Form 8-K/A - Current report: [Amend]

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 8-K/A

 

CURRENT REPORT

PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

 

Date of Report (Date of earliest event reported): October 1, 2024

 

POWERFLEET, INC.

(Exact Name of Registrant as Specified in its Charter)

 

Delaware		001-39080		83-4366463
(State or Other Jurisdiction of Incorporation)		(Commission File Number)		(IRS Employer Identification No.)

 

123 Tice Boulevard, Woodcliff Lake, New Jersey		07677
(Address of Principal Executive Offices)		(Zip Code)

 

Registrant’s telephone number, including area code [phone]

 

 

 

(Former name or former address, if changed since last report)

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

 

☐	Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
☐	Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
☐	Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
☐	Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

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		AIOT		The Nasdaq Global Market

 

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (17 CFR §230.405) or Rule 12b-2 of the Securities Exchange Act of 1934 (17 CFR §240.12b-2).

 

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. ☐

 

 

 

 

EXPLANATORY NOTE

 

On October 2, 2024, Powerfleet, Inc. (the “Company”) filed with the Securities and Exchange Commission (the “SEC”) a Current Report on Form 8-K (the “Form 8-K”) reporting the completion on October 1, 2024 of the previously announced acquisition (the “Acquisition”) of Fleet Complete (as defined below) contemplated by the Share Purchase Agreement, dated as of September 18, 2024 (the “Purchase Agreement”), by and among Golden Eagle Topco, LP, the persons that are party thereto under the heading “Other Sellers”, the Company and Powerfleet Canada Holdings Inc., pursuant to which Powerfleet acquired all of the direct and indirect common shares in the capital of Golden Eagle Canada Holdings, Inc. and Complete Innovations Holdings Inc. and all of the issued and outstanding shares of common stock of Golden Eagle Holdings, Inc. (collectively, “Fleet Complete”).

 

This Current Report on Form 8-K/A is being filed to amend the Form 8-K to provide the financial statements and pro forma financial information described below, in accordance with the requirements of Item 9.01 of Form 8-K. The pro forma financial information included in this Form 8-K/A has been presented for informational purposes only, as required by Form 8-K. It does not purport to represent the actual results of operations that the Company and Fleet Complete would have achieved had the companies been combined during the periods presented in the pro forma financial information and is not intended to project the future results of operations that the combined company may achieve after the Acquisition. Except as described above, all other information in the Form 8-K filed with the SEC on October 2, 2024 remains unchanged.

 

 

Item 9.01. Financial Statements and Exhibits.

 

(a) Financial Statements of Businesses or Funds Acquired.

 

The audited combined balance sheet of Complete Innovations Holdings Inc. and Complete Innovations USA, Inc. as of September 30, 2023, and related combined statements of operations and deficit and cash flows for the fiscal year ended September 30, 2023, and the related notes thereto, are filed herewith and attached hereto as Exhibit 99.1, and are incorporated herein by reference.

 

The unaudited combined balance sheet of Complete Innovations Holdings Inc. and Complete Innovations USA, Inc. as of March 31, 2024, and the related combined statements of operations and deficit and cash flows for the six months ended March 31, 2024, and the related notes thereto, are filed herewith and attached hereto as Exhibit 99.2, and are incorporated herein by reference.

 

(b) Pro Forma Financial Information.

 

The unaudited pro forma combined financial statements of the Company, MiX Telematics Proprietary Limited and Complete Innovations Holdings Inc. and Complete Innovations USA, Inc. as of and for the six months ended September 30, 2024 are filed herewith and attached hereto as Exhibit 99.3, and are incorporated herein by reference.

 

(d) Exhibits.

 

Exhibit No.		Description
23.1		Consent of BDO Canada LLP.
99.1		Audited Combined Financial Statements of Complete Innovations Holdings Inc. and Complete Innovations USA, Inc. as of September 30, 2023 and for the fiscal year ended September 30, 2023.
99.2		Unaudited Combined Financial Statements of Complete Innovations Holdings Inc. and Complete Innovations USA, Inc. as of March 31, 2024 and for the six months ended March 31, 2024.
99.3		Unaudited pro forma combined financial information of the Company, MiX Telematics Proprietary Limited and Complete Innovations Holdings Inc. and Complete Innovations USA, Inc. as of and for the six months ended September 30, 2024.
104		Cover Page Interactive Data File (embedded within the Inline XBRL document).

 

 

SIGNATURE

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

	POWERFLEET, INC.
	By:	/s/ David Wilson
	Name:	David Wilson
	Title:	Chief Financial Officer

 

Date: December 17, 2024

 

 

Exhibit 23.1

 

CONSENT OF INDEPENDENT AUDITORS

 

We consent to the incorporation by reference in Registration Statement Nos. 333-234079, 333-234081, 333-258715, 333-263625, 333-273885 and 333-283615 on Form S-8 and Registration Statement No. 333-283536 on Form S-1 of Powerfleet, Inc. of our report dated December 16, 2024, relating to the combined financial statements of Complete Innovations Holdings Inc. and Complete Innovations USA Inc., appearing in this Current Report on Form 8-K/A of Powerfleet, Inc. dated December 17, 2024.

 

/s/ BDO Canada LLP

 

Chartered Professional Accountants, Licensed Public Accountants

December 17, 2024

 

 

 

Exhibit 99.1

 

 

 

Contents

 

Independent Auditor’s Report	3
Complete Innovations Combined Balance Sheet	5
Complete Innovations Combined Statement of Operations and Deficit	6
Complete Innovations Combined Statement of Cash Flows	7
Complete Innovations Notes to the Combined Financial Statements	8

 

2

 

Independent Auditor’s Report

 

To the Board of Directors of Complete Innovations Holdings Inc. & Complete Innovations USA Inc.

 

Opinion

 

We have audited the combined financial statements of Complete Innovations Holdings Inc. and subsidiaries and Complete Innovations USA Inc., (collectively, the “Company”), which comprise the combined balance sheets as of September 30, 2023 and 2022, and the related combined statements of earnings and retained earnings, and cash flows for the years then ended, and the related notes to the combined financial statements (collectively referred to as the “financial statements”).

 

In our opinion, the accompanying financial statements present fairly, in all material respects, the financial position of the Company as of September 30, 2023 and 2022, and the results of its operations and its cash flows for the years then ended in accordance with Accounting Standards for Private Enterprises in Canada.

 

Basis for Opinion

 

We conducted our audits in accordance with auditing standards generally accepted in the United States of America (“GAAS”). Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Statements section of our report. We are required to be independent of the Company and to meet our other ethical responsibilities, in accordance with the relevant ethical requirements relating to our audits. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

 

Emphasis of Matter

 

As discussed in Note 1 to the financial statements, the Company has prepared these financial statements, including Note 12, Reconciliation to United States generally accepted accounting principles, for regulatory filing purposes in accordance with Accounting Standards for Private Enterprises in Canada, which differs from accounting principles generally accepted in the United States of America. Our opinion is not modified with respect to this matter.

 

Responsibilities of Management for the Financial Statements

 

Management is responsible for the preparation and fair presentation of the financial statements in accordance with Accounting Standards for Private Enterprises in Canada, and for the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.

 

In preparing the financial statements, management is required to evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern for one year after the date that the financial statements are issued.

 

Auditor’s Responsibilities for the Audit of the Financial Statements

 

Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance but is not absolute assurance and therefore is not a guarantee that an audit conducted in accordance with GAAS will always detect a material misstatement when it exists. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. Misstatements are considered material if there is a substantial likelihood that, individually or in the aggregate, they would influence the judgment made by a reasonable user based on the financial statements.

 

3

 

In performing an audit in accordance with GAAS, we:

 

	●	Exercise professional judgment and maintain professional skepticism throughout the audit.
	●	Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, and design and perform audit procedures responsive to those risks. Such procedures include examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.
	●	Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control. Accordingly, no such opinion is expressed.
	●	Evaluate the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluate the overall presentation of the financial statements.
	●	Conclude whether, in our judgment, there are conditions or events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern for a reasonable period of time.

 

We are required to communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit, significant audit findings, and certain internal control-related matters that we identified during the audit.

 

/s/ BDO Canada LLP

 

Chartered Professional Accountants, Licensed Public Accountants

 

Toronto, Ontario

 

December 16, 2024

 

4

 

Complete Innovations

Combined Balance Sheet

(expressed in thousands of Canadian dollars unless otherwise noted, except for amount per share)

 

as at September 30,		2023				2022
Assets
Current
Cash		$	6,794			$	4,060
Accounts receivable			29,164				30,228
Inventory			10,004				10,849
Current portion of deferred contract costs			10,059				10,516
Prepaids, deposits and other current assets			2,158				2,133
Income taxes recoverable			102				388
			58,281				58,174
Property and equipment (Note 2)			1,715				2,957
Intangible assets (Note 3)			12,630				19,083
Goodwill (Note 4)			44,055				41,927
Future income tax assets (Note 6)			6,191				6,906
Deferred contract costs			18,641				20,009
TOTAL ASSETS		$	141,513			$	149,056
Liabilities and Shareholders’ Deficiency
Current
Accounts payable and accrued liabilities		$	20,651			$	23,690
Current portion of deferred revenue			9,003				7,515
Current portion of bank operating loan (Note 5)			2,806				-
Income taxes payable			569				185
			33,029				31,390
Bank operating loan (Note 5)			196,086				190,639
Deferred revenue			283				1,230
Other liabilities			69				49
Future income tax liabilities (Note 6)			1,557				2,074
TOTAL LIABILITIES			231,024				225,382
Shareholders’ Deficiency
Share capital (Note 7)			89,695				89,695
Contributed surplus (Note 7)			16,090				15,455
Accumulated comprehensive income (loss)			3,568				(2	)
Deficit			(198,864	)			(181,474	)
TOTAL SHAREHOLDERS’ DEFICIENCY			(89,511	)			(76,326	)
TOTAL LIABILITIES AND SHAREHOLDERS’ DEFICIENCY		$	141,513			$	149,056

 

The notes are an integral part of these combined financial statements.

 

On behalf of the Board:

 

/s/ David Wilson		/s/ Cynthia Schyff
Director		Director

 

5

 

Complete Innovations

Combined Statement of Operations and Deficit

(expressed in thousands of Canadian dollars unless otherwise noted, except for amount per share)

 

Year ended September 30,		2023				2022
Revenue		$	139,267			$	130,843
Cost of revenue
Direct costs			36,509				37,743
Amortization of deferred contract costs			12,745				11,730
			49,254				49,473
Gross margin			90,013				81,370
Operating expenses
Sales and marketing expenses			17,590				19,564
Research and development			15,748				17,585
Operations expenses			16,468				16,485
General and administrative expenses			20,172				21,532
			69,978				75,166
Profit before undernoted items			20,035				6,204
Other expenses
Depreciation of property and equipment			1,086				1,191
Amortization of intangible assets			6,962				7,332
Foreign exchange (income) loss			(73	)			952
Interest and financing fees on bank operating loan			23,799				16,974
Stock-based compensation (Note 7)			636				931
Other corporate expenses (Note 11)			4,508				10,069
			36,918				37,449
Loss before income taxes			(16,883	)			(31,245	)
Income taxes (recovery) (Note 6)
Current			418				210
Future			79				(624	)
			497				(414	)
Net loss			(17,380	)			(30,831	)
Deficit, beginning of year			(181,474	)			(150,633	)
Dividends			(10	)			(10	)
Deficit, end of year		$	(198,864	)		$	(181,474	)

 

The notes are an integral part of these combined financial statements.

 

6

 

Complete Innovations

Combined Statement of Cash Flows

 

(expressed in thousands of Canadian dollars unless otherwise noted, except for amount per share)

 

Year ended September 30,		2023				2022
Cash provided by (used in)
Cash flows used for operating activities
Net loss		$	(17,380	)		$	(30,831	)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation of property and equipment			1,086				1,191
Amortization of intangible assets			6,962				7,332
Amortization of financing fees			1,185				1,169
Amortization of deferred contract costs			12,745				11,730
Stock based compensation			636				931
Future income taxes (recovery)			79				(624	)
Impairment of non-financial assets (Note 11)			819				47
			6,132				(9,055	)
Changes in non-cash working capital items
Accounts receivable			1,339				885
Inventory			1,109				(330	)
Deferred contract costs			(10,597	)			(15,353	)
Prepaids, deposits and other current assets			41				(244	)
Accounts payable and accrued liabilities			(3,407	)			1,927
Deferred revenue			312				641
Income taxes payable			684				(97	)
Other liabilities			25				(591	)
			(4,362	)			(22,217	)
Cash flows used for investing activities
Purchase of property and equipment			(563	)			(311	)
Purchase of intangible assets			(35	)			(102	)
			(598	)			(413	)
Cash flows from financing activities
Increase in bank operating loan, net of issuance costs (Note 5)			7,068				20,554
Dividends paid			(10	)			(10	)
Redemption or repurchase of shares			-				(350	)
			7,058				20,194
Effect of movements in exchange rates			636				654
Net change in cash			2,734				(1,782	)
Cash, beginning of year			4,060				5,842
Cash, end of year		$	6,794			$	4,060

 

The notes are an integral part of these combined financial statements.

 

7

 

Complete Innovations

Notes to the Combined Financial Statements

For the Years Ended September 30, 2023 and 2022

(expressed in thousands of Canadian dollars unless otherwise noted, except for amount per share)

 

1.	Summary of Significant Accounting Policies

 

	a.	Nature of business
		Complete Innovations Holdings Inc. and Complete Innovations USA Inc., collectively known as “Complete Innovations” or the “Company”, provide technology-based fleet, asset and mobile workforce monitoring and management solutions.
	b.	Basis of accounting
		Complete Innovations has prepared combined financial statements in accordance with Canadian Accounting standards for private enterprises (“ASPE”). Complete Innovations has also prepared these combined financial statements, including Note 12, Reconciliation to United States generally accepted accounting principles, for regulatory filing purposes in accordance with Canadian ASPE.
	c.	Basis of combination
		The combined financial statements of Complete Innovations include the accounts of Complete Innovations Holdings Inc. and Complete Innovations USA Inc.  Complete Innovations Holdings Inc. includes the following wholly owned subsidiaries:

 

	●	Complete Innovations Inc.;
	●	Fleet Complete Coöperatief U.A. and its wholly owned subsidiaries TC Beheer B.V., IT Mobile Spain S.L, Fleet Complete Netherlands B.V. and its wholly owned subsidiaries Fleet Complete Germany GMBH and Complete Innovations AE, and Fleet Complete Belgium BVBA. Fleet Complete Nordics OÜ and its wholly owned subsidiaries Fleet Complete Eesti ÖU, Fleet Complete Denmark ApS, Fleet Complete Norge AS, Fleet Complete Sverige AB, Fleet Complete Latvija SIA and Fleet Complete Lietuva UAB;
	●	Fleet Complete Holdings Australia PTY Ltd. and its wholly owned subsidiary Fleet Complete Australia Pty Ltd.; and
	●	Fleet Complete S. de RL de C.V. and its majority owned subsidiary Centro de Soluciones Inalámbricas, S.A. de C.V.

 

Intercompany balances and transactions are eliminated upon combination and consolidation.

 

d.

Foreign currency translation

 

Foreign currency transactions are translated at the rates of exchange in effect at the dates of the transaction. Resulting foreign currency denominated monetary assets and liabilities are translated at the rates of exchange in effect at the balance sheet date. Gains and losses on translation of monetary assets and liabilities are included in net income.

 

Financial statements of foreign subsidiaries which are considered financially and operationally integrated with the organization are translated into Canadian dollars using the temporal method. Under this method, monetary assets and liabilities denominated in foreign currencies are translated into Canadian dollars at the exchange rate in effect at the balance sheet date. Non-monetary assets are translated at the historical rate of exchange. Revenue and expenses are translated at the rate of exchange prevailing on the transaction date, except for amortization which is translated at exchange rates used in the translation of the relevant asset accounts. Gains and losses on translation are reflected in net income.

 

8

 

Complete Innovations

Notes to the Combined Financial Statements

For the Years Ended September 30, 2023 and 2022

(expressed in thousands of Canadian dollars unless otherwise noted, except for amount per share)

 

Financial statements of foreign subsidiaries which are considered financially and operationally self-sustaining with the organization are translated into Canadian dollars using the current rate method whereby assets and liabilities are translated at the rate of exchange in effect at the balance sheet date, and revenue and expense items are translated at the rate of exchange prevailing on the transaction date. The resulting exchange differences are classified as accumulated comprehensive loss in equity.

 

e.

Inventory

 

Inventory is stated at the lower of cost and net realizable value with cost generally determined on a first-in, first-out basis. Inventories are written down when it is determined that net realizable value is below cost. When the circumstances that previously caused inventory to be written down below cost no longer exist or when there is clear evidence of an increase in net realizable value because of changed economic circumstances, the amount of the writedown is reversed. The reversal is limited to the lesser of the amount of the original writedown and the current net realizable value. The amount of inventory recognized as an expense and included in cost of revenue was $19,876 (2022 - $18,853).

 

f.

Deferred contract costs

 

Costs consisting of hardware and installation are amortized on a straight-line basis over the expected life of the customer contract which was determined to be a period of 5 years. For contracts that are terminated before the term, the associated and unamortized deferred contract costs are expensed in the period of termination.

 

g.

Property and equipment

 

Property and equipment are recorded at cost less accumulated depreciation. Depreciation based on the estimated useful lives of the assets is as follows:

 

	Computer equipment	20-25%
	Leasehold improvements	term of lease
	Office equipment	20%
	Vehicle	20%

 

h.

Intangible assets

 

Intangible assets with an indefinite life are not amortized. They are tested for impairment when events or circumstances indicate that their carrying amount exceeds their fair value. The impairment test consists of a comparison of the fair value of the unamortized assets with their carrying amount. When the carrying amount exceeds the fair value, an impairment loss is recognized in an amount equal to the excess. Trade name acquired from BigRoad Incorporated is considered indefinite life.

 

Intangible assets are stated at cost less accumulated amortization and are amortized on a straight-line basis over the life of the assets as follows:

 

	Customer relationships	3 – 10 years
	Technology	3 – 5 years
	Trade names	2 – 15 years
	Computer software	1 – 5 years

 

9

 

Complete Innovations

Notes to the Combined Financial Statements

For the Years Ended September 30, 2023 and 2022

(expressed in thousands of Canadian dollars unless otherwise noted, except for amount per share)

 

i.

Goodwill

 

Goodwill is an asset that represents the future economic benefits arising from other assets acquired in a business combination that are not individually identified and separately recognized. Goodwill is not amortized. Goodwill is tested for impairment whenever events or changes in circumstances indicate that the fair value of the reporting unit to which the goodwill is assigned may be less than its carrying amount. The Company determined that the reporting unit is the consolidated business.

 

j.

Impairment of long-lived assets

 

The Company monitors events and changes in circumstances which may require an assessment of the recoverability of its long-lived assets. If required, the Company would assess recoverability using estimated future undiscounted operating cash flows. If the carrying amount of an asset is not recoverable, an impairment loss is recognized in operations, measured by comparing the carrying amount of the asset to its discounted cash flow value.

 

k.

Revenue recognition

 

Revenue from subscription and maintenance contracts is recognized over the term of the contract when collection is reasonably assured. Amounts paid for contracts in advance of the services being provided are recorded as deferred revenue.

 

Revenue from the sale of hardware and software products is recognized when the goods are delivered to the customer and collection is reasonably assured.

 

Revenue from licenses is recognized upon customer access to the subscribed software application over the terms of the license period. Revenue from warranty services is deferred and amortized on a straight-line basis over the term of the warranty period.

 

The Company also enters into sales that may involve the delivery of multiple products and services. As appropriate, these multiple element arrangements are separated into their component accounting units, consideration is measured and allocated amongst the accounting units based upon their relative fair values (derived using Company-specific objective evidence) and then the Company’s relevant revenue recognition policy is applied to the accounting units.

 

l.

Stock based compensation

 

The Company grants common stock options to its employees and officers under its stock option plans. Stock based compensation plans are accounted for on a fair value basis.

 

The fair value of each option is estimated on the date of grant using the Black-Scholes option pricing model.

 

Stock based compensation costs, measured at grant date based on the fair value of all options granted and recognized over the service period involved, are recorded as expenses on the income statement and credited to contributed surplus. The consideration paid by employees upon exercise of the options and the fair value of the options exercised are added to share capital.

 

10

 

Complete Innovations

Notes to the Combined Financial Statements

For the Years Ended September 30, 2023 and 2022

(expressed in thousands of Canadian dollars unless otherwise noted, except for amount per share)

 

The Company estimates expected forfeitures, if any, at each reporting period such that on a cumulative basis, the cumulative expense recognized reflects the number of equity instruments that are expected to vest. Where no forfeitures were expected, actual forfeitures are accounted for as they occur by adjusting the stock-based compensation cost to reflect the number of options that are expected to vest.

 

From time to time, the Company makes amendments to its stock option grants. For amendments to both vested and non-vested options that meet the definition of a modification of an option, the incremental fair value between the original option and the modified option are treated as an expense over the vesting period of the modified option.

 

m.

Income taxes

 

The Company applies the future income taxes method of accounting for income taxes. Under this method, future income tax assets and liabilities are determined based on the difference between the carrying amounts of existing assets and liabilities and their respective tax bases. Any change in the net amount of future income tax assets and liabilities is included in income. Future income tax assets and liabilities are determined based on enacted or substantively enacted tax rates and laws which are expected to apply to taxable income for the years in which the assets and liabilities will be recovered. Future income tax assets are recognized when it is more likely than not that they will be realized.

 

n.

Leases

 

Leases are classified as capital or operating leases. A lease that transfers substantially all of the benefits and risks incidental to the ownership of property is classified as a capital lease. At the inception of a capital lease, an asset and an obligation are recorded at an amount equal to the lesser of the present value of the minimum lease payments and the property’s fair value at the beginning of the lease. Assets recorded under capital leases are amortized on a straight-line basis over the term of the lease, which is the estimated useful life of the assets.

 

All other leases are accounted for as operating leases wherein rental payments are expensed on a straight-line basis. The amount by which straight-line rental expense and any inducements received exceeds the minimum rents paid in accordance with the lease agreement is included in deferred rent.

 

o.

Financial instruments

 

Financial instruments are recorded at fair value when acquired or issued and subsequently measured at cost or amortized cost less impairment, if applicable. Financial assets are tested for impairment when changes in circumstances indicate the asset could be impaired. Transaction costs on the acquisition, sale or issue of financial instruments are charged to the financial instrument for those measured at amortized cost.

 

11

 

Complete Innovations

Notes to the Combined Financial Statements

For the Years Ended September 30, 2023 and 2022

(expressed in thousands of Canadian dollars unless otherwise noted, except for amount per share)

 

p.

Use of estimates

 

The preparation of the financial statements in accordance with ASPE requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Significant estimates include the amortization period of long-lived assets, stock-based compensation, fair values of acquired intangible assets and assessing indicators of impairment of long-lived assets and goodwill. Actual results could differ from management’s best estimates as additional information becomes available in the future.

 

2.	Property and Equipment

 

		2023								2022
		Cost				Accumulated Depreciation				Cost				Accumulated Depreciation
Computer equipment		$	7,943			$	6,733			$	7,317			$	6,035
Leasehold improvements			1,635				1,387				3,889				2,634
Office equipment			910				658				1,370				970
Vehicle			176				171				162				142
		$	10,664			$	8,949			$	12,738			$	9,781
Net book value						$	1,715							$	2,957

 

In September 2023, the Company entered into an agreement with a third party to sublease some of its leased office premises. As this agreement included the sale of all existing leasehold improvements and certain office furniture and equipment, the Company wrote off leasehold improvements with a net book value of $686 and office equipment with a net book value of $127.

 

12

 

Complete Innovations

Notes to the Combined Financial Statements

For the Years Ended September 30, 2023 and 2022

(expressed in thousands of Canadian dollars unless otherwise noted, except for amount per share)

 

3.	Intangible Assets

 

		2023								2022
		Cost				Accumulated Amortization				Cost				Accumulated Amortization
Customer list		$	19,190			$	14,571			$	18,161			$	12,113
Technology			25,273				19,622				24,762				16,784
Trade name			1,290				658				1,193				582
Computer software			13,835				12,107				13,802				9,356
		$	59,588			$	46,958			$	57,918			$	38,835
Net book value						$	12,630							$	19,083

 

4.

Goodwill

 

		2023				2022
Opening balance		$	41,927			$	43,670
Foreign exchange			2,128				(1,743	)
Ending balance		$	44,055			$	41,927

 

5.	Bank Operating Loan

 

		2023				2022
Term loan		$	164,958			$	164,990
Deferred draw term loan			20,800				20,800
Revolving line of credit			15,700				8,600
Less unamortized financing fees			(2,566	)			(3,751	)
		$	198,892			$	190,639
Less current portion			(2,806	)			-
Non-current		$	196,086			$	190,639

 

13

 

Complete Innovations

Notes to the Combined Financial Statements

For the Years Ended September 30, 2023 and 2022

(expressed in thousands of Canadian dollars unless otherwise noted, except for amount per share)

 

Principal repayments over the next five years are as follows:

 

2024	2,806
2025	1,848
2026	196,804

 

On December 16, 2020, the Company refinanced its credit facilities for a five-year term. The terms of all credit facilities as at September 30, 2023 are unchanged from September 30, 2022 and the Company is in compliance with all covenants. The facilities include the following:

 

Term credit facility

 

A $164,000 (2022 - $164,000) term credit facility bearing interest at either the Canadian Dollar Offered Rate (“CDOR”), to be no less than 1.00%, plus the applicable rate of 6.75% for CDOR loans, or the highest of i) the CIBC prime rate or ii) 30-day CDOR plus 1.00%, plus the applicable rate of 5.75% for Canadian base rate loans. Prior to the Financial Covenant Toggle Date (“FCTD”), if the LQA (Last Quarter Annualized) recurring revenue leverage ratio is greater than 1.00 to 1 but less than 1.25 to 1 then the applicable rate for CDOR loans is 6.50% and the applicable rate for the Canadian base rate loan option is 5.50%, or if the LQA recurring revenue leverage ratio is less than 1.00 to 1 then the applicable rate for CDOR loans is 6.25% and the applicable rate for the Canadian base rate loan option is 5.25%.

 

At the earlier of the Company’s option or December 16, 2023, (the “FCTD”), the interest rates are determined in accordance with the total leverage ratio. If the total leverage ratio is greater than 5.00 to 1 then the applicable rate for CDOR loans is 6.25% and the applicable rate for the Canadian base rate loan option is 5.25%. If the total leverage ratio is greater than 4.00 to 1 but less than 5.00 to 1 then the applicable rate for CDOR loans is 6.00% and the applicable rate for the Canadian base rate loan option is 5.00%, or if the total leverage ratio is less than 4.00 to 1 then the applicable rate for CDOR loans is 5.75% and the applicable rate for the Canadian base rate loan option is 4.75%. The Company exercised its option to set the FCTD at March 31, 2023 and must now maintain a leverage ratio of 6.00 to 1 on a quarterly basis.

 

Effective June 28, 2024, all tenors of the CDOR rate will no longer be published and it is expected that the Canadian Overnight Repo Rate (“CORRA”) will replace all CDOR-linked products.

 

Principal repayments on this facility are as follows: $410 repayable in quarterly installments beginning on the first full fiscal quarter following the FCTD, which was October 2023, with the remainder repayable on the maturity of the facility on December 16, 2025.

 

As at September 30, 2023, the amount outstanding under this facility is $164,000.

 

Deferred Draw Term Loan (“DDTL”) facility

 

A $20,800 (2022 - $20,800) DDTL credit facility accessible until June 16, 2022, bearing interest at either the CDOR, to be no less than 1.00%, plus the applicable rate of 6.75% for CDOR loans, or the highest of i) the CIBC prime rate or ii) 30-day CDOR plus 1.00%, plus the applicable rate of 5.75% for Canadian base rate loans. Draws are subject to a $5,000 minimum and compliance with current covenants.

 

14

 

Complete Innovations

Notes to the Combined Financial Statements

For the Years Ended September 30, 2023 and 2022

(expressed in thousands of Canadian dollars unless otherwise noted, except for amount per share)

 

The DDTL facility is not a revolving credit facility and payments of principal on the DDTL may not be redrawn. Principal repayments on this facility are as follows: $52 repayable in quarterly installments beginning on the first full fiscal quarter following the FCTD with the remainder repayable on the maturity of the facility on December 16, 2025.

 

Beginning on March 17, 2021, the undrawn portion of the DDTL facility was subject to a ticking fee of 1.00% per annum.

 

As at September 30, 2023, the amount outstanding under this facility is $20,800 (2022 - $20,800).

 

Revolving credit facility

 

Revolving credit facility with availability of a maximum revolver facility of $30,000, bearing interest at either the CDOR, to be no less than 1.00%, plus the applicable rate of 4.5% for CDOR loans, or the highest of i) the CIBC prime rate or ii) 30-day CDOR plus 1.00%, plus the applicable rate of 3.5% for Canadian base rate loans.

 

A standby fee is charged on the unused portion of the revolving credit facility of 0.5% per annum. This fee will reduce to 0.375% per annum if, prior to the FCTD the LQA recurring revenue leverage ratio is less than 1.25 to 1 or, after the FCTD the total leverage ratio is not greater than 5:00 to 1.

 

The credit facilities are secured by the Canadian Guarantee and Security Agreement and the US Guarantee and Security Agreement covering all the assets of the Company and assignment of its interest in all property.

 

The credit facilities also require the Company to maintain, prior to the FCTD, a minimum liquidity of at least $10,000 and an LQA recurring revenue leverage ratio of 2.00 to 1 from March 31, 2021 to December 31, 2021, 1.80 to 1 from March 31, 2022 to December 31, 2022 and 1.65 to 1 from March 31, 2023. Following the Company’s option to set the FCTD at March 31, 2023, the Company must now maintain a leverage ratio of 6.00 to 1 on a quarterly basis. The revolver is repayable on the maturity of the facility on December 16, 2025.

 

As at September 30, 2023, the amount outstanding under this facility is $15,700 (2022 - $8,600).

 

15

 

Complete Innovations

Notes to the Combined Financial Statements

For the Years Ended September 30, 2023 and 2022

(expressed in thousands of Canadian dollars unless otherwise noted, except for amount per share)

 

6.	Income Taxes

 

The Company recorded future income tax assets and future income tax liabilities on the temporary differences between the accounting and tax treatment of items listed below. The tax rate applied to entities within the Company ranges from 25% - 30%.

 

Future income tax assets
		2023				2022
Operating loss carryforwards			34,565				32,559
Financing costs			111				987
Property, plant and equipment			6,321				4,541
Reserves and other			1,201				1,126
			42,198				39,213
Less: Future income tax asset not recognized			(36,007	)			(32,307	)
Future income tax assets			6,191				6,906

 

Future income tax liabilities
			2023				2022
Financing costs			(279	)			(415	)
Property, plant and equipment			(6	)			(14	)
Intangible assets			(1,269	)			(1,332	)
Reserves and other			(3	)			(313	)
Future income tax liabilities			(1,557	)			(2,074	)

 

16

 

Complete Innovations

Notes to the Combined Financial Statements

For the Years Ended September 30, 2023 and 2022

(expressed in thousands of Canadian dollars unless otherwise noted, except for amount per share)

 

The Company has operating loss carryforwards of approximately $132,423 (2022 - $121,151) which are available to reduce taxable income in future years and future income tax assets are recorded net of an allowance of $36,007 (2022 - $32,307). The operating loss carryforwards will expire as follows.

 

2025		$	-
2026			189
2027			511
2028			630
2029			-
2030			1,024
2031			4,615
2032			981
2035			2,310
2036			4,030
2037			8,289
2038			10,074
2039			13,290
2040			8,206
2041			15,995
2042			19,797
2043			12,756
no expiry			29,726
		$	132,423

 

17

 

Complete Innovations

Notes to the Combined Financial Statements

For the Years Ended September 30, 2023 and 2022

(expressed in thousands of Canadian dollars unless otherwise noted, except for amount per share)

 

7.	Share Capital and Contributed Surplus

 

Share Capital

 

The share capital for Complete Innovations Holdings Inc. is as follows:

 

Authorized

 

Unlimited number of Class A Common shares

Unlimited number of Class B Common shares

Unlimited number of Class C-1 Common shares

Unlimited number of Class C-2 Common shares

Unlimited number of Class D Common shares, non-voting, non-dividends receiving, redeemable and retractable at $0.01 per share

One Preferred share, non-voting, cumulative annual dividend of $10

 

				2023				2022
Issued
10,196,514		Class A Common shares (2022 - 10,196,514)		$	33,718				33,718
4,900,000		Class B Common shares (2022 - 4,900,000)			35,555				35,555
1,544,938		Class C-1 Common shares (2022 - 1,544,938)			20,422				20,422
1		Preferred share (2022 - 1)			-				-
				$	89,695			$	89,695

 

The share capital for Complete Innovations USA Inc. is as follows:

 

Authorized

 

3,000

Common shares

 

					2023				2022
Issued
20			Common Shares		$	-			$	-

 

In the year ended September 30, 2022, the Company exchanged 12,972 Class C-1 common shares for 35,000,000 Class D common shares. Following the exchange these Class D common shares were purchased by the Company for $350 and cancelled.

 

Share Option Plan

 

The Company has two Share Option Plans, the legacy Stock Option Plan (the “Legacy Plan”), and a new Stock Option Plan (the “2019 Plan”), together the “Plans”. The aggregate number of common shares available for issuance pursuant to options granted under the Plans is limited to a maximum of 2,546,940 Class C-1 Common shares for the Legacy Plan and 1,000,000 Class C-1 Common shares (formerly Class C Common shares) under the 2019 Plan.

 

18

 

Complete Innovations

Notes to the Combined Financial Statements

For the Years Ended September 30, 2023 and 2022

(expressed in thousands of Canadian dollars unless otherwise noted, except for amount per share)

 

No further options will be granted under the Legacy Plan. Options are granted under the 2019 Plan at the discretion of the Board of Directors at exercise prices determined by the Board of Directors that is generally equal to the fair market value of the underlying shares on the date of grant. In general, for options granted under the 2019 Plan, 50% of the options shall vest in accordance with time-based conditions and 50% of the options shall vest in accordance with both performance-based and time-based vesting conditions. Time-based vesting under the Legacy Plan is 25% at the first anniversary of the vesting commencement date and the remaining will vest at 1/48 on the last day of each month through the fourth anniversary of the vesting commencement date. Time-based vesting under the 2019 Plan is 25% on each of the first four anniversaries of the grant date. The performance-vesting portion is subject to time and performance vesting and shall only be deemed fully vested to the extent it has both time-vested and performance-vested. Performance vesting options will vest immediately prior to and contingent upon the closing of a transaction based on the achievement of internal rates of return and multiples of invested capital metrics.

 

On July 28, 2022, the Board of Directors approved an option exchange program (the “Exchange Program”) for selected employees. Under the Exchange Program optionees exchanged all of their outstanding options under the 2019 Plan for a new grant of options under the 2019 Plan. These exchanges were treated as modifications and resulted in an expense in the prior year to stock-based compensation for $31.

 

Stock options expire no later than 10 years from date of grant.

 

The following is a summary of the option activity during the year:

 

		2023								2022
		Number of options				Weighted average exercise price				Number of options				Weighted average exercise price
Balance, beginning of year			1,606,523			$	9.66				1,960,886				17.83
Granted			26,214				4.02				498,727				3.83
Exercised			-				-				-				-
Exchanged			-				0.00				(432,993	)			26.98
Forfeited			(30,040	)			23.10				(420,097	)			23.10
Balance, end of year			1,602,697			$	9.32				1,606,523			$	9.66
Exercisable, end of year			1,180,303			$	10.52				1,062,783			$	11.68

 

As at September 30, 2023, the range of exercise prices for options outstanding and exercisable is $3.83 - $26.98 (2022 - $9.40 - $26.98) with a range of remaining lives of 1 to 10 years (2022 - 2 to 10 years).

 

19

 

Complete Innovations

Notes to the Combined Financial Statements

For the Years Ended September 30, 2023 and 2022

(expressed in thousands of Canadian dollars unless otherwise noted, except for amount per share)

 

The fair value of each option granted to directors, officers and employees is charged to operations over the vesting period and has been estimated at the date of grant using the Black Scholes option pricing model with the following assumptions used:

 

		2023				2022
Share price		$	4.02			$	3.83
Expected dividend yield			-	%			-	%
Expected volatility			63	%			49%-50%
Risk free rate of return			4.1	%			0.71%-4.5%
Expected option life			5 years				5 years

 

Because no actively traded market existed for the Company’s common shares in these periods, expected volatility was determined by a review of the expected volatility factors disclosed by a sample of publicly available data for technology management solutions related companies of comparable size.

 

The following is a continuity of the stock-based compensation reserve included in contributed surplus for the year ended September 30, 2023:

 

		2023				2022
Balance, beginning of year		$	6,030			$	5,099
Stock-based compensation expense during the year			636				931
Balance, end of year		$	6,666			$	6,030

 

8.	Commitments

 

Minimum annual lease payments including operating costs for premises and vehicles are approximately as follows:

 

Year		Amount
2023		$	1,662
2024			1,409
2025			961
2026			636
		$	4,668

 

20

 

Complete Innovations

Notes to the Combined Financial Statements

For the Years Ended September 30, 2023 and 2022

(expressed in thousands of Canadian dollars unless otherwise noted, except for amount per share)

 

9.	Financial Instruments, Capital Management and Financial Risks

 

The Company’s activities expose it to a variety of financial risks: credit risk, liquidity risk and market risk (including interest rate and foreign exchange rate risk). Risk management is carried out by the Company’s management team with guidance from the Audit Committee under policies approved by the Board of Directors. The Board of Directors also provides regular guidance for overall risk management.

 

Credit risk

 

Credit risk is the risk that one party to a financial instrument will cause a financial loss for the other party by failing to discharge an obligation. The Company is exposed to credit risk resulting from the possibility that a customer or counterparty to a financial instrument default on their financial obligations; if there is a concentration of transactions carried out with the same counterparty; or of financial obligations which have similar economic characteristics such that they could be similarly affected by changes in economic conditions. The Company’s financial instruments that are exposed to concentrations of credit risk relate primarily to cash and accounts receivable.

 

The Company provides credit to its customers in the normal course of its operations. As credit sales represent a significant portion of the Company’s sales activities, the Company limits its exposure to credit risk as the majority of the Company’s accounts receivable are monthly recurring payments from tier 1 North American telecommunications companies. See also Note 10.

 

The Company performed a provision analysis on its accounts receivable and recorded an allowance for doubtful accounts of $4,816 (2022 - $2,954).

 

Market risk

 

Interest rate risk

 

Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The Company is exposed to interest rate risk with respect to its operating bank loans. The Company does not currently hold any financial instruments that might mitigate this risk. A change in interest rates of 100 basis points would increase/decrease cash interest by $2,005 (2022 - $1,934) per annum.

 

Foreign exchange risk

 

Currency risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in foreign exchange rates. The Company realizes a substantial portion of its sales and its cost of sales in US dollars, Euro, Australian dollars and Mexican Pesos. Consequently, certain assets and liabilities are exposed to foreign exchange fluctuations.

 

The Company undertakes certain transactions denominated in foreign currencies and as such is exposed to price risk due to fluctuations in foreign exchange rates. The Company does not use derivative instruments to reduce exposure to foreign exchange risk.

 

21

 

Complete Innovations

Notes to the Combined Financial Statements

For the Years Ended September 30, 2023 and 2022

(expressed in thousands of Canadian dollars unless otherwise noted, except for amount per share)

 

Balances denominated in foreign currencies that are considered financial instruments are as follows:

 

		2023				2022
US Dollar
Cash		$	759			$	539
Accounts receivable		$	10,780			$	12,825
Accounts payable and accrued liabilities		$	2,485			$	3,514
Exchange rate per US dollar			1.3545				1.3693
EURO
Cash		€	1,535			€	742
Accounts receivable		€	2,772			€	2,464
Accounts payable and accrued liabilities		€	2,576			€	3,299
Exchange rate per EURO			1.4479				1.3432
Australian Dollar
Cash		A$	1,226			A$	1,222
Accounts receivable		A$	2,484			A$	2,567
Accounts payable and accrued liabilities		A$	2,335			A$	2,052
Exchange rate per AUD			0.8705				0.8896
Mexican Peso
Cash		M$	5,587			M$	5,729
Accounts receivable		M$	25,414			M$	26,599
Accounts payable and accrued liabilities		M$	13,732			M$	9,361
Exchange rate per MXP			0.0784				0.0681

 

Liquidity risk

 

Liquidity risk is the risk that the Company encounters difficulty in meeting its obligations associated with financial liabilities. Liquidity risk includes the risk that, as a result of operational liquidity requirements, the Company will not have sufficient funds to settle a transaction on the due date; will be forced to sell financial assets at a value which is less than what they are worth; or may be unable to settle or recover a financial asset. Liquidity risk arises from operating bank loans, accounts payable and accrued liabilities, other liabilities and commitments. The Company monitors its operating bank loans and cash flows available for when the loan is due. Due to the availability of the Company’s revolver facility as described in Note 5, management does not believe this represents a significant risk to the Company.

 

22

 

Complete Innovations

Notes to the Combined Financial Statements

For the Years Ended September 30, 2023 and 2022

(expressed in thousands of Canadian dollars unless otherwise noted, except for amount per share)

 

10.	Major Customers

 

Approximately 42% (2022 - 44%) of the Company’s revenues are derived from two (2022 - two) distribution channels whereby two major North American telecommunications companies purchase the Company’s solution to resell to the ultimate end user. Accounts receivable from these telecommunications companies comprise approximately 49% (2022 - 61%) of the total accounts receivable balance.

 

11.	Other Corporate Expenses

 

The Company’s other corporate expenses are summarized as follows:

 

		2023				2022
Transformation costs		$	602				4,302
Severance related expenses			1,523				3,825
Loss on disposal of assets			819				-
Reserve for excess real estate			(161	)			1,073
Reserve for contract impairments			307				408
Systems implementation expenses			-				850
Other professional fees			558				372
Loss (gain) from contract settlement			650				(503	)
Other corporate (income) expenses			210				(258	)
		$	4,508			$	10,069

 

In January 2022, the Company implemented a global restructuring and transformation plan (the “Plan”) as part of its efforts to streamline activities and operations in each geographic market. As a result, the Company incurred expenses relating to professional and consulting fees, management incentives, severance and termination costs relating to excess real estate and other contracts. These transformation programs continued in 2023 on a smaller scale.

 

23

 

Complete Innovations

Notes to the Combined Financial Statements

For the Years Ended September 30, 2023 and 2022

(expressed in thousands of Canadian dollars unless otherwise noted, except for amount per share)

 

12.

Reconciliation to United States generally accepted accounting principles

 

These combined financial statements for years ended September 30, 2023 and 2022 have been prepared in accordance with ASPE which differs in certain respects from generally accepted accounting principles in the United States (“U.S. GAAP”).

 

The following is a summary of material adjustments to net earnings for the years ended September 30, 2023 and 2022 and shareholders’ equity as of September 30, 2023 and 2022, necessary to reconcile those to net loss and shareholders’ deficiency determined in accordance with U.S. GAAP.

 

Reconciliation of net loss under ASPE to U.S. GAAP

 

		Year ended September 30, 2023				Year ended September 30, 2022
Net loss as reported under ASPE		$	(17,380	)		$	(30,831	)
Adjustments:
Operating lease expense (a)			(487	)			(121	)
Right-of-use asset impairment (a)			-				(1,254	)
Revenue (b), (c)			17,868				23,591
Direct costs (b)			(9,169	)			(13,356	)
Amortization of deferred contract costs (b)			12,745				11,730
Selling, general and administrative expenses (b), (c), (d), (e)			(23,392	)			(25,657	)
Depreciation of property and equipment (b)			(1,087	)			(806	)
Deferred income tax benefit (f)			314				785
Net loss under U.S. GAAP		$	(20,588	)		$	(35,919	)

 

Reconciliation of shareholders’ deficiency under ASPE to U.S. GAAP

 

		As at September 30, 2023				As at September 30, 2022
Shareholders’ equity (deficiency) as reported under ASPE		$	(89,511	)		$	(76,326	)
Adjustments:
Operating lease assets (a)			3,264				4,188
Operating lease liabilities (a)			(5,466	)			(6,978	)
Deferred rent (a)			66				45
Accounts payable and accrued liabilities (a)			-				1,096
Deferred contract costs (b)			(28,700	)			(30,525	)
Property and equipment (b)			2,797				2,183
Contract assets (receivable) (b)			18,505				24,216
Deferred revenue – current (b)			2,808				2,373
Contract cost asset (sales commissions) (d)			10,184				10,513
Warranty liability (e)			(821	)			(908	)
Deferred income tax assets (liabilities) (f)			(529	)			(843	)
Shareholders’ equity (deficiency) under U.S. GAAP		$	(87,403	)		$	(70,966	)

 

Notes to U.S. GAAP adjustments:

 

a)

Operating leases

 

In Complete Innovations combined financial statements, lease rentals related to operating leases were recognized in net earnings over the lease term on a straight-line basis. No assets or liabilities were recognized on the balance sheet.

 

Under U.S. GAAP, assets and liabilities are recognized on the balance sheet for the rights and obligations created by operating leases and the operating lease expense is recognized on a straight-line basis over the term of the lease. Deferred rent is not recognized separately from the right of use asset and lease liability, thus historical deferred rent was eliminated from the financial statements.

 

The following adjustments were made to the balance sheet:

 

		As at September 30, 2023				As at September 30, 2022
Recognition of right-of-use asset		$	3,264			$	4,188
Recognition of lease liability			(5,466	)			(6,978	)
Reversal of deferred rent from other liabilities			66				45
Reversal (recognition) of accounts payable and accrued liabilities			-				1,096
Net impact to accumulated deficit		$	(2,136	)		$	(1,649	)

 

The following adjustments were made to the statements of operations and deficit:

 

		Year ended September 30, 2023				Year ended September 30, 2022
Reversal of historical lease expense under ASPE		$	1,572			$	2,120
Reversal of lease impairment expense under ASPE			-				1,096
Recognition of lease expense under U.S. GAAP			(2,059	)			(2,241	)
Recognition of lease impairment expense under U.S. GAAP			-				(2,350	)

 

b)

Bundled sales

 

In Complete Innovation’s combined financial statements, bundled agreements, which include subscription services to fleet management solutions, hardware and accessories, and installation, are identified as a single performance obligation in recognizing revenue. Consequently, the cost of the hardware transferred was being deferred as Deferred contract costs and amortized over the contract term (including anticipated contracts).

 

Under U.S. GAAP, hardware has been identified as a separate performance obligation that is satisfied at a point in time when control is transferred to the customer. Hence, hardware revenue is recognized when control is transferred to the customer, with a related contract asset, rather than deferring revenue over a period.

 

The following adjustments were made to the statements of operations and deficit:

 

		Year ended September 30, 2023				Year ended September 30, 2022
Decrease in amortization of deferred contract costs (*)		$	12,745			$	11,730
Increase in direct costs (*)			(9,169	)			(13,356	)
Decrease (Increase) in revenue			4,645				(1,170	)
Increase in selling, general and administrative expenses			(638	)			(2,919	)
Increase in depreciation of property and equipment			(1,087	)			(806	)

 

* The adjustment represents impact of reversal of amortization of hardware costs deferred under ASPE and recognition of cost of hardware transferred as per US GAAP.

 

The following adjustments were made to the balance sheet:

 

		September 30, 2023				September 30, 2022
Derecognition of deferred hardware costs – current		$	(10,059	)		$	(10,516	)
Derecognition of deferred hardware costs			(18,641	)			(20,009	)
Recognition of Property and equipment, net (leased hardware)			2,797				2,183
Recognition of contract assets			18,505				24,216
Reversal of deferred revenue – current			2,808				2,373
Net impact to accumulated deficit		$	(4,590	)		$	(1,753	)

 

24

 

Complete Innovations

Notes to the Combined Financial Statements

For the Years Ended September 30, 2023 and 2022

(expressed in thousands of Canadian dollars unless otherwise noted, except for amount per share)

 

c)

Principal v. agent determination in contracts with customers

 

Complete Innovations was identified as a principal in certain contracts with customers entered into through third party intermediaries under U.S. GAAP. Consequently, revenue was recognized at a gross amount that Complete Innovations expects to be entitled to for providing such goods and services and related agency commissions were recognized as commission expenses within selling, general and administrative expenses. This adjustment led to a gross-up of revenue and selling, general and administrative expenses by $22,513 for the year ended September 2023 and $22,421 for the year ended September 2022.

 

d)

Costs to acquire contracts with customers

 

In Complete Innovations combined financial statements, sales commissions were expensed as incurred.

 

Under U.S. GAAP, a contract cost asset is recognized for the incremental costs of obtaining the contract if an entity expects to recover those costs through future fees from the customers which is then amortized over the contract period, including anticipated contracts.

 

The following adjustments were made to the statements of operations and deficit:

 

		Year ended September 30, 2023				Year ended September 30, 2022
Reversal of commission expense under ASPE		$	3,864			$	3,942
Recognition of commission expense under U.S. GAAP			(4,192	)			(4,259	)
Selling, general and administrative expenses (net impact)		$	(328	)		$	(317	)

 

The following adjustments were made to the balance sheet:

 

		As at September 30, 2023				As at September 30, 2022
Recognition of contract cost asset		$	10,184			$	10,513
Impact to accumulated deficit		$	10,184			$	10,513

 

e)

Warranties

 

In Complete Innovations combined financial statements, warranties were expensed as incurred. No liabilities pertaining to warranties were recognized on the balance sheet.

 

Under U.S. GAAP, the estimated costs of an assurance-type warranty are generally recorded as a liability when the entity transfers the good or service to the customer. These estimates are derived from historical data and trends of costs of repairing and replacing defective products.

 

The following adjustments were made to the statements of operations and deficit:

 

		Year ended September 30, 2023				Year ended September 30, 2022
Recognition of warranty expense under U.S. GAAP		$	87			$	-
Selling, general, and administrative expenses (net impact)		$	87			$	-

 

The following adjustments were made to the balance sheet:

 

		As at September 30, 2023				As at September 30, 2022
Recognition of warranty liability		$	(821	)		$	(908	)
Impact to accumulated deficit		$	(821	)		$	(908	)

 

f)

Deferred income taxes

 

U.S. GAAP uses the asset and liability method whereby deferred income tax assets and liabilities are recognized for temporary differences between financial statement carrying amounts of assets and liabilities and their respective income tax bases. The income tax adjustment reflects the impact on income taxes of the U.S. GAAP adjustments described in this footnote.

 

The following adjustments were made to the statements of operations and deficit:

 

		Year ended September 30, 2023				Year ended September 30, 2022
Deferred tax benefit		$	314			$	785

 

The following adjustments were made to the balance sheet:

 

		As at September 30, 2023				As at September 30, 2022
Recognition of deferred tax liability		$	(529	)		$	(843	)
Impact to accumulated deficit		$	(529	)		$	(843	)

 

g)

Cash flow impact

 

The above adjustments are not expected to lead to any differences necessary to reconcile cash flows as per ASPE to the cash flows determined in accordance with U.S. GAAP.

 

13.	Subsequent Events

 

Golden Eagle LP, the Company’s ultimate parent, is the registered and beneficial owner of all of the issued and outstanding common shares in the capital of Golden Eagle Canada Holdings, Inc., a corporation formed under the laws of the Province of Ontario (“Canada Holdco”), and such common shares, the “Canada Holdco Securities”), and all of the issued and outstanding shares of common stock in the capital of Golden Eagle Holdings, Inc., a corporation formed under the laws of the State of Delaware (“US Holdco”, and such shares of common stock, the “US Holdco Securities”); (ii) US Holdco is the registered and beneficial owner of all of the issued and outstanding shares in the capital of Complete Innovations Corp., a corporation formed under the laws of the State of Delaware (“CIC”) and CIC is the registered and beneficial owner of all of the issued and outstanding common shares of Complete Innovations USA Inc. and (iii) Golden Eagle LP and Canada Holdco are the registered and beneficial owners of all of the issued and outstanding class A common shares in the capital of Complete Innovations Holdings Inc. (the “Class A Shares”), a corporation formed under the laws of the Province of Ontario (“CIH” and, together with Canada Holdco and US Holdco, the “Acquired Entities”); (iv) CIC is the registered and beneficial owner of all of the issued and outstanding class B common shares in the capital of CIH (the “Class B Shares”); (v) the other sellers are collectively the registered and beneficial owners of all of the issued and outstanding Class C Shares and, together with the Class A Shares and Class B Shares, the “CIH Securities”); and (vi) the 30% Rule Designee is the registered and beneficial owner of the CIH Preferred Share.

 

25

 

Complete Innovations

Notes to the Combined Financial Statements

For the Years Ended September 30, 2023 and 2022

(expressed in thousands of Canadian dollars unless otherwise noted, except for amount per share)

 

On October 1, 2024, Golden Eagle LP sold the US Holdco Securities held by it to Powerfleet Inc. (Nasdaq: AIOT) and the Canada Holdco Securities and Class A Shares held by it to Powerfleet Canada Holdings Inc. a wholly owned subsidiary of Powerfleet Inc. (collectively, “Powerfleet”) and each other seller sold the Class C Shares held by such other seller to Powerfleet Canada Holdings Inc. (collectively, the “Purchased Securities”), in each case upon the terms and subject to the conditions of the Share Purchase Agreement (the “Powerfleet Transaction”).

 

As a result of the Powerfleet Transaction, the Acquired Entities became indirect, wholly owned subsidiaries of Powerfleet Inc., repaid all of its credit facilities and cancelled the Share Option Plans.

 

Prior to the closing of the Powerfleet Transaction, on September 30, 2024, the two Canadian companies, Complete Innovations Holdings Inc. and Complete Innovations Inc. amalgamated and continue to operate as Complete Innovations Inc. The minority interests held by Complete Innovations Inc. in Fleet Complete Coöperatief U.A. and Fleet Complete S. de RL de C.V. were transferred to a newly incorporated wholly owned subsidiary, 1001020321 Ontario Inc., prior to the amalgamation.

 

26

 

 

Exhibit 99.2

 

 

 

 

Contents
Complete Innovations Combined Balance Sheet (unaudited)	3
Complete Innovations Combined Statement of Operations and Deficit (unaudited)	4
Complete Innovations Combined Statement of Cash Flows (unaudited)	5
Complete Innovations Notes to the Combined Financial Statements (unaudited)	6

 

2

 

 

Complete Innovations

Combined Balance Sheet (unaudited)

 

(expressed in thousands of Canadian dollars unless otherwise noted, except for amount per share)

 

		as at March 31,				as at September 30,
		2024				2023
Assets
Current
Cash		$	4,837			$	6,794
Accounts receivable			28,624				29,164
Inventory			8,557				10,004
Current portion of deferred contract costs			11,486				10,059
Prepaids, deposits and other current assets			3,891				2,158
Income taxes recoverable			207				102
			57,602				58,281
Property and equipment (Note 2)			1,736				1,715
Intangible assets (Note 3)			9,351				12,630
Goodwill (Note 4)			44,693				44,055
Future income tax assets (Note 6)			2,034				6,191
Deferred contract costs			16,332				18,641
TOTAL ASSETS		$	131,748			$	141,513
Liabilities and Shareholders’ Deficiency
Current
Accounts payable and accrued liabilities		$	20,387			$	20,651
Current portion of deferred revenue			6,938				9,003
Current portion of bank operating loan (Note 5)			2,806				2,806
Income taxes payable			49				569
			30,180				33,029
Bank operating loan (Note 5)			199,340				196,086
Deferred revenue			1,463				283
Other liabilities			177				69
Future income tax liabilities (Note 6)			1,157				1,557
TOTAL LIABILITIES			232,317				231,024
Shareholders’ Deficiency
Share capital (Note 7)			89,695				89,695
Contributed surplus (Note 7)			16,398				16,090
Accumulated comprehensive income (loss)			4,552				3,568
Deficit			(211,214	)			(198,864	)
TOTAL SHAREHOLDERS’ DEFICIENCY			(100,569	)			(89,511	)
TOTAL LIABILITIES AND SHAREHOLDERS’ DEFICIENCY		$	131,748			$	141,513

 

The notes are an integral part of these combined financial statements.

 

On behalf of the Board:

 

/s/ David Wilson		/s/ Cynthia Schyff
Director		Director

 

3

 

 

Complete Innovations

Combined Statement of Operations and Deficit (unaudited)

 

(expressed in thousands of Canadian dollars unless otherwise noted, except for amount per share)

 

Six months ended March 31,		2024				2023
Revenue		$	72,109			$	69,389
Cost of revenue
Direct costs			18,944				19,006
Amortization of deferred contract costs			6,418				6,239
			25,362				25,245
Gross margin			46,747				44,144
Operating expenses
Sales and marketing expenses			10,169				8,401
Research and development			7,435				8,386
Operations expenses			9,341				7,936
General and administrative expenses			10,193				10,148
			37,138				34,871
Profit before undernoted items			9,609				9,273
Other expenses
Depreciation of property and equipment			369				570
Amortization of intangible assets			3,514				3,515
Foreign exchange (income) loss			106				452
Interest and financing fees on bank operating loan			11,967				11,361
Stock-based compensation (Note 7)			308				334
Other corporate expenses (Note 11)			1,835				1,141
			18,099				17,373
Loss before income taxes			(8,490	)			(8,100	)
Income taxes (recovery) (Note 6)
Current			127				214
Future			3,733				(186	)
			3,860				28
Net loss			(12,350	)			(8,128	)
Deficit, beginning of year			(198,864	)			(181,474	)
Deficit, end of year		$	(211,214	)		$	(189,602	)

 

The notes are an integral part of these combined financial statements.

 

4

 

 

Complete Innovations

Combined Statement of Cash Flows (unaudited)

 

(expressed in thousands of Canadian dollars unless otherwise noted, except for amount per share)

 

Six months ended March 31,		2024				2023
Cash provided by (used in)
Cash flows used for operating activities
Net loss		$	(12,350	)		$	(8,128	)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation of property and equipment			369				570
Amortization of intangible assets			3,514				3,515
Amortization of financing fees			594				593
Amortization of deferred contract costs			6,418				6,239
Stock based compensation			308				334
Future income taxes (recovery)			3,733				(186	)
Impairment of non-financial assets (Note 11)			1				5
			2,587				2,942
Changes in non-cash working capital items
Accounts receivable			698				3,311
Inventory			1,522				1,927
Deferred contract costs			(5,434	)			(4,870	)
Prepaids, deposits and other current assets			(1,714	)			(1,216	)
Accounts payable and accrued liabilities			(392	)			(6,449	)
Deferred revenue			(927	)			(221	)
Income taxes payable			(622	)			202
Other liabilities			107				(64	)
			(4,175	)			(4,438	)
Cash flows used for investing activities
Purchase of property and equipment			(351	)			(210	)
Purchase of intangible assets			(134	)			(10	)
			(485	)			(220	)
Cash flows from financing activity
Increase in bank operating loan, net of issuance costs (Note 5)			2,660				7,097
Effect of movements in exchange rates			43				161
Net change in cash			(1,957	)			2,600
Cash, beginning of year			6,794				4,060
Cash, end of year		$	4,837			$	6,660

 

The notes are an integral part of these combined financial statements.

 

5

 

 

Complete Innovations

Notes to the Combined Financial Statements (unaudited)

 

For the Six Months Ended March 31, 2024 and March 31, 2023

(expressed in thousands of Canadian dollars unless otherwise noted, except for amount per share)

 

1.	Summary of Significant Accounting Policies

 

a.	Nature of business

 

Complete Innovations Holdings Inc. and Complete Innovations USA Inc., collectively known as “Complete Innovations” or the “Company”, provide technology-based fleet, asset and mobile workforce monitoring and management solutions.

 

b.	Basis of accounting

 

Complete Innovations has prepared its combined financial statements in accordance with Canadian accounting standards for private enterprises (“ASPE”).

 

c.	Basis of combination

 

The combined financial statements of Complete Innovations include the accounts of Complete Innovations Holdings Inc. and Complete Innovations USA Inc. Complete Innovations Holdings Inc. includes the following wholly owned subsidiaries:

 

	●	Complete Innovations Inc.;
	●	Fleet Complete Coöperatief U.A. and its wholly owned subsidiaries TC Beheer B.V., IT Mobile Spain S.L, Fleet Complete Netherlands B.V. and its wholly owned subsidiaries Fleet Complete Germany GMBH and Complete Innovations AE, and Fleet Complete Belgium BVBA. Fleet Complete Nordics OÜ and its wholly owned subsidiaries Fleet Complete Eesti ÖU, Fleet Complete Denmark ApS, Fleet Complete Norge AS, Fleet Complete Sverige AB, Fleet Complete Latvija SIA and Fleet Complete Lietuva UAB;
	●	Fleet Complete Holdings Australia PTY Ltd. and its wholly owned subsidiary Fleet Complete Australia Pty Ltd.; and
	●	Fleet Complete S. de RL de C.V. and its majority owned subsidiary Centro de Soluciones Inalámbricas, S.A. de C.V.

 

Intercompany balances and transactions are eliminated upon combination and consolidation.

 

d.	Foreign currency translation

 

Foreign currency transactions are translated at the rates of exchange in effect at the dates of the transaction. Resulting foreign currency denominated monetary assets and liabilities are translated at the rates of exchange in effect at the balance sheet date. Gains and losses on translation of monetary assets and liabilities are included in net income.

 

Financial statements of foreign subsidiaries which are considered financially and operationally integrated with the organization are translated into Canadian dollars using the temporal method. Under this method, monetary assets and liabilities denominated in foreign currencies are translated into Canadian dollars at the exchange rate in effect at the balance sheet date. Non-monetary assets are translated at the historical rate of exchange. Revenue and expenses are translated at the rate of exchange prevailing on the transaction date, except for amortization which is translated at exchange rates used in the translation of the relevant asset accounts. Gains and losses on translation are reflected in net income.

 

6

 

 

Complete Innovations

Notes to the Combined Financial Statements (unaudited)

 

For the Six Months Ended March 31, 2024 and March 31, 2023

(expressed in thousands of Canadian dollars unless otherwise noted, except for amount per share)

 

Financial statements of foreign subsidiaries which are considered financially and operationally self-sustaining with the organization are translated into Canadian dollars using the current rate method whereby assets and liabilities are translated at the rate of exchange in effect at the balance sheet date, and revenue and expense items are translated at the rate of exchange prevailing on the transaction date. The resulting exchange differences are classified as accumulated comprehensive loss in equity.

 

e.

Inventory

 

Inventory is stated at the lower of cost and net realizable value with cost generally determined on a first-in, first-out basis. Inventories are written down when it is determined that net realizable value is below cost. When the circumstances that previously caused inventory to be written down below cost no longer exist or when there is clear evidence of an increase in net realizable value because of changed economic circumstances, the amount of the writedown is reversed. The reversal is limited to the lesser of the amount of the original writedown and the current net realizable value. The amount of inventory recognized as an expense and included in cost of revenue was $10,719 (2023 - $10,530).

 

f.	Deferred contract costs

 

Costs consisting of hardware and installation are amortized on a straight-line basis over the expected life of the customer contract which was determined to be a period of 5 years. For contracts that are terminated before the term, the associated and unamortized deferred contract costs are expensed in the period of termination.

 

g.	Property and equipment

 

Property and equipment are recorded at cost less accumulated depreciation. Depreciation based on the estimated useful lives of the assets is as follows:

 

	Computer equipment	20-25%
	Leasehold improvements	term of lease
	Office equipment	20%
	Vehicle	20%

 

h.	Intangible assets

 

Intangible assets with an indefinite life are not amortized. They are tested for impairment when events or circumstances indicate that their carrying amount exceeds their fair value. The impairment test consists of a comparison of the fair value of the unamortized assets with their carrying amount. When the carrying amount exceeds the fair value, an impairment loss is recognized in an amount equal to the excess. Trade name acquired from BigRoad Incorporated is considered indefinite life.

 

Intangible assets are stated at cost less accumulated amortization and are amortized on a straight-line basis over the life of the assets as follows:

 

	Customer relationships	3 – 10 years
	Technology	3 – 5 years
	Trade names	2 – 15 years
	Computer software	1 – 5 years

 

7

 

 

Complete Innovations

Notes to the Combined Financial Statements (unaudited)

 

For the Six Months Ended March 31, 2024 and March 31, 2023

(expressed in thousands of Canadian dollars unless otherwise noted, except for amount per share)

 

i.

Goodwill

 

Goodwill is an asset that represents the future economic benefits arising from other assets acquired in a business combination that are not individually identified and separately recognized. Goodwill is not amortized. Goodwill is tested for impairment whenever events or changes in circumstances indicate that the fair value of the reporting unit to which the goodwill is assigned may be less than its carrying amount. The Company determined that the reporting unit is the consolidated business.

 

j.	Impairment of long-lived assets

 

The Company monitors events and changes in circumstances which may require an assessment of the recoverability of its long-lived assets. If required, the Company would assess recoverability using estimated future undiscounted operating cash flows. If the carrying amount of an asset is not recoverable, an impairment loss is recognized in operations, measured by comparing the carrying amount of the asset to its discounted cash flow value.

 

k.	Revenue recognition

 

Revenue from subscription and maintenance contracts is recognized over the term of the contract when collection is reasonably assured. Amounts paid for contracts in advance of the services being provided are recorded as deferred revenue.

 

Revenue from the sale of hardware and software products is recognized when the goods are delivered to the customer and collection is reasonably assured.

 

Revenue from licenses is recognized upon customer access to the subscribed software application over the terms of the license period. Revenue from warranty services is deferred and amortized on a straight-line basis over the term of the warranty period.

 

The Company also enters into sales that may involve the delivery of multiple products and services. As appropriate, these multiple element arrangements are separated into their component accounting units, consideration is measured and allocated amongst the accounting units based upon their relative fair values (derived using Company-specific objective evidence) and then the Company’s relevant revenue recognition policy is applied to the accounting units.

 

l.	Stock based compensation

 

The Company grants common stock options to its employees and officers under its stock option plans. Stock based compensation plans are accounted for on a fair value basis.

 

The fair value of each option is estimated on the date of grant using the Black-Scholes option pricing model.

 

Stock based compensation costs, measured at grant date based on the fair value of all options granted and recognized over the service period involved, are recorded as expenses on the income statement and credited to contributed surplus. The consideration paid by employees upon exercise of the options and the fair value of the options exercised are added to share capital.

 

8

 

 

Complete Innovations

Notes to the Combined Financial Statements (unaudited)

 

For the Six Months Ended March 31, 2024 and March 31, 2023

(expressed in thousands of Canadian dollars unless otherwise noted, except for amount per share)

 

The Company estimates expected forfeitures, if any, at each reporting period such that on a cumulative basis, the cumulative expense recognized reflects the number of equity instruments that are expected to vest. Where no forfeitures were expected, actual forfeitures are accounted for as they occur by adjusting the stock-based compensation cost to reflect the number of options that are expected to vest.

 

From time to time, the Company makes amendments to its stock option grants. For amendments to both vested and non-vested options that meet the definition of a modification of an option, the incremental fair value between the original option and the modified option are treated as an expense over the vesting period of the modified option.

 

m.	Income taxes

 

The Company applies the future income taxes method of accounting for income taxes. Under this method, future income tax assets and liabilities are determined based on the difference between the carrying amounts of existing assets and liabilities and their respective tax bases. Any change in the net amount of future income tax assets and liabilities is included in income. Future income tax assets and liabilities are determined based on enacted or substantively enacted tax rates and laws which are expected to apply to taxable income for the years in which the assets and liabilities will be recovered. Future income tax assets are recognized when it is more likely than not that they will be realized.

 

n.

Leases

 

Leases are classified as capital or operating leases. A lease that transfers substantially all of the benefits and risks incidental to the ownership of property is classified as a capital lease. At the inception of a capital lease, an asset and an obligation are recorded at an amount equal to the lesser of the present value of the minimum lease payments and the property’s fair value at the beginning of the lease. Assets recorded under capital leases are amortized on a straight-line basis over the term of the lease, which is the estimated useful life of the assets.

 

All other leases are accounted for as operating leases wherein rental payments are expensed on a straight-line basis. The amount by which straight-line rental expense and any inducements received exceeds the minimum rents paid in accordance with the lease agreement is included in deferred rent.

 

o.	Financial instruments

 

Financial instruments are recorded at fair value when acquired or issued and subsequently measured at cost or amortized cost less impairment, if applicable. Financial assets are tested for impairment when changes in circumstances indicate the asset could be impaired. Transaction costs on the acquisition, sale or issue of financial instruments are charged to the financial instrument for those measured at amortized cost.

 

9

 

 

Complete Innovations

Notes to the Combined Financial Statements (unaudited)

 

For the Six Months Ended March 31, 2024 and March 31, 2023

(expressed in thousands of Canadian dollars unless otherwise noted, except for amount per share)

 

p.

Use of estimates

 

The preparation of the financial statements in accordance with ASPE requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Significant estimates include the amortization period of long-lived assets, stock-based compensation, fair values of acquired intangible assets and assessing indicators of impairment of long-lived assets and goodwill. Actual results could differ from management’s best estimates as additional information becomes available in the future.

 

2.

Property and Equipment

 

		March 31, 2024								September 30, 2023
		Cost				Accumulated Depreciation				Cost				Accumulated Depreciation
Computer equipment		$	8,299			$	7,039			$	7,943			$	6,733
Leasehold improvements			1,667				1,487				1,635				1,387
Office equipment			1,014				721				910				658
Vehicle			181				178				176				171
		$	11,161			$	9,425			$	10,664			$	8,949
Net book value						$	1,736							$	1,715

 

10

 

 

Complete Innovations

Notes to the Combined Financial Statements (unaudited)

 

For the Six Months Ended March 31, 2024 and March 31, 2023

(expressed in thousands of Canadian dollars unless otherwise noted, except for amount per share)

 

3.	Intangible Assets

 

		March 31, 2024								September 30, 2023
		Cost				Accumulated Amortization				Cost				Accumulated Amortization
Customer list		$	19,522			$	15,769			$	19,190			$	14,571
Technology			25,401				20,938				25,273				19,622
Trade name			1,322				686				1,290				658
Computer software			13,971				13,472				13,835				12,107
		$	60,216			$	50,865			$	59,588			$	46,958
Net book value						$	9,351							$	12,630

 

4.

Goodwill

 

		March 31, 2024				September 30, 2023
Opening balance		$	44,055			$	41,927
Foreign exchange			638				2,128
Ending balance		$	44,693			$	44,055

 

5.	Bank Operating Loan

 

		March 31, 2024				September 30, 2023
Term loan		$	163,785			$	164,958
Deferred draw term loan			20,644				20,800
Revolving line of credit			19,700				15,700
Less unamortized financing fees			(1,983	)			(2,566	)
		$	202,146			$	198,892
Less current portion			(2,806	)			(2,806	)
Non-current		$	199,340			$	196,086

 

11

 

 

Complete Innovations

Notes to the Combined Financial Statements (unaudited)

 

For the Six Months Ended March 31, 2024 and March 31, 2023

(expressed in thousands of Canadian dollars unless otherwise noted, except for amount per share)

 

Principal repayments over the next five years are as follows:

 

2024	2,806
2025	1,848
2026	199,475

 

On December 16, 2020, the Company refinanced its credit facilities for a five-year term. The terms of all credit facilities as at March 31, 2024 are unchanged from September 30, 2023.   The facilities include the following:

 

Term credit facility

 

A $164,000 (2023 - $164,000) term credit facility bearing interest at either the Canadian Dollar Offered Rate (“CDOR”), to be no less than 1.00%, plus the applicable rate of 6.75% for CDOR loans, or the highest of i) the CIBC prime rate or ii) 30-day CDOR plus 1.00%, plus the applicable rate of 5.75% for Canadian base rate loans. Prior to the Financial Covenant Toggle Date (“FCTD”), if the LQA (Last Quarter Annualized) recurring revenue leverage ratio is greater than 1.00 to 1 but less than 1.25 to 1 then the applicable rate for CDOR loans is 6.50% and the applicable rate for the Canadian base rate loan option is 5.50%, or if the LQA recurring revenue leverage ratio is less than 1.00 to 1 then the applicable rate for CDOR loans is 6.25% and the applicable rate for the Canadian base rate loan option is 5.25%.

 

At the earlier of the Company’s option or December 16, 2024, (the “FCTD”), the interest rates are determined in accordance with the total leverage ratio. If the total leverage ratio is greater than 5.00 to 1 then the applicable rate for CDOR loans is 6.25% and the applicable rate for the Canadian base rate loan option is 5.25%. If the total leverage ratio is greater than 4.00 to 1 but less than 5.00 to 1 then the applicable rate for CDOR loans is 6.00% and the applicable rate for the Canadian base rate loan option is 5.00%, or if the total leverage ratio is less than 4.00 to 1 then the applicable rate for CDOR loans is 5.75% and the applicable rate for the Canadian base rate loan option is 4.75%. The Company exercised its option to set the FCTD at March 31, 2024 and must now maintain a leverage ratio of 6.00 to 1 on a quarterly basis.

 

Effective June 28, 2024, all tenors of the CDOR rate were no longer be published and the Canadian Overnight Repo Rate (“CORRA”) replaced all CDOR-linked products.

 

Principal repayments on this facility are as follows: $410 repayable in quarterly installments beginning on the first full fiscal quarter following the FCTD, which was October 2024, with the remainder repayable on the maturity of the facility on December 16, 2025.

 

As at March 31, 2024, the amount outstanding under this facility is $163,785 (2023 - $164,000).

 

Deferred Draw Term Loan (“DDTL”) facility

 

A $20,800 (2023 - $20,800) DDTL credit facility accessible until June 16, 2022, bearing interest at either the CDOR, to be no less than 1.00%, plus the applicable rate of 6.75% for CDOR loans, or the highest of i) the CIBC prime rate or ii) 30 day CDOR plus 1.00%, plus the applicable rate of 5.75% for Canadian base rate loans. Draws are subject to a $5,000 minimum and compliance with current covenants.

 

12

 

 

Complete Innovations

Notes to the Combined Financial Statements (unaudited)

 

For the Six Months Ended March 31, 2024 and March 31, 2023

(expressed in thousands of Canadian dollars unless otherwise noted, except for amount per share)

 

The DDTL facility is not a revolving credit facility and payments of principal on the DDTL may not be redrawn. Principal repayments on this facility are as follows: $52 repayable in quarterly installments beginning on the first full fiscal quarter following the FCTD with the remainder repayable on the maturity of the facility on December 16, 2025.

 

Beginning on March 17, 2021 the undrawn portion of the DDTL facility was subject to a ticking fee of 1.00% per annum.

 

As at March 31, 2024, the amount outstanding under this facility is $20,644 (2023 - $20,800).

 

Revolving credit facility

 

Revolving credit facility with availability of a maximum revolver facility of $30,000, bearing interest at either the CDOR, to be no less than 1.00%, plus the applicable rate of 4.5% for CDOR loans, or the highest of i) the CIBC prime rate or ii) 30 day CDOR plus 1.00%, plus the applicable rate of 3.5% for Canadian base rate loans.

 

A standby fee is charged on the unused portion of the revolving credit facility of 0.5% per annum. This fee will reduce to 0.375% per annum if, prior to the FCTD the LQA recurring revenue leverage ratio is less than 1.25 to 1 or, after the FCTD the total leverage ratio is not greater than 5:00 to 1.

 

The credit facilities are secured by the Canadian Guarantee and Security Agreement and the US Guarantee and Security Agreement covering all the assets of the Company and assignment of its interest in all property.

 

The credit facilities also require the Company to maintain, prior to the FCTD, a minimum liquidity of at least $10,000 and an LQA recurring revenue leverage ratio of 2.00 to 1 from March 31, 2021 to December 31, 2021, 1.80 to 1 from March 31, 2022 to December 31, 2022 and 1.65 to 1 from March 31, 2024. Following the Company’s option to set the FCTD at March 31, 2024, the Company must now maintain a leverage ratio of 6.00 to 1 on a quarterly basis. The revolver is repayable on the maturity of the facility on December 16, 2025.

 

As at March 31, 2024, the amount outstanding under this facility is $19,700 (2023 - $15,700).

 

13

 

 

Complete Innovations

Notes to the Combined Financial Statements (unaudited)

 

For the Six Months Ended March 31, 2024 and March 31, 2023

(expressed in thousands of Canadian dollars unless otherwise noted, except for amount per share)

 

6.	Income Taxes

 

The Company recorded future income tax assets and future income tax liabilities on the temporary differences between the accounting and tax treatment of items listed below. The tax rate applied to entities within the Company ranges from 25% - 30%.

 

Future income tax assets
		March 31, 2024				September 30, 2023
Operating loss carryforwards			36,513				34,565
Financing costs			111				111
Property, plant and equipment			7,105				6,321
Reserves and other			1,800				1,201
			45,529				42,198
Less: Future income tax asset not recognized			(43,495	)			(36,007	)
Future income tax assets			2,034				6,191

 

Future income tax liabilities
		March 31, 2024				September 30, 2023
Financing costs			(214	)			(279	)
Property, plant and equipment			(5	)			(6	)
Intangible assets			(935	)			(1,269	)
Reserves and other			(3	)			(3	)
Future income tax liabilities			(1,157	)			(1,557	)

 

14

 

 

Complete Innovations

Notes to the Combined Financial Statements (unaudited)

 

For the Six Months Ended March 31, 2024 and March 31, 2023

(expressed in thousands of Canadian dollars unless otherwise noted, except for amount per share)

 

The Company has operating loss carryforwards of approximately $139,273 (2023 - $132,423) which are available to reduce taxable income in future years and future income tax assets are recorded net of an allowance of $39,340 (2023 - $36,007). The operating loss carryforwards will expire as follows.

 

2025		$	-
2026			189
2027			511
2028			630
2029			-
2030			1,024
2031			4,615
2032			981
2035			2,310
2036			4,030
2037			8,289
2038			10,074
2039			13,290
2040			8,206
2041			15,995
2042			19,797
2043			12,756
2044			5,328
no expiry			31,248
		$	139,273

 

15

 

 

Complete Innovations

Notes to the Combined Financial Statements (unaudited)

 

For the Six Months Ended March 31, 2024 and March 31, 2023

(expressed in thousands of Canadian dollars unless otherwise noted, except for amount per share)

 

7.	Share Capital and Contributed Surplus

 

Share Capital

 

The share capital for Complete Innovations Holdings Inc. is as follows:

 

Authorized

 

Unlimited number of Class A Common shares

Unlimited number of Class B Common shares

Unlimited number of Class C-1 Common shares

Unlimited number of Class C-2 Common shares

Unlimited number of Class D Common shares, non-voting, non-dividends receiving, redeemable and retractable at $0.01 per share

One Preferred share, non-voting, cumulative annual dividend of $10

 

		March 31, 2024				September 30, 2023
Issued
10,196,514 Class A Common shares (2023 - 10,196,514)		$	33,718				33,718
4,900,000 Class B Common shares (2023 - 4,900,000)			35,555				35,555
1,544,938 Class C-1 Common shares (2023 - 1,544,938)			20,422				20,422
1 Preferred share (2023 - 1)			-				-
		$	89,695			$	89,695

 

The share capital for Complete Innovations USA Inc. is as follows:

 

Authorized

 

3,000 Common shares

 

		March 31, 2024				September 30, 2023
Issued
20 Common Shares		$	-			$	-

 

Share Option Plan

 

The Company has two Share Option Plans, the legacy Stock Option Plan (the “Legacy Plan”), and a new Stock Option Plan (the “2019 Plan”), together the “Plans”. The aggregate number of common shares available for issuance pursuant to options granted under the Plans is limited to a maximum of 2,546,940 Class C-1 Common shares for the Legacy Plan and 1,000,000 Class C-1 Common shares (formerly Class C Common shares) under the 2019 Plan.

 

16

 

 

Complete Innovations

Notes to the Combined Financial Statements (unaudited)

 

For the Six Months Ended March 31, 2024 and March 31, 2023

(expressed in thousands of Canadian dollars unless otherwise noted, except for amount per share)

 

No further options will be granted under the Legacy Plan. Options are granted under the 2019 Plan at the discretion of the Board of Directors at exercise prices determined by the Board of Directors that is generally equal to the fair market value of the underlying shares on the date of grant. In general, for options granted under the 2019 Plan, 50% of the options shall vest in accordance with time-based conditions and 50% of the options shall vest in accordance with both performance-based and time-based vesting conditions. Time-based vesting under the Legacy Plan is 25% at the first anniversary of the vesting commencement date and the remaining will vest at 1/48 on the last day of each month through the fourth anniversary of the vesting commencement date. Time-based vesting under the 2019 Plan is 25% on each of the first four anniversaries of the grant date. The performance-vesting portion is subject to time and performance vesting and shall only be deemed fully vested to the extent it has both time-vested and performance-vested. Performance vesting options will vest immediately prior to and contingent upon the closing of a transaction based on the achievement of internal rates of return and multiples of invested capital metrics.

 

On July 28, 2022 the Board of Directors approved an option exchange program (the “Exchange Program”) for selected employees. Under the Exchange Program optionees exchanged all of their outstanding options under the 2019 Plan for a new grant of options under the 2019 Plan.

 

Stock options expire no later than 10 years from date of grant.

 

The following is a summary of the option activity during     the year:

 

		March 31, 2024								September 30, 2023
		Number of options				Weighted average exercise price				Number of options				Weighted average exercise price
Balance, beginning of period			1,602,697			$	9.32				1,606,523			$	9.66
Granted			-				-				26,214				4.02
Forfeited			(36,023	)			12.59				(30,040	)			23.10
Balance, end of period			1,566,674			$	9.15				1,602,697			$	9.32
Exercisable, end of period			1,156,843			$	8.81				1,180,303			$	10.52

 

As at March 31, 2024 the range of exercise prices for options outstanding and exercisable is $3.83 - $26.98 (September 30, 2023 - $3.83 - $26.98) with a range of remaining lives of 1 to 10 years (September 30, 2023 - 1 to 10 years).

 

17

 

 

Complete Innovations

Notes to the Combined Financial Statements (unaudited)

 

For the Six Months Ended March 31, 2024 and March 31, 2023

(expressed in thousands of Canadian dollars unless otherwise noted, except for amount per share)

 

The fair value of each option granted to directors, officers and employees is charged to operations over the vesting period and has been estimated at the date of grant using the BlackScholes option pricing model with the following assumptions used:

 

		March 31, 2024				September 30, 2023
Share price		$	4.02			$	4.02
Expected dividend yield			-	%			-	%
Expected volatility			52	%			63	%
Risk free rate of return			3.4	%			4.1	%
Expected option life			5 years				5 years

 

Because no actively traded market existed for the Company’s common shares in these periods, expected volatility was determined by a review of the expected volatility factors disclosed by a sample of publicly available data for technology management solutions related companies of comparable size.

 

The following is a continuity of the stock-based compensation reserve included in contributed surplus for the six months ended March 31, 2024:

 

		March 31, 2024				September 30, 2023
Balance, beginning of period		$	6,666			$	6,030
Stock-based compensation expense during the period			308				636
Balance, end of period		$	6,974			$	6,666

 

8.	Commitments

 

Minimum annual lease payments including operating costs for premises and vehicles are approximately as follows:

 

Year		Amount
2025		$	2,635
2026			2,665
2027			606
		$	5,906

 

18

 

 

Complete Innovations

Notes to the Combined Financial Statements (unaudited)

 

For the Six Months Ended March 31, 2024 and March 31, 2023

(expressed in thousands of Canadian dollars unless otherwise noted, except for amount per share)

 

9.	Financial Instruments, Capital Management and Financial Risks

 

The Company’s activities expose it to a variety of financial risks: credit risk, liquidity risk and market risk (including interest rate and foreign exchange rate risk). Risk management is carried out by the Company’s management team with guidance from the Audit Committee under policies approved by the Board of Directors. The Board of Directors also provides regular guidance for overall risk management.

 

Credit risk

 

Credit risk is the risk that one party to a financial instrument will cause a financial loss for the other party by failing to discharge an obligation. The Company is exposed to credit risk resulting from the possibility that a customer or counterparty to a financial instrument defaults on their financial obligations; if there is a concentration of transactions carried out with the same counterparty; or of financial obligations which have similar economic characteristics such that they could be similarly affected by changes in economic conditions. The Company’s financial instruments that are exposed to concentrations of credit risk relate primarily to cash and accounts receivable.

 

The Company provides credit to its customers in the normal course of its operations. As credit sales represent a significant portion of the Company’s sales activities, the Company limits its exposure to credit risk as the majority of the Company’s accounts receivable are monthly recurring payments from tier 1 North American telecommunications companies. See also Note 10.

 

The Company performed a provision analysis on its accounts receivable and recorded an allowance for doubtful accounts of $3,799 (2023 - $4,816).

 

Market risk

 

Interest rate risk

 

Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The Company is exposed to interest rate risk with respect to its operating bank loans. The Company does not currently hold any financial instruments that might mitigate this risk. A change in interest rates of 100 basis points would increase/decrease cash interest by $2,005 (2023 - $2,005) per annum.

 

Foreign exchange risk

 

Currency risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in foreign exchange rates. The Company realizes a substantial portion of its sales and its cost of sales in US dollars, Euro, Australian dollars and Mexican Pesos. Consequently, certain assets and liabilities are exposed to foreign exchange fluctuations.

 

The Company undertakes certain transactions denominated in foreign currencies and as such is exposed to price risk due to fluctuations in foreign exchange rates. The Company does not use derivative instruments to reduce exposure to foreign exchange risk.

 

19

 

 

Complete Innovations

Notes to the Combined Financial Statements (unaudited)

 

For the Six Months Ended March 31, 2024 and March 31, 2023

(expressed in thousands of Canadian dollars unless otherwise noted, except for amount per share)

 

Balances denominated in foreign currencies that are considered financial instruments are as follows:

 

			March 31, 2024				September 30, 2023
US Dollar
Cash		$	298			$	759
Accounts receivable		$	9,672			$	10,780
Accounts payable and accrued liabilities		$	2,117			$	2,485
Exchange rate per US dollar			1.3542				1.3545
EURO
Cash		€	789			€	1,535
Accounts receivable		€	3,027			€	2,772
Accounts payable and accrued liabilities		€	2,477			€	2,576
Exchange rate per EURO			1.4624				1.4479
Australian Dollar
Cash		A$	705			A$	1,226
Accounts receivable		A$	3,905			A$	2,484
Accounts payable and accrued liabilities		A$	3,487			A$	2,335
Exchange rate per AUD			0.8824				0.8705
Mexican Peso
Cash		M$	1,710			M$	5,587
Accounts receivable		M$	33,833			M$	25,414
Accounts payable and accrued liabilities		M$	11,736			M$	13,732
Exchange rate per MXP			0.0818				0.0784

 

Liquidity risk

 

Liquidity risk is the risk that the Company encounters difficulty in meeting its obligations associated with financial liabilities. Liquidity risk includes the risk that, as a result of operational liquidity requirements, the Company will not have sufficient funds to settle a transaction on the due date; will be forced to sell financial assets at a value which is less than what they are worth; or may be unable to settle or recover a financial asset. Liquidity risk arises from operating bank loans, accounts payable and accrued liabilities, other liabilities and commitments. The Company monitors its operating bank loans and cash flows available for when the loan is due. Due to the availability of the Company’s revolver facility as described in Note 5, management does not believe this represents a significant risk to the Company.

 

20

 

 

Complete Innovations

Notes to the Combined Financial Statements (unaudited)

 

For the Six Months Ended March 31, 2024 and March 31, 2023

(expressed in thousands of Canadian dollars unless otherwise noted, except for amount per share)

 

10.	Major Customers

 

Approximately 39% (2023 - 43%) of the Company’s revenues are derived from two (2023 - two) distribution channels whereby two major North American telecommunications companies purchase the Company’s solution to resell to the ultimate end user. Accounts receivable from these telecommunications companies comprise approximately 45% (2023 - 49%) of the total accounts receivable balance.

 

11.	Other Corporate Expenses

 

The Company’s other corporate expenses are summarized as follows:

 

Six months ended March 31,		2024				2023
Transformation costs		$	174				245
Severance related expenses			993				472
Gain (loss) on disposal of assets			(3	)			5
Reserve for contract impairments			40				(23	)
Other professional fees			299				251
Loss (gain) from contract settlement			84				-
Other corporate (income) expenses			248				191
		$	1,835			$	1,141

 

21

 

 

Complete Innovations

Notes to the Combined Financial Statements

 

For the Six Months Ended March 31, 2024 and March 31, 2023

(expressed in thousands of Canadian dollars unless otherwise noted, except for amount per share)

 

12.	Reconciliation to United States generally accepted accounting principles

 

These combined financial statements for six months ended March 31, 2024 and 2023 have been prepared in accordance with ASPE which differs in certain respects from generally accepted accounting principles in the United States (“U.S. GAAP”).

 

The following is a summary of material adjustments to net earnings for the six months ended March 31, 2024 and 2023 and shareholders’ deficiency as of March 31, 2024 and September 30, 2023, necessary to reconcile those to net earnings and shareholders’ deficiency determined in accordance with U.S. GAAP.

 

Reconciliation of net loss under ASPE to U.S. GAAP

 

		Six months ended March 31, 2024				Six months ended March 31, 2023
Net loss as reported under ASPE		$	(12,350	)		$	(8,128	)
Adjustments:
Operating lease expense (a)			1,982				(81	)
Revenue (b), (c)			9,631				9,969
Direct costs (b)			(4,558	)			(4,412	)
Amortization of deferred contract costs (b)			6,418				6,239
Selling, general and administrative expenses (b), (c), (d), (e)			(11,030	)			(13,232	)
Depreciation of property and equipment (b)			(441	)			(414	)
Deferred income tax benefit (f)			52				383
Net loss under U.S. GAAP		$	(10,296	)		$	(9,676	)

 

Reconciliation of shareholders’ deficiency under ASPE to U.S. GAAP

 

		As at March 31, 2024				As at September 30, 2023
Shareholders’ equity (deficiency) as reported under ASPE		$	(100,569	)		$	(89,511	)
Adjustments:
Operating lease assets (a)			4,057				3,264
Operating lease liabilities (a)			(4,385	)			(5,466	)
Deferred rent (a)			173				66
Deferred contract costs (b)			(27,818	)			(28,700	)
Property and equipment (b)			3,352				2,797
Contract assets (receivable) (b)			16,681				18,505
Deferred revenue – current (b)			2,784				2,808
Contract cost asset (sales commissions) (d)			10,648				10,184
Warranty liability (e)			(868	)			(821	)
Deferred income tax assets (liabilities) (f)			(477	)			(529	)
Shareholders’ equity (deficiency) under U.S. GAAP		$	(96,422	)		$	(87,403	)

 

22

 

 

Complete Innovations

Notes to the Combined Financial Statements

 

For the Six Months Ended March 31, 2024 and March 31, 2023

(expressed in thousands of Canadian dollars unless otherwise noted, except for amount per share)

 

Notes to U.S. GAAP adjustments:

 

a)

Operating leases

 

In Complete Innovations combined financial statements, lease rentals related to operating leases were recognized in net earnings over the lease term on a straight-line basis. No assets or liabilities were recognized on the balance sheet.

 

Under U.S. GAAP, assets and liabilities are recognized on the balance sheet for the rights and obligations created by operating leases and the operating lease expense is recognized on a straight-line basis over the term of the lease. Deferred rent is not recognized separately from the right of use asset and lease liability, thus historical deferred rent was eliminated from the financial statements.

 

The following adjustments were made to the balance sheet:

 

		As at March 31, 2024				As at September 30, 2023
Recognition of right-of-use asset		$	4,057			$	3,264
Recognition of lease liability			(4,385	)			(5,466	)
Reversal of deferred rent from other liabilities			173				66
Net impact to accumulated deficit		$	(155	)		$	(2,136	)

 

The following adjustments were made to the statements of operations and deficit:

 

		Six months ended March 31, 2024				Six months ended March 31, 2023
Reversal of historical lease expense under ASPE		$	774			$	844
Recognition of lease expense under U.S. GAAP			(787	)			(925	)
Gain of lease modification under U.S. GAAP			1,995				-

 

23

 

 

Complete Innovations

Notes to the Combined Financial Statements

 

For the Six Months Ended March 31, 2024 and March 31, 2023

(expressed in thousands of Canadian dollars unless otherwise noted, except for amount per share)

 

b)

Bundled sales

 

In Complete Innovations combined financial statements, hardware was not identified as a separate performance obligation when recognizing revenue for bundled agreements, which include subscription services to fleet management solutions, hardware and accessories, and installation. Consequently, no transaction price was allocated to hardware transferred but the cost of the hardware transferred was being deferred as Deferred contract costs and amortized over the contract term (including anticipated contracts).

 

Under U.S. GAAP, hardware has been identified as a separate performance obligation that is satisfied at a point in time when control is transferred to the customer. Hence, hardware revenue is recognized when control is transferred to the customer, with a related contract asset, rather than deferring revenue over a period.

 

The following adjustments were made to the statements of operations and deficit:

 

		Six months ended March 31, 2024				Six months ended March 31, 2023
Decrease in amortization of deferred contract costs (*)		$	6,418			$	6,239
Increase in direct costs (*)			(4,558	)			(4,412	)
Decrease (Increase) in revenue			1,800				2,503
Increase in selling, general and administrative expenses			(16	)			(615	)
Increase in depreciation of property and equipment			(441	)			(414	)

 

* The adjustment represents impact of reversal of amortization of hardware costs deferred under ASPE and recognition of cost of hardware transferred as per US GAAP.

 

The following adjustments were made to the balance sheet:

 

		As at March 31, 2024				As at September 30, 2023
Reversal of deferred hardware costs – current		$	(10,273	)		$	(10,059	)
Reversal of deferred hardware costs			(17,545	)			(18,641	)
Recognition of Property and equipment, net (leased hardware)			3,352				2,797
Recognition of contract assets			16,681				18,505
Reversal of deferred revenue – current			2,784				2,808
Net impact to accumulated deficit		$	(5,001	)		$	(4,590	)

 

24

 

 

Complete Innovations

Notes to the Combined Financial Statements

 

For the Six Months Ended March 31, 2024 and March 31, 2023

(expressed in thousands of Canadian dollars unless otherwise noted, except for amount per share)

 

c)

Principal v. agent determination in contracts with customers

 

Complete Innovations was identified as a principal in certain contracts with customers entered into through third party intermediaries under U.S. GAAP. Consequently, revenue was recognized at a gross amount that Complete Innovations expects to be entitled to for providing such goods and services and related agency commissions were recognized as commission expenses within selling, general and administrative expenses. This adjustment led to a grossing-up of revenue and selling, general and administrative expenses by $11,431 for the six months ended March 31, 2024, and $12,472 for the six months ended March 31, 2023.

 

d)

Costs to acquire contracts with customers

 

In Complete Innovations combined financial statements, sales commissions were expensed as incurred. No assets were recognized on the balance sheet.

 

Under U.S. GAAP, a contract cost asset is recognized for the incremental costs of obtaining the contract if an entity expects to recover those costs through future fees from the customers which is then amortized over the contract period, including anticipated contracts.

 

The following adjustments were made to the statements of operations and deficit:

 

		Six months ended March 31, 2024				Six months ended March 31, 2023
Reversal of historical commission expense under ASPE		$	2,585			$	1,866
Recognition of commission expense under US GAAP			(2,121	)			(2,098	)
Selling, general and administrative expenses (net impact)		$	464			$	(232	)

 

The following adjustments were made to the balance sheet:

 

		As at March 31, 2024				As at September 30, 2023
Recognition of contract cost asset		$	10,648			$	10,184
Impact to accumulated deficit		$	10,648			$	10,184

 

25

 

 

Complete Innovations

Notes to the Combined Financial Statements

 

For the Six Months Ended March 31, 2024 and March 31, 2023

(expressed in thousands of Canadian dollars unless otherwise noted, except for amount per share)

 

e)

Warranties

 

In Complete Innovations historical combined financial statements, warranties were expensed as incurred. No liabilities pertaining to warranties were recognized on the balance sheet.

 

Under U.S. GAAP, the estimated costs of an assurance-type warranty are generally recorded as a liability when the entity transfers the good or service to the customer. These estimates are derived from historical data and trends of costs of repairing and replacing defective products.

 

The following adjustments were made to the statements of operations and deficit:

 

		Six months ended March 31, 2024				Six months ended March 31, 2023
Recognition of warranty (expense) recovery under U.S. GAAP		$	(47	)		$	87
Selling, general, and administrative expenses (net impact)		$	(47	)		$	87

 

The following adjustments were made to the balance sheet:

 

		As at March 31, 2024				As at September 30, 2023
Recognition of warranty liability		$	(868	)		$	(821	)
Impact to accumulated deficit		$	(868	)		$	(821	)

 

f)

Deferred income taxes

 

U.S. GAAP uses the asset and liability method whereby deferred income tax assets and liabilities are recognized for temporary differences between financial statement carrying amounts of assets and liabilities and their respective income tax bases. The income tax adjustment reflects the impact on income taxes of the U.S. GAAP adjustments described in this footnote.

 

The following adjustments were made to the statements of operations and deficit:

 

		Six months ended March 31, 2024				Six months ended March 31, 2023
Deferred tax benefit		$	52			$	383

 

The following adjustments were made to the balance sheet:

 

		As at March 31, 2024				As at September 30, 2023
Recognition of deferred tax liability		$	(477	)		$	(529	)
Impact to accumulated deficit		$	(477	)		$	(529	)

 

26

 

 

Complete Innovations

Notes to the Combined Financial Statements (unaudited)

 

For the Six Months Ended March 31, 2024 and March 31, 2023

(expressed in thousands of Canadian dollars unless otherwise noted, except for amount per share)

 

g)

Cash flow impact

 

The above adjustments are not expected to lead to any differences necessary to reconcile cash flows as per ASPE to the cash flows determined in accordance with U.S. GAAP.

 

13.	Subsequent Events

 

Golden Eagle LP, the Company’s ultimate parent, is the registered and beneficial owner of all of the issued and outstanding common shares in the capital of Golden Eagle Canada Holdings, Inc., a corporation formed under the laws of the Province of Ontario (“Canada Holdco”), and such common shares, the “Canada Holdco Securities”), and all of the issued and outstanding shares of common stock in the capital of Golden Eagle Holdings, Inc., a corporation formed under the laws of the State of Delaware (“US Holdco”, and such shares of common stock, the “US Holdco Securities”); (ii) US Holdco is the registered and beneficial owner of all of the issued and outstanding shares in the capital of Complete Innovations Corp., a corporation formed under the laws of the State of Delaware (“CIC”) and CIC is the registered and beneficial owner of all of the issued and outstanding common shares of Complete Innovations USA Inc. and (iii) Golden Eagle LP and Canada Holdco are the registered and beneficial owners of all of the issued and outstanding class A common shares in the capital of Complete Innovations Holdings Inc. (the “Class A Shares”), a corporation formed under the laws of the Province of Ontario (“CIH” and, together with Canada Holdco and US Holdco, the “Acquired Entities”); (iv) CIC is the registered and beneficial owner of all of the issued and outstanding class B common shares in the capital of CIH (the “Class B Shares”); (v) the other sellers are collectively the registered and beneficial owners of all of the issued and outstanding Class C Shares and, together with the Class A Shares and Class B Shares, the “CIH Securities”); and (vi) the 30% Rule Designee is the registered and beneficial owner of the CIH Preferred Share.

 

On October 1, 2024, Golden Eagle LP sold the US Holdco Securities held by it to Powerfleet Inc. (Nasdaq: AIOT) and the Canada Holdco Securities and Class A Shares held by it to Powerfleet Canada Holdings Inc. a wholly owned subsidiary of Powerfleet Inc. (collectively, “Powerfleet”) and each other seller sold the Class C Shares held by such other seller to Powerfleet Canada Holdings Inc. (collectively, the “Purchased Securities”), in each case upon the terms and subject to the conditions of the Share Purchase Agreement (the “Powerfleet Transaction”).

 

As a result of the Powerfleet Transaction, the Acquired Entities became indirect, wholly owned subsidiaries of Powerfleet Inc., repaid all of its credit facilities and cancelled the Share Option Plans.

 

Prior to the closing of the Powerfleet Transaction, on September 30, 2024, the two Canadian companies, Complete Innovations Holdings Inc. and Complete Innovations Inc. amalgamated and continue to operate as Complete Innovations Inc. The minority interests held by Complete Innovations Inc. in Fleet Complete Coöperatief U.A. and Fleet Complete S. de RL de C.V. were transferred to a newly incorporated wholly owned subsidiary, 1001020321 Ontario Inc., prior to the amalgamation.

 

27

 

 

Exhibit 99.3

 

UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION

 

On October 1, 2024 (the “Acquisition Date”), Powerfleet, Inc. (“Powerfleet” or the “Company”) and Powerfleet Canada Holdings Inc., a wholly owned subsidiary of the Company (“Canadian SPV” and, together with the Company, the “Purchasers”), completed the acquisition of Fleet Complete (as defined below) contemplated by the Share Purchase Agreement, dated as of September 18, 2024 (as amended, the “Purchase Agreement”), from Golden Eagle Topco, LP (“Golden Eagle LP”) and the persons that are party thereto under the heading “Other Sellers” (the “Other Sellers” and, together with Golden Eagle LP, the “Sellers”).

 

Pursuant to the Purchase Agreement, the Purchasers acquired all the direct and indirect common shares in the capital of Golden Eagle Canada Holdings, Inc. (“Canada Holdco”) and Complete Innovations Holdings Inc. (“CIH”), and all the issued and outstanding shares of common stock of Golden Eagle Holdings, Inc. (together with Canada Holdco and CIH, hereinafter referred to as “Fleet Complete”), in exchange for an aggregate purchase price of $194 million, with $21 million of the purchase price paid by the issuance of 4,285,714 shares of the Company’s common stock and the remainder paid in cash (the “FC Acquisition”).

 

The FC Acquisition will be accounted for as a business combination in accordance with accounting principles generally accepted in the United States of America (“US GAAP”) (pursuant to Accounting Standards Codification Topic 805, Business Combinations (“ASC 805”)), with Powerfleet treated as the “accounting acquirer”. As a result of the FC Acquisition, Powerfleet controls Fleet Complete as it beneficially owns 100% of the outstanding share capital of Fleet Complete. The unaudited pro forma condensed combined financial statements were prepared in accordance with the acquisition method of accounting. Under the acquisition method of accounting, the purchase price is allocated to the identifiable tangible and intangible assets acquired and liabilities assumed based on their respective estimated fair values with any excess purchase price allocated to goodwill. Significant estimates and assumptions were used in determining the estimated purchase price and the preliminary purchase price allocation reflected in the unaudited pro forma condensed combined financial statements. The process of valuing the net assets of Fleet Complete immediately prior to the business combination for purposes of presentation within this unaudited pro forma condensed combined financial information is preliminary. As the unaudited pro forma condensed combined financial statements have been prepared based on these preliminary estimates, the final amounts recorded may differ materially from the information presented.

 

The following unaudited pro forma condensed combined financial information is presented to illustrate the estimated effects of the FC Acquisition, the MiX Telematics Combination (as defined below), and the Financings (as defined below).

 

The unaudited pro forma condensed combined balance sheet as of September 30, 2024 is based upon and derived from the historical consolidated financial statements of the Company and combined financial information of CIH and Complete Innovations USA, Inc. (together, “Fleet Complete OpCos”) and gives effect to the FC Acquisition as if it had occurred on September 30, 2024. The financial statements of Canada Holdco, CIH and Golden Eagle Holdings, Inc. are not included in this filing as their business operations are immaterial and have no impact on the pro forma condensed combined balance sheets and statements of operations and comprehensive loss presented in this filing. The unaudited pro forma condensed combined statements of operations and comprehensive loss for the year ended March 31, 2024, and the six months ended September 30, 2024 are also based upon and derived from the historical financial information of the Company (as described in more detail below) and Fleet Complete OpCos and give effect to the FC Acquisition as if it had occurred on April 1, 2023. In addition, the unaudited pro forma condensed combined balance sheet information as of September 30, 2024 and the unaudited pro forma condensed combined statements of operations and comprehensive loss for the year ended March 31, 2024 and the six months ended September 30, 2024 are also based upon and derived from the historical financial information of MiX Telematics Proprietary Limited (formerly known as MiX Telematics Limited, “MiX Telematics”), which was combined with the Company on April 2, 2024 (the “MiX Telematics Combination” and, together with the FC Acquisition, the “Transactions”). The unaudited pro forma condensed combined statements of operations and comprehensive loss for the year ended March 31, 2024 were adjusted to give effect to MiX Telematics Combination as if it had occurred on April 1, 2023.

 

The MiX Telematics Combination was a significant business acquisition as defined by Rule 3-05 and Article 11 of Regulation S-X, and, as a result, the Company filed with the Securities and Exchange Commission (“SEC”) an S-1/A on December 5, 2024, which included historical audited financial statements of MiX Telematics as of and for the years ended March 31, 2024 and 2023 and unaudited pro forma condensed combined financial statements giving effect to the MiX Telematics Combination as of and for the year ended December 31, 2023 and for the three months ended March 31, 2024. Because both the FC Acquisition and the MiX Telematics Combination were deemed significant business acquisitions during the periods covered by unaudited pro forma condensed combined financial information, the pro forma information required by Item 9.01 of Form 8-K have been presented on a disaggregated basis due to the material nature of each such transaction.

 

On May 8, 2024, Powerfleet’s Board of Directors approved a change in its fiscal year end from December 31 to March 31. Therefore, on August 22, 2024, Powerfleet filed with the SEC a Transition Report on Form 10-KT for the transition period ended March 31, 2024. Powerfleet and Fleet Complete OpCos had different fiscal year ends, March 31, 2024 and September 30, 2023, respectively. The unaudited pro forma condensed combined statement of operations and comprehensive loss for the year ended March 31, 2024 has been prepared using Powerfleet’s unaudited consolidated statements of operations and comprehensive loss for the year ended March 31, 2024 (calculated by adding the three months ended March 31, 2024 to and deducting the three months ended March 31, 2023 from the consolidated statements of operations and comprehensive loss for the year ended December 31, 2023) and Fleet Complete OpCos’ unaudited combined statements of income and comprehensive loss for the year ended March 31, 2024 (calculated as the audited combined statement of income and comprehensive loss for the year ended September 30, 2023 less the unaudited combined statement of income and comprehensive loss for the six months ended March 31, 2023 plus the combined unaudited statement of income and comprehensive loss for the six months ended March 31, 2024). The unaudited pro forma condensed combined statement of operations and comprehensive loss for the six months ended September 30, 2024 has been presented using Powerfleet’s unaudited consolidated statements of operations and comprehensive loss for the six months ended September 30, 2024 and Fleet Complete OpCos’ unaudited combined statements of income and comprehensive loss for the six months ended June 30, 2024 (calculated by deducting the unaudited combined statement of income and comprehensive loss for the three months ended December 31, 2023, from the unaudited combined statement of income and comprehensive loss for the nine months ended June 30, 2024). Fleet Complete OpCos’ unaudited combined statements of income and comprehensive loss for the three months ended March 31, 2024 are overlapping in the unaudited pro forma condensed combined statements of operations and comprehensive loss for the year ended March 31, 2024 and the six months ended June 30, 2024. The overlapping period includes revenue of $ 30.5 million and net loss of $ 6 million for the three months ended March 31, 2024 (refer to Note 9). The unaudited pro forma condensed combined balance sheet information as of September 30, 2024 has been prepared using Powerfleet’s unaudited consolidated balance sheet as of September 30, 2024 and Fleet Complete OpCos’ unaudited combined balance sheet as of June 30, 2024.

 

Furthermore, Fleet Complete OpCos have been historically preparing and presenting its financial information in accordance with Accounting Standards for Private Enterprises (“ASPE”) while Powerfleet’s financial information follows US GAAP. As such, the unaudited pro forma condensed combined balance sheet information as of September 30, 2024 and the unaudited pro forma condensed combined statements of operations and comprehensive loss for the year ended March 31, 2024 and the six months ended September 30, 2024 have been prepared by adjusting the historical combined financial information of Fleet Complete OpCos from ASPE to US GAAP. For more detail, refer to Note 8.

 

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The following unaudited pro forma condensed combined financial information has been prepared in accordance with Article 11 of Regulation S-X, as amended by the final rule, Release No. 33-10786 “Amendments to Financial Disclosures about Acquired and Disposed Businesses”. Article 11 of Regulation S-X provides requirements to depict the accounting for the transaction (“Transaction Accounting Adjustments”) and the option to present reasonably estimable synergies and other transaction effects that have occurred or are reasonably expected to occur (“Management’s Adjustments”). Powerfleet has elected not to present Management’s Adjustments in the unaudited pro forma condensed combined financial statements. The results set forth in the unaudited pro forma condensed combined financial information include adjustments that give effect to events that are directly attributable to the FC Acquisition.

 

In connection with the MiX Telematics Combination, Powerfleet raised new net debt funding of $102.7 million (the “MiX Debt Funding”) in order to fully redeem all of its outstanding Series A convertible preferred stock (the “Series A preferred stock”). On April 2, 2024, the Series A preferred stock was redeemed in full for $90.3 million, which was funded with the proceeds raised from the MiX Debt Funding.

 

In connection with the FC Acquisition, Powerfleet, together with I.D. Systems, Inc. (“IDSY”) and Movingdots GmbH (“Movingdots”), each a wholly owned subsidiary of the Company, entered into a Facility Agreement (the “Facility Agreement”) with FirstRand Bank Limited (acting through its Rand Merchant Bank division) (“RMB”) on September 27, 2024. Pursuant to the Facility Agreement, RMB agreed to provide the Company with a term loan facility in an aggregate principal amount of $125 million (the “RMB Term Facility”) that was drawn down on October 1, 2024. The proceeds of the RMB Term Facility were used by the Company to pay a portion of the purchase price for the FC Acquisition.

 

Further, on September 18, 2024, the Company entered into a Subscription Agreement with various accredited investors, pursuant to which the Company issued an aggregate of 20,000,000 shares of the Company’s common stock at a price per share of $3.50 for aggregate gross proceeds of $70 million (the “Private Placement”). The majority of these capital proceeds funded the remaining portion of the purchase price of the FC Acquisition. Pro forma adjustments related to the MiX Debt Funding, the RMB Term Facility and the Private Placement (collectively, the “Financings”) are presented in a separate column as “other transaction accounting adjustments” in the pro forma financial information.

 

The unaudited pro forma condensed combined financial statements should be read in conjunction with the accompanying notes to the unaudited pro forma financial information and:

 

	●	Powerfleet’s historical financial statements and accompanying notes included in the Quarterly Report on Form 10-Q for the six months ended September 30, 2024;
	●	Powerfleet’s historical financial statements and accompanying notes included in the Transition Report on Form 10-KT for the transition period from January 1, 2024 to March 31, 2024;
	●	Powerfleet’s historical financial statements and accompanying notes included in the Annual Report on Form 10-K for the year ended December 31, 2023;
	●	Powerfleet’s historical financial statements and accompanying notes included in the Quarterly Report on Form 10-Q for the three months ended March 31, 2023;
	●	Fleet Complete OpCos’ audited combined financial statements and accompanying notes for the year ended September 30, 2023, included in this Form 8-K;
	●	Fleet Complete OpCos’ unaudited combined financial statements and accompanying notes for the six months ended March 31, 2023, included in this Form 8-K;
	●	Fleet Complete OpCos’ unaudited combined financial statements and accompanying notes for the six months ended March 31, 2024, included in this Form 8-K; and
	●	MiX Telematics’ historical financial statements and accompanying notes for the year ended March 31, 2024, included in Powerfleet’s Registration Statement on Form S-1 (File No. 333-283536).

 

The pro forma financial information is presented for illustrative purposes only and does not necessarily reflect what the combined company’s financial position or results of operations would have been had the Transactions and the related financings occurred on the dates indicated. They also may not be useful in predicting the future financial condition and results of operations of the combined company. The unaudited pro forma condensed combined financial statements do not include the realization of any cost savings from operating efficiencies, synergies or other activities, or the recognition of any cost increases or dis-synergies that might result from the Transactions. The Company’s actual financial condition and results of operations may differ significantly from the pro forma amounts reflected herein due to a variety of factors.

 

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Unaudited Pro Forma Condensed Combined Balance Sheet as of September 30, 2024

(In thousands, except share and per share data)

 

		Powerfleet, Inc. (includes MiX Telematics from April 2, 2024)				Fleet Complete OpCos (as of June 30, 2024) (Note 8)				Transaction Accounting Adjustments				Note 5 Ref.				Other Transaction Accounting Adjustments				Note 6 Ref.				Pro Forma Combined
ASSETS
Current assets:
Cash and cash equivalents			25,962				3,143				(110,604	)			5(A)				127,985				6(A), 6(B)				46,486
Restricted cash			63,074				-				(61,851	)			5(A)				-								1,223
Accounts receivable			64,819				20,928				-								-								85,747
Inventory, net			23,488				5,883				-								-								29,371
Deferred costs - current			13				-				-								-								13
Prepaid expenses and other current assets			17,985				7,942				-								-								25,927
Total current assets			195,341				37,896				(172,455	)							127,985								188,767
Fixed assets, net			51,928				3,610				-								-								55,538
Goodwill			300,283				32,406				46,570				5(B)				-								379,259
Intangible assets, net			167,320				5,841				95,909				5(C)				-								269,070
Right of use asset			9,402				2,613				292				5(D)				-								12,307
Severance payable fund			3,864				-				-								-								3,864
Deferred tax asset			3,602				1,492				-								-								5,094
Other assets			16,595				14,193				(7,833	)			5(C)				-								22,955
Total assets			748,335				98,051				(37,517	)							127,985								936,854
LIABILITIES
Current liabilities:
Short-term bank debt and current maturities of long-term debt			35,339				-				-								-								35,339
Accounts payable and accrued expenses			66,098				14,500				17,246				5(E)				-								97,844
Deferred revenue – current			10,447				4,296				-								-								14,743
Lease liability – current			2,248				1,025				-								-								3,273
Total current liabilities			114,132				19,821				17,246								-								151,199
Long-term debt - less current maturities			111,011				148,802				(148,802	)			5(F)				123,557				6(A)				234,568
Deferred revenue - less current portion			4,674				-				-								-								4,674
Lease liability - less current portion			7,713				1,910				-								-								9,623
Accrued severance payable			4,677				-				-								-								4,677
Deferred tax liability			52,113				1,228				-								-								53,341
Other long-term liabilities			2,905				636				-								-								3,541
Total liabilities			297,225				172,397				(131,556	)							123,557								461,623
STOCKHOLDERS’ EQUITY
Common stock			1,096				65,488				(65,445	)			5(G)				200				6(B)				1,339
Additional paid-in capital			641,736				12,087				9,213				5(A), 5(G)				4,228				6(B)				667,264
Accumulated deficit			(178,996	)			(154,824	)			153,174				5(G)				-								(180,646	)
Accumulated other comprehensive loss			(1,364	)			2,903				(2,903	)			5(G)				-								(1,364	)
Treasury stock			(11,518	)			-				-								-								(11,518	)
Non-controlling interest			156				-				-								-								156
Total equity			451,110				(74,346	)			94,039								4,428								475,231
Total liabilities and stockholders’ equity			748,335				98,051				(37,517	)							127,985								936,854

 

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Unaudited Pro Forma Condensed Combined Statement of Operations and Comprehensive Loss for six months ended September 30, 2024

(In thousands, except share and per share data)

 

		Powerfleet, Inc. (includes MiX Telematics from April 2, 2024)				Fleet Complete OpCos (six months ended June 30, 2024) (Note 8)				Transaction Accounting Adjustments				Note 5 Ref.				Other Transaction Accounting Adjustments				Note 6 Ref.				Pro Forma Combined
Revenues:
Products			39,031				10,037				-								-								49,068
Services			113,417				51,312				-								-								164,729
Total revenues			152,448				61,349				-								-								213,797
Cost of revenues:
Cost of products			26,680				7,154				-								-								33,834
Cost of services			44,777				13,116				5,172				5(C)				-								63,065
Gross profit			80,991				41,079				(5,172	)							-								116,898
Operating expenses:																											-
Selling, general and administrative expenses			92,117				32,371				(1,627	)			5(H)				-								122,861
Research and development expenses			6,536				5,376				-								-								11,912
Total operating expenses			98,653				37,747				(1,627	)							-								134,773
Loss from operations			(17,662	)			3,332				(3,545	)							-								(17,875	)
Interest income			472				-				-								-								472
Interest expense, net			(6,733	)			(8,732	)			8,732				5(I)				(6,583	)			6(C)				(13,316	)
Other (expense) income, net			1,050				(1,134	)			-								-								(84	)
Net loss before income taxes			(22,873	)			(6,534	)			5,187								(6,583	)							(30,803	)
Income tax expense			(1,309	)			(2,994	)			(1,363	)			5(J)				1,517				6(D)				(4,149	)
Net loss before non-controlling interest			(24,182	)			(9,528	)			3,824								(5,066	)							(34,952	)
Non-controlling interest			(18	)			-				-								-								(18	)
Net loss			(24,200	)			(9,528	)			3,824								(5,066	)							(34,970	)
Preferred stock dividends			(25	)			-				-								-								(25	)
Net loss attributable to common stockholders			(24,225	)			(9,528	)			3,824								(5,066	)							(34,995	)
Basic and diluted earnings per share			(0.23	)																							(0.27	)
Weighted average common shares outstanding – basic and diluted (‘000) - Powerfleet			107,335								4,286				5(G)				20,000				6(B)				131,621

 

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Unaudited Pro Forma Condensed Combined Statement of Operations and Comprehensive Loss for the year ended March 31, 2024

(In thousands, except share and per share data)

 

		Powerfleet, Inc.				MiX Telematics				Reclassifications – Note 7(H)				Transaction Accounting Adjustments (MiX Telematics)				Note 7 Ref.		Other Transaction Accounting Adjustments (MiX Telematics)				Note 7 Ref.		Pro Forma Combined (Adjusted for MiX Telematics Combination)				Fleet Complete OpCos (Note 8)				Transaction Accounting Adjustments				Note 5 Ref.		Other Transaction Accounting Adjustments				Note 6 Ref.		Pro Forma Combined
Revenues:
Products			49,313				21,600								-						-						70,913				17,439				-						-						88,352
Services			85,311				130,680								-						-						215,991				100,812				-						-						316,803
Total revenues			134,624				152,280								-						-						286,904				118,251				-						-						405,155
Cost of revenues:																											-																				-
Cost of products			36,916				14,628								-						-						51,544				12,301				-						-						63,845
Cost of services			31,003				45,405								4,228			7(A)			-						80,636				25,537				9,745			5(C)			-						115,918
Gross profit			66,705				92,247				-				(4,228	)					-						154,724				80,413				(9,745	)					-						225,392
Operating expenses:																											-																				-
Selling, general and administrative expenses			76,144				-				75,695				3,427			7(B)			-						155,266				59,957				428			5(H)			-						215,651
Research and development expenses			8,675				-				6,118				-						-						14,793				11,005				-						-						25,798
Sales and marketing							14,239				(14,239	)			-						-						-				-				-						-						-
Administration and other			-				67,574				(67,574	)			-						-						-				-				-						-						-
Total operating expenses			84,819				81,813				-				3,427						-						170,059				70,962				428						-						241,449
Loss from operations			(18,114	)			10,434				-				(7,655	)					-						(15,335	)			9,451				(10,173	)					-						(16,057	)
Interest income			338				1,142								-						-						1,480				-				-						-						1,480
Interest expense, net			(2,174	)			(2,347	)							-						(9,474	)		7(E)			(13,995	)			(18,092	)			18,092			5(I)			(12,910	)		6(C)			(26,905	)
Bargain purchase - Movingdots			1,800				-								-						-						1,800				-				-						-						1,800
Other (expense) income, net			(87	)			(179	)							-						-						(266	)			(3,939	)			-						-						(4,205	)
Net loss before income taxes			(18,237	)			9,050				-				(7,655	)					(9,474	)					(26,316	)			(12,580	)			7,919						(12,910	)					(43,887	)
Income tax expense			(549	)			(6,465	)							894			7(C)			(279	)		7(F)			(6,399	)			(3,343	)			(2,512	)		5(J)			2,976			6(D)			(9,278	)
Net loss before non-controlling interest			(18,786	)			2,585				-				(6,761	)					(9,753	)					(32,715	)			(15,923	)			5,407						(9,934	)					(53,165	)
Non-controlling interest			(49	)			-								-						-						(49	)			-				-						-						(49	)
Net loss			(18,835	)			2,585				-				(6,761	)					(9,753	)					(32,764	)			(15,923	)			5,407						(9,934	)					(53,214	)
Accretion of preferred stock			(15,480	)			-								-						15,480			7(G)			-				-				-						-						-
Preferred stock dividends			(4,514	)			-								-						4,514			7(G)			-				-				-						-						-
Net loss attributable to common stockholders			(38,829	)			2,585				-				(6,761	)					10,241						(32,764	)			(15,923	)			5,407						(9,934	)					(53,214	)
Basic and diluted earnings per share			(1.08	)																							(0.30	)																			(0.40	)
Weighted average common shares outstanding – basic and diluted (‘000) - Powerfleet			35,813												72,073			7(D)									107,886								4,286			5(G)			20,000			6(B)			132,172

 

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Notes to Unaudited Pro Forma Condensed Combined Financial Information

 

Note 1 – Description of the transaction

 

On October 1, 2024, Powerfleet entered into the Purchase Agreement to acquire Fleet Complete. Pursuant to the terms of the Purchase Agreement, Powerfleet acquired all of the issued and outstanding share capital of Fleet Complete in exchange for a payment of an aggregate purchase price of $194 million. Of this purchase price, $21 million was satisfied by the issuance of 4,285,714 shares of Powerfleet common stock and the remainder of $173 million was paid in cash.

 

In connection with the FC Acquisition, Powerfleet, together with IDSY and Movingdots, entered into the Facility Agreement with RMB on September 27, 2024, pursuant to which RMB agreed to provide the Company with a term loan facility in an aggregate principal amount of $125 million. The proceeds of the RMB Term Facility were used by the Company to pay a portion of the purchase price for the FC Acquisition.

 

On September 18, 2024, the Company entered into a Subscription Agreement with various accredited investors, pursuant to which the Company issued an aggregate of 20,000,000 shares of the Company’s common stock at a price per share of $3.50 for aggregate gross proceeds of $70 million. The majority of such capital proceeds funded the remaining portion of the purchase price of the FC Acquisition.

 

On April 2, 2024, Powerfleet consummated the MiX Telematics Combination, resulting in Powerfleet issuing 70,704,110 shares of Powerfleet common stock to acquire 554,020,612 MiX Telematics ordinary shares, net of treasury shares, based on the shares in issue at April 2, 2024.

 

In connection with the MiX Telematics Combination, Powerfleet raised new net debt funding of $102.7 million in order to fully redeem all of its outstanding Series A preferred stock. On April 2, 2024, concurrently with the consummation of the MiX Telematics Combination, the Series A preferred stock was redeemed in full for $90.3 million, which was funded with the proceeds raised from the MiX Debt Funding.

 

Additionally, certain of Fleet Complete’s historical debt was repaid by Powerfleet in connection with the FC Acquisition.

 

Note 2 – Basis of presentation

 

The unaudited pro forma condensed combined financial information and related notes are prepared in accordance with Article 11 of Regulation S-X, as amended by the final rule, Release No. 33-10786 “Amendments to Financial Disclosures about Acquired and Disposed Businesses”.

 

The FC Acquisition will be accounted for under the acquisition method of accounting for business combinations pursuant to the provisions of ASC 805 with Powerfleet treated as the “accounting acquirer”. As a result of the FC Acquisition, Powerfleet controls Fleet Complete as it beneficially owns 100% of the outstanding share capital of Fleet Complete. Under the acquisition method of accounting, the estimated purchase price will be allocated to Fleet Complete’s assets acquired and liabilities assumed based upon their estimated fair values, using the fair value concepts defined in ASC Topic 820, Fair Value Measurement, at the Acquisition Date. Any excess of consideration transferred over the preliminary estimate of the fair value of identified assets acquired and liabilities assumed will be recognized as goodwill. Significant judgment is required in determining the preliminary fair values of identified intangible assets, property, plant and equipment, inventories, certain other assets, and assumed liabilities. These preliminary valuations of assets acquired, and liabilities assumed are determined using market, income and cost approaches from the perspective of a market participant, which requires estimates and assumptions including, but not limited to, estimating future cash flows in addition to developing the appropriate market discount rates and obtaining available market pricing for comparable assets. The final valuation may materially change the allocation of the purchase price, which could materially affect the fair values assigned to the assets and liabilities and could result in a material change to the unaudited pro forma condensed combined financial information.

 

The historical audited and unaudited consolidated financial statements of Powerfleet were prepared in accordance with US GAAP and presented in U.S. dollars. The historical audited combined financial statements and unaudited condensed combined financial statements of Fleet Complete OpCos were prepared in accordance with ASPE and shown in Canadian dollars. The financial statements of Canada Holdco, CIH and Golden Eagle Holdings, Inc. are not included in this filing as their business operations are immaterial and have no impact on the pro forma condensed combined balance sheets and statements of operations and comprehensive loss presented in this filing. Certain translation adjustments and reclassifications have been made in order to align the historical presentation of Fleet Complete OpCos to Powerfleet. Refer to Note 8 for such adjustments.

 

The following unaudited pro forma condensed combined financial information presents the combination of the financial information of Powerfleet and Fleet Complete OpCos adjusted to give effect to the FC Acquisition and other events contemplated by the Purchase Agreement as described herein. The unaudited pro forma condensed combined balance sheet as of September 30, 2024 combines the historical balance sheets of Powerfleet and Fleet Complete OpCos on a pro forma basis assuming the FC Acquisition and related financings had been consummated on September 30, 2024. The unaudited pro forma condensed combined statements of income for the six months ended September 30, 2024 and the year ended March 31, 2024 combines the historical statements of income of Powerfleet and Fleet Complete OpCos on a pro forma basis assuming the FC Acquisition and related financings as if they had occurred on April 1, 2023, the beginning of the earliest period presented.

 

In addition, the unaudited pro forma condensed combined balance sheet information as of September 30, 2024 and the unaudited pro forma condensed combined statements of operations and comprehensive loss for the year ended March 31, 2024 and the six months ended September 30, 2024 are also based upon and derived from the historical financial information of MiX Telematics, which was combined with the Company on April 2, 2024 (transactions happening from April 1, 2024 to April 2, 2024 were immaterial). The unaudited pro forma condensed combined statements of operations and comprehensive loss for the year ended March 31, 2024 was adjusted to give effect to MiX Telematics Combination as if it had occurred on April 1, 2023.

 

The unaudited pro forma condensed combined financial information is not necessarily indicative of what the actual results of operations and financial position would have been had the Transactions taken place on the dates indicated, nor are they indicative of the future consolidated results of operations or financial position of Powerfleet and they are based on the information available at the time of their preparation. Actual results may differ materially from the assumptions within the unaudited pro forma condensed combined financial information.

 

The unaudited pro forma condensed combined financial statements are intended to provide information about the impact of the Transactions as if it had been consummated earlier. The pro forma adjustments are based on available information and certain assumptions that management believes are factually supportable and are expected to have an impact on Powerfleet’s results of operations. In the opinion of management, all adjustments necessary to present fairly the unaudited pro forma condensed combined financial statements have been made.

 

Accounting policies and reclassification

 

For the purposes of preparing the unaudited pro forma condensed combined financial information, Powerfleet conducted a preliminary review of Fleet Complete OpCos’ accounting policies to identify significant differences. Based on its preliminary review, management identified certain accounting policy differences that were presented within the US GAAP adjustments (Note 8) and also certain reclassification adjustments to conform Fleet Complete OpCos’ historical financial statements presentation to Powerfleet’s financial statement presentation. Management will perform a comprehensive review of Fleet Complete OpCos’ accounting policies. As a result of the review, management may identify differences between the accounting policies or financial statement classifications of the two businesses which, when conformed, could have a material impact on the consolidated financial statements of Fleet Complete OpCos and Powerfleet.

 

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Note 3 – Consideration transferred

 

Powerfleet acquired the issued share capital of Fleet Complete on October 1, 2024, in exchange for a payment of an aggregate purchase price of $194 million. Of this purchase price, $21 million was satisfied by the issuance of 4,285,714 shares of Powerfleet common stock to Ontario Teachers’ Pension Plan Board (“OTPP”), which was an existing indirect shareholder of Fleet Complete. The remainder of $173 million was paid in cash.

 

The following table presents the preliminary estimate of the fair value of the consideration transferred for the FC Acquisition (in thousands):

 

Cash consideration to former shareholders (a)		$	16,225
Share consideration paid to the seller (b)			21,343
Escrow (c)			3,848
Indebtedness payoff (d)			152,382
Total consideration transferred		$	193,798

 

Notes:

 

a)

Represents amounts paid to existing shareholders of $16,225.

 

b)

Represents Powerfleet’s common stock to be issued to an affiliate of OTPP, a former shareholder of Fleet Complete.

 

Number of shares issued to OTPP			4,285,714
Powerfleet’s share price as of October 1, 2024		$	4.98
Share consideration transferred		$	21,343

 

	c)	Represents amount deposited in Escrow account of $3,848.
	d)	Represents repayment of Fleet Complete’s existing debt of $152,382.

 

Note 4 – Preliminary purchase price allocation

 

The allocation of the estimated purchase price with respect to the FC Acquisition is based upon management’s estimates of and assumptions related to the fair values of assets to be acquired and liabilities to be assumed as of September 30, 2024, using currently available information. Since the unaudited pro forma condensed combined financial statements have been prepared based on these preliminary estimates, the estimated fair value of the purchase consideration and the final purchase price allocation and the resulting effect on Powerfleet’s financial position and results of operations may differ materially from the pro forma amounts included herein.

 

The following table summarizes the preliminary allocation of the estimated purchase price as of September 30, 2024:

 

(in thousands)
Assets acquired			Estimated fair value
Cash and cash equivalents		$	3,143
Accounts receivable			20,928
Inventory			5,883
Prepaid expenses and other current assets			7,942
Fixed assets			3,610
Intangible assets			101,750
Right of use asset			2,905
Deferred tax asset			1,492
Other assets			6,360
Total assets acquired (a)		$	154,013
Liabilities assumed
Accounts payable and accrued expenses			30,096
Deferred revenue - current			4,296
Lease liability - current			1,025
Lease liability - non-current			1,910
Deferred tax liability			1,228
Other long-term liabilities			636
Total liabilities assumed (b)		$	39,191
Total assets acquired in excess of liabilities assumed (c) = (a) – (b)		$	114,822
Total consideration transferred (d)		$	193,798
Goodwill (d) – (c)		$	78,976

 

The preliminary purchase price allocation reflects the adjustment to historical intangible assets acquired by Powerfleet to their estimated fair values. As part of the preliminary valuation analysis, identified intangible assets included trade names, developed technology and customer relationships.

 

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This preliminary purchase price allocation has been used to prepare the transaction accounting adjustments in the unaudited pro forma condensed combined balance sheet and unaudited pro forma condensed combined statement of operations and comprehensive loss presented above statement of income. The final purchase price allocation will be determined when Powerfleet has completed the detailed valuations and necessary calculations. The estimated purchase price of the FC Acquisition has been allocated on a preliminary basis to the acquired tangible and identifiable intangible assets and assumed liabilities based on management’s current estimate of fair value with the excess cost over net tangible and identifiable intangible assets acquired being determined as goodwill. Management retained the services of a third party to assist in the preliminary valuation of the identifiable intangible assets acquired. These allocations are subject to change pending a final determination of the purchase price of Fleet Complete, the identification of additional acquired assets and assumed liabilities and the allocation of the final purchase price to the fair value of acquired assets and assumed liabilities. The completion of Powerfleet’s accounting for the FC Acquisition, including assessing accounting policies for conformity, the determination of final purchase price, the identification of acquired assets and assumed liabilities, the allocation of the final purchase price to the fair value of acquired assets and assumed liabilities and changes in the amortization periods of amortizable assets will cause differences from the information presented herein and those differences may be material.

 

Note 5 – Transaction accounting adjustments

 

The pro forma adjustments included in the unaudited pro forma condensed combined financial information are as follows (amounts in thousands):

 

	(A)	Represents the consideration transferred for the acquisition of Fleet Complete of $193,798, which includes cash of $172,455 and $21,343 paid through issued shares according to Note 3.
	(B)	Represents the elimination of $32,406 of existing goodwill of Fleet Complete and the preliminary recognition of $78,976 of goodwill arising out of the FC Acquisition.
	(C)	Represents the elimination of $3,091 of existing intangible assets of Fleet Complete, leaving a remaining intangible asset of $2,750 related to computer software. Represents the preliminary recognition of $99,000 of intangible assets attributable to the FC Acquisition. Additionally, represents the elimination of $7,833 of capitalized sales commissions in other assets, because this is already included in customer relationships as part of the purchase price allocation adjustment.

 

The following table summarizes the preliminary estimated fair values of Fleet Complete’s identifiable intangible assets as of the acquisition date, and their estimated useful lives, along with the estimated amortization expense calculated using the straight-line method of amortization:

 

(in thousands)		Estimated fair value				Estimated useful life in years				Six months ended September 30, 2024 amortization expense				Year ended March 31, 2024 amortization expense
Trade names		$	4,000				4.5			$	444			$	889
Developed technology			25,000				5.5				2,273				4,545
Customer relationships			70,000				9.5				3,684				7,369
Total identifiable intangible assets and related amortization		$	99,000							$	6,401			$	12,803
Total historical amortization recorded											(1,229	)			(3,058	)
Transaction accounting adjustments to amortization										$	5,172			$	9,745

 

These preliminary estimates of fair value and estimated useful lives will likely differ from final amounts determined after completing a detailed valuation analysis, and the difference could have a material effect on the accompanying unaudited pro forma condensed combined financial statements.

 

(D)

Reflects remeasurement of right-of-use assets (including the related fair value adjustments) on the consummation of FC Acquisition.

 

	(E)	Represents accrual of Powerfleet’s non-recurring transaction costs of $1,650 related to the FC Acquisition including fees expected to be paid for financial advisory services, legal services, and professional accounting services. $4,685 of non-recurring transaction costs have already been incurred and included in the historical information in selling, general and administrative expenses for the six months ended September 30, 2024. In addition, $15,596 of transaction costs were incurred by Fleet Complete to effect the sale and were assumed by Powerfleet.
	(F)	Represents the settlement of Fleet Complete debt with a carrying value of $148,802, which will be extinguished upon consummation of the FC Acquisition pursuant to the terms of the Purchase Agreement.

 

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(G)

Stockholders’ equity includes the following adjustments (amounts in thousands):

 

	1.	Adjustment to common stock of $43 and additional paid-in capital of $21,300 to recognize estimated consideration transferred through issue of Powerfleet’s common shares based on the closing share price of $4.98 on October 1, 2024 as mentioned in Note 3 above.
	2.	Adjustment to accumulated deficit of $1,650 related to the transaction costs liability to be paid by Powerfleet as part of the closing of the FC Acquisition as mentioned in Note (E) above.
	3.	Elimination of historical Fleet Complete share capital, additional paid-in capital, accumulated deficit and other equity reserves amounting to $74,346:

 

Elimination of historical equity accounts of Fleet Complete		$	65,488
Elimination of historical additional paid-in capital of Fleet Complete			12,087
Accumulated deficit			(154,824	)
Accumulated other comprehensive loss			2,903
Total		$	(74,346	)

 

4.

Pro forma earnings per share data is based on the weighted-average shares outstanding of Powerfleet common stock for the period presented and assumes the issuance of 4,285,714 shares of Powerfleet common stock to OTPP. Powerfleet’s historical earnings per share is computed based on the allocation of Powerfleet’s net income/ (loss) attributable to common shareholders divided by the weighted-average common shares outstanding under the two-class method.

 

(H)

Selling, general and administrative expenses for the six months ended September 30, 2024 and year ended March 31, 2024 includes the following adjustments (in thousands):

 

		Six months ended September 30, 2024				Year ended March 31, 2024
Recognition of the estimated new lease expense		$	633				1,848
Reversal of historical leases operating expenses			(677	)			(1,352	)
Reversal of historical gain on lease remeasurement			-				1,407
Transaction costs related to the acquirer (Note 5(E))			-				1,650
Reversal of capitalized sales commissions*			(1,583	)			(3,125	)
Total		$	(1,627	)			428

 

* The adjustment to reverse amortization of other assets relates to the preliminary purchase price allocation adjustment to remove the Fleet Complete OpCo’s historical capitalized commissions included in other assets (Note 5(C)).

 

(I)

Interest expense, net for the six months ended September 30, 2024 and year ended March 31, 2024 includes the following adjustments (in thousands):

 

		Six months ended September 30, 2024				Year ended March 31, 2024
Reversal of interest expense on indebtedness paid off (Note 3)		$	8,732				18,092
Total		$	8,732				18,092

 

(J)

Tax expense on the transaction accounting adjustments at the effective tax rate of 26.25% is $1,363 and $2,512 for the six months ended September 30,2024 and the year ended March 31, 2024, respectively.

 

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Note 6 – Other transaction accounting adjustments

 

(A)

Powerfleet raised new net debt funding under the RMB Term Facility of $125,000 (or $123,557, net of deferred financing charges fees of $1,443) in order to finance the purchase price for the FC Acquisition. Borrowings under the RMB Term Facility will mature in five years and will bear interest based on SOFR+ 5% per annum.

 

The debt was presented as current and non-current as follows (in thousands):

 

Short-term bank debt and current maturities of long-term debt		$	-
Long-term debt, less current maturities			123,557
Total		$	123,557

 

The net increase in cash on hand reflects the new debt of $125,000 incurred to finance the purchase of Fleet Complete, less $1,443 of debt issuance costs.

 

(In thousands)
Gross proceeds on issuance of new debt		$	125,000
Less: Debt structuring fees			(1,443	)
Cash on hand		$	123,557

 

(B)

On September 18, 2024, Powerfleet also entered into a Subscription Agreement with various accredited investors to raise $70,000 (or $66,279, net of fees of $3,721) through the Private Placement of an aggregate of 20,000,000 shares of Powerfleet’s common stock at a price of $3.50 to fund a portion of the purchase price. The adjustment represents $4,428 of proceeds received on October 1, 2024 (including $61,851 received by September 30, 2024 that was included in Restricted Cash as of September 30, 2024 (as presented in Note 5(A))) and subsequently used to fund a portion of the purchase price.

 

(C)

Represents the net increase to interest expense resulting from interest on the RMB Term Facility to finance the FC Acquisition.

 

(In thousands)		Six months ended September 30, 2024				Year ended March 31, 2024
Interest expense on RMB Term Facility		$	6,583				12,910
Total		$	6,583				12,910

 

(D)

Tax benefit on the additional withholding tax on interest related to funding raised at the effective tax rate of 23.05% is $1,517 and $2,976 for the six months ended September 30, 2024 and the year ended March 31, 2024, respectively.

 

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Note 7 – Pro Forma adjustments pertaining to acquisition of MiX Telematics included in the unaudited pro forma condensed combined statement of operations and comprehensive loss for the year ended March 31, 2024

 

The following table summarizes the preliminary estimated fair values of MiX Telematics’ identifiable intangible assets, as of April 2, 2024 and their estimated useful lives, along with the estimated amortization expense calculated using the straight-line method of amortization:

 

(in thousands)		Estimated fair value				Estimated useful life in years				Year ended March 31, 2024 amortization expense
Trade names		$	10,000				14			$	714
Developed technology			30,000				5				6,000
Customer relationships			113,000				13				8,692
Total identifiable intangible assets and related amortization		$	153,000							$	15,406
Total historical amortization recorded											(6,201	)
Transaction accounting adjustments to amortization										$	9,205

 

These preliminary estimates of fair value and estimated useful lives will likely differ from final amounts determined after completing a detailed valuation analysis, and the difference could have a material effect on the accompanying unaudited pro forma condensed combined financial statements.

 

Transaction accounting adjustments:

 

The pro forma adjustments included in the unaudited pro forma condensed combined financial information are as follows (amounts in thousands):

 

(A)

The pro forma adjustment to cost of services includes the following:

 

	1.	Elimination of historical amortization of intangibles of $6,201 and recognition of amortization of intangibles identified in the MiX Telematics Combination of $15,406.
	2.	Elimination of historical amortization of capitalized commissions of $4,977.

 

(B)

The pro forma adjustments to selling, general, and administrative expense includes the following:

 

	1.	Elimination of historical amortization of capitalized commissions of $917.
	2.	Acceleration of compensation cost of $2,528 related to Powerfleet stock options and restricted stock, which were accelerated on consummation of MiX Telematics Combination.
	3.	Recognition of compensation costs of $2,926 pertaining to the replacement Powerfleet awards granted to existing MiX Telematics employees and the reversal of historical compensation costs of $1,110 related to the MiX Telematics awards being replaced.

 

	(C)	Tax effects at the South African tax rate of 27% on amortization of intangible assets and reversal of other assets.
	(D)	At the acquisition date, Powerfleet issued 70,704,110 shares in exchange of MiX Telematics ordinary shares outstanding, and 1,368,567 shares as part of the acceleration of Powerfleet stock options and restricted stock.
	Other transaction accounting adjustments:
	(E)	The pro forma adjustments to interest expense, net include the interest expense of $9,181 and the debt restructuring cost of $293 related to the MiX Debt Funding of $103,800 (or $102,669, net of fees of $1,131) raised by Powerfleet in order to fully redeem all its outstanding Series A convertible preferred stock.
	(F)	Tax effects on the additional interest related to funding raised.
	(G)	The redemption of all Powerfleet’s outstanding Series A convertible preferred stock is assumed to take place on April 1, 2023; therefore, the related accretion of preferred stock of $15,480 and preferred stock dividends of $4,514 for the year ended March 31, 2024 has been reversed.
	(H)	Reclassifications have been made to MiX Telematics’ audited consolidated statement of income for the years ended March 31, 2024 to conform the presentation to Powerfleet’s accounting policies for:

 

	1.	research and development expenses included in administration and other expenses presented separately by Powerfleet; and
	2.	combine sales and marketing expenses and administration and other expenses to conform to the Powerfleet presentation.

 

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Note 8 – Reclassification and US GAAP Adjustments

 

Fleet Complete OpCos’ historical financial statements have been prepared in accordance with ASPE, which differs in certain material respects from US GAAP. In order to prepare pro forma financial statements, Fleet Complete OpCos’ historical financial statements have been adjusted to reflect Fleet Complete OpCos’ consolidated statements of operations and statement of financial position on a US GAAP basis by recording appropriate adjustments (“US GAAP adjustments”).

 

During the preparation of this unaudited pro forma condensed combined financial information, management performed a preliminary review of Fleet Complete OpCos’ financial information to identify US GAAP adjustments, differences in accounting policies and financial statement presentation as compared to those of Powerfleet. At the time of preparing the unaudited pro forma condensed combined financial information, Powerfleet was not aware of any material differences other than the adjustments described herein. However, Powerfleet will continue to perform its detailed review of Fleet Complete OpCos’ accounting policies, including convergence of its accounting policies to US GAAP. Upon completion of that review, differences may be identified between the accounting policies of the two businesses that, when confirmed, could have a material impact on the unaudited pro forma condensed combined financial information.

 

Unaudited Combined Historical Balance Sheet as of June 30, 2024

(In thousands, except share and per share data)

 

		Historical				Reclassification Adjustments (Note g)				Subtotal				US GAAP Adjustments				Notes		Fleet Complete OpCos				Fleet Complete OpCos (Note h)
		CAD				CAD								CAD						CAD				USD
ASSETS
Current assets:
Cash and cash equivalents			4,304								4,304				-						4,304				3,143
Restricted cash			-								-				-						-				-
Accounts receivable			28,658								28,658				-						28,658				20,928
Inventory, net			8,056								8,056				-						8,056				5,883
Deferred costs - current			10,273								10,273				(10,273	)		(b)			-				-
Prepaid expenses and other current assets			2,711				203				2,914				7,962			(b)			10,876				7,942
Income taxes recoverable			203				(203	)			-				-						-				-
Total current assets			54,205				-				54,205				(2,311	)					51,894				37,896
Fixed assets, net			1,592								1,592				3,352			(b)			4,944				3,610
Goodwill			44,375								44,375				-						44,375				32,406
Intangible assets, net			7,999								7,999				-						7,999				5,841
Right of use asset			-								-				3,578			(a)			3,578				2,613
Deferred tax asset			-				2,043				2,043				-						2,043				1,492
Future income tax assets			2,043				(2,043	)			-				-						-				-
Deferred contract costs			17,697				(17,697	)			-				-						-				-
Other assets			-				17,697				17,697				1,737			(b), (d)			19,434				14,193
Total Assets			127,911				-				127,911				6,356						134,267				98,051
LIABILITIES AND STOCKHOLDERS’ EQUITY
Accounts payable and accrued expenses			19,842				13				19,855				-						19,855				14,500
Deferred revenue - current			8,979								8,979				(3,096	)		(b)			5,883				4,296
Short-term bank debt and current maturities of long-term debt			-								-				-						-				-
Income taxes payable			13				(13	)			-				-						-				-
Lease liability - current			-								-				1,404			(a)			1,404				1,025
Total current liabilities			28,834				-				28,834				(1,692	)					27,142				19,821
Long-term debt - less current maturities			203,762								203,762				-						203,762				148,802
Deferred revenue - less current portion			-								-				-						-				-
Lease liability - less current portion			-								-				2,616			(a)			2,616				1,910
Deferred tax liability			-				975				975				706			(f)			1,681				1,228
Future income tax liability			975				(975	)			-				-						-				-
Other long-term liabilities			288								288				583			(a), (e)			871				636
Total liabilities			233,859				-				233,859				2,213						236,072				172,397
Stockholder’s equity
Preferred stock			-								-				-						-				-
Common stock			89,676								89,676				-						89,676				65,488
Additional paid-in capital			16,552								16,552				-						16,552				12,087
Accumulated deficit			(216,225	)							(216,225	)			4,218			(a), (b), (d), (e), (f)			(212,007	)			(154,824	)
Accumulated other comprehensive loss			4,049								4,049				(75	)		(b)			3,974				2,903
Total stockholders’ equity			(105,948	)			-				(105,948	)			4,143						(101,805	)			(74,346	)
Total liabilities and stockholders’ equity			127,911				-				127,911				6,356						134,267				98,051

 

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Unaudited Combined Historical Statement of Comprehensive Income (Loss) for the six months ended June 30, 2024

(In thousands, except share and per share data)

 

		Historical				Reclassification Adjustments (Note g)				Subtotal				US GAAP adjustments				Notes		Fleet Complete OpCos				Fleet Complete OpCos (Note h)
		CAD				CAD								CAD						CAD				USD
Revenue:
Revenue			72,646				(72,646	)			-				-						-				-
Revenue from Products							6,169				6,169				7,465			(b)			13,634				10,037
Revenue from Services							66,477				66,477				3,221			(b), (c)			69,698				51,312
Total revenue			72,646				-				72,646				10,686						83,332				61,349
Cost of revenue:
Cost of products			-				10,924				10,924				(1,207	)		(b)			9,717				7,154
Cost of services			-				17,174				17,174				642			(b)			17,816				13,116
Direct costs			19,715				(19,715	)			-				-						-				-
Amortization of deferred contract costs			6,714				(6,714	)			-				-						-				-
			26,429				1,669				28,098				(565	)					27,533				20,270
Gross profit			46,217				(1,669	)			44,548				11,251						55,799				41,079
Operating expenses:
Selling, general and administrative expenses			9,968				23,018				32,986				10,984			(a), (c), (d) (e)			43,970				32,371
Research and development expenses			7,278				25				7,303				-						7,303				5,376
Operations expenses			9,630				(9,630	)			-				-						-				-
General and administrative expenses			11,283				(11,283	)			-				-						-				-
			38,159				2,130				40,289				10,984						51,273				37,747
Profit from operations			8,058				(3,799	)			4,259				267						4,526				3,332
Depreciation of property and equipment			(298	)			298				-				-						-				-
Amortization of intangible assets			(3,087	)			3,087				-				-						-				-
Foreign exchange (income) loss			(105	)			105				-				-						-				-
Interest and financing fees on bank operating loan			(11,861	)			11,861				-				-						-				-
Stock based compensation			(309	)			309				-				-						-				-
Other corporate expenses			(1,540	)			1,540				-				-						-				-
Interest expense, net			-				(11,861	)			(11,861	)			-						(11,861	)			(8,732	)
Other (expense) income, net			-				(1,540	)			(1,540	)			-						(1,540	)			(1,134	)
			(17,200	)			3,799				(13,401	)			-						(13,401	)			(9,866	)
Net loss before income taxes			(9,142	)			-				(9,142	)			267						(9,003	)			(6,534	)
Current income taxes (recovery)			(138	)			138				-				-						-				-
Future income taxes (recovery)			(3,732	)			3,732				-				-						-				-
Income tax expense							(3,870	)			(3,870	)			(197	)		(f)			(4,067	)			(2,994	)
			(3,870	)			-				(3,870	)			(197	)					(4,067	)			(2,994	)
Net loss			(13,012	)			-				(13,012	)			70						(12,942	)			(9,528	)

 

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Unaudited Adjusted Historical Statement of Comprehensive Income (Loss) for the year ended March 31, 2024

(In thousands, except share and per share data)

 

		Historical				Reclassification Adjustments (Note g)				Subtotal				US GAAP adjustments				Notes		Fleet Complete OpCos				Fleet Complete OpCos (Note h)
		CAD				CAD								CAD						CAD				USD
Revenue:
Revenue			141,987				(141,987	)			-				-						-				-
Revenue from Products			-				10,945				10,945				12,580			(b)			23,525				17,439
Revenue from Services			-				131,042				131,042				4,951			(b), (c)			135,993				100,812
Total Revenue			141,987				-				141,987				17,531						159,518				118,251
Cost of revenue:
Cost of products			-				20,205				20,205				(3,611	)		(b)			16,594				12,301
Cost of services			-				33,293				33,293				1,156			(b)			34,449				25,537
Direct costs			36,448				(36,448	)			-				-						-				-
Amortization of deferred contract costs			12,924				(12,924	)			-				-						-				-
			49,372				4,126				53,498				(2,455	)					51,043				37,838
Gross profit			92,615				(4,126	)			88,489				19,986						108,475				80,413
Operating expenses:
Selling, general and administrative expenses			19,358				41,953				61,311				19,569			(a), (c), (d) (e)			80,880				59,957
Research and development expenses			14,797				49				14,846				-						14,846				11,005
Operations expenses			17,874				(17,874	)			-				-						-				-
General and administrative expenses			20,215				(20,215	)			-				-						-				-
			72,244				3,913				76,157				19,569						95,726				70,962
Profit from operations			20,371				(8,039	)			12,332				417						12,749				9,451
Depreciation of property and equipment			(885	)			885				-				-						-				-
Amortization of intangible assets			(6,962	)			6,962				-				-						-				-
Foreign exchange (income) loss			418				(418	)			-				-						-				-
Interest and financing fees on bank operating loan			(24,406	)			24,406				-				-						-				-
Stock-based compensation			(610	)			610				-				-						-				-
Other corporate expenses			(5,313	)			5,313				-				-						-				-
Interest income			-								-				-						-				-
Interest expense, net			-				(24,406	)			(24,406	)			-						(24,406	)			(18,092	)
Other (expense) income, net			-				(5,313	)			(5,313	)			-						(5,313	)			(3,939	)
			(37,758	)			8,039				(29,719	)			-						(29,719	)			(22,031	)
Net loss before income taxes			(17,387	)			-				(17,387	)			417						(16,970	)			(12,580	)
Current income taxes (recovery)			(495	)			495				-				-						-				-
Future income taxes (recovery)			(3,998	)			3,998				-				-						-				-
Income tax expense							(4,493	)			(4,493	)			(17	)		(f)			(4,510	)			(3,343	)
			(4,493	)			-				(4,493	)			(17	)					(4,510	)			(3,343	)
Net loss			(21,880	)			-				(21,880	)			400						(21,480	)			(15,923	)

 

14 | Page

 

Notes to US GAAP adjustments:

 

a)

Operating leases

 

In Fleet Complete OpCos’ historical consolidated financial statements, lease rentals related to operating leases were recognized in net earnings over the lease term on a straight-line basis. No assets or liabilities were recognized on the balance sheet.

 

Under US GAAP, assets and liabilities are recognized on the balance sheet for the rights and obligations created by operating leases and the operating lease expense is recognized on a straight-line basis over the term of the lease. Deferred rent is not recognized separately from the right of use asset and lease liability, thus historical deferred rent was eliminated from the financial statements.

 

The following adjustments were made to the balance sheet:

 

(CAD in thousands)		As of June 30, 2024
Recognition of right-of-use asset			3,578
Recognition of current lease liability			(1,404	)
Recognition of non-current lease liability			(2,616	)
Reversal of deferred rent from other liabilities			285
Net impact to accumulated deficit			(157	)

 

The following adjustments were made to the statements of comprehensive income (loss):

 

(CAD in thousands)		Six months ended June 30, 2024				Year ended March 31, 2024
Reversal of historical lease expense under ASPE			(810	)			(1,509	)
Recognition of lease expense under US GAAP			919				1,824
Gain on remeasurement under US GAAP			-				(1,898	)
Selling, general and administrative expenses (Net impact)			109				(1,583	)

 

b)

Bundled sales

 

In Fleet Complete OpCos’ historical consolidated financial statements, hardware was not identified as a separate performance obligation when recognizing revenue for bundled agreements, which include subscription services to fleet management solutions, hardware and accessories, and installation. Consequently, no transaction price was allocated to hardware transferred but the cost of the hardware transferred was being deferred as Deferred contract costs and amortized over the contract term (including anticipated contracts).

 

Under US GAAP, hardware is identified as a separate performance obligation that is satisfied at a point in time when control is transferred to the customer. Hence, hardware revenue is recognized when control is transferred to the customer, with a related contract asset, rather than deferring revenue over a period.

 

The following adjustments were made to the statements of consolidated income (loss):

 

(CAD in thousands)		Six months ended June 30, 2024				Year ended March 31, 2024
Increase in Revenue from products			7,465				12,580
Decrease in Revenue from services			(7,975	)			(16,521	)
Decrease in Cost of products*			(1,207	)			(3,611	)
Increase in Cost of services*			642				1,156

 

* The adjustments represent reversal of amortization of hardware costs deferred under ASPE and recognition of cost of hardware transferred and depreciation of hardware costs leased as per US GAAP.

 

The following adjustments were made to the balance sheet:

 

(CAD in thousands)		As of June 30, 2024
Reversal of deferred hardware costs – current			(10,273	)
Reversal of deferred hardware costs (other assets)			(17,697	)
Recognition of fixed assets, net*			3,352
Recognition of contract assets – current (prepaid expenses and other current assets)			7,962
Recognition of contract assets – non-current (other assets)			8,708
Reversal of deferred revenue – current**			3,096
Recognition of CTA in accumulated comprehensive income			75
Net impact to accumulated deficit			(4,777	)

 

* The adjustment represents the recognition of fixed assets for hardware operating lease arrangements with customers.

 

** Fleet Complete OpCos received cash upfront for certain hardware transferred through channel partners under bundled sales arrangements. Such amounts were recognized as deferred revenue under ASPE but recognized as revenue on date of hardware transfer under US GAAP.

 

c)

Principal v. agent determination in contracts with customers

 

Fleet Complete was identified as a principal in contracts with customers entered into through third party intermediaries under US GAAP. Consequently, revenue was recognized at a gross amount that Fleet Complete expects to be entitled to for providing such goods and services and related agency commissions were recognized as commission expenses within selling, general and administrative expenses. This adjustment led to grossing-up of revenue and selling, general and administrative expenses by CAD 11,196 for the six months ended June 2024 and CAD 21,472 for the year ended March 31, 2024.

 

15 | Page

 

d)

Costs to acquire contracts with customers

 

In Fleet Complete OpCos’ historical consolidated financial statements, sales commissions were expensed as incurred. No assets were recognized on the balance sheet.

 

Under US GAAP, a contract cost asset is recognized for the incremental costs of obtaining the contract if an entity expects to recover those costs through future fees from the customers which is then amortized over the contract period, including anticipated contracts. Applying the practical expedient, the incremental costs to obtain contracts were not capitalized if the amortization period for the asset would be one year or less.

 

The following adjustment was recorded in the Statement of Comprehensive Income (Loss):

 

(CAD in thousands)		Six months ended June 30, 2024				Year ended March 31, 2024
Reversal of historical commission expense under ASPE			(2,518	)			(4,582	)
Recognition of commission expense under US GAAP			2,150				4,215
Selling, general and administrative expenses (Net impact)			(368	)			(367	)

 

The following adjustment was recorded in the Balance Sheet:

 

(CAD in thousands)		As of June 30, 2024
Recognition of contract cost asset (other assets)			10,726
Net impact			10,726

 

e)

Warranties

 

In Fleet Complete’s historical consolidated financial statements, warranties were expensed as incurred. No liabilities were recognized on the balance sheet.

 

Under US GAAP, the estimated costs of an assurance-type warranty are generally recorded as a liability when the entity transfers the good or service to the customer. These estimates are derived from historical data and trends of costs of repairing and replacing defective products.

 

(CAD in thousands)		Six Months Ended June 30, 2024				Year Ended March 31, 2024
Reversal of warranty expense under ASPE			-				-
Recognition of warranty expense under US GAAP			47				47
Net impact			47				47

 

The following adjustment was recorded in the Balance Sheet:

 

(CAD in thousands)		As of June 30, 2024
Recognition of warranty liability			(868	)
Net impact			(868	)

 

f)

Deferred income taxes

 

US GAAP uses the asset and liability method whereby deferred income tax assets and liabilities are recognized for temporary differences between financial statement carrying amounts of assets and liabilities and their respective income tax bases. The income tax adjustment reflects the impact on income taxes of the US GAAP adjustments described in this footnote.

 

The following adjustments were made to the statements of operations and deficit:

 

(CAD in thousands)		Six Months Ended June 30, 2024		Year Ended March 31, 2024
Income tax expense		197		17

 

The following adjustments were made to the balance sheet:

 

(CAD in thousands)		As at June 30, 2024
Recognition of deferred tax liability			(706	)
Impact to accumulated deficit			(706	)

 

g)

Reclassification adjustments

 

Represents reclassifications of historical Fleet Complete OpCos financial statement line items to conform to the expected financial statement line items of the combined company following the FC Acquisition.

 

h)

Currency translation

 

The adjusted historical results have been translated from Canadian Dollars to U.S. dollars as below:

 

	●	Assets and liabilities have been translated using the end-of-period exchange rates.
	●	Revenues and expenses have been translated using average rates of exchange for the period.

 

16 | Page

 

 

Note 9 – Financial information for the overlapping period of the three months ended March 31, 2024

 

Unaudited Condensed Statement of Operations for the three months ended March 31, 2024

 

 

		Fleet Complete OpCos
Revenues:
Products		$	4,855
Services			25,685
Total revenues			30,540
Cost of revenues:
Products			3,469
Services			6,574
Gross profit			20,497
Selling, general, and administrative expenses			16,229
Research and development expenses			2,750
Total operating expenses			18,979
Operating income			1,518
Interest expense, net			(4,408	)
Other (expense) income, net			(148	)
Net loss before income taxes			(3,038	)
Income tax expense			(2,991	)
Net Loss		$	(6,029	)

 

17 |Page

 

Cover	Oct. 01, 2024
Cover [Abstract]
Document Type	8-K/A
Amendment Flag	true
Amendment Description	On October 2, 2024, Powerfleet, Inc. (the “Company”) filed with the Securities and Exchange Commission (the “SEC”) a Current Report on Form 8-K (the “Form 8-K”) reporting the completion on October 1, 2024 of the previously announced acquisition (the “Acquisition”) of Fleet Complete (as defined below) contemplated by the Share Purchase Agreement, dated as of September 18, 2024 (the “Purchase Agreement”), by and among Golden Eagle Topco, LP, the persons that are party thereto under the heading “Other Sellers”, the Company and Powerfleet Canada Holdings Inc., pursuant to which Powerfleet acquired all of the direct and indirect common shares in the capital of Golden Eagle Canada Holdings, Inc. and Complete Innovations Holdings Inc. and all of the issued and outstanding shares of common stock of Golden Eagle Holdings, Inc. (collectively, “Fleet Complete”)
Document Period End Date	Oct. 01, 2024
Entity File Number	001-39080
Entity Registrant Name	POWERFLEET, INC.
Entity Central Index Key	0001774170
Entity Tax Identification Number	83-4366463
Entity Incorporation, State or Country Code	DE
Entity Address, Address Line One	123 Tice Boulevard
Entity Address, City or Town	Woodcliff Lake
Entity Address, State or Province	NJ
Entity Address, Postal Zip Code	07677
City Area Code	201
Local Phone Number	996-9000
Written Communications	false
Soliciting Material	false
Pre-commencement Tender Offer	false
Pre-commencement Issuer Tender Offer	false
Title of 12(b) Security	Common Stock, par value $0.01 per share
Trading Symbol	AIOT
Security Exchange Name	NASDAQ
Entity Emerging Growth Company	false

---