The accompanying notes are an integral part of these consolidated financial statements.
The accompanying notes are an integral part of these consolidated financial statements.
The accompanying notes are an integral part of these consolidated financial statements.
The accompanying notes are an integral part of these consolidated financial statements.
The accompanying notes are an integral part of these consolidated financial statements.
Notes to Consolidated Financial Statements
1. DESCRIPTION OF ORGANIZATION AND BUSINESS OPERATIONS
Kaleyra, Inc., formerly GigCapital, Inc., (hereinafter “Kaleyra” or the “Company”) was incorporated in Delaware on October 9, 2017. The Company was formed for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar business combination with one or more businesses.
On December 12, 2017, the Company completed the initial closing of its initial public offering (the “Offering”) whereby the Company sold 12,500,000 Units at a price of $10.00 per Unit. On January 9, 2018, the Company completed the second closing of the Offering with the exercise of the over-allotment option with the consummation of the sale of an additional 1,875,000 Units at a price of $10.00 per Unit. Each Unit consists of one share of the Company’s common stock, $0.0001 par value, three-fourths (3/4) of one warrant to purchase one share of common stock (the “Warrants”), and one right to receive one-tenth (1/10) of one share of common stock upon consummation of a business combination (the “Rights”). Warrants will only be exercisable for whole shares at $11.50 per share. On January 16, 2018, the Company announced that the holders of the Company’s Units may elect to separately trade the securities underlying such Units which commenced on January 17, 2018. No fractional warrants will be issued upon separation of the Units and only whole warrants will trade. Any Units not separated, prior to the consummation of a business combination, would continue to trade on the New York Stock Exchange under the symbol “GIG.U”. Any underlying shares of common stock, warrants and rights that were separated, prior to the consummation of a business combination, would trade on the New York Stock Exchange under the symbols “GIG,” “GIG.WS” and “GIGr,” respectively.
On February 22, 2019, the Company entered into a stock purchase agreement (the “Stock Purchase Agreement”) by and among the Company, Kaleyra S.p.A., Shareholder Representative Services LLC, (the “Seller Representative”) as representative for the holders of the ordinary shares of Kaleyra S.p.A. immediately prior to the closing of the Business Combination, and all of the stockholders of all of the Kaleyra S.p.A. stock (collectively, such Kaleyra S.p.A. stockholders, the “Sellers”), for the purpose of the Company acquiring all of the shares of Kaleyra S.p.A.
Kaleyra S.p.A. is a cloud communications software provider delivering secure Application Protocol Interfaces (“APIs”) and connectivity solutions in the API/Communication Platform as a Service or CPaaS market, headquartered in Milan, Italy and with operations in Italy, India, Dubai and the United States. Kaleyra S.p.A.’s solutions include identity authentication, mobile and voice notifications on transactions, and banking services authorizations, most notably via different integrated mobile channels through its platform.
On November 25, 2019, the Business Combination with Kaleyra S.p.A. (the “Business Combination”) was completed. See Note 5 – Business Combination for a description of the Business Combination.
Effective as of the closing of the Business Combination, the Company changed its name to Kaleyra, Inc. Upon the consummation of the Business Combination, the Company also changed its fiscal year end to December 31st from its previous fiscal year ending September 30th, such change first being effective for its fiscal year ended December 31, 2019. For accounting purposes, Kaleyra S.p.A. was deemed the acquiror in the Business Combination.
The Business Combination was accounted for as a reverse recapitalization in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). Under this method of accounting, Kaleyra, Inc. has been treated as the “acquired” company for financial reporting purposes. Accordingly, for accounting purposes, the Business Combination has been treated as the equivalent of Kaleyra S.p.A. issuing stock for the net assets of Kaleyra, Inc., accompanied by a recapitalization.
As a result of the accounting for the Business Combination, the number of common shares authorized and outstanding during periods prior to the Business Combination, have been retrospectively adjusted to reflect the exchange ratio established in the Business Combination. The common stock and additional paid-in capital have also been retrospectively adjusted accordingly. Specifically, the number of common shares outstanding during periods prior to the Business Combination have been computed on the basis of the number of common shares of Kaleyra S.p.A. (accounting acquiror) during those periods multiplied by the exchange ratio established in the Stock Purchase Agreement. Accordingly, weighted-average shares outstanding for purposes of the net loss per share calculation have been retrospectively adjusted to reflect the exchange ratio established in the Business Combination. See Note 24 – Net Loss Per Share – for further details.
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Upon the closing of the Business Combination, the Company’s rights and units ceased trading, and the Company’s common stock began trading on the NYSE American stock exchange under the symbol “KLR”. Furthermore, on December 2, 2019, Kaleyra’s warrants began trading on the NYSE American stock exchange as “KLR WS”.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
These consolidated financial statements have been prepared in conformity with U.S. GAAP applicable for an “emerging growth company” as defined in the Jumpstart Our Business Startups Act (“JOBS Act”). The JOBS Act provides that an emerging growth company can take advantage of an extended transition period for complying with new or revised accounting standards. In particular, an emerging growth company can delay the adoption of certain accounting standards until those standards would apply to private companies. For the purpose of these consolidated financial statements, the Company availed itself of an extended transition period for complying with new or revised accounting standards and, as a result, did not adopt new or revised accounting standards on the relevant dates on which adoption of such standards is required for public companies.
Liquidity
In connection with Accounting Standards Update (“ASU”) 2014-15, “Presentation of Financial Statements-Going Concern (Subtopic 205-40), Disclosures of Uncertainties about an Entity’s Ability to Continue as a Going Concern”, the Company evaluated its ability to continue as a going concern. The consolidated balance sheet as of December 31, 2020 includes total current assets of $85.0 million and total current liabilities of $88.8 million, resulting in net liabilities due within the next 12 months of $3.7 million.
The Company’s business operations continued to grow in line with expectations showing positive operating margins (excluding non-recurring costs). However, the Business Combination generated significant obligations including (i) $13.1 million of liabilities related to non-recurring Business Combination transaction related costs; (ii) $15.0 million of deferred consideration to sellers in the Business Combination transaction; (iii) $13.2 million of net obligations under certain forward shares purchase agreements entered into by GigCapital Inc. prior to the Business Combination; and (iv) $3.6 million of notes payable acquired as a result of the Business Combination. As of December 31, 2020, the Company still had the following remaining obligations as a result of the Business Combination:
(i) $2.7 million of liabilities related to non-recurring Business Combination transaction related costs;
(ii) $7.5 million of deferred consideration to sellers in the Business Combination transaction; and
(iii) $483,000 of obligations under certain forward share purchase agreements entered into by GigCapital Inc. prior to the Business Combination.
On June 24, 2020, the Company entered into an Underwriting Agreement (the “Underwriting Agreement”) with Oppenheimer & Co. Inc. and Nomura Securities International, Inc. acting as joint book-running managers and as representatives of the underwriters named therein (collectively, the “Underwriters”) relating to the issuance and sale of 7,777,778 shares of the Company’s common stock, par value $0.0001 per share (the “Offering”). The price to the public in the Offering was $4.50 per share, before underwriting discounts and commissions. Under the terms of the Underwriting Agreement, the Company has granted the Underwriters an option, exercisable for 30 days, to purchase up to an additional 1,166,666 shares of common stock at the public offering price less underwriting discounts. The Offering closed on June 29, 2020 and resulted in net proceeds to the Company of approximately $32.0 million, after deducting underwriting discounts and commissions and Offering expenses payable by the Company, assuming no exercise by the Underwriters of their option to purchase additional shares of common stock.
On July 22, 2020, the Underwriters issued notice under the terms of the Underwriting Agreement, that they were partially exercising and closed on their option to purchase an additional 984,916 shares of common stock of the Company at the public offering price less underwriting discounts. On the settlement date of July 24, 2020, the additional net proceeds from the overallotment option amounted to $4.2 million, after deducting underwriting discounts and commissions and Offering expenses payable by the Company.
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Further, subsequent to December 31, 2020, in accordance with the terms of the Confirmation, Nomura Global Financial Products (“NGFP”) fully terminated the Forward Transaction and made a payment in the aggregate amount of $17.0 million to Kaleyra. Also subsequent to December 31, 2020, Yakira Capital Management, Inc. (“Yakira”) informed the Company that it had sold all but 219 shares in the open market at a price above $11.00 per share that were subject to the Third Yakira Amendment. See Note 27 – Subsequent Events – for further details.
Considering the effects of the Offering described above, the termination of the NGFP Forward Transaction and related receipt of cash, and the typical financial cycle of Kaleyra, Kaleyra’s management believes that the Company’s cash and cash equivalents and short-term investments, debt and equity financings and availability of borrowings, will be sufficient to support its planned operations for at least the next 12 months from the date these consolidated financial statements were issued.
Principles of Consolidation
The consolidated financial statements include the Company and its wholly-owned subsidiaries, including Kaleyra S.p.A., Solutions Infini and Buc Mobile, which represent its major operations. All significant intercompany balances and transactions have been eliminated in consolidation.
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. These estimates are used for, but not limited to, allowance for doubtful accounts; valuation of the Company’s stock-based awards; recoverability of long-lived and intangible assets; capitalization and useful life of the Company’s capitalized internal-use software development costs; fair value of acquired intangible assets and goodwill; accruals and contingencies, including tax related provision and valuation allowance on deferred taxes. Estimates are based on historical experience and on various assumptions that the Company believes are reasonable under current circumstances. However, future events are subject to change and best estimates and judgments may require further adjustments; therefore, actual results could differ materially from those estimates. Management periodically evaluates such estimates and they are adjusted prospectively based upon such periodic evaluation.
Concentration of Credit Risk
Financial instruments that potentially expose the Company to a concentration of credit risk consist primarily of cash and cash equivalents, marketable securities and trade receivables. The Company maintains cash and cash equivalents and marketable securities with financial institutions that management believes are financially sound.
The Company sells its services to a wide variety of customers. If the financial condition or results of operations of any significant customers deteriorate substantially, operating results could be adversely affected. To reduce credit risk, management performs ongoing credit evaluations of the financial condition of significant customers. The Company maintains reserves for estimated credit losses on customer accounts when considered necessary. Actual credit losses may differ from the Company’s estimates. In the years ended December 31, 2020 and 2019, there were zero and one customer, respectively, that individually accounted for more than 10% of the Company’s consolidated total revenue. In particular in 2019, revenue generated by that one customer of the Company accounted for $13.4 million. As of December 31, 2020 and 2019, respectively, one and zero individual customer accounted for more than 10% of the Company’s consolidated total trade receivables. In particular in 2020, trade receivables accounted for by that one customer amounted to $4.5 million.
Revenue Recognition
Effective January 1, 2019, the Company adopted Accounting Standards Codification (“ASC”) 606, “Revenue from Contracts with Customers” (“ASC 606”), which replaced the existing revenue recognition guidance, ASC 605, and outlines a single set of comprehensive principles for recognizing revenue under U.S. GAAP. Among other things, ASC 606 requires entities to assess the products or services promised in contracts with customers at contract inception to determine the appropriate unit at which to record revenue, which is referred to as a performance obligation. Revenue is recognized when control of the promised products or services is transferred to customers at an amount that reflects the consideration to which the entity expects to be entitled to in exchange for those products or services.
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The Company did not record any adjustment to the beginning retained earnings as of January 1, 2019 in connection with the adoption of the new standard.
Prior to the adoption of ASC 606, the Company recognized the majority of its revenue according to the usage by its customers in the period in which that usage occurred. ASC 606 continues to support the recognition of revenue over time, and on a usage basis, for the majority of the Company's contracts due to continuous transfer of control to the customer.
Revenue Recognition Policy
The Company enters into contracts that can include various combinations of products and services, which are generally capable of being distinct and accounted for as separate performance obligations. Revenue is recognized net of allowances for credits and any taxes collected from customers. Taxes collected are subsequently remitted to governmental authorities.
The Company determines revenue recognition through the following steps:
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Identification of the contract, or contracts, with a customer;
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Identification of the performance obligations in the contract;
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Determination of the transaction price;
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Allocation of the transaction price to the performance obligations in the contract; and
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Recognition of revenue when, or as, the Company satisfies a performance obligation.
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Nature of Products and Services
The Company's revenue is primarily derived from usage-based fees earned from the sale of communications services offered through software solutions to large enterprises, as well as small and medium-sized customers.
The Company’s revenue is recognized upon the sending of a SMS message or by the authentication of a financial transaction of an end-user of the Company’s customer using the Company’s platform in an amount that reflects the consideration the Company expects to receive in exchange for those services which is generally based upon agreed fixed prices per unit.
Platform access is considered a monthly series comprised of one performance obligation and usage-based fees are recognized as revenue in the period in which the usage occurs. After usage occurs, there are no remaining obligations that would preclude revenue recognition. Revenue from usage-based fees represented 98% of total revenue, in both of the years ended December 31, 2020 and 2019.
Subscription-based fees are derived from certain term-based contracts, such as with the sales of short codes and customer support, which is generally one year. Term-based contract revenue is recognized on a ratable basis over the contractual term of the arrangement beginning on the date that the service is made available to the customer. Revenue from term-based fees represented 2% of total revenue, in both of the years ended December 31, 2020 and 2019.
The Company's arrangements do not contain general rights of return. The contracts do not provide customers with the right to take possession of the software supporting the applications. Amounts that have been invoiced are recorded in trade receivables and in revenue or deferred revenue depending on whether the revenue recognition criteria have been met.
Contract Balances
The Company receives payments from customers based on a billing schedule as established in its contracts. Contract assets are recorded when the Company has a conditional right to consideration for its completed performance under the contracts. Trade receivables are recorded when the right to this consideration becomes unconditional, which is as usage occurs. The Company did not have any contract assets as of December 31, 2020 and 2019.
Deferred revenue is recorded when cash payments are received in advance of future usage on non-cancellable contracts. As of December 31, 2020 and 2019, the Company recorded $3.7 million and $1.4 million, respectively, as deferred revenue on its consolidated balance sheets. In the year ended December 31, 2020, the Company recognized $1.1 million of revenue that was included in the deferred revenue balance as of December 31, 2019.
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Disaggregated Revenue
In general, revenue disaggregated by geography is aligned according to the nature and economic characteristics of the Company’s business and provides meaningful disaggregation of the Company’s results of operations. Refer to Note 17 – Geographic Information for details of revenue by geographic area.
Cost of Revenue
Cost of revenue consists primarily of costs of communications services purchased from network service providers. Cost of revenue also includes the cost of the Company’s cloud infrastructure and technology platform, amortization of capitalized internal-use software development costs related to the platform applications and amortization of developed technology acquired in the business combinations.
Research and Development Expenses
Research and development expenses consist primarily of personnel costs, the costs of the technology platform used for staging and development, outsourced engineering services, amortization of capitalized internal-use software development costs related to non-platform applications and an allocation of general overhead expenses. The Company capitalizes the portion of its software development costs that meet the criteria for capitalization.
Internal-use Software Development Costs
Certain costs of the technology platform and other software applications developed for internal use are capitalized. The Company capitalizes qualifying internal-use software development costs that are incurred during the application development stage. Capitalization of costs begins when two criteria are met: (i) the preliminary project stage is completed, and (ii) it is probable that the software will be completed and used for its intended purpose. Capitalization ceases when the software is substantially complete and ready for its intended use, including the completion of all-significant testing. The Company also capitalizes costs related to specific upgrades and enhancements when it is probable the expenditures will result in additional functionality and expenses costs incurred for maintenance and minor upgrades and enhancements. Costs related to preliminary project activities and post-implementation operating activities are expensed as incurred.
Capitalized costs of platform and other software applications are included in property and equipment. These costs are amortized over the estimated useful life of the software of four years on a straight-line basis. Management evaluates the useful life of these assets on an annual basis and tests for impairment whenever events or changes in circumstances occur that could affect the recoverability of these assets. The amortization of costs related to the platform applications is included in cost of revenue, while the amortization of costs related to other software applications developed for internal use is included in research and development expenses.
Advertising Costs
Advertising costs are expensed as incurred and were $1.0 million and $956,000 in the years ended December 31, 2020 and 2019, respectively. Advertising costs are included in sales and marketing expenses in the accompanying consolidated statements of operations.
Marketable Securities
Investments in marketable securities are carried at fair value and classified as available-for-sale securities. Realized gains and losses on available-for-sale securities are included in financial expense, net in the consolidated statements of operations. Unrealized gains and losses, net of deferred taxes, on available-for-sale securities are included in the consolidated balance sheets as a component of accumulated other comprehensive income (loss). In the event the fair value of an investment declines below its cost basis, management is required to determine if the decline in fair value is other than temporary. If management determines the decline is other than temporary, an impairment charge is recorded. As of December 31, 2020 and 2019, the Company had marketable securities of $4.8 million and $5.1 million, respectively relating to mutual funds and certificates of deposit with no stated maturity.
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Stock-Based Compensation
The Company measures and recognizes the compensation expense for restricted stock units (“RSUs”) granted to employees and directors, based on the fair value of the award on the grant date.
RSUs give an employee an interest in Company stock but they have no tangible value until vesting is complete. RSUs are equity classified and measured at the fair market value of the underlying stock at the grant date and recognized as expense over the related service or performance period. The Company elected to account for forfeitures as they occur. The fair value of stock awards is based on the quoted price of our common stock on the grant date. Compensation cost for RSUs is recognized using the straight-line method over the requisite service period.
In June 2018, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2018-07, “Compensation—Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting”. The aim of the update is to simplify several aspects of the accounting for nonemployee share-based payment transactions resulting from expanding the scope of Topic 718, Compensation—Stock Compensation, to include share-based payment transactions for acquiring goods and services from nonemployees. As a result, nonemployee share-based payment equity awards are measured at the grant date fair value of the equity instruments, similar to employee share-based payment equity awards.
The Company adopted ASU 2018-07 in 2019, following the adoption of Topic 606. At the transition date, there were no nonemployee share-based compensation awards.
Employee Benefit Plans
The Company has defined benefit plans, granted to Italian and Indian employees and regulated by Italian and Indian laws, respectively. The defined benefit plans are calculated based on the employee compensation and the duration of the employment relationship and are paid to the employee upon termination of the employment relationship. The costs of the defined benefit plans reported in the Company’s consolidated statements of operations is determined by actuarial calculation performed on an annual basis. The actuarial valuation is performed using the “Projected Unit Credit Method” based on the employees’ expected date of separation or retirement.
As a part of the purchase agreement relating to the 2018 acquisition of Solutions Infini by Kaleyra, the Company assumed the obligation to purchase a number of preference shares from certain employees in 2020 at a price determined based on the earnings before interest, taxes, deprecation and amortization (“EBITDA”) of Solutions Infini for its fiscal year ending March 31, 2020. These preference shares represented compensation for future services for the eligible employees. The Company accounted for the liability related to the preference shares over the relevant period from July 2017 to July 2020, charging the consolidated statements of operations on a straight-line basis over that period. See Note 14 – Preference Shares Liabilities.
Income Taxes
The Company accounts for income taxes in accordance with the asset and liability approach method. Deferred tax assets and liabilities are recognized for future tax consequences attributable to temporary differences between the consolidated financial statements carrying amounts of existing assets and liabilities and their respective tax bases, as well as for operating loss and tax credit carryforwards. Deferred tax amounts are determined by using the enacted tax rates expected to be in effect when the temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance reduces the deferred tax assets to the amount that is more likely than not to be realized.
The Company recognizes the effect of income tax positions only if those positions are more-likely-than-not of being sustained. Recognized income tax positions are measured at the largest amount that is greater than 50 percent likely of being realized. Changes in recognition or measurement are reflected in the period in which the change in judgment occurs.
The Company records interest and penalties related to an underpayment of income taxes in income tax expense in the consolidated statements of operations.
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Foreign Currency Translation
The functional currency of the parent company is the U.S. Dollar. The functional currency of Kaleyra S.p.A. is the Euro, the functional currency of Solutions Infini is the India Rupee, the functional currency of Buc Mobile is the U.S. Dollar and the functional currenzy of Solutions Infini FZE is the United Arab Emirates Dirham.
Each company remeasures monetary assets and liabilities denominated in currencies other that its functional currency at period-end exchange rates and non-monetary items are at historical rates. Remeasurement adjustments are recognized in the consolidated statements of operations as foreign currency (income) loss in the period of occurrence.
These consolidated financial statements are presented in U.S. Dollars. For legal entities where the functional currency is a currency other than the U.S. Dollar, adjustments resulting from translating the financial statements into U.S. Dollars are recorded as a component of accumulated other comprehensive income in stockholders’ equity (deficit). Monetary assets and liabilities denominated in a currency that is other than the U.S. Dollar are translated into US Dollars at the exchange rate on the balance sheet date. Revenue and expenses are translated at the weighted average exchange rates during the period. Equity transactions are translated using historical exchange rates.
Comprehensive Income (Loss)
Comprehensive income (loss) refers to net loss and other revenue, expenses, gains and losses that, under U.S. GAAP, are recorded as an element of stockholders’ equity (deficit) but are excluded from the calculation of net loss. See Note 13 – Accumulated Other Comprehensive Income (Loss).
Earnings (Loss) per Share
The equity structure in the consolidated financial statements following a reverse recapitalization reflects the equity structure of the legal acquiror (the accounting acquiree), including the equity interests issued by the legal acquiror to effect the business combination.
Basic earnings (loss) per share attributable to common stockholders is calculated by dividing the net income (loss) attributable to common stockholders by the weighted-average number of shares of common stock outstanding for the period. In calculating the weighted-average number of common shares during the period in which the reverse merger occured (fiscal year 2019):
a. The number of common shares outstanding from the beginning of that period to the acquisition date were computed on the basis of the weighted-average number of common shares of the legal acquiree (accounting acquiror) outstanding during the period multiplied by the exchange ratio established in the merger agreement;
b. The number of common shares outstanding from the acquisition date to the end of that period were the actual number of common shares of the legal acquiror (the accounting acquiree) outstanding during that period.
The basic EPS for each comparative period before the acquisition date presented in the consolidated financial statements following a reverse merger were calculated by dividing (i) by (ii):
i. The income of the legal acquiree attributable to common stockholders in each of those periods;
ii. The legal acquiree’s historical weighted average number of common shares outstanding multiplied by the exchange ratio established in the acquisition agreement.
Diluted net income (loss) per share is calculated by giving effect to all potentially dilutive common stock when determining the weighted-average number of common shares outstanding. For purposes of the diluted net income (loss) per share calculation, RSUs, options and warrants to purchase common stock are considered common stock equivalents.
Cash and Cash Equivalents
The Company considers all liquid investments with an original maturity of three months or less when purchased to be cash equivalents. Cash equivalents consist of funds deposited into saving accounts.
Restricted Cash
Restricted cash consisted of cash deposited into a savings account with a financial institution as collateral for the Company’s obligations under the forward share purchase agreement with Glazer Capital and with Yakira Capital Management, Inc. See Note 10 – Debt for Forward Share Purchase Agreements for a description of the contracts.
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In November 2016, the FASB issued ASU No. 2016-18, “Statement of Cash Flows (Topic 830) – Restricted Cash” (“ASU 2016-18”). This standard provides guidance on the presentation of restricted cash and cash equivalents in the consolidated statements of cash flows. Restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period amounts shown on the consolidated statements of cash flows. The Company adopted ASU 2016-18 in the first quarter of 2019 and applied the guidance retrospectively in the prior period’s consolidated statements of cash flows.
Other than the revised consolidated statements of cash flows presentation of restricted cash, the adoption of ASU 2016-18 did not have an impact on the Company’s consolidated financial statements.
The restricted cash balances as of December 31, 2020 and December 31, 2019 were zero and $20.9 million, respectively.
Trade Receivables and Allowance for Doubtful Accounts
Trade receivables are recorded net of an allowance for doubtful accounts. The allowance for doubtful accounts is estimated based on the Company’s assessment of its ability to collect on customer trade receivables. The Company regularly reviews the allowance by considering certain factors such as historical experience, credit quality, age of trade receivables balances and other known conditions that may affect a customer’s ability to pay. In cases where the Company is aware of circumstances that may impair a specific customer’s ability to meet their financial obligations, a specific allowance is recorded against amounts due from the customer which reduces the net recognized receivable to the amount the Company reasonably believes will be collected. The Company writes-off trade receivables against the allowance when a determination is made that the balance is uncollectible, and collection of the receivable is no longer being actively pursued.
The allowance for doubtful accounts was $850,000 and $873,000 as of December 31, 2020 and 2019, respectively.
Property and Equipment, net
Property and equipment is stated at cost less accumulated depreciation or amortization.
Depreciation and amortization are computed using the straight-line method over the estimated useful life of the related asset. Maintenance and repairs are expensed as incurred.
The useful lives of property and equipment are as follows:
Internal-use software development costs ……………………………..
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4 years
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Servers ………………………………………………………………...
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3 - 6 years
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Office equipment ……………………………………………………...
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3 -5 years
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Leasehold improvements ……………………………………………...
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5 years or remaining lease term (1)
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Furniture and fixtures …………………………………………………
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4 - 8 years
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Vehicles ……………………………………………………………….
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8 - 10 years
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Software ……………………………………………………………….
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3 years
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Other assets ………………………………………………………........
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4 years
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(1)
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Including renewal options
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Intangible Assets, net
Intangible assets recorded by the Company are costs directly associated with securing legal registration of patents and the fair value of identifiable intangible assets acquired in business combinations.
Intangible assets with determinable economic lives are carried at cost, less accumulated amortization. Intangible assets arising from business combinations, such as customer relationship and developed technology, were initially recorded at estimated fair value. Amortization is computed over the estimated useful life of each asset on a straight-line basis, except for customer relationships, which are amortized over the best estimate of their expected useful life using an accelerated method (“sum of years’ digits method”), in order to better approximate the pattern in which their economic benefit are expected to be consumed. The Company determines the useful lives of identifiable intangible assets after considering the facts and circumstances related to each intangible asset. Factors the Company considers when determining useful lives include the contractual term of any agreement related to the asset, the historical performance of the asset, the Company’s long-term strategy for using the asset, any laws or other local
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regulations which could impact the useful life of the asset and other economic factors, including competition and specific market conditions. Intangible assets without determinable economic lives are carried at cost, not amortized and reviewed for impairment on an annual basis or whenever events or changes in circumstances indicate that the carrying value may not be recoverable.
The useful lives of the intangible assets are as follows:
Developed technology…………………………………………………....
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3-6 years
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Customer relationships (accelerated method) …………………………...
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15 - 17 years
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Patent …………………………………………………………………….
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3-7 years
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Goodwill
Goodwill represents the excess of the aggregate purchase price over the fair value of net identifiable assets acquired in a business combination. Goodwill is not amortized and is tested for impairment on an annual basis or whenever events or changes in circumstances indicate that the carrying value may not be recoverable. The Company has selected December 31 as the date to perform its annual impairment test. In the valuation of goodwill, management must make assumptions regarding estimated future cash flows to be derived from the Company’s business. If these estimates or their related assumptions change in the future, the Company may be required to record an impairment for these assets. Management may first evaluate qualitative factors to assess if it is more likely than not that the fair value of a reporting unit is less than its carrying amount and to determine if a two-step impairment test is necessary. Management may choose to proceed directly to the two-step evaluation, bypassing the initial qualitative assessment. The first step of the impairment test involves comparing the fair value of the reporting unit to which goodwill is allocated to its net book value, including goodwill. If the net book value exceeds its fair value, then the Company would perform the second step of the goodwill impairment test to determine the amount of the impairment loss. The impairment loss would be calculated by comparing the implied fair value of the goodwill to its net book value. In calculating the implied fair value of goodwill, the fair value of the entity would be allocated to all of the other assets and liabilities based on their fair values. The excess of the fair value of the entity over the amount assigned to other assets and liabilities is the implied fair value of goodwill. An impairment loss would be recognized when the carrying amount of goodwill exceeds its implied fair value. No goodwill impairment charges have been recorded for any period presented.
Impairment of Long-Lived Assets
The Company evaluates long-lived assets, including property and equipment and intangible assets, for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets held and used is measured by a comparison of the carrying amount of an asset or an asset group to estimated undiscounted future net cash flows expected to be generated by the asset or asset group. If such evaluation indicates that the carrying amount of the asset or the asset group is not recoverable, any impairment loss would be equal to the amount the carrying value exceeds the fair value. There was no impairment during the years ended December 31, 2020 and 2019.
Deferred Revenue
Deferred revenue consists of advance payments from customers to be applied against future usage and customer billings in advance of revenues being recognized under the Company’s contracts. Deferred revenue is generally expected to be recognized during the succeeding 12-month period and is thus recorded as a current liability.
Segment Information
The Company’s Chief Executive Officer is the chief operating decision maker, who reviews the Company’s financial information presented on a consolidated basis for purposes of allocating resources and evaluating the Company’s financial performance. Accordingly, the Company has determined that it operates in a single reporting segment.
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Derivatives
The Company has not historically entered into hedging derivatives in the ordinary course of its business. In connection with the acquisition of Solutions Infini and Buc Mobile, the Company entered into certain derivative contracts to serve as an economic hedge for risk management purposes. These derivatives include exchange rate forwards on the purchase prices denominated in Indian Rupee for the acquisition of Solutions Infini and in U.S. Dollars for the acquisition of Buc Mobile and interest rate swaps on the bank borrowings entered into by the Company to finance the acquisitions. These derivatives were not designated as hedging instruments under U.S. GAAP. Because hedge accounting was not applied, those derivatives have been recorded at fair value on the consolidated balance sheets with changes in fair value recorded in financial expense, net in the consolidated statements of operations. In 2019, following the payments of the consideration for the acquisitions, the exchange rate forward contracts on the purchase prices were settled.
Forward Share Purchase Agreements
During 2019, the Company entered into certain third-party put option arrangements assuming the obligation to repurchase its common stock at a future date by transferring cash to the third-party under certain conditions described in more detail in Note 10 below. Such obligation has been recorded at fair value in the consolidated balance sheets with changes in fair value recorded in financial expense, net in the consolidated statements of operations.
Business Combinations
The Company recognizes identifiable assets acquired and liabilities assumed at their acquisition date fair values. Goodwill is measured as the excess of the consideration transferred over the fair value of assets acquired and liabilities assumed on the acquisition date. While the Company uses its best estimates and assumptions as part of the purchase price allocation process to accurately value assets acquired and liabilities assumed, these estimates are inherently uncertain and subject to refinement.
The authoritative guidance allows a measurement period of the purchase price allocation that ends when the entity has obtained all relevant information about facts that existed at the acquisition date, and that cannot exceed one year from the date of acquisition. As a result, during the measurement period the Company may record adjustments to the fair values of assets acquired and liabilities assumed, with the corresponding offset to goodwill to the extent that it identifies adjustments to the preliminary purchase price allocation. Upon conclusion of the measurement period or final determination of the values of the assets acquired and liabilities assumed, whichever comes first, any subsequent adjustments will be recorded to the consolidated statements of operations.
Fair Value of Financial Instruments
The Company’s financial instruments, which include cash, cash equivalents, restricted cash, trade receivables and accounts payable are recorded at their carrying amounts, which approximate their fair value due to their short-term nature. All marketable securities are considered available-for-sale and recorded at their estimated fair values. Unrealized gains and losses for available-for-sale securities are recorded in other comprehensive income (loss). In valuing these items, the Company uses inputs and assumptions that market participants would use to determine their fair value, utilizing valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs.
Impairments are considered other than temporary if they are related to deterioration in credit risk or if it is likely that the security will be sold before the recovery of its cost basis. Realized gains and losses and declines in value deemed to be other than temporary are determined based on the specific identification method and are reported in other income, net in the consolidated statements of operations.
The accounting guidance for fair value provides a framework for measuring fair value, clarifies the definition of fair value, and expands disclosures regarding fair value measurements. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the reporting date. The accounting guidance establishes a three-tiered hierarchy, which prioritizes the inputs used in the valuation methodologies in measuring fair value as follows:
Level 1: Unadjusted quoted prices in active markets for identical assets or liabilities accessible to the reporting entity at the measurement date.
91
Level 2: Other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the asset or liability.
Level 3: Unobservable inputs for the asset or liability used to measure fair value to the extent that observable inputs are not available, thereby allowing for situations in which there is little, if any, market activity for the asset or liability at measurement date.
A financial instrument’s categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement.
Net cash settlements on derivatives that do not qualify for hedge accounting are reported in financial income as part of financial expense, net in the consolidated statements of operations.
Reclassifications
Certain reclassifications have been made to the 2019 presentation to conform to the current period’s presentation, none of which had an effect on total assets, total liabilities, stockholders’ equity (deficit), or net loss.
Recent Accounting Pronouncements
In June 2020, the Financial Accounting Standards Board (“FASB”) issued ASU 2020-05 “Revenue from contracts with customers (Topic 606) and Leases (Topic 842): Effective dates for certain entities”, which provides a limited one year deferral of the effective dates of the following updates (including amendments issued after the issuance of the original update) to provide immediate, near-term relief for certain entities for whom these updates are either currently effective or imminently effective: i) Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers (Topic 606) (Revenue); ii) Accounting Standards Update No. 2016-02, Leases (Topic 842) (Leases). In November 2019, the Board issued ASU 2019-10 “Financial Instruments - Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842): Effective Dates”. The amendments in this ASU amended certain effective dates for the above ASU 2016-02, Leases (including amendments issued after the issuance of the original ASU). The effective dates for Leases after applying ASU 2019-10 were as follows: public business entities, excluding emerging growth companies and smaller reporting companies, for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. All other entities for fiscal years beginning after December 15, 2020, and interim periods within fiscal years beginning after December 15, 2021. Early application continues to be allowed. In Update 2019-10, the Board noted that challenges associated with transition to a major update are often magnified for private companies and smaller public companies. Those challenges have been significantly amplified by the current business and capital market disruptions caused by the COVID-19 pandemic. For this reason, FASB issued the amendments in this ASU 2020-05 by deferring the effective date for one additional year for entities in the “all other” category that have not yet issued their financial statements (or made financial statements available for issuance) reflecting the adoption of Leases. Therefore, under the amendments, Leases (Topic 842) is effective for entities within the “all other” category for fiscal years beginning after December 15, 2021, and interim periods within fiscal years beginning after December 15, 2022. Early application continues to be permitted, which means that an entity may choose to implement Leases before those deferred effective dates. While the Company expects the adoption of the Leases standard (Leases Topic 842) to result in a material increase to the reported assets and liabilities, the Company has not yet determined the full impact that the adoption of this standard will have on its consolidated financial statements.
In March 2020, the Financial Accounting Standards Board (“FASB”) issued ASU 2020-04 “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting”, which provides optional guidance for a limited period of time to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform on financial reporting. The amendments in this ASU provide optional expedients and exceptions for applying generally accepted accounting principles (GAAP) to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The amendments apply to contract modifications that replace a reference rate (e.g. LIBOR) affected by reference rate reform and contemporaneous modifications of other contract terms related to the replacement of the reference rate (including contract modifications to add or change fallback provisions). The following optional expedients for applying the requirements of certain Topics or Industry Subtopics in the Codification are permitted for contracts that are modified because of reference rate reform and that meet certain scope guidance: (i) modifications of contracts within the scope of Topics 310, Receivables, and 470, Debt, should be accounted for by prospectively adjusting the effective interest rate; (ii) modifications of contracts within the scope of Topics 840, Leases, and 842, Leases, should be accounted for as a continuation of the existing contracts with no reassessments of the lease classification and the
92
discount rate or remeasurements of lease payments. For other Topics or Industry Subtopics in the Codification, the amendments also include a general principle that permits an entity to consider contract modifications due to reference rate reform to be an event that does not require contract remeasurement at the modification date or reassessment of a previous accounting determination. When elected, the optional expedients for contract modifications must be applied consistently for all eligible contracts or eligible transactions within the relevant Topic or Industry Subtopic. The amendments in this ASU are effective for all entities as of March 12, 2020 through December 31, 2022. The Company adopted the amendments, and the adoption did not have a material impact on its consolidated financial statements.
In February 2020, the FASB issued ASU 2020-02 “Financial Instruments—Credit Losses (Topic 326) and Leases (Topic 842), Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 119 and Update to SEC Section on Effective Date Related to Accounting Standards Update No. 2016-02, Leases (Topic 842)”. This ASU applies to all registrants that are creditors in loan transactions that, individually or in the aggregate, have a material effect on the registrant’s financial condition. This ASU guidance is applicable upon a registrant’s adoption of Accounting Standards Codification (“ASC”) Topic 326. On November 15, 2019, the FASB delayed the effective date of ASC Topic 326 for certain small public companies and other private companies. As amended, the effective date of ASC Topic 326 was delayed until fiscal years beginning after December 15, 2022 for U.S. Securities and Exchange Commission (“SEC”) filers that are eligible to be smaller reporting companies under the SEC’s definition, as well as private companies and not-for-profit entities. The Company is currently evaluating the impact of this standard on its consolidated financial statements.
In November 2019, the FASB issued ASU 2019-10 “Financial Instruments—Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842): Effective Dates”. The amendments in this ASU amend certain effective dates for the following major ASUs (including amendments issued after the issuance of the original ASU):
a)Accounting Standards Update No. 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (Credit Losses). The amendments in this ASU amend the mandatory effective dates for Credit Losses for all entities as follows: Public business entities that meet the definition of a Securities and Exchange Commission (SEC) filer, excluding entities eligible to be smaller reporting companies as defined by the SEC, for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. All other entities for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. Early application continues to be allowed. The Company is currently evaluating the impact of this standard on its consolidated financial statements.
b)Accounting Standards Update No. 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities (Hedging). The effective dates for Hedging after applying this ASU are as follows: Public business entities for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. All other entities for fiscal years beginning after December 15, 2020, and interim periods within fiscal years beginning after December 15, 2021. Early application continues to be allowed. The Company is currently evaluating the impact of this standard on its consolidated financial statements.
In April 2019, the FASB issued ASU 2019-04, “Codification Improvements to Topic 326, Financial Instruments—Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments”, which affect a variety of Topics in the Codification. For entities that have not yet adopted the amendments in ASU 2016-13, the effective dates and transition requirements for the amendments are the same as the effective dates and transition requirements in ASU 2016-13. For entities that have adopted the amendments in ASU 2016-13, the amendments are effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is permitted in any interim period as long as the entity has adopted the amendments in ASU 2016-13. The Company is currently evaluating the impact of this standard on its consolidated financial statements.
In August 2018, the FASB issued ASU 2018-15, “Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract”. This standard aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. The standard is effective for public business entities for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. For all other entities, the amendments in this ASU are effective for annual reporting periods beginning after December 15, 2020, and interim periods within annual periods beginning after December 15, 2021. Early adoption is permitted, including adoption in any interim period, for all entities. The amendments in this ASU should be applied either retrospectively or prospectively to all implementation costs incurred after the date of adoption. The Company is currently evaluating the impact of this standard on its consolidated financial statements.
93
In August 2018, the FASB issued ASU 2018-14, “Compensation—Retirement Benefits—Defined Benefit Plans—General (Subtopic 715-20)”, which modifies the disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans. The amendments are effective for fiscal years ending after December 15, 2020 for public business entities and for fiscal years ending after December 15, 2021 for all other entities. Early adoption is permitted for all entities. The Company is currently evaluating the impact of this standard on its consolidated financial statements.
In August 2018, the FASB issued ASU 2018-13, “Fair Value Measurement (Topic 820) Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement”. The amendments under ASU 2018-13 remove, add, and modify certain disclosure requirements on fair value measurements in ASC 820. The amendments are effective for all entities for fiscal years, and interim periods within those years, beginning after December 15, 2019. An entity shall apply the ASU retrospectively to all periods presented. The Company is currently evaluating the impact of this standard on its consolidated financial statements. The Company adopted the amendments in fiscal year 2020, and the adoption did not have a material impact on its consolidated financial statements.
In January 2017, the FASB issued ASU 2017-04, “Simplifying the Test for Goodwill Impairment”, which removes the second step of the goodwill impairment test that requires a hypothetical purchase price allocation. A goodwill impairment will now be the amount by which a reporting unit's carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. This guidance is effective prospectively for public business entities for annual or interim goodwill impairment tests in fiscal years beginning after December 15, 2020 and for annual or interim goodwill impairment tests in fiscal years beginning after December 15, 2021 for other entities. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The Company is currently evaluating the impact of this standard on its consolidated financial statements.
In June 2016, the FASB issued ASU 2016-13, “Financial Instruments—Credit Losses: Measurement of Credit Losses on Financial Instruments”, which changes the impairment model for most financial assets. The new model uses a forward-looking expected loss method, which will generally result in earlier recognition of allowances for losses. In November 2018, the FASB issued ASU 2018-19, “Codification Improvements to Topic 326, Financial Instruments— Credit Losses”, which clarifies that receivables arising from operating leases are not within the scope of Topic 326, Financial Instruments—Credit Losses. Instead, impairment of receivables arising from operating leases should be accounted for in accordance with Topic 842, Leases. These ASUs are effective for public entities for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years, and for other entities for fiscal years beginning after December 15, 2020 and interim periods within fiscal years beginning after December 15, 2021. Earlier application is permitted. As noted above, the effective date of this ASU has been delayed for one year by the issuance of ASU 2019-10. The Company is currently evaluating the impact of this standard on its consolidated financial statements.
In February 2016, the FASB issued ASU 2016-02, “Leases”, which was further clarified by ASU 2018-10, "Codification Improvements to Topic 842, Leases", and ASU 2018-11, "Leases—Targeted Improvements", both issued in July 2018. ASU 2016-02 affects all entities that lease assets and will require lessees to recognize a lease liability and a right-of-use asset for all leases (except for short-term leases that have a duration of less than one year) as of the date on which the lessor makes the underlying asset available to the lessee. For lessors, accounting for leases is substantially the same as in prior periods. ASU 2018-10 clarifies or corrects unintended application of guidance related to ASU 2016-02. The amendment affects narrow aspects of ASU 2016-02 related to the implicit rate in the lease, impairment of the net investment in the lease, lessee reassessment of lease classification, lessor reassessment of lease term and purchase options, variable payments that depend on an index or rate and certain transition adjustments. ASU 2018-11 adds a transition option for all entities and a practical expedient only for lessors. The transition option allows entities to not apply the new lease standard in the comparative periods they present in their financial statements in the year of adoption. Under the transition option, entities can opt to continue to apply the legacy guidance in ASC 840, “Leases”, including its disclosure requirements, in the comparative prior periods presented in the year they adopt the new lease standard. Entities that elect this transition option will still be required to adopt the new leases standard using the modified retrospective transition method required by the standard, but they will recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption rather than in the earliest period presented. The new standards are effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years for a public business entity. For all other entities, the amendments in this ASU are effective for fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020. Earlier application is permitted. As noted above, the effective date of this ASU has been delayed for one year by the issuance of ASU 2020-05. While the Company expects the adoption of these standards to result in a material increase to the reported assets and liabilities, the Company has not yet determined the full impact that the adoption of this standard will have on its consolidated financial statements.
94
3. FAIR VALUE MEASUREMENTS
The following tables provide the assets and liabilities measured at fair value on a recurring basis as of December 31, 2020 and 2019 (in thousands):
|
|
Fair Value Hierarchy as of December 31, 2020
|
|
|
Aggregate
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Fair Value
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mutual funds (1)
|
|
$
|
590
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
590
|
|
Certificates of deposit (2)
|
|
|
—
|
|
|
|
4,253
|
|
|
|
—
|
|
|
|
4,253
|
|
Total Assets
|
|
$
|
590
|
|
|
$
|
4,253
|
|
|
$
|
—
|
|
|
$
|
4,843
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Rate Swap (3)
|
|
$
|
—
|
|
|
$
|
109
|
|
|
$
|
—
|
|
|
$
|
109
|
|
Debt for forward share purchase agreements (4)
|
|
|
—
|
|
|
|
483
|
|
|
|
—
|
|
|
|
483
|
|
Total Liabilities
|
|
$
|
—
|
|
|
$
|
592
|
|
|
$
|
—
|
|
|
$
|
592
|
|
|
(1)
|
Included in the consolidated balance sheet line item “Short-term investments”.
|
|
(2)
|
Included in the consolidated balance sheets line item “Short-term investments”, with maturity terms between 4 and 12 months held in India.
|
|
(3)
|
Included in the consolidated balance sheet line item “Other long-term liabilities”.
|
|
(4)
|
Based on the information available at the reporting date, debt for forward share purchase agreements have been determined as the present value to be paid at settlement in case the counterparty exercises the put option.
|
|
|
Fair Value Hierarchy as of December 31, 2019
|
|
|
Aggregate
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Fair Value
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mutual funds (1)
|
|
$
|
5,124
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
5,124
|
|
Total Assets
|
|
$
|
5,124
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
5,124
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Rate Swap (2)
|
|
$
|
—
|
|
|
$
|
80
|
|
|
$
|
—
|
|
|
$
|
80
|
|
Preference shares (3)
|
|
|
—
|
|
|
|
—
|
|
|
|
2,530
|
|
|
|
2,530
|
|
Debt for forward share purchase agreements (4)
|
|
|
—
|
|
|
|
34,013
|
|
|
|
—
|
|
|
|
34,013
|
|
Total Liabilities
|
|
$
|
—
|
|
|
$
|
34,093
|
|
|
$
|
2,530
|
|
|
$
|
36,623
|
|
|
(1)
|
Included in the consolidated balance sheet line item “Short-term investments”.
|
|
(2)
|
Included in the consolidated balance sheet line item “Other long-term liabilities”.
|
|
(3)
|
Based on the information available at the reporting date, the preference shares liability was estimated on the basis of present value of the expected future cash flows contractually due in connection with the achievement of specified levels of EBITDA of Solutions Infini for the year ended March 31, 2020. Such cash flows are contractually predetermined and the maximum pay-out was assumed in determining the estimate which is primarily based on the expected EBITDA sourced from the most updated business plan, which represented management’s best estimates and was significantly above the targeted EBITDA. Changes in the liability during the period are due to (i) compensation expense accrued on a straight-line basis during period; (ii) accrued interest expense due to the fact that the obligation was to be settled in 2020; and (iii) exchange rate differences. No fair value changes were recognized during the period.
|
|
(4)
|
Based on the information available at the reporting date, debts for forward share purchase agreements have been determined as the present value to be paid at settlement in case the counterparty exercises the put option. The amount in the above table excludes accrued interest.
|
The values of short-term investments as of December 31, 2020 and 2019 were as follows (in thousands):
|
|
As of December 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
|
Cost
|
|
|
Unrealized
gains
|
|
|
Unrealized
losses
|
|
|
Fair value
|
|
|
Cost
|
|
|
Unrealized
gains
|
|
|
Unrealized
losses
|
|
|
Fair value
|
|
Mutual funds
|
|
$
|
580
|
|
|
$
|
10
|
|
|
$
|
—
|
|
|
$
|
590
|
|
|
$
|
5,129
|
|
|
$
|
1
|
|
|
$
|
(6
|
)
|
|
$
|
5,124
|
|
Certificates of deposit
|
|
|
4,253
|
|
|
|
—
|
|
|
|
—
|
|
|
|
4,253
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
95
The following tables present changes during the years ended December 31, 2020 and 2019 in Level 3 assets and liabilities measured at fair value on a recurring basis, and the realized and unrealized gains (losses) related to the Level 3 assets and liabilities in the consolidated balance sheets at December 31, 2020 and 2019 (in thousands):
|
|
Fair Value
Beginning
of Year
|
|
|
Net Realized
and
Unrealized
Gains (Losses)
Included
in Income
|
|
|
Other
Comprehensive
Income
(Loss)
|
|
|
Settlements,
Net
|
|
|
Change in
scope of
consolidation
|
|
|
Gross
Transfers
Out
|
|
|
Fair Value
End of
Year
|
|
December 31, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preference shares
|
|
$
|
1,834
|
|
|
$
|
753
|
|
|
$
|
(57
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
2,530
|
|
Contingent consideration for Solutions Infini acquisition
|
|
|
482
|
|
|
|
(15
|
)
|
|
|
23
|
|
|
|
(490
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
December 31, 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preference shares
|
|
|
2,530
|
|
|
|
2,486
|
|
|
|
42
|
|
|
|
2
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
There were no transfers of liabilities into or out of Level 2 or Level 3 in the year ended December 31, 2020.
Net realized and unrealized gains and losses included in income related to Level 3 liabilities shown above are reported in the consolidated statements of operations as follows (in thousands):
|
|
Research
and
development
|
|
|
Sales
and
marketing
|
|
|
General
and administrative
|
|
|
Financial
expense, net
|
|
|
Foreign
currency
loss
|
|
|
Total
|
|
December 31, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preference shares
|
|
$
|
225
|
|
|
$
|
89
|
|
|
$
|
180
|
|
|
$
|
259
|
|
|
$
|
—
|
|
|
$
|
753
|
|
Contingent consideration for Solutions Infini acquisition
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
3
|
|
|
|
(18
|
)
|
|
|
(15
|
)
|
December 31, 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preference shares
|
|
|
941
|
|
|
|
372
|
|
|
|
756
|
|
|
|
417
|
|
|
|
—
|
|
|
|
2,486
|
|
4. DERIVATIVE FINANCIAL INSTRUMENTS
The gross notional amount of derivative contracts not designated as hedging instruments, outstanding as of December 31, 2020, was €9.5 million ($11.6 million) for interest rate swap, while the gross notional amount of our derivative contracts not designated as hedging instruments, outstanding as of December 31, 2019 was €6.3 million ($7.0 million) for interest rate swap.
The amount and location of the gains (losses) in the consolidated statements of operations related to derivative contracts is as follows (in thousands):
|
|
|
|
Year Ended December 31,
|
|
Derivatives Not Designed As Hedging Instruments
|
|
Line Items
|
|
2020
|
|
|
2019
|
|
Interest Rate Swap
|
|
Financial income (expense), net
|
|
$
|
(18
|
)
|
|
$
|
16
|
|
Foreign Exchange Forward
|
|
Financial income (expense), net
|
|
|
—
|
|
|
|
361
|
|
Total
|
|
|
|
$
|
(18
|
)
|
|
$
|
377
|
|
96
The following table presents the fair value and the location of, derivative contracts reported in the consolidated balance sheets (in thousands):
|
|
|
|
As of December 31,
|
|
Derivatives Not Designed As Hedging Instruments
|
|
Line Items
|
|
2020
|
|
|
2019
|
|
Interest Rate Swap
|
|
Other long-term liabilities
|
|
$
|
(109
|
)
|
|
$
|
(80
|
)
|
Total
|
|
|
|
$
|
(109
|
)
|
|
$
|
(80
|
)
|
5. BUSINESS COMBINATION
Description of the Business Combination
Following the approval at the special meeting of the stockholders of the Company held on November 22, 2019, and pursuant to and in accordance with the terms of the Stock Purchase Agreement, as amended, the shareholders of Kaleyra S.p.A. (the “Sellers”) on November 25, 2019 sold, transferred, assigned, conveyed and delivered to the Company all of the Kaleyra S.p.A. stock.
As consideration for the Business Combination, the Company issued on November 25, 2019 (the “Business Combination Date”), in the aggregate, 10,687,106 shares of common stock to the Sellers. Furthermore, on April 29, 2020, as additional consideration for the Business Combination as an earn-out, Kaleyra issued 1,763,633 shares of its common stock to the Sellers.
In addition, as consideration for the Business Combination, on November 25, 2019 the Company issued unsecured convertible promissory notes to each of Esse Effe S.p.A. (“Esse Effe”) and Maya Investments Limited (“Maya”) in the amount of $6.0 million and $1.5 million, respectively, and also issued other unsecured promissory notes to each of Esse Effe and Maya in the identical respective amounts.
Immediately after giving effect to the Business Combination (including as a result of the redemptions and the automatic conversion of rights into shares of common stock), there were 19,977,113 shares of the Company’s issued and outstanding common stock. As of the date of the Business Combination, the Company’s directors and executive officers and affiliated entities beneficially owned approximately 63.36% of the Company’s outstanding shares of common stock, and the former security holders of GigCapital Inc. beneficially owned approximately 46.50% of the Company’s outstanding shares of common stock.
The per share redemption price of $10.5019 for public holders of the Company’s shares of common stock electing redemption was paid out of the Company’s Trust Account, which after taking into account the redemptions, had a balance after paying for the redemptions and immediately prior to the closing of the Business Combination of approximately $40.8 million.
Accounting for the Business Combination
The Business Combination was accounted for as a reverse recapitalization in accordance with U.S. GAAP. Under this method of accounting, Kaleyra, Inc. was treated as the “acquired” company for financial reporting purposes. This determination was primarily based on Kaleyra S.p.A.’s operations comprising substantially all of the ongoing operations of the post-combination company, Kaleyra S.p.A.’s senior management comprising substantially all of the senior management of the post-combination company and the existence of a majority voting interest in the post-combination company. Accordingly, for accounting purposes, the Business Combination was treated as the equivalent of Kaleyra S.p.A. issuing stock for the net assets of Kaleyra, Inc., accompanied by a recapitalization.
As a result of the accounting for the Business Combination, the number of common shares authorized and outstanding during periods prior to the Business Combination, were retrospectively adjusted reflecting the exchange ratio established in the Business Combination. The common stock and additional paid-in capital were also retrospectively adjusted, accordingly. Specifically, the number of common shares outstanding during periods prior to the Business Combination were computed on the basis of the number of common shares of Kaleyra S.p.A. (accounting acquiror) during those periods multiplied by the exchange ratio established in the Stock Purchase Agreement. Accordingly, weighted-average shares outstanding for purposes of the net loss per share calculation were retrospectively adjusted as shares reflecting the exchange ratio established in the Business Combination. See Note 24 – Loss per Share for further details.
The net assets of Kaleyra, Inc. were stated at historical cost, with no goodwill or other intangible assets recorded. Operations prior to the Business Combination are the historical operations of Kaleyra S.p.A.
97
The following table summarizes the assets and liabilities of Kaleyra, Inc., stated at historical cost at the Business Combination closing date as follows (in thousands):
Cash and cash equivalents
|
|
$
|
231
|
|
Restricted cash
|
|
|
21,435
|
|
Other current assets
|
|
|
14
|
|
Total assets
|
|
|
21,680
|
|
Debt for forward share purchase agreements
|
|
|
34,580
|
|
Notes payable to Sellers
|
|
|
15,000
|
|
Notes payable to Founders, current
|
|
|
3,578
|
|
Account payables and other current liabilities
|
|
|
8,896
|
|
Total liabilities
|
|
|
62,054
|
|
Net liabilities
|
|
$
|
40,374
|
|
In connection with the Business Combination, the Company incurred direct and incremental costs of approximately $7.7 million, consisting of legal and professional fees, which are included in general and administrative expenses in the consolidated statement of operations in 2019.
6. GOODWILL AND INTANGIBLE ASSETS, NET
Goodwill
Goodwill as of December 31, 2020 and 2019 was as follows (in thousands):
Balance as of December 31, 2019
|
|
$
|
16,953
|
|
Effect of exchange rate
|
|
|
(296
|
)
|
Balance as of December 31, 2020
|
|
$
|
16,657
|
|
Intangible assets, net
Intangible assets consisted of the following (in thousands):
|
|
As of December 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
|
Gross
|
|
|
Accumulated
amortization
|
|
|
Net
|
|
|
Gross
|
|
|
Accumulated
amortization
|
|
|
Net
|
|
Amortizable Intangible Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Developed technology
|
|
$
|
2,742
|
|
|
$
|
1,576
|
|
|
$
|
1,166
|
|
|
$
|
2,775
|
|
|
$
|
952
|
|
|
$
|
1,823
|
|
Customer relationships
|
|
|
8,925
|
|
|
|
2,598
|
|
|
|
6,327
|
|
|
|
9,077
|
|
|
|
1,631
|
|
|
|
7,446
|
|
Patent
|
|
|
130
|
|
|
|
49
|
|
|
|
81
|
|
|
|
113
|
|
|
|
29
|
|
|
|
84
|
|
Total amortizable intangible assets
|
|
$
|
11,797
|
|
|
$
|
4,223
|
|
|
$
|
7,574
|
|
|
$
|
11,965
|
|
|
$
|
2,612
|
|
|
$
|
9,353
|
|
Amortization expense was $1.6 million and $1.8 million for the years ended December 31, 2020 and 2019, respectively.
Total estimated future amortization expense as of December 31, 2020 is as follows (in thousands):
|
|
As of December
31, 2020
|
|
2021
|
|
$
|
1,435
|
|
2022
|
|
|
1,161
|
|
2023
|
|
|
1,053
|
|
2024
|
|
|
848
|
|
2025
|
|
|
632
|
|
2026 and thereafter
|
|
|
2,445
|
|
Total
|
|
$
|
7,574
|
|
98
7. PROPERTY AND EQUIPMENT, NET
Property and equipment consisted of the following (in thousands):
|
|
As of December 31,
|
|
|
|
2020
|
|
|
2019
|
|
Internal-use software development costs
|
|
$
|
4,675
|
|
|
$
|
1,470
|
|
Servers (1)
|
|
|
2,301
|
|
|
|
1,629
|
|
Office equipment
|
|
|
1,405
|
|
|
|
1,153
|
|
Leasehold improvements
|
|
|
653
|
|
|
|
616
|
|
Furniture and fixtures
|
|
|
428
|
|
|
|
388
|
|
Assets-in-progress (2)
|
|
|
1,164
|
|
|
|
665
|
|
Vehicles
|
|
|
11
|
|
|
|
23
|
|
Software
|
|
|
4
|
|
|
|
4
|
|
Other assets
|
|
|
102
|
|
|
|
91
|
|
Total property and equipment
|
|
|
10,743
|
|
|
|
6,039
|
|
Less: accumulated depreciation and amortization
|
|
|
4,017
|
|
|
|
2,646
|
|
Total property and equipment, net
|
|
$
|
6,726
|
|
|
$
|
3,393
|
|
|
(1)
|
Including equipment under capital leases with gross amount of $608,000 and accumulated depreciation of $191,000 as of December 31, 2020 (gross amount of $288,000 and accumulated depreciation of $78,000 as of December 31, 2019).
|
|
(2)
|
Assets-in progress amounting to $1.2 million as of December 31, 2020 refers to internal-use software development costs in-progress.
|
Depreciation and amortization expense was $1.1 million and $879,000 for the years ended December 31, 2020 and 2019, respectively.
The Company capitalized $3.7 million and $602,000, in internal-use software development costs in the years ended December 31, 2020 and 2019, respectively. Of the $3.7 million capitalized in 2020, $697,000 relates to stock-based compensation expense capitalized in internal-use software. Of the $3.7 million capitalized in 2020, $3.2 million relates to internal-use software in-use and $499,000 relates to internal-use software development in-progress, recorded within assets-in-progress. Amortization of capitalized software development costs was $507,000 and $355,000, in the years ended December 31, 2020 and 2019, respectively. The amortization expense was allocated as follows (in thousands):
|
|
Year Ended December 31,
|
|
|
|
2020
|
|
|
2019
|
|
Cost of revenue
|
|
$
|
271
|
|
|
$
|
302
|
|
Research and development
|
|
|
236
|
|
|
|
53
|
|
Total
|
|
$
|
507
|
|
|
$
|
355
|
|
8. OTHER ASSETS
Other current assets consisted of the following (in thousands):
|
|
As of December 31,
|
|
|
|
2020
|
|
|
2019
|
|
VAT receivables
|
|
$
|
1,347
|
|
|
$
|
3,136
|
|
Receivables from suppliers
|
|
|
542
|
|
|
|
398
|
|
Credit for tax other than income tax
|
|
|
119
|
|
|
|
358
|
|
Income tax receivables
|
|
|
69
|
|
|
|
270
|
|
Other receivables
|
|
|
57
|
|
|
|
62
|
|
Total other current assets
|
|
$
|
2,134
|
|
|
$
|
4,224
|
|
99
Other long-term assets consisted of the following (in thousands):
|
|
As of December 31,
|
|
|
|
2020
|
|
|
2019
|
|
Non-current income tax credit (advances and tax reduced at sources)
|
|
$
|
1,509
|
|
|
$
|
1,029
|
|
Miscellaneous
|
|
|
288
|
|
|
|
174
|
|
Total other long-term assets
|
|
$
|
1,797
|
|
|
$
|
1,203
|
|
9. BANK AND OTHER BORROWINGS
As of December 31, 2020 and 2019, the current portion of bank and other borrowings amounts to $16.1 million and $11.2 million, respectively. As of December 31, 2020, this item is comprised of $10.8 million of the current portion of long-term bank and other borrowings and of $5.3 million of credit line facilities. As of December 31, 2019, this item was comprised of $7.6 million of the current portion of long-term bank and other borrowings and of $3.6 million of credit line facilities.
Credit line facilities
As of December 31, 2020, the Company had credit line facilities granted of $7.7 million, of which $5.3 million had been used. As of December 31, 2019, the Company had credit line facilities granted of $5.6 million, of which $3.6 million had been used.
The above lines of credit may be drawn upon at variable interest rates in the following range: 0.6% - 7.6%.
The weighted average interest rate on the credit line facilities outstanding as of December 31, 2020, was 1.34%.
100
Long-term bank and other borrowings
Long-term bank and other borrowings consist of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Interest Nominal Rate
|
|
|
|
As of December 31,
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
Maturity
|
|
Interest Contractual Rate
|
|
|
2020
|
|
|
2019
|
|
UniCredit S.p.A. (Line A Tranche (1)
|
|
$
|
3,235
|
|
|
$
|
3,609
|
|
|
January 2023
|
|
Euribor 3 months + 3.10%
|
|
|
|
2.80
|
%
|
|
|
2.80
|
%
|
UniCredit S.p.A. (Line A Tranche (2)
|
|
|
153
|
|
|
|
167
|
|
|
May 2023
|
|
Euribor 3 months + 3.10%
|
|
|
|
2.80
|
%
|
|
|
2.80
|
%
|
UniCredit S.p.A. (Line B)
|
|
|
3,030
|
|
|
|
3,229
|
|
|
November 2023
|
|
Euribor 3 months + 2.90%
|
|
|
|
2.60
|
%
|
|
|
2.60
|
%
|
UniCredit S.p.A. (Line C)
|
|
|
2,521
|
|
|
|
2,787
|
|
|
February 2023
|
|
Euribor 3 months + 3.90%
|
|
|
|
3.36
|
%
|
|
|
3.53
|
%
|
Intesa Sanpaolo S.p.A. (Line 1)
|
|
|
931
|
|
|
|
988
|
|
|
April 2022
|
|
Euribor 3 months + 1.80%
|
|
|
|
1.26
|
%
|
|
|
1.88
|
%
|
Intesa Sanpaolo S.p.A. (Line 2)
|
|
|
4,292
|
|
|
|
4,183
|
|
|
April 2024
|
|
Euribor 3 months + 2.60%
|
|
|
|
2.06
|
%
|
|
|
2.60
|
%
|
Intesa Sanpaolo S.p.A. (Line 3)
|
|
|
9,688
|
|
|
|
—
|
|
|
June 2026
|
|
Euribor 3 months + 1.65%
|
|
|
|
1.11
|
%
|
|
|
—
|
|
Intesa Sanpaolo S.p.A. (Line 4)
|
|
|
6,734
|
|
|
|
—
|
|
|
July 2026
|
|
Euribor 3 months + 1.70%
|
|
|
|
1.16
|
%
|
|
|
—
|
|
UBI Banca S.p.A. (Line 1)
|
|
|
209
|
|
|
|
332
|
|
|
August 2021
|
|
Euribor 3 months +1.25%
|
|
|
|
1.25
|
%
|
|
|
1.25
|
%
|
UBI Banca S.p.A. (Line 2)
|
|
|
1,031
|
|
|
|
1,499
|
|
|
October 2021
|
|
Euribor 3 months +1.95%
|
|
|
|
1.41
|
%
|
|
|
1.55
|
%
|
Monte dei Paschi di Siena S.p.A. (Line 1)
|
|
|
328
|
|
|
|
521
|
|
|
April 2022
|
|
|
0.95
|
%
|
|
|
0.95
|
%
|
|
|
0.95
|
%
|
Monte dei Paschi di Siena S.p.A. (Line 2)
|
|
|
2,037
|
|
|
|
—
|
|
|
June 2023
|
|
|
1.50
|
%
|
|
|
1.50
|
%
|
|
|
—
|
|
Banco BPM S.p.A. (Line 1)
|
|
|
1,056
|
|
|
|
1,336
|
|
|
June 2023
|
|
Euribor 3 months + 2.00%
|
|
|
|
2.00
|
%
|
|
|
2.00
|
%
|
Banco BPM S.p.A. (Line 2)
|
|
|
—
|
|
|
|
3,893
|
|
|
September 2022
|
|
Euribor 3 months + 2.00%
|
|
|
|
—
|
|
|
|
2.00
|
%
|
Banco BPM S.p.A. (Line 3)
|
|
|
6,355
|
|
|
|
—
|
|
|
March 2024
|
|
Euribor 3 months + 3.00%
|
|
|
|
2.46
|
%
|
|
|
—
|
|
Simest 1
|
|
|
307
|
|
|
|
280
|
|
|
December 2023
|
|
|
0.50
|
%
|
|
|
0.50
|
%
|
|
|
0.50
|
%
|
Simest 2
|
|
|
305
|
|
|
|
279
|
|
|
December 2023
|
|
|
0.50
|
%
|
|
|
0.50
|
%
|
|
|
0.50
|
%
|
Simest 3
|
|
|
560
|
|
|
|
512
|
|
|
December 2023
|
|
|
0.50
|
%
|
|
|
0.50
|
%
|
|
|
0.50
|
%
|
Finlombarda S.p.A.
|
|
|
—
|
|
|
|
83
|
|
|
December 2020
|
|
|
0.50
|
%
|
|
|
0.50
|
%
|
|
|
0.50
|
%
|
Total bank and other borrowings
|
|
|
42,772
|
|
|
|
23,698
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: current portion
|
|
|
10,798
|
|
|
|
7,564
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total long-term portion
|
|
$
|
31,974
|
|
|
$
|
16,134
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All bank and other borrowings are unsecured borrowings of Kaleyra.
On October 7, 2020, Kaleyra S.p.A. received a third approval by Intesa Sanpaolo S.p.A. to postpone payment of the amounts due under the existing Line 1 and Line 2 loans for an additional 3 months. As a result of this approval the Company postponed the payments of approximately $404,000 beyond December 31, 2020.
On July 29, 2020, Kaleyra S.p.A. entered into a general unsecured loan agreement (the “Intesa Loan Agreement (Line 4)”) with Intesa Sanpaolo S.p.A. denominated in Euro for a total of €5.5 million ($6.5 million at the July 29, 2020 exchange rate). The proceeds of the loan may be used for general corporate purposes, including to help accelerate the Company’s growth. The Intesa Loan Agreement (Line 4) has a maturity of 72 months from the date of disbursement and bears interest at a variable rate equal to the three-month Euribor plus a spread of 1.70%. The loan is to be repaid in 20 quarterly installments with a grace period for principal payments for the first 12 months. The loan is subject to financial covenants, in accordance with the terms and conditions set forth within the Intesa Loan Agreement (Line 4). The loan is guaranteed up to ninety percent of its principal amount by Mediocredito Centrale S.p.A., the Italian state-owned export credit finance agency, and is made pursuant to a program to address COVID-19 and the Italian Government’s support for Italian businesses, as stated within Article 13 of the Decree Law 23/2020 and conversion Law 40/2020, and obligations and representations included therein. The total amount of the loan, less amounts related to commissions, fees and expenses, was drawn in full the same date as of the agreement.
101
On July 16, 2020, Kaleyra S.p.A. entered into a general unsecured loan agreement (the “Intesa Loan Agreement (Line 3)”) with Intesa Sanpaolo S.p.A. denominated in Euro for a total of €7.9 million ($9.0 million at the July 16, 2020 exchange rate). The Intesa Loan Agreement (Line 3) has a maturity of 72 months from the date of disbursement and bears interest at a variable rate equal to the three-month Euribor plus a spread of 1.65%. The loan is to be repaid in 16 quarterly installments with a grace period for principal payments for the first 24 months. The loan is subject to financial covenants, in accordance with the terms and conditions set forth within the Intesa Loan Agreement (Line 3). The loan is guaranteed up to ninety percent of its principal amount by SACE S.p.A., the Italian state-owned export credit finance agency, and is made pursuant to a program to address COVID‑19 and the Italian Government’s support for Italian businesses, as stated within Article 1 of the Decree Law 23/2020 (the “Decree”) and conversion Law 40/2020. In consideration of the facilitated nature of the guarantee that secures this loan, and pursuant to the general conditions of the SACE guarantee, Kaleyra S.p.A. undertakes to comply with a number of obligations and representations, including the payment of the guarantee annual fee (SACE guarantee remuneration), pursuant to Article 1 of the Decree. The total amount of the loan, less amounts related to commissions, fees and expenses, was drawn in full the same date as of the agreement.
On June 29, 2020, Kaleyra S.p.A. received a second approval by Intesa Sanpaolo S.p.A. to postpone payment of the amounts due under the existing Line 1 and Line 2 loans for an additional 3 months. As a result of this approval the Company has postponed the payments of approximately $404,000 beyond December 31, 2020.
On April 24, 2020, Kaleyra S.p.A. received the approval by Simest S.p.A. to postpone the amounts due under the existing loans in 2020. As a result of this approval, the Company has postponed the payments of approximately $350,000 beyond December 31, 2020.
On April 9, 2020, Kaleyra S.p.A. received the approval by UniCredit to postpone the amounts due under the existing loans for the following 6 months. As a result of this approval, the Company has postponed the payments of approximately $1.6 million beyond the following 6 months.
On April 7, 2020, Kaleyra S.p.A. received the approval by UBI Banca S.p.A. to postpone the amounts due under the existing loans for the following 6 months. As a result of this approval, the Company has postponed the payments of approximately $694,000 beyond the following 6 months.
On March 31, 2020, Kaleyra S.p.A. received the approval by Intesa Sanpaolo S.p.A. to postpone payment of the amounts due under the existing Line 1 and Line 2 loans for the following 3 months. As a result of this approval the Company has postponed the payments of approximately $404,000 beyond December 31, 2020.
On March 20, 2020, Kaleyra S.p.A. entered into a general unsecured loan agreement (the “BPM Loan Agreement (Line 3)”) with Banco BPM S.p.A. (formerly Banco Popolare di Milano S.p.A.) denominated in Euro for a total of €6.0 million ($6.4 million at the March 20, 2020 exchange rate). The BPM Loan Agreement (Line 3) included a new financing of $2.7 million with the remaining balance used to pay off the original loan dated July 23, 2019, by and between Kaleyra S.p.A. and Banco BPM S.p.A. The BPM Loan Agreement has a maturity of 45 months from the date of first repayment and bears interest at a variable rate equal to the three-month Euribor plus a spread of 3.00%. The BPM Loan Agreement (Line 3) is to be repaid in 15 quarterly installments. The total amount of the BPM Loan Agreement (Line 3), less amounts related to commissions, fees and expenses, was drawn in full the same date as the BPM Loan Agreement (Line 3).
On March 11, 2020, Kaleyra S.p.A. entered into a 36-month (from first repayment date) unsecured loan agreement with Monte dei Paschi di Siena S.p.A. (the “Monte dei Paschi di Siena Loan Agreement – Line 2”) denominated in Euro for a total of €2.0 million ($2.3 million at the March 11, 2020 exchange rate). The total amount of this new facility was drawn in full the same date. This facility bears interest at a fixed rate equal to 1.5%.
In connection with the above-mentioned financing agreements entered into in the year ended December 31, 2020, the Company incurred $124,000 of debt issuance costs that will be amortized over the maturity of the respective financing agreements.
On August 2, 2019, the Company entered into a medium-term financing agreement with UniCredit S.p.A. (the “UniCredit Loan Agreement (Line C)”), denominated in Euro for a total of €2.5 million ($2.8 million at the August 2, 2019 exchange rate) to be repaid in quarterly installments starting from February 2020. The financing will bear interest at a variable rate (Euribor 3 months plus 3.9% spread). The notional amount was fully drawn on the same date. On April 9, 2020, the maturity date was revised to February 2023, as referred above.
102
On July 25, 2019, the Company entered into a medium-term financing agreement with Intesa Sanpaolo S.p.A. (the “Intesa Loan Agreement (Line 2)”), denominated in Euro, for a total notional amount of €4.0 million ($4.4 million at the July 25, 2019 exchange rate) to be repaid in quarterly installments starting from October 2019. The financing has a maturity of 48 months from the date of disbursement and bears interest at a variable rate (Euribor 3 months plus 2.6% spread). The total amount was drawn in full on the same date. Proceeds were used to settle the remaining deferred consideration due for the acquisition of Buc Mobile. On October 7, 2020, the maturity date was revised to April 2024, as described above.
On July 23, 2019, the Company entered into a medium-term financing agreement with Banco Popolare di Milano S.p.A. (the “BPM Loan Agreement (Line 2)”), denominated in Euro for a total of €4.0 million ($4.5 million at the July 23, 2019 exchange rate) to be repaid in quarterly installments. The financing has a maturity of 24 months from the date of disbursement and bears interest at a variable rate (Euribor 3 months plus 2.0% spread). The total amount was drawn in full on the same date and proceeds were used to settle the total deferred consideration for the acquisition of Solutions Infini. On March 20, 2020, the BPM Loan Agreement (Line 2) was paid off with proceeds from the new BPM Loan Agreement – Line 3, as described above.
On April 30, 2019, the Company entered into a new long-term financing with Banco Popolare di Milano S.p.A. (the “BPM Loan Agreement (Line 1)”), denominated in Euro for a total amount of €1.2 million ($1.3 million at the April 30, 2019 exchange rate), to be repaid in quarterly installments with maturity in June 2023.
On April 10, 2019, the Company entered into a new medium-term financing with UBI Banca S.p.A. (the “UBI Loan Agreement (Line 2)”), denominated in Euro for a total amount of €2.0 million ($2.3 million at the April 10, 2019 exchange rate), to be repaid in monthly installments with maturity in April 2021. On April 7, 2020, the maturity date was revised to October 2021, as described above.
On April 10, 2019, the Company entered into a new medium-term financing with Monte dei Paschi di Siena S.p.A. (the “MPS Loan Agreement (Line 1)”), denominated in Euro for a total amount of €600,000 ($677,000 at the April 10, 2019 exchange rate), to be repaid in monthly installments with maturity in April 2022.
On January 30, 2019, the Company entered into a new long-term financing with Simest (the “Simest 3”) denominated in Euro for a total of €608,000 ($695,000 at the January 30, 2019 exchange rate) to be repaid in quarterly installments with maturity in December 2022. On April 24, 2020, the maturity date was revised to December 2023, as described above.
As of December 31, 2020, all of the available long-term facilities were drawn in full.
The above facilities include a series of statements and disclosure obligations, in line with the standard practice for these types of financings, whose breach could result in termination, early repayment or enforcement of acceleration rights. In particular, the UniCredit Facility and the Intesa Sanpaolo Facility include, among other, change of control provisions that may cause the bank to request immediate repayment of the outstanding debt under the relevant facility as a result of such a change of control event. Upon the consummation of the Business Combination, Kaleyra S.p.A. formally agreed with UniCredit S.p.A. and Intesa Sanpaolo S.p.A. that the Business Combination does not represent a change of control event with respect to the respective outstanding borrowing.
In addition, some of the above facilities require compliance with certain financial covenants, based on Kaleyra S.p.A.’s EBITDA, net financial position and equity. Failure to comply with those financial covenants would result in the immediate repayment of the outstanding debt under the relevant facility. As of December 31, 2020, the Company is in compliance with all the financial covenants.
Interest expense on bank and other borrowings was of $835,000 for the year ended December 31, 2020 and $565,000 for the year ended December 31, 2019.
103
As of December 31, 2020, the Company is obliged to make payments as follows (in thousands):
|
|
As of December 31, 2020
|
|
2021
|
|
$
|
10,798
|
|
2022
|
|
|
11,364
|
|
2023
|
|
|
9,725
|
|
2024
|
|
|
4,841
|
|
2025
|
|
|
3,792
|
|
2026 and thereafter
|
|
|
2,252
|
|
Total
|
|
$
|
42,772
|
|
10. DEBT FOR FORWARD SHARE PURCHASE AGREEMENTS
As of December 31, 2020, the Company’s debt for forward share purchase agreements amounted to $483,000 and accrued interest amounted to $659,000.
Greenhaven
On September 27, 2019, the Company and Greenhaven Road Capital Fund 1, LP, a Delaware limited partnership (“Greenhaven Fund 1”), and Greenhaven Road Capital Fund 2, LP, a Delaware limited partnership (“Greenhaven Fund 2” and together with Greenhaven Fund 1, “Greenhaven”) entered into a forward share purchase agreement (the “Greenhaven Purchase Agreement”) pursuant to which the Company agreed to purchase the shares of its common stock into which Rights of the Company held by Greenhaven and any additional Rights that Greenhaven acquired, converted into shares upon the closing of the Business Combination as amended as of December 13, 2019 at the following prices: (1) $11.00 per share for the first 196,195 shares sold to the Company; (2) $10.70 per share for the next 250,000 shares sold to the Company; and (3) $10.50 per share for the next 550,000 shares sold to the Company. The Company agreed to purchase the shares on the later of the sixtieth day after the Closing of the Business Combination or January 1, 2020 (the “Greenhaven Purchase Closing Date”).
In exchange for Kaleyra, Inc.’s commitment to acquire the shares on the Greenhaven Purchase Closing Date, each of Greenhaven Fund 1 and Greenhaven Fund 2 agreed to continue to hold, and not to offer, sell, contract to sell, pledge, transfer, assign, or otherwise dispose of, directly or indirectly, or hedge (including any transactions involving any derivative securities of Kaleyra, Inc. and including any short sales involving any of Kaleyra, Inc.’s securities), the Rights (including any additional Rights) held by Greenhaven, and any shares that such Rights (including any additional Rights) converted into, until the Greenhaven Purchase Closing Date, including not to tender the Rights (or any additional Rights) to Kaleyra, Inc. in response to any tender offer that Kaleyra, Inc. may commence for the Rights. As amended on December 13, 2019, notwithstanding anything to the contrary herein, the parties agreed that Greenhaven shall after the closing of the Business Combination have the right but not the obligation to sell its shares that the Rights converted into in blocks of at least 25,000 shares (the “Minimum Block Size Condition”) in the open market if the sale price exceeds $8.50 per share, or, without meeting the Minimum Block Size Condition, Greenhaven shall have the right but not the obligation to sell any or all of its shares that the Rights converted into in the open market if the share price equals or exceeds $10.50 per share. In furtherance of the foregoing, Greenhaven shall have the right to sell such shares at any time provided that the price received by Greenhaven (not including any commissions due by Greenhaven for the sale) is at least $10.50 (or at least $8.50 if Greenhaven meets the Minimum Block Size Condition). In the event that Greenhaven sells any shares (including any Additional Shares), at a sale price of less than $10.50, and provided that Greenhaven meets the Minimum Block Size Condition, it shall provide notice to the Company within three (3) Business Days of such sale, and such notice shall include the date of the sale, the number of shares sold, and confirmation that the sale price per share was greater than $8.50, and the Company shall pay Greenhaven in accordance with Greenhaven’s written instructions an amount equal to (x) the number of shares (including any Additional Shares) sold multiplied by (y) the amount by which $10.50 exceeds the sale price per share. Furthermore, the parties agreed that nothing in the Greenhaven Purchase Agreement shall prohibit Greenhaven from entering into a contract to purchase and/or sell warrants of Kaleyra, Inc.
104
On January 23, 2020, the Company entered into Amendment No. 3 to the Greenhaven Purchase Agreement (the “Greenhaven Amendment No. 3”). The Greenhaven Amendment No. 3 provided that Greenhaven had the right to put its subject shares to the Company on the following dates and at the following purchase prices: (i) $11.00 per share for up to 248,963 shares to be sold to the Company on February 21, 2020; and (ii) $11.70 per share for the next 700,000 shares to be sold to the Company on August 30, 2020. Greenhaven Amendment No. 3 also provided that Greenhaven may continue to sell its subject shares in the open market, at its sole discretion, as long as the sales price is above $8.50 per share. On February 20, 2020, the Company repurchased an aggregate of 235,169 of its common stock for $2.6 million. In addition, the Company paid Greenhaven $152,000 for the 60,996 shares that Greenhaven sold on the open market representing the amount at which the $11.00 exceeded the selling price. Pursuant to Greenhaven Amendment No. 3, on August 30, 2020, the Company was to pay Greenhaven an amount equal to (1) the number of shares (including any Additional Shares) sold by Greenhaven in the open market between February 21, 2020 and August 30, 2020 multiplied by (2) the amount by which $11.70 exceeds the sale price per share. The Company understands that Greenhaven as of June 30, 2020 had sold 160,452 shares in the open market, for which the aggregate difference between the sale price per share and $11.70 totaled $832,000.
On July 18, 2020, the Company entered into Amendment No. 4 to the Greenhaven Purchase Agreement (the “Greenhaven Amendment No. 4”). The Greenhaven Amendment No. 4 provided that Greenhaven had the right to put the remaining 539,548 subject shares that Greenhaven held to the Company at $11.70 per share minus $100,000 on July 21, 2020, or $6.2 million, which was a reduction of $100,000 to the amount for which these shares could otherwise have been sold to the Company on August 30, 2020. As a result of the Greenhaven Amendment No. 4, the Company owed Greenhaven the sum of $832,000 plus $6.2 million, or $7.0 million. Under the terms of the Greenhaven Amendment No. 4, on July 21, 2020, Kaleyra paid Greenhaven this outstanding debt of $7.0 million in satisfaction of all obligations under the Greenhaven Purchase Agreement.
As of December 31, 2020, there was no longer any amount owed to Greenhaven.
Kepos Alpha Fund
On October 1, 2019, the Company and Kepos Alpha Fund L.P., a Cayman Islands limited partnership (“KAF”), entered into a forward share purchase agreement (“KAF Purchase Agreement”) pursuant to which the Company agreed to purchase the shares of common stock of the Company into which the Rights of the Company held by KAF, including any additional Rights that KAF acquired, converted into upon the closing of the Business Combination. The KAF Purchase Agreement was amended the following day to provide that the total number of additional Rights that KAF may acquire was 3,750,000 Rights. As amended December 13, 2019, the KAF Purchase Agreement provides that the Company would purchase such shares at the following price: (1) $10.70 per share for the first 102,171 shares sold to the Company; and (2) $10.50 per share for the next 93,676 shares sold to the Company. The Company agreed to purchase the shares on the earlier of the sixtieth day after the Business Combination or February 15, 2020 (the “KAF Purchase Closing Date”).
In exchange for the Company’s commitment to acquire the shares on the KAF Purchase Closing Date, KAF agreed to continue to hold, and not to offer, sell, contract to sell, pledge, transfer, assign, or otherwise dispose of, directly or indirectly, or hedge (including any transactions involving any derivative securities of Kaleyra, Inc. and including any short sales involving any of the Company’s securities), the Rights (including any additional Rights) held by KAF, and any shares that such Rights (including any additional Rights) converted into, until the KAF Purchase Closing Date, including not to tender the Rights (or any additional Rights) to the Company in response to any Tender Offer that the Company may commence for the Rights. As amended on December 13, 2019, notwithstanding anything to the contrary herein, the parties agreed that KAF shall after the closing of the Business Combination have the right but not the obligation to sell its shares that the Rights converted into in blocks of at least the Minimum Block Size Condition in the open market if the sale price exceeds $8.50 per share, or, without meeting the Minimum Block Size Condition, KAF shall have the right but not the obligation to sell any or all of its shares that the Rights converted into in the open market if the share price equals or exceeds $10.50 per share. In furtherance of the foregoing, KAF shall have the right to sell such hares at any time provided that the price received by KAF (not including any commissions due by KAF for the sale) is at least $10.50 (or at least $8.50 if KAF meets the Minimum Block Size Condition). In the event that KAF sells any shares (including any Additional Shares), at a sale price of less than $10.50, and provided that KAF meets the Minimum Block Size Condition, it shall provide notice to the Company within three (3) Business Days of such sale, and such notice shall include the date of the sale, the number of shares sold, and confirmation that the sale price per share was greater than $8.50, and the Company shall pay KAF in accordance with KAF’s written instructions an amount equal to (x) the number of shares (including any Additional Shares) sold multiplied by (y) the amount by which $10.50 exceeds the sale price per share. Furthermore, the parties agreed that nothing in the KAF Purchase Agreement shall prohibit KAF from entering into a contract to purchase and/or sell warrants of the Company.
105
On January 23, 2020, the Company entered into Amendment No. 3 to the KAF Purchase Agreement and on April 7, 2020, the Company entered into Amendment No. 4 (the “KAF Amendments”). According to the last amendment, KAF has the right to put its subject shares to the Company on May 7, 2020 at a purchase price of: (i) $10.92 per share for the first 46,137 shares sold to the Company; and (ii) $10.82 per share for the next 93,676 Shares sold to the Company (collectively, the “KAF Share Purchase Price”). In the event the closing occurs after May 7, 2020, the KAF Share Purchase Price shall increase for the 93,676 shares sold to Kaleyra by 1% per full month until the closing date. KAF may elect, in its sole and absolute discretion, to extend the date on which it exercises its put right to a date that is provided upon 10 calendar days’ written notice. The KAF Amendments further provide that KAF may sell its subject shares in the open market, at its sole discretion, as long as the sales price is above $7.00 per share. In the event that KAF sells any shares (including any Additional Shares) at a sale price of less than $10.92 per share for the first 46,137 shares and $10.82 per share for the next 93,676 shares, the Company shall pay KAF an amount equal to (A) the number of shares (including any Additional Shares) sold multiplied by (B) the amount by which $10.92 or $10.82, as applicable, exceeds the sale price per share.
On March 30, 2020, Kepos provided notice to the Company that it was exercising its option under the forward share purchase agreement to have 50,000 shares of common stock repurchased by the Company on April 7, 2020 at $10.92 per share, for an aggregate purchase price of $546,000.
On May 18, 2020, Kepos informed the Company that it sold in the open market at a price above $7.00 per share all shares that it had held that were subject to the forward share purchase agreement other than 25,098 shares, and it provided notice that it was exercising its option under the forward share purchase agreement to have these remaining 25,098 shares of common stock repurchased by the Company on May 20, 2020 at $10.92 per share, for an aggregate purchase price of $274,000. The May 18, 2020 notice also informed the Company that the amount due to Kepos for the sales that it had made in the open market above $7.00 per share was $431,000, which represented the difference in price between the amount for which these shares were sold by Kepos in the open market and the Kepos Share Purchase Price, as set forth above, for a total aggregate payment to be made by the Company to Kepos of $706,000.
Following the closing of the repurchase mentioned above, the forward share purchase agreement with Kepos has terminated pursuant to its terms, and as a result the Company has no further obligations under the forward share purchase agreement following the settlement of the repurchase.
Yakira Capital Management
On November 19, 2019, the Company and Yakira Capital Management, Inc. (“Yakira”) entered into a forward share purchase agreement (the “Yakira Purchase Agreement”) pursuant to which (i) the Company agreed to purchase, at Yakira’s option, shares of common stock of the Company held by Yakira at the Business Combination Date (the “Yakira Shares”), and (ii) the Company agreed to purchase the shares of common stock of the Company into which the Rights held by Yakira (the “Yakira Rights Shares”) were converted upon the Business Combination Date. At the Business Combination Date, Yakira held 439,299 rights and 1,084,150 Yakira Shares.
The Company agreed that it will purchase the Yakira Rights Shares from Yakira at $1.05 per Right (which reflects $10.50 per Yakira Rights Share) (the “Yakira Rights Share Purchase Price”) as soon as practicable on or after the later of the sixtieth day after the Business Combination Date or January 1, 2020 (the “Yakira Rights Shares Closing Date”). In exchange for the Company’s agreement to purchase the Yakira Rights Shares, Yakira agreed to continue to hold, and not offer, sell, contract to sell, pledge, transfer, assign, or otherwise dispose of, directly or indirectly, or hedge the Rights (including any transactions involving any derivative securities of Yakira and any Short Sales involving any of the Company’s securities), and any Yakira Rights Shares that the rights converted into, until the Yakira Rights Shares Closing Date, including not to tender the Rights to the Company in response to any Tender Offer that the Company may commence for the Rights.
Yakira has the right to terminate the agreement for the Company to purchase the Yakira Rights Shares, without penalty, commencing on the thirtieth day after the Business Combination Date and ending on the day prior to the Yakira Rights Shares Closing Date, by giving written notice to the Company, in which case it will not be restricted after such time with respect to its ability to dispose of the Yakira Rights Shares (subject to the restrictions against transactions involving any derivative securities of the Company and any Short Sales involving any of the Company’s securities).
106
Except as described below, Yakira also agreed to continue to hold, and not offer, sell, contract to sell, pledge, transfer, assign, or otherwise dispose of, directly or indirectly, or hedge (including any transactions involving any derivative securities of the Company and any short sales involving any of the Company’s securities) the Yakira Shares prior to the six month anniversary of the Business Combination Date. Yakira further agreed to not redeem any of the Yakira Shares in conjunction with the Company’s stockholders’ approval of the Business Combination. Notwithstanding anything to the contrary herein, commencing on the day after the Business Combination Date, Yakira may sell the Yakira Shares in the open market as long as the sales price is above $10.50 per Yakira Share.
Yakira had the right to sell the Yakira Shares between the four-month anniversary and six-month anniversary of the Business Combination Date to the Company for a per share price (the “Yakira Shares Purchase Price”) equal to (a) $10.5019, plus (b) $0.03 per share for each month (prorated for a partial month) following the Business Combination Date that Yakira has held the Yakira Shares. At the closing of the sale of the Yakira Shares to the Company, Yakira agreed to deliver the Yakira Shares to the Company against receipt of the aggregate Yakira Shares Purchase Price, which the Company agreed to pay by wire transfer of immediately available funds from the escrow account described below.
Following the Business Combination Date, the Company deposited into an escrow account with the Escrow Agent, subject to an escrow agreement, with a nationally chartered bank the amount of $11.6 million related to Yakira. The Company agreed that its purchase of the Yakira Shares would be made with funds from the escrow account attributed to the Yakira Shares.
On February 7, 2020, the Yakira Purchase Agreement with Yakira was amended (the “First Yakira Amendment”). The First Yakira Amendment provided that the Company will purchase some or all of the 43,930 Yakira Rights Shares if Yakira exercises an option to sell such shares to the Company at a purchase price of $10.93 per share (which is an increase from $10.50 per share) as soon as practicable on or after the six-month anniversary of the Business Combination Date.
On May 9, 2020, the Company entered into a second amendment to the Yakira Purchase Agreement (the “Second Amendment”). The Second Amendment provided that the Company will purchase from Yakira its 43,930 Rights Shares as soon as practicable on or after December 31, 2020.
On May 11, 2020, Yakira issued a notice under the Yakira Purchase Agreement for Kaleyra to repurchase 1,084,150 shares of common stock at $10.6819 per share, for an aggregate purchase price of $11.6 million, with such payment to be made with restricted cash previously placed in an escrow account with an escrow agent pursuant to the terms of the Yakira Purchase Agreement, plus an additional $4,000. These shares were repurchased by Kaleyra on May 18, 2020 (the “Yakira Repurchase”) and are unrelated to the 43,930 Rights Shares. As a result of the Yakira Repurchase, no cash remains in the escrow account in accordance with the terms of the Yakira Purchase Agreement.
In addition, on December 11, 2020, Kaleyra entered into the third amendment to the forward share purchase agreement with Yakira (the “Third Yakira Amendment”). The Third Yakira Amendment provides that Kaleyra will purchase from Yakira its 43,930 Right Shares as soon as practicable on or after March 31, 2021, at a purchase price of $11.00 per share (which is an increase from $10.93 per share).
As of December 31, 2020, the Company’s debt in connection with the Yakira Purchase Agreement amounted to $483,000.
Subsequent to December 31, 2020, Yakira informed the Company that it sold all but 219 shares in the open market at a price above $11.00 per share that were subject to the Third Yakira Amendment. See Note 27 – Subsequent Events – for further details. Following the sale of shares mentioned above, the forward share purchase agreement with Yakira has terminated pursuant to its terms for all but the 219 shares that Yakira still owns, and as a result the Company has no further obligations under the Yakira Purchase Agreement except for the purchase of those shares which Yakira still owns.
107
Glazer Capital, LLC
On November 19, 2019, the Company and Glazer Capital, LLC (“Glazer”) entered into a forward share purchase agreement (the “Glazer Purchase Agreement”) pursuant to which Glazer may elect to sell and transfer to the Company, and the Company will purchase the shares of the common stock of the company held by Glazer (the “Glazer Shares”) at a price of $10.6819 per share (the “Glazer Shares Purchase Price”). Glazer shall notify the Company in writing five business days prior to the six month anniversary of the Business Combination Date if it is not exercising its right to sell the Glazer Shares to the Company; otherwise, absent written notification to the contrary, Glazer shall be deemed to have exercised its right to sell all of its Glazer Shares to the Company. The Company will purchase the Glazer Shares from Glazer on the six-month anniversary of the closing of the Business Combination (the “Glazer Shares Closing Date”). As of the Business Combination Date, Glazer held 922,933 shares of common stock.
In exchange for the Company’s commitment to purchase the Glazer Shares on the Glazer Shares Closing Date, Glazer agreed to continue to hold, and not offer, sell, contract to sell, pledge, transfer, assign, or otherwise dispose of, directly or indirectly, or hedge (including any transactions involving any derivative securities of the Company and any Short Sales involving any of the Company’s securities) the Glazer Shares prior to the six month anniversary of the Business Combination Date. Glazer further agreed that it will not redeem any of the Glazer Shares in conjunction with the Company’s stockholders’ approval of the Business Combination. As amended on December 13, 2019, notwithstanding anything to the contrary herein, the parties agreed that Glazer shall, commencing on the day after the Business Combination Closing Date, have the right but not the obligation to sell its shares (including any Additional Shares) in blocks of at least the Minimum Block Size Condition in the open market if the sale price exceeds $8.50 per share prior to payment of any commissions due by Glazer for the sale, or, without meeting the Minimum Block Size Condition, Glazer shall have the right but not the obligation to sell any or all of its shares (including any Additional Shares) in the open market if the sale price exceeds $10.50 per share prior to payment of any commissions due by Glazer for such sale. Glazer shall give written notice to the Company of any sale of shares (including any Additional Shares) within three (3) Business Days following the date of such sale, and such notice shall include the date of the sale, the number of shares sold, and confirmation that the sale price per share was greater than $10.50 per share (or greater than $8.50 per share provided that Glazer meets the Minimum Block Size Condition) prior to the payment of any commissions due by Glazer for the sale.
Simultaneously with the closing of the Business Combination, the Company deposited $9,858,678 which is the aggregate amount necessary to purchase the Glazer Shares, into an escrow account with Continental Stock Transfer and Trust Company (the “Escrow Agent”), subject to the terms of an escrow agreement. The Company’s purchase of the Glazer Shares will be made with funds from the escrow account attributed to the Glazer Shares. In the event that Glazer sells any Glazer Shares as provided for above, it shall provide notice to the Company within three business days of such sale, and Glazer shall instruct the Escrow Agent to release from the escrow account for the Company’s use without restriction an amount equal to the pro rata portion of the escrow attributed to the Glazer Shares which Glazer has sold. In the event that Glazer chooses not to sell to the Company any Glazer Shares that it owns as of the six-month anniversary of the Business Combination Date, Glazer shall instruct the Escrow Agent to release all remaining funds from the escrow account for the Company’s use without restriction.
Notwithstanding the Company’s commitment to deposit funds into the escrow account for the purchase of the Glazer Shares, Kaleyra, Inc. shall use its best efforts to enter into a letter of credit agreement for the issuance of a standby letter of credit for the benefit of Glazer with a bank acceptable to Glazer (the “Issuing Bank”) as soon as possible to replace the escrow account. When the letter of credit agreement is entered into, Glazer will instruct the Escrow Agent to deposit the funds held in the escrow account into the collateral account with the Issuing Bank. Concurrently with the execution of the letter of credit agreement, the Issuing Bank shall issue the letter of credit for the benefit of Glazer in the amount of the escrow account. Glazer shall drawdown from the letter of credit to satisfy the payment due to Glazer by the Company for the purchase of the Glazer Shares. In the event that Glazer sells any Glazer Shares pursuant to the sales price restriction set forth above, it shall provide notice to the Company and the Issuing Bank within three business days of such sale, and the Issuing Bank shall release from the collateral account an amount equal to the number of Glazer Shares sold multiplied by $10.6819 to the Company for the Company’s use without restriction, with a corresponding reduction in the amount of the letter of credit. In the event that Glazer elects not to sell to the Company any Glazer Shares, the Issuing Bank shall release all funds in the collateral account to the Company for the Company’s use without restriction and terminate the letter of credit. From November 26, 2019 to December 31, 3019 Glazer sold 53,040 shares on the open market, thus reducing the the Company’s debt in connection with the Glazer Purchase Agreement to $9.3 million as of December 31, 2019.
108
On January 7, 2020, the Company entered into a Letter of Credit and Reimbursement agreement with EagleBank pursuant to which EagleBank issued a standby letter of credit in the initial stated amount of $9.3 million for the benefit of Glazer. The Letter of Credit could be used to draw down by Glazer upon its sale of shares of common stock of the Company pursuant to the terms and conditions set forth in the forward share purchase agreement. The Letter of Credit was secured by cash in the amount of $9.3 million, which was held in a deposit account at EagleBank.
On May 15, 2020, Glazer provided notice that it was exercising its option under the forward share purchase agreement to have its remaining 864,093 shares of common stock repurchased by the Company on May 19, 2020 at $10.6819 per share, for an aggregate purchase price of $9.2 million, which was the full amount remaining under the Letter of Credit as of that date.
Following the repurchase mentioned above, both the forward share purchase agreement with Glazer and the Letter of Credit and Reimbursement Agreement with EagleBank have terminated pursuant to their respective terms, and as a result the Company has no further obligations under either respective agreement following the settlement of the repurchase.
Nomura Global Financial Products
On October 31, 2019, the Company entered into an agreement (the “Confirmation”) with Nomura Global Financial Products, Inc. (“NGFP”) for an OTC Equity Prepaid Forward Transaction (the “Forward Transaction”). Pursuant to the terms of the Confirmation, NGFP agreed to waive any redemption right that would require the redemption of shares that it held at the Business Combination Date in exchange for a pro rata amount of the funds held in the Trust Account provided that the Business Combination date occurred prior to December 12, 2019. Rather, NGFP, at its sole discretion, may either sell such shares in one or more transactions, publicly or privately, at a market price of at least $10.50 per share, or hold such shares for a period of time following the consummation of the Business Combination, at which time the Company will be required to purchase from NGFP, and NGFP will be required to sell to the Company, any such shares not otherwise previously sold by NGFP. The Confirmation provides that the Forward Transaction with NGFP is for up to 2,000,000 shares of common stock. The actual number of shares held by NGFP at the Business Combination Date was 1,623,000 shares of common stock (the “Subject Shares”).
The Confirmation provided that following the closing of the Business Combination, the Company transferred from the Trust Account an amount equal to (a) the aggregate number of the Subject Shares held by NGFP, multiplied by (b) the per share redemption price for shares of common stock out of the Trust Account (the “Forward Price”) (such actual aggregate cash amount, the “Prepayment Amount”), as a partial prepayment to NGFP of the amount to be paid to NGFP in settlement of the Forward Transaction upon the Valuation Date (as defined below) for the number of shares owned by NGFP at the closing of the Business Combination. The amount of the Prepayment Amount transferred to NGFP on November 25, 2019 was $17.0 million.
After the Business Combination Date, NGFP may sell the Subject Shares at its sole discretion in one or more transactions, publicly or privately, at any time prior to the Original Valuation Date or Extended Valuation Date (each as defined below, and each a “Valuation Date”) at a price per Subject Share not less than the Forward Price. Any Subject Shares sold by NGFP during the term of the Transaction will cease to be Subject Shares. NGFP will give written notice to the Company of any sale of Subject Shares by NGFP within two business days of the date of such sale, such notice to include the date of the sale, the number of Subject Shares sold, and confirmation that the sale price per Subject Share was not less than the Forward Price.
After the Business Combination Date, NGFP may also buy and sell additional shares for its own account or on behalf of third parties, and the pricing limitation set forth in the prior paragraph will not apply to any shares purchased after the closing of the Business Combination.
On each quarterly anniversary of the Business Combination Date (any such date, a “Cash Settlement Date”), NGFP will terminate the transaction in whole or in part by reducing the number of Subject Shares for the Forward Transaction (the reduction being “Terminated Shares”). The number of Terminated Shares with respect to any Cash Settlement Date will equal the number of Subject Shares sold by NGFP since the prior Cash Settlement Date (or with respect to the first Cash Settlement Date, the closing of the Business Combination). NGFP will notify the Company of the expected number of Terminated Shares not less than ten days prior to the applicable Cash Settlement Date. On each Cash Settlement Date, NGFP will pay the Company an amount equal to the product of (A) the number of Terminated Shares and (B) the Forward Price. With effect from the Cash Settlement Date, the remaining number of Subject Shares for the Forward Transaction will be reduced by the Terminated Shares.
109
The “Original Valuation Date” for the Forward Transaction was the first anniversary of the closing of the Business Combination, provided that NGFP and the Company may, not later than ten days prior to the Original Valuation Date, agree, each in their sole discretion, to extend the Valuation Date to the second anniversary of the Business Combination (the “Extended Valuation Date”). At the Original Valuation Date or Extended Valuation Date, the Forward Transaction will be settled by NGFP delivering the remaining Subject Shares to the Company, and the Company paying NGFP an amount equal to the product of (x) the Forward Price, (y) the applicable Accrual Percentage (as defined below), and (z) the number of remaining Subject Shares. The “Accrual Percentage” is the product of (a) with respect to any settlement occurring on or before the Original Valuation Date, 2.75% per annum, and with respect to any settlement occurring after the Original Valuation Date, 3.50% per annum, and (b) the number of actual days divided by the number of days in a year beginning on the date of the Business Combination and ending on the applicable day of the settlement.
On June 4, 2020, the Company and NGFP entered into a letter agreement (the “NGFP Amendment”) to provide for the extension of the Original Valuation Date to the Extended Valuation Date such that the Valuation Date now is November 25, 2021. As a result, if NGFP sells Subject Shares to the Company, NGFP will keep that portion of the cash transferred to it following the closing of the Business Combination attributable to such shares sold to the Company, plus be paid the Accrual Percentage equal to 3.50% per annum, on November 25, 2021.
For the year ended December 31, 2020, financial expense amounted to $611,000. Accrued interest payable of $659,000 is included in “Other current liabilities” in the accompanying consolidated balance sheets.
Subsequent to December 31, 2020, in accordance with the terms of the Confirmation, NGFP fully terminated the Forward Transaction and made a payment in the aggregate amount of $17.0 million to Kaleyra. Following the payment mentioned above, the Forward Transaction with NGFP has terminated pursuant to terms of the Confirmation, and as a result the Company has no further obligations, except for the amount of accrued interest payable to NGFP. See Note 27 – Subsequent Events – for further details.
11. NOTES PAYABLE
Notes payable to the Sellers
As consideration for the Business Combination, on November 25, 2019, the Company issued unsecured convertible promissory notes to each of Esse Effe and Maya in the amount of $6.0 million and $1.5 million, respectively, (the “Business Combination Convertible Notes”) and also issued other unsecured promissory notes to each of Esse Effe and Maya in the identical respective amounts (the “Non-convertible Notes”).
Convertible Notes
As of December 31, 2020, the amount outstanding for Business Combination Convertible Notes was $7.5 million and accrued interest on Business Combination Convertible Notes was $241,000.
For the Business Combination Convertible Notes, $7.5 million is classified as “Notes payable due to related parties” in the accompanying consolidated balance sheets. The accrued interest payable is included in “Other current liabilities” in the accompanying consolidated balance sheets.
Interest on the Business Combination Convertible Notes will accrue at a fixed interest rate equal to the one-year US dollar LIBOR interest rate published in The Wall Street Journal on the Business Combination Date, plus a margin of one percent (1%) per annum. Interest will be due and payable annually on each of (1) the date which is the twelve-month anniversary of the Business Combination Date and (2) on the date which is the twenty-four-month anniversary of the Business Combination Date. All interest shall be computed on the basis of a 365-day year and the actual number of days elapsed.
Fifty percent (50%) of the outstanding principal balance of these Business Combination Convertible Notes was due and payable on the fifteen-month anniversary of the Business Combination Date. The remaining outstanding principal balance of these Business Combination Convertible Notes plus all accrued and unpaid interest and fees due under these Business Combination Convertible Notes will be due and payable in full on the twenty-four-month anniversary of the Business Combination Date.
110
In the event that the Company receives, at any time while principal on these Business Combination Convertible Notes remains outstanding, cash proceeds of an equity financing (the “Financing”) in an amount not less than $50.0 million (the “Notes Financing Proceeds”), fifty percent (50%) of the outstanding principal balance of these Notes will be due and payable no later than ten business days after the Company receives such Notes Financing Proceeds. In the event of a Financing where at any time the Company receives cash proceeds of such Financing in an amount not less than $75.0 million (the “Payoff Financing Proceeds”), one hundred percent (100%) of the remaining outstanding principal balance of these Business Combination Convertible Notes, plus all accrued and unpaid interest and fees due under the Notes will be due and payable no later than ten business days after the Company receives such Payoff Financing Proceeds. The date which is the earlier of (a) the twenty-four-month anniversary of the Business Combination Date, or (b) the date payment is received from Payoff Financing Proceeds, is the “Maturity Date”.
In the event that these Business Combination Convertible Notes are not paid in full on or before the applicable Maturity Date, then at any time after the sixtieth business day after the Maturity Date, assuming payment in full has not been made prior to such date, the outstanding principal amount of these Notes, together with all accrued but unpaid interest on these Business Combination Convertible Notes, may be converted into shares of Company common stock, in part or in whole, at the option of the holder of these Business Combination Convertible Notes by providing written notice at least three business days prior to the date of conversion. A conversion of any portion of these Business Combination Convertible Notes into shares of Company common stock will be effected at a conversion price equal to the Current Market Price as of the date of such conversion (the “Conversion Price”). The term “Current Market Price” means, generally, the average VWAP for the twenty consecutive trading days ending on the date that is five trading days prior to the date of conversion. The term “VWAP” means, for any trading day, the volume weighted average trading price of the Company’s common stock for such trading day on the NYSE (or if the Company’s common stock is no longer traded on the NYSE, on such other exchange as the Company’s common stock is then traded).
Subsequent to December 31, 2020, on the fifteen-month anniversary of the Business Combination Date or February 25, 2021, the fifty percent (50%) of the previously outstanding amount of Business Combination Convertible Notes held by Esse Effe and Maya was repaid, with a total of $3.0 million and $750,000 of principal and $176,000 and $44,000 in accrued interest being paid to Esse Effe and Maya, respectively, pursuant to the terms of the Business Combination Convertible Notes.
Non-convertible Notes
As of December 31, 2020, no amount remained outstanding for the Non-convertible Notes.
The Non-convertible Notes accrued interest at a fixed interest rate equal to LIBOR, which interest rate was one and ninety-one hundredths percent (1.91%), plus a margin of one percent (1%) per annum. As used herein, “LIBOR” means the one-year US Dollar LIBOR interest rate published in The Wall Street Journal on the Business Combination Date. All interest was computed on the basis of a 365-day year and the actual number of days elapsed.
Under the terms of the Non-convertible Notes, the outstanding principal balance of the Non-convertible Notes, plus all accrued and unpaid interest and fees due under these notes, became due and payable, upon the receipt by the Company, in the equity financing event, namely the Offering mentioned above, of cash proceeds in an amount not less than $11.5 million (the “Financing Proceeds”), no later than ten (10) business days after the Company receives the Financing Proceeds. The principal amount of $6.0 million plus accrued interest of $105,000 for the Non-convertible Note held by Esse Effe and the principal amount of $1.5 million plus accrued interest of $26,000 for the Non-convertible Note held by Maya were paid in full by the Company on July 2, 2020 and June 30, 2020, respectively, and no amount remains outstanding for such notes at year end.
111
Notes payable - Other
On April 16, 2020, the Company entered into a Settlement Agreement and Release (the “Settlement Agreement”) with its Business Combination financial advisory service firms, Cowen and Company, LLC (“Cowen”) and Chardan Capital Markets, LLC, (“Chardan” and collectively the “Service Firms”), pursuant to which it agreed to pay an affiliate of Cowen, Cowen Investments II LLC (“Cowen Investments”), and Chardan, in full satisfaction of all amounts owed to the Service Firms as of December 31, 2019, $5.4 million in the aggregate, as follows: (i) $2.7 million in the aggregate in common stock of the Company (the “Settlement Shares”) to be issued the business day prior to the filing of a resale registration statement for such Settlement Shares (the “Bank Resale Registration Statement”), (ii) convertible notes totaling $2.7 million in the aggregate with a maturity date three years after issuance and bearing interest at five percent (5%) per annum (but with lower interest rates if the notes are repaid earlier than one year or two years after issuance) and with interest paid in arrears to the payee on March 15, June 15, September 15 and December 15 of each year, with such convertible notes to also be issued the business day prior to the filing of the Resale Registration Statement and (iii) in the event that the Beneficial Ownership Limitation (as defined below) would otherwise be exceeded upon delivery of the Settlement Shares above, a warrant agreement also to be entered into with and issued to the Services Firms the business day prior to the filing of the Resale Registration Statement, whereby the amount of common stock of the Company by which the Beneficial Ownership Limitation would otherwise have been exceeded upon delivery of the Settlement Shares will be substituted for by warrants with an exercise price of $0.01 per share issued pursuant to a Warrant Agreement (the “Warrant Agreement”) and the common stock underlying the Warrant Agreement (the “Warrant Shares”). The Beneficial Ownership Limitation shall initially be 4.99% of the number of shares of the common stock outstanding of the Company immediately after giving effect to the issuance of these shares of common stock. The number of Settlement Shares was calculated using as the price per Settlement Share an amount equal to a fifteen percent (15%) discount to the ten-day (10-day) trailing dollar volume-weighted average price for the common stock of the Company on the NYSE American LLC stock exchange (the “VWAP”) on the business day immediately prior to the date on which Kaleyra filed the Resale Registration Statement. In addition, the price per share for determining the number of shares of common stock of the Company to be issued upon the conversion of the convertible notes shall be a five percent (5%) premium to the ten-day (10-day) trailing VWAP as of the date immediately prior to the issuance date of the convertible notes, rounded down to the nearest whole number.
On May 1, 2020, in connection with the Settlement Agreement, the Company issued: (i) an aggregate of 440,595 Settlement Shares to Cowen Investments and Chardan, consisting of 374,506 Settlement Shares issued to Cowen Investments, and 66,089 Settlement Shares issued to Chardan, which resulted in a $0.2 million loss on settlement on the issuance date of May 1, 2020; and (ii) convertible promissory notes in the aggregate principal amount of $2.7 million to Cowen Investments and Chardan, consisting of a convertible promissory note in the principal amount of $2.3 million issued to Cowen Investments (the “Cowen Note”) and a convertible promissory note in the principal amount of $405,000 issued to Chardan (the “Chardan Note”). The unpaid principal of the Cowen Note is convertible at the option of Cowen Investments into 303,171 shares of common stock of the Company, if there has been no principal reduction, and the unpaid principal of the Chardan Note is convertible at the option of Chardan into 53,501 shares of common stock of the Company, if there has been no principal reduction. As the Beneficial Ownership Limitation was not triggered by the issuance of the Settlement Shares, no Warrant Agreement was necessary and no warrants were issued.
As of December 31, 2020, the outstanding amount of the Cowen Note was $2.3 million and accrued interest was $63,000. As of December 31, 2020, the outstanding amount of the Chardan Note was $405,000 and accrued interest was $14,000. These notes payable totaling $2.7 million are included in “Long-term portion of notes payable” and the accrued interest payables are included in “Other current liabilities” in the accompanying consolidated balance sheets.
Subsequent to December 31, 2020, Cowen Investments elected to convert the outstanding amount of the Cowen Note into 303,171 shares of common stock, par value $0.0001 per share of Kaleyra, pursuant to the terms of the Cowen Note. See Note 27 – Subsequent Events – for further details.
112
Notes Payable to the Founders
Prior to the closing of the Business Combination, the Company had issued to several of its stockholders or their affiliates (collectively, the “Founders”) various promissory notes that were due to be paid in full upon the closing of the Business Combination (such notes referred to collectively as either the “Extension Notes” or the “Working Capital Notes”). In conjunction with the completion of the Business Combination, Kaleyra and each of GigAcquisitions, LLC (the “Sponsor”) and an affiliate of the Sponsor, GigFounders, LLC, agreed to amend and restate the Extension Notes and Working Capital Notes held by them to provide that in lieu of repaying such promissory notes in full upon the closing of the Business Combination, the outstanding principal balance of such amended and restated notes (the “Amended Extension Notes” and the “Amended Working Capital Notes”), plus all accrued and unpaid interest (as described below) and fees due under the Amended Extension Notes and Amended Working Capital Notes, shall, upon the receipt by Kaleyra, whether in a debt or equity financing event by Kaleyra (which may include the receipt of cash from third parties with which Kaleyra has entered into forward share purchase agreements), of cash proceeds in an amount not less than $11.5 million (the “Financing Proceeds”), be due and payable no later than ten business days after Kaleyra receives the Financing Proceeds. The other holders of Extension Notes and Working Capital Notes similarly agreed to amend and restate these notes to exchange them into Amended Extension Notes and Amended Working Capital Notes after the closing of the Business Combination. Interest on the Amended Extension Notes and Amended Working Capital Notes accrued at a fixed interest rate equal to the one-year U.S. dollar LIBOR interest rate published in The Wall Street Journal on the closing of the Business Combination, which was one and ninety-one hundredths percent (1.91%), plus a margin of one percent (1%) per annum. All interest was computed on the basis of a 365-day year and the actual number of days elapsed. None of the Amended Extension Notes or Amended Working Capital Notes were convertible into securities of Kaleyra upon the closing of the Offering in June 2020. All principal and accrued interest for the Amended Extension Notes and Amended Working Capital Notes was paid in full by the Company on June 30, 2020, and no amount remains outstanding for such notes.
12. EMPLOYEE BENEFIT OBLIGATION
The Company sponsors two defined benefit plans covering the majority of Italian employees and all of Solutions Infini’s employees. Total costs of the defined benefit plans for the years ended December 31, 2020 and 2019 was $465,000 and $287,000, respectively.
Changes in obligations of the defined benefit plans is as follows (in thousands):
|
|
As of December 31,
|
|
|
|
2020
|
|
|
2019
|
|
Benefit obligation at the beginning of the period
|
|
$
|
1,424
|
|
|
$
|
1,173
|
|
Change in scope of consolidation
|
|
|
—
|
|
|
|
—
|
|
Service cost
|
|
|
231
|
|
|
|
165
|
|
Interest cost
|
|
|
31
|
|
|
|
33
|
|
Actuarial loss
|
|
|
203
|
|
|
|
89
|
|
Benefit paid
|
|
|
(102
|
)
|
|
|
(13
|
)
|
Foreign exchange translation reserve
|
|
|
123
|
|
|
|
(23
|
)
|
Benefit obligation at the end of the period
|
|
$
|
1,910
|
|
|
$
|
1,424
|
|
Of which:
|
|
|
|
|
|
|
|
|
Current (1)
|
|
$
|
24
|
|
|
$
|
26
|
|
Long-term
|
|
$
|
1,886
|
|
|
$
|
1,398
|
|
|
(1)
|
Included within “Payroll and payroll related accrued liabilities” in the accompanying consolidated balance sheets.
|
113
There are no plan assets servicing the defined benefits plans.
The assumptions used to determine benefit obligations at year-end are as follows:
|
|
As of December 31,
|
|
|
|
2020
|
|
|
2019
|
|
Discount rate for the Kaleyra S.p.A. plan (1)
|
|
0.30%
|
|
|
0.78%
|
|
Discount rate for the Solutions Infini plan (2)
|
|
6.65%
|
|
|
7.25%
|
|
Rate of compensation increase for Kaleyra S.p.A.
|
|
0.50% - 3.00%
|
|
|
0.50% - 3.00%
|
|
Rate of compensation increase for Solutions Infini
|
|
20.00%
|
|
|
15.00%
|
|
|
(1)
|
The discount rate for Kaleyra S.p.A. is based on the Euro area composite yields AA with a duration equal to the estimated term of the obligations at the balance sheet date.
|
|
(2)
|
The discount rate for Solutions Infini is based on the prevailing market yields of Indian government securities at the balance sheet date for the estimated term of the obligations.
|
The Company also has a 401(k) defined contribution plan (“401(k) plan”) covering substantially all U.S. domestic employees. The participation in this plan is voluntary. The Company matches plan participants’ contributions up to various limits. Participants’ contributions are limited based on their compensation and, for certain supplemental contributions which are not eligible for Company matching, based on their age. Contributions for the 401(k) plan were $102,000 and $54,000 for the years ended December 31, 2020 and 2019, respectively.
13. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
The accumulated balances related to each component of other comprehensive income (loss) are as follows (in thousands):
|
|
Cumulative
Foreign
Currency
Translation
Adjustment
|
|
|
Cumulative
net unrealized
gain (loss)
on marketable
securities,
net of tax
|
|
|
Accumulated
Other
Comprehensive
Income (Loss)
|
|
As of December 31, 2018
|
|
$
|
53
|
|
|
$
|
(22
|
)
|
|
$
|
31
|
|
Other comprehensive income (loss) before
reclassifications
|
|
|
25
|
|
|
|
38
|
|
|
|
63
|
|
Net amount reclassified from accumulated other
comprehensive income (loss)
|
|
|
—
|
|
|
|
(20
|
)
|
|
|
(20
|
)
|
Net other comprehensive income (loss)
|
|
|
25
|
|
|
|
18
|
|
|
|
43
|
|
As of December 31, 2019
|
|
|
78
|
|
|
|
(4
|
)
|
|
|
74
|
|
Other comprehensive income (loss)
|
|
|
(2,910
|
)
|
|
|
10
|
|
|
|
(2,900
|
)
|
Net other comprehensive income (loss)
|
|
|
(2,910
|
)
|
|
|
10
|
|
|
|
(2,900
|
)
|
As of December 31, 2020
|
|
$
|
(2,832
|
)
|
|
$
|
6
|
|
|
$
|
(2,826
|
)
|
114
14. PREFERENCE SHARES LIABILITIES
Preference shares liabilities amounting to zero and $2.5 million as of December 31, 2020 and 2019, respectively, represent the Company’s obligation to purchase in 2020 the preference shares from certain employees of Solutions Infini as a part of the Solutions Infini 2018 Purchase Agreement.
On March 9, 2020, Kaleyra signed a modification of the 2018 Solutions Infini Purchase Agreement to reduce the price of the preference shares to be purchased from the eligible employees of Solutions Infini in July 2020 to their face value, amounting to Indian Rupee 10.0 per each preference share. As a result of this modification, the total preference shares obligation was reduced to Indian Rupee 132,000 ($2,000 at the July 31, 2020 exchange rate) and paid in full on July 31, 2020.
On January 31, 2020, Kaleyra had agreed to pay to the eligible employees of the preference shares, performance bonuses for a total amount of $3.5 million, to be paid in 2020, as a replacement of the preference shares obligation.
On March 24, 2020, given the prevailing situation of the COVID-19 pandemic both globally and in India, Kaleyra agreed with two of the eligible employees to delay payment of their performance bonuses, for a total amount of $1.4 million, and evaluate the timeline for payment thereof at a later date.
During fiscal year 2020, the previously outstanding performance bonus obligation payable to the eligible employees was paid in two different installments of $1.4 million on August 31, 2020, following the resolution of the Board of Directors of Solutions Infini, and of $883,000 on November 30, 2020.
As of December 31, 2020, the outstanding performance bonus obligation payable to the other eligible employees amounted to $1.2 million. This amount is included in the consolidated balance sheets line item “Payroll and payroll related accrued liabilities”.
Subsequent to December 31, 2020, the previously outstanding performance bonus obligation payable to the other eligible employees was agreed to be paid in two different installments of $826,000 on February 15, 2021, and $343,000 (at the February 15, 2021 exchange rate) on April 15, 2021, under the full and final settlement agreements signed with the other eligible employees. See Note 27 – Subsequent Events – for further details.
15. OTHER CURRENT AND LONG-TERM LIABILITIES
Other current liabilities consisted of the following (in thousands):
|
|
As of December 31,
|
|
|
|
2020
|
|
|
2019
|
|
Liabilities for tax other than income tax
|
|
$
|
2,942
|
|
|
$
|
583
|
|
Social security liabilities
|
|
|
383
|
|
|
|
256
|
|
Current tax liabilities
|
|
|
434
|
|
|
|
—
|
|
Accrued financial interest
|
|
|
1,066
|
|
|
|
149
|
|
Capital leases
|
|
|
138
|
|
|
|
66
|
|
Other miscellaneous
|
|
|
1,025
|
|
|
|
325
|
|
Total other current liabilities
|
|
$
|
5,988
|
|
|
$
|
1,379
|
|
Other long-term liabilities consisted of the following (in thousands):
|
|
As of December 31,
|
|
|
|
2020
|
|
|
2019
|
|
Payable to supplier (1)
|
|
$
|
—
|
|
|
$
|
2,700
|
|
Interest rate swaps
|
|
|
109
|
|
|
|
80
|
|
Capital leases
|
|
|
208
|
|
|
|
80
|
|
Other miscellaneous
|
|
|
286
|
|
|
|
295
|
|
Total other long-term liabilities
|
|
$
|
603
|
|
|
$
|
3,155
|
|
(1) This obligation was settled by issuance of a note payable on May 1, 2020, when the settlement agreement with the supplier was executed. See Note 11 – Notes Payable for additional information.
115
16. SUPPLEMENTAL BALANCE SHEET INFORMATION
Allowance for doubtful accounts:
A roll-forward of the Company’s allowance for doubtful accounts for the years ended December 31, 2020 and 2019 is as follows (in thousands):
|
|
Year Ended December 31,
|
|
|
|
2020
|
|
|
2019
|
|
Balance, beginning of the period
|
|
$
|
873
|
|
|
$
|
157
|
|
Accruals
|
|
|
435
|
|
|
|
800
|
|
Utilization of provision
|
|
|
(612
|
)
|
|
|
(84
|
)
|
Effect of foreign exchange rate
|
|
|
154
|
|
|
|
—
|
|
Balance, end of the period
|
|
$
|
850
|
|
|
$
|
873
|
|
17. GEOGRAPHIC INFORMATION
Revenue by geographic area is determined on the basis of the location of the customer. The Company generates its revenue primarily in Italy, India, and the United States. The following table sets forth revenue by geographic area for the years ended December 31, 2020 and 2019 (in thousands):
|
|
Year Ended December 31,
|
|
|
|
2020
|
|
|
2019
|
|
Italy
|
|
$
|
62,411
|
|
|
$
|
60,165
|
|
India
|
|
|
36,147
|
|
|
|
35,162
|
|
United States
|
|
|
25,500
|
|
|
|
9,418
|
|
Europe (excluding Italy)
|
|
|
9,827
|
|
|
|
15,686
|
|
Rest of the world
|
|
|
13,483
|
|
|
|
9,127
|
|
Total
|
|
$
|
147,368
|
|
|
$
|
129,558
|
|
116
|
|
Year Ended December 31,
|
|
|
|
2020
|
|
|
2019
|
|
Italy
|
|
|
42.4
|
%
|
|
|
46.4
|
%
|
India
|
|
|
24.5
|
%
|
|
|
27.1
|
%
|
United States
|
|
|
17.3
|
%
|
|
|
7.3
|
%
|
Europe (excluding Italy)
|
|
|
6.7
|
%
|
|
|
12.1
|
%
|
Rest of the world
|
|
|
9.1
|
%
|
|
|
7.1
|
%
|
As of December 31, 2020, the majority of the Company’s long-lived assets are located in Italy and the United States. The following table sets long-lived assets by geographic area as of December 31, 2020 and 2019 (in thousands):
|
|
As of December 31,
|
|
|
|
2020
|
|
|
2019
|
|
Italy
|
|
$
|
2,827
|
|
|
$
|
1,772
|
|
India
|
|
|
1,667
|
|
|
|
1,162
|
|
United States
|
|
|
2,225
|
|
|
|
437
|
|
Rest of the world
|
|
|
7
|
|
|
|
22
|
|
Total
|
|
$
|
6,726
|
|
|
$
|
3,393
|
|
|
|
As of December 31,
|
|
|
|
2020
|
|
|
2019
|
|
Italy
|
|
|
42.0
|
%
|
|
|
52.2
|
%
|
India
|
|
|
24.8
|
%
|
|
|
34.2
|
%
|
United States
|
|
|
33.1
|
%
|
|
|
12.9
|
%
|
Rest of the world
|
|
|
0.1
|
%
|
|
|
0.7
|
%
|
18. PERSONNEL COSTS
Personnel costs, net of capitalized software development costs, amounting to $35.3 million for the year ended December 31, 2020 (of which $19.1 million related to RSUs compensation expense) and $12.6 million for the year ended December 31, 2019 (of which $996,000 related to RSUs compensation expense), were allocated as follows (in thousands):
|
|
Year Ended December 31,
|
|
|
|
2020
|
|
|
2019
|
|
Research and development
|
|
$
|
8,043
|
|
|
$
|
4,158
|
|
Sales and marketing
|
|
|
9,583
|
|
|
|
2,855
|
|
General and administrative
|
|
|
17,676
|
|
|
|
5,635
|
|
Total Personnel Costs
|
|
$
|
35,302
|
|
|
$
|
12,648
|
|
Approximately 30% of the Company employees are subject to a collective Italian national labor agreement expiring on December 31, 2023.
117
19. FINANCIAL EXPENSE, NET
Financial expense, net for the years ended December 31, 2020 and 2019, consisted of the following (in thousands):
|
|
Year Ended December 31,
|
|
|
|
2020
|
|
|
2019
|
|
Financial Income:
|
|
|
|
|
|
|
|
|
Interest income
|
|
$
|
277
|
|
|
$
|
160
|
|
Gain on derivatives
|
|
|
33
|
|
|
|
414
|
|
Dividends on marketable securities
|
|
|
33
|
|
|
|
97
|
|
Total Financial Income
|
|
|
343
|
|
|
|
671
|
|
Financial Expense:
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(1,762
|
)
|
|
|
(1,073
|
)
|
Loss on derivatives
|
|
|
(56
|
)
|
|
|
(37
|
)
|
Total Financial Expense
|
|
|
(1,818
|
)
|
|
|
(1,110
|
)
|
Financial expense, net
|
|
$
|
(1,475
|
)
|
|
$
|
(439
|
)
|
20. COMMITMENTS AND CONTINGENCIES
Lease Commitments
The Company entered into various operating lease agreements that expire over various years in the next 7 years. The Company’s Milan office lease contains an option to renew the lease for 6 years under terms and conditions set forth in the lease agreement. Certain of the Company’s leases contain provisions for rental adjustments. Operating lease rentals are expensed on a straight-line basis over the life of the lease beginning on the date the Company takes possession of the property. Rent expense was $898,000 and $749,000 for the years ended December 31, 2020 and 2019, respectively.
Future minimum lease payments under leasing obligations as of December 31, 2020 are as follows (in thousands):
|
|
As of December 31, 2020
|
|
|
|
|
Operating leases
|
|
|
Capital leases
|
|
|
Total
|
|
2021
|
|
$
|
559
|
|
|
$
|
151
|
|
|
$
|
710
|
|
|
2022
|
|
|
489
|
|
|
|
78
|
|
|
|
567
|
|
|
2023
|
|
|
443
|
|
|
|
65
|
|
|
|
508
|
|
|
2024
|
|
|
350
|
|
|
|
65
|
|
|
|
415
|
|
|
2025
|
|
|
322
|
|
|
|
19
|
|
|
|
341
|
|
|
2026 and thereafter
|
|
|
136
|
|
|
|
—
|
|
|
|
136
|
|
|
Total Minimum Lease Payments
|
|
$
|
2,299
|
|
|
$
|
378
|
|
|
$
|
2,677
|
|
|
Future minimum lease payment under capital leases as of December 31, 2020, consisted of the following (in thousands):
|
|
As of December 31, 2020
|
|
|
|
Capital leases
|
|
Total payments
|
|
$
|
378
|
|
Less: Interest portion
|
|
|
32
|
|
Net capital lease obligation
|
|
|
346
|
|
Less: Current portion
|
|
|
138
|
|
Long term portion
|
|
$
|
208
|
|
118
The current portion of the capital lease obligation is included in other current liabilities and the long term portion is included in other long-term liabilities in the accompanying consolidated balance sheet.
Contingencies
As of December 31, 2020, the Company had contingent liabilities of $129,000, relating to a tax appeal of Solutions Infini for which no provision was recognized as its occurrence was deemed remote.
21. STOCKHOLDERS’ EQUITY (DEFICIT)
Common stock
The authorized common stock of the Company includes up to 100,000,000 shares. Holders of the Company’s common stock are entitled to one vote for each share of common stock. As of December 31, 2020, there were 33,086,745 shares of common stock issued and 30,288,687 shares outstanding with a par value $0.0001 per share.
On November 25, 2019, the Company issued in the aggregate 10,687,106 shares of common stock to the Sellers as consideration for the Business Combination.
Immediately after giving effect to the Business Combination (including as a result of redemptions, and the automatic conversion of rights into 1,321,756 shares of common stock), there were 19,977,113 shares of the Company’s issued and outstanding common stock as of December 31, 2019.
On April 29, 2020, as additional consideration for the Business Combination as an earn-out, Kaleyra issued 1,763,633 shares of its common stock to the Sellers.
On June 29, 2020, the Company completed an offering relating to the issuance and sale of 7,777,778 shares of the Company’s common stock, par value $0.0001 per share. In addition, on July 24, 2020, the Company issued an additional 984,916 shares of common stock upon the exercise and close of the overallotment option by the underwriters, pursuant to the terms of the Underwriting Agreement.
Preferred Stock
The Company is authorized to issue 1,000,000 shares of preferred stock with such designations, voting and other rights and preferences as may be determined from time to time by the Board of Directors. As of December 31, 2020, there were no shares of preferred stock issued or outstanding.
Warrants
Warrants will only be exercisable for whole shares at $11.50 per share. As a result, at least four Units must be purchased in order for each holder to receive shares of common stock for all of the Warrants acquired upon their exercise. Under the terms of the Warrant agreement dated December 12, 2017, the Company agreed to use its best efforts to file a new registration statement under the Securities Act, following the completion of the Business Combination, for the registration of the shares of common stock issuable upon exercise of the Warrants included in the Units. No fractional shares will be issued upon exercise of the Warrants. If, upon exercise of the Warrants, a holder would be entitled to receive a fractional interest in a share, the Company will, upon exercise, round down to the nearest whole number for the number of shares of common stock to be issued to the Warrant holder. Each Warrant became exercisable 30 days after the completion of the Business Combination and will expire five years after the completion of the Business Combination or earlier upon redemption or liquidation. If the Company is unable to deliver registered shares of common stock to the holder upon exercise of the Warrants during the exercise period, there will be no net cash settlement of these Warrants and the Warrants will expire worthless, unless they may be exercised on a cashless basis in the circumstances described in the Warrant agreement. Once the Warrants become exercisable, the Company may redeem the outstanding Warrants in whole and not in part at a price of $0.01 per Warrant upon a minimum of 30 days’ prior written notice of redemption, only in the event that the last sale price of the Company’s shares of common stock equals or exceeds $18.00 per share for any 20 trading days within the 30-trading day period ending on the third trading day before the Company sends the notice of redemption to the Warrant holders.
On September 30, 2020, Kaleyra entered into a Warrant Exchange Agreement with Riverview Group LLC (“Riverview”) (the “Riverview Agreement”). Riverview previously acquired warrants to purchase an aggregate of 3,780,000 shares of the Company’s common stock, par value $0.0001 per share, initially issued by the Company in
119
its initial public offering on December 7, 2017. Pursuant to the Riverview Agreement, on October 2, 2020, Riverview surrendered the warrant shares and the Company issued an aggregate of 850,500 shares of common stock to Riverview in exchange for the warrants. There was no incremental value related to this exchange transaction. On October 2, 2020, pursuant to the effects of the Riverview Agreement, the total number of outstanding warrants was reduced to 7,374,938 outstanding warrants from the 11,154,938 previously outstanding warrants.
As of December 31, 2020, there were 7,374,938 warrants outstanding.
22. RESTRICTED STOCK UNITS (RSUs)
In December 2019, RSUs were granted to certain employees, directors and advisory board members of the Company for a total of 3,336,095 RSUs shares with an aggregate grant date fair value of $27.5 million, based on a per share grant date fair value of $8.25. In particular:
|
•
|
The Board of Directors adopted a form of Restricted Stock Unit award Agreement and granted to certain employees of the Company or its subsidiaries (i) 931,243 RSUs that vest in one year from the grant date, (ii) 124,723 RSUs that vest upon the final determination, if any, that the Business Combination’s definition of 2019 targeted adjusted EBITDA is achieved, and (iii) 124,718 RSUs that vest upon the final determination, if any, that the Business Combination’s definition of 2020 targeted adjusted EBITDA is achieved.
|
|
•
|
The Board of Directors of the Company granted to certain employees, directors and advisory board members of the Company a total of 2,020,411 RSUs. These RSUs have no performance conditions and vest as follows: (i) 25% of the shares vested on February 1, 2021 and (ii) the remaining 75% vests in equal quarterly installments over a three-year period starting from February 1, 2021.
|
|
•
|
The Board of Directors of the Company and certain advisory board members were granted a total of 135,000 RSUs. These RSUs have no performance conditions and vested 40% on February 1, 2020 with the remaining RSUs vesting ratably over the subsequent three quarters.
|
On March 24, 2020, the Board’s Compensation Committee approved the grant of 113,506 RSUs to a new manager of the Company. These RSUs have no performance conditions and vest as follows: (i) 25% of the shares vested on February 1, 2021 and (ii) the remaining 75% vests in equal quarterly installments over a three-year period starting from February 1, 2021.
In May 2020, the Board’s Compensation Committee approved the grant of 447,714 RSUs to three new managers and two new advisory board members of Kaleyra. These RSUs have no performance conditions and vest as follows:
• 435,714 RSUs under this vesting timeline: (i) 25% of the shares vest on May 1, 2021 and (ii) the remaining 75% vests in equal quarterly installments over a three-year period starting from May 1, 2021;
•8,000 RSUs vested on August 1, 2020 and 4,000 RSUs on November 1, 2020.
On August 6, 2020, the Board’s Compensation Committee approved the grant of 500,200 RSUs to sixty-nine employees of the Company as part of Kaleyra’s retention plan. These RSUs have no performance conditions and vest as follows: (i) 25% of the shares vest on August 1, 2021 and (ii) the remaining 75% vests in equal quarterly installments over a three-year period starting from August 1, 2021.
On November 5, 2020, the Board’s Compensation Committee approved the grant of 233,810 RSUs to twenty-five employees of the Company, five directors and four advisory board members of Kaleyra. These RSUs have no performance conditions and vest as follows:
•66,000 RSUs under this vesting timeline: (i) 25% of the shares vest on November 1, 2021 and (ii) the remaining 75% vests in equal quarterly installments over a three-year period starting from November 1, 2021;
•167,810 RSUs vest in four equal quarterly installments starting from February 1, 2021.
On December 16, 2020, the Board’s Compensation Committee approved the grant of 95,500 RSUs to eleven employees of the Company. These RSUs have no performance conditions and vest as follows: (i) 25% of the shares vest on February 1, 2022 and (ii) the remaining 75% vests in equal quarterly installments over a three-year period starting from February 1, 2022.
120
The following table sets forth the activity in the number of outstanding RSUs for the year ended December 31, 2020:
|
|
Number of shares
|
|
|
Weighted-average
grant date fair value
(per share)
|
|
Non-vested as of December 31, 2019
|
|
|
3,336,095
|
|
|
$
|
8.25
|
|
Vested
|
|
|
(1,152,210
|
)
|
|
|
8.24
|
|
Granted
|
|
|
1,390,730
|
|
|
|
6.41
|
|
Cancelled
|
|
|
(243,578
|
)
|
|
|
8.25
|
|
Non-vested as of December 31, 2020
|
|
|
3,331,037
|
|
|
$
|
7.48
|
|
RSUs compensation expense for the years ended December 31, 2020 and 2019 was $19.1 million and $996,000, respectively, which was recorded as follows (in thousands), net of capitalized RSUs compensation expense:
|
|
Year Ended December 31,
|
|
|
|
2020
|
|
|
2019
|
|
Research and development
|
|
$
|
3,984
|
|
|
$
|
299
|
|
Sales and marketing
|
|
|
3,934
|
|
|
|
115
|
|
General and administrative
|
|
|
11,199
|
|
|
|
582
|
|
Total
|
|
$
|
19,117
|
|
|
$
|
996
|
|
As of December 31, 2020, there was $13.6 million of unrecognized compensation cost related to non-vested RSUs to be recognized over a weighted-average remaining period of 1.41 years.
As of December 31, 2020, the number of securities remaining available for future issuances under the 2019 Equity Incentive Plan, excluding the number of non-vested RSUs, was 530,667 units.
23. INCOME TAXES
The Company provides for income taxes using an asset and liability approach under which deferred income taxes are provided for based upon enacted tax laws and rates applicable to periods in which the taxes become payable.
The following table presents domestic and foreign components of income (loss) before income tax expense (benefit) for the years ended December 31, 2020 and 2019 (in thousands):
|
|
Year Ended December 31,
|
|
|
|
2020
|
|
|
2019
|
|
Domestic
|
|
$
|
(19,536
|
)
|
|
$
|
(7,857
|
)
|
Foreign
|
|
|
(9,550
|
)
|
|
|
4,618
|
|
Loss before income tax expense (benefit)
|
|
$
|
(29,086
|
)
|
|
$
|
(3,239
|
)
|
121
The provision for federal and state income taxes consists of the following (in thousands):
|
|
Year Ended December 31,
|
|
|
|
2020
|
|
|
2019
|
|
Current
|
|
|
|
|
|
|
|
|
Domestic:
|
|
|
|
|
|
|
|
|
US federal corporate income tax
|
|
$
|
—
|
|
|
$
|
—
|
|
US state corporate income tax
|
|
|
1
|
|
|
|
—
|
|
Foreign:
|
|
|
|
|
|
|
|
|
IRES (Italian corporate income tax)
|
|
|
305
|
|
|
|
66
|
|
IRAP (Italian regional tax on productive activities)
|
|
|
165
|
|
|
|
50
|
|
Foreign (India)
|
|
|
—
|
|
|
|
1,977
|
|
Other Italian taxes
|
|
|
—
|
|
|
|
194
|
|
Current
|
|
|
471
|
|
|
|
2,287
|
|
Deferred
|
|
|
(2,747
|
)
|
|
|
(14
|
)
|
Income tax expense (benefit)
|
|
$
|
(2,276
|
)
|
|
$
|
2,273
|
|
The differences between income taxes expected by applying the U.S. federal statutory tax rate of 21% and the amount of income taxes provided for are as follows (in thousands):
|
|
Year Ended December 31,
|
|
|
|
2020
|
|
|
2019
|
|
Loss before income tax expense (benefit)
|
|
$
|
(29,086
|
)
|
|
$
|
(3,239
|
)
|
Primary tax rate of the Company (1)
|
|
|
21.00
|
%
|
|
|
21.00
|
%
|
Tax benefit calculated according to the Company's primary tax rate
|
|
|
(6,097
|
)
|
|
|
(680
|
)
|
State income tax, net of Federal
|
|
|
(1,188
|
)
|
|
|
(483
|
)
|
Foreign tax rates differences (2)
|
|
|
(750
|
)
|
|
|
319
|
|
Change in applicable tax rates
|
|
|
—
|
|
|
|
(513
|
)
|
Change in valuation allowance
|
|
|
7,435
|
|
|
|
2,027
|
|
Non-taxable income
|
|
|
—
|
|
|
|
(196
|
)
|
Costs not deductible for tax purposes
|
|
|
—
|
|
|
|
541
|
|
Costs not deductible associated with investments
|
|
|
—
|
|
|
|
36
|
|
CFC (Controlled Foreign Corporation rules) (3)
|
|
|
—
|
|
|
|
288
|
|
IRAP (Italian Regional Tax on Productive Activities)
|
|
|
—
|
|
|
|
4
|
|
Taxes on undistributed profits
|
|
|
144
|
|
|
|
926
|
|
Stock based compensation
|
|
|
(1,820
|
)
|
|
|
—
|
|
Other taxes
|
|
|
—
|
|
|
|
4
|
|
Reported income tax expense (benefit)
|
|
$
|
(2,276
|
)
|
|
$
|
2,273
|
|
|
(1)
|
For the years ended December 31, 2020 and 2019, “primary tax rate of the Company” means the U.S. federal tax rate (21%).
|
|
(2)
|
For the years ended December 31, 2020 and 2019, “foreign” relates to tax jurisdictions outside the United States.
|
|
(3)
|
Recorded by the Company in relation with the Dubai subsidiary.
|
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes.
122
The following table presents the significant components of the Company’s deferred tax assets and liabilities (in thousands):
|
|
As of December 31,
|
|
|
|
2020
|
|
|
2019
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Startup costs
|
|
$
|
2,918
|
|
|
$
|
2,755
|
|
Deferred compensation liabilities
|
|
|
3,557
|
|
|
|
398
|
|
Property and equipment
|
|
|
—
|
|
|
|
70
|
|
Goodwill
|
|
|
100
|
|
|
|
119
|
|
Net operating loss carryforward
|
|
|
9,420
|
|
|
|
3,370
|
|
Other
|
|
|
578
|
|
|
|
422
|
|
Total deferred tax assets
|
|
|
16,573
|
|
|
|
7,134
|
|
Less: valuation allowance
|
|
|
(12,923
|
)
|
|
|
(5,591
|
)
|
Total deferred tax assets, net
|
|
|
3,650
|
|
|
|
1,543
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Intangible assets
|
|
|
1,891
|
|
|
|
2,351
|
|
Undistributed profits
|
|
|
1,033
|
|
|
|
1,093
|
|
Property and equipment
|
|
|
23
|
|
|
|
134
|
|
Other
|
|
|
—
|
|
|
|
10
|
|
Total deferred tax liabilities
|
|
|
2,947
|
|
|
|
3,588
|
|
Net deferred tax assets (liabilities)
|
|
$
|
703
|
|
|
$
|
(2,045
|
)
|
As of December 31, 2020, the Company has federal, state and foreign net operating loss carryforwards totaling $27.5 million, $27.8 million and $7.2 million, respectfully. If not utilized, federal net operating losses of $5.4 million will expire at various dates from 2026 through 2037, and $22.1 million have an indefinite life. State net operating losses of $27.8 million will expire at various dates from 2037 through 2040. Foreign net operating losses originated in Switzerland and will expire at various dates from 2023 through 2027.
The Company’s accounting for deferred taxes involves the evaluation of a number of factors concerning the realizability of its net deferred tax assets. The Company primarily considered such factors as its history of operating losses, the nature of the Company’s deferred tax assets, and the timing, likelihood and amount, if any, of future taxable income during the periods in which those temporary differences and carryforwards become deductible. The Company does not believe that it is more likely than not that all of the deferred tax assets will be realized; accordingly, a valuation allowance has been established for the amount of the deferred tax assets on net operating loss carryforward, startup costs, and other deferred tax assets in excess of the deferred tax liabilities that will reverse prior to any net operating loss carryforward expiration date.
The following table sets forth activity in the valuation allowance for the year ended December 31, 2020 and 2019 (in thousands):
|
|
Year Ended December 31,
|
|
|
|
2020
|
|
|
2019
|
|
Balance at the beginning of the period
|
|
$
|
5,591
|
|
|
$
|
723
|
|
Change in scope of consolidation
|
|
|
4,707
|
|
|
|
2,836
|
|
Increase during the period
|
|
|
2,625
|
|
|
|
2,027
|
|
Effect of exchange rate changes
|
|
|
—
|
|
|
|
5
|
|
Balance at the end of the period
|
|
$
|
12,923
|
|
|
$
|
5,591
|
|
123
The Company recognizes interest and penalties, if any, related to an underpayment of income taxes in income tax expense. As of December 31, 2020, the Company has accumulated $91,000 in interest expense related to unrecognized tax benefits ($91,000 as of December 31, 2019).
A reconciliation of the beginning and ending amounts of gross unrecognized tax benefits as of December 31, 2020 and 2019 is as follows (in thousands):
|
|
As of December 31,
|
|
|
|
2020
|
|
|
2019
|
|
Gross unrecognized tax benefits, beginning of the year
|
|
$
|
468
|
|
|
$
|
190
|
|
Additions for tax positions of prior years
|
|
|
—
|
|
|
|
—
|
|
Additions for tax positions related to the current year
|
|
|
88
|
|
|
|
193
|
|
Change in scope of consolidation
|
|
|
—
|
|
|
|
—
|
|
Reductions due to settlements
|
|
|
—
|
|
|
|
—
|
|
Effect of exchange rate
|
|
|
14
|
|
|
|
(6
|
)
|
Subtotal
|
|
|
570
|
|
|
|
377
|
|
Interest and penalties
|
|
|
60
|
|
|
|
91
|
|
Total gross unrecognized tax benefits, end of the year
|
|
$
|
630
|
|
|
$
|
468
|
|
As of December 31, 2020, the Company had $4.9 million of undistributed earnings and profits generated by a foreign subsidiary (Solutions Infini) for which no deferred tax liabilities have been recorded, since the Company intends to indefinitely reinvest such earnings in the subsidiary to fund the international operations and certain obligations of the subsidiary. Should the above undistributed earnings be distributed in the form of dividends or otherwise, the distributions would result in $737,000 of tax expense.
The Company files income tax returns in the United States and in foreign jurisdictions including Italy, India, and Switzerland. As of December 31, 2020, the tax years 2007 through the current period remain open to examination in each of the major jurisdictions in which the Company is subject to tax.
On March 27, 2020, the United States enacted the CARES Act in response to the COVID-19 pandemic. The CARES Act, among other things, permits net operating loss carryovers and carrybacks to offset 100% of taxable income for taxable years beginning before 2021. In addition, the CARES Act allows net operating losses incurred in 2018, 2019, and 2020 to be carried back to each of the five preceding taxable years to generate a refund of previously paid income taxes. The Company has evaluated the CARES Act's impact and determined that none of the changes would result in a material income tax benefit to the Company. On December 27, 2020, the Consolidated Appropriations Act 2021 was signed into law and extends several CARES Act provisions. As of December 31, 2020, the Company has determined that neither this Act nor changes to income tax laws or regulations in other jurisdictions is expected to have a significant impact on our effective tax rate.
24. NET LOSS PER SHARE
The Business Combination was accounted for as a reverse recapitalization in accordance with U.S. GAAP (see Note 5 – Business Combination). Accordingly, weighted-average shares outstanding for purposes of the net loss per share calculation have been retrospectively adjusted to reflect the exchange ratio established in the Business Combination.
The following table sets forth the calculation of basic and diluted loss per common share during the period presented (in thousands, except share and per share data):
|
|
Year Ended December 31,
|
|
|
|
2020
|
|
|
2019
|
|
Net loss
|
|
$
|
(26,810
|
)
|
|
$
|
(5,512
|
)
|
Weighted-average shares used to compute net loss per common share, basic and diluted
|
|
|
24,652,004
|
|
|
|
11,603,381
|
|
Net loss per common share, basic and diluted
|
|
$
|
(1.09
|
)
|
|
$
|
(0.48
|
)
|
124
The Company generated a net loss attributable to the Company’s common stockholders for each of the years ended December 31, 2020 and 2019. Accordingly, the effect of dilutive securities is not considered in the net loss per share for such periods because their effect would be anti-dilutive on the net loss per share.
For the year ended December 31, 2020, the weighted-average number of outstanding shares of common stock equivalents, which were excluded from the calculation of the diluted net loss per share attributable to common stockholders as their effect would be anti-dilutive, was 15,275,403 (1,244,043 for the year ended December 31, 2019).
25. TRANSACTIONS WITH RELATED PARTIES
During the year ended December 31, 2020 and 2019, related party transactions, other than compensation and similar arrangements in the ordinary course of business, were as follows:
|
i.
|
Unsecured convertible promissory notes, received by Esse Effe and Maya at the closing of the Business Combination, pursuant to the terms of the Stock Purchase Agreement. Maya is affiliated with Dario Calogero and the shares are beneficially owned by a shareholder, Mr. Calogero who is the Chief Executive Officer and a director of Kaleyra. Esse Effe is affiliated with Dr. Emilio Hirsch, and its shares are beneficially owned by Dr. Hirsch, a shareholder and a director of the Company. The outstanding amount due by the Company was $7.5 million plus $241,000 of accrued interest as of December 31, 2020 ($7.5 million plus $22,000 of accrued interest as of December 31, 2019). In addition, the previously outstanding unsecured non-convertible promissory note held by Maya was repaid on June 30, 2020, with a total of $1.5 million in principal and $26,000 in accrued interest being paid to Maya. The principal amount of $6 million plus $105,000 in accrued interest of the unsecured non-convertible promissory note held by Esse Effe was repaid in full on July 2, 2020 ($7.5 million plus $22,000 of accrued interest as of December 31, 2019). See Note 11 – Notes Payable for additional information;
|
|
ii.
|
Unsecured promissory notes issued by the Company to the Sponsor and GigFounders, LLC. This was repaid on June 30, 2020 in the amount of $1.9 million plus $33,000 of accrued interest ($1.9 million including $5,000 of accrued interest as of December 31, 2019). See Note 11 – Notes Payable for additional information;
|
|
iii.
|
Legal services rendered by a partner of Studio Legale Chiomenti, who is a family member of a key manager of the Company. Costs incurred by the Company for the above services were $363,000 and $694,000 in the years ended December 31, 2020 and 2019, respectively;
|
|
iv.
|
Prior to the Business Combination, Kaleyra S.p.A. granted a loan to one of the Company’s directors and executive officers. In November 2019, prior to the Business Combination, the loan was reimbursed in full for a total amount of $36,000. The Company earned interest income on such loan of $600 for the year ended December 31, 2019;
|
|
v.
|
Alessandra Levy, the spouse of Kaleyra’s Chief Executive Officer, Dario Calogero, is an employee within the marketing team of Kaleyra S.p.A.. Ms. Levy received salary and benefits in the amount of $237,000 and $239,000 for the years ended December 31, 2020, and 2019, respectively;
|
|
vi.
|
Pietro Calogero, the son of Kaleyra’s Chief Executive Officer, Dario Calogero, is an employee within the research and development team of Kaleyra S.p.A.. Mr. Pietro Calogero received salary and benefits in the amount of $35,000 and zero for the years ended December 31, 2020, and 2019, respectively; and
|
|
vii.
|
As of December 31, 2020 and 2019, the outstanding obligation for preference shares due to executive managers was zero and $1.8 million, respectively. As mentioned in Note 14, in the three months ended March 31, 2020, as a result of a modification of the 2018 Solutions Infini Purchase Agreement, a significant portion of the liability for preference shares was replaced with bonus compensation of $3.5 million. During fiscal year 2020, the previously outstanding bonus compensation payable to executive managers was paid in two different installments of $1.4 million on August 31, 2020, and of $883,000 on November 30, 2020. As of December 31, 2020, the outstanding performance bonus obligation payable to the executive managers amounted to $1.2 million. See Note 14 – Preference Shares Liabilities – for further details.
|
125
The following table presents the expenses for related parties reported in the consolidated statements of operations (in thousands):
|
|
Year Ended December 31,
|
|
|
|
2020
|
|
|
2019
|
|
Research and development
|
|
$
|
35
|
|
|
$
|
180
|
|
Sales and marketing
|
|
|
237
|
|
|
|
239
|
|
General and administrative
|
|
|
363
|
|
|
|
874
|
|
Financial expense, net
|
|
|
355
|
|
|
|
48
|
|
26. LEGAL MATTERS
From time to time, Kaleyra may be involved in litigation relating to claims arising out of its operations in the normal course of business. Kaleyra is not currently involved in any material legal proceedings as a defendant.
On October 17, 2018, Kaleyra filed a claim against Vodafone Italia S.p.A. (“Vodafone”) before the Court of Milan seeking compensation in the amount of €6.1 million ($7.5 million at the December 31, 2020 exchange rate) for all the damages suffered as a consequence of the illicit and anticompetitive conduct of Vodafone, as previously determined by the Italian Antitrust Authority (namely, Autorità Garante della Concorrenza e del Mercato or AGCM) in their decisions issued on December 13, 2017; Vodafone has appealed that sanctioning resolution before the Italian Regional Administrative Court.
The deadline for filing a counterclaim by Vodafone has passed and according to Italian Law, Vodafone is no longer entitled to file a counterclaim against Kaleyra in these proceedings. Both Kaleyra and Vodafone have filed their final pleadings on October 1, 2019 and October 21, 2019.
The Court of Milan has decided to suspend the procedure, through order no. 1570 on May 18, 2020. The decision of the Court of Milan is based on procedural reasons only (concerning the unprecedented definition of the relationship between administrative and civil proceedings in the case at hand) and does not analyze or take into any consideration the merits of the action brought by Kaleyra. The procedural suspension ordered by the Court of Milan shall last until the appeal brought by Vodafone before the Italian Regional Administrative Court against the decision of the Italian Antitrust Authority is concluded with a definitive judgment. Accordingly, following the order of suspension issued by the Civil Court of Milan, on August 10, 2020, Kaleyra filed a request to speed up the scheduling of the hearing in relation to the pending appeal before the Italian Regional Administrative Court brought by Vodafone Italia. The Court upheld Kaleyra’s request and the hearing has taken place on February 24, 2021. The decision is expected to be released in the second quarter of fiscal year 2021. The outcome of such action cannot be determined at this time. Therefore, no recognition of these actions has been made in the consolidated financial statements of the Company.
On April 16, 2019, Kaleyra filed a claim against Telecom Italia S.p.A and Telecom Italia Sparkle S.p.A. before the Court of Milan seeking compensation in the amount of €8.3 million ($10.2 million at the December 31, 2020 exchange rate) for damages suffered after the illicit conduct of both counterparts, determined by the Italian Antitrust Authority in the decision issued on December 13, 2017.
At the first hearing before the Court of Milan held for the appearance of the parties on December 11, 2019, the judge reserved the decision on the possible suspension of the case in consideration of the appeal brought by Telecom Italia S.p.A and Telecom Italia Sparkle S.p.A. against the Italian Antitrust Authority’s decision of December 13, 2017 before the Regional Administrative Court, which is currently pending.
By order issued on December 14, 2019, the judge released his reserve and referred the issue concerning the relation between the assessment of the pending administrative case and the one to be carried out in the civil case to a panel composed of three judges. The case was therefore adjourned for a hearing on April 29, 2020 where the parties had to file their final pleadings.
126
On April 9, 2020, following the measures taken by the Italian legislator for the Covid-19 pandemic, the above-mentioned hearing was postponed to and then held on October 7, 2020. At the hearing of October 7, 2020, the parties exposed their closing arguments and the decision on the preliminary question as to the suspension of the civil proceedings has been reserved to a panel composed of three judges. The parties also submitted written observations concerning the preliminary question.
On January 7, 2021, the Court issued an order by which the civil proceedings have been suspended until the decision in the pending administrative case, which was deemed to be prejudicial to the civil one, becomes final (i.e., it is no longer subject to appeal). The order was communicated to the parties via certified electronic mail on January 11, 2021.
In light of the average duration of cases before the Italian Administrative Courts and the Defendants’ interest in both having the Italian Competition Authoriry’s Decision annulled and procrastinating the administrative case (on which the civil proceedings now depend pursuant to the above-mentioned order) for dilatory purposes, the civil case is unlikely to proceed in the short term. In order to speed up the administrative proceedings (and thus the civil case), on February 9, 2021, Kaleyra filed an application with the Administrative Court of Latium requesting that the hearing on the merits of the case be held as soon as possible. However, neither the outcome of Kaleyra’s civil action nor its duration is predictable at this time.
The outcome of such civil action cannot be determined at this time. Therefore, no recognition of these actions has been made in the consolidated financial statements of the Company.
In addition to the above, Kaleyra has appealed the resolutions issued by the Italian Communications Authority (namely, Autorità per le Garanzie nelle Comunicazioni or AGCom) concerning their request for the annual fee to AGCom for years 2016, 2017, 2018, 2019 and 2020.
The first instance proceeding against AGCom’s resolutions for the 2016 contribution was successful for Kaleyra and the Italian Regional Administrative Court annulled the resolutions Kaleyra had appealed (judgement no. 2161/2019). However, AGCom filed its second instance appeal before the Council of State seeking the overruling of the Court’s decision. The appeal has been regularly discussed at the hearing of September 17, 2020 and the Council of State issued its decision number 6175/2020 on October 13, 2020, overruling in part the Regional Court Decision. AGCom will have to recalculate the annual contribution due from Kaleyra for year 2016. However, the annual contribution is not considered material to Kaleyra’s consolidated financial statements.
For the annual contribution to AGCom relating the years 2017, 2018, 2019 and 2020, the legal proceedings are currently pending before the Italian Regional Administrative Court and no hearing has been scheduled yet. However, the European Court of Justice (“ECJ”) has already delivered its decision on the request for a preliminary ruling submitted by the Council of State on the relevant EU law (case C-399/18). Such decision was delivered on April 29, 2020, in accordance with a simplified procedure due to the previous issuance by the ECJ of a number of judgements on the matter.
27. SUBSEQUENT EVENTS
On February 3, 2021, the previously outstanding performance bonus obligation payable to the other eligible employees under the 2018 Solutions Infini Purchase Agreement was agreed to be paid in two different installments of $826,000 on February 15, 2021, and $343,000 (at the February 15, 2021 exchange rate) on April 15, 2021, upon signing of the full and final settlement agreements with the other eligible employees.
On February 4, 2021, Cowen Investments elected to convert the outstanding amount of the Cowen Note into shares of common stock, par value $0.0001 per share of Kaleyra. The conversion was effected pursuant to the terms of the Cowen Note. Accordingly, the Company issued to Cowen Investments an aggregate of 303,171 newly-issued shares of common stock, equal to: (i) the unpaid principal amount of the Cowen Note of $2.3 million being converted, divided by (ii) $7.57 (the “Conversion Price”). Upon such complete conversion of the unpaid principal amount of Cowen Note such unpaid principal amount is deemed to be fully paid and satisfied.
127
On February 18, 2021, Kaleyra executed an Agreement and Plan of Merger (the “Merger Agreement”), dated as of February 18, 2021, by and among Kaleyra, its wholly-owned subsidiary, Volcano Merger Sub, Inc. (“Merger Sub”), Vivial Inc. (“Vivial”) and GSO Special Situations Master Fund LP, solely in its capacity as the Stockholder Representative (“Stockholder Representative”), for the acquisition of the business owned by Vivial known as mGage (“mGage”), a leading global mobile messaging provider (the transaction contemplated by the Merger Agreement, the “Merger”). Kaleyra will acquire mGage for a total purchase price of approximately $215 million, subject to adjustments. The consideration to mGage shareholders will consist of cash in the amount of $195 million and 1,600,000 shares of Kaleyra common stock. The Merger is expected to be consummated in the second fiscal quarter of 2021. In support of the consummation of the Merger, on February 18, 2021, Kaleyra entered into subscription agreements (the “PIPE Subscription Agreements”), each dated February 18, 2021, with certain institutional investors (the “PIPE Investors”), pursuant to which, among other things, Kaleyra agreed to issue and sell, in private placements to close immediately prior to the closing of the Merger, an aggregate of 8,400,000 shares (the “PIPE Shares”) of Kaleyra common stock to the PIPE Investors at $12.50 per share, and Kaleyra also entered into convertible note subscription agreements (the “Convertible Note Subscription Agreements”), each dated February 18, 2021, with certain institutional investors (the “Convertible Note Investors”), pursuant to which Kaleyra agreed to issue and sell, in private placements to close immediately prior to the closing of the Merger, $200 million aggregate principal amount of unsecured convertible notes (the “Merger Convertible Notes”). The issuance of the Convertible Notes, together with the issuance of the PIPE Shares, constitutes the “Financing”.
On February 23, 2021, Kaleyra entered into an amendment to the existing unsecured loan agreement with Intesa Sanpaolo S.p.A. (the “Intesa Sanpaolo S.p.A. - Line 1”) and an amendment to the existing unsecured loan agreement with Intesa Sanpaolo S.p.A. (the “Intesa Sanpaolo S.p.A. - Line 2”). The amendments each provide that certain financial covenants be amended in order to make them less restrictive to the Company, in particular as they relate to the previously agreed net financial position/equity ratio and the net financial position/gross operating income ratio.
On February 25, 2021, in accordance with the terms of the Confirmation, Nomura Global Financial Products, Inc. fully terminated the OTC Equity Prepaid Forward Transaction and made a payment in the aggregate amount of $17.0 million to Kaleyra. Following the payment by NGFP mentioned above, the Forward Transaction with NGFP has terminated pursuant to terms of the Confirmation, and as a result the Company has no further obligations, except for the amount of accrued interest payable to NGFP.
In the period from January 25, 2021 through March 2, 2021, Yakira provided notice to the Company that it sold all but 219 of the 43,930 shares that it held on December 31, 2020 in the open market at a price above $11.00 per share that were subject to the Third Yakira Amendment. Following the sale of shares by Yakira mentioned above, only 219 shares remain subject to the Third Yakira Amendment, as such the forward share purchase agreement with Yakira has terminated pursuant to its terms as to all but 219 shares, and the Company has no further obligations under the Yakira Purchase Agreement except for the purchase of those shares which Yakira still owns.
On March 9, 2021 and March 10, 2021, respectively, Kaleyra S.p.A. received the approval by UniCredit to postpone repayment of the principal amounts due under the existing Line A Tranche (2), Line B and Line C of the long-term financing agreements with UniCredit S.p.A. for a period of six (6) months starting from March 1, 2021 until August 8, 2021, and under Line A Tranche (1) of the long-term financing agreement with UniCredit S.p.A. starting from February 1, 2021 until July 31, 2021. Consequently, the repayment schedule under all financing agreements mentioned above has been extended for the period equal to that of the six (6) month suspension period.
128