Item 9A. Controls and Procedures
Item
9A. Controls and Procedures.
Evaluation
of Disclosure Controls and Procedures
Disclosure
controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act are controls and other procedures that are
designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded,
processed, summarized and reported within the time periods specified in the rules and forms of the SEC. Disclosure controls and procedures
include, without limitation, controls and procedures designed to ensure that information required to be disclosed in the reports that
we file under the Exchange Act is accumulated and communicated to our management, including our principal executive officer and our principal
financial officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure
controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide
only reasonable assurance of achieving the desired control objectives. Due to the inherent limitations of control systems, not all misstatements
may be detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns
can occur because of a simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by
collusion of two or more people, or by management override of the control. Controls and procedures can only provide reasonable, not absolute,
assurance that the above objectives have been met.
As
of December 31, 2022, we carried out an evaluation, with the participation of our management, including our principal executive officer
and our principal financial officer, of the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and
15d-15(e) under the Exchange Act). Based on that evaluation, our principal executive officer and our principal financial officer concluded
that our disclosure controls and procedures were not effective, as of December 31, 2022.
Management’s
Report on Internal Control Over Financial Reporting
Our
management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined
in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Under the supervision and with the participation of our management, including
our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness, as of December 31,
2022, of our internal control over financial reporting based on the framework in 2013 Internal Control - Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway Commission. Based on our evaluation under this framework, our management
concluded that our internal control over financial reporting was not effective as of December 31, 2022 due to material weaknesses in
our internal control over financial reporting described below.
A
material weakness is a deficiency, or a 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. Management has concluded that material weaknesses existed as of December 31, 2022 with
respect to the following:
●
Controls
were not designed or operating effectively to ensure that the standalone selling prices (SSP), used to determine the appropriate allocation
of revenue in multiple element arrangements, was appropriate. Determining SSP involves management judgment, considering among other factors
the adjusted market assessment or the expected cost-plus margin, and management did not review timely the analysis of SSP or the underlying
data supporting the analysis.
●
Controls
were not designed or operating effectively to ensure that the costs capitalized for internal use software were appropriate. Specifically,
these controls did not provide for adequate review or documentation of the amounts capitalized and the related phase of the project.
Furthermore, controls were not designed or operating effectively to ensure that the costs for software to be sold, leased or marketed
were appropriate. Specifically, these controls did not provide for adequate review or documentation of the amounts capitalized and
when projects met technological feasibility.
●
Controls
over the financial statement close process were not designed or operating effectively to ensure the appropriate level of management
review, including the appropriate level of precision, adequate evidence of management’s review, and the completeness and accuracy
of key reports.
The
material weaknesses did not result in any restatements of consolidated financial statements previously reported by us, there were no changes
in previously released financial results and management concluded that the consolidated financial statements included in this report
present fairly, in all material respects, our financial position, results of operations, and cash flows for the periods presented, in
conformity with accounting principles generally accepted in the United States.
We
have begun to develop remediation plans for the material weaknesses as described below:
●
Implementing of a new enterprise resource planning (ERP) system
●
Utilizing
external resources to support its efforts to rework certain control gaps across the various processes in Israel and the U.S. with
identified deficiencies
●
Implementing
enhanced documentation associated with management review controls and validation of the completeness and accuracy of key reports in
Israel and the U.S.
●
Training of relevant personnel
reinforcing existing policies and enhanced policies with regards to the appropriate steps and procedures required to be performed
related to the execution and documentation of internal controls
Our
independent registered public accounting firm that audited the consolidated financial statements included in this Annual Report on Form
10-K, Ernst & Young LLP, has issued an attestation report on the effectiveness of our internal control over financial reporting which
appears in Part II, Item 8, “Financial Statements and Supplementary Data” of this Annual Report on Form 10-K.
Changes
in Internal Control over Financial Reporting
There
was no change in our system of internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) during
the quarter ended December 31, 2022 that has materially affected, or is reasonably likely to materially affect, our internal control
over financial reporting.
Item
9B. Other Information
None.
Item
9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections.
Not
applicable.
77
PART
III.
Item
10. Directors, Executive Officers and Corporate Governance.
The
Company incorporates by reference herein information to be set forth in its definitive proxy statement for its 2023 annual meeting of
stockholders that is responsive to the information required with respect to this Item 10; provided , however , that such
information shall not be incorporated herein:
●
if the information that
is responsive to the information required with respect to this Item 10 is provided by means of an amendment to this Annual Report
on Form 10-K filed with the SEC prior to the filing of such definitive proxy statement; or
●
if such proxy statement
is not filed with the SEC within 120 days after the end of the Company’s most recently completed fiscal year, in which case
the Company will provide such information by means of an amendment to this Annual Report on Form 10-K filed with the SEC within such
120-day period.
Item
11. Executive Compensation.
The
Company incorporates by reference herein information to be set forth in its definitive proxy statement for its 2023 annual meeting of
stockholders that is responsive to the information required with respect to this Item 11; provided , however , that such
information shall not be incorporated herein:
●
if the information that
is responsive to the information required with respect to this Item 11 is provided by means of an amendment to this Annual Report
on Form 10-K filed with the SEC prior to the filing of such definitive proxy statement; or
●
if such proxy statement
is not filed with the SEC within 120 days after the end of the Company’s most recently completed fiscal year, in which case
the Company will provide such information by means of an amendment to this Annual Report on Form 10-K filed with the SEC.
Item
12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
The
Company incorporates by reference herein information to be set forth in its definitive proxy statement for its 2023 annual meeting of
stockholders that is responsive to the information required with respect to this Item 12; provided , however , that such
information shall not be incorporated herein:
●
if the information that
is responsive to the information required with respect to this Item 12 is provided by means of an amendment to this Annual Report
on Form 10-K filed with the SEC prior to the filing of such definitive proxy statement; or
●
if such proxy statement
is not filed with the SEC within 120 days after the end of the Company’s most recently completed fiscal year, in which case
the Company will provide such information by means of an amendment to this Annual Report on Form 10-K filed with the SEC within such
120-day period.
78
Securities
Authorized for Issuance Under Equity Compensation Plans .
The
following table provides certain information with respect to the Company’s equity compensation plans in effect as of December 31,
2022:
EQUITY
COMPENSATION PLAN INFORMATION
Number of securities to be issued upon exercise of outstanding options, warrants and rights
Weighted-average exercise price of outstanding option, warrants and rights
Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected under (a))
Plan Category
(a)
(b)
(c)
Equity compensation plans approved by security holders (1)
2,727,000
$ 5.29
1,349,000
Total
2,727,000
$ 5.29
1,349,000
(1)
These plans consist of
the PowerFleet, Inc. 2018 Incentive Plan, the 2015 Equity Compensation Plan, the 2009 Non-Employee Director Equity Compensation Plan
which were our only equity compensation plans under which awards were outstanding as of December 31, 2022.
Item
13. Certain Relationships and Related Transactions, and Director Independence.
The
Company incorporates by reference herein information to be set forth in its definitive proxy statement for its 2023 annual meeting of
stockholders that is responsive to the information required with respect to this Item 13; provided , however , that such
information shall not be incorporated herein:
●
if the information that
is responsive to the information required with respect to this Item 13 is provided by means of an amendment to this Annual Report
on Form 10-K filed with the SEC prior to the filing of such definitive proxy statement; or
●
if such proxy statement
is not filed with the SEC within 120 days after the end of the Company’s most recently completed fiscal year, in which case
the Company will provide such information by means of an amendment to this Annual Report on Form 10-K filed with the SEC within such
120-day period.
Item
14. Principal Accounting Fees and Services.
The
Company incorporates by reference herein information to be set forth in its definitive proxy statement for its 2023 annual meeting of
stockholders that is responsive to the information required with respect to this Item 14; provided , however , that such
information shall not be incorporated herein:
●
if the information that
is responsive to the information required with respect to this Item 14 is provided by means of an amendment to this Annual Report
on Form 10-K filed with the SEC prior to the filing of such definitive proxy statement; or
●
if such proxy statement
is not filed with the SEC within 120 days after the end of the Company’s most recently completed fiscal year, in which case
the Company will provide such information by means of an amendment to this Annual Report on Form 10-K filed with the SEC within such
120-day period.
79
PART
IV.
Item
15. Exhibits, Financial Statement Schedules.
(a)
List of Financial Statements, Financial Statement Schedules, and Exhibits .
(1)
Financial Statements . The following financial statements of PowerFleet, Inc. are included in Item 8 of Part II of this Annual
Report on Form 10-K:
Page
Report of Independent Registered Public Accounting Firm
44
Consolidated Balance Sheets at December 31, 2021 and 2022
46
Consolidated Statements of Operations for the Years Ended December 31, 2020, 2021 and 2022
47
Consolidated Statements of Comprehensive Loss for the Years Ended December 31, 2020, 2021 and 2022
48
Consolidated Statements of Changes in Stockholders’ Equity for the Years Ended December 31, 2020, 2021 and 2022
49
Consolidated Statements of Cash Flows for the Years Ended December 31, 2020, 2021 and 2022
50
Notes to the Consolidated Financial Statements
51
(2)
Financial Statement Schedule .
None.
80
(3)
Exhibits . The following exhibits are filed with this Annual Report on Form 10-K or are incorporated herein by reference, as indicated.
2.1
Agreement and Plan of Merger, dated as of March 13, 2019, by and among PowerFleet, Inc., Powerfleet Israel Holding Company Ltd., Powerfleet Israel Acquisition Company Ltd., I.D. Systems, Inc. and Pointer Telocation Ltd. (incorporated by reference to Exhibit 2.1 to the Current Report on Form 8-K of I.D. Systems, Inc., filed with the SEC on March 15, 2019).†
2.2.1
Investment and Transaction Agreement, dated as of March 13, 2019, by and among I.D. Systems, Inc., PowerFleet, Inc., PowerFleet US Acquisition Inc., ABRY Senior Equity V, L.P. and ABRY Senior Equity Co-Investment Fund V, L.P. (incorporated by reference to Exhibit 2.2 to the Current Report on Form 8-K of I.D. Systems, Inc., filed with the SEC on March 15, 2019).†
2.2.2
Amendment No. 1 to the Investment and Transaction Agreement, dated as of May 16, 2019, by and among I.D. Systems, Inc., PowerFleet, Inc., PowerFleet US Acquisition Inc., ABRY Senior Equity V, L.P. and ABRY Senior Equity Co-Investment Fund V, L.P. (incorporated by reference to Exhibit 2.1 to the Current Report on Form 8-K of I.D. Systems, Inc., filed with the SEC on May 20, 2019).†
2.2.3
Amendment No. 2 to the Investment and Transaction Agreement, dated as of June 27, 2019, by and among I.D. Systems, Inc., PowerFleet, Inc., PowerFleet US Acquisition Inc., ABRY Senior Equity V, L.P. and ABRY Senior Equity Co-Investment Fund V, L.P. (incorporated by reference to Exhibit 2.1 to the Current Report on Form 8-K of I.D. Systems, Inc., filed with the SEC on June 27, 2019).†
2.2.4
Amendment No. 3 to the Investment and Transaction Agreement, dated as of October 3, 2019, by and among I.D. Systems, Inc., PowerFleet, Inc., PowerFleet US Acquisition Inc., ABRY Senior Equity V, L.P., ABRY Senior Equity Co-Investment Fund V, L.P. and ABRY Investment Partnership, L.P. (incorporated by reference to Exhibit 2.5 to the Current Report on Form 8-K12B of PowerFleet, Inc., filed with the SEC on October 3, 2019).†
2.2.5
Amendment No. 4 to the Investment and Transaction Agreement, dated as of May 13, 2020, by and among PowerFleet, Inc., I.D. Systems Inc., ABRY Senior Equity V, L.P., ABRY Senior Equity Co-Investment Fund V, L.P. and ARBY Investment Partnership, L.P. (incorporated by reference to Exhibit 2.1 to the Current Report on Form 8-K of I.D. Systems, Inc., filed with the SEC on May 14, 2020).
2.3.1
Asset Purchase Agreement, dated July 11, 2017, by and among I.D. Systems, Inc., Keytroller, LLC, a Delaware limited liability company, Keytroller, LLC, a Florida limited liability company, and the individuals listed on the signature page thereto (incorporated by reference to Exhibit 2.1 to the Current Report on Form 8-K of I.D. Systems, Inc., filed with the SEC on July 12, 2017).†
2.3.2
Amendment No. 1 to Asset Purchase Agreement, effective as of August 1, 2018, by and among I.D. Systems, Inc., Keytroller, LLC, a Delaware limited liability company, Sparkey, LLC, a Florida limited liability company, and the individuals listed on the signature page thereto (incorporated by reference to Exhibit 2.1 to the Current Report on Form 8-K of I.D. Systems, Inc., filed with the SEC on September 19, 2018).
3.1
Amended and Restated Certificate of Incorporation of PowerFleet, Inc. (incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-K12B of PowerFleet, Inc., filed with the SEC on October 3, 2019).
3.2
Amended and Restated Bylaws of PowerFleet, Inc. (incorporated by reference to Exhibit 3.2 to the Current Report on Form 8-K12B of PowerFleet, Inc., filed with the SEC on October 3, 2019).
4.1
Specimen PowerFleet, Inc. Common Stock Certificate (incorporated by reference to Exhibit 4.1 to Amendment No. 2 to the Registration Statement on Form S-4 of PowerFleet, Inc., filed with the SEC on July 23, 2019).
4.2
Specimen PowerFleet, Inc. Series A Convertible Preferred Stock Certificate (incorporated by reference to Exhibit 4.2 to Amendment No. 2 to the Registration Statement on Form S-4 of PowerFleet, Inc., filed with the SEC on July 23, 2019).
4.3
Description of Securities (incorporated by reference to Exhibit 4.4 to the Annual Report on Form 10-K of PowerFleet, Inc. for the fiscal year ended December 31, 2019 filed with the SEC on April 8, 2020).
10.1.1
2009 Non-Employee Director Equity Compensation Plan (incorporated by reference to Exhibit 10.5 to the Quarterly Report on Form 10-Q of I.D. Systems, Inc. for the fiscal quarter ended September 30, 2009, filed with the SEC on November 6, 2009).*
81
10.1.2
Amendment, dated March 16, 2012, to 2009 Non-Employee Director Equity Compensation Plan (incorporated by reference to Exhibit 10.2 to the Quarterly Report on Form 10-Q of I.D. Systems, Inc. for the fiscal quarter ended March 31, 2012, filed with the SEC on May 14, 2012).*
10.2
I.D. Systems, Inc. 2015 Equity Compensation Plan (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K of I.D. Systems, Inc. filed with the SEC on June 25, 2015).*
10.3
PowerFleet, Inc. 2018 Incentive Plan, as amended (incorporated by reference to Exhibit 10.3 to the Current Report on Form 8-K of PowerFleet, Inc., filed with the SEC on July 21, 2021).*
10.3.1
Employment Offer Letter, dated January 5, 2022, between PowerFleet, Inc. and Steve Towe (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K of PowerFleet, Inc., filed with the SEC on January 5, 2022).*
10.3.2
Severance Agreement, dated January 5, 2022, between PowerFleet, Inc. and Steve Towe (incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K of PowerFleet, Inc., filed with the SEC on January 5, 2022).*
10.3.3
Form of Stock Option Inducement Award Agreement (incorporated by reference to Exhibit 99.1 to the Registration Statement on Form S-8 of PowerFleet, Inc., filed with the SEC on March 16, 2022).*
10.4
Personal Employment Agreement, dated September 28, 2022, between Powerfleet Israel Ltd. and Offer Lehmann (English translation) (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K of PowerFleet, Inc., filed with the SEC on November 8, 2022).*
10.5
Offer Letter, dated December 31, 2022, between PowerFleet, Inc. and David Wilson (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K of PowerFleet, Inc., filed with the SEC on January 4, 2023).*
10.6
Offer Letter, dated February 11, 2022, between PowerFleet, Inc. and Patrick Maley (filed herewith).*
10.7
Offer Letter, dated February 8, 2022, between PowerFleet, Inc. and James Zeitunian (filed herewith).*
10.8
Form of Director and Officer Indemnification Agreement (incorporated by reference to Exhibit 10.5 to Amendment No. 2 to the Registration Statement on Form S-4 of PowerFleet, Inc., filed with the SEC on July 23, 2019).*
82
10.9
Registration Rights Agreement, dated as of October 3, 2019, by and among PowerFleet, Inc., ABRY Senior Equity V, L.P. and ABRY Senior Equity Co-Investment Fund V, L.P. (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K12B of PowerFleet, Inc., filed with the SEC on October 3, 2019).
10.10.1
Credit Agreement, dated August 19, 2019, by and among Powerfleet Israel Holding Company Ltd., Pointer Telocation Ltd. and Bank Hapoalim BM (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K of I.D. Systems, Inc., filed with the SEC on August 23, 2019).
10.10.2
Amendment No. 1, effective as of January 7, 2020, to the Credit Agreement, dated August 19, 2019, by and among Powerfleet Israel Ltd., Pointer Telocation Ltd. and Bank Hapoalim B.M. (incorporated by reference to Exhibit 10.2 to the Quarterly Report on Form 10-Q of PowerFleet, Inc., filed with the SEC on November 10, 2021).
10.10.3
Amendment No. 2, effective as of August 1, 2021, to the Credit Agreement, dated August 19, 2019, by and among Powerfleet Israel Ltd., Pointer Telocation Ltd. and Bank Hapoalim B.M. (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K of PowerFleet, Inc., filed with the SEC on August 25, 2021).
10.10.4
Amendment No. 3, effective as of October 31, 2022, to the Credit Agreement, dated August 2019, 2019, by and among Powerfleet Israel Ltd., Pointer Telocation Ltd. and Bank Hapoalim B.M. (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K of PowerFleet, Inc., filed with the SEC on November 3, 2022).
21.1
List of Subsidiaries (filed herewith).
23.1
Consent of Ernst & Young LLP (filed herewith).
31.1
Certification
of Principal Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith).
31.2
Certification
of Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith).
32.1
Certification
of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002 (filed herewith).
32.2
Certification
of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002 (filed herewith).
101.INS
Inline XBRL
Instance Document.
101.SCH
Inline XBRL
Taxonomy Extension Schema Document.
101.CAL
Inline XBRL
Taxonomy Extension Calculation Linkbase Document.
101.DEF
Inline XBRL
Taxonomy Extension Definition Linkbase Document.
101.LAB
Inline XBRL
Taxonomy Extension Label Linkbase Document.
101.PRE
Inline XBRL
Taxonomy Extension Presentation Linkbase Document.
104
Cover Page Interactive
Data File (embedded within the Inline XBRL document)
†
We have omitted certain
schedules and exhibits to this agreement in accordance with Item 601(b)(2) of Regulation S-K, and we will supplementally furnish
a copy of any omitted schedule and/or exhibit to the Securities and Exchange Commission upon request.
*
Management contract or
compensatory plan or arrangement.
(b)
Exhibits . The exhibits required by Item 601 of Regulation S-K are filed herewith or incorporated herein by reference. Please see
the Index to Exhibits to this Annual Report on Form 10-K, which is incorporated into this Item 15(b) by reference.
Item
16. Form 10-K Summary
None.
83
SIGNATURES
Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report
to be signed on its behalf by the undersigned, thereunto duly authorized.
Date:
March 31, 2023
POWERFLEET, INC.
By:
/s/ Steve
Towe
Steve Towe
Chief Executive Officer
(Principal Executive Officer)
By:
/s/
David Wilson
David Wilson
Chief Financial Officer
(Principal Financial and Accounting Officer)
Pursuant
to the requirements of the Securities Exchange Act of 1934, this report is signed below by the following persons on behalf of the registrant
and in the capacities and on the dates indicated.
Signature
Title
Date
/s/
Steve Towe
Chief
Executive Officer
March 31, 2023
Steve Towe
(Principal Executive
Officer)
/s/
David Wilson
Chief
Financial Officer
March 31, 2023
David
Wilson
(Principal Financial
and Accounting Officer)
/s/
Anders Bjork
Director
March 31, 2023
Anders Bjork
/s/
Michael Brodsky
Director
March 31, 2023
Michael Brodsky
/s/
Michael Casey
Director
March 31, 2023
Michael Casey
/s/
Charles Frumberg
Director
March 31, 2023
Charles Frumberg
/s/
Elchanan Maoz
Director
March 31, 2023
Elchanan Maoz
/s/
Medhini Srinivasan
Director
March 31, 2023
Medhini Srinivasan
84