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ACQUISITION

9 Months Ended

Sep. 30, 2023

Business Combination and Asset Acquisition [Abstract]

ACQUISITION

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 and the issuance by the Company of a ten-year warrant to purchase 800,000 shares of the Company’s common stock at an exercise price of $7.00 per share (the “Common Stock Warrants”) and with fair value of approximately $1,300 at March 31, 2023 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 intellectual property (the “Acquisition”). 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 software-as-a-service (“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 at the date of issuance:


Expected volatility			50	%
Expected term (in years)			10
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 was certain information that was 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 and $500 of acquisition-related costs which were expensed in the consolidated statement of operations for the three- and -nine-month periods ending September 30, 2023, respectively.

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 assets			270
Inventory			96
Fixed assets			372
Total assets acquired			9,810

Liabilities assumed:
Accounts payable and accrued expenses			946
Total liabilities assumed			946

Total identifiable net assets acquired			8,864
Gain on bargain purchase			(7,517	)
Purchase price consideration		$	1,347

The provisional fair value estimates of the assets acquired and liabilities assumed, including intangibles, income taxes, and the non-cash 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. During the second quarter of 2023, the valuation of certain assets acquired and liabilities assumed were revised resulting in an increase in the gain on bargain purchase of $283.

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 $7,517. 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 telematics 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 €8,000 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 12 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) €8,000, 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 Company does not currently intend 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- and nine-month periods ended September 30, 2022:


		Three Months Ended September 30, 2022								Nine Months Ended September 30, 2022
		Historical				Pro forma combined				Historical				Pro forma combined

Revenues		$	34,288			$	36,336			$	102,043			$	107,580
Operating loss		$	(1,218	)		$	(994	)		$	(6,548	)		$	(6,027	)
Net loss per share - basic and diluted		$	(0.10	)		$	(0.09	)		$	(0.25	)		$	(0.24	)
Net loss per share - basic		$	(0.10	)		$	(0.09	)		$	(0.25	)		$	(0.24	)

The following table represents the combined pro forma revenue and earnings for the three- and nine-month periods ended September 30, 2023:


		Three Months Ended September 30, 2023								Nine Months Ended September 30, 2023
		Historical				Pro forma combined				Historical				Pro forma combined

Revenues		$	34,195			$	34,195			$	99,084			$	101,604
Operating loss		$	(3,257	)		$	(3,257	)		$	(8,281	)		$	(7,765	)
Net loss per share – basic and diluted		$	(0.14	)		$	(0.14	)		$	(0.16	)		$	(0.14	)
Net loss per share – basic		$	(0.14	)		$	(0.14	)		$	(0.16	)		$	(0.14	)

The unaudited combined pro forma revenue and earnings for the three and nine-month periods ended September 30, 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 such date, nor does it purport to represent results of operations for any future periods.