KORE Group Holdings, Inc. Quarterly report pursuant to Section 13 or 15(d)

Quarterly report pursuant to Section 13 or 15(d)

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

6 Months Ended

Jun. 30, 2024

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Organization and Basis of Presentation

KORE Group Holdings, Inc. (together with its subsidiaries, “KORE” or the “Company”) provides advanced connectivity services, location-based services, device solutions, managed and professional services used in the development and support of the “Internet of Things” (“IoT”) technology for the business market. The Company’s IoT platform is delivered in partnership with the world’s largest mobile network operators and provides secure, reliable, wireless connectivity to mobile and fixed devices. This technology enables the Company to expand its global technology platform by transferring capabilities across new and existing vertical markets and delivers complementary products to channel partners and resellers worldwide.

The Company is incorporated in the state of Delaware and its operations are primarily located in North America. The condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation.

The Company’s common stock, par value $0.0001 per share (the “common stock”), is traded on the New York Stock Exchange (the “NYSE”) under the ticker symbol “KORE”. The Company implemented a reverse stock split of its common stock at a ratio of 1-for-5 effective as of July 1, 2024. No fractional shares were issued in connection with the reverse stock split. Any fractional shares resulting from the reverse stock split, regardless of the fractional amount, resulted in an additional one share in lieu of such fractional share. The number of shares of common stock covered by the warrants outstanding at the effective time of the reverse stock split was reduced to one-fifth the number of shares of common stock covered by the warrants immediately preceding the reverse stock split, and the exercise price per share was increased by five times the exercise price immediately preceding the reverse stock split, resulting in the same aggregate price being required to be paid therefor upon exercise thereof as was required immediately preceding the reverse stock split. The reverse stock split did not affect the shares of preferred stock outstanding. All calculations have been adjusted to reflect the reverse stock split for all periods presented.

Restatement of Previously Issued Unaudited Condensed Consolidated Financial Statements

The Company identified an error related to the calculation of the goodwill impairment which was reflected in the Company’s Unaudited Condensed Consolidated Financial Statements as of and for the three and six month periods ended June 30, 2024 (the “Affected Period”). As a result of this calculation error in the second quarter of 2024, “Operating loss” for the three and six month periods ended June 30, 2024 was understated by $17.7 million in the Company’s Unaudited Condensed Consolidated Statements of Operations, and at the same time, “Goodwill” as of June 30, 2024 was overstated by the same amount in the Company’s Unaudited Condensed Consolidated Balance Sheet for the Affected Period included within the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2024, which was originally filed with the Securities and Exchange Commission (the “SEC”) on August 14, 2024 (together, these adjustments are referred to as the “Restatement Adjustments”). Additionally, as of and for the three and six months ended June 30, 2024, the Company identified other immaterial errors that have also been corrected herein (together, referred to as the “Immaterial Error Corrections”).

Additionally, as of and for the three and six months ended June 30, 2024, the Company identified other immaterial errors that have also been corrected with this filing (together, referred to as the “Immaterial Error Corrections”. The primary immaterial error that the Company identified was an error related to goodwill impairment and deferred taxes recorded at the goodwill impairment dates of the third quarter of 2023 and at year-end 2022. This accounting error occurred due to the need for a “simultaneous equation” that was required to be performed to accurately reflect the fact that the goodwill impairment occurred when the Company had tax deductible goodwill. In such cases, a simultaneous equation must be performed in order to properly reflect the balances of the remaining goodwill, deferred taxes, and impairment expense, to avoid increasing the value of the Company higher than the fair value used in the impairment calculation, as impairment expense decreases a deferred tax liability in the absence of controlling for that effect by performing a simultaneous equation in the calculation of impairment. Management evaluated the effect of the error on the quarterly condensed consolidated financial statements for the second quarter of 2024, the condensed consolidated quarterly and consolidated annual financial statements for 2023, and the annual consolidated financial statements for 2022, and concluded the error was not material. As a result, in the second quarter of 2024, the Company recorded an out of period adjustment to record an additional goodwill impairment of $2.8 million as of and for the period ended June 30, 2024, as a net result of additional goodwill impairment from prior periods increased by the deferred income tax effect.

The only financial statements and financial statement line items that were impacted by the Restatement Adjustments and Immaterial Error Corrections are included below.

The tables below set forth the impact of the Restatement Adjustments and Immaterial Error Corrections on the Company’s Unaudited Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2024:


	Three Months Ended June 30, 2024
(In thousands, except share and per share data)	Reported		Restatement Adjustments		Immaterial Error Corrections		As Restated
Operating expenses
Selling, general, and administrative expenses	$	35,810	$	—	$	(933)	$	34,877
Goodwill impairment	45,381		17,699		2,784		65,864
Total operating expenses	95,773		17,699		1,851		115,323
Operating loss	(57,150)		(17,699)		(1,851)		(76,700)
Loss before income taxes	(65,737)		(17,699)		(1,851)		(85,287)
Income tax benefit	(1,437)		303		(520)		(1,654)
Net loss	$	(64,300)	$	(18,002)	$	(1,331)	$	(83,633)

Loss per share:
Basic and diluted	$	(3.36)	$	(0.94)	$	(0.07)	$	(4.37)

Comprehensive loss	$	(63,823)	$	(18,002)	$	(1,331)	$	(83,156)


	Six Months Ended June 30, 2024
(In thousands, except share and per share data)	Reported		Restatement Adjustments		Immaterial Error Corrections		As Restated
Operating expenses
Selling, general, and administrative expenses	$	71,177	$	—	$	(933)	$	70,244
Goodwill impairment	45,381		17,699		2,784		65,864
Total operating expenses	144,916		17,699		1,851		164,466
Operating loss	(64,531)		(17,699)		(1,851)		(84,081)
Loss before income taxes	(83,744)		(17,699)		(1,851)		(103,294)
Income tax benefit	(1,857)		303		(520)		(2,074)
Net loss	$	(81,887)	$	(18,002)	$	(1,331)	$	(101,220)

Loss per share:
Basic and diluted	$	(4.29)	$	(0.95)	$	(0.07)	$	(5.31)

Comprehensive loss	$	(81,170)	$	(18,002)	$	(1,331)	$	(100,503)

The table below sets forth the impact of the Restatement Adjustments and Immaterial Error Corrections on the Company’s Unaudited Condensed Consolidated Balance Sheet as of June 30, 2024:


	June 30, 2024
(in thousands)	Reported		Restatement Adjustments		Immaterial Error Corrections		As Restated
Current assets:
Accounts receivable, net	$	46,667	$	—	$	(1,519)	$	45,148
Prepaid expenses and other current assets	11,443		(74)		—		11,369
Total current assets	88,212		(74)		(1,519)		86,619
Noncurrent assets:
Goodwill	249,324		(17,699)		(2,784)		228,841
Total assets	$	509,794	$	(17,773)	$	(4,303)	$	487,718

Current liabilities:
Accrued liabilities	$	26,713	$	90	$	(2,453)	$	24,350
Total current liabilities	64,975		90		(2,453)		62,612
Noncurrent liabilities:
Deferred tax liabilities, net	7,854		139		(519)		7,474
Total liabilities	547,621		229		(2,972)		544,878
Stockholders’ (deficit) equity
Accumulated deficit	(497,167)		$	(18,002)	$	(1,331)	(516,500)
Total stockholders’ equity	(37,827)		(18,002)		(1,331)		(57,160)
Total liabilities and stockholders’ equity	$	509,794	$	(17,773)	$	(4,303)	$	487,718

The tables below set forth the impact of the Restatement Adjustments and Immaterial Error Corrections on the Company’s Unaudited Condensed Consolidated Statements of Changes in Stockholders’ (Deficit) Equity for the three and six months ended June 30, 2024:


	Three Months Ended June 30, 2024
(in thousands)	Reported		Restatement Adjustments		Immaterial Error Corrections		As Restated
Accumulated Deficit
Net Loss	$	(64,300)	$	(18,002)	$	(1,331)	$	(83,633)
Balance, end of period	(497,167)		(18,002)		(1,331)		(516,500)
Total Stockholders’ (Deficit) Equity	$	(37,827)	$	(18,002)	$	(1,331)	$	(57,160)

	Six Months Ended June 30, 2024
(in thousands)	Reported		Restatement Adjustments		Immaterial Error Corrections		As Restated
Accumulated Deficit
Net Loss	$	(81,887)	$	(18,002)	$	(1,331)	$	(101,220)
Balance, end of period	(497,167)		(18,002)		(1,331)		(516,500)
Total Stockholders’ (Deficit) Equity	$	(37,827)	$	(18,002)	$	(1,331)	$	(57,160)

There was no impact on the Unaudited Condensed Consolidated Statement of Cash Flow for the six months ended June 30, 2024.

Where appropriate, the financial disclosures in the footnotes to the Unaudited Condensed Consolidated Financial Statements impacted by the Restatement Adjustments and Immaterial Error Corrections have been updated.

Interim Financial Statements

The accompanying unaudited condensed consolidated financial statements have been prepared in conformity with the instructions to Article 10-01 of Regulation S-X for interim financial statements. Accordingly, they do not include all the information and footnotes required by generally accepted accounting principles in the United States of America (“GAAP”) for complete financial statements. These unaudited

condensed consolidated financial statements and related notes should be read in conjunction with the annual consolidated financial statements and related notes for the year ended December 31, 2023, included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023 (“Annual Report on Form 10-K”).

In the opinion of management, the accompanying condensed consolidated financial statements contain all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of the results for the interim periods presented. Such operating results may not be indicative of the expected results for any other interim periods or the entire year.

Use of Estimates

The preparation of financial statements requires the Company to make a number of significant estimates. These include estimates of revenue recognition, fair value measurements of assets acquired and liabilities assumed in business combinations, assessments of indicators of impairment regarding various assets including goodwill, calculation of capitalized software costs, accounting for uncertainties in income tax positions, and other estimates that affect the reported amounts of certain assets and liabilities as of the date of the condensed consolidated financial statements and the reported amounts of certain revenues and expenses during the reported periods. Changes in these estimates may occur in the near term. The Company’s estimates are inherently subjective in nature and actual results could differ from the Company’s estimates and the differences could be material.

Change in Accounting Estimate — Depreciation of Property and Equipment

On January 1, 2024, the Company elected to change its method of depreciation for long-lived assets from the declining balance method to the straight-line method. The Company’s use of the straight-line depreciation method was effective beginning January 1, 2024, and has been applied prospectively as a change in estimate.

Reclassifications

Certain immaterial amounts reported in prior periods in the condensed consolidated financial statements have been corrected and reclassified to conform to the current year’s presentation. To appropriately reflect the long-term nature of the obligation regarding the interest accrued on the mandatorily redeemable preferred stock, the amount of “accrued interest due to affiliate” of $2.5 million on the condensed consolidated balance sheet as of December 31, 2023 has been reclassified to noncurrent liabilities. See Note 10 — Related Party Transactions.

Recently Issued Accounting Pronouncements

The Company considers the applicability and impact of all Accounting Standards Updates (“ASUs”) issued by the Financial Accounting Standards Board (“FASB”). ASUs currently applicable to the Company’s future financial statements are discussed in the Company’s Annual Report on Form 10-K, Part II, Item 8, Note 2 — Summary of Significant Accounting Policies.