NOTE 3 – ACQUISITION

On March 6, 2023, the Company entered into a share purchase and transfer agreement (the “Movingdots Agreement”) with Swiss Re Reinsurance Holding Company Ltd (“Swiss Re”), pursuant to which the Company would acquire all of the outstanding shares of Movingdots GmbH (“Movingdots”), a wholly owned subsidiary of Swiss Re, 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 “Swiss Re Warrants”) with fair value of approximately $1,347 at March 31, 2023 and noncash consideration in the form of a nonexclusive irrevocable, perpetual, fully paid-up, royalty free license agreement between Movingdots and Swiss Re for certain of the acquired intellectual property (the “Movingdots Acquisition”). The Movingdots Acquisition was consummated on March 31, 2023 (the “Movingdots Closing”).

As a result of the Movingdots 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 Movingdots Acquisition also strengthens Powerfleet’s global reach, particularly in Europe. Revenue and net loss of Movingdots since the Movingdots Closing included in the consolidated income statement for the years ended December 31, 2023 and 2022 was $523 and $(3,808), respectively.

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

The Swiss Re Warrants were valued using the Black-Scholes Model using the following assumptions at the date of issuance:

SCHEDULE OF WARRANTS VALUATION ASSUMPTIONS

Purchase Price Allocation

The Movingdots 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. The Company recognized approximately $500 of acquisition-related costs which were expensed in the consolidated statement of operations for the year ended December 31, 2023, of which approximately $300 was expensed in the three-month period ended March 31, 2023.

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

SCHEDULE OF PURCHASE PRICE ALLOCATION IN ASSETS ACQUIRED AND LIABILITIES

The fair value estimates of the assets acquired and liabilities assumed were subject to adjustments through the initial measurement period. As of December 31, 2023, the measurement period was complete and an adjustment of approximately $1,500 was recorded to increase the fixed assets above for valuation of internal use software, and adjustments of an approximate $300 increase in net assets acquired related primarily to reductions in accounts payable and accrued expenses. Adjustments resulted in an increase to the gain on bargain purchase. Determining the fair values of the assets and liabilities of Movingdots required certain assumptions and judgment.

The intellectual property was valued using the replacement method. Since this asset does not directly generate revenue (i.e., it is intended to support other revenue-generating assets and its utility is premised on avoided operating costs), the fair value analysis considers the costs that would be incurred to recreate the intellectual property in the event that the intellectual property did not exist (or the agreement to license the intellectual property did not exist). The replacement cost method utilized assumptions on the length of time expected to be incurred to recreate the intellectual property, the amount and cost of labor plus a 30% obsolescence factor, and 20% estimated developer’s profit.

All other assets and liabilities acquired, as detailed in the allocation chart above, were valued at fair value based on their short-term nature.

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 $9,034. Management believes that the recognized gain on bargain purchase represents the best estimates of the economic effect of the Movingdots 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 Swiss Re’s motivation to divest its investment in Movingdots and its telematics business, which was deemed a non-core business of Swiss Re on a go-forward basis. The sale of Movingdots was not subject to a competitive bidding process. Under the Movingdots Agreement, Swiss Re 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 Movingdots Acquisition at any time between the signing date of the Movingdots 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 will pay Swiss Re 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 Swiss Re Warrants. The Company did not enter into an on-sale transfer.

Management views that 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:

The following table represents the unaudited combined pro forma revenue and earnings for the annual periods ended December 31, 2022 and 2023:

SCHEDULE OF PRO FORMA REVENUE AND EARNINGS

The unaudited combined pro forma revenue and earnings for the annual periods ended December 31, 2022 and 2023 were prepared as though the Movingdots 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 Movingdots Acquisition occurred as of such date, nor does it purport to represent results of operations for any future periods.