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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

 

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

 

For the quarterly period ended: September 30, 2021

 

or

 

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

 

For the transition period from __________ to __________

 

Commission File Number: 001-39080

 

POWERFLEET, INC.

(Exact name of registrant as specified in its charter)

 

Delaware   83-4366463
(State or other jurisdiction of   (I.R.S. Employer
incorporation or organization)   Identification No.)

 

123 Tice Boulevard    
Woodcliff Lake, New Jersey   07677
(Address of principal executive offices)   (Zip Code)

 

(201) 996-9000

(Registrant’s telephone number, including area code)

 

 

(Former name, former address and former fiscal year, if changed since last report)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class   Trading Symbol(s)   Name of each exchange on which registered
Common Stock, par value $0.01 per share   PWFL   The Nasdaq Global Market

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer ☐ Accelerated filer ☐ Non-accelerated filer Smaller reporting company

 

Emerging growth company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Securities Exchange Act of 1934). Yes ☐ No

 

The number of shares of the registrant’s common stock, $0.01 par value per share, outstanding as of the close of business on November 5, 2021, was 35,953,108.

 

 

 

 

 

 

INDEX

 

PowerFleet, Inc. and Subsidiaries

 

  Page
   
PART I - FINANCIAL INFORMATION 3
   
Item 1. Financial Statements 3
   
Condensed Consolidated Balance Sheets as of December 31, 2020 and September 30, 2021 (unaudited) 3
   
Condensed Consolidated Statements of Operations (unaudited) - for the three and nine months ended September 30, 2020 and 2021 4
   
Condensed Consolidated Statements of Comprehensive Loss (unaudited) - for the three and nine months ended September 30, 2020 and 2021 5
   
Condensed Consolidated Statement of Changes in Stockholders’ Equity (unaudited) - for the periods January 1, 2020 through September 30, 2020 and January 1, 2021 through September 30, 2021 6
   
Condensed Consolidated Statements of Cash Flows (unaudited) - for the nine months ended September 30, 2020 and 2021. 7
   
Notes to Unaudited Condensed Consolidated Financial Statements 8
   
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations 25
   
Item 3. Quantitative and Qualitative Disclosures About Market Risk 35
   
Item 4. Controls and Procedures 35
   
PART II - OTHER INFORMATION 36
   
Item 1. Legal Proceedings 36
   
Item 1A. Risk Factors 36
   
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 36
   
Item 6. Exhibits 37
   
Signatures 38
   
Exhibit 31.1  
Exhibit 31.2  
Exhibit 32  

 

2

 

 

PART I - FINANCIAL INFORMATION

 

Item 1. Financial Statements

 

POWERFLEET, INC. AND SUBSIDIARIES

Condensed Balance Sheets

(In thousands, except per share data)

 

   December 31, 2020*   September 30, 2021 
       (Unaudited) 
ASSETS          
Current assets:          
Cash and cash equivalents  $18,127   $33,821 
Restricted cash   308    308 
Accounts receivable, net of allowance for doubtful accounts of $2,364 and $2,968 in 2020 and 2021, respectively   24,147    30,151 
Inventory, net   12,873    16,197 
Deferred costs - current   3,128    1,298 
Prepaid expenses and other current assets   6,184    7,256 
Total current assets   64,767    89,031 
           
Deferred costs - less current portion   2,233    1,174 
Fixed assets, net   8,804    8,852 
Goodwill   83,344    83,344 
Intangible assets, net   31,276    27,397 
Right of use asset   9,700    9,850 
Severance payable fund   4,056    4,095 
Deferred tax asset   1,506    893 
Other assets   3,115    3,656 
Total assets  $208,801   $228,292 
           
LIABILITIES          
Current liabilities:          
Short-term bank debt and current maturities of long-term debt   5,579    6,225 
Accounts payable and accrued expenses   20,225    24,655 
Deferred revenue - current   7,339    6,274 
Lease liability - current   2,755    2,508 
Total current liabilities   35,898    39,662 
           
Long-term debt, less current maturities   23,179    19,025 
Deferred revenue - less current portion   6,006    5,328 
Lease liability - less current portion   7,050    7,530 
Accrued severance payable   4,714    4,740 
Other long-term liabilities   674    711 
           
Total liabilities   77,521    76,996 
Commitments and Contingencies (note 21)   -      
           
MEZZANINE EQUITY          
Convertible redeemable preferred stock: Series A – 100 shares authorized, $0.01 par value; 55 and 55 shares issued and outstanding at December 31, 2020 and September 30, 2021   51,992    52,495 
           
Preferred stock; authorized 50,000 shares, $0.01 par value;   -    - 
Common stock; authorized 75,000 shares, $0.01 par value; 32,280 and 37,257 shares issued at December 31, 2020 and September 30, 2021, respectively; shares outstanding, 31,101 and 35,957 at December 31, 2020 and September 30, 2021, respectively   323    373 
Additional paid-in capital   206,499    233,965 
Accumulated deficit   (121,150)   (127,720)
Accumulated other comprehensive gain (loss)   399    (24)
Treasury stock; 1,179 and 1,300 common shares at cost at December 31, 2020 and September 30, 2021, respectively   (6,858)   (7,887)
           
Total Powerfleet, Inc. stockholders’ equity   79,213    98,707 
Non-controlling interest   75    94 
Total equity   79,288    98,801 
Total liabilities and stockholders’ equity  $208,801   $228,292 

 

*Derived from audited balance sheet as of December 31, 2020.

 

See accompanying notes to unaudited condensed consolidated financial statements.

 

3

 

 

POWERFLEET, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Operations

(In thousands, except per share data)

(Unaudited)

 

                     
   Three Months Ended
September 30,
   Nine Months Ended
September 30,
 
   2020   2021   2020   2021 
                 
Revenues:                    
Products  $10,914   $10,785   $33,516   $37,671 
Services   16,688    18,461    50,650    54,114 
Total revenues   27,602    29,246    84,166    91,785 
                     
Cost of Revenues:                    
Cost of products   6,700    8,172    22,025    27,186 
Cost of services   5,979    6,809    18,309    19,819 
Total cost of revenue   12,679    14,981    40,334    47,005 
                     
Gross profit   14,923    14,265    43,832    44,780 
                     
Operating expenses:                    
Selling, general and administrative expenses   11,636    13,959    38,905    40,988 
Research and development expenses   2,535    2,735    8,289    8,259 
Operating Expenses   14,171    16,694    47,194    49,247 
                     
Income (loss) from operations   752    (2,429)   (3,362)   (4,467)
Interest income   10    11    41    35 
Interest expense   (817)   (777)   (2,156)   (1,446)
Other (expense) income, net   -    7    7    5 
                     
Net loss before income taxes   (55)   (3,188)   (5,470)   (5,873)
                     
Income tax benefit (expense)   (529)   (161)   (1,182)   (701)
                     
Net loss before non-controlling interest   (584)   (3,349)   (6,652)   (6,574)
Non-controlling interest   (6)   4    10    5 
                     
Net loss   (590)   (3,345)   (6,642)   (6,569)
Accretion of preferred stock   (168)   (168)   (504)   (504)
Preferred stock dividend   (991)   (1,028)   (2,918)   (3,084)
                     
Net loss attributable to common stockholders  $(1,749)  $(4,541)  $(10,064)  $(10,157)
                     
Net loss per share attributable to common stockholders - basic and diluted  $(0.06)  $(0.13)  $(0.34)  $(0.30)
                     
Weighted average common shares outstanding - basic and diluted   30,143    35,019    29,528    34,398 

 

See accompanying notes to unaudited condensed consolidated financial statements.

 

4

 

 

POWERFLEET, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Comprehensive Loss

(In thousands, except per share data)

(Unaudited)

 

   2020   2021   2020   2021 
   Three Months Ended   Nine Months Ended 
   September 30,   September 30, 
   2020   2021   2020   2021 
                 
Net loss attributable to common stockholders  $(1,749)  $(4,541)  $(10,064)  $(10,157)
                     
Other comprehensive (loss) income, net:                    
                     
Foreign currency translation adjustment   (22)   (92)   (1,942)   (423)
                     
Total other comprehensive income (loss)   (22)   (92)   (1,942)   (423)
                   - 
Comprehensive loss  $(1,771)  $(4,633)  $(12,006)  $(10,580)

 

See accompanying notes to unaudited condensed consolidated financial statements.

 

5

 

 

POWERFLEET, INC. AND SUBSIDIARIES

Condensed Consolidated Statement of Changes in Stockholders’ Equity

(In thousands, except per share data)

(Unaudited)

 

                                         
    Common Stock              Accumulated                
    Number of Shares    Amount    Additional Paid-in Capital    Accumulated Deficit     Other Comprehensive Income (Loss)    Treasury Stock    Non-controlling Interest    Stockholders’ Equity 
                                         
Balance at January 1, 2021   32,280   $323   $206,499   $(121,150)  $399   $(6,858)  $75   $79,288 
Net loss attributable to common stockholders   -    -    (1,196)   (1,787)   -    -    -    (2,983)
Foreign currency translation adjustment   -    -    -    -    (1,334)   -    (2)   (1,336)
Issuance of restricted shares   415    4    (4)   -    -    -    -    - 
Forfeiture of restricted shares   (6)   -    -    -    -    -    -    - 
Vesting of restricted stock units   34         -    -    -    -    -    - 
Shares issued pursuant to exercise of stock options   129    1    716    -    -    -    -    717 
Shares withheld pursuant to vesting of restricted stock   -    -    -    -    -    (347)   -    (347)
Shares withheld pursuant to exercise of stock options   -    -    -    -    -    (647)   -    (647)
Stock based compensation   -    -    1,357    -    -    -    -    1,357 
Common shares issued, net of issuance costs   4,428    44    26,822    -    -    -    -    26,866 
Balance at March 31, 2021   37,280   $372   $234,194   $(122,937)  $(935)  $(7,852)  $73   $102,915 
Net loss attributable to common stockholders   -    -    (1,195)   (1,438)   -    -    -    (2,633)
Net loss attributable to non-controlling interest   -    -    -    -    -    -    (1)   (1)
Foreign currency translation adjustment   -    -    -    -    1,003    -    7    1,010 
Forfeiture of restricted shares   (14)   -    -    -    -    -    -    - 
Shares issued pursuant to exercise of stock options   12    1    71    -    -    -    -    72 
Shares withheld pursuant to vesting of restricted stock   -    -    -    -    -    (15)   -    (15)
Stock based compensation   -    -    1,095    -    -    -    -    1,095 
Balance at June 30, 2021   37,278   $373   $234,165   $(124,375)  $68   $(7,867)  $79   $102,443 
Net loss attributable to common stockholders   -    -    (1,196)   (3,345)   -    -    -    (4,541)
Net loss attributable to non-controlling interest   -    -    -    -    -    -    (4)   (4)
Foreign currency translation adjustment   -    -    -    -    (92)   -    19    (73)
Issuance of restricted shares   34    1    -    -    -    -    -    1 
Forfeiture of restricted shares   (67)   (1)   -    -    -    -    -    (1)
Shares issued pursuant to exercise of stock options   12    -    68    -    -    -    -    68 
Shares withheld pursuant to vesting of restricted stock   -    -    -    -    -    (20)   -    (20)
Stock based compensation   -    -    928    -    -    -    -    928 
Balance at September 30, 2021   37,257   $373   $233,965   $(127,720)  $(24)  $(7,887)  $94   $98,801 

 

    Common Stock              Accumulated                
    Number of Shares    Amount    Additional Paid-in Capital    Accumulated Deficit     Other Comprehensive Income (Loss)    Treasury Stock    Non-controlling Interest    Stockholders’ Equity 
                                         
Balance at January 1, 2020   30,804   $308   $201,813   $(112,143)  $265   $(6,053)  $(10)  $84,180 
Net loss attributable to common stockholders   -    -    (1,123)   (3,426)   -    -    -    (4,549)
Net loss attributable to non-controlling interest   -    -    -    -    -    -    (15)   (15)
Foreign currency translation adjustment   -    -    -    -    (2,326)   -    (20)   (2,346)
Issuance of restricted shares   40    -    -    -    -    -    -    - 
Forfeiture of restricted shares   (32)   -    -    -    -    -    -    - 
Vesting of restricted stock units   110    1    (1)   -    -    -    -    - 
Other   -         62    -    -    -    -    62 
Shares issued pursuant to exercise of stock options   90    1    382    -    -    -    -    383 
Shares withheld pursuant to exercise of stock options   -    -    -    -    -    (256)   -    (256)
Shares withheld pursuant to vesting of restricted stock   -    -    -    -    -    (232)   -    (232)
Stock based compensation   -    -    1,155    -    -    -    -    1,155 
Balance at March 31, 2020   31,012   $310   $202,288   $(115,569)  $(2,061)  $(6,541)  $(45)  $78,382 
Net loss attributable to common stockholders   -    -    (1,140)   (2,626)   -    -    -    (3,766)
Net loss attributable to non-controlling interest   -    -    -    -    -    -    (1)   (1)
Foreign currency translation adjustment   -    -    -    -    406    -    2    408 
Issuance of restricted shares   276    3    (3)   -    -    -    -    - 
Forfeiture of restricted shares   (12)   -    -    -    -    -    -    - 
Vesting of restricted stock units   17    -    -    -    -    -    -    - 
Shares issued pursuant to exercise of stock options   50    1    215    -    -    -    -    216 
Shares withheld pursuant to vesting of restricted stock   -    -    -    -    -    (16)   -    (16)
Common shares issued under the 2020 ATM   810    8    4,033    -    -    -    -    4,041 
Stock based compensation   -    -    1,012    -    -    -    -    1,012 
Balance at June 30, 2020   32,153   $322   $206,405   $(118,195)  $(1,655)  $(6,557)  $(44)  $80,276 
Net loss attributable to common stockholders   -    -    (1,159)   (590)   -    -    -    (1,749)
Net loss attributable to non-controlling interest   -    -    -    -    -    -    6    6 
Foreign currency translation adjustment   -    -    -    -    (22)   -    3    (19)
Issuance of restricted shares   126    1    (1)   -    -    -    -    - 
Forfeiture of restricted shares   (55)   (1)   1    -    -    -    -    - 
Vesting of restricted stock units   4    -    -    -    -    -    -    - 
Shares issued pursuant to exercise of stock options   5    -    28    -    -    -    -    28 
Shares withheld pursuant to vesting of restricted stock   -    -    -    -    -    (50)   -    (50)
Stock based compensation   -    -    1,028    -    -    -    -    1,028 
Balance at September 30, 2020   32,233   $322   $206,302   $(118,785)  $(1,677)  $(6,607)  $(35)  $79,520 

 

See accompanying notes to unaudited condensed consolidated financial statements.

 

6

 

 

POWERFLEET, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows

(In thousands, except per share data)

(Unaudited)

 

           
   Nine Months Ended September 30, 
   2020   2021 
         
Cash flows from operating activities          
Net loss  $(6,642)  $(6,569)
Adjustments to reconcile net loss to cash (used in) provided by operating activities:          
Non-controlling interest   (10)   (5)
Inventory reserve   189    122 
Stock based compensation expense   3,195    3,380 
Depreciation and amortization   6,159    6,377 
Right-of-use assets, non-cash lease expense   2,129    1,839 
Bad debt expense   640    824 
Deferred income taxes   1,182    701 
Other non-cash items   (55)   229 
Changes in:          
Accounts receivable   1,959    (7,469)
Inventory   1,318    (3,689)
Prepaid expenses and other assets   1,546    (871)
Deferred costs   2,408    2,888 
Deferred revenue   (2,695)   (1,365)
Accounts payable and accrued expenses   (3,907)   4,130 
Lease liabilities   (2,218)   (1,757)
Accrued severance payable, net   95    (12)
           
Net cash (used in) provided by operating activities   5,293    (1,247)
           
Cash flows from investing activities:          
Proceeds from sale of property and equipment   55    - 
Capital expenditures   (2,101)   (2,534)
           
Net cash (used in) provided by investing activities   (2,046)   (2,534)
           
Cash flows from financing activities:          
Net proceeds from stock offering   4,041    26,907 
Payment of preferred stock dividends   -    (3,084)
Repayment of long-term debt   (1,495)   (4,040)
Short-term bank debt, net   (290)   94 
Proceeds from exercise of stock options, net   371    170 
Purchase of treasury stock upon vesting of restricted stock   (298)   (383)
           
Net cash (used in) provided by financing activities   2,329    19,664 
           
Effect of foreign exchange rate changes on cash and cash equivalents   (894)   (189)
Net (decrease) increase in cash, cash equivalents and restricted cash   4,682    15,694 
Cash, cash equivalents and restricted cash - beginning of period   16,703    18,435 
           
Cash, cash equivalents and restricted cash - end of period  $21,385   $34,129 
           
Reconciliation of cash, cash equivalents, and restricted cash, beginning of period          
Cash and cash equivalents   16,395    18,127 
Restricted cash   308    308 
Cash, cash equivalents, and restricted cash, beginning of period  $16,703   $18,435 
           
Reconciliation of cash, cash equivalents, and restricted cash, end of period          
Cash and cash equivalents   21,077    33,821 
Restricted cash   308    308 
Cash, cash equivalents, and restricted cash, end of period  $21,385   $34,129 
           
Supplemental disclosure of cash flow information:          
Cash paid for:          
Taxes   42    50 
Interest   1,463    1,129 
           
Noncash investing and financing activities:          
Value of shares withheld pursuant to exercise of stock options  $256   $647 

 

See accompanying notes to unaudited condensed consolidated financial statements.

 

7

 

 

POWERFLEET, INC. AND SUBSIDIARIES

Notes to Unaudited Condensed Consolidated Financial Statements

September 30, 2021

In thousands (except per share data)

 

NOTE 1 - DESCRIPTION OF THE COMPANY AND BASIS OF PRESENTATION

 

Description of the Company

 

On October 3, 2019, PowerFleet, Inc. (together with its subsidiaries, “PowerFleet,” the “Company,” “we,” “our” or “us”) completed the acquisition of Pointer Telocation Ltd. (the “Transactions”), as a result of which I.D. Systems, Inc. (“I.D. Systems”) and PowerFleet Israel Ltd. (“PowerFleet Israel”) each became direct, wholly-owned subsidiaries of the Company and Pointer Telocation Ltd. (“Pointer”) became an indirect, wholly-owned subsidiary of the Company. Prior to the Transactions, PowerFleet had no material assets, did not operate any business and did not conduct any activities, other than those incidental to its formation and the Transactions. I.D. Systems was determined to be the accounting acquirer in the Transactions. As a result, the historical financial statements of I.D. Systems for the periods prior to the Transactions are considered to be the historical financial statements of PowerFleet and the results of Pointer have been included in the Company’s consolidated financial statements from the date of the Transactions.

 

The Company is a global leader and provider of subscription-based wireless Internet-of-Things (IoT) and machine-to-machine (M2M) solutions for securing, controlling, tracking, and managing high-value enterprise assets such as industrial trucks, tractor trailers, containers, cargo, and vehicles and truck fleets.

 

Impact of COVID-19 and Supply Chain Disruptions

 

The global outbreak of a novel strain of coronavirus, COVID-19, and mitigation efforts by governments to attempt to control its spread, has resulted in significant economic disruption and continues to adversely impact the broader global economy. The extent of the impact on the Company’s business and financial results will depend largely on future developments that cannot be accurately predicted at this time, including the duration of the spread of the outbreak, the extent and effectiveness of containment actions and the impact of these and other factors on capital and financial markets and the related impact on the financial circumstances of our employees, customers and suppliers.

 

In addition, the Company has experienced a significant impact to its supply chain given COVID-19 and the related global semiconductor chip shortage, including delays in supply chain deliveries, extended lead times and shortages of certain key components, some raw material cost increases and slowdowns at certain production facilities. As a result of these supply chain issues, the Company has had to increase its volume of inventory to ensure supply. During the three-month period ended September 30, 2021, the Company incurred supply chain constraint expenses which lowered its gross margins and decreased its profitability. The supply chain disruptions and the related global semiconductor chip shortage have delayed and may continue to delay the timing of some orders and expected deliveries of the Company’s products. If the impact of the supply chain disruptions are more severe than the Company expects, it could result in longer lead times, inventory supply challenges and further increased costs, all of which could result in the deterioration of the Company’s results, potentially for a longer period than currently anticipated.

 

As of the date of these unaudited consolidated financial statements, the full extent to which the COVID-19 pandemic and the related supply chain issues may materially impact the Company’s business, results of operations and financial condition is uncertain.

 

Basis of presentation

 

The unaudited interim condensed consolidated financial statements include the accounts of the Company and its wholly-owned and majority-owned subsidiaries. All material intercompany balances and transactions have been eliminated in consolidation. The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and the instructions to Form 10-Q. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, such statements include all adjustments (consisting only of normal recurring items) which are considered necessary for a fair presentation of the consolidated financial position of the Company as of September 30, 2021, the consolidated results of its operations for the three- and nine-month periods ended September 30, 2020 and 2021, the consolidated change in stockholders’ equity for the three-month periods ended March 31, June 30, and September 30, 2020 and 2021 and the consolidated cash flows for the nine-month periods ended September 30, 2020 and 2021. The results of operations for the three- and nine-month periods ended September 30, 2021 are not necessarily indicative of the operating results for the full year. These financial statements should be read in conjunction with the audited consolidated financial statements and related disclosures for the year ended December 31, 2020 included in the Company’s Annual Report on Form 10-K for the year then ended.

 

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.

 

8

 

 

Liquidity

 

As of September 30, 2021, the Company had cash and cash equivalents of $34,129 and working capital of $49,369. 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, PowerFleet Israel and Pointer are party to a Credit Agreement (the “Credit Agreement”) with Bank Hapoalim B.M. (“Hapoalim”), pursuant to which Hapoalim agreed to provide PowerFleet Israel with two senior secured term loan facilities in an aggregate principal amount of $30,000 (comprised of two facilities in the aggregate principal amount of $20,000 and $10,000) and a five-year revolving credit facility to Pointer in an aggregate principal amount of $10,000. The proceeds of the term loan facilities were used to finance a portion of the cash consideration payable in our acquisition of Pointer. The proceeds of the revolving credit facility may be used by Pointer for general corporate purposes. The Company has not borrowed under the revolving credit facility since its inception and does not have any borrowings as of September 30, 2021. See Note 11 for additional information.

 

The Company has on file a shelf registration statement on Form S-3 that was declared effective by the Securities and Exchange Commission (the “SEC”) on November 27, 2019. Pursuant to the shelf registration statement, the Company may offer to the public from time to time, in one or more offerings, up to $60,000 of our common stock, preferred stock, warrants, debt securities, and units, or any combination of the foregoing, at prices and on terms to be determined at the time of any such offering. The specific terms of any future offering will be determined at the time of the offering and described in a prospectus supplement that will be filed with the SEC in connection with such offering.

 

On May 14, 2020, the Company entered into an equity distribution agreement for an “at-the-market offering” program (the “ATM Offering”) with Canaccord Genuity LLC (“Canaccord”) as sales agent, pursuant to which we issued and sold an aggregate of 810 shares of common stock for approximately $4,200 in gross proceeds. The Company terminated the equity distribution agreement effective as of August 14, 2020.

 

On February 1, 2021, the Company closed an underwritten public offering (the “Underwritten Public Offering”) of 4,428 shares of common stock (which included the full exercise of the underwriters’ over-allotment option) for gross proceeds of approximately $28,800, before deducting the underwriting discounts and commissions and other offering expenses. The offer and sale of common stock in the ATM Offering and the Underwritten Public Offering were made pursuant to the Company’s shelf registration statement.

 

Because of the recent outbreak of COVID-19, there is significant uncertainty surrounding the potential impact on our results of operations and cash flows. During 2020 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 November 10, 2022.

 

NOTE 2 – USE OF ESTIMATES

 

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The Company continually evaluates estimates used in the preparation of the financial statements for reasonableness. The most significant estimates relate to measurements of fair value of assets acquired and liabilities assumed, realization of deferred tax assets, the impairment of tangible and intangible assets, the assessment of the Company’s incremental borrowing rate used to determine its right-of-use asset and lease liability, deferred revenue and stock-based compensation costs. Actual results could differ from those estimates.

 

As of September 30, 2021, the impact of the outbreak of COVID-19 continues 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.

 

NOTE 3 – CASH AND CASH EQUIVALENTS

 

The Company considers all highly liquid debt instruments with an original maturity of three months or less when purchased to be cash equivalents unless they are legally or contractually restricted. The Company’s cash and cash equivalent balances exceed Federal Deposit Insurance Corporation (FDIC) and other local jurisdictional limits. Restricted cash at December 31, 2020 and September 30, 2021 consists of cash held in escrow for purchases from a vendor.

 

9

 

 

NOTE 4 - REVENUE RECOGNITION

 

The Company and its subsidiaries generate revenue from sales of systems and products and from customer SaaS and hosting infrastructure fees. Revenue is measured as the amount of consideration the Company expects to receive in exchange for transferring goods or providing services. Sales, value add, and other taxes the Company collects concurrently with revenue-producing activities are excluded from revenue. Incidental items that are immaterial in the context of the contract are recognized as expense. The expected costs associated with the Company’s base warranties continue to be recognized as expense when the products are sold (see Note 12).

 

Revenue is recognized when performance obligations under the terms of a contract with our customer are satisfied. Product sales are recognized at a point in time when title transfers, when the products are shipped, or when control of the system is transferred to the customer, which usually is upon delivery of the system and when contractual performance obligations have been satisfied. For products which do not have stand-alone value to the customer separate from the SaaS services provided, the Company considers both hardware and SaaS services a bundled performance obligation. Under the applicable accounting guidance, all of the Company’s billings for equipment and the related cost for these systems are deferred, recorded, and classified as a current and long-term liability and a current and long-term asset, respectively. The deferred revenue and cost are recognized over the service contract life, ranging from one to five years, beginning at the time that a customer acknowledges acceptance of the equipment and service.

 

The Company recognizes revenue for remotely hosted SaaS agreements and post-contract maintenance and support agreements beyond our standard warranties over the life of the contract. Revenue is recognized ratably over the service periods and the cost of providing these services is expensed as incurred. Amounts invoiced to customers which are not recognized as revenue are classified as deferred revenue and classified as short-term or long-term based upon the terms of future services to be delivered. Deferred revenue also includes prepayment of extended maintenance, hosting and support contracts.

 

The Company earns other service revenues from installation services, training and technical support services which are short-term in nature and revenue for these services are recognized at the time of performance when the service is provided.

 

The Company recognizes revenue on non-recurring engineering services over time, on an input-cost method performance basis, as determined by the relationship of actual labor and material costs incurred to date compared to the estimated total project costs. Estimates of total project costs are reviewed and revised during the term of the project. Revisions to project costs estimates, where applicable, are recorded in the period in which the facts that give rise to such changes become known.

 

The Company also derives revenue from leasing arrangements. Such arrangements provide for monthly payments covering product or system sale, maintenance, support and interest. These arrangements meet the criteria to be accounted for as sales-type leases. Accordingly, an asset is established for the “sales-type lease receivable” at the present value of the expected lease payments and revenue is deferred and recognized over the service contract, as described above. Maintenance revenues and interest income are recognized monthly over the lease term.

 

The Company’s contracts with customers may include multiple performance obligations. For such arrangements, the Company allocates revenue to each performance obligation based on its relative standalone selling price. The Company generally determines standalone selling prices based on observable prices charged to customers or adjusted market assessment or using expected cost-plus margin when one is available. The 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.

 

Deferred product costs consist of logistics visibility solutions 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.

 

The following table presents the Company’s revenues disaggregated by revenue source for the three- and nine-months ended September 30, 2020 and 2021:

   Three Months Ended
September 30
   Nine Months Ended
September 30,
 
   2020   2021   2020   2021 
                 
Products  $10,914   $10,785   $33,516   $37,671 
Services   16,688    18,461    50,650    54,114 
                     
   $27,602   $29,246   $84,166   $91,785 

 

10

 

 

The balances of contract assets, and contract liabilities from contracts with customers are as follows as of December 31, 2020 and September 30, 2021:

   December 31, 2020   September 30, 2021 
       (unaudited) 
         
Assets:          
Deferred contract costs  $2,157   $2,567 
Deferred costs  $5,361   $2,472 
           
Liabilities:          
Deferred revenue- services (1)  $6,578   $8,455 
Deferred revenue - products (1)   6,767    3,147 
           
    13,345    11,602 
Less: Deferred revenue and contract liabilities - current portion   (7,339)   (6,274)
           
Deferred revenue and contract liabilities - less current portion  $6,006   $5,328 

 

(1) The Company records deferred revenues when cash payments are received or due in advance of the Company’s performance. For the three- and nine-month periods ended September 30, 2020 and 2021, the Company recognized revenue of $2,381 and $6,981, respectively, and $2,547 and $7,767, respectively that was included in the deferred revenue balance at the beginning of each reporting period. The Company expects to recognize as revenue these deferred revenue balances before the year 2026, when the services are performed and, therefore, satisfies its performance obligation to the customers.

 

NOTE 5 – PREPAID EXPENSES AND OTHER ASSETS

 

Prepaid expenses and other current assets consist of the following:

 

   December 31, 2020   September 30, 2021 
       (Unaudited) 
Finance receivables, current  $692   $697 
Prepaid expenses   2,979    3,473 
Contract assets   767    1,004 
Other current assets   1,746    2,082 
           
Prepaid expenses and other current assets  $6,184   $7,256 

 

NOTE 6 - INVENTORY

 

Inventory, which primarily consists of finished goods and components used in the Company’s products, is stated at the lower of cost or net realizable value using the “moving average” cost method or the first-in first-out (FIFO) method. Inventory is shown net of a valuation reserve of $515 at December 31, 2020, and $649 at September 30, 2021.

 

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Inventories consist of the following:

 

   December 31, 2020   September 30, 2021 
       (Unaudited) 
Components  $7,697   $9,212 
Work in process   237    417 
Finished goods, net   4,939    6,568 
           
Inventory, Net  $12,873   $16,197 

 

NOTE 7 - FIXED ASSETS

 

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

SCHEDULE OF FIXED ASSETS 

   December 31, 2020   September 30, 2021 
       (Unaudited) 
Installed products  $4,174   $5,846 
Computer software   5,882    6,383 
Computer and electronic equipment   5,273    5,515 
Furniture and fixtures   1,828    1,919 
Leasehold improvements   1,353    1,375 
           
    18,510    21,038 
Accumulated depreciation and amortization   (9,706)   (12,186)
   $8,804   $8,852 

 

Depreciation and amortization expense of fixed assets for the three- and nine-month periods ended September 30, 2020 was $777, and $2,163, respectively, and for the three- and nine-month periods ended September 30, 2021 was $865 and $2,498, respectively. This includes amortization of costs associated with computer software for the three- and nine-month periods ended September 30, 2020 of $128 and $389, respectively, and for the three- and nine- month periods ended September 30, 2021 of $106 and $316, respectively.

 

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NOTE 8 - INTANGIBLE ASSETS AND GOODWILL

 

The following table summarizes identifiable intangible assets of the Company as of December 31, 2020 and September 30, 2021:

 

September 30, 2021 (Unaudited)  Useful Lives (In Years)   Gross Carrying Amount   Accumulated Amortization   Net Carrying Amount 
Amortized:                    
Customer relationships   9-12   $19,264   $(3,951)  $15,313 
Trademark and tradename   3-15     7,553    (1,895)   5,658 
Patents   7-11     2,117    (1,728)   389 
Technology   7    10,911    (5,075)   5,836 
Favorable contract interest   4    388    (388)   - 
Covenant not to compete   5    208    (172)   36 
         40,441    (13,209)   27,232 
                     
Unamortized:                    
Customer List        104    -    104 
Trademark and tradename        61    -    61 
                     
         165    -    165 
                     
Total       $40,606   $(13,209)  $27,397 

 

December 31, 2020  Useful Lives
(In Years)
   Gross Carrying Amount   Accumulated Amortization   Net Carrying Amount 
Amortized:                    
Customer relationships   9-12   $19,264   $(2,732)  $16,532 
Trademark and tradename   3-15    7,553    (1,292)   6,261 
Patents   7-11    2,117    (1,661)   456 
Technology   7    10,911    (3,172)   7,739 
Favorable contract interest   4    388    (331)   57 
Covenant not to compete   5    208    (142)   66 
         40,441    (9,330)   31,111 
                     
Unamortized:                    
Customer List        104    -    104 
Trademark and tradename        61    -    61 
                     
         165    -    165 
                     
Total       $40,606   $(9,330)  $31,276 

 

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At September 30, 2021, the weighted-average amortization period for the intangible assets was 9.2 years. At September 30, 2021, the weighted-average amortization periods for customer relationships, trademarks and trade names, patents, technology, favorable contract interests and covenant not to compete were 11.9, 9.6, 9.8, 4.3, 4.0 and 5.0 years, respectively.

 

Amortization expense for the three- and nine-month periods ended September 30, 2020 was $1,331 and $3,996 respectively, and for the three- and nine-month periods ended September 30, 2021 was $1,282 and $3,879, respectively. Estimated future amortization expense for each of the five succeeding fiscal years for these intangible assets is as follows:

Year ending December 31:     
2021 (remaining)  $1,275 
2022   5,080 
2023   5,035 
2024   2,622 
2025   2,495 
2026   2,413 
Thereafter   8,312 
Finite-Lived Intangible Assets, Net, Total  $27,232 

 

There have been no changes in the carrying amount of goodwill from January 1, 2020 to September 30, 2021.

 

For the nine-month period ended September 30, 2021, the Company did not identify any indicators of impairment.

 

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NOTE 9 - STOCK-BASED COMPENSATION

 

Stock Option Plans

 

[A] Stock options:

 

The following table summarizes the activity relating to the Company’s stock options for the nine-month period ended September 30, 2021:

 

   Options   Weighted- Average Exercise Price   Weighted-Average Remaining Contractual Terms  Aggregate Intrinsic Value 
                
Outstanding at beginning of year   3,624   $5.85         
Granted   120    7.77         
Exercised   (146)   5.59         
Forfeited or expired   (101)   6.23         
                   
Outstanding at end of period   3,497   $5.92   7.5 years  $4,018 
                   
Exercisable at end of period   1,290   $5.65   6.1 years  $1,801 

 

 

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:

 

   September 30, 
   2020   2021 
         
Expected volatility   44.7%   50.2%
Expected life of options (in years)   6    7 
Risk free interest rate   1.17%   0.69%
Dividend yield   0%   0%
Weighted-average fair value of options granted during year  $2.58   $3.81 

 

Expected volatility is based on historical volatility of the Company’s common stock and the expected life of options is based on historical data with respect to employee exercise periods.

 

The Company recorded stock-based compensation expense of $366 and $1,209 for the three- and nine-month periods ended September 30, 2020, respectively, and $345 and $1,061, for the three- and nine-month periods ended September 30, 2021, respectively, in connection with awards made under the stock option plans.

 

The fair value of options vested during the nine-month periods ended September 30, 2020 and 2021 was $1,194 and $508, respectively. The total intrinsic value of options exercised during the nine-month periods ended September 30, 2020 and 2021 was $228 and $470, respectively.

 

15

 

 

As of September 30, 2021, there was approximately $3,089 of unrecognized compensation cost related to non-vested options granted under the Company’s stock option plans. That cost is expected to be recognized over a weighted-average period of 3.76 years.

 

The Company estimates forfeitures at the time of valuation and reduces expense ratably over the vesting period. This estimate is adjusted periodically based on the extent to which actual forfeitures differ, or are expected to differ, from the previous estimate.

 

[B] Restricted Stock Awards:

 

The Company grants restricted stock to employees, whereby the employees are contractually restricted from transferring the shares until they are vested. The stock is unvested at the time of grant and, upon vesting, there are no legal restrictions on the stock. The fair value of each share is based on the Company’s closing stock price on the date of the grant. A summary of all non-vested restricted stock for the nine-month period ended September 30, 2021 is as follows:

 

   Number of Non-Vested Shares   Weighted-Average Grant Date Fair Value 
         
Restricted stock, non-vested, beginning of year   806   $5.54 
Granted   450    7.63 
Vested   (253)   5.75 
Forfeited or expired   (91)   6.55 
           
Restricted stock, non-vested, end of period   912   $6.41 

 

The Company recorded stock-based compensation expense of $593 and $1,641, respectively, for the three- and nine-month periods ended September 30, 2020, and $533 and $1,908, respectively, for the three- and nine-month periods ended September 30, 2021, in connection with restricted stock grants. As of September 30, 2021, there was $3,609 of total unrecognized compensation cost related to non-vested shares. That cost is expected to be recognized over a weighted-average period of 2.6 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 restricted stock units for the nine-month period ended September 30, 2021:

 

   Number of
Restricted
Stock Units
   Weighted-Average
Grant Date
Fair Value
 
         
Restricted stock units, non-vested, beginning of year   75   $5.60 
Granted   -    - 
Vested   (34)   5.60 
Forfeited   (4)   5.60 
           
Restricted stock units, non-vested, end of period   37   $5.60 

 

The Company recorded stock-based compensation expense of $33 and $228, respectively, for the three- and nine-month periods ended September 30, 2020, and $51 and $152, respectively, for the three- and nine-month periods ended September 30, 2021, in connection with the RSUs. As of September 30, 2021, there was $99 total unrecognized compensation cost related to non-vested RSUs. That cost is expected to be recognized over a weighted-average period of 0.6 years.

 

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NOTE 10 - NET LOSS PER SHARE

 

Net loss per share for the three- and nine-month periods ended September 30, 2020 and 2021 are as follows:

 

   Three Months Ended   Nine Months Ended 
   September 30,   September 30, 
   2020   2021   2020   2021 
Basic and diluted loss per share                    
Net loss attributable to common stockholders  $(1,749)  $(4,541)  $(10,064)  $(10,157)
                     
Weighted-average common share outstanding - basic and diluted   30,143    35,019    29,528    34,398 
                     
Net loss attributable to common stockholders - basic and diluted  $(0.06)  $(0.13)  $(0.34)  $(0.30)

 

 

Basic loss per share is calculated by dividing net loss attributable to common shareholders by the weighted-average number of common shares outstanding during the period. Diluted loss per share reflects the potential dilution assuming common shares were issued upon the exercise of outstanding options and the proceeds thereof were used to purchase outstanding common shares. Dilutive potential common shares include outstanding stock options, warrants and restricted stock and performance share awards. We include participating securities (unvested share-based payment awards and equivalents that contain non-forfeitable rights to dividends or dividend equivalents) in the computation of earnings per share pursuant to the two-class method. Our participating securities consist solely of preferred stock, which have contractual participation rights equivalent to those of stockholders of unrestricted common stock. The two-class method of computing earnings per share is an allocation method that calculates earnings per share for common stock and participating securities. During periods of net loss, no effect is given to the participating securities because they do not share in the losses of the Company. For the nine-month periods ended September 30, 2020 and September 30, 2021, the basic and diluted weighted-average shares outstanding are the same, since the effect from the potential exercise of outstanding stock options, conversion of preferred stock, and vesting of restricted stock and restricted stock units totaling 12,070 and 11,939, respectively, would have been anti-dilutive due to the loss.

 

NOTE 11 - SHORT-TERM BANK DEBT AND LONG-TERM DEBT

   December 31, 2020   September 30, 2021 
       (Unaudited) 
Short-term bank debt  $280   $360 
Current maturities of long-term debt  $5,299   $5,865 
Long term debt - less current maturities  $23,179   $19,025 

 

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Long-term debt

 

In connection with the Transactions, PowerFleet Israel incurred $30,000 in term loan borrowings on the closing date of the Transactions (the “Closing Date”) under the Credit Agreement, pursuant to which Hapoalim agreed to provide PowerFleet Israel with two senior secured term loan facilities in an aggregate principal amount of $30,000 (comprised of two facilities in the aggregate principal amount of $20,000 and $10,000, respectively (the “Term A Facility” and “Term B Facility”, respectively, and collectively, the “Term Facilities”)) and a five-year revolving credit facility (the “Revolving Facility”) to Pointer in an aggregate principal amount of $10,000 (collectively, the “Credit Facilities”). On the first anniversary of the Closing Date, the Company was required to deposit in a separate restricted deposit account the Israeli shekel (“NIS”) equivalent of $3,000. As of September 30, 2021, no amounts were outstanding 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 Credit Agreement was approximately 4.73% for the Term A Facility and 5.89% for the Term B Facility. The interest rate for the Revolving Facility is, with respect to NIS-denominated loans, Hapoalim’s prime rate + 2.5%, and with respect to US dollar-denominated loans, LIBOR + 4.6%. In addition, the Company agreed to pay a 1% commitment fee on the unutilized and uncancelled availability under the Revolving Facility. The Credit Facilities are secured by the shares held by PowerFleet Israel in Pointer and by Pointer over all of its assets. The 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. The Company is in compliance with the covenants as of September 30, 2021.

 

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.

 

In connection with the Credit Facilities, the Company incurred debt issuance costs of $742. For the three- and nine-month periods ended September 30, 2021, amortization of the debt issuance costs was $68 and $223, respectively. The Company recorded charges of $371 and $1,114 for the three- and nine-month periods ended September 30, 2020, respectively, and $268 and $821 for the three- and nine-month periods ended September 30, 2021, respectively, to interest expense on its consolidated statements of operations related to interest expense and amortization of debt issuance costs associated with the Credit Facilities.

 

Scheduled maturities of the long term debt as of September 30, 2021 are as follows:

 

 SCHEDULE OF MATURITIES OF LONG TERM DEBT

    Sep, 30, 2021 
Year ending December 31:     
      
2022  $5,865 
2023   5,946 
2024   13,079 
Long term debt   24,890 
Less: Current Portion   5,865 
Total  $19,025 

 

The Term B Facility is not subject to amortization over the life of the loan and instead the original principal amount is due in one installment on the fifth anniversary of the date of the consummation of the Transactions.

 

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NOTE 12 - ACCOUNTS PAYABLE AND ACCRUED EXPENSES

 

Accounts payable and accrued expenses consist of the following:

 SCHEDULE OF ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

   December 31, 2020   September 30, 2021 
       (Unaudited) 
Accounts payable  $9,877   $13,871 
Accrued warranty   705    906 
Accrued compensation   5,581    5,561 
Government authorities   3,047    2,874 
Other current liabilities   1,015    1,443 
           
Accounts payable and accrued expenses  $20,225   $24,655 

 

The Company’s products are warranted against defects in materials and workmanship for a period of one to three years from the date of acceptance of the product by the customer. The customers may purchase an extended warranty providing coverage up to a maximum of 60 months. A provision for estimated future warranty costs is recorded for expected or historical warranty matters related to equipment shipped and is included in accounts payable and accrued expenses in the Condensed Consolidated Balance Sheets as of December 31, 2020 and September 30, 2021.

 

The following table summarizes warranty activity for the nine-month periods ended September 30, 2020 and 2021:

 SCHEDULE OF PRODUCT WARRANTY LIABILITY

   Nine Months Ended September 30, 
   2020   2021 
         
Accrued warranty reserve, beginning of year  $742   $807 
Accrual for product warranties issued   639    864 
Product replacements and other warranty expenditures   (565)   (305)
Expiration of warranties   19   (280)
           
Accrued warranty reserve, end of period (a)  $835   $1,086 

 

(a) Includes non-current accrued warranty included in other long-term liabilities at December 31, 2020 and September 30, 2021 of $102 and $180, respectively.

 

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.

 

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[B] Redeemable preferred stock

 

The Company is authorized to issue 150 shares of preferred stock, par value $0.01 per share of which 100 shares are designated Series A Preferred Convertible Stock (“Series A Preferred Stock”) and 50 shares are undesignated.

 

Series A Preferred Stock

 

In connection with the completion of the Transactions, on October 3, 2019, the Company issued 50 shares of Series A Preferred Stock to ABRY Senior Equity V, L.P., ABRY Senior Equity Co-Investment Fund V, L.P and ABRY Investment Partnership, L.P. (the “Investors”). For the nine-month periods ended September 30, 2020 and September 30, 2021, the Company issued 1 and -0- 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 nine-month period ended September 30, 2021, the Company paid dividends in the amounts of $3,085 to the holders of the Series A Preferred Stock. As of September 30, 2021, dividends in arrears were $-0-.

 

Voting; Consent Rights

 

The holders of Series A Preferred Stock will be given notice by the Company of any meeting of stockholders or action to be taken by written consent in lieu of a meeting of stockholders as to which the holders of common stock are given notice at the same time as provided in, and in accordance with, the Company’s Amended and Restated Bylaws. Except as required by applicable law or as otherwise specifically set forth in the Charter, the holders of Series A Preferred Stock are not entitled to vote on any matter presented to the Company’s stockholders unless and until any holder of Series A Preferred Stock provides written notification to the Company that such holder is electing, on behalf of all holders of Series A Preferred Stock, to activate their voting rights and in doing so rendering the Series A Preferred Stock voting capital stock of the Company (such notice, a “Series A Voting Activation Notice”). From and after the delivery of a Series A Voting Activation Notice, all holders of the Series A Preferred Stock will be entitled to vote with the holders of common stock as a single class on an as-converted basis (provided, however, that any holder of Series A Preferred Stock shall not be entitled to cast votes for the number of shares of common stock issuable upon conversion of such shares of Series A Preferred Stock held by such holder that exceeds the quotient of (1) the aggregate Series A Issue Price for such shares of Series A Preferred Stock divided by (2) $5.57 (subject to adjustment for stock splits, stock dividends, combinations, reclassifications and similar events, as applicable)). So long as shares of Series A Preferred Stock are outstanding and convertible into shares of common stock that represent at least 10% of the voting power of the common stock, or the Investors or their affiliates continue to hold at least 33% of the aggregate amount of Series A Preferred Stock issued to the Investors on the Original Issuance Date, the consent of the holders of at least a majority of the outstanding shares of Series A Preferred Stock will be necessary for the Company to, among other things, (i) liquidate the Company or any operating subsidiary or effect any deemed liquidation event (as such term is defined in the Charter), except for a deemed liquidation event in which the holders of Series A Preferred Stock receive an amount in cash not less than the Redemption Price (as defined below), (ii) amend the Company’s organizational documents in a manner that adversely affects the Series A Preferred Stock, (iii) issue any securities that are senior to, or equal in priority with, the Series A Preferred Stock or issue additional shares of Series A Preferred Stock to any person other than the Investors or their affiliates, (iv) incur indebtedness above the agreed-upon threshold, (v) change the size of the Company’s board of directors to a number other than seven, or (vi) enter into certain affiliated arrangements or transactions.

 

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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, we entered into a preferred stock redemption right agreement (the “Redemption Right Agreement”) with the Investors, pursuant to which we 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.

 

NOTE 14 - ACCUMULATED OTHER COMPREHENSIVE LOSS

 

Comprehensive income (loss) includes net loss and foreign currency translation gains and losses.

 

The accumulated balances for each classification of other comprehensive loss for the nine-month period ended September 30, 2021 are as follows:

 SCHEDULE OF ACCUMULATED OTHER COMPREHENSIVE LOSS

   Foreign currency translation adjustment   Accumulated other comprehensive income 
         
Balance at January 1, 2021  $399   $399 
Net current period change   (423)   (423)
           
Balance at September 30, 2021  $(24)  $(24