On April 8, 2021, King Pubco, Inc. filed a Form S-4 in connection with a fairly complex de-SPACing transaction.  The substance of this transaction was that a SPAC, Cerberus Telecom Acquisition Corp., was merging with an operating company, Maple Holdings.  In the S-4, the operating subsidiary of Maple Holdings is described as:

“..one of the largest global enabler of IoT, providing mission-critical CaaS (or simply referred to as “Connectivity” for reporting purposes) and IoT Solutions and Analytics (both collectively referred to as “IoT Solutions” for reporting purposes) to enterprise customers across five key industry verticals, comprising (i) Connected Health, (ii) Fleet Management, (iii) Asset Monitoring, (iv) Communications Services and (v) Industrial IoT (or “IIoT”).”

The MD&A for Maple Holdings included this language concerning expected liquidity and capital resources needs:

Future Liquidity and Capital Resource Requirements 

We believe that our existing cash and cash equivalents along with expected cash flows from operating activities and additional funds available under our Revolving Credit Facility, will be sufficient over the next 12 months to provide working capital, cover interest payments on our debt facilities and fund growth initiatives, potential acquisitions, and capital expenditures.

This disclosure illustrates a frequent MD&A comment arising from the SEC’s November 2020 MD&A update.  It fails to address both short- and long-term liquidity and capital resources issues.  From S-K Item 303:

Liquidity and capital resources. Analyze the registrant’s ability to generate and obtain adequate amounts of cash to meet its requirements and its plans for cash in the short-term (i.e., the next 12 months from the most recent fiscal period end required to be presented) and separately in the long-term (i.e., beyond the next 12 months). The discussion should analyze material cash requirements from known contractual and other obligations. Such disclosures must specify the type of obligation and the relevant time period for the related cash requirements.

The result was this comment in a letter dated May 7, 2021:

1. 24. Please revise your discussion of future liquidity and capital resource requirements
       to analyze material long term cash requirements from known contractual and other obligations. Specify the type of obligation and the relevant period for the related cash requirements, discuss the anticipated source of funds needed to satisfy such obligations and any reasonably likely material changes in the mix and relative cost of such resources. Refer to Item 303(b)(1) of Regulation S-K. 

The issue of future liquidity can be important in de-SPACing transactions as SPAC shareholders may demand redemption of their investment in the SPAC, thus reducing the amount of cash raised in the de-SPACing process.

The company added this disclosure as they amended the Form S-4:

As of March 31, 2021, the Company has a total of $26.7 million of supplier and carrier-related purchase and lease commitments and a total of $3.2 million of scheduled debt principal payments for the year ended December 31, 2021.

Additionally, the Company has a total of $22.2 million of supplier and carrier-related purchase & lease commitments for the years ended December 31, 2022 through 2025. We also have scheduled debt payments of $3.2 million for the years ended December 31, 2022 through 2024, with all outstanding principal due on December 24, 2024.

From 2021 to 2025, KORE expects to fund supplier and carrier-related purchase & lease commitments – all of which are costs of operating the business – entirely from cash inflows from its customers. We currently expect that the excess cash flows after paying the abovementioned contractual commitments, as well as other costs of business, such as payroll, costs incurred on suppliers and carrier spend (which is not currently committed contractually in addition to the committed spend), interest and taxes – will be sufficient to meet outstanding debt principal payments from 2021 to 2023.

The outstanding principal on our term loan after a successful completion of our public offering will depend on the amount of the level of redemptions by CTAC shareholders. Depending on the level of such redemptions as well as the future growth of KORE’s business, and the working capital needed to fund such growth, the abovementioned excess of customer inflows with respect to the outflows from the abovementioned expenses of the business, may or may not be sufficient to pay off the final balloon payment on the outstanding principle on December 24, 2024. In the event, the outstanding principal is not fully paid off by December 24, 2024, when the balloon payment is due, KORE expects to refinance this debt. KORE may consider refinancing the debt well in advance of December 24, 2024 and may do so to take advantage of favorable credit markets, to reduce interest rates and to extend the maturity.

Notably, additional capital may be needed to fund future Mergers & Acquisitions. 

The message here is simple, remember to address both long- and short-term issues in the liquidity and capital resources discussion.

As always, your thoughts and comments are welcome!