instruments approximating current market rates. The carrying value of accounts receivables, accounts payable and accrued liabilities and short term bank debt approximates their fair values due to the short period to maturity of these instruments. The fair value of the Company’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 December 31, 2022 Carrying Amount Fair Value Long term debt $ 21,715 $ 21,224 [T] Advertising and marketing expense : Advertising and marketing costs are expensed as incurred. Advertising and marketing expense for the years ended December 31, 2020, 2021 and 2022 amounted to $ 1,022 , $ 1,185 , and $ 1,084 , respectively. [U] Foreign currency : 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 are $ 134 , $ ( 8 ) and $ ( 1,601 ) at December 31, 2020, 2021 and 2022, respectively, which are included in comprehensive loss in the Consolidated Statement of Changes in Stockholders’ Equity. 58 Foreign currency transaction 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 transaction gains (losses) for the years ended December 31, 2020, 2021 and 2022 of $ 148 , $ ( 128 ) , and $ ( 847 ) respectively, are included in selling, general and administrative expenses in the Consolidated Statement of Operations. Foreign currency transaction gains (losses) related to long-term debt of $ ( 2,137 ) , $ 810 and $ 2,689 for the years ended December 31, 2020, 2021 and 2022, respectively, are included in interest expense in the Consolidated Statement of Operations. [ V] Commitments and contingencies : From time to time, the Company is involved in various litigation matters involving claims incidental to its business 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. [W] Recently issued accounting pronouncements : In December 2019, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2019-12, Simplifying the Accounting for Income Taxes which removes certain exceptions related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period, the recognition of deferred tax liabilities for outside basis differences and clarifies the accounting for transactions that result in a step-up in the tax basis of goodwill. The guidance is generally effective as of January 1, 2021, with early adoption permitted. The adoption of the standard did not have an impact on the Company’s consolidated financial statements. 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. [Y] Reclassifications : Certain prior amounts have been reclassified to conform with the current year presentation for comparative purposes. These reclassifications had no effect on the previously reported results of operations. 59 NOTE 3 - 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 11). Revenue is recognized when performance obligations under the terms of a contract with our customer are satisfied. Product sales are recognized at a point in time when title transfers, when the products are shipped, or when control of the system is transferred to the customer, which usually is upon delivery of the system and when contractual performance obligations have been satisfied. For products which do not have standalone value to the customer separate from the SaaS services provided, the Company considers both hardware and SaaS services a bundled performance obligation. Under the applicable accounting guidance, all of the Company’s billings for equipment and the related cost for these systems are deferred, recorded, and classified as a current and long-term liability and a current and long-term asset, respectively. The deferred revenue and cost are recognized over the service contract life, ranging from one to five years, beginning at the time that a customer acknowledges acceptance of the equipment and service. The Company recognizes revenue for remotely hosted SaaS agreements and post-contract maintenance and support agreements beyond our standard warranties over the life of the contract. Revenue is recognized ratably over the service periods and the cost of providing these services is expensed as incurred. Amounts invoiced to customers which are not recognized as revenue are classified as deferred revenue and classified as short-term or long-term based upon the terms of future services to be delivered. Deferred revenue also includes prepayment of extended maintenance, hosting and support contracts. The Company earns other service revenues from installation services, training and technical support services which are short-term in nature and revenue for these services are recognized at the time of performance when the service is provided. The Company also derives revenue from leasing arrangements. Such arrangements provide for monthly payments covering product or system sale, maintenance, support and interest. These arrangements meet the criteria to be accounted for as operating or sales-type leases. Accordingly, for sales-type leases an asset is established for the “sales-type lease receivable” at the present value of the expected lease payments and revenue is deferred and recognized over the service contract, as described above. Maintenance revenues and interest income are recognized monthly over the lease term. The Company’s contracts with customers may include multiple performance obligations. For such arrangements, the Company allocates revenue to each performance obligation based on its relative standalone selling price. The Company generally determines standalone selling prices based on observable prices charged to customers or adjusted market assessment or using expected cost-plus margin when one is available. Adjusted market assessment price is determined based on overall pricing objectives taking into consideration market conditions and entity specific factors. The Company recognizes an asset for the incremental costs of obtaining the contract arising from the sales commissions to employees because the Company expects to recover those costs through future fees from the customers. The Company amortizes the asset over one to five years because the asset relates to the services transferred to the customer during the contract term of one to five years. The Company does not disclose the value of unsatisfied performance obligations for (i) contracts with an original expected length of one year or less and (ii) contracts for which the Company recognizes revenue at the amount to which the Company has the right to invoice for services performed. The following table presents the Company’s revenues disaggregated by revenue source for the years ended December 31, 2020, 2021 and 2022. SCHEDULE OF REVENUE DISAGGREGATED BY REVENUE SOURCE Year Ended December 31, 2020 2021 2022 Products $ 45,651 $ 52,981 $ 56,313 Services 67,942 73,227 78,844 $ 113,593 $ 126,208 $ 135,157 The balances of contract assets and contract liabilities from contracts with customers are as follows as of December 31, 2021 and 2022 are as follows: SCHEDULE OF DEFERRED REVENUE Year Ended December 31, 2021 2022 Assets: Deferred contract costs $ 3,045 $ 2,740 Deferred costs $ 2,011 $ 762 Liabilities: Deferred revenue- services (1) $ 8,401 $ 9,815 Deferred revenue - products (1) 2,546 938 10,947 10,753 Less: Deferred revenue current portion ( 6,519 ) ( 6,363 ) Deferred revenue long term $ 4,428 $ 4,390 (1) The Company records deferred revenues when cash payments are received or due in advance of the Company’s performance. For the years ended December 31, 2021 and 2022, the Company recognized revenue of $ 10,249 and $ 4,215 , respectively, that was included in the deferred revenue balance at the beginning of each reporting period. The Company expects to recognize as revenue before year 2027, when it transfers those goods and services and, therefore, satisfies its performance obligation to the customers. 60 NOTE 4 – PREPAID EXPENSES AND OTHER ASSETS Prepaid expenses and other current assets consist of the following: SCHEDULE OF PREPAID EXPENSES AND OTHER CURRENT ASSETS 2021 2022 Year Ended December 31, 2021 2022 Sales-type lease receivables, current $ 786 $ 1,161 Prepaid expenses 4,580 4,047 Contract assets 1,124 1,131 Other current assets 2,561 1,370 Prepaid expenses and other current assets $ 9,051 $ 7,709 NOTE 5 - INVENTORIES 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 $ 453 at December 31, 2022. Inventories consist of the following: SCHEDULE OF INVENTORIES 2021 2022 Year Ended December 31, 2021 2022 Components $ 11,137 $ 12,443 Work in process 699 462 Finished goods, net 6,407 9,367 Inventory, Net $ 18,243 $ 22,272 61 NOTE 6 - FIXED ASSETS Fixed assets are stated at cost, less accumulated depreciation and amortization, and are summarized as follows: SCHEDULE OF FIXED ASSETS Year Ended December 31, 2021 2022 Installed products $ 6,190 $ 8,586 Computer software 6,732 7,195 Computer and electronic equipment 5,688 5,658 Furniture and fixtures 2,246 2,041 Leasehold improvements 1,445 1,415 22,301 24,895 Accumulated depreciation and amortization ( 13,313 ) ( 15,646 ) $ 8,988 $ 9,249 Depreciation and amortization expense for the years ended December 31, 2020, 2021 and 2022 was $ 3,097 , $ 3,399 , and $ 3,183 , respectively. This includes amortization of costs associated with computer software for the years ended December 31, 2020, 2021 and 2022 of $ 515 , $ 426 , and $ 179 , respectively. 62 NOTE 7 - INTANGIBLE ASSETS AND GOODWILL Beginning in 2022, the Company began to capitalize software costs for software to be sold, marketed, or leased to customers. Costs incurred internally in researching and developing software products are charged to expense until technological feasibility has been established for the product. Once technological feasibility is established, software costs are capitalized until the product is available for general release to customers. Judgment is required in determining when technological feasibility of a product is established. The amortization of these costs will be included in cost of revenue over the estimated life of the products. The following table summarizes identifiable intangible assets of the Company as of December 31, 2022 and 2021: SCHEDULE OF INTANGIBLE ASSETS December 31, 2022 Useful Lives (In Years) Gross Carrying Amount Accumulated Amortization Net Carrying Amount Amortized: Customer relationships 9 - 12 $ 20,031 $ ( 6,830 ) $ 13,201 Trademark and tradename 3 - 15 7,589 ( 2,990 ) 4,599 Patents 7 - 11 628 ( 351 ) 277 Technology 7 10,667 ( 7,866 ) 2,801 Favorable contract interest 4 388 ( 388 ) - Covenant not to compete 5 208 ( 208 ) - Software to be sold or leased 3 – 6 1,865 - 1,865 41,376 ( 18,633 ) 22,743 Unamortized: Customer List 104 - 104 Trademark and tradename 61 - 61 165 - 165 Total $ 41,541 $ ( 18,633 ) $ 22,908 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 63 Global uncertainties continue to adversely impact the broader global economy and has caused significant volatility in financial markets. If there is a lack of recovery or further global softening in certain markets, or a sustained decline in the value of the Company’s common stock, the Company may conclude that indicators of impairment exist and would then be required to calculate whether or not an impairment exists for its goodwill, other intangibles, and long-lived assets, the results of which could result in material impairment charges. The Company tests goodwill and other indefinite lives intangible assets on an annual basis in the fourth quarter and more frequently if the Company believes indicators of impairment exists. As of December 31, 2021 and 2022, the Company determined that no impairment existed to the goodwill, customer list and trademark and trade name of its acquired intangibles. At December 31, 2022, the weighted-average amortization period for the intangible assets was 8.9 years. At December 31, 2022, the weighted-average amortization periods for customer relationships, trademarks and trade names, patents, technology, and capitalized software to be sold or leased were 11.9 , 9.6 , 7.0 , 4.3 , and 3.0 years, respectively. Amortization expense for the years ended December 31, 2020, 2021 and 2022 was $ 5,328 , $ 5,154 , and $ 5,079, 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: 2023 $ 5,656 2024 3,243 2025 3,117 2026 2,413 2027 2,232 Thereafter 6,082 Finite-Lived intangible assets $ 22,743 The Company tests for goodwill impairment at the reporting unit level on October 1 of each year and between annual tests if a triggering event indicates the possibility of an impairment. The Company monitors changing business conditions as well as industry and economic factors, among others, for events which could trigger the need for an interim impairment analysis. The Company concluded that a sustained decline in its stock price coupled with continuing losses, represented a triggering event for impairment during the third quarter. Accordingly, the Company performed an interim quantitative impairment analysis at September 30, 2022 using a market-based and income-based quantitative assessment utilizing a combination of the (i) the guideline public company method applying revenue and adjusted EBITDA multiples of similar companies and, (ii) the discounted cash flow method, respectively. The fair value determination used in the impairment assessment requires estimates of the fair values based present value or other valuation techniques or a combination thereof, necessitating subjective judgments and assumptions by management. These estimates and assumptions could result in significant differences to the amounts reported if underlying circumstances were to change. The Company concluded that no impairment relating to goodwill existed at December 31, 2022. There have been no changes in the carrying amount of goodwill from January 1, 2022 to December 31, 2022. 64 NOTE 8 - STOCK-BASED COMPENSATION The Company’s stockholders have approved the Company’s 2018 Incentive Plan (as amended the “2018 Plan”) pursuant to which the Company may grant stock options, restricted stock and other equity-based awards with respect to up to an aggregate of 6,500 shares of the Company’s common stock with a vesting period of approximately four to five years . There were 1,349 shares available for future issuance under the 2018 Plan as of December 31, 2022. The 2018 Plan is administered by the Compensation Committee of the Company’s Board of Directors, which has the authority to determine, among other things, the term during which an option may be exercised (not more than 10 years), the exercise price of an option and the vesting provisions. The Company recognizes all employee share-based payments in the statement of operations as an operating expense, based on their fair values on the applicable grant date. In connection with the Company’s acquisition of Pointer, the Company previously approved the grants of options to purchase 350 shares of the Company’s common stock to Chris Wolfe, the Company’s former Chief Executive Officer, and options to purchase 150 shares of the Company’s common stock to Ned Mavrommatis, the Company’s former Chief Financial Officer, on March 13, 2019 (the “Signing Bonus Options”) and the grants of additional options to purchase 350 shares of the Company’s common stock to Mr. Wolfe and additional options to purchase 150 shares of the Company’s common stock to Mr. Mavrommatis on October 3, 2019 (the “Closing Bonus Options” and together with the Signing Bonus Options, the “Original Bonus Options”). The Original Bonus Options were subject to the terms of the Company’s 2018 Incentive Plan (the “2018 Plan”), vested upon the attainment of adjusted EBITDA targets for the fiscal years ending December 31, 2020 and December 31, 2021 and became exercisable 180 days after vesting, subject to acceleration in the event of certain change of control transactions. The Signing Bonus Options had an exercise price of $ 6.28 per share and the Closing Bonus Options had an exercise price of $ 6.00 per share. In response to the impact of COVID-19, the Board terminated and cancelled the Original Bonus Options and approved the following grants to replace the Original Bonus Options: (i) options to purchase 350 shares of the Company’s common stock to Mr. Wolfe and options to purchase 150 shares of the Company’s common stock to Mr. Mavrommatis (the “New Signing Options”), which options are subject to the terms of the 2018 Plan, have an exercise price of $ 6.28 per share, and will vest and become exercisable in full on December 31, 2022 if the volume weighted average price of the Company’s common stock during a consecutive 30 trading day period (the “30 Day VWAP”) reaches $12.00 at any point prior to December 31, 2022 , and (ii) options to purchase 350 shares of the Company’s common stock to Mr. Wolfe and options to purchase 150 shares of the Company’s common stock to Mr. Mavrommatis (the “New Closing Options”), which options are subject to the terms of the 2018 Plan, have an exercise price of $ 6.00 per share, and will vest and become exercisable immediately upon the Company achieving a 30 Day VWAP of $10.00. During the first fiscal quarter of 2022, the Company granted options to purchase 5,960 shares of the Company’s common stock to certain senior managers, including the Company’s executive officers, consisting of options to purchase 895 shares of common stock with time-based vesting conditions and options to purchase 5,065 shares of common stock with performance-based vesting conditions (which we refer to as “market-based stock options”). The market-based stock options have an exercise price that range from $ 2.85 to $ 21.00 . The market-based stock options will vest and become exercisable if the volume weighted average price of the Company’s common stock during a consecutive 60-day trading period (the “60 Day VWAP”) ranges between $ 10.50 and $ 21.00 . The Company valued the market-based stock option awards using a Monte Carlo simulation model using a daily price forecast over ten years until expiration utilizing Geometric Brownian Motion that considers a variety of factors including, but not limited to, the Company’s common stock price, risk-free rate ( 1.7 %), and expected stock price volatility ( 51.7 %) over the expected life of awards ( 10 years). The weighted average fair value of market-based stock options granted during the period was $ 1.60 . 65 [A] Stock options: A summary of the status of the Company’s stock options, relating to the Company’s market-based stock options that were granted to certain senior managers, including the Company’s executive officers, as of December 31, 2020, 2021 and 2022 and changes during the years then ended, is presented below: SCHEDULE OF STOCK OPTIONS ACTIVITY 2020 2021 2022 Number of Shares Weighted- Average Exercise Price Number of Shares Weighted- Average Exercise Price Number of Shares Weighted- Average Exercise Price Outstanding at beginning of year - $ - - $ - - $ - Share-based payments assumed - - - - - - Granted - - - - 5,065 $ 14.14 Exercised - - - - - - Forfeited or expired - - - - - - Outstanding at end of year - $ - - $ - 5,065 $ 14.14 Exercisable at end of year - $ - - $ - - $ - The following table summarizes information about stock options, relating to the market-based stock options that were granted to certain senior managers, including the Company’s executive officers, at December 31, 2022. SUMMARY OF STOCK OPTION INFORMATION BY EXERCISE PRICE RANGE Options Outstanding Options Exercisable Exercise Prices ($) Number Outstanding Weighted - Average Remaining Contractual Life in Years Weighted- Average Exercise Price Number Outstanding Weighted - Average Exercise Price 2.85 – 7.39 940 9 $ 3.11 - $ - 7.40 – 11.93 875 9 10.50 - - 11.94 – 16.47 1,250 9 14.00 - - 16.48 – 21.00 2,000 9 21.00 - - 5,065 9 $ 14.13 - $ - A summary of the status of the Company’s stock options, excluding the market-based stock options that were granted to certain senior managers, including the Company’s executive officers, as of December 31, 2020, 2021 and 2022 and changes during the years then ended, is presented below: SCHEDULE OF STOCK OPTIONS ACTIVITY 2020 2021 2022 Number of Shares Weighted- Average Exercise Price Number of Shares Weighted- Average Exercise Price Number of Shares Weighted- Average Exercise Price Outstanding at beginning of year 4,078 $ 5.79 3,624 $ 5.85 3,470 $ 5.91 Share-based payments assumed - 0.00 - - - - Granted 1,230 6.08 120 7.77 895 4.08 Exercised ( 199 ) 4.72 ( 156 ) 5.60 - - Forfeited or expired ( 1,485 ) 6.02 ( 118 ) 6.34 ( 1,638 ) 5.95 Outstanding at end of year 3,624 $ 5.85 3,470 $ 5.91 2,727 $ 5.29 Exercisable at end of year 1,247 $ 5.60 1,546 $ 5.67 1,247 $ 5.79 The following table summarizes information about stock options, excluding the market-based stock options that were granted to certain senior managers, including the Company’s executive officers, at December 31, 2022. SUMMARY OF STOCK OPTION INFORMATION BY EXERCISE PRICE RANGE Options Outstanding Options Exercisable Exercise Prices ($) Number Outstanding Weighted - Average Remaining Contractual Life in Years Weighted- Average Exercise Price Number Outstanding Weighted - Average Exercise Price 2.33 - 3.74 410 9 $ 3.12 16 $ 2.33 3.75 - 5.15 637 8 4.82 112 4.87 5.16 - 6.56 1,645 4 5.96 1,110 5.91 6.57 - 7.96 35 8 7.80 9 7.8 2,727 6 $ 5.29 1,247 $ 5.79 66 SCHEDULE OF OPTIONS OUTSTANDING AND EXERCISABLE As of December 31, 2022 Aggregate Intrinsic Value Weighted - Average Remaining Contractual Life in Years Options outstanding $ 795 6 Options exercisable $ 795 5 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 Year Ended December 31, 2020 2021 2022 Expected volatility 47.1 % 50.2 % 49.4 % Expected life of options 6.3 years 6.5 years 6.5 years Risk free interest rate 0.93 % 0.69 % 1.73 % Dividend yield 0 % 0 % 0 % Weighted-average fair value of options granted during year $ 2.69 $ 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. For the years ended December 31, 2020, 2021 and 2022, the Company recorded $ 1,587 , $ 1,684 , and $ 2,943 respectively, of stock-based compensation expense in connection with the stock option grants. The fair value of options vested during the years ended December 31, 2020, 2021 and 2022 was $ 1,974 , $ 1,201 , and $ 869 , respectively. The total intrinsic value of options exercised during the years ended December 31, 2020, 2021 and 2022 was $ 313 , $ 483 , and $ 0 , respectively. As of December 31, 2022, there was $ 2,009 of total unrecognized compensation costs related to non-vested options granted under the Company’s stock option plans excluding the market-based stock options that were granted to certain senior managers, including the Company’s executive officers. That cost is expected to be recognized over a weighted-average period of 2.98 years. As of December 31, 2022, there was $ 6,007 of total unrecognized compensation costs related to non-vested options granted under the Company’s stock option plans for the market-based stock options that were granted to certain senior managers, including the Company’s executive officers. That cost is expected to be recognized over a weighted-average period of 2.97 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. 67 [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 the non-vested shares for the years ended December 31, 2020, 2021 and 2022 is as follows: SCHEDULE OF NON-VESTED RESTRICTED STOCK ACTIVITY Number of Non-Vested Shares Weighted - Average Grant Date Fair Value Non-vested, at January 1, 2020 877 6.17 Granted 463 4.88 Vested ( 389 ) 6.01 Forfeited or expired ( 145 ) 6.01 Non-vested, at December 31, 2020 806 5.54 Granted 450 7.63 Vested ( 537 ) 5.35 Forfeited or expired ( 90 ) 6.51 Non-vested, at December 31, 2021 629 7.06 Granted 492 3.72 Vested ( 229 ) 6.99 Forfeited or expired ( 186 ) 7.08 Non-vested, at December 31, 2022 706 4.75 For the years ended December 31, 2020, 2021 and 2022, the Company recorded $ 2,272 , $ 2,529 , and $ 1,347, respectively, of stock-based compensation expense in connection with the restricted stock grants. As of December 31, 2022, there was $ 2,284 of total unrecognized compensation cost related to non-vested shares. That cost is expected to be recognized over a weighted-average period of 2.37 years. [C] Restricted Stock Units: The Company also grants restricted stock units (“RSUs”) to employees. The following table summarizes the activity relating to the Company’s RSUs for the years ended December 31, 2020, 2021 and 2022: SCHEDULE OF NON-VESTED RESTRICTED STOCK ACTIVITY Number of Restricted Stock Units Weighted - Average Grant Date Fair Value Pointer share-based payments assumed 253 $ 5.60 Vested ( 148 ) 5.60 Forfeited or expired ( 30 ) 5.60 Restricted stock-units, non-vested, December 31, 2020 75 $ 5.60 Vested ( 35 ) 5.60 Forfeited or expired ( 4 ) 5.60 Restricted stock-units, non-vested, December 31, 2021 36 $ 5.60 Vested ( 36 ) 5.60 Forfeited or expired - - Restricted stock-units, non-vested, December 31, 2022 - $ - For the years ended December 31, 2020, 2021 and 2022 the Company recorded $ 283 , $ 203 , and $ 53, respectively, of stock-based compensation expense in connection with the RSUs. As of December 31, 2022 there was $- 0 - of total unrecognized compensation cost related to non-vested RSUs. NOTE 9 - NET LOSS PER SHARE SCHEDULE OF NET LOSS PER SHARE BASIC AND DILUTED Basic and diluted loss per share 2020 2021 2022 December 31, Basic and diluted loss per share 2020 2021 2022 Net loss attributable to common stockholders $ ( 13,606 ) $ ( 18,072 ) $ ( 11,905 ) Weighted-average common share outstanding - basic and diluted 29,703 34,571 35,393 Net loss attributable to common stockholders - basic and diluted $ ( 0.46 ) $ ( 0.52 ) $ ( 0.34 ) Basic loss per share is calculated by dividing net loss attributable to common shareholders by the weighted-average number of common shares outstanding during the period. Diluted loss per share reflects the potential dilution assuming common shares were issued upon the exercise of outstanding options and the proceeds thereof were used to purchase outstanding common shares. Dilutive potential common shares include outstanding stock options, warrants and restricted stock and performance share awards. We include participating securities (unvested share-based payment awards and equivalents that contain non-forfeitable rights to dividends or dividend equivalents) in the computation of EPS pursuant to the two-class method. Our participating securities consist solely of preferred stock, which have contractual participation rights equivalent to those of stockholders of unrestricted common stock. The two-class method of computing earnings per share is an allocation method that calculates earnings per share for common stock and participating securities. During periods of net loss, no effect is given to the participating securities because they do not share in the losses of the Company. For the years ended December 31, 2020, 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 11,998 , 11,628 and 16,571 respectively, would have been anti-dilutive due to the loss. 68 NOTE 10 – SHORT-TERM BANK DEBT AND LONG-TERM DEBT SCHEDULE OF LONG TERM DEBT 2021 2022 Year Ended December 31, 2021 2022 Short-term bank debt $ - $ 5,709 Current maturities of long-term debt $ 6,114 $ 4,603 Long term debt - less current maturities $ 18,110 $ 11,403 Long term debt In connection with the Transactions, PowerFleet Israel incurred NIS denominated debt in term loan borrowings on the Closing Date under the Credit Agreement, pursuant to which Hapoalim agreed to provide PowerFleet Israel with two senior secured term loan facilities in an initial aggregate principal amount of $ 30,000 (comprised of two facilities in the aggregate principal amount of $ 20,000 and $ 10,000 , respectively (the “Term A Facility” and “Term B Facility”, respectively, and collectively, the “Term Facilities”)) and a five-year revolving credit facility (the “Revolving Facility”) to Pointer denominated in NIS in an initial aggregate principal amount of $ 10,000 (collectively, the “Credit Facilities”). As of December 31, 2022, the Company borrowed NIS 20,091 or $ 5,709 , 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% (amended to SOFR + 2.15%). In addition, the Company agreed to pay a 1% commitment fee on the unutilized and uncancelled availability under the Revolving Facility . The Credit Facilities are secured by the shares held by PowerFleet Israel in Pointer and by Pointer over all of its assets. The original Credit Agreement includes customary representations, warranties, affirmative covenants, negative covenants (including the following financial covenants, tested quarterly: Pointer’s net debt to EBITDA; Pointer’s net debt to working capital; minimum equity of PowerFleet Israel; PowerFleet Israel equity to total assets; PowerFleet Israel net debt to EBITDA; and Pointer EBITDA to current payments and events of default. On August 23, 2021, 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 December 31, 2022. In connection with the Credit Facilities, the Company incurred debt issuance costs of $ 742 . For the years ended December 31, 2020, 2021, and 2022 the Company recorded $ 31 , $ 290 , and $ 215 respectively, of amortization of the debt issuance costs. The Company recorded charges of $ 1,451 , $ 1,078 , and $ 824 to interest expense on its consolidated statements of operations for the years ended December 31, 2020, 2021 and 2022 related to interest expense associated with the Credit Facilities. On October 31, 2022, the Borrowers entered into a third amendment to the Credit Agreement (the “Third Amendment”) with Hapoalim. The Third Amendment provides for, among other things, the New Revolver. The New Revolver will be available for a period of one month, commencing on October 31, 2022, and will continue to be available for successive one-month periods until and including October 30, 2023, unless the Borrowers deliver a notice to Hapoalim of their request not to renew the New Revolver. The New Revolver will initially bear interest at the Secured Overnight Financing Rate plus 2.59%. Such interest is subject to monthly changes by Hapoalim, provided that Hapoalim gives Pointer advance notice regarding such change prior to the end of the applicable calendar month . The New Revolver is secured by a first ranking fixed pledge and assignment by Pointer over its new bank account, which was opened in connection with the New Revolver, and all of the rights relating thereunder as well as a cross guarantee by PowerFleet Israel. Pointer is required to pay a credit allocation fee equal to 0.5 % per annum on undrawn and uncancelled amounts of the New Revolver. Pointer has a one-year $ 1,000 revolving credit facility available for use with Discount Bank, which renews annually, subject to the bank’s approval. Pointer did not have any borrowings outstanding under the revolving credit facility with Discount Bank as of December 31, 2022. Scheduled maturities of the long-term debt as of December 31, 2022 are as follows: SCHEDULE OF MATURITIES OF LONG TERM DEBT Year ending December 31: 2023 $ 4,603 2024 11,403 Long Term debt 16,006 Less: Current Portion 4,603 Total $ 11,403 The Term B Facility is not subject to amortization over the life of the loan and instead the original principal amount is to be due in one installment on the fifth anniversary of the date of the consummation of the Transactions. 69 NOTE 11 - ACCOUNTS PAYABLE AND ACCRUED EXPENSES Accounts payable and accrued expenses consist of the following: SCHEDULE OF ACCOUNTS PAYABLE AND ACCRUED LIABILITIES 2021 2022 Year Ended December 31, 2021 2022 Accounts payable $ 17,748 $ 14,751 Accrued warranty 1,146 1,897 Accrued compensation 6,644 7,153 Government authorities 2,080 1,992 Other current liabilities 1,397 805 Accounts payable and accrued expenses $ 29,015 $ 26,598 The Company’s products are warranted against defects in materials and workmanship for a period of 1-8 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 Consolidated Balance Sheets as of December 31, 2021 and 2022. The following table summarizes warranty activity during the years ended December 31, 2021 and 2022: SCHEDULE OF PRODUCT WARRANTY LIABILITY Year Ended December 31, 2021 2022 Accrued warranty reserve, beginning of year $ 807 $ 1,333 Accrual for product warranties issued 1,335 1,103 Product replacements and other warranty expenditures ( 411 ) ( 481 ) Expiration of warranties ( 398 ) 99 Accrued warranty reserve, end of period (a) $ 1,333 $ 2,054 (a) Includes accrued warranty included in other long-term liabilities at December 31, 2021 and 2022 of $ 187 and $ 157 , respectively. NOTE 12 - LEASES The Company has operating leases for office space and office equipment. The Company’s leases have remaining lease terms of one year to seven years , some of which include options to extend the lease term for up to five years . The Company has lease agreements which are classified as short-term in nature. These leases meet the criteria for operating lease classification. Lease cost associated with the short-term leases are included in selling, general and administrative expenses on the Company’s consolidated statements of operations during years ended December 31, 2020, 2021, and 2022. Components of lease expense are as follows: SCHEDULE OF COMPONENTS OF LEASE EXPENSE Year Ended December 31, 2021 Year Ended December 31, 2022 Short term lease cost: $ 563 $ 443 Supplemental cash flow information and non-cash activity related to the Company’s operating leases are as follows: SCHEDULE OF CASH FLOW INFORMATION AND NON CASH ACTIVITY OF OPERATING LEASES Year Ended December 31, 2021 Year Ended December 31, 2022 Non-cash activity: Right-of-use assets obtained in exchange for lease obligations $ 2,695 $ 1,450 Weighted-average remaining lease term and discount rate for the Company’s operating leases are as follows: SCHEDULE OF WEIGHTED AVERAGE REMAINING LEASE TERM AND DISCOUNT RATE December 31, 2022 Weighted-average remaining lease term (in years) 3.3 Weighted-average discount rate 4.28 % 70 Scheduled maturities of operating lease liabilities outstanding as of December 31, 2022 are as follows: SCHEDULED MATURITIES OF OPERATING LEASE LIABILITIES Year ending December 31: 2023 $ 2,797 2024 2,044 2025 1,841 2026 823 2027 382 Thereafter 941 Total lease payments 8,828 Less: Imputed interest ( 759 ) Present value of lease liabilities $ 8,069 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] ATM Offering: On May 14, 2020, we entered into an equity distribution agreement (the “Sales Agreement”) with Canaccord, pursuant to which we could offer and sell, from time to time through an “at-the-market offering” program, with Canaccord as sales agent, shares of our common stock having an aggregate offering price of up to $ 25,000 . The Sales Agreement provided for the Company to pay Canaccord a commission of 3.0 % of the aggregate gross proceeds from each sale of common stock occurring pursuant to the Sales Agreement. The offer and sale of common stock in the ATM Offering were made pursuant to the Company’s shelf registration statement on Form S-3 that was declared effective by the SEC on November 27, 2019, the base prospectus contained therein dated November 27, 2019, and a prospectus supplement related to the ATM Offering dated May 14, 2020. The Company sold 810 shares of common stock through Canaccord under the Sales Agreement, received net proceeds from such sales of $ 4,000 , and paid Canaccord $ 125 in commissions with respect to sales of common stock under the Sales Agreement. The Sales Agreement was terminated effective as of August 14, 2020. [C] 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 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 year ended December 31, 2021 and December 31, 2022, the Company issued - 0 - and 4 additional shares of Series A Preferred Stock. Liquidation The Series A Preferred Stock has a liquidation preference equal to the greater of (i) the original issuance price of $ 1,000.00 per share, subject to certain adjustments (the “Series A Issue Price”), plus all accrued and unpaid dividends thereon (except in the case of 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 years ended December 31, 2020, 2021 and December 31, 2022, the Company paid dividends in the amounts of $ 3,927 , $ 4,112 and $ 4,231 shares respectively, to the holders of the Series A Preferred Stock. As of December 31, 2021, and December 31, 2022, dividends in arrears were $- 0 - and $- 0 - respectively. 71 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 . 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. On June 9, 2021, the Company entered into a preferred stock redemption right agreement (the “Redemption Right Agreement”) with the Investors, pursuant to which the Company had the right to redeem 10 shares of Series A Preferred Stock at a price of $ 1,450 per share plus all accrued and unpaid dividends, to be paid in cash. The Company did not exercise its redemption right and the Redemption Right Agreement automatically terminated on October 1, 2021. 72 NOTE 14 - ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) Comprehensive income (loss) includes net loss and unrealized gains or losses on available-for-sale investments and foreign currency translation gains and losses. Cumulative unrealized gains and losses on available-for-sale investments are reflected as accumulated other comprehensive loss in stockholders’ equity on the Company’s Consolidated Balance Sheets. The accumulated balances for each classification of other comprehensive income (loss) are as follows: SCHEDULE OF ACCUMULATED OTHER COMPREHENSIVE LOSS Foreign currency translation adjustment Unrealized gain (losses) on investments Accumulated other comprehensive income Balance at January 1, 2020 $ 265 $ - $ 265 Net current period change 134 - 134 Balance at December 31, 2020 399 - 399 Net current period change ( 8 ) - ( 8 ) Balance at December 31, 2021 $ 391 $ - $ 391 Net current period change ( 1,601 ) - ( 1,601 ) Balance at December 31, 2022 $ ( 1,210 ) $ - $ ( 1,210 ) NOTE 15 – SEGMENT INFORMATION The Company operates in one reportable segment, wireless IoT asset management. The following table summarizes revenues on a percentage basis by geographic region. SCHEDULE OF REVENUES AND LONG LIVED ASSETS BY GEOGRAPHICAL REGION 2020 2021 2022 Year Ended December 31, 2020 2021 2022 United States $ 46,047 $ 50,844 $ 56,835 Israel 38,719 44,849 44,427 Other 28,827 30,515 33,895 Total revenues $ 113,593 $ 126,208 $ 135,157 2020 2021 2022 Year Ended December 31, 2020 2021 2022 Long lived assets by geographic region: United States $ 1,425 $ 1,123 $ 941 Israel 3,282 3,675 3,545 Other 4,097 4,190 4,763 Long lived assets $ 8,804 $ 8,988 $ 9,249 73 NOTE 16 - INCOME TAXES Loss before income taxes consists of the following: SCHEDULE OF LOSS BEFORE INCOME TAXES 2020 2021 2022 Year Ended December 31, 2020 2021 2022 U.S. operations $ ( 15,492 ) $ ( 15,017 ) $ ( 10,924 ) Foreign operations 7,520 4,331 4,219 Net loss before income tax $ ( 7,972 ) $ ( 10,686 ) $ ( 6,705 ) The provision for income taxes consists of the following: SCHEDULE OF PROVISION FOR INCOME TAXES 2020 2021 2022 Year Ended December 31, 2020 2021 2022 Current: Federal $ - $ - $ - State 45 16 84 Foreign 54 127 69 Total Current Income Tax Expense (Benefit) 99 143 153 Deferred: Federal - - - State - - - Foreign 939 2,464 143 Total Deferred Income Tax Expense (Benefit) 939 2,464 143 Total (benefit) provision for income taxes $ 1,038 $ 2,607 $ 296 The difference between income taxes at the statutory federal income tax rate and income taxes reported in the Consolidated Statements of Operations is attributable to the following: SCHEDULE OF STATUTORY FEDERAL INCOME TAX RATE 2020 2021 2022 Year Ended December 31, 2020 2021 2022 Income tax benefit at the federal statutory rate $ ( 1,674 ) $ ( 2,243 ) $ ( 1,408 ) State and local income taxes, net of federal taxes ( 421 ) 410 ( 637 ) Increase (decrease) in valuation allowance 2,595 ( 203 ) ( 820 ) Remeasurement of deferred tax adjustments ( 48 ) 1,302 248 Permanent differences and other 138 269 810 Foreign rate differential ( 586 ) 1,681 ( 683 ) GILTI inclusion 1,008 1,312 2,696 Other 26 79 90 Income tax benefit $ 1,038 $ 2,607 $ 296 74 The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at December 31, 2021 and 2022 are presented below: SCHEDULE OF DEFERRED TAX ASSETS AND LIABILITIES 2021 2022 Year Ended December 31, 2021 2022 Deferred tax assets: Net operating loss carryforwards $ 28,042 $ 27,630 Capital loss carryforwards 11,398 10,670 Deferred revenue 2,097 2,006 Stock-based compensation 801 459 Federal research and development tax credits 1,058 1,058 Capitalized research - 980 Inventories 344 324 Bad Debt Reserve 785 594 Deferred lease liability 714 548 Other deductible temporary differences 3,880 2,610 Total gross deferred tax assets 49,119 46,879 Less: valuation allowance ( 44,228 ) ( 43,654 ) Deferred tax assets, net of valuation allowance 4,891 3,225 Deferred tax liabilities: Intangible amortization ( 5,192 ) ( 4,421 ) ROU assets ( 657 ) ( 498 ) Fixed assets, depreciation - - Total deferred tax liabilities ( 5,849 ) ( 4,919 ) Net deferred tax (liabilities)/assets $ ( 958 ) $ ( 1,694 ) A reconciliation of the beginning and ending amount of unrecognized tax positions is as follows: SCHEDULE OF UNRECOGNIZED TAX POSITIONS 2021 2022 Year Ended December 31, 2021 2022 Balance at the beginning of the year $ 423 $ 485 Additions based on tax provisions taken related to current year 62 ( 125 ) Balance at the end of year $ 485 $ 360 The unrecognized tax benefits, if recognized, would reduce the Company’s annual effective tax rate. The Company does not expect any significant changes to its unrecognized tax positions during the next twelve months. At December 31, 2022, the Company had an aggregate net operating loss carryforward of approximately $ 78,285 for U.S. federal income tax purposes. At December 31, 2022, the Company had an aggregate net operating loss carryforward of approximately $ 37,628 for state income tax purposes and a foreign net operating loss carryforward of approximately $ 31,868 . Substantially all of the net operating loss carryforwards expire from 2023 through 2037 for pre-2018 federal net operating loss carryforwards and from 2023 through 2041 for state purposes. The net operating loss carryforwards may be limited to use in any particular year based on Internal Revenue Code (“IRC”) Section 382 related to change of ownership restrictions. Section 382 of the IRC imposes an annual limitation on the utilization of NOL carryforwards based on long-term bond rates and the value of the corporation at the time of a change in ownership as defined by Section 382 of the IRC. In 2019, the Company incurred a change in ownership under Section 382 of the IRC and this change of ownership is not expected to materially impact the Company’s ability to utilize its net operating loss carryforward amounts in the future. In addition, future stock issuances may subject the Company to further limitations on the utilization of its net operating loss carryforwards under the same Internal Revenue Code provision. At December 31, 2022, the Company has New Jersey net operating loss carryforwards (“NJ NOLs”) included above in the approximate amount of $ 5,006 expiring through 2041, which are available to reduce future earnings which would otherwise be subject to state income tax. The Company is asserting permanent reinvestment of all accumulated undistributed earnings of its foreign subsidiaries as of December 31, 2022 in excess of annual debt service costs requirements. For the year ended December 31, 2022, the Company’s valuation allowance decreased to $ 43,654 compared to $ 44,228 as of December 31, 2021 primarily due to utilization of the net operating losses. The Company has provided a valuation allowance against the full amount of its domestic deferred tax assets and the majority of the foreign deferred tax assets. The valuation allowance was established because of the uncertainty of realization of the deferred tax assets due to lack of sufficient history of generating taxable income. Realization is dependent upon generating sufficient taxable income prior to the expiration of the net operating loss carryforwards in future periods. The valuation decreased in 2021 and 2022 by $ 1,842 , and $ 574, respectively. Audits for federal income tax returns are closed for the years through 2018. However, the Internal Revenue Service (“IRS”) can audit the NOL’s generated during those years in the years that the NOL’s are utilized. State income tax returns are generally subject to examination for a period of three to six years after the filing of the respective tax return. The state impact of any federal changes remains subject to examination by various states for a period of up to one year after formal notification to the states. Foreign income tax returns are generally subject to examination based on the tax laws of the respective jurisdictions. 75 NOTE 17 - COMMITMENTS AND CONTINGENCIES Except for normal operating leases, the Company is not currently subject to any material commitments. [A] Contingencies: 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 $ 197 plus $ 1,057 of interest and penalty, totaling $ 1,254 as of December 31, 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 $ 11,777 as of December 31, 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 $ 202 . 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. On February 24, 2022, Pointer Mexico received a notification for 2015 tax assessment in the amount of $ 238 regarding the underpayment of VAT and government fees from the Mexican Tax Service (“MTS”). Under the statute and case law, Pointer Mexico was entitled to appeal before the MTS or file a lawsuit before the Federal Court of Administrative Justice (Tribunal Federal de Justicia Administrativa). On April 19, 2022, Pointer Mexico filed an appeal for revocation of the assessment. On May 3, 2022, Pointer Mexico filed additional evidence before the MTS. On January 24, 2023, the MTS resolved the administrative revocation appeal, confirming the tax assessment against Pointer Mexico. Against this last resolution, Pointer Mexico is entitled to appeal before the Federal Court of Administrative Justice. The term for the filing of this appeal lapses on March 8, 2023. Based on the current analysis of the facts and case, the Company has recorded a provision of $ 238 . On February 24, 2022, Pointer Mexico received a notification for 2016 and 2017 tax assessment in the amounts of $ 268 and $ 476 , respectively, regarding the underpayment of VAT and government fees from the MTS. Under the statute and case law, Pointer Mexico was entitled to appeal before the MTS or file a lawsuit before the Federal Court of Administrative Justice. On April 19, 2022, Pointer Mexico filed an appeal for revocation of the assessment. On May 2, 2022, Pointer Mexico filed additional evidence before the MTS. As of December 31, 2022, the MTS has not resolved the administrative revocation appeal. 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. NOTE 18 – SUBSEQUENT EVENTS On March 6, 2023, the Company entered into a definitive share purchase and transfer agreement (the “Agreement”) with Swiss Re Reinsurance Holding Company Ltd (the “Seller”) to acquire all of the outstanding shares of Movingdots GmbH (“Movingdots”), a wholly-owned subsidiary of the Seller, for consideration consisting of € 1 and the issuance by the Company of a ten-year warrant to purchase 800,000 shares of the Company’s common stock at an exercise price of $ 7.00 per share. Under the Agreement, the Seller is required to ensure that Movingdots has available cash and cash equivalents of at least € 8,000,000 as of the closing date. The transaction closed on March 31, 2023. 76 Item 9. Changes In and Disagreements with Accountants on Accounting and Financial Disclosure. None.