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ACQUISITION

3 Months Ended

Mar. 31, 2023

Business Combination and Asset Acquisition [Abstract]

NOTE 3 – ACQUISITION

On March 6, 2023, the Company entered into a share purchase and transfer agreement (the “Agreement”) with Swiss Re Reinsurance Holding Company Ltd (the “Seller”), pursuant to which the Company would acquire all of the outstanding shares of Movingdots GmbH (“Movingdots”), a wholly owned subsidiary of the Seller, for consideration consisting of €1 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 (the “Common Stock Warrants”) with fair value of approximately $1.3 million at March 31, 2023 (the “Acquisition”) and noncash consideration with an immaterial fair value in the form of a non-exclusive irrevocable, perpetual, fully paid-up, royalty free license agreement between Movingdots and the Seller for certain of the acquired IP. The Acquisition was consummated on March 31, 2023 (the “Movingdots Closing”).

As a result of the Acquisition, Movingdots, a German company providing insurance telematics and sustainable mobility solutions, became a direct, wholly owned subsidiary of Powerfleet. Movingdots end-to-end telematics app solution will enhance Powerfleet’s SaaS-based fleet intelligence platform, Unity, with additional customization capabilities and insurance risk insights. Movingdots’ expertise in safety and sustainability aligns with Unity’s focus on data-powered applications. The Acquisition also strengthens Powerfleet’s global reach, particularly in Europe.

As part of the Agreement the Seller was also obligated to (i) transfer certain intellectual property rights from the Seller to Movingdots, (ii) enter into a distribution agreement pursuant to which the Seller is allowed to promote the Movingdots solutions, and (iii) grant a license agreement between the Seller’s affiliates and Movingdots.

The warrant was valued using the Black-Scholes Model using the following assumptions:

	March 31,
	2023

Expected volatility		50.0	%
Expected term (in years)		10.0
Risk free interest rate		3.50	%
Dividend yield		0	%
Fair value per share	$	1.68
Warrants measurement input	$	1.68

Purchase Price Allocation

The Acquisition met the criteria for a business combination to be accounted for using the acquisition method under ASC 805, Business Combinations (“ASC 805”), with the Company identified as the legal and the accounting acquirer. There is certain information that is not readily available at the time the financial statements of Movingdots were prepared as the Acquisition closed on March 31, 2023. For provisional purchase price allocation purposes, the assets acquired and liabilities assumed are stated at their carrying values which management assumed approximates their fair values given their short-term nature. Also, the Company recognized approximately $0.3 million of acquisition-related costs which were expensed in the consolidated statement of operations.

The following table details the provisional allocation of the purchase price to the assets acquired and liabilities assumed in connection with the acquisition of Movingdots:


Consideration:
Cash	$	—
Fair value of Powerfleet warrants on March 31, 2023		1,347
Total consideration	$	1,347

Assets acquired:
Cash	$	8,722
Accounts receivable		247
Prepaid expenses		103
Other current assets		243
Inventory		96
Fixed assets		372
Total assets acquired		9,783

Liabilities assumed:
Trade payable		176
Deferred credits		13
Provisions and other liabilities		1,013
Total liabilities assumed		1,202

Total identifiable net assets acquired		8,581
Gain on bargain purchase		(7,234	)
Purchase price consideration	$	1,347

The provisional fair value estimates of the assets acquired and liabilities assumed, including intangibles and income taxes, and the noncash consideration are subject to subsequent adjustments as additional information is obtained during the applicable measurement period. Determining the fair values of the assets and liabilities of Movingdots required certain assumptions and judgment.

Consistent with the requirements of ASC 805, the Company assessed whether all assets acquired and liabilities assumed have been appropriately identified, measured and recognized, and performed re-measurements to verify that the consideration paid, assets acquired and liabilities assumed have been properly valued. After applying the requirements of ASC 805-30-25-4, the Company recognized a gain on bargain purchase as the estimated fair value of the identifiable net assets acquired exceeded the purchase consideration transferred by approximately $7.2 million. Management believes that the recognized gain on bargain purchase represents the best estimates of the economic effect of the Acquisition based on all information that was available and existed as of the dates the financial statements were issued.

The gain on bargain purchase primarily resulted from the Seller’s motivation to divest its investment in Movingdots and its telematic business, which was deemed a non-core business of the Seller on a go-forward basis. The sale of Movingdots was not subject to a competitive bidding process. Under the Agreement, the Seller also agreed to make a cash injection into Movingdots prior to the Movingdots Closing in a form of additional paid in capital to ensure Movingdots had available cash in the amount of €8 million, to be used to ensure the liquidity of Movingdots and for broader combined business activities.

If the Company makes an on-sale transfer of any shares of Movingdots that were acquired in connection with the Acquisition at any time between the signing date of the Agreement and through twelve months after the Movingdots Closing, to any third-party purchaser (an “on-sale transfer”), for an amount that is in excess of the purchase price consideration transferred, then the Company shall pay the Seller an amount in cash (“on sale compensation”) equal to (i) €8 million plus (ii) the difference between such on-sale transfer price less the purchase price net of the net present value of the Common Stock Warrants. The on-sale transfer is wholly within the Company’s control and the Company does not currently have an intention to enter into an on-sale transfer.

Management views that the insurance telematics and sustainability are important spaces for the Company to have propositions to enable future strategic value, supporting the more evolved, IOT data-rich mass subscription space. The acquisition of Movingdots and its business will, among other things:

	●	open strategic relationships with some key customers such as Mercedes, BMW and Vodafone;

	●	provide greater go-to-market opportunity to the Company with the European beachhead for future regional expansion, customer acquisition tool to upsell the Company’s portfolio into German and European markets, and maintain a distribution channel and partnership with the Seller; and

	●	provide the Company with access to a team with technical skillsets across application development and management, cloud platform development, user experience/user interface design development and technical product management;

The following table represents the combined pro forma revenue and earnings for the three-month period ended March 31, 2022:


	Three Months Ended March 31, 2022
	Historical			Pro forma combined

Revenues	$	33,161		$	35,002
Operating loss	$	(3,742	)	$	(3,417	)
Net loss per share – basic and diluted	$	(0.12	)	$	(0.11	)

The following table represents the combined pro forma revenue and earnings for the three-month period ended March 31, 2023:


	Three Months Ended March 31, 2023
	Historical			Pro forma combined

Revenues	$	32,839		$	35,587
Operating loss	$	(1,892	)	$	(1,417	)
Net income (loss) per share – basic	$	0.11		$	(0.09	)
Net income (loss) per share - diluted	$	0.11		$	(0.09	)

The combined pro forma revenue and earnings for the three-month periods ended March 31, 2022 and 2023 were prepared as though the Acquisition had occurred as of January 1, 2022. This summary is not necessarily indicative of what the results of operations would have been had the Acquisition occurred as of that date, nor does it purport to represent results of operations for any future periods.