KALTURA, INC.
CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2021
U.S. DOLLARS IN THOUSANDS
INDEX
Page
Report of Independent Registered Public Accounting Firm (PCAOB ID 1281)
F-2
Consolidated Balance Sheets
F-3
Consolidated Statements of Operations
F-5
Consolidated Statements of Convertible and Redeemable Convertible Preferred Stock and Stockholders' Equity (Deficit)
F-6
Consolidated Statements of Cash Flows
F-7
Notes to Consolidated Financial Statements
F-9
To the Stockholders and the Board of Directors of Kaltura, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Kaltura, Inc. and subsidiaries (the Company) as of December 31, 2021 and 2020, the related consolidated statements of operations, convertible and redeemable convertible preferred stock and stockholders' equity (deficit) and cash flows for each of the three years in the period ended December 31, 2021, and the related notes (collectively referred to as the "consolidated financial statements"). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2021, in conformity with U.S. generally accepted accounting principles.Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ KOST FORER GABBAY & KASIERERA Member of EY Global
We have served as the Company's auditor since 2007. Tel-Aviv, IsraelFebruary 25, 2022
F - 2
2021
2020
ASSETS
CURRENT ASSETS:
Cash and cash equivalents
Trade receivables
Prepaid expenses and other current assets
Deferred contract acquisition and fulfillment costs, current
Total current assets
LONG-TERM ASSETS:
Property and equipment, net
Other assets, noncurrent
Deferred contract acquisition and fulfillment costs, noncurrent
Intangible assets, net
Goodwill
Total noncurrent assets
TOTAL ASSETS
LIABILITIES, CONVERTIBLE AND REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Current portion of long-term loans
Current portion of long-term lease liabilities
Trade payables
Employees and payroll accruals
Accrued expenses and other current liabilities
Deferred revenue, current
Total current liabilities
NONCURRENT LIABILITIES:
Deferred revenue, noncurrent
Long-term loans, net of current portion
Other liabilities, noncurrent
Warrants to purchase preferred and common stock
Total noncurrent liabilities
TOTAL LIABILITIES
F - 3
COMMITMENTS AND CONTINGENCIES (Note 10)
Convertible preferred stock, $0.0001 par value per share, 0 and 1,043,778 shares authorized, issued and outstanding as of December 31, 2021 and 2020; aggregate liquidation preference of $0 and $1,921 as of December 31, 2021 and 2020, respectively
Redeemable convertible preferred stock, $0.0001 par value per share, 0 and 15,968,831 shares authorized as of December 31, 2021, and December 31, 2020, respectively; 0 and 15,779,322 issued and outstanding as of December 31, 2021, and December 31, 2020, respectively; aggregate liquidation preference of $0 and $185,425 as of December 31, 2021, and 2020, respectively
Total mezzanine equity
STOCKHOLDERS' EQUITY (DEFICIT):
Preferred stock, $0.0001 par value per share, 20,000,000 and 0 shares authorized as of December 31, 2021, and 2020, respectively; 0 shares issued and outstanding as of December 31, 2021, and 2020
Common stock $0.0001 par value per share, 1,000,000,000 and 157,500,000 shares authorized as of December 31, 2021 and 2020, respectively; 134,610,294 and 33,153,112, shares issued as of December 31, 2021 and 2020, respectively; 126,925,104 and 25,467,922 outstanding as of December 31, 2021 and 2020, respectively
Treasury stock - 7,685,190 shares of common stock, $0.0001 par value per share, as of December 31, 2021 and 2020
Additional paid-in capital
Receivables on account of stock
Accumulated deficit
Total stockholders' equity (deficit)
TOTAL LIABILITIES, CONVERTIBLE AND REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ EQUITY (DEFICIT)
F - 4
Year ended December 31,
2019
Revenue:
Subscriptions
84,725
Professional services
12,624
Total revenue
97,349
Cost of revenue:
18,669
16,949
Total cost of revenue
35,618
Gross profit
61,731
Operating expenses:
Research and development
24,216
Sales and marketing
25,515
General and administrative
14,779
Other operating expenses
Total operating expenses
64,510
Operating loss
2,779
Financial expenses, net
11,189
Loss before provision for income taxes
13,968
Provision for income taxes
1,604
Net loss
15,572
9,749
Net loss attributable to common stockholders
$
25,321
Net loss per share attributable to common stockholders, basic and diluted
1.11
Weighted-average shares used in computing net loss per share attributable to common stockholders, basic and diluted
22,754,499
F - 5
Convertible
preferred Stock
Redeemable convertible preferred Stock
Common stock
Treasury stock
Receivables
on account
of stock
Number
Amount
Balance as of January 1, 2019
1,043,778
1,921
15,779,322
145,801
22,516,251
2
7,685,190
(882
(190,274
(196,035
Cumulative-effect adjustment for adoption of ASU 2014-09
8,606
Stock-based compensation expenses
2,322
Issuance of common stock upon exercise of stock options
443,718
*)-
147
Accretion of redeemable convertible preferred stock
(2,469
(7,280
(9,749
(15,572
Balance as of December 31, 2019
Reclassification to equity of warrant to common stock
Issuance of common stock upon business combination
Balance as of December 31, 2020
Issuance of preferred stock upon exercise of warrants
Loan forgiveness
Redemption of redeemable convertible preferred stock upon initial public offering
Conversion of convertible and redeemable convertible preferred stock to common stock upon initial public offering
Issuance of common stock upon initial public offering, net of underwriting discounts and commissions and other issuance costs
Conversion of warrants to common stock upon initial public offering
Issuance of common stock upon exercise of stock options, and release of restricted stock units
Balance as of December 31, 2021
*) Represents an amount that is lower than $1
F - 6
U.S. dollars in thousands
Cash flows from operating activities:
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation, amortization, and abandonment costs
4,490
Amortization of deferred contract acquisition and fulfillment costs
3,290
Change in valuation of warrants to purchase preferred and common stock
5,300
Non-cash interest expenses
407
Non-cash expenses with respect to stockholders’ loans
Gain on sale of property and equipment
Changes in operating assets and liabilities:
Decrease (increase) in trade receivables
6,159
Increase in prepaid expenses and other current assets and other assets, noncurrent
(54
Increase in deferred contract acquisition and fulfillment costs
(6,590
Increase in trade payables
2,004
Increase (decrease) in accrued expenses and other current liabilities
(1,517
Increase in employees and payroll accruals
1,435
Increase (decrease) in other liabilities, noncurrent
39
Increase (decrease) in deferred revenue
(1,343
Net cash provided by (used in) operating activities
370
Cash flows from investing activities:
Net cash acquired in business combination
Purchases of property and equipment
(2,239
Proceeds from sale of property and equipment
Capitalized internal-use software development costs
(249
Purchase of intangible assets
(244
Net cash used in investing activities
(2,732
Cash flows from financing activities:
Proceeds from initial public offering, net of underwriting discounts and commissions
Payment related to the conversion of Series F redeemable convertible preferred stock upon initial public offering
Proceeds from long-term loans, net of debt issuance cost
2,971
Repayment of long-term loans
Principal payments on finance leases
(2,818
Proceeds from exercise of stock options
Payment of deferred offering costs
Net cash provided by (used in) financing activities
300
Net increase (decrease) in cash, cash equivalents and restricted cash
(2,062
Cash, cash equivalents and restricted cash at the beginning of the year
29,206
Cash, cash equivalents and restricted cash at the end of the year
27,144
F - 7
Supplemental disclosure of non-cash activity:
Purchase of property, equipment, internal-use software, and intangible asset in credit
142
-
Issuance of ordinary shares and warrant with respect to business combination
Unpaid deferred offering costs
Supplemental disclosure of cash flow information
Cash paid for income taxes, net
1,073
Cash paid for interest
4,298
Reconciliation of cash, cash equivalents, and restricted cash to the consolidated balance sheet
26,538
Restricted cash included in other assets, noncurrent
606
Total cash, cash equivalents, and restricted cash
F - 8
NOTE 3: ACQUISITIONS (Cont.)
The Company accounted for this transaction as a business combination and allocated the purchase consideration to assets acquired and liabilities assumed based on preliminary estimated fair values, as presented in the following table:
Goodwill of $1,689, none of which is deductible for tax purposes, was recorded in connection with the Newrow acquisition, and was primarily attributed to synergies arising from the acquisition and the value of the acquired workforce. The goodwill was allocated to the Enterprise, Education and Technology segment.
The following table presents details of the identified intangible assets acquired:
Fair Value
Transaction costs incurred by the Company in connection with the Newrow acquisition were approximately $91 during the year ended December 31, 2020, and were recorded within general and administrative expenses in the consolidated statements of operations.
NOTE 6:
OTHER ASSETS, NONCURRENT
Restricted cash
Severance pay fund
Issuance costs
Other
Weighted average remaining useful life (in years)
Balance
Gross carrying amount:
Technology
Customer relationship
Tradename
Accumulated amortization and impairments:
During the year ended December 31, 2021, 2020 and 2019, the Company recorded amortization expenses in the amount of $1,005, $917 and $630, respectively, included in cost of revenue and sales and marketing expenses in the statements of operations.
NOTE 7: GOODWILL AND INTANGIBLE ASSETS, NET (Cont.)
The estimated future amortization expense of intangible assets as of December 31, 2021, is as follows:
December 31,
2022
2023
2024
2025
2026
2027
In April 2018, the Company acquired some of the assets of Rapt Media, Inc. (the "Assets") for a consideration that varied depending on the gains that the Assets derived during a three-year period (the “Period”) following the closing date of the purchase of the Assets (the "Transaction").
The Transaction was accounted for as an asset acquisition. The Company recognized an asset and liability simultaneously when revenue derived from the Assets was recognized. The useful life of the Assets is four years from the Transaction's closing date.
The Period ended in April 2021, when up to that date, the Company had capitalized an amount of $595.
During the years ended December 31, 2021, 2020 and 2019, the Company capitalized $79, $163 and $202, respectively, with respect to the Transaction.
Changes in goodwill for the years ending December 31, 2021, 2020 and 2019, were as follows:
Enterprise, Education and Technology
Media and Telecom
Total
Additions
Balance as of January 1, 2020
1,689
Balance as of January 1, 2021
9,381
11,070
Since the Company's inception, no goodwill impairment charges were recorded.
NOTE 8:
LONG-TERM LOAN
In February 2011, the Company entered into a long-term loan and security agreement with a bank (the "2011 Loan Agreement"). During the years 2012-2019 the Company entered into several modifications, pursuant to which the long-term credit line was increased to an amount equal to $20,000 out of which the Company drew an amount of $18,000. Loan repayment date was extended from February 2017 to February 2020 in one installment.
In February 2020 the Company drew an additional amount of $2,000 as part of the Ninth Modification to the 2011 Loan Agreement.
The outstanding principal amount accrued interest at a floating per annum rate equal to the prime rate.
As of December 31, 2020, the Company's outstanding loan balance was $20,000.
In April 2012, the Company entered into a long-term loan and security agreement (the "Additional Loan Agreement"), which provided the Company a long-term line of credit. During the years 2012-2018 the Company entered into three modifications to the agreement, pursuant to which the long-term credit line was increased to an amount equal to $30,000. The Company used the entire credit line pursuant to which the loan repayment date was extended to November 2020. Pursuant to the last amendment, the loan is to be repaid in 36 monthly equal installments.
The outstanding principal amount accrued interest at a floating per annum rate equal to four and a half percentage (4.5%) points above the prime rate, subject to a 9.50% floor and a 12.00% maximum.
As of December 31, 2020, the Company's outstanding loan balance under the Additional Loan Agreement was $28,160.
In January 2021, the Company refinanced all amounts outstanding under the existing loan agreements, terminated all outstanding commitments, and entered into a new credit agreement (the “Credit Agreement”) with an existing lender, which provides for a new senior secured term loan facility in the aggregate principal amount of $40,000 (the “Term Loan Facility”) and a new senior secured revolving credit facility in the aggregate principal amount of $10,000 (the “Revolving Credit Facility” and, together with the Term Loan Facility, the “Credit Facilities”).
In June 2021, the Company entered into an amendment to the Credit Agreement (the “First Amendment”). Pursuant to the First Amendment, the Company borrowed an additional aggregate principal amount of $12,500 and increased commitments under the Revolving Credit Facility to $35,000.
NOTE 8: LONG-TERM LOAN (Cont.)
In December 2021, the Company repaid in full its outstanding principal amount under the Revolving Credit Facility. As of December 31, 2021, the total commitments under the Revolving Credit Facility are available for future borrowings.
Borrowings under the Credit Facilities are subject to interest, determined as follows: (a) Eurodollar loans accrue interest at a rate per annum equal to the Eurodollar rate plus a margin of 3.50% (the Eurodollar rate is calculated based on the Credit Agreement, subject to a 1.00% floor, divided by 1.00 minus the maximum effective reserve percentage for Eurocurrency funding), and (b) Alternate Base Rate (“ABR”) loans accrue interest at a rate per annum equal to the ABR plus a margin of 2.50% (ABR is equal to the highest of (i) the prime rate and (ii) the Federal Funds Effective Rate plus 0.50%, subject to a 2.00% floor). As of December 31, 2021, the current rate of interest under the Credit Facilities was equal to a rate per annum of 4.50%, consisting of the 1.00% floor and the margin of 3.50%.
The Term Loan Facility is payable in consecutive quarterly installments on the last day of each fiscal quarter in an amount equal to (i) $250 for installments payable on April 1, 2021, through December 31, 2021, (ii) $750 for installments payable on March 31, 2022 through December 31, 2022, and (iii) $1,500 for installments payable on and after March 31, 2023. The remaining unpaid balance on the Term Loan Facility is due and payable on January 14, 2024, together with accrued and unpaid interest on the principal amount to be paid to, but excluding, the payment date. Amounts outstanding under the Credit Facilities may be voluntarily prepaid at any time and from time to time, in whole or in part, without premium or penalty.
Under the terms of the Credit Facilities, the Company is obligated to maintain certain covenants as defined therein. As of December 31, 2021, the Company met these covenants.
The aggregate principal annual maturities according to the Credit Facilities agreements are as follows:
Year ending December 31,
Accrued expenses
Accrued taxes
Lease Commitments:
Total rent expenses for the years ended December 31, 2021, 2020 and 2019 were $2,278, $2,152 and $2,121, respectively.
During the fourth quarter of 2021, the Company entered into a non-cancelable operating lease agreement for an office that contains approximately 13,815 square feet in New York, New York (the "Lease"). The Lease commenced in January 2022, after the balance sheet date. Future payments associated with the Lease are reflected in the table above. The Lease will increase the right-of-use asset and corresponding lease liability in accordance with ASC 842.
Purchase Commitments:
Total purchase commitment
The following tables presents disaggregated revenue by category:
Year ended December 31, 2021
Year ended December 31, 2020
Percentage of revenue
Subscription
%
Contract Balances:
Contract liabilities consist of deferred revenue. Revenue is deferred when the Company invoices in advance of performance under a contract. The current portion of the deferred revenue balance is recognized as revenue during the 12-month period after the balance sheet date.
The noncurrent portion of the deferred revenue balance is recognized as revenue following the 12-month period after the balance sheet date.
Substantially all the revenue that was included in the deferred revenue, current as of January 1, 2021, was recognized as revenue during 2021.
Beginning balance
Additions to deferred contract acquisition costs during the period
Amortization of deferred contract acquisition costs
Ending balance
Deferred contract acquisition costs, current
Deferred contract acquisition costs, noncurrent
Total deferred costs to obtain a contract
The following table represents a roll forward of costs to fulfill a contract:
Additions to deferred costs to fulfill a contract during the period
Amortization of deferred costs to fulfill a contract
Deferred fulfillment costs, current
Deferred fulfillment costs, noncurrent
Total deferred costs to fulfill a contract
In July 2016, as part of the Company's stock and warrant purchase agreement with a new investor, the Company issued the new investor a warrant to purchase 7,146,490 shares of common stock of the Company (subject to certain adjustments, as described below) with an exercise price of $0.0001 per share. The warrant expires in July 2026.
The warrant is exercisable immediately prior to the occurrence of a Triggering Event (as such term is defined in the warrant agreement), or in connection with an exercise of co-sale rights. If the warrant is exercised in connection with a Liquidation Event or Qualified IPO (each as defined in the warrant agreement), the number of shares issuable upon such exercise will be subject to certain adjustments based on the equity valuation implied by such Liquidation Event or Qualified IPO.
In addition, the warrant has a redemption right which entitles the holder, at its sole discretion, to redeem the warrant after the fifth anniversary from the issuance date.
In October 2015, as part of the Second Modification to the Additional Loan Agreement, the Company issued the lender a warrant to purchase 32,841 shares of Series E redeemable convertible preferred stock with an exercise price of $15.223 per share. The warrant expires in October 2025.
In 2014, 2012 and 2011, the Company issued warrants to purchase 68,965 shares of Series E redeemable convertible preferred stock with an exercise price of $ 10.15 per share, 56,285 shares of Series D redeemable convertible preferred stock with an exercise price of $ 5.33 per share and 31,414 shares of Series C redeemable convertible preferred stock with an exercise price of $ 3.82 per share, respectively. As part of the third amendment to the loan agreement, the expiration date of the preferred D and E warrants have been extended to October 2025.
The above-mentioned transactions were accounted for in accordance with ASC 815-40, "Derivatives and Hedging - Contracts in Entity`s Own Equity," ("ASC 815") and ASC 480-10, "Distinguishing Liabilities from Equity" ("ASC 480"). Prior to the IPO, the warrants were recorded as a liability in the Company's balance sheet and measured at fair value at each reporting date.
On March 26, 2020, as part of Newrow acquisition, the Company issued to Newrow's former stockholders a warrant to purchase 613,255 shares of common stock subject to certain performance target (the “Newrow Warrant"). The Newrow Warrant was recorded as a liability in the Company's balance sheet and was measured at fair value at each interim reporting date. During 2020, the Company recorded remeasurement expenses related to the Newrow Warrant in the amount of $1,836. During November 2020, the performance target was achieved, and the Newrow Warrant was reclassified to stockholders' equity (deficit).
NOTE 12: FAIR VALUE MEASUREMENTS (Cont.)
During the years ended December 31, 2021, 2020 and 2019, the Company recorded financial expenses from changes in the warrants' fair value in the amount of $15,046, $41,505 and $5,300 (see also Note 2aa), respectively.
Prior to the IPO, the Company measured the warrants that were classified as a liability at fair value by applying the OPM in each reporting period until they are exercised or expired, with changes in fair values being recognized in the Company's consolidated statement of operations as financial income or expenses.
The key assumptions used in the OPM for the valuation of the warrants upon re- measurement were as follows:
65.23
Risk-free interest rate
Dividend yield
Expected life (years)
Dividend yield - was based on the fact that the Company has not paid dividends to its stockholders in the past and does not expect to pay dividends to its stockholders in the foreseeable future.
Expected volatility - was calculated based on actual historical stock price movements of companies in the same industry over the term that is equivalent to the expected term of the option.
Risk-free interest - based on yield rate of non-index linked U.S. Federal Reserve treasury stock.
Expected life - the expected life was based on the expected maturity date of the warrants.
Balance at January 1
11,811
Issuance of warrants
Reclassification of warrant to common stocks to equity
Reclassification of warrant to preferred stocks to mezzanine equity
Change in fair value of warrants
Balance at December 31
CONVERTIBLE AND REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY (DEFICIT)
Convertible and Redeemable Convertible Preferred Stock:
Upon the closing of the Company’s IPO, Series A, B, C, D, D-1 and E of its convertible and redeemable convertible preferred stock automatically converted into 68,325,487 shares of common stock after giving effect to certain adjustments in connection with the 1-to-4.5 forward stock split (the “Stock Split”, see paragraph {d} “Stock Split” within this Note for further information).
With respect to Series F redeemable convertible preferred stock, the mechanism of its conversion was determined using a price per share equal to 102% of the offering price of $10.00 per share. As a result, the Company issued 7,937,455 shares of common stock, after giving effect to the Stock Split.
As of December 31, 2021, there were no shares of convertible and redeemable convertible preferred stock issued and outstanding.
In connection with the IPO, the Company amended and restated its Certificate of Incorporation to change the authorized preferred stock to 20,000,000 shares of preferred stock, all with a par value of $0.0001 per share.
CONVERTIBLE AND REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY (DEFICIT) (Cont.)
Composition of convertible and redeemable convertible preferred stock capital of $0.0001 as of December 31, 2020:
December 31, 2020
Common Stock:
In March 2021, the loans were fully forgiven. Following the forgiveness of the loans, the Company recorded an expense for the year ended December 31, 2021, in the amount of $1,724 included in other operating expenses in the consolidated statement of operations. The amount included the tax gross-up expense that was paid by the Company following the forgiveness.
Under the Company's 2007 U.S. and Israeli Stock Option Plans ("the 2007 Plans"), options were granted to officers, directors, employees, advisors and consultants of the Company or its subsidiaries.
In 2017, the Company adopted a new equity incentive plan, the "2017 Equity Incentive Plan" (the "2017 Plan" and together with the 2007 Plans, the "Old Plans"), and extended the term of the 2007 Israeli Stock Option Plan and the term of the options already granted thereunder for an additional ten-year period.
Each option granted under the Old Plans is exercisable until the earlier of ten years (or 20 years if granted under the 2007 Israeli Stock Option Plan) from the date of the grant of the option. The options vest primarily over a four year period. Any options that are forfeited or not exercised before expiration become available for future grants.
Following the Company’s IPO, no additional awards will be granted under the Old Plans. However, the Old Plans will continue to govern the terms and conditions of the outstanding awards previously granted under the Old Plans.
2021 Incentive Award Plan
Effective upon the effectiveness of the registration statement for the IPO, the Company adopted the 2021 Incentive Award Plan (the “2021 Plan”, and together with the Old Plans, the "Plans"). The 2021 Plan provides for the grant of stock options, stock appreciation rights, restricted stock, RSUs, and other stock or cash-based awards to the Company’s officers, directors, employees, advisors, and consultants. A total of 8,500,000 shares of the Company’s common stock were initially reserved for issuance pursuant to the 2021 Plan. In addition, the number of shares of common stock reserved for issuance under the 2021 Plan includes certain shares of common stock subject to awards under the Old Plans, in the case of certain occurrences such as expirations, terminations, exercise and tax-related withholding, or failures to vest.
The number of shares of common stock available for issuance under the 2021 Plan will also include an annual increase on the first day of each fiscal year beginning on January 1, 2022, equal to the lesser of:
•
5% of the aggregate number of shares of common stock outstanding on the final day of the immediately preceding calendar year; and
Such smaller number of shares of common stock as is determined by the Board of Directors.
Under the 2021 Plan, the exercise price of options granted is generally at least equal to the fair market value of the Company’s common stock on the date of grant. The term of the options generally may not exceed ten years. Additionally, the exercise price of any options granted to a 10% stockholder shall not be less than 110% of the fair market value of the common stock on the date of grant, and the term of such option grant shall not exceed five years.
Stock Options
A summary of the Company's stock option activity with respect to options granted under the Plans is as follows:
Outstanding as of December 31, 2021
Exercisable options at end of the year
The fair value of each service-based award is estimated on the date of grant using the Black-Scholes model that uses the assumptions noted in the following table:
Expected volatility
These assumptions and estimates were determined as follows:
(1)
Fair value of common stock – Prior to the IPO, the fair value was determined by the Company's Board of Directors, with input from management and assisted by valuation reports prepared by a third-party valuation specialist. After the IPO, the fair value of the common stock underlying the options was the Company’s closing stock price on the Nasdaq Global Select Market on the grant date.
(2)
Risk-free interest rate - The risk-free rate for the expected term of the options is based on the yields of U.S. Treasury securities with maturities appropriate for the expected term of the employee share option awards.
(3)
Expected life - The expected life represents the period that options are expected to be outstanding. For option grants that are considered to be "plain vanilla," the Company determines the expected term using the simplified method. The simplified method deems the term to be the average of the time-to-vesting and the contractual life of the options.
(4)
Expected volatility - Since the Company has no trading history of its ordinary shares, the expected volatility is derived from the average historical share volatilities of several unrelated public companies within the Company's industry that the Company considers to be comparable to its own business over a period equivalent to the option's expected term.
(5)
Expected dividend yield - The Company has never declared or paid any cash dividends and does not presently plan to pay cash dividends in the foreseeable future. As a result, an expected dividend yield of zero percent was used.
The weighted average grant-date fair value of the service-based awards granted in the years ended December 31, 2021, 2020 and 2019 was $2.45, $3.80 and $1.13 per option, respectively. The total grant-date fair value of the service-based awards that vested during the years ended December 31, 2021, 2020 and 2019, was $13,152, $3,615 and $2,377, respectively. The aggregate intrinsic value of options exercised during the years ended December 31, 2020 and 2019, was $8,842 and $837, respectively.
The fair value of each market-based award is estimated on the date of grant using the Monte Carlo model that uses the assumptions noted in the following table:
Expected volatility - Because the Company had no trading history of its shares of common stock, the expected volatility was derived from the average historical share volatilities of several unrelated public companies within the Company's industry that the Company considers to be comparable to its own business over a period equivalent to the option's expected term.
The weighted average fair value of the market-based awards granted in the year ended December 31, 2020, was $2.26 per option. These costs are expected to be recognized over a weighted-average period of approximately five and a half years from December 2020.
RSUs
The following table summarizes the RSU activity for the year ended December 31, 2021:
RSUsOutstanding
Weighted AverageGrant Date FairValue per Share
Outstanding as of December 31, 2020
RSUs granted
RSUs vested
RSUs forfeited
Unvested and Outstanding as of December 31, 2021
Stock-Based Compensation Expense
The stock-based compensation expense by line item in the accompanying consolidated statement of operations is summarized as follows:
Cost of revenue
Total expenses
The Company's subsidiaries are separately taxed under the domestic tax laws of the jurisdiction of incorporation of each entity.
Loss before taxes on income is comprised as follows:
Domestic
Foreign
(6,914
Loss before taxes on income
Federal
State
Total provision for income taxes
Deferred Income Taxes:
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. As of December 31, 2021 and 2020, the Company has provided a full valuation allowance in respect of deferred tax assets. Management currently believes that it is more likely than not that the deferred tax regarding the tax loss carry forwards and other temporary differences will not be realized in the foreseeable future.
Significant components of the Company's deferred tax assets are as follows:
Net Operating Losses Carry Forward:
A reconciliation of the Company's theoretical income tax expense to actual income tax expense is as follows:
Loss before tax as reported at the consolidated statement of operations
Statutory tax rate
Non-deductible expenses and other permanent differences
Remeasurement of warrants to fair value
Share-based compensation
Change in valuation allowance
State taxes, net of federal benefit
(3,700
Income tax at rate other than the U.S. statutory tax rate
Exchange rate differences
Total tax expenses
The Tax Cuts and Jobs Act:
On December 22, 2017, the U.S. enacted the Tax Cuts and Jobs Act, a comprehensive tax law that includes significant changes to the taxation of business entities. These changes include several key tax provisions, among others: (i) a permanent reduction to the statutory federal corporate income tax rate from 35% to 21% effective for tax years beginning after December 31, 2017; (ii) a partial limitation on the tax deductibility of business interest expenses; (iii) a shift of the U.S. taxation of multinational corporations from a tax on worldwide income to a territorial system (along with certain rules designed to prevent erosion of the U.S. income tax base) and (iv) a one-time deemed repatriation tax on accumulated offshore earnings held in cash and illiquid assets, with the latter taxed at a lower rate.
Tax Laws Applicable to the Company's Subsidiary in Israel:
The Israeli corporate tax rate was 23% for the years ended December 31, 2021 and 2020. However, the effective tax rate payable by a company that derives income from a "Benefited Enterprise" or a "Preferred Enterprise" (as discussed below) may be considerably less. Capital gains derived by an Israeli company are generally subject to the prevailing corporate tax rate.
Tax benefits by virtue of the Law for the Encouragement of Capital Investments, 1959 ("the Investment Law"):
Until tax year 2014, Kaltura Israel utilized various tax benefits by virtue of the "Benefited Enterprise" status granted to its enterprise, pursuant to the Investment Law.
Kaltura Israel elected benefits under the alternative track of benefits according to which it was exempt from income tax in the first two years (from the date Kaltura Israel earned taxable income).
If a dividend is distributed out of tax exempt income earned by a Benefited Enterprise the amount distributed will be subject to corporate tax at the rate that would have otherwise been applicable on the Benefited Enterprise income. Dividends paid out of income attributed to a Beneficiary Enterprise are generally subject to withholding tax at source at the rate of 15% or such lower rate as may be provided in an applicable tax treaty.
As of December 31, 2021, approximately $607 was derived from tax exempt profits earned by Kaltura Israel's "Beneficiary Enterprise." The Company and its Board of Directors have determined that such tax-exempt income will not be distributed as dividends and intends to reinvest the amount of its tax-exempt income earned by Kaltura Israel. Accordingly, no provision for deferred income taxes has been provided on income attributable to Kaltura Israel's "Beneficiary Enterprise" as such income is essentially permanently reinvested.
If Kaltura Israel's retained tax-exempt income is distributed, the income would be taxed at the applicable corporate tax rate as if it had not elected the alternative tax benefits under the Investment Law and an income tax liability of up to $152 would be incurred as of December 31, 2021.
In 2011, new legislation amending the Investment Law was adopted. Under this new legislation, a unified corporate tax rate applied to all qualifying income generated by a "Preferred Company" through its Preferred Enterprise (as such terms are defined in the Investment Law) as of January 1, 2011.
Industrial Companies under the Preferred Enterprise status according to the new law as amended in July 2013, and starting January 1, 2014 are entitled to a uniform reduced corporate tax rate of 9% in areas in Israel designated as Development Zone A and 16% elsewhere in Israel.
The 2011 Amendment also provided transitional provisions to address companies already enjoying current benefits under the Investment Law. Under the transition provisions, the Company decided to irrevocably implement the new law, effective January 1, 2015.
Dividends distributed from income which is attributed to a “Preferred Enterprise” will be subject to withholding tax at source at the rate of 20% or such lower rate as may be provided in an applicable tax treaty.
Kaltura Israel's income from other sources is subject to tax at the regular Corporate Income rate.
As of December 31, 2021 and 2020, $2,355 and $1,803 of undistributed earnings held by the Company's foreign subsidiaries are designated as indefinitely reinvested. If these earnings were re-patriated to the US, they could be subject to income taxes and to an adjustment for foreign tax credits and foreign withholding taxes.
Tax assessment:
Generally, in U.S. federal and state taxing jurisdictions, tax periods in which certain loss and credit carryovers are generated remain open for audit until such time as the limitation period ends for the year in which such losses or credits are utilized. Kaltura Israel received final tax assessments through 2016 while the rest of the Company's subsidiaries did not have any final tax assessments as of December 31, 2021.
Uncertain tax position:
A reconciliation of the opening and closing amounts of total unrecognized tax benefits is as follows:
Unrecognized Tax Benefits
Increases related to prior years' tax positions
Increases related to current years' tax positions
Decrease related to prior years' tax positions
As of December 31, 2021 the total amount of gross unrecognized tax benefits was $4,494 and if recognized, would favorably impact the Company's effective tax rate.
The Company recognizes interest related to uncertain tax positions in income tax expense. For the years ended December 31, 2021, 2020 and 2019, the Company recorded $171, $90 and $97 of interest expenses accordingly related to uncertain tax positions.
The Company currently does not expect uncertain tax positions to change significantly over the next 12 months, except in the case of settlements with tax authorities, the likelihood and timing of which is difficult to estimate.
Financial income:
Interest income
Financial expenses:
Bank fees
Interest expense
Foreign currency translation adjustments, net
The following table sets forth the computation of basic and diluted net loss per share attributable to common stockholders for the periods presented:
Numerator:
Preferred stock accretion and cumulative dividends
Total loss attributable to common stockholders
Denominator:
Convertible and redeemable and convertible preferred stock
Outstanding stock options and RSUs
REPORTABLE SEGMENTS AND GEOGRAPHICAL INFORMATION
REPORTABLE SEGMENTS AND GEOGRAPHICAL INFORMATION (Cont.)
The measurement of the reportable operating segments is based on the same accounting principles applied in these financial statements, which includes certain corporate overhead allocations.
December 31, 2021
Enterprise,Education andTechnology
Enterprise, Education andTechnology
December 31, 2019
Geographical information:
Revenue by location is determined by the billing address of the customer. Total revenues from external customers on the basis of the Company's geographical areas are as follows:
United States (“US”)
Europe, the Middle East and Africa (“EMEA”)
165,016
120,440
No other individual country accounted for more than 10% of the Company’s revenue for all periods presented.
The following presents long-lived assets as of December 31, 2021 and 2020, based on geographical areas:
US
EMEA
Asia Pacific
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