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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2020 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from __________ to __________

Commission File Number: 001-38320

 

KALEYRA, INC.

(Exact name of registrant as specified in its charter)

 

 

Delaware

 

82-3027430

(State or other jurisdiction of
incorporation or organization)

 

(I.R.S. Employer
Identification Number)

 

Via Marco D’Aviano, 2, Milano MI, Italy

 

20131

(Address of principal executive offices)

 

(Zip Code)

 

Registrant’s telephone number, including area code: +39 02 288 5841

(Former name or former address, if changed since last report): N/A

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes      No  

Indicate by checkmark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files)    Yes      No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company, or an emerging growth company.  See definitions of “large accelerated filer”, “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.:

 

Large accelerated filer

 

 

Accelerated filer

Non-accelerated filer

 

 

Smaller reporting company

 

 

 

 

Emerging growth company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No  ☒

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

 

Trading Symbols

 

Name of each exchange on which registered

Common Stock, par value $0.0001 per share

 

KLR

 

NYSE American LLC

Warrants, at an exercise price of $11.50 per share of Common Stock

 

KLR WS

 

NYSE American LLC

 

As of May 12, 2020, there were 22,195,276 shares of the Company’s common stock issued and outstanding.

 


 

KALEYRA, INC.

Quarterly Report on Form 10-Q

Table of Contents

 

PART I – FINANCIAL INFORMATION

Page

 

 

Item 1.

Condensed Consolidated Financial Statements (unaudited):

1

 

 

 

 

Condensed Consolidated Balance Sheets

1

 

 

 

 

Condensed Consolidated Statements of Operations

2

 

 

 

 

Condensed Consolidated Statements of Comprehensive Loss

3

 

 

 

 

Condensed Consolidated Statements of Stockholders’ Equity (Deficit)

4

 

 

 

 

Condensed Consolidated Statements of Cash Flows

5

 

 

 

 

Notes to Condensed Consolidated Financial Statements

6

 

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

29

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

41

 

 

 

Item 4.

Controls and Procedures

41

 

 

 

PART II – OTHER INFORMATION

 

 

 

 

Item 1.

Legal Proceedings

42

 

 

 

Item 1A.

Risk Factors

43

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

44

 

 

 

Item 3.

Defaults Upon Senior Securities

45

 

 

 

Item 4.

Mine Safety Disclosures

45

 

 

 

Item 5.

Other Information

45

 

 

 

Item 6.

Exhibits

46

 

 

 

Signatures

47

 

 

 


Item 1 – Financial Statements

KALEYRA, INC.

Condensed Consolidated Balance Sheets

(Unaudited, in thousands, except share and per share data)

 

 

 

March 31, 2020

 

 

December 31, 2019

 

ASSETS

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

16,237

 

 

$

16,103

 

Restricted cash

 

 

20,810

 

 

 

20,894

 

Short-term investments

 

 

3,079

 

 

 

5,124

 

Trade receivables, net

 

 

36,307

 

 

 

39,509

 

Prepaid expenses

 

 

1,246

 

 

 

648

 

Other current assets

 

 

2,757

 

 

 

4,224

 

Total current assets

 

 

80,436

 

 

 

86,502

 

Property and equipment, net

 

 

3,888

 

 

 

3,393

 

Intangible assets, net

 

 

8,665

 

 

 

9,353

 

Goodwill

 

 

16,370

 

 

 

16,953

 

Other long-term assets

 

 

2,082

 

 

 

1,203

 

Total Assets

 

$

111,441

 

 

$

117,404

 

LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

56,674

 

 

$

63,320

 

Debt for forward share purchase agreements

 

 

31,530

 

 

 

34,013

 

Notes payable

 

 

2,113

 

 

 

1,667

 

Notes payable due to related parties

 

 

13,115

 

 

 

9,411

 

Lines of credit

 

 

5,278

 

 

 

3,627

 

Current portion of bank and other borrowings

 

 

5,925

 

 

 

7,564

 

Deferred revenue

 

 

1,538

 

 

 

1,397

 

Preference shares

 

 

1

 

 

 

683

 

Preference shares due to related parties

 

 

1

 

 

 

1,847

 

Payroll and payroll related accrued liabilities

 

 

2,929

 

 

 

1,038

 

Other current liabilities

 

 

2,023

 

 

 

1,379

 

Total current liabilities

 

 

121,127

 

 

 

125,946

 

Long-term portion of bank and other borrowings

 

 

20,621

 

 

 

16,134

 

Long-term portion of notes payable due to related parties

 

 

3,750

 

 

 

7,500

 

Long-term portion of employee benefit obligation

 

 

1,341

 

 

 

1,398

 

Deferred tax liabilities

 

 

1,638

 

 

 

2,045

 

Other long-term liabilities

 

 

4,599

 

 

 

3,155

 

Total Liabilities

 

 

153,076

 

 

 

156,178

 

Commitments and contingencies (Note 13)

 

 

 

 

 

 

 

 

Stockholders’ equity (deficit):

 

 

 

 

 

 

 

 

Preferred stock, par value of $0.0001 per share; 1,000,000 shares authorized; no shares issued or outstanding

 

 

 

 

 

 

Common stock, par value of $0.0001 per share; 100,000,000 shares authorized as of March 31, 2020 and December 31, 2019; 20,254,217 shares issued and 20,019,048 shares outstanding as of March 31, 2020 and 19,977,113 shares issued and outstanding as of December 31, 2019

 

 

2

 

 

 

2

 

Additional paid-in capital

 

 

11,190

 

 

 

2,143

 

Treasury stock, at cost; 235,169 and 0 shares as of March 31, 2020 and December 31, 2019, respectively

 

 

(2,587

)

 

 

 

Accumulated other comprehensive income (loss)

 

 

(424

)

 

 

74

 

Accumulated deficit

 

 

(49,816

)

 

 

(40,993

)

Total stockholders’ equity (deficit)

 

 

(41,635

)

 

 

(38,774

)

Total liabilities and stockholders’ equity (deficit)

 

$

111,441

 

 

$

117,404

 

 

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

1


 

KALEYRA, INC.

Condensed Consolidated Statements of Operations

(Unaudited, in thousands, except share and per share data)

 

 

 

 

Three Months Ended March 31,

 

 

 

2020

 

 

2019

 

Revenue

 

$

33,633

 

 

$

27,725

 

Cost of revenue

 

 

28,902

 

 

 

22,476

 

Gross profit

 

 

4,731

 

 

 

5,249

 

Operating expenses:

 

 

 

 

 

 

 

 

Research and development

 

 

2,810

 

 

 

1,196

 

Sales and marketing

 

 

3,743

 

 

 

1,472

 

General and administrative

 

 

7,759

 

 

 

3,779

 

Total operating expenses

 

 

14,312

 

 

 

6,447

 

Loss from operations

 

 

(9,581

)

 

 

(1,198

)

Other income, net

 

 

42

 

 

 

82

 

Financial income (expense), net

 

 

(41

)

 

 

70

 

Foreign currency income (loss)

 

 

168

 

 

 

(254

)

Loss before income tax expense (benefit)

 

 

(9,412

)

 

 

(1,300

)

Income tax expense (benefit)

 

 

(589

)

 

 

79

 

Net loss

 

$

(8,823

)

 

$

(1,379

)

Net loss per common share, basic and diluted (1)

 

$

(0.44

)

 

$

(0.13

)

Weighted-average shares used in computing net loss per common share, basic and diluted (1)

 

 

19,979,589

 

 

 

10,687,106

 

______________________________

 

(1)

Amounts for the three months ended March 31, 2019 were retrospectively adjusted as a result of the accounting for the Business Combination (as defined below in the notes). Specifically, the number of common shares outstanding during periods before the Business Combination are 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. Common stock and net loss per share, basic and diluted were retrospectively adjusted accordingly.

 

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

2


 

KALEYRA, INC.

Condensed Consolidated Statements of Comprehensive Loss

(Unaudited, in thousands)

 

 

 

 

Three Months Ended March 31,

 

 

 

2020

 

 

2019

 

Net loss

 

$

(8,823

)

 

$

(1,379

)

Other comprehensive income (loss):

 

 

 

 

 

 

 

 

Foreign currency translation adjustments

 

 

(502

)

 

 

561

 

Net unrealized gain on marketable securities, net of tax (1)

 

 

4

 

 

 

15

 

Total other comprehensive income (loss)

 

 

(498

)

 

 

576

 

Total comprehensive loss

 

$

(9,321

)

 

$

(803

)

______________________________

 

(1)

The Company recorded $1,000 and $5,000 of tax expense on unrealized gain on marketable securities for the three months ended March 31, 2020 and 2019, respectively.

 

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

3


 

KALEYRA, INC.

Condensed Consolidated Statements of Stockholders’ Equity (Deficit)

(Unaudited, in thousands, except share data)

 

 

 

 

Common Stock

 

 

Additional

Paid-in

 

 

Treasury Stock

 

 

Accumulated

Other

Comprehensive

 

 

Accumulated

 

 

Total

Stockholders'

Equity

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Shares

 

 

Amount

 

 

Income (Loss)

 

 

Deficit

 

 

(Deficit)

 

Balance as of December 31, 2019

 

 

19,977,113

 

 

$

2

 

 

$

2,143

 

 

 

 

 

$

 

 

$

74

 

 

$

(40,993

)

 

$

(38,774

)

Common stock repurchased in connection with forward share purchase agreements

 

 

(235,169

)

 

 

 

 

 

2,587

 

 

 

235,169

 

 

 

(2,587

)

 

 

 

 

 

 

 

 

 

Change in forward share purchase agreement liability

 

 

 

 

 

 

 

 

(271

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(271

)

Stock-based compensation (RSUs)

 

 

137,104

 

 

 

 

 

 

6,204

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

6,204

 

Common stock issued to settle a payable (1)

 

 

140,000

 

 

 

 

 

 

527

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

527

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(8,823

)

 

 

(8,823

)

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(498

)

 

 

 

 

 

(498

)

Balance as of March 31, 2020

 

 

20,019,048

 

 

$

2

 

 

$

11,190

 

 

 

235,169

 

 

$

(2,587

)

 

$

(424

)

 

$

(49,816

)

 

$

(41,635

)

 

 

 

Common Stock

 

 

Additional

Paid-in

 

 

Treasury Stock

 

 

Accumulated

Other

Comprehensive

 

 

Retained

Earnings

(Accumulated

 

 

Total

Stockholders'

Equity

 

 

 

Shares (2)

 

 

Amount

 

 

Capital (2)

 

 

Shares

 

 

Amount

 

 

Income (Loss)

 

 

Deficit)

 

 

(Deficit)

 

Balance as of December 31, 2018

 

 

10,687,106

 

 

$

1

 

 

$

10,186

 

 

 

 

 

$

 

 

$

31

 

 

$

(5,292

)

 

$

4,926

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,379

)

 

 

(1,379

)

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

576

 

 

 

 

 

 

576

 

Balance as of March 31, 2019

 

 

10,687,106

 

 

$

1

 

 

$

10,186

 

 

 

 

 

$

 

 

$

607

 

 

$

(6,671

)

 

$

4,123

 

____________________

 

(1)

On March 6, 2020, the Company issued to Northland Securities Inc. (“Northland”), 140,000 shares of the Company’s common stock as a partial settlement of the amounts owned to Northland for financial advisory services provided by Northland to Kaleyra S.p.A. in connection with the previously consummated Business Combination.

 

(2)

Amounts as of March 31, 2019 and before that date were retrospectively adjusted as a result of the accounting for the Business Combination (as defined in the notes). Specifically, the number of common shares outstanding during periods before the Business Combination are 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. Common stock and additional paid-in capital were adjusted accordingly.

 

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

4


 

KALEYRA, INC.

Condensed Consolidated Statements of Cash Flows

(Unaudited, in thousands)

 

 

 

Three Months Ended March 31,

 

 

 

2020

 

 

2019

 

Cash Flows from Operating Activities:

 

 

 

 

 

 

 

 

Net loss

 

$

(8,823

)

 

$

(1,379

)

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

638

 

 

 

650

 

Stock-based compensation and preference share liability

 

 

6,308

 

 

 

315

 

Non-cash settlement of preference share liability

 

 

(2,486

)

 

 

 

Allowance for doubtful accounts

 

 

117

 

 

 

60

 

Employee benefit obligation

 

 

89

 

 

 

80

 

Non-cash interest expense

 

 

72

 

 

 

103

 

Deferred taxes

 

 

(323

)

 

 

(398

)

Change in operating assets and liabilities:

 

 

 

 

 

 

 

 

Trade receivables

 

 

1,710

 

 

 

534

 

Other current assets

 

 

1,111

 

 

 

(399

)

Other long-term assets

 

 

(808

)

 

 

(349

)

Accounts payable

 

 

(5,694

)

 

 

(3,690

)

Other current liabilities

 

 

3,526

 

 

 

402

 

Deferred revenue

 

 

206

 

 

 

6

 

Long-term liabilities

 

 

1,505

 

 

 

434

 

Net cash used in operating activities

 

 

(2,852

)

 

 

(3,631

)

Cash Flows from Investing Activities:

 

 

 

 

 

 

 

 

Purchase of short-term investments

 

 

(3,179

)

 

 

(684

)

Sale of short-term investments

 

 

5,041

 

 

 

2,062

 

Purchase of property and equipment

 

 

(89

)

 

 

(291

)

Sale of property and equipment

 

 

16

 

 

 

 

Capitalized software development costs

 

 

(731

)

 

 

 

Purchase of intangible assets

 

 

(6

)

 

 

(5

)

Net cash provided by investing activities

 

 

1,052

 

 

 

1,082

 

Cash Flows from Financing Activities:

 

 

 

 

 

 

 

 

Change in line of credit

 

 

1,721

 

 

 

528

 

Borrowings on term loans

 

 

8,800

 

 

 

696

 

Repayments on term loans

 

 

(5,463

)

 

 

(553

)

Repurchase of common stock in connection with forward share purchase agreements

 

 

(2,587

)

 

 

 

Payments related to forward share purchase agreements

 

 

(167

)

 

 

 

Net cash provided by financing activities

 

 

2,304

 

 

 

671

 

Effect of exchange rate changes on cash, cash equivalents and restricted cash

 

 

(454

)

 

 

(47

)

Net increase (decrease) in cash, cash equivalents and restricted cash

 

 

50

 

 

 

(1,925

)

Cash, cash equivalents and restricted cash, beginning of period (1)

 

 

36,997

 

 

 

8,207

 

Cash, cash equivalents and restricted cash, end of period (1)

 

$

37,047

 

 

$

6,282

 

Supplemental disclosures of cash flow information:

 

 

 

 

 

 

 

 

Cash paid for interest

 

$

153

 

 

$

95

 

Cash paid for income taxes

 

$

 

 

$

85

 

Non-cash financing activities:

 

 

 

 

 

 

 

 

Change in value of forward share purchase agreements

 

$

271

 

 

$

 

Common stock issued to settle a payable

 

$

423

 

 

$

 

Note payable issued to settle a payable

 

$

400

 

 

$

 

____________________

 

(1)

As of March 31, 2020, includes $16.2 million of cash and cash equivalents and $20.8 million of restricted cash; as of December 31, 2019, includes $16.1 million of cash and cash equivalents and $20.9 million of restricted cash.

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

5


 

KALEYRA, INC.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

1. DESCRIPTION OF ORGANIZATION AND BUSINESS OPERATIONS

Kaleyra, Inc., formerly GigCapital, Inc., (“Kaleyra,” the “Company,” “we,” “us,” and “our” refer to Kaleyra, Inc. and all of its consolidated subsidiaries) 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 consisted 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 were issued upon separation of the Units and only whole warrants will trade. Any Units that were not separated, prior to the consummation of the Company’s business combination, continued 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 the Company’s business combination, traded 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.

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 (“US 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 is 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 are 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 16 – Net Loss Per Share – for further details.

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”.

6


 

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The accompanying condensed consolidated financial statements of the Company are unaudited, and have been prepared in accordance with US GAAP for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, this interim quarterly financial report does not include all disclosures required by US GAAP. In the opinion of our management, the unaudited condensed consolidated financial statements reflect all adjustments, consisting only of normal recurring adjustments, considered necessary to present fairly the financial position, results of operations and cash flows of Kaleyra and our consolidated subsidiaries for all periods presented. The results of operations for the three months ended March 31, 2020 are not necessarily indicative of the results to be expected in the future or for the full fiscal year. It is recommended that these condensed consolidated financial statements be read in conjunction with our consolidated financial statements and the notes thereto included in our 2019 Annual Report on Form 10-K filed with the Securities and Exchange Commission (the “SEC”) on April 22, 2020.

These condensed consolidated financial statements have been prepared in conformity with US 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 condensed 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 Company has negative cash flows from operating activities, and its current liabilities exceed its current assets as of March 31, 2020. The condensed consolidated balance sheet as of March 31, 2020 includes total current assets of $80.4 million and total current liabilities of $121.1 million, resulting in net liabilities due within the next 12 months of $40.7 million.

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 Shares Purchase Forward 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. Management, concerned about the Company’s ability to fulfill these obligations, made the decision to evaluate opportunities to refinance or renegotiate some of its current obligations and, during the first four months of 2020 put in place several actions aimed to achieve such goal, including, among others:

 

the subscription of a new loan agreement with a bank that is currently a lender to the Company;

 

signing of two new line of credit facilities;

 

a refinanced loan that extended payment terms and provided additional funds;

 

the amendments of the repayment schedules of certain existing long-term financing agreements to postpone the amounts due in the next three to nine months of 2020; and

 

the renegotiation of the payment terms of a payable related to costs incurred in the Business Combination.

Considering the effects of these actions and the typical financial cycle of Kaleyra, Kaleyra’s management believes that the Company’s cash, cash flows from operations, financings and amendments to agreements described above, and availability of borrowings, as described above, will be sufficient to support its planned operations for at least the next 12 months from the date these condensed consolidated financial statements were issued.

Business seasonality

The Company’s results are affected by the business cycles of its customer base, which generally results in stronger revenue in the fourth quarter of the financial year. We believe this variability is largely due to the market demand for our customers’ and/or business partners’ services due to higher levels of purchasing activity in the holiday season. As a result of our historically higher portion of sales in the fourth quarter of each year, our cost of revenue increases during such period relative to any increase in revenue. The increase in cost of revenue and other impacts of seasonality may affect profitability in a given quarter.

7


 

Principles of Consolidation

The condensed 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 US 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. Actual results and outcomes may differ from management’s estimates and assumptions due to risks and uncertainties, including uncertainty in the current economic environment due to the recent outbreak of a novel strain of the coronavirus (“COVID-19”).

Concentration of Credit Risk

Financial instruments that potentially expose the Company to a concentration of credit risk consist primarily of cash, restricted cash and cash equivalents, short-term investments and trade receivables. The Company maintains cash and cash equivalents and short-term investments 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 three months ended March 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 the three months ended March 31, 2019, revenue generated by that one customer accounted for $3.1 million. As of March 31, 2020 and December 31, 2019, no individual customer accounted for more than 10% of the Company’s consolidated total trade receivables.

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 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 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 condensed consolidated financial statements.

8


 

In March 2020, the FASB issued ASU 2020-03 “Codification Improvements to Financial Instruments”, which improves various financial instruments Topics in the Codification in order to increase stakeholder awareness of the amendments and to expedite the improvement process. The amendments in this ASU clarify or address stakeholders’ specific issues as described below:

 

i.

Issue 1: Fair Value Option Disclosures: The amendments clarify that all entities are required to provide the fair value option disclosures in paragraphs 825-10-50-24 through 50-32.

 

ii.

Issue 2: Applicability of Portfolio Exception in Topic 820 to Nonfinancial Items: Paragraphs 820-10-35-2A(g) and 820-10-35-18L are amended to include the phrase nonfinancial items accounted for as derivatives under Topic 815 to be consistent with the previous amendments to Section 820-10-35.

 

iii.

Issue 3: Disclosures for Depository and Lending Institutions: The amendments clarify that the disclosure requirements in Topic 320 apply to the disclosure requirements in Topic 942 for depository and lending institutions.

 

iv.

Issue 4: Cross-Reference to Line-of-Credit or Revolving-Debt Arrangements Guidance in Subtopic 470-50: The amendments improve the understandability of the guidance.

 

v.

Issue 5: Cross-Reference to Net Asset Value Practical Expedient in Subtopic 820-10: The amendments improve the understandability of the guidance.

 

vi.

Issue 6: Interaction of Topic 842 and Topic 326: The amendments clarify that the contractual term of a net investment in a lease determined in accordance with Topic 842 should be the contractual term used to measure expected credit losses under Topic 326.

 

vii.

Issue 7: Interaction of Topic 326 and Subtopic 860-20: The amendments to Subtopic 860- 20 clarify that when an entity regains control of financial assets sold, an allowance for credit losses should be recorded in accordance with Topic 326.

For Issue 1, 2, 4 and 5, for public business entities, the amendments are effective upon issuance of this final ASU. For all other entities, including emerging growth companies as defined in the JOBS Act, the amendments are effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years beginning after December 15, 2020. Early application is permitted. The Company is currently evaluating the impact of this standard on its consolidated financial statements.

For Issue 3, the effective dates and transition requirements for the amendments are the same as the effective dates and transition requirements in ASU 2019-04, for the guidance related to the amendments in ASU 2016-01. The effective date of ASU 2019-04 for the amendments to ASU 2016-01 is for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. The Company adopted the amendments in the three months period ended March 31, 2020, and the adoption did not have a material impact on its consolidated financial statements.

For Issue 6 and 7, 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 not adopted the amendments in ASU 2016-13, the effective dates and the transition requirements for these amendments are the same as the effective date and transition requirements in ASU 2016-13 which for an emerging growth company is in 2023. 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 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.

Moreover, the amendments in this ASU add a note to a SEC paragraph pursuant to the issuance of ASU 2019-10, Financial Instruments—Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842): Effective Dates. The note added states that at the December 2019 AICPA National Conference on Current SEC and PCAOB Developments, the SEC staff announced that it would not object to a public business entity that otherwise would not meet the definition of a public business entity except for a requirement to include or the inclusion of its financial statements or financial information in another entity’s filing with the SEC adopting Topic 842 for fiscal years beginning after December 15, 2020, and interim periods within fiscal years beginning after December 15, 2021. This announcement is applicable only to public business entities that otherwise would not meet the definition of a public business entity except for a requirement to include or the inclusion of its financial statements or financial information in another entity’s filing with the SEC. This announcement is not applicable to other public business entities.

9


 

In January 2020, the FASB issued ASU 2020-01 “Investments—Equity Securities (Topic 321), Investments—Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815)”