UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
(Amendment No. 1)5)
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Filed by a Party other than the Registrant | ☐ |
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☒ | Preliminary Proxy Statement |
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☐ | Definitive Proxy Statement |
☐ | Definitive Additional Materials |
☐ | Soliciting Material Pursuant to §240.14a-12 |
I-AM Capital Acquisition Company
(Name of Registrant as Specified in Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
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(1) | Title of each class of securities to which transaction applies:
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(2) | Aggregate number of securities to which transaction applies:
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(3) | Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined):
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(4) | Proposed maximum aggregate value of transaction:
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I-AM CAPITAL ACQUISITION COMPANY
1345 Avenue of the Americas, 11th Floor
New York, New York 10105
Dear I-AM Capital Acquisition Company Stockholders:
You are cordially invited to attend the special meeting in lieu of an annual meeting of stockholders (the “special meeting”) of I-AM Capital Acquisition Company, or I-AM Capital, on ____________,September 7, 2018, at 10:00 a.m., Eastern time, at the offices of Ellenoff Grossman & Schole LLP, 1345 Avenue of the Americas, 11th Floor, New York, New York.
At the special meeting, I-AM Capital’s stockholders will be asked to consider and vote upon a proposal, which is referred to herein as the “Business Combination Proposal,” to approve a share subscription agreement, dated May 3, 2018, by and among Smaaash Entertainment Private Limited, or Smaaash, I-AM Capital and the other parties thereto, as amended (the “Subscription Agreement”). If the BusinesssBusiness Combination Proposal is approved and I-AM Capital consummates the transactions contemplated thereby, which we refer to collectively as the “Transaction,” I-AM Capital will invest in Smaaash the funds held in the trust account that holds the proceeds of its initial public offering, less certain transaction expenses, amounts used to pay I-AM Capital stockholders who properly exercise their redemption rights in connection with the vote to approve the Business Combination Proposal (the “Investment Amount”), in exchange for equity shares of Smaaash. We estimate that the equity shares issued by Smaaash in exchange for the Investment Amount (assuming an Investment Amount of $49.0 million) will constitute up to approximately 27.53% of the issued share capital of Smaaash, provided that such percentage shall decrease proportionately depending on the number of shares redeemed by I-AM Capital’s public stockholders. The contribution by I-AM Capital of the Investment Amount to Smaaash in exchange for Smaaash’s equity shares is referred to herein as the “Investment.”
In connection with the Investment, I-AM Capital shall change its name to “Smaaash Entertainment Inc.” and it shall receive the right under the master license and distribution agreement, by and between I-AM Capital and Smaaash (the “Master Distribution Agreement”), and the master franchise agreement, by and between I-AM Capital and Smaaash (the “Master Franchise Agreement”), to become (i) the sole distributor of Smaaash games in North America and South America and (ii) the master franchisee for Smaaash centers in North America and South America. After the Transaction, I-AM Capital shall also pursue acquisitions within the active entertainment industry in the United States with the objective of facilitating the transformation of Smaaash from an India focused company to a globally recognized brand within the active entertainment industry.
In connection with, and as a condition to the Investment, a Shareholders’ Agreement (the “Shareholders’ Agreement”) that I-AM Capital previously entered into with Smaaash and other significant shareholders of Smaaash, pursuant to which it will have the right, among other things, to appoint two directors and jointly consent to the appointment of three additional directors to the board of directors of Smaaash (which board may have up to 10 directors), will become effective.
Copies of the Subscription Agreement, the Master Distribution Agreement, the Master Franchise Agreement and the Shareholders’ Agreement are attached to the accompanying proxy statement asAnnex A,Annex B, Annex C andAnnex D, respectively.
I-AM Capital stockholders will also be asked to consider and vote upon the following proposals:
● | The Certificate Amendment Proposal — a proposal to amend and restate our second amended and restated certificate of incorporation, or “Restated Certificate,” to (i) change our name from “I-AM Capital Acquisition Company” to “Smaaash Entertainment Inc.” and (ii) change certain provisions related to our transition from a blank check company to an operating company, as reflected in the proposed third amended and restated certificate of incorporation, a copy of which is attached to the accompanying proxy statement as Annex E(the “Certificate Amendment Proposal”); |
● | The Director Election Proposal — a proposal to re-elect four (4) current directors and elect a director nominee, each named in the attached proxy statement (the “Director Election Proposal”); |
● | Incentive PlanProposal — a proposal to adopt and approve the I-AM Capital 2018 Equity Incentive Plan (the “Incentive Plan Proposal”). A copy of the I-AM Capital 2018 Equity Incentive Plan is attached to the accompanying proxy statement asAnnex F; |
● | The Auditor Ratification Proposal — a proposal to ratify the appointment of Prager Metis CPAs, LLC as our independent registered public accounting firm for the fiscal year ending May 31, 2019 (the “Auditor Ratification Proposal”); and |
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● | The Adjournment Proposal — a proposal to adjourn the special meeting to a later date or dates, if necessary or desirable, to permit further solicitation and vote of proxies, in the event that there are not sufficient votes to approve one or more proposals presented at the special meeting or that one or more closing conditions under the Subscription Agreement will not be satisfied (the “Adjournment Proposal”). |
Each of these proposals is more fully described in the accompanying proxy statement.
Under the Subscription Agreement, the closing of the Transaction is subject to a number of conditions, including that I-AM Capital’s stockholders approve the Business Combination Proposal. If these conditions are not satisfied, then Smaaash will not be required to consummate the Transaction.
I-AM Capital’s common stock, rights and warrants are currently quoted on the NASDAQ Capital Market, or NASDAQ, under the symbols “IAM,” “IAMXR” and “IAMXW,” respectively. I-AM Capital intends to apply to change its ticker symbol to “SMSH” in connection with the closing of the Transaction, in which case its common stock and warrants will be quoted on NASDAQ under the symbols “SMSH,” and “SMSHW,” respectively. The rights expire upon the consummation of the Transaction.
Pursuant to I-AM Capital’s Restated Certificate, I-AM Capital is providing its public stockholders with the opportunity to redeem all or a portion of their shares of I-AM Capital common stock at a per-share price, payable in cash, equal to the aggregate amount then on deposit in the trust account as of two business days prior to the consummation of the Transaction, including interest, less taxes payable and up to $600,000 of working capital expenses, divided by the number of then outstanding shares of common stock that were sold as part of the units in I-AM Capital’s initial public offering, which are referred to collectively as public shares, subject to the limitations described herein. For illustrative purposes, based on funds in the trust account of approximately $52,780,000 on May 31, 2018 (excluding accrued interest set aside for working capital purposes), the estimated per share redemption price would have been approximately $10.15.Public stockholders are not required to affirmatively vote for or against the Transaction in order to redeem their shares for cash. This means that public stockholders who hold shares of I-AM Capital common stock on or before September 5, 2018 (two (2) business days before the special meeting) may elect to redeem their shares even ifwhether or not they are holders as of the record date, and whether or not they vote for the Business Combination ProposalProposal.. A public stockholder, together with any of his, her or its affiliates or any other person with whom it is acting in concert or as a “group” (as defined under Section 13 of the Securities Exchange Act of 1934, as amended), will be restricted from redeeming his, her or its shares with respect to more than an aggregate of 15% of the public shares. Holders of I-AM Capital’s outstanding public warrants do not have redemption rights in connection with the Transaction. The holder of I-AM Capital shares issued prior to its initial public offering, which are referred to as “founder shares,” has agreed to waive its redemption rights with respect to its founder shares and any other shares it may hold in connection with the consummation of the Transaction, and the founder shares will be excluded from the pro rata calculation used to determine the per-share redemption price. Currently, I-AM Capital Partners LLC, which is our founder and is referred to as the “Sponsor,” owns approximately 22.92% of I-AM Capital’s issued and outstanding shares of common stock.
I-AM Capital’s board of directors has determined to issue a common stock dividend on all shares of I-AM Capital common stock that are outstanding immediately prior to the closing of the Transaction, to each stockholder who beneficially owns such shares as of such time (the “Special Dividend”). The Sponsor, Maxim Group LLC, the underwriter of I-AM Capital’s initial public offering (“Maxim”), and Maxim’s affiliates, all of whom own shares of I-AM Capital common stock, have each agreed to waive their respective rights to receive the Special Dividend. The number of shares to be issued in the Special Dividend for each outstanding share shall be equal to 600,000 divided by the number of shares of common stock eligible to receive such dividend. In connection with the Special Dividend, the Sponsor has agreed to cancel a number of founder shares equal to the aggregate number of shares issued in the dividend.
I-AM Capital is providing the proxy statement and accompanying proxy card and our Annual Report on Form 10-K for the fiscal year ended May 31, 2018, to our stockholders in connection with the solicitation of proxies to be voted at the special meeting and at any adjournments or postponements of the special meeting. Beginning on page 12 of the proxy statement we provide answers to frequently asked questions about the meeting.Whether or not you plan to attend the special meeting, we urge you to read this proxy statement and our Annual Report on Form 10-K carefully. Please pay particular attention to the section entitled “Risk Factors,”"which begins on page12.
After careful consideration, I-AM Capital’s board of directors has unanimously approved the Subscription Agreement, the Shareholders’ Agreement and the forms of the Master Distribution Agreement and the Master Franchise Agreement previously provided to the board of directors and unanimously recommends that its stockholders vote FOR the Business Combination Proposal, FOR the Certificate Amendment Proposal, FOR each director and director nominee set forth in the Director Election Proposal, FOR the Incentive Plan Proposal, FOR the Auditor Ratification Proposal, and, if presented, FOR the Adjournment Proposal. When you consider the board recommendation of these proposals, you should keep in mind that I-AM Capital’s directors and officers have interests in the Transaction that may conflict with your interests as a stockholder. See the section entitled“Proposal No. 1 — The Business Combination Proposal — Interests of I-AM Capital’s Directors or Executive Officers in the Transaction.”
Approval of each of the Business Combination Proposal, the Incentive Plan Proposal, the Auditor Ratification Proposal, and the Adjournment Proposal requires the affirmative vote of a majority of the votes cast by the stockholders present in person or represented by proxy at the special meeting. Approval of the Certificate Amendment Proposal requires the affirmative vote of a majority of the outstanding shares of I-AM Capital’s common stock. Approval of the directors and the director nominee set forth in the Director Election Proposal requires the affirmative vote of a plurality of the votes cast by the stockholders present in person or represented by proxy at the special meeting and entitled to vote thereon. The boards of directors of I-AM Capital and Smaaash have already approved the Subscription Agreement and the Shareholders’ Agreement and the forms of the Master Distribution Agreement and the Master Franchise Agreement.
In no event, will I-AM Capital redeem public shares in an amount that would cause its net tangible assets to be less than $5,000,001 immediately prior to the Investment.
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The Sponsor and I-AM Capital’s executive officers and independent directors have agreed to vote their founder shares and any other shares held by them in favor of the Business Combination Proposal.Your vote is very important. If you are a registered stockholder, please submit proxies to have your shares voted as soon as possible using one ofby completing, signing, dating and returning the following methodsenclosed proxy card in the postage-paid envelope provided to ensure that your vote is counted, regardless of whether you expect to attend the special meeting in person: (1) call the toll-free number specified on the enclosed proxy card and follow the instructions when prompted, (2) access the Internet website specified on the enclosed proxy card and follow the instructions provided to you, or (3) complete, sign, date and return the enclosed proxy card in the postage-paid envelope provided.person. If you hold your shares in “street name” through a bank, broker or other nominee, you will need to follow the instructions provided to you by your bank, broker or other nominee to ensure that your shares, are represented and voted at the special meeting. A failure to vote your shares is the equivalent of a vote “AGAINST” the Certificate Amendment Proposal, but will have no effect on the other proposals for the special meeting.
If you sign, date and return your proxy card without indicating how you wish to vote, your proxy will be voted in favor of each of the proposals presented at the special meeting. With respect to the proposals for the special meeting, if you fail to return your proxy card or fail to submit your proxy by telephone or over the Internet, or fail to instruct your bank, broker or other nominee how to vote, and do not attend the special meeting in person, the effect will be that your shares will not be counted for purposes of determining whether a quorum is present at the special meeting and, if a quorum is present, will have the same effect as a vote against the Certificate Amendment Proposal, but will have no effect on the other proposals. If you are a stockholder of record and you attend the special meeting and wish to vote in person, you may withdraw your proxy and vote in person.
I-AM Capital’s board of directors has fixed the close of business on _____________,July 25, 2018, as the record date for the determination of stockholders entitled to notice of and to vote at the special meeting and at any adjournments or postponements thereof.
On behalf of the board of directors of I-AM Capital, I thank you for your support and we look forward to the successful completion of the Transaction.
Sincerely, | ||
_____________, 2018 | ||
F. Jacob Cherian |
This proxy statement is dated _________, 2018, and is first being mailed to stockholders of I-AM Capital on or about _____________, 2018.
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I-AM CAPITAL ACQUISITION COMPANY
1345 Avenue of the Americas, 11th Floor
New York, New York 10105
NOTICE OF SPECIAL MEETING IN LIEU OF AN ANNUAL MEETING OF STOCKHOLDERS
OF I-AM CAPITAL ACQUISITION COMPANYTo Be Held On ____________,TO BE HELD ON SEPTEMBER 7, 2018
To the Stockholders of I-AM Capital Acquisition Company:
NOTICE IS HEREBY GIVEN that a special meeting in lieu of an annual meeting of stockholders (the “special meeting”) of I-AM Capital Acquisition Company, a Delaware corporation, which we refer to as “we,” “us,” “our, “I-AM Capital” or the “Company”), will be held at 10:00 a.m., Eastern time, on ____________,September 7, 2018, at the offices of Ellenoff Grossman & Schole LLP, 1345 Avenue of the Americas, 11th Floor, New York, New York. You are cordially invited to attend the special meeting for the following purposes:
(1)The Business Combination Proposal — to consider and vote upon a proposal to approve the share subscription agreement, dated May 3, 2018, by and between I-AM Capital, Smaaash Entertainment Private Limited, a company incorporated in the Republic of India (“Smaaash”) and the other parties thereto, as amended (the “Subscription Agreement”), the master license and distribution agreement, by and between I-AM Capital and Smaaash (the “Master Distribution Agreement”), and the master franchise agreement, by and between I-AM Capital and Smaaash (the “Master Franchise Agreement”) and the Shareholders’ Agreement with Smaaash, I-AM Capital and other significant shareholders of Smaaash (the “Shareholders’ Agreement”) and the transactions contemplated by such agreements (the “Transaction” and the proposal, the “Business Combination Proposal”). Copies of the Subscription Agreement, the Master Distribution Agreement, the Master Franchise Agreement and the Shareholders’ Agreement are attached to the accompanying proxy statement asAnnex A,Annex B,Annex C andAnnex D, respectively;
(2)The Certificate Amendment Proposal — to consider and vote upon a proposal to amend and restate our second amended and restated certificate of incorporation (the “Restated Certificate”) to (i) change our name from “I-AM Capital Acquisition Company” to “Smaaash Entertainment Inc.” and (ii) change certain provisions related to our transition from a blank check company to an operating company, as reflected in the proposed third amended and restated certificate of incorporation, a copy of which is attached to the accompanying proxy statement as Annex E (the “Certificate Amendment Proposal”);
(3)The Director Election Proposal — to re-elect four (4) directors and elect a fifth director, each named in the attached proxy statement (the “Director Election Proposal”);
(4)The Incentive Plan Proposal — to consider and vote upon a proposal to approve and adopt the I-AM Capital 2018 Equity Incentive Plan (the “Incentive Plan Proposal”). A copy of the I-AM Capital 2018 Equity Incentive Plan is attached to the accompanying proxy statement asAnnex F;
(5)The Auditor Ratification Proposal — to ratify the appointment ofPrager Metis CPAs, LLC as our independent registered public accounting firm for the fiscal year ending May 31, 2019 (the “Auditor Ratification Proposal”);
(6)The Adjournment Proposal — to consider and vote upon a proposal to adjourn the special meeting to a later date or dates, if necessary or desirable, to permit further solicitation and vote of proxies, in the event that there are not sufficient votes to approve one or more proposals presented at the special meeting or that one or more closing conditions under the Subscription Agreement will not be satisfied (the “Adjournment Proposal”); and
(7) to consider and transact such other procedural matters as may properly come before the special meeting or any adjournment or postponement thereof.
Each of these proposals is more fully described in the accompanying proxy statement, which each stockholder is encouraged to review carefully.
Only holders of record of I-AM Capital’s common stock at the close of business on ______,July 25, 2018, the record date, are entitled to notice of the special meeting and to vote at the special meeting and any adjournments or postponements of the special meeting. A complete list of I-AM Capital stockholders of record entitled to vote at the special meeting will be available for ten days before the special meeting at I-AM Capital’s principal executive offices for inspection by stockholders during ordinary business hours for any purpose germane to the special meeting.
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Pursuant to I-AM Capital’s Restated Certificate, I-AM Capital is providing its public stockholders with the opportunity to redeem their shares of I-AM Capital common stock for cash equal to their pro rata share of the aggregate amount on deposit in the trust account which holds the proceeds of I-AM Capital’s initial public offering as of two business days prior to the consummation of the Transaction, including interest, less taxes payable and up to $600,000 of working capital expenses, upon the closing of the Transaction. For illustrative purposes, based on funds in the trust account of approximately $52,780,000 on May 31, 2018 (excluding accrued interest set aside for working capital purposes), and assuming that accrued interest and other funds set aside in a separate account are sufficient to pay estimated taxes payable of $10,000 and working capital expenses, the estimated per share redemption price would have been approximately $10.15.Public stockholders are not required to affirmatively vote for or against the Transaction in order to redeem their shares for cash. This means that public stockholders who hold shares of I-AM Capital common stock on or before September 5, 2018 (two (2) business days before the special meeting) may elect to redeem their shares whether or not they are holders as of common stock even ifthe record date, and whether or not they vote for the Business Combination Proposal.A public stockholder, together with any of his, her or its affiliates or any other person with whom he, her or it is acting in concert or as a “group” (as defined under Section 13 of the Securities Exchange Act of 1934, as amended), will be restricted from redeeming his, her or its shares with respect to more than an aggregate of 15% of the public shares. The holder of I-AM Capital shares issued prior to its initial public offering (“founder shares”) has agreed to waive its redemption rights with respect to its founder shares and any other shares it may hold in connection with the consummation of the Transaction, and the founder shares will be excluded from the pro rata calculation used to determine the per-share redemption price. Currently, I-AM Capital Partners LLC, I-AM Capital’s sponsor and owner of the founder shares owns approximately 22.92% of I-AM Capital’s issued and outstanding shares of common stock.
I-AM Capital’s board of directors has determined to issue a common stock dividend on all shares of I-AM Capital common stock that are outstanding immediately prior to the closing of the Transaction, to each stockholder who beneficially owns such shares as of such time (the “Special Dividend”). The Sponsor, Maxim Group LLC, the underwriter of I-AM Capital’s initial public offering (“Maxim”), and Maxim’s affiliates, all of whom own shares of I-AM Capital common stock, have each agreed to waive their respective rights to receive the Special Dividend. The number of shares to be issued in the Special Dividend for each outstanding share shall be equal to 600,000 divided by the number of shares of common stock eligible to receive such dividend. In connection with the Special Dividend, the Sponsor has agreed to cancel a number of founder shares equal to the aggregate number of shares issued in the dividend.
The Transaction will be consummated only if a majority of the outstanding shares of I-AM Capital common stock are voted in favor of the Business Combination Proposal. I-AM Capital has no specified maximum redemption threshold under its Restated Certificate. Any redemptions of public shares by public stockholders will decrease the amount in I-AM Capital’s trust account. In no event, however, will I-AM Capital redeem public shares in an amount that would cause its net tangible assets to be less than $5,000,001 immediately prior to the Transaction.
Your attention is directed to the proxy statement accompanying this notice (including the annexes thereto) for a more complete description of the Transaction and related transactions and each of our proposals. We encourage you to carefully read this proxy statement and the accompanying Annual Report on Form 10-K for the fiscal year ended May 31, 2018.
By Order of the Board of Directors | |
__, 2018 | Sincerely, |
F. Jacob Cherian | |
Chief Executive Officer |
This notice was mailed on or about _______, 2018.
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TABLE OF CONTENTS
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ANNEXES
* | The schedules and exhibits to the Subscription Agreement have been omitted pursuant to Item 601(b)(2) of Regulation S-K. I-AM Capital hereby agrees to furnish supplementally a copy of any omitted schedules or exhibits to the staff of the SEC upon request. |
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CONVENTIONS WHICH APPLY TO THIS PROXY STATEMENT
In this proxy statement, unless otherwise specified or the context otherwise requires:
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● | “Rs.” “INR” and “rupee” each refer to the Indian rupee, the official currency of the Republic of India. |
IMPORTANT INFORMATION ABOUT IFRS AND NON-IFRS FINANCIAL MEASURES
Smaaash’s audited financial statements are prepared in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board and referred to in this proxy statement as “IFRS.”
Smaaash refers in various places within this proxy statement to EBITDA which is a non-IFRS measure that is calculated as earnings before interest, tax and depreciation and amortization and more fully explained in “Smaaash’s Management’s Discussion and Analysis of Financial Condition and Results of Operations.” The presentation of this non-IFRS information is not meant to be considered in isolation or as a substitute for Smaaash’s consolidated financial results prepared in accordance with IFRS.
In this proxy statement, Smaaash relies on and refers to information and statistics regarding market shares in the sectors in which it competes and other industry data. Smaaash obtained this information and statistics from third-party sources, including reports by independent market research firms. Smaaash has supplemented this information where necessary with information from discussions with Smaaash customers and its own internal estimates, taking into account publicly available information about other industry participants and Smaaash’s management’s best view as to information that is not publicly available.
Unless otherwise stated or unless the context otherwise requires, the terms “we,” “us,” “our,” the “Company” and “I-AM Capital” refer to I-AM Capital Acquisition Company.
In this document:
“CPC” refers to the Code of Civil Procedure, 1908 of India.
“equity shares” means the equity shares of Smaaash with a face value of Rs. 10 per equity share.
“founder shares” means the shares of I-AM Capital common stock issued to the initial stockholder prior to I-AM Capital’s initial public offering.
“GoI” refers to the Government of India.
“I-AM Capital” means I-AM Capital Acquisition Company, a Delaware corporation.
“I-AM Capital common stock” means common stock, par value $0.0001 per share, of I-AM Capital.
“IFRS” refers to International Financial Reporting Standards as issued by the International Accounting Standards Board (IASB).
“initial stockholder” means the Sponsor.
“Investment” means the investment of cash by I-AM Capital in Smaaash in exchange for equity shares of Smaaash, pursuant to the terms of the Subscription Agreement.
“Investment Amount” means the amount of funds held in the trust account that holds the proceeds of I-AM Capital’s initial public offering, less certain transaction expenses and amounts used to pay I-AM Capital stockholders who properly exercise their redemption rights in connection with the vote to approve the Business Combination Proposal, that is invested into Smaaash in the Transaction.
“IPO” means the initial public offering of I-AM Capital.
“Master Distribution Agreement” means the Master License and Distribution Agreement by and between Smaaash and I-AM Capital.
“Master Franchise Agreement” means the Master Franchise Agreement by and between Smaaash and I-AM Capital.
“NASDAQ” means the NASDAQ Stock Market, LLC.
“private placement rights” means the rights to purchase shares of I-AM Capital common stock included in the private placement units.
“private placement shares” means the shares of I-AM Capital common stock included in the private placement units.
“private placement units” means the units issued to the Sponsor in a private placement occurring simultaneously with the closing of I-AM Capital’s initial public offering.
“private placement warrants” means the warrants to purchase shares of I-AM Capital common stock included in the private placement units.
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“public rights” means the rights included in the public units, each of which is exercisable for 1/10 of a share of I-AM Capital common stock, in accordance with its terms.
“public shares” means shares of I-AM Capital common stock issued as part of the public units.
“public stockholders” means the holders of our public shares, including our initial stockholder and members of our management team to the extent our initial stockholder and/or members of our management team purchase public shares, provided that each initial stockholder’s and member of our management team’s status as a “public stockholder” shall only exist with respect to such public shares.
“public units” means the units sold in I-AM Capital’s initial public offering.
“public warrants” means the warrants included in the public units, each of which is exercisable for one share of I-AM Capital common stock, in accordance with its terms.
“RBI” means the Reserve Bank of India.
“Shareholders’ Agreement” means the Shareholders’ Agreement, dated as of May 3, 2018, by and among Smaaash, I-AM Capital and the other parties thereto.
“SEBI” means the Securities and Exchange Board of India.
“SEC” means the U.S. Securities Exchange Commission.
“Sponsor” means I-AM Capital Partners LLC, a Delaware limited liability company.
“Smaaash” means Smaaash Entertainment Private Limited, a private limited company organized under the laws of the Republic of India.
“Smaaash Founders” means AHA Holdings Private Limited and Mr. Shripal Morakhia.
“Subscription Agreement” means the Share Subscription Agreement, dated as of May 3, 2018, by and among Smaaash, I-AM Capital and the other parties thereto, as amended by the Amendment Cum Addendum to the Share Subscription Agreement Dateddated May 03,3, 2018, entered into on June 22, 2018 and the Second Amendment Cum Addendum to the Share Subscription Agreement dated May 3, 2018, entered into on August 2, 2018.
“Transaction” means the transactions contemplated by the Subscription Agreement.
“trust account” means the trust account that holds a portion of the proceeds of I-AM Capital’s initial public offering and the concurrent sale of the private placement units to the Sponsor.
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QUESTIONS AND ANSWERS ABOUT THE PROPOSALS
The following questions and answers briefly address some commonly asked questions about the proposals to be presented at the special meeting in lieu of an annual meeting of stockholders (“special meeting”), including with respect to the proposed Transaction. The following questions and answers may not include all the information that is important to I-AM Capital stockholders. Stockholders are urged to read carefully this entire proxy statement, including the annexes and the other documents referred to herein. You should also carefully read the accompanying Annual Report on Form 10-K for the fiscal year ended May 31, 2018.
Q: | Why am I receiving this proxy statement? |
A: | I-AM Capital has entered into the Subscription Agreement with Smaaash and the other parties thereto pursuant to which I-AM Capital has agreed to invest the Investment Amount in exchange for equity shares of Smaaash. I-AM Capital estimates that the shares issued by Smaaash, assuming an Investment Amount of $49.0 million, will constitute up to approximately 27.53% of the issued share capital of Smaaash, provided that such percentage shall decrease proportionately depending on the number of shares redeemed by I-AM Capital’s public stockholders. See “Summary —Smaaash Equity Shares to be Issued in the Transaction” and “Unaudited Pro Forma Condensed Financial Information
In connection with the Investment, I-AM Capital shall change its name to “Smaaash Entertainment Inc.” and it shall receive the right under the master license and distribution agreement, by and between I-AM Capital and Smaaash (the “Master Distribution Agreement”), and the master franchise agreement, by and between I-AM Capital and Smaaash (the “Master Franchise Agreement”), to become (i) the sole distributor of Smaaash games in North America and South America and (ii) the master franchisee for Smaaash centers in North America and South America. After the Transaction, I-AM Capital shall also pursue acquisitions within the active entertainment industry in the United States with the objective of facilitating the transformation of Smaaash from an India focused company to a globally recognized brand within the active entertainment industry.
In connection with, and as a condition to, the Investment, the Shareholders’ Agreement that I-AM Capital previously entered into, pursuant to which it will have the right to, among other things, appoint two directors and jointly consent to the appointment of three additional directors to the board of directors of Smaaash (which board may have up to 10 directors), will become effective. Copies of the Master Distribution Agreement, the Master Franchise Agreement and the Shareholders’ Agreement are attached to this proxy statement asAnnex B, Annex C, andAnnex D, respectively.
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I-AM Capital stockholders are being asked to consider and vote upon a proposal to approve the Transaction, the Subscription Agreement, the Master Distribution Agreement and the Master Franchise Agreement and the transactions contemplated thereby, in addition to the other proposals set forth immediately below. This proxy statement and its annexes contain important information about the proposed Transaction and the other matters to be acted upon at the special meeting. You should read this proxy statement and its annexes carefully and in their entirety. You should also carefully read the accompanying Annual Report on Form 10-K for the year ended May 31, 2018.
Your vote is important. You are encouraged to submit your proxy as soon as possible after carefully reviewing this proxy statement and its annexes.
Q: | What is being voted on at the special meeting? |
A: | Below are proposals on which I-AM Capital stockholders are being asked to vote: |
1. | To approve the Subscription Agreement, the Shareholders’ Agreement, the Master Distribution Agreement, the Master Franchise Agreement and the transactions contemplated thereby (this proposal is referred to herein as the “Business Combination Proposal”); |
2. | To approve an amendment to our Restated Certificate to (i) change our name from “I-AM Capital Acquisition Company” to “Smaaash Entertainment Inc.” and (ii) change certain provisions related to our transition from a blank check company to an operating company (this proposal is referred to herein as the “Certificate Amendment Proposal”); | |
3. | To re-elect four current directors and elect one new director nominee to the Board, to serve on our board of directors until the second succeeding annual meeting of stockholders in the case of the current directors, and until the next annual meeting of stockholders in the case of the director nominee (this proposal is referred to herein as the “Director Election Proposal”); | |
| 4. | To approve and adopt the I-AM Capital 2018 Equity Incentive Plan (this proposal is referred to herein as the “Incentive Plan Proposal”); |
5. | To ratify the appointment ofPrager Metis CPAs, LLC as our independent registered public accounting firm for the fiscal year ending May 31, 2019 (this proposal is referred to herein as the “Auditor Ratification Proposal”); and | |
6. | To approve the adjournment of the special meeting to a later date or dates, if I-AM Capital determines that there are not sufficient votes to approve one or more proposals presented at the special meeting or that one or more closing conditions under the Subscription Agreement will not be satisfied (this proposal is referred to herein as the “Adjournment Proposal”). |
Q: | Are the proposals conditioned on one another? |
A: | The Certificate Amendment Proposal and the election of Shripal Morakhia, the director nominee, as a director are conditioned on the approval of the Business Combination Proposal. The Incentive Plan Proposal, the Auditor Ratification Proposal and the Adjournment Proposal, do not require the approval of any other proposal to be effective. It is important for you to note that in the event that the Business Combination Proposal is not approved, then I-AM Capital will not consummate the Transaction. If I-AM Capital does not consummate the Transaction and fails to complete an initial business combination by August 21, 2018 (or May 21, 2019, if we extend the period to consummate a business combination), we will be required to dissolve and liquidate our trust account. |
Q: | Why is I-AM Capital proposing the Business Combination Proposal? |
A: | I-AM Capital was organized for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar business combination with one or more businesses. In particular, it has sought to focus on companies in India, though it is not limited to any particular industry or sector. |
I-AM Capital consummated its initial public offering on August 22, 2017. Approximately $50.8 million of the proceeds of its initial public offering and the private placement of private units was placed in a trust account immediately following the initial public offering (currently $52.8 million after the undewriter partially exercised its over-allotment option), in accordance with I-AM Capital’s Restated Certificate, will be released upon the consummation of the Transaction. See the question entitled “What happens to the funds held in the trust account upon consummation of the Transaction?”
The Transaction constitutes the initial business combination of I-AM Capital. Therefore, under I-AM Capital’s Restated Certificate, it is providing all holders of public shares with the opportunity to have their public shares redeemed upon the consummation of the Transaction.
Q: | What will happen in the Transaction? |
A: | At the closing of the Transaction, I-AM Capital will invest the Investment Amount in Smaaash in exchange for equity shares of Smaaash. I-AM Capital estimates that the shares issued by Smaaash, assuming an Investment Amount of $49.0 million, will equal up to approximately 27.53% of the issued share capital of Smaaash depending on the number of shares redeemed by I-AM Capital’s public stockholders. As a result of the Transaction, I-AM Capital will become the largest outside shareholder of Smaaash, second only to the founder of Smaaash.
In connection with the Investment, I-AM Capital shall change its name to “Smaaash Entertainment Inc.” and it shall receive the right under the Master Distribution Agreement and the Master Franchise Agreement to become (i) the sole distributor of Smaaash games in North America and South America and (ii) the master franchisee for Smaaash centers in North America and South America. After the Transaction, I-AM Capital shall also pursue acquisitions within the active entertainment industry in the United States with the objective of facilitating the transformation of Smaaash from an India focused company to a globally recognized brand within the active entertainment industry. |
Q: | What equity stake will I-AM Capital hold in Smaaash after the closing? |
A: | I-AM Capital estimates that, upon completion of the Transaction, I-AM Capital will receive an ownership interest of up to approximately 27.53% of the issued share capital of Smaaash, depending on the number of public shares that are redeemed. See “Summary — Smaaash Equity Shares to be Issued in the Transaction” and “Unaudited Pro Forma Condensed Financial Information | |
The Smaaash Founders have also agreed that within six (6) months following the Closing Date, they shall transfer all of their ownership interest in Smaaash (representing 33.6% of the share capital of Smaaash on a fully diluted basis as of June 22, 2018 and which will represent 24.34% of the share capital of Smaaash on a fully diluted basis immediately after the Investment) to I-AM Capital in exchange for newly issued shares of common stock of I-AM Capital in an amount which would enable the Smaaash Founders to retain their 24.34% post-Investment ownership interest in Smaaash through their interest in I-AM Capital.Copy of the Amendment cum Addendum to the Subscription Agreement which reflects the above agreement of I-AM Capital and Smaaash Founders is included in Annex A. |
The following table illustratestables illustrate varying ownership levels of Smaaash based on the assumptions described above but assuming varying levels of investments and redemptions by I-AM Capital stockholders: stockholders on the Closing Date and upon the transfer by the Smaaash Founders of their ownership in Smaaash six (6) months after the Closing Date:
Investment Amount (US Dollars in Millions) | $5 | $25 | $35 | $49 | |||||||||||
% of I-AM Capital Public Shares Redeemed | 90 | % | 49 | % | 29 | % | 0.00 | % | |||||||
Current Smaaash Shareholders | 96.27 | % | 85.96 | % | 80.34 | % | 72.47 | % | |||||||
I-AM Capital | 3.73 | % | 14.04 | % | 19.66 | % | 27.53 | % |
On the Closing Date: | |||||||||||||||
Investment Amount (US Dollars in Millions) | $5 | $25 | $35 | $49 | |||||||||||
% of I-AM Capital Public Shares Redeemed | 90 | % | 49 | % | 29 | % | 0.00 | % | |||||||
Current Smaaash Shareholders | 96.27 | % | 83.76 | % | 78.66 | % | 72.47 | % | |||||||
I-AM Capital | 3.73 | % | 16.24 | % | 21.34 | % | 27.53 | % |
After the Transfer by the Smaaash Founders Six Months After the Closing Date: | |||||||||||||||
Investment Amount (US Dollars in Millions) | $5 | $25 | $35 | $49 | |||||||||||
% of I-AM Capital Public Shares Redeemed | 90 | % | 49 | % | 29 | % | 0.00 | % | |||||||
Current Smaaash Shareholders (Less Founders) | 71.93 | % | 59.42 | % | 54.32 | % | 48.13 | % | |||||||
I-AM Capital | 28.07 | % | 40.58 | % | 45.68 | % | 51.87 | % |
You should note that depending on the level of redemptions by the I-AM Capital stockholders, I-AM Capital may own less than 50% of the share capital of Smaaash on a fully diluted basis even after the transfer by the Smaaash Founders of all of their equity ownership to I-AM Capital.
Q: | Has I-AM Capital obtained a fairness opinion in connection with the Investment? |
A: | No. |
Q: | What conditions must be satisfied to complete the Transaction? |
A: | There are a number of closing conditions in the Subscription Agreement, including that I-AM Capital stockholders approve the Business Combination Proposal. For a summary of the conditions that must be satisfied or waived prior to completion of the Transaction, see the section entitled“Proposal No. 1 —The Business Combination Proposal — The Subscription Agreement.” |
Q: | Is there a limit on the number of shares I may redeem? |
| A: | A public stockholder, together with any affiliate of his or any other person with whom he is acting in concert or as a “group” (as defined in Section 13(d)(3) of the Securities Exchange Act of 1934, as amended, or the Exchange Act) will be restricted from seeking redemption rights with respect to 15% or more of public shares of common stock. Accordingly, all shares in excess of 15% owned by a holder will not be redeemed for cash. On the other hand, a public stockholder who holds less than 15% of the public shares of common stock may redeem all of the public shares held by him for cash. |
Q: | Why is I-AM Capital proposing the Director Election Proposal? |
| A: | This special meeting is serving as I-AM Capital’s first annual meeting of stockholders. Under the By-laws of I-AM Capital the terms of four of our current directors will terminate at the special meeting and in connection with the Transaction, Shripal Morakhia will be nominated for election at the special meeting. I-AM Capital is proposing that you vote to re-elect the four current directors and elect the director nominee. |
Q: | Why is I-AM Capital proposing the Incentive Plan Proposal? | |
| A: | The purpose of the Incentive Plan is to enable us to offer eligible employees, directors and consultants, cash and stock-based incentive awards in order to attract, retain and reward these individuals and align their interests with the interests of our stockholders upon our transformation to an operating company upon consummation of the Transaction. |
Q: | What happens if I sell my shares of I-AM Capital common stock before the special meeting? |
A: | The record date for the special meeting is earlier than the date that the Transaction is expected to be completed. If you transfer your shares of I-AM Capital common stock after the record date, but before the special meeting, unless the transferee obtains from you a proxy to vote those shares, you will retain your right to vote at the special meeting. However, you will not be entitled to seek redemption of your shares because you will not be able to deliver them for cancellation upon consummation of the Transaction. |
In addition, I-AM Capital has agreed to issue a Special Dividend of common stock on all shares of I-AM Capital common stock that are outstanding immediately prior to the closing of the Transaction, to each stockholder who beneficially owns such shares as of such time (other than the Sponsor, Maxim and its affiliates, who have agreed to waive their rights to such dividend). The number of shares to be issued in the Special Dividend for each outstanding share shall be equal to 600,000 divided by the number of shares of common stock eligible to receive such dividend. In connection with the Special Dividend, the Sponsor has agreed to cancel a number of founder shares equal to the aggregate number of shares issued in the Special Dividend. To the extent you transfer or redeem your shares of I-AM Capital common stock prior to the closing of the Transaction, you will not receive the Special Dividend.
Q: | What vote is required to approve the proposals presented at the special meeting? |
A: | The approval of each of the Business Combination Proposal, the Incentive Plan Proposal, the Auditor Ratification Proposal, and the Adjournment Proposal requires the affirmative vote of a majority of the votes cast by the stockholders present in person or represented by proxy at the special meeting and entitled to vote thereon. The approval of the Certificate Amendment Proposal requires the affirmative vote of a majority of the outstanding shares of I-AM Capital common stock. Accordingly, an I-AM Capital stockholder’s failure to vote by proxy or to vote in person at the special meeting, an abstention from voting, or the failure of an I-AM Capital stockholder who holds his or her shares in “street name” through a broker or other nominee to give voting instructions to such broker or other nominee (a “broker non-vote”) will result in that stockholder’s shares not being counted towards the number of I-AM Capital shares required to validly establish a quorum. Abstentions are considered present for the purposes of establishing a quorum but will have the same effect as a vote “AGAINST” the Certificate Amendment Proposal, but will have no effect on the Business Combination Proposal, the Director Election Proposal, the Incentive Plan Proposal, the Auditor Ratification Proposal, or the Adjournment Proposal. Broker non-votes will have the effect of a vote “AGAINST” the Certificate Amendment Proposal, but will have no effect on the Business Combination Proposal, the Director Election Proposal, the Incentive Plan Proposal or the Adjournment Proposal. We believe that the Auditor Ratification Proposal is a routine matter on which brokers and nominees can vote on behalf of their clients if clients do not furnish voting instructions.
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The affirmative vote of a plurality of the votes cast by the stockholders present in person or represented by proxy at the special meeting and entitled to vote thereon is required for the election of directors. A plurality means that the nominees receiving the most votes for election to a director position are elected as directors. Thus, the candidates with the most affirmative votes will be elected at the special meeting.
Q: | May I-AM Capital or the Sponsor, I-AM Capital’s directors, officers, advisors or their affiliates purchase shares in connection with the Transaction? |
A: | In connection with the stockholder vote to approve the Transaction, our Sponsor, directors, executive officers, advisors or their affiliates may purchase shares in privately negotiated transactions or in the open market either prior to or following the completion of the consummation of the Transaction. However, they have no current commitments or plans to engage in such transactions and have not formulated any terms or conditions for any such transactions. None of the funds in the trust account will be used to purchase shares in such transactions. If they engage in such transactions, they will not make any such purchases when they are in possession of any material non-public information not disclosed to the seller or if such purchases are prohibited by Regulation M under the Exchange Act. |
Q: | How many votes do I have at the special meeting of stockholder? |
A: | I-AM Capital stockholders are entitled to one vote at the special meeting for each share of I-AM Capital common stock held of record as of the record date. As of the close of business on the record date, there were 6,813,500 outstanding shares of I-AM Capital common stock. |
Q: | What constitutes a quorum at the special meeting of stockholder? |
A: | Holders of a majority of the voting power of all shares of capital stock of I-AM Capital issued and outstanding and entitled to vote at the special meeting, present in person or represented by proxy, constitute a quorum. In the absence of a quorum, a majority of I-AM Capital stockholders, present in person or represented by proxy, will have the power to adjourn the special meeting. |
As of the record date for the special meeting, 3,406,751 shares of I-AM Capital common stock would be required to achieve a quorum.
Q: | How will I-AM Capital’s Sponsor, directors and officers vote with respect to the Business Combination Proposal? |
A: | In connection with I-AM Capital’s initial public offering, I-AM Capital entered into agreements with our Sponsor and each of our directors and executive officers, pursuant to which each agreed to vote any shares of I-AM Capital common stock owned by them in favor of the Business Combination Proposal. Currently, our Sponsor, certain of its affiliates and our directors, together with the underwriter in our initial public offering, own approximately 23.68% of our issued and outstanding common stock, including all of the founder shares. If holders of 100% of our shares of common stock are present in person or represented by proxy at the special meeting, we would need only an additional 1,793,250 shares of common stock, or 34.45% of our common stock issued and outstanding to our public stockholders, to be voted in favor of the Business Combination Proposal in order to have it approved (assuming no additional shares of common stock are purchased by our Sponsor on the market or in private transactions). |
Q: | What interests do I-AM Capital’s current officers and directors have in the Transaction? |
A: | I-AM Capital’s directors and executive officers may have interests in the Transaction that are different from, or in addition to or in conflict with, yours. These interests include: |
● | the appointment of Mr. F. Jacob Cherian and Mr. Suhel Kanuga, I-AM Capital’s executive officers and directors, as directors (but not officers) of Smaaash even though Mr. Cherian and Mr. Kanuga will not receive any compensation for their services as directors of Smaaash; |
● | the continued indemnification of current directors and officers of I-AM Capital and the continuation of directors’ and officers’ liability insurance after the Transaction; |
● | unless I-AM Capital consummates an initial business combination, its officers, directors and the Sponsor will not receive reimbursement for any out-of-pocket expenses incurred by them to the extent that such expenses exceed the amount of available proceeds not deposited in the trust account; |
● | the Sponsor has agreed that the private placement units, and all of their underlying securities, will not be sold or transferred by it until I-AM Capital has completed a business combination; |
● | the Sponsor paid an aggregate of $25,000 for the founder shares and such securities will have a significantly higher value at the time of the Transaction; |
● | the Sponsor has agreed not to redeem any of the founder shares in connection with a stockholder vote to approve a proposed initial business combination; |
● | if I-AM Capital does not complete an initial business combination by August 21, 2018 (or May |
● | if the trust account is liquidated, including in the event I-AM Capital is unable to complete an initial business combination within the required time period, the Sponsor has agreed to indemnify I-AM Capital to ensure that the proceeds in the trust account are not reduced below (i) $10.15 per public share (or such higher amount then held in trust) or (ii) such lesser amount per public share held in the trust account as of the date of the liquidation of the trust account by the claims of prospective target businesses with which I-AM has entered into an acquisition agreement or claims of any third party for services rendered or products sold to I-AM Capital, but only if such a vendor or target business has not executed a waiver of any and all rights to seek access to the trust account. |
These interests may influence I-AM Capital’s directors in making their recommendation that you vote in favor of the approval of the Transaction.
Q: | What happens if I vote against the Business Combination Proposal? |
A: | If the Business Combination Proposal is not approved and I-AM Capital does not consummate a business combination by August 21, 2018 (or May 21, 2019, if we extend the period to consummate a business combination), I-AM Capital will be required to dissolve and liquidate the trust account. |
Q: | Do I have redemption rights? |
A: | If you are a holder of public shares, you may redeem your public shares for a per-share price, payable in cash, equal to the aggregate amount then on deposit in the trust account as of two business days prior to the consummation of the Transaction, including interest, less taxes payable and up to $600,000 of working capital expenses, divided by the number of then outstanding public shares, subject to the limitations described herein. A public stockholder, together with any of his, her or its affiliates or any other person with whom it is acting in concert or as a “group” (as defined under Section 13 of the Exchange Act), will be restricted from redeeming his, her or its shares with respect to more than an aggregate of 15% of the public shares. I-AM Capital’s founder, the Sponsor, has agreed to waive its redemption rights with respect to its founder shares and with respect to any other shares it may hold in connection with the consummation of the Transaction, and the founder shares will be excluded from the pro rata calculation used to determine the per-share redemption price. For illustrative purposes, based on funds in the trust account of approximately $52,780,000 on May 31, 2018 (excluding accrued interest set aside for working capital purposes) and assuming that accrued interest and other funds set aside in a separate account are sufficient to pay estimated taxes payable of $10,000 and working capital expenses, the estimated per share redemption price would have been approximately $10.15. Additionally, shares properly tendered for redemption will only be redeemed if the Transaction is consummated; otherwise holders of such shares will only be entitled to a pro rata portion of the trust account (including interest but net of taxes payable and up to $600,000 of working capital expenses (less up to $50,000 of such net interest to pay liquidation expenses)) in connection with the liquidation of the trust account. |
Q: | Will how I vote affect my ability to exercise redemption rights? |
A: | No. You may exercise your redemption rights whether you vote your shares for or against the Business Combination Proposal. As a result, the Transaction can be approved by stockholders who will redeem their shares and no longer remain stockholders, leaving stockholders who choose not to redeem their shares holding shares with a less liquid trading market, and fewer stockholders. However, stockholder who choose not to redeem their shares will receive the Special Dividend. |
Q: | How do I exercise my redemption rights? |
A: | In order to exercise your redemption rights, you must, prior to 4:30 p.m. Eastern time on |
Any demand for redemption, once made, may be withdrawn at any time until the deadline for exercising redemption requests and thereafter, with I-AM Capital’s consent, until the vote is taken with respect to the Transaction. If you delivered your shares for redemption to I-AM Capital’s transfer agent and decide within the required timeframe not to exercise your redemption rights, you may request that I-AM Capital’s transfer agent return the shares (physically or electronically). You may make such request by contacting I-AM Capital’s transfer agent at the email or physical address listed under the question “Who can help answer my questions?”.
Q: | What are the federal income tax consequences of exercising my redemption rights? |
A: | I-AM Capital stockholders who exercise their redemption rights to receive cash from the trust account in exchange for their shares of I-AM Capital common stock generally will be required to treat the transaction as a sale of such shares and recognize gain or loss upon the redemption in an amount equal to the difference, if any, between the amount of cash received and the tax basis of the shares of I-AM Capital common stock redeemed. Such gain or loss should be treated as capital gain or loss if such shares were held as a capital asset on the date of the redemption. See the section entitled “Material U.S. Federal Income Tax Considerations — Redemption of I-AM Capital Common Stock.” |
Q: | Do I have appraisal rights if I object to the proposed Transaction? |
A: | No. There are no appraisal rights available to holders of I-AM Capital common stock in connection with the Transaction. |
Q: | What happens to the funds held in the trust account upon consummation of the Transaction? |
A: | If the Transaction is consummated, the funds held in the trust account will be released to pay (i) the cash consideration to Smaaash for the Investment, (ii) I-AM Capital stockholders who properly exercise their redemption rights, (iii) an estimated $1,820,000 relating to deferred underwriting compensation to the underwriters of I-AM Capital’s initial public offering and other designated persons and (iv) certain additional fees for advisory services, and all fees, costs and expenses (including regulatory fees, legal fees, accounting fees, printer fees, and other professional fees) that were incurred by I-AM Capital in connection with the Transaction. |
Q: | What happens if the Transaction is not consummated? |
A: | There are certain circumstances under which the Subscription Agreement may be terminated. See the section entitled “Proposal No. 1 — The Business Combination Proposal — The Subscription Agreement” for information regarding the parties’ specific termination rights. |
If, as a result of the termination of the Subscription Agreement or otherwise, I-AM Capital is unable to complete the Transaction or another business combination transaction by August 21, 2018 (or May 21, 2019, if we extend the period to consummate a business combination), I-AM Capital’s Restated Certificate provides that it will (i) cease all operations except for the purpose of winding up, (ii) as promptly as reasonably possible but not more than ten business days thereafter, subject to lawfully available funds therefor, redeem 100% of the public shares in consideration of a per-share price, payable in cash, equal to the quotient obtained by dividing (A) the aggregate amount then on deposit in the trust account, including interest (less up to $50,000 of such net interest to pay liquidation expenses) and up to $600,000 of working capital expenses, by (B) the total number of then outstanding public shares, which redemption will completely extinguish the rights of the public stockholders (including the right to receive further liquidation distributions, if any), subject to applicable law, and (iii) as promptly as reasonably possible following such redemptions, subject to the approval of the remaining stockholders and the board of I-AM Capital in accordance with applicable law, dissolve and liquidate, subject in each case to I-AM Capital’s obligations under the General Corporation Law of the State of Delaware (“DGCL”) to provide for claims of creditors and other requirements of applicable law.
I-AM Capital expects that the amount of any distribution its public stockholders will be entitled to receive upon its dissolution will be approximately the same as the amount they would have received if they had redeemed their shares in connection with the Transaction, subject in each case to I-AM Capital’s obligations under the DGCL to provide for claims of creditors and other requirements of applicable law. See the section entitled “Risk Factors — I-AM Capital’s Sponsor and certain of its officers and directors either directly or indirectly beneficially own shares of I-AM Capital common stock and have obligations and interests in the Transaction that are different from, or in addition to, I-AM Capital stockholders. If the Transaction is not approved, the securities held by the Sponsor will likely become worthless.”Holders of the founder shares have waived any right to any liquidation distribution with respect to those shares.
In the event of liquidation, there will be no distribution with respect to I-AM Capital’s outstanding warrants. Accordingly, the warrants will expire worthless.
Q: | When is the Transaction expected to be completed? |
A: | It is currently anticipated that the Transaction will be consummated promptly following the special meeting, provided that all other conditions to the consummation of the Transaction have been satisfied or waived. |
For a description of the conditions to the completion of the Transaction, see the section entitled“Proposal No. 1 —The Business Combination Proposal.”
Q: | What will happen if I abstain from voting or fail to vote at the special meeting? |
A: | At the special meeting, I-AM Capital will count a properly executed proxy marked “ABSTAIN” with respect to a particular proposal as present for purposes of determining whether a quorum is present. For purposes of approval, an abstention or failure to vote will have the same effect as a vote “AGAINST” the Certificate Amendment Proposal, but will have no effect on the other proposals. |
Q: | What will happen if I sign and return my proxy card without indicating how I wish to vote? |
A: | Signed and dated proxies received by I-AM Capital without an indication of how the stockholder intends to vote on a proposal will be voted in favor of each proposal presented to the stockholders and for the re-election of four current directors and the election of the director nominee. |
Q: | If I am not going to attend the special meeting in person, should I return my proxy card instead? |
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A: | Yes. Whether you plan to attend the special meeting or not, please read the enclosed proxy statement carefully, and submit your proxy by |
Q: | If my shares are held in “street name,” will my broker, bank or nominee automatically vote my shares for me? |
A: | No. Under the rules of various national and regional securities exchanges, your broker, bank, or nominee cannot vote your shares with respect to non-discretionary matters unless you provide instructions on how to vote in accordance with the information and procedures provided to you by your broker, bank, or nominee. I-AM Capital believes the proposals presented to the stockholders will be considered non-discretionary (other than the Auditor Ratification Proposal) and therefore your broker, bank, or nominee cannot vote your shares without your instruction. If you do not provide instructions with your proxy, your bank, broker, or other nominee may deliver a proxy card expressly indicating that it is NOT voting your shares; this indication that a bank, broker, or nominee is not voting your shares is referred to as a “broker non-vote.” Broker non-votes will not be counted for the purpose of determining the existence of a quorum or for purposes of determining the number of votes cast at the special meeting. Your bank, broker, or other nominee can vote your shares only if you provide instructions on how to vote. You should instruct your broker to vote your shares in accordance with directions you provide. |
Q: | May I change my vote after I have mailed my signed proxy card? |
A: | Yes. You may change your vote by sending a later-dated, signed proxy card to I-AM Capital’s secretary at the address listed below so that it is received by I-AM Capital’s secretary prior to the special meeting or attend the special meeting in person and vote. You also may revoke your proxy by sending a notice of revocation to I-AM Capital’s secretary, which must be received by I-AM Capital’s secretary prior to the special meeting. |
Q: | What should I do if I receive more than one set of voting materials? |
A: | You may receive more than one set of voting materials, including multiple copies of this proxy statement and multiple proxy cards or voting instruction cards. For example, if you hold your shares in more than one brokerage account, you will receive a separate voting instruction card for each brokerage account in which you hold shares. If you are a holder of record and your shares are registered in more than one name, you will receive more than one proxy card. Please complete, sign, date and return each proxy card and voting instruction card that you receive in order to cast your vote with respect to all of your shares. |
Q: | Who will solicit and pay the cost of soliciting proxies? |
A: | I-AM Capital will pay the cost of soliciting proxies for the special meeting. I-AM Capital has engaged |
Q: | What do I need to do now? |
A: | You are urged to read carefully and consider the information contained in this proxy statement, including the annexes, and to consider how the Transaction and the other proposals will affect you as a stockholder. You should then submit your proxy as soon as possible in accordance with the instructions provided in this proxy statement and on the enclosed proxy card or, if you hold your shares through a brokerage firm, bank or other nominee, on the voting instruction form provided by the broker, bank or nominee. |
Q: | How do I vote? |
A: | If you were a holder of record of I-AM Capital common stock on |
Q: | Who can help answer my questions? |
A: | If you have questions about the proposals or if you need additional copies of the proxy statement or the enclosed proxy card you should contact: |
Suhel Kanuga
I-AM Capital Acquisition Company
1345 Avenue of the Americas, 11th Floor
New York, New York 10105
Tel: (212) 878-3684
Email: sk@i-amcapital.com
You may also contact I-AM Capital’s proxy solicitor at:
________________________________Telephone: ________________
Email: ________________
Morrow Sodali LLC
470 West Avenue
Stamford, CT 06902
Tel: (800) 662-5200
or banks and brokers can call (203) 658-9400
Email:IAM.info@morrowsodali.com
To obtain timely delivery, I-AM Capital stockholders must request the materials no later than five business days prior to the special meeting.
You may also obtain additional information about us from documents filed with the SEC by following the instructions in the section entitled “Where You Can Find More Information.”
If you intend to seek redemption of your public shares, you will need to send a letter demanding redemption and deliver your stock (either physically or electronically) to I-AM Capital’s transfer agent prior to 4:30 p.m. Eastern time on _______,August 13, 2018 (two business days before the special meeting). If you have questions regarding the certification of your position or delivery of your stock, please contact:
Continental Stock Transfer & Trust Company
One State Street Plaza, 30th Floor
New York, New York 10004
Attn: _________Mark Zimkind
E-mail: _________
mZimkind@continentalstock.com
8
SUMMARY OF THE PROXY STATEMENT
This summary highlights selected information from this proxy statement and may not contain all of the information that is important to you. To better understand the Transaction and the proposals to be considered at the special meeting, you should read this entire proxy statement carefully, including the annexes. See also the section entitled “Where You Can Find More Information.”
Unless otherwise specified, all share calculations (i) assume no exercise of redemption rights by I-AM Capital’s public stockholders, and (ii) do not include any shares of I-AM Capital common stock issuable upon exercise of I-AM Capital’s warrants or rights.
Parties to the Transaction
I-AM Capital Acquisition Company
I-AM Capital Acquisition Company (“I-AM Capital”) is a blank check company organized under the laws of the State of Delaware on April 17, 2017. I-AM Capital was formed for the purpose of effecting a merger, share exchange, asset acquisition, share purchase, reorganization or similar business combination with one or more businesses that the Company will identify, with a focus on businesses with a connection to India. I-AM Capital is an early stage and emerging growth company and, as such, I-AM Capital is subject to all of the risks associated with early stage and emerging growth companies. The Company’s sponsor is I-AM Capital Partners LLC (the “Sponsor”). I-AM Capital’s common stock, rights, and warrants are quoted on the NASDAQ Capital Market under the ticker symbols “IAM,” “IAMXR,” and “IAMXW”.
The mailing address of I-AM Capital’s principal executive office is 1345 Avenue of the Americas, 11th Floor, New York, New York 10105.
Smaaash Entertainment Private Limited
Smaaash Entertainment Private Limited (“Smaaash”) is a private limited company incorporated in the year 2009 under the laws of India. Smaaash, is an unlisted company headquartered in Mumbai India, is in the virtual reality gaming and entertainment technology business in India. The mailing address of Smaaash’s principal executive office is 2nd Floor, Trade View Building, Oasis Complex, PB Marg, Lower Parel, Mumbai – 400013, Maharashtra.
The Transaction
Pursuant to the Subscription Agreement, I-AM Capital will invest into Smaaash the funds held in the trust account, less transaction expenses and amounts used to pay I-AM Capital stockholders who properly exercise their redemption rights in connection with the vote to approve the Business Combination Proposal in exchange for equity shares of Smaaash. I-AM Capital estimates that the equity shares issued to it by Smaaash, assuming an Investment Amount of $49.0 million, will constitute up to approximately 27.53% of the issued share capital of Smaaash, provided that such percentage shall decrease proportionately depending on the number of shares redeemed by I-AM Capital’s public stockholders.
In connection with the Investment, I-AM Capital shall change its name to “Smaaash Entertainment Inc.” and it shall receive the right under the Master Distribution Agreement and the Master Franchise Agreement to become (i) the sole distributor of Smaaash games in North America and South America and (ii) the master franchisee for Smaaash centers in North America and South America. After the Transaction, I-AM Capital shall also pursue acquisitions within the active entertainment industry in the United States with the objective of facilitating the transformation of Smaaash from an India focused company to a globally recognized brand within the active entertainment industry. In connection with, and as a condition to, the Investment the Shareholders’ Agreement that I-AM Capital previously entered into, pursuant to which it will have the right to, among other things, appoint two directors and jointly consent to the appointment of three additional directors to the board of directors of Smaaash (which board may have up to 10 directors), will become effective. Copies of the Subscription Agreement, the Master Distribution Agreement, the Master Franchise Agreement and the Shareholders’ Agreement are attached to this proxy statement asAnnex A, Annex B, Annex CandAnnex D, respectively.
Redemption Rights
Pursuant to I-AM Capital’s Restated Certificate, holders of public shares may elect to have all or a portion of their shares redeemed at a per-share price, payable in cash, equal to the aggregate amount then on deposit in the trust account as of two business days prior to the consummation of the Transaction, including interest, divided by the number of then outstanding public shares, subject to the limitations described herein. As of May 31, 2018, this would have amounted to approximately $10.15 per share. If a holder exercises its redemption rights, then such holder will be exchanging its shares of I-AM Capital common stock for cash and will no longer own shares of I-AM Capital common stock. Such a holder will be entitled to receive cash for its public shares only if it properly demands redemption and delivers its shares (either physically or electronically) to I-AM Capital’s transfer agent in accordance with the procedures described herein. See the section entitled“Special Meeting of I-AM Capital — Redemption Rights” for the procedures to be followed if you wish to redeem your shares for cash. A holder who chooses to redeem its shares will not receive the Special Dividend.
Smaaash Equity Shares to be Issued in the Transaction
Under the Subscription Agreement, I-AM Capital expects to invest up to $49.0 million in Smaaash in exchange for equity shares constituting up to approximately 27.53% of the issued share capital of Smaaash, provided that such percentage shall decrease proportionately depending on the number of shares redeemed by I-AM Capital’s public stockholders.
The Smaaash Founders have also agreed that within six (6) months following table sets forth the varyingClosing Date, they shall transfer all of their ownership levelsinterest in Smaaash (representing 33.6% of the share capital of Smaaash based on a fully diluted basis as of June 22, 2018 and which will represent 24.34% of the assumptions described above but assuming varying levelsshare capital of redemption bySmaaash on a fully diluted basis immediately after the Investment) to I-AM Capital stockholders.in exchange for newly issued shares of common stock of I-AM Capital in an amount which would enable the Smaaash Founders to retain their 24.34% post-Investment ownership interest in Smaaash through their interest in I-AM Capital. You should read “Proposal No. 1 — The Business Combination Proposal” for further information.
Investment Amount (US Dollars in Millions) | $5 | $25 | $35 | $49 | |||||||||||
% of I-AM Capital Public Shares Redeemed | 90 | % | 49 | % | 29 | % | 0.00 | % | |||||||
Current Smaaash Shareholders | 96.27 | % | 85.96 | % | 80.34 | % | 72.47 | % | |||||||
I-AM Capital | 3.73 | % | 14.04 | % | 19.66 | % | 27.53 | % |
The following tables illustrate varying ownership levels of Smaaash based on the assumptions described above but assuming varying levels of investments and redemptions by I-AM Capital stockholders on the Closing Date and upon the transfer by the Smaaash Founders of their ownership in Smaaash six (6) months after the Closing Date:
On the Closing Date: | |||||||||||||||
Investment Amount (US Dollars in Millions) | $5 | $25 | $35 | $49 | |||||||||||
% of I-AM Capital Public Shares Redeemed | 90 | % | 49 | % | 29 | % | 0.00 | % | |||||||
Current Smaaash Shareholders | 96.27 | % | 83.76 | % | 78.66 | % | 72.47 | % | |||||||
I-AM Capital | 3.73 | % | 16.24 | % | 21.34 | % | 27.53 | % |
After the Transfer by the Smaaash Founders | |||||||||||||||
Investment Amount (US Dollars in Millions) | $5 | $25 | $35 | $49 | |||||||||||
% of I-AM Capital Public Shares Redeemed | 90 | % | 49 | % | 29 | % | 0.00 | % | |||||||
Current Smaaash Shareholders (Less Founders) | 71.93 | % | 59.42 | % | 54.32 | % | 48.13 | % | |||||||
I-AM Capital | 28.07 | % | 40.58 | % | 45.68 | % | 51.87 | % |
You should note that depending on the level of redemptions by the I-AM Capital stockholders, I-AM Capital may own less than 50% of the share capital of Smaaash on a fully diluted basis even after the transfer by the Smaaash Founders of all of their equity ownership to I-AM Capital.
Board of Directors of I-AM Capital Following the Transaction
Assuming all current board members up for re-election and the director nominee standing for election at the special meeting are elected, the board of directors of I-AM Capital following the Transaction will initially consist of nine members, including F. Jacob Cherian, Suhel Kanuga, Donald R. Caldwell, Roman Franklin, Max Hooper, Frank Leavy, Edward Leonard Jaroski, William H. Herrmann, Jr. and Shripal Morakhia. Messers. Caldwell, Franklin, Leavy and Jaroski will stand for re-election as their terms as directors will expire at the special meeting. Mr. Morakhia will be a nominee for election at the special meeting but will only be elected if the Business Combination Proposal is approved. See the sections entitled “Proposal No. 1 — The Business Combination Proposal”, “Proposal No. 3 — The Director Election Proposal” and“Management after the Transaction” for additional information.
Accounting Treatment
For accounting purposes I-AM Capital will treat the Transaction as an equity investment in Smaaash.
Appraisal Rights
Appraisal rights are not available to I-AM Capital stockholders in connection with the Transaction. Exercising the right to redeem I-AM Capital shares is the only remedy for a public stockholder.
Reasons for the Transaction
I-AM Capital was organized for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization, or similar business combination with one or more businesses. I-AM Capital has sought to capitalize on the substantial deal sourcing, investing and operating expertise of its management team to identify, acquire and operate a business with a connection to India, although I-AM Capital is not limited to a particular industry or sector.
In particular, I-AM Capital’s board considered the following positive factors, although not weighted or in any order of significance:
High growth company operating in highly scalable markets.Smaaash has a proven business model not only in India, but also globally. Smaaash can also grow quickly by making acquisitions globally, in addition to organic growth.
Business with multiple and diverse s potential drivers of revenue and with earnings growth potential.Smaaash’s family entertainment centers draw customers from various backgrounds and age groups, as the interactive sports and virtual reality entertainment experience, combined with food and beverage options, creates an attractive place for customers. Smaaash games are also being sold to third-party customers, creating further growth opportunities.
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Experienced and motivated management team.Smaaash’s founder is a visionary entrepreneur with a proven ability to build value for investors, and a track record of success.
I-AM Capital’s board also considered the following negative factors, although not weighted or in any order of significance:
Less than majority equity position in Smaaash.I-AM Captial will initially not acquire a majority interest in Smaaash and, as a result, may not have effective control over the operations of Smaaash.
Possibility of becoming an investment company pursuant to the Investment Company Act of 1940. Following the Transaction, I-AM Capital may become subject to the requirements of the Investment Company Act of 1940, as amended (the “Investment Company Act”), which would limit I-AM Capital’s business operations and require it to spend significant resources to comply with such act.
Increase in Losses.The increase in Smaaash’s losses from the year ended March 31, 2017 to the nine month period ended December 31, 2017 was primarily due to Smaaash incurring significant high-cost debts to fund its acquisitions. Without further injection of capital, Smaaash may not be able to effectively reduce its costs and expenses, and thereby continue to suffer losses.
Quorum and Required Vote for Proposals for the Special Meeting
A quorum of I-AM Capital stockholders is necessary to hold a valid meeting. A quorum will be present at the special meeting if a majority of the I-AM Capital common stock outstanding and entitled to vote at the special meeting is represented in person or by proxy. Abstentions will count as present for the purposes of establishing a quorum.
Under the rules of various national and regional securities exchanges your broker, bank or nominee cannot vote your shares with respect to non-discretionary matters unless you provide instructions on how to vote in accordance with the information and procedures provided to you by your broker, bank or nominee. I-AM Capital believes the proposals presented to its stockholders (other than the Auditor Ratification Proposal) will be considered non-discretionary and therefore your broker, bank or nominee cannot vote your shares without your instruction. If you do not provide instructions with your proxy, your bank, broker or other nominee may deliver a proxy card expressly indicating that it is NOT voting your shares; this indication that a bank, broker or nominee is not voting your shares is referred to as a “broker non-vote.”
The approval of the Certificate Amendment Proposal requires the affirmative vote of the holders of a majority of the outstanding shares of I-AM Capital’s common stock. The approval of each of the Business Combination Proposal, the Incentive Plan Proposal, the Auditor Ratification Proposal, and the Adjournment Proposal requires the affirmative vote of the holders of a majority of the votes cast thereon at the special meeting. The affirmative vote of a plurality of the votes cast by the stockholders present in person or represented by proxy at the special meeting and entitled to vote thereon is required for the election of directors.
Abstentions are considered present for the purposes of establishing a quorum but will have the same effect as a vote “AGAINST” the Certificate Amendment Proposal, but will have no effect on the Business Combination Proposal, the Director Election Proposal, the Incentive Plan Proposal, the Auditor Ratification Proposal, or the Adjournment Proposal. Broker non-votes will have the effect of a vote “AGAINST” the Certificate Amendment Proposal but will have no effect on the Business Combination Proposal, the Director Election Proposal, the Incentive Plan Proposal, the Auditor Ratification Proposal or the Adjournment Proposal.
The Certificate Amendment Proposal and the election of Shripal Morakhia, the director nominee, as a director are conditioned on the Business Combination Proposal. If the Business Combination Proposal is not approved, the Certificate Amendment Proposal and the election of Mr. Morakhia will have no effect, even if such proposals are approved by the requisite vote.
Recommendation to I-AM Capital Stockholders
I-AM Capital’s board of directors believes that each of the Business Combination Proposal, the Certificate Amendment Proposal, the Director Appointment Proposal, the Incentive Plan Proposal, the Auditor Ratification Proposal, and the Adjournment Proposal to be presented at the special meeting is in the best interests of I-AM Capital and its stockholders, and unanimously recommends that its stockholders, vote “FOR” each of the proposals and “FOR” the re-election of the four current directors and the election of the director nominee named in the Director Election Proposal.
When you consider the recommendation of I-AM Capital’s board of directors in favor of approval of these proposals, you should keep in mind that its directors and officers have interests in the Transaction that are different from, or in addition to, your interests as a stockholder. These interests include, among other things:
● | the appointment of F. Jacob Cherian and Suhel Kanuga, I-AM Capital’s executive officers and directors, as directors (but not officers) of Smaaash even though Mr. Cherian and Mr. Kanuga will not receive any compensation for their services as directors of Smaaash; and |
● | the continued indemnification of current directors and officers of I-AM Capital and the continuation of directors’ and officers’ liability insurance after the Transaction. |
● | unless I-AM Capital consummates an initial business combination, its officers, directors and the Sponsor will not receive reimbursement for any out-of-pocket expenses incurred by them to the extent that such expenses exceed the amount of available proceeds not deposited in the trust account; |
● | the Sponsor has agreed that the private placement units, and all of their underlying securities, will not be sold or transferred by it until I-AM Capital has completed a business combination; |
● | the Sponsor paid an aggregate of $25,000 for the founder shares and such securities will have a significantly higher value at the time of the Transaction; |
● | the Sponsor has agreed not to redeem any of the founder shares in connection with a stockholder vote to approve a proposed initial business combination; |
● | if I-AM Capital does not complete an initial business combination by August 21, 2018 (or May |
● | if the trust account is liquidated, including in the event I-AM Capital is unable to complete an initial business combination within the required time period, the Sponsor has agreed to indemnify I-AM Capital to ensure that the proceeds in the trust account are not reduced below (i) $10.15 per public share (or such higher amount then held in trust) or (ii) such lesser amount per public share held in the trust account as of the date of the liquidation of the trust account by the claims of prospective target businesses with which I-AM has entered into an acquisition agreement or claims of any third party for services rendered or products sold to I-AM Capital, but only if such a vendor or target business has not executed a waiver of any and all rights to seek access to the trust account. |
You should carefully consider the following risk factors, together with all of the other information included in this proxy statement, before you decide whether to vote or instruct your vote to be cast to approve the Business Combination Proposal.
Risks Related to Smaaash
Smaaash has significant indebtedness and the imposition of certain restrictive covenants in Smaaash debt financing arrangements may increase Smaaash’s susceptibility to interest rate fluctuations, adversely impact Smaaash’s financial condition and results of operations, as well as restrict Smaaash’s operational flexibility.
As on December 31, 2017, Smaaash’s outstanding indebtedness on a consolidated basis aggregated to $44.10 million, including $44.05 million of secured debt and $0.05 million of unsecured debt, Smaaash may incur additional indebtedness in the future.
Smaaash’s significant indebtedness and the imposition of certain restrictive covenants in Smaaash’s debt financing arrangements may increase Smaaash’s susceptibility to interest rate fluctuations, adversely impact Smaaash’s financial condition and results of operations, as well as restricting Smaaash’s operational flexibility.
The possible implications of Smaaash’s significant indebtedness may include, but are not limited to, the following:
– | a portion of Smaaash’s cash flows may be used towards repayment of Smaaash’s existing debt, which will reduce the availability of cash to fund Smaaash’s working capital requirements, capital expenditures, planned expansions or acquisitions or other strategic objectives, and general corporate purposes; |
– | Smaaash’s ability to obtain additional funding in the future at reasonable, or less restrictive, terms may be restricted; |
– | fluctuations in market interest rates may affect the cost of Smaaash’s borrowings, as Smaaash’s loans are, currently as well as typically, at variable interest rates; |
– | Smaaash’s ability to declare dividends, while any actual payments are due under the terms of Smaaash’s borrowings; |
– | Smaaash may be more vulnerable to economic downturns; |
– | Smaaash’s ability to withstand competitive pressures may be limited; |
– | Smaaash may have reduced operational flexibility in responding to business, regulatory and economic conditions and developments; and |
– | Smaaash’s requirement to obtain lenders’ consents for various activities, including, but not limited to, any change in control or ownership of Smaaash. |
Smaaash is continually expanding and so may need to continually raise capital. If Smaaash is unable to raise capital on commercially favorable terms, including due to Smaaash’s high debt-equity ratio, Smaaash’s growth trajectory might be affected.
Smaaash is in the process of expansion and may need additional capital despite the fact that it has a significant portion of debt on its books. Due, in part, to Smaaash’s significant debt there are various reasons for it not being able to raise capital on commercially favorable terms including, but not limited to (i) high to debt to equity ratio, (ii) trends in global capital and credit markets, and (iii) existing debt terms. Smaaash’s inability to maintain or obtain sufficient cash flow, credit facilities and other sources of funds, in a timely manner, or at all, to meet Smaaash’s expansion strategy requirements could adversely affect Smaaash’s growth trajectory.
The high fixed cost structure of Smaaash’s operations can result in significantly lower margins if Smaaash’s revenues should decline, which may adversely affect Smaaash’s business, financial condition, results of operations and prospects.
Smaaash’s total aggregate expenditure was $9.91 million and $18.90 million for fiscal years 2016 and 2017, respectively. A large proportion of Smaaash’s expenses are fixed expenses, including the cost of full-time employees, fixed rentals, interest costs, security and insurance, which do not vary significantly with retail traffic at Smaaash’s Centers. These expenses may continue to increase, in the aggregate, from year to year, particularly as Smaaash continue to expand its network of Centers in the future. In the event that Smaaash’s expenses increase at a faster rate than Smaaash’s revenues and if Smaaash is unable to rationalize Smaaash’s costs or realize efficiencies of scale, Smaaash may not be able to pass on such costs to Smaaash’s customers or offset its expenses. In such case, Smaaash may experience a decline in its profit margins and, in general, an adverse impact on its business, financial condition, results of operations and prospects.
Smaaash has significant capital expenditure requirements, and inability to raise adequate financing on commercially acceptable terms may limit Smaaash’s strategic initiatives and growth prospects.
Smaaash’s business is inherently capital intensive. Smaaash’s total capital expenditure was $10.99 million and $19.23 million in fiscal years 2016 and 2017, respectively. Smaaash is required to undertake capital investments on a regular basis, to introduce new games and entertainment options, or to improve existing games and entertainment options and, particularly, when Smaaash opens new Centers. In addition, Smaaash must incur expenditures to maintain and improve supporting or complementary infrastructure and services at Smaaash’s Centers, including Smaaash’s food and beverage venues, parking and other facilities. The actual amounts and timing of Smaaash’s future capital expenditure may differ from Smaaash’s estimates, from time to time, including on account of, among other things, availability of land for future expansion, interest rates, future cash flows being less than Smaaash had estimated, fluctuations in currency exchange rates or commodity prices, unforeseen delays or cost overruns on Smaaash’s part or on the part of any of Smaaash’s equipment or technology supply or other vendors or partners, technological advances, design changes, inability to obtain or delay in obtaining requisite regulatory approvals or third party consents such as from lenders or lessors or others, unanticipated expenses, delays in Smaaash’s payments from corporate customers in Smaaash’s product sales business or issues with the credit worthiness of such customers, general economic conditions, market developments and new opportunities or challenges in the industry, or in the geographies in which Smaaash operate. Smaaash’s capital expenditures and investments may rise in the future, given Smaaash’s expansion plans as well as the scope of Smaaash’s existing operations. The financing required by Smaaash for such capital expenditures and investments may not be available to it on commercially acceptable terms or at all, or Smaaash’s ability to seek additional financing in the future may be restricted due to the terms of Smaaash’s existing or future borrowings, or regulatory constraints on equity or debt capital raising, or a range of macroeconomic factors, including interest rates.
Smaaash’s inability to raise adequate financing on commercially acceptable terms, or at all, in the future may limit Smaaash’s strategic initiatives and growth prospects. In addition, there can be no assurance that Smaaash’s capital investment will yield the planned returns at any time in the future, at expected rates, or at all. In any such event, Smaaash’s business, financial condition, results of operations and prospects may be adversely affected.
Smaaash, as well as its affiliated companies, have unsecured borrowings from time to time, which may be repayable on demand, including on the occurrence of an event of default in the terms of such financing agreements. Any unexpected calls for repayment of a significant amount of such borrowings may impact Smaaash’s ability to manage its debt service obligations.
Smaaash, as well as Smaaash’s affiliates, have unsecured borrowings from time to time, which may be repayable on demand, including on the occurrence of an actual or alleged event of default. Any unexpected calls for repayment of a significant amount of such borrowings may impact Smaaash’s ability to manage its debt service obligations. Any failure to service such indebtedness or comply with any obligations under such financing agreements may cause it to incur penalty interest or may result in the termination of one or more of Smaaash’s credit facilities or acceleration or cross-acceleration of payments under such credit facilities, as well as the declaration of an event of default or cross-default, which may adversely affect Smaaash’s business, financial condition, results of operation and prospects.
Smaaash’s operations are significantly dependent on changes in public and customer tastes and discretionary spending patterns. Smaaash’s inability to successfully anticipate customer preferences or to gain popularity for Smaaash’s games may negatively impact Smaaash’s profitability.
Smaaash’s success depends significantly on public and customer tastes and preferences, which can be unpredictable. If Smaaash is unable to successfully anticipate customer preferences or increase the popularity of its games, the per capita revenue and overall customer expenditures at Smaaash’s Centers may decrease, and thereby negatively impact Smaaash’s profitability. In response to such developments, Smaaash may need to increase its marketing and product development efforts and expenditures, adjust its game or product sale pricing, modify the games themselves, or take other actions, which may further erode Smaaash’s profit margins, or otherwise adversely affect Smaaash’s results of operations and financial condition. In particular, Smaaash may need to expend considerable cost and effort in carrying out extensive research and development to assess the potential interest in a game, testing and launching new games, and to remain abreast with continually evolving technology and trends, as well as the success and popularity of the sports icons, athletes and celebrities who act as Smaaash’s brand ambassadors or as part of the themes or simulation models for certain of Smaaash’s games.
While Smaaash may incur significant expenditures of this nature, including in the future as Smaaash continues to expand Smaaash’s operations, there can be no assurance that any such expenditures or investments by it will yield expected or commensurate returns or results, within a reasonable or anticipated time, or at all. Among other things, although one of the factors on which Smaaash compete is Smaaash’s ability to continually launch new games or embrace new technology, Smaaash may also face the converse challenge of introducing new games or new technology to Smaaash’s customers through a user-friendly, intuitive, or attractive interface. For instance, Smaaash may face challenges in introducing new technology or games to customers who are not familiar with such new technology platforms or interfaces, or do not find such technology, platforms or interfaces convenient to use or easy to grasp. Moreover, there may be resistance to or a lack of enthusiastic customer response for Smaaash’s games, for instance, because of actual or perceived concerns that customers may not enjoy, or may encounter difficulties, or even suffer injuries or motion sickness, when playing Smaaash’s games, including Smaaash’s active games and interactive sports simulators and Smaaash’s Augmented Reality (“AR”) and Virtual Reality (“VR”) games, or the perception that immersive single-player VR games can cause feeling of isolation to the extent that they do not allow a multi-player interaction. Any such factors could adversely affect Smaaash’s business, financial condition, results of operations and prospects.
The nature of Smaaash’s business exposes it to negative publicity or customer complaints, including in relation to, among other things, accidents, injuries or thefts at Smaaash’s Centers, or health and safety concerns arising from improper use of Smaaash’s game equipment or at Smaaash’s food and beverage venues.
Smaaash’s business inherently exposes it to negative publicity or customer complaints as a result of accidents, injuries, or in extreme cases, deaths, arising from instances of air-borne, water-borne or food-borne contagion or illness, food contamination, spoilage, tampering, equipment failure, improper use of Smaaash’s equipment, fire, explosion, terrorist attacks or civil riots, and other safety or security issues, such as kidnapping, or associated risks arising from other actual or perceived non-compliance with safety, quality or service standards or norms in relation to the various game, entertainment and food and beverage attractions at Smaaash’s Centers. Even isolated or sporadic incidents or accidents may have a negative impact on Smaaash’s brand image and reputation, and Smaaash’s Centers’ or games’ or Smaaash’s own popularity with customers. The considerable expansion of social media in recent years has compounded the effect of any potential negative publicity.
Smaaash cannot guarantee that its employee training, internal controls and other precautions will be sufficient to prevent any such occurrence at Smaaash’s Centers, or in relation to the games developed by it for third party sales, or to control or mitigate any negative consequences. In addition, Smaaash relies on third-party security and housekeeping staff for certain non-core functions, as well as certain technology vendors and partners. Although Smaaash monitors vendors and partners and, in certain cases, may have a contractual indemnity or recourse in case of any default on their part, Smaaash’s ability to assure a safe and satisfactory experience to Smaaash’s customers is necessarily limited to the extent of Smaaash’s dependence on third parties, from time to time. Moreover, Smaaash may not be able to distance or insulate ourselves from any adverse publicity or reputational damage arising from any act, omission or negligence on the part of a vendor or other third party, which may negatively affect a customer’s experience at any of Smaaash’s Centers.
Smaaash’s business and operations are subject to various risks relating to the acquisitions of target companies. Smaaash’s inability to complete and successfully integrate the future acquisition targets may affect Smaaash’s growth strategy, market share, profitability or competitive position.
Smaaash’s plans to expand through future acquisitions of companies along with organic growth. There can be no assurance that Smaaash will be able to successfully integrate the acquired businesses into its existing operations as planned. Smaaash may be adversely impacted by liabilities that it assumes from these acquisitions, including known and unknown obligations, intellectual property or other assets, terminated employees, current or former clients, or other third parties, and it may fail to identify or adequately assess the magnitude of certain liabilities, shortcomings or other circumstances prior to the acquisitions, which could result in unexpected legal or regulatory exposure, unfavorable accounting treatment, unexpected increases in taxes, or other adverse effects on its business.
Smaaash has a relatively limited operating history and may not be able to sustain Smaaash’s growth levels in the future.
Smaaash commenced commercial operations at Smaaash’s first Center in Mumbai in November 2012, and all of Smaaash’s other Centers have commenced commercial operations within the last three fiscal years. Smaaash’s first international Center, in the Mall of America, in Minnesota, U.S.A. was opened in December 2016. Consequently, Smaaash currently has relatively limited operating experience, particularly, overseas, and may encounter challenges in further expansion, including its proposed overseas expansion.
Consequently, it may be difficult to evaluate Smaaash’s past performance and prospects. For instance, Smaaash’s consolidated revenue increased from $8.65 million in fiscal year 2016 to $18.06 million in fiscal year 2017. Smaaash may not be able to sustain such growth rates in the future, and may not be able to leverage its experience in its existing markets in order to grow Smaaash’s business in new markets.
Smaaash’s growth strategy to expand within India and in international markets exposes it to certain execution and other risks, which may adversely impact Smaaash’s business, financial condition, results of operations and prospects.
Smaaash’s growth strategy includes, expanding its network of Centers in India and overseas, growing Smaaash’s array of games and other attractions, increasing Smaaash’s product sales within India and in international markets, enhancing Smaaash’s marketing initiatives and brand value, and also increasing Smaaash’s sponsorship and other businesses. In pursuing Smaaash’s growth strategy, Smaaash may be exposed to several risks and uncertainties, including, but not limited to the following:
– | acquiring new customers, or encouraging repeat business; |
– | challenges caused by distance, language and cultural differences, its lack of familiarity and understanding of the local economic conditions, demographics, differences in legal and regulatory jurisdictions and policy frameworks and customer preferences and trends; |
– | making accurate assessments of the additional financing, technology, |
– | adhering to expected quality and service parameters and satisfying Smaaash’s customers across Smaaash’s expanded operations; |
– | difficulties in managing and staffing expanded operations and maintaining Smaaash’s values and culture as well as internal controls, as well as increasing costs of human resources due to wage inflation or increased human resource requirements across different and expanded locations, differences in general employment conditions and the degree of employee unionization and activism; |
– | obtaining and complying with the terms of local or additional regulatory approvals, registrations and certifications, or the imposition of governmental controls and changes in laws, regulations or policies; |
– | exchange rate fluctuations, currency devaluations and other conversion restrictions; |
– | local restrictions on foreign investment and limits on the repatriation of funds; |
– | local financial, political and economic instability; |
– | potentially adverse tax consequences; |
– | higher costs associated with doing business internationally; |
– | developing and upgrading Smaaash’s administrative and operating infrastructure, including Smaaash’s technology, accounting, communications and other systems, and managing strain on existing management attention and resources; and |
– | diminished ability to legally enforce Smaaash’s contractual rights overseas. |
Smaaash’s inability to effectively pursue Smaaash’s growth strategy or manage Smaaash’s expanded operations, may lead to operational and financial inefficiencies, which may have an adverse effect on Smaaash’s business, financial condition, results of operations, prospects and reputation.
Smaaash’s registered and corporate office and the premises at which Smaaash’s Centers are located are leased. Smaaash’s inability to renew such leases on commercially acceptable terms, or at all, may adversely impact Smaaash’s operations.
Smaaash’s registered and corporate office is situated at 2nd Floor, Trade View Building, Oasis Complex, Kamala Mills, Gate No. 4, Pandurang Budhkar Marg, Lower Parel, Mumbai 400 013, within Smaaash’s flagship Mumbai Center premises. These premises are currently leased for a five year term which terminates on July 31, 2020.
In addition, the premises at which Smaaash’s Centers are located are all either leased or licensed from various parties (including third parties as well as, in some cases, related parties), for varying terms, generally for an initial period ranging between three, five, twelve and twenty years, and in certain cases are automatically renewable for further terms.
Smaaash has also entered into revenue sharing arrangements with the property developers for several of Smaaash’s Centers in India. Under such revenue sharing arrangements with property developers, Smaaash typically pays monthly rent at a fixed percentage of the monthly net retail sales amount (which is generally reset to a higher percentage after the completion of a specified initial duration within the rental period) or, in certain cases, either a monthly minimum guaranteed amount, or a fixed percentage of the monthly net retail sales amount (which is reset to a higher percentage after the completion of a specified initial duration within the rental period), whichever is higher. Certain of these rental and revenue sharing arrangements are subject to lock-up periods, during which time, Smaaash cannot terminate these arrangements early without payment of the agreed rent for the entire lock-up period. After the lapse of the lock-in period, Smaaash may terminate the arrangements with prior notice. In contrast, the licensors can typically terminate the arrangements at any time, with prior notice, with or without cause.
In the event of any early termination by a licensor or rent escalation or any other difficulties arising in Smaaash’s arrangements with Smaaash’s lessors, Smaaash’s operations may be disrupted, or Smaaash may incur substantially increased costs in order to continue or renew Smaaash’s rental arrangements, or to make alternative arrangements in order to continue Smaaash’s operations, at one or more of Smaaash’s Centers, or Smaaash may be required to relocate Smaaash’s operations elsewhere, in the event Smaaash is unable to conclude Smaaash’s negotiations with any of Smaaash’s lessors in a timely manner and at a commercially viable cost.
Smaaash’s operations are subject to various national, state and local laws and regulations, including in relation to commercial operations, food safety and hygiene, liquor licensing, the protection of the environment, and occupational health and safety, which may limit Smaaash’s operational flexibility, or subject it to significant compliance costs, which may, in turn, adversely affect Smaaash’s financial condition.
Smaaash’s operations are subject to various national, state and local laws and regulations, including in relation to commercial operations, food safety and hygiene, liquor licensing, the protection of the environment, and occupational health and safety. While Smaaash, to its knowledge, is currently compliant with applicable laws in all respects known to it, Smaaash cannot be certain of the applicability, interpretation or implementation of all laws and policies. For instance, in the event that it is alleged or established that games and entertainment options at Smaaash’s Centers could be considered “gambling”, “betting”, or “wagering”, or the operation of a “casino”, or “lottery”, which activities are currently not legal across India, it may subject Smaaash to some form of regulatory taxation, licensing or approval that Smaaash does not already possess, or the prizes or discounts or other incentives awarded by it to the winners of skill-based or other games at Smaaash’s Centers may be taxable or require some form of regulatory licensing or approval that Smaaash does not already possess, in which case Smaaash’s operations could be adversely affected or disrupted, or Smaaash may be subject to penalty. If any such licenses or approvals are required there can be no assurance that the relevant authorities will issue or, where required, renew such approvals or registrations in the timeframes anticipated by it. Failure by it to obtain, maintain or renew the required approvals or registrations may result in the interruption of Smaaash’s operations and may have an adverse effect on Smaaash’s business, financial condition, results of operations and prospects. Additionally, Smaaash is required to adhere to certain terms and conditions provided under the statutory and regulatory approvals and registrations, in terms of which Smaaash operates, which may require it to undertake substantial compliance-related expenditures.
Any actual or alleged breach or non-compliance with specified conditions may result in the suspension, withdrawal or termination of Smaaash’s approvals and registrations or the imposition of penalties by the relevant authorities. While Smaaash is not currently aware of any such outstanding material claims or obligations, Smaaash may incur substantial costs, including clean up or remediation costs, fines and civil or criminal sanctions, and personal injury claims, as a result of violations of or liabilities under environmental or health and safety laws or noncompliance with permits required at Smaaash’s Centers, which, as a result, may have an adverse effect on Smaaash’s business and prospects. In addition, as Smaaash expanding into newer geographical markets, Smaaash may be required to comply with various environmental and health and safety laws and regulations within such jurisdictions. Further, any change in or expansion of the scope of the regulations governing Smaaash’s operations, would likely involve substantial additional costs, including costs relating to maintenance and inspection, development and implementation of emergency procedures and insurance coverage or other additional costs to address environmental incidents or external threats. Smaaash’s inability to control the costs involved in complying with these and other relevant laws and regulations
Smaaash depends significantly on its brand recognition and reputation. The ineffectiveness of Smaaash’s brand building, marketing and advertising initiatives, or failure on Smaaash’s part to enhance Smaaash’s brand image in the future, may adversely impact Smaaash’s product sales, sponsorship revenue and other revenues.
Smaaash believes that the recognition and reputation of its brand and associated marks, among customers of all ages, genders and backgrounds have contributed significantly to the growth and success of Smaaash’s business. Maintaining and enhancing the recognition and reputation of these brands and marks are, therefore, critical to Smaaash’s business and competitiveness. Smaaash’s brand investment and marketing and promotional activities may not be effective with customers, or may not yield commensurate returns on Smaaash’s investment. In particular, as Smaaash expands into new geographic or international markets, customers in these markets may not recognize or accept Smaaash’s brand and products, as well as Smaaash’s customers in existing markets have, in Smaaash’s past. Smaaash also anticipates that, as Smaaash’s business expands into new markets and as the market becomes increasingly competitive, maintaining and enhancing Smaaash’s brands may become increasingly difficult and expensive.
If Smaaash fails to enhance Smaaash’s brand recognition, reputation and positive awareness of its Centers and the products Smaaash sells to third parties, it may be difficult for it to grow Smaaash’s game, product sales, sponsorship and other revenues and customer bases. Further, the customers that visit Smaaash’s Centers, or that purchase game equipment and equipment sold by its directly or through Smaaash’s distributors, would typically expect a high level of quality and satisfaction from Smaaash’s games. Smaaash’s customers’ expectations may be subjective, going beyond technical specifications and internal factors within Smaaash’s control. Smaaash’s failure to deliver on such expectations may adversely impact Smaaash’s brand image, reputation, business, financial condition, results of operations and prospects.
Smaaash incurs significant raw material costs, including import costs, and does not have long term purchase contracts with its vendors, as Smaaash typically relies on purchase orders. As a result, Smaaash may be susceptible to pricing pressures or disruptions in its relationships with its vendors, which may negatively impact Smaaash’s operations.
Smaaash’s cost of raw materials accounted for 20% of Smaaash’s total expenditure, during fiscal year 2017. As Smaaash incurs significant raw material costs, including import costs, and does not have long term purchase contracts with Smaaash’s vendors, as it typically relies on purchase orders, Smaaash may be susceptible to pricing pressures or disruptions in Smaaash’s relationships with Smaaash’s vendors, which may negatively impact Smaaash’s operations. Particularly, as Smaaash intends to expand the scale of Smaaash’s operations, Smaaash’s reliance on third party suppliers of various raw materials, products and services may rise. In addition, there may be limited alternate suppliers for certain of Smaaash’s equipment and raw material purchases. If Smaaash is unable to source equipment and raw materials meeting required specifications, in sufficient quantities, at the required time, at commercially acceptable costs, or at all, Smaaash’s business, financial condition, results of operations and prospects may be adversely affected, particularly to the extent Smaaash is unable to pass on increased costs to Smaaash’s customers.
Smaaash is a company with global operations, and is subject to the risks and uncertainties of conducting business outside India.
Smaaash conducts its business across emerging markets such as India, Middle East, Africa, South East Asia and Latin America, and derives a substantial amount of its revenues and profits from international sales, particularly from Africa and South East Asia. During the fiscal year 2017, and during the nine-month period ended December 31, 2017, Smaaash’s international operations contributed 24% and 18%, respectively, to Smaaash’s total revenue from operations including product sales. The markets in which Smaaash operates are diverse and fragmented, with varying levels of economic and infrastructure development and distinct legal and regulatory systems, and do not operate seamlessly across borders as a single or common market. Smaaash may require considerable management attention and resources for managing Smaaash’s growing business across these emerging markets. Going forward, Smaaash anticipates that international sales will continue to account for a significant portion of Smaaash’s total revenues and profits and moreover that sales in emerging markets in Asia, Africa and elsewhere will be an increasingly important part of Smaaash’s international sales. Further, Smaaash plans to continue the expansion of its game offerings to various other jurisdictions, where Smaaash has limited or no experience in marketing, developing and deploying Smaaash’s games. Therefore, Smaaash may be subject to risks inherent in doing business in countries other than India, including:
– | challenges caused by distance, language and cultural differences; |
– | providing content and services that appeal to the tastes and preferences of users in multiple markets; |
– | protectionist laws and business practices; |
– | complex local tax regimes; |
– | higher costs associated with doing business in multiple markets; |
– | risks related to the legal and regulatory environment in non-Indian jurisdictions, including with respect to privacy and data, or in relation to taxation or repatriation of Smaaash’s revenues or profits from foreign jurisdictions to India; |
– | security, and unexpected changes in laws, regulatory requirements and enforcement; |
– | burdens of complying with a variety of foreign laws in multiple jurisdictions; |
– | potential damage to Smaaash’s brand and reputation due to compliance with local laws, including requirements to provide player information to local authorities; |
– | fluctuations in currency exchange rates; |
– | political, social or economic instability; and |
– | the potential need to recruit and work through local partners; |
– | reduced protection for or increased violations of intellectual property rights in some countries. |
Further, a number of agreements executed by Smaaash and by Smaaash’s subsidiaries, are governed by laws other than Indian law. In the event of a dispute under such agreements, Smaaash may not be able to successfully defend its position, and any adverse decision may adversely impact its financial position, results of operations and cash flows. If Smaaash is unable to manage its global operations successfully, Smaaash’s financial results could be adversely affected, which may impact profit margins or make it increasingly difficult for it to conduct business in foreign markets.
Smaaash’s failure to keep pace with rapidly evolving technology may adversely impact Smaaash’s business, results of operations and prospects.
Smaaash’s future success will depend in large part on Smaaash’s ability to respond to technological advances and to emerging industry standards and practices, in a cost-effective and timely manner. The manufacture and sale of game equipment and components in general, and AR or VR games, in particular, is characterized by rapid and disruptive evolution and obsolescence, including as a result of trial and error. The development and implementation of technology and systems integration by it may entail significant technical and business risks. There can be no assurance that Smaaash will successfully implement new technologies or integrate different systems or platforms effectively, or that Smaaash will adapt its existing technology and systems to meet continually evolving customer expectations or preferences, or emerging industry standards and trends. Technology updates may result in significant costs.
Certain aspects of technological change may require constant testing and enhancement, for instance, the sensitivity and responsiveness of the display, sensors or controls of a game, or the associated hardware or software systems. For instance, over time, bulky headsets and consoles for VR games have given away to more convenient, user-friendly and sophisticated VR game systems with wearable devices, and earlier prototypes and models of several other kinds of game equipment and components that used to have basic functions and several limitations have increasingly been replaced by newer and lighter models with higher performance or functionality, including enhanced models that allow richer simulations or more realistic and, thus, immersive game experiences, or more efficient operation.
However, at times, what Smaaash considers to be a promising or transformative technological advance may not be attractive to Smaaash’s customers, or compatible with other systems that Smaaash has previously deployed, and Smaaash’s investment in such technology may not necessarily yield the expected returns within the estimated time, or at all. As a result of these and other factors, Smaaash would need to exercise constant vigilance to assess changing trends and customer response, and to devote financial, management and other resources towards adapting appropriately to such changes. If Smaaash is unable, for technical, legal, financial or other reasons, to adapt in a timely manner to technological changes, Smaaash’s business, future financial performance could be adversely affected.
Any future risks arising from any joint ventures or acquisitions or other strategic business alliances or initiatives could adversely impact Smaaash’s operations.
As a part of Smaaash’s business strategy, Smaaash intends to explore opportunities for overseas expansion, including through joint ventures or acquisitions. Similarly, Smaaash may engage in corporate reorganizations, where there are operational benefits expected to arise from such initiatives and opportunities.
Smaaash has entered, and may enter into, discussions regarding a wide array of potential strategic transactions, including corporate reorganization, acquisitions, investments, joint ventures or other business collaborations, divestments, or continuing operations following such strategic transactions.
The risks that Smaaash may face in connection with these transactions may include the following:
– | Smaaash’s management and employees may lose focus due to transition or integration activities; |
– | Smaaash may not successfully identify appropriate targets and opportunities; |
– | if Smaaash does identify suitable targets and opportunities, Smaaash may not be able to complete those transactions on terms commercially acceptable to it or at all; |
– | Smaaash may not be able to achieve the strategic purpose and generate expected returns from such strategic transactions; |
– | Smaaash’s due diligence process may fail to identify all the problems, liabilities or other shortcomings or challenges in respect of a proposed strategic transaction; |
– | Smaaash may have higher than anticipated costs in continuing operations following a strategic transaction; |
– | Smaaash may face cultural challenges associated with integrating employees from the acquired company into Smaaash’s organization; |
– | Smaaash’s relationship with current and new employees, customers, partners and distributors could be impaired; |
– | there may be unknown liabilities or issues that could have an adverse effect on Smaaash’s financial condition and results of operation; |
– | Smaaash may face litigation or other claims in connection with, or may inherit claims or litigation as a result of a strategic transaction, including claims from terminated employees, customers, or other third parties; and |
– | Smaaash may have problems extending and upgrading Smaaash’s accounting, management information, human resource and other administrative systems following such strategic transaction. |
If any of the foregoing risks materialize, they could have an adverse effect on Smaaash’s business, financial condition, results of operations and prospects. Moreover, acquisitions, mergers and consolidations at times require prior approval of the anti-trust regulator in the relevant jurisdiction. For example, in India, acquisitions, mergers and consolidations that exceed certain revenue and asset thresholds require prior approval of the Competition Commission of India (“CCI”). Any acquisitions, mergers or consolidations that have an appreciable adverse effect on competition in India may be subject to remedial measures proposed by the CCI. Smaaash cannot assure you that Smaaash will be able to obtain approval for any such future transactions on satisfactory terms, or at all.
If Smaaash is unable to retain key members of Smaaash’s senior management, or if Smaaash is unable to continue attracting and retaining talented personnel of the appropriate level and background, Smaaash’s business and prospects may be adversely affected.
Among other factors, Smaaash’s sustained growth depends on the continued involvement of members of Smaaash’s core management team. Smaaash has a young and dynamic and professionally skilled management team, various members of which have contributed to Smaaash’s track record of growth. In addition, from time to time, Smaaash actively recruits professionally qualified individuals with a professional and educational background that Smaaash considers appropriate to a business of Smaaash’s size and nature. Typically, the terms of employment with individuals would include a variable pay component linked to their performance during their engagement with Smaaash and generally evaluated on at least an annual basis.
There is no assurance that Smaaash will be able to continue its successful hiring of talented and key personnel as well as managing attrition and maintaining good employee relations in the future. Smaaash may incur significant costs in implementing Smaaash’s strategies towards retaining members of Smaaash’s core management team and motivating and training Smaaash’s employee base in general. Managing attrition in the future may divert significant management attention. Smaaash’s failure to attract new personnel of sufficient skill and experience, or to retain any or sufficient numbers of key individuals, or to avoid, mitigate or otherwise manage attrition or any future labor-related or industrial dispute or demonstration or deterioration in relations with Smaaash’s employees individually or collectively, may adversely affect Smaaash’s business, financial condition, results of operations and prospects.
Smaaash does not have single-entry tickets and has not fully automated its ticketing system. As a result, Smaaash’s ability to accurately determine retail traffic or customer numbers may be limited or subject to error.
Smaaash does not offer single-entry tickets to any of its Centers and it has not fully automated its ticketing system. As a result, visitors to Smaaash’s Centers must generally purchase separate tickets to enjoy the game attractions. In addition, Smaaash’s loyalty cards, are not uniquely tagged and electronically monitored, so Smaaash’s ability to determine the number of unique customers, or repeat customers, is currently limited, and may be subject to error, which may adversely affect Smaaash’s results of operations.
If Smaaash is required to rely significantly on third party game developers or vendors in the future, Smaaash may be required to incur significant license and royalty costs, which may impact Smaaash’s profitability and prospects.
Smaaash’s in-house R&D and value engineering capability supports Smaaash’s game business as well as Smaaash’s product sales business. While Smaaash is not currently heavily reliant on any single technology partner or vendor, there can be no assurance that Smaaash will not become reliant on external technology partners or vendors in the future. In the event that Smaaash is required, in the future, to rely on third party game developers or other technology partners or vendors, Smaaash may be required to incur significant license and royalty costs, which may impact Smaaash’s profitability and prospects.
Moreover, in the absence of long term vendor contracts, or regardless of the existence of any such long term vendor contracts, Smaaash may not be able to negotiate fixed cost procurements and, therefore, may be susceptible to periodic, or erratic price escalations, regardless of Smaaash’s own technical or other specifications and budgetary and other expectations. In such events, Smaaash cannot be assured of Smaaash’s ability to continue to procure equipment and component from the same reputed and trusted vendors in the future, as Smaaash may be required to make alternative arrangements for equipment and component supplies at lower cost, more flexible terms, or otherwise. Further, in such situations, in certain cases, Smaaash may incur losses due to acts, omissions or negligence of a vendor or partner, where Smaaash cannot seek or enforce sufficient warranty, indemnity, liquidated damages, penalties or other forms of recompense, mitigation or support.
As a consequence of any such factors, Smaaash’s business, financial condition, results of operations and prospects may be adversely affected.
Any future allegation of intellectual property rights infringement by Smaaash, or its failure to protect and defend its own intellectual property rights may adversely affect Smaaash’s business and prospects.
Smaaash is significantly dependent on Smaaash’s in-house developed games, components and technology for its business. Smaaash’s general policy is to seek intellectual property protection for those innovations and improvements that Smaaash considers likely to be incorporated into Smaaash’s business or to give it a competitive advantage. Moreover, when Smaaash conducts product sales to third parties, Smaaash retains Smaaash’s intellectual property rights as a matter of practice and policy. In this relation, Smaaash relies on a variety of website domain names, trademark registrations and other proprietary information, as well as confidentiality agreements or arrangements with Smaaash’s employees and consultants or other third parties to protect Smaaash’s intellectual property rights. For instance, Smaaash’s corporate trade name and logo, were assigned to it by Star India Private Limited (“Star India”) pursuant to a deed of perpetual assignment dated effective as of November 30, 2013. Under this deed, Smaaash has perpetual rights to use 30 trademarks for the SMAAASH device and word mark, in various classes, throughout the territory of India, for which registration applications have been filed with the Indian Trademark Registry. Further, under this deed of assignment, Star India has confirmed that it has no right or claims to such trademark outside the territory of India. In addition, Smaaash has applied for 219 trademarks, in various classes. Should there be any claim regarding Smaaash’s right to use such trademarks, including during the period the above-mentioned registration applications remain pending with the Trademark Registry, Smaaash’s business and prospects may be adversely affected.
In addition, Smaaash may not be able to detect any unauthorized use or to take appropriate and timely steps to enforce or protect Smaaash’s intellectual property rights, trade secrets, or other confidential information, which may adversely affect Smaaash’s business, financial condition, results of operations and prospects. Any protective agreements and arrangements or measures taken by it may not sufficiently protect Smaaash’s intellectual property rights, including Smaaash’s trade secrets, and confidential information. In the event any of Smaaash’s employees or consultants or vendors or partners or customers, during or after their association with Smaaash’s Company, disclose crucial information regarding Smaaash’s intellectual property rights, trade secrets or other confidential information to Smaaash’s competitors, directly or indirectly, Smaaash may be required to resort to litigation or other proceedings to enforce, protect or determine the validity and scope of Smaaash’s intellectual property rights and to defend against third party infringement. Further, Smaaash may be subject to allegations or adverse publicity regarding violation of third party intellectual property rights. Involvement in any such proceedings or adverse publicity could divert management time and attention, and consume financial resources. Any intellectual property rights infringement claims that Smaaash may be required to initiate or defend may not be settled favorably, or within a reasonable time, or at all, or that no additional liability will arise out of these proceedings. An adverse outcome in any of these proceedings could have an adverse effect on Smaaash’s business, financial condition, results of operations, prospects and reputation.
Smaaash relies on distributors for Smaaash’s third party sales and does not have exclusive or long term arrangements with such distributors. As a result, Smaaash’s ability to expand its product sales or have visibility over future or repeat orders may be limited, or Smaaash may be susceptible to disruptions in its relationships with its distributors, which may negatively impact Smaaash’s operations.
As Smaaash relies on distributors for Smaaash’s third party sales and does not have exclusive or long term arrangements with such distributors, Smaaash’s ability to expand Smaaash’s product sales or have visibility over future or repeat orders may be limited, or Smaaash may be susceptible to disruptions in its relationships with its distributors, which may negatively impact Smaaash’s operations. If Smaaash’s distributor agreements are terminated or not renewed or replaced in a timely manner, this may result in a disruption of Smaaash’s operations. In particular, the loss of business from any significant distributors. Smaaash’s future product sales business growth may also depend on Smaaash’s ability to attract additional dealerships and widen Smaaash’s distributor network. There can be no assurance that Smaaash’s distributors will continue to do business with it or that Smaaash can attract additional distributors to Smaaash’s network. In addition, Smaaash’s distributors could change their business practices, or seek to modify their payment terms, which could negatively impact Smaaash’s business, financial condition, results of operations and prospects.
If Smaaash’s relationship with Shripal Morakhia, its founder, is disrupted in any way, Smaaash’s business and prospects may be adversely affected.
Shripal Morakhia, the founder of Smaaash, is an entrepreneur associated in the past with Sharekhan, SSKI and YoBoHo. Among other things, Smaaash benefits from Mr. Morakhia’s vision, strategic guidance, years of entrepreneurial and managerial experience, and his relationships in the industry. If Mr. Morakhia is unable or unwilling for any reason to continue his present association with Smaaash, or to devote as much time to Smaaash’s operations as he has in the past, or if he is required to take a prolonged leave of absence for any reason, Smaaash may not able to replace him easily, or at all. In particular, as Smaaash grows in the future, including internationally, it may be challenging for Mr. Morakhia to continue to devote as much time and attention to Smaaash’s operations in person, as he has in the past. As a result of any such factors, Smaaash’s business, financial condition, results of operations and prospects and, particularly, Smaaash’s brand value, reputation and expansion strategy, may be adversely affected.
The nature of Smaaash’s business renders it susceptible to financial misappropriation, theft, negligence or similar activities or incidents on the part of Smaaash’s employees, which may adversely impact Smaaash’s operations, reputation and prospects.
Smaaash’s business is susceptible to acts of fraud, financial misappropriation, theft, negligence or other misconduct committed by Smaaash’s employees. Fraudulent and unauthorized conduct by Smaaash’s employees could also include binding it to transactions that exceed authorized limits or present unacceptable risks or concealing unauthorized or unlawful activities from it. Employee misconduct could also involve the improper use or disclosure of confidential information pertaining to it or to third parties such as equipment or technology vendors or partners, which could result in regulatory sanctions, legal or other proceedings and serious reputational or financial harm. It is not always possible to deter fraud or misconduct by employees and the precautions Smaaash take and the systems Smaaash has put in place to prevent and deter such activities may not be effective in all cases. Even isolated or sporadic incidents or accidents may have a negative impact on Smaaash’s brand image and reputation, as well as Smaaash’s business, financial condition, results of operation and prospects.
Smaaash has entered, and may continue to enter, into certain related party transactions. There can be no assurance that Smaaash could not have achieved more favorable terms, if such transactions had not been entered into with related parties, or that Smaaash will be able to maintain existing terms in the future, where the terms are or may be more favorable than if the transactions had not been entered into with related parties.
Smaaash has entered into various transactions with related parties. While Smaaash believes that all such transactions have been conducted on an arm’s length basis and contain commercially reasonable terms, Smaaash may have been able to achieve more favorable terms had such transactions been entered into with unrelated parties. It is also likely that Smaaash may enter into related party transactions in the future. Although all material related party transactions that Smaaash may enter into, will be subject to board or shareholder approval, as necessary under the Companies Act 2013, there can be no assurance that such transactions, individually or in the aggregate, will not have an adverse effect on Smaaash’s financial condition and results of operations or that Smaaash could not have achieved more favorable terms if such transactions had not been entered into with related parties. Such related party transactions may potentially involve conflicts of interest.
Such transactions, individually or in the aggregate, may not always be in the best interests of Smaaash’s minority shareholders and will not have an adverse effect on Smaaash’s business, results of operations, financial condition and cash flows
Smaaash’s financial results for any fiscal quarter, particularly during the first and third fiscal quarters of any given fiscal year, when Smaaash typically experiences increased revenues, may not be indicative of results achieved or achievable in any other or future period.
Smaaash does not consider its business to be generally seasonal in nature, as Smaaash’s Centers offer mostly indoor games and entertainment and food and beverage options. Unlike companies that operate outdoor water parks, theme parks or amusement parks, Smaaash does not expect to experience extreme fluctuations in the number of visitors or time spent or expenditure per capita at any of Smaaash’s Centers, on account of weather conditions such as high heat, bitter cold or heavy monsoons and other extreme weather. However, Smaaash typically experiences, or would expect to experience, increased revenues during the first fiscal quarter ending June 30 and third fiscal quarter ending December 31 of any given fiscal year, including as a result of school summer and winter vacations in India, resulting in higher numbers of families with children being able to visit Smaaash’s Centers. Similar temporary effects may be seen as a result of public holidays, long weekends, or other factors that may cause quarterly or monthly fluctuations in Smaaash’s results.
Consequently, Smaaash’s financial results for any given fiscal quarter or period may not be indicative of results achieved or achievable in any other or future fiscal quarter or period, or Smaaash’s annualized results for any given fiscal quarter or period may not be indicative of Smaaash’s actual results for the entire fiscal year.
Smaaash’s insurance coverage may not adequately protect it against all future risks, which may adversely affect Smaaash’s business and prospects.
Smaaash maintains insurance coverage, including for fire, acts of god and perils, terrorism, burglary, money, loss of profit, fidelity guarantee, fixed glass and sanitary fitting, electronic equipment, machinery breakdown, portable equipment, sign boards, commercial general liability, marine transit, and directors’ and officers’ liability insurance, as well as employee health and medical insurance, with standard exclusions in each instance. While Smaaash maintains insurance in amounts that Smaaash considers reasonably sufficient for a business of Smaaash’s nature and scale, with insurers that Smaaash consider reliable and credit worthy, Smaaash may face losses and liabilities that are uninsurable by their nature, or that are not covered, fully or at all, under Smaaash’s existing insurance policies. Moreover, coverage under such insurance policies would generally be subject to certain standard or negotiated exclusions or qualifications and, therefore, any future insurance claims by it may not be honored by Smaaash’s insurers in full, or at all. In addition, Smaaash’s premium payments under Smaaash’s insurance policies may require a significant investment by it.
To the extent that Smaaash suffers loss or damage for which it did not obtain insurance, that is not covered by insurance or that exceeds Smaaash’s insurance coverage, the loss will have to be borne by it and Smaaash’s business, cash flow, financial condition, results of operations and prospects may be adversely affected.
Failure of, or disruption in, Smaaash’s information technology systems may adversely impact Smaaash’s business, reputation and prospects.
Smaaash relies on Smaaash’s information technology systems to provide it with connectivity and control across Smaaash’s business functions, through Smaaash’s software, hardware and network systems. Smaaash has also deployed what Smaaash consider to be adequate data backup and retrieval mechanisms. However, any major or sustained failure in Smaaash’s information technology systems or loss of connectivity or loss of data arising from such failure, including due to power outage, human error, hacking, espionage or sabotage, could disrupt Smaaash’s ability to track, record and analyses Smaaash’s work in progress, process financial information, manage creditors or debtors, or vendors or partners, or otherwise engage in normal business activities, which could have an adverse effect on Smaaash’s operations.
Smaaash relies on certain data from third parties in this proxy statement.
Smaaash relies on third party data including data from the GoI and industry publications for the information provided in this proxy. Such data may also be produced on a different basis from comparable information compiled with regard to other countries. Therefore, discussions of matters relating to India, its economy or the game industry herein are subject to the caveat that the statistical and other data upon which such discussions are based may be incomplete or unreliable. These facts and other statistics include the facts and statistics included in “Industry and Market Data” and “Industry Overview”". Due to possibly flawed or ineffective data collection methods or discrepancies between published information and market practice and other problems, the statistics herein may be inaccurate or may not be comparable to statistics produced elsewhere. However, we are responsible for the accuracy and completeness of the disclosure herein including the data from third parties and investors are entitled to rely on such disclosure.
Risks Related to Smaaash’s Operations in India
General economic conditions in India could adversely affect Smaaash’s business, financial condition, results of operations and prospects.
Visiting games and entertainment centers is perceived as a leisure activity, or discretionary expenditure. In addition, Smaaash competes with other recreation categories, such as amusement parks, cinemas, fine dining and travel, involving customers’ discretionary expenditure. Consequently, Smaaash’s business is sensitive to a number of factors that influence the global and local economy in which Smaaash operate, as well as discretionary customer spending, including population, urbanization, income levels, recession, inflation, deflation, uncertainty regarding regulatory or policy developments, availability of credit, taxation, stock market and commodities markets performance, unemployment and other matters that influence customer confidence. In particular, Smaaash’s performance may decline during recessionary periods or in other periods where one or more macroeconomic factors, or potential macroeconomic factors, negatively affect the level of discretionary expenditure. In the past, the Indian economy has been affected by global economic uncertainties, liquidity crises, domestic policies, global political environment, volatility in interest rates, currency exchange rates, commodity and electricity prices, rising inflation rates, increase in banks’ stressed assets, and various other factors. There is no certainty that the Indian economy will continue to grow, or that business sentiment will remain buoyant or improve, or that India will not face high inflationary pressures in the future. Among other things, high rates of inflation may decrease demand for Smaaash’s services and increase employee costs, which may have an adverse effect on per capita and overall customer spends at Smaaash’s Centers, Smaaash’s profitability and competitive advantage. Additionally, an increase in trade deficit or a decline in India’s foreign exchange reserves could negatively affect interest rates and liquidity, which could adversely affect the Indian economy and Smaaash’s business. Delayed structural reform in the Indian banking and financial sector or fiscal policy, among other factors, could also have consequent negative impact on the larger economy. Any downturn in the macroeconomic environment in India could have an adverse effect on Smaaash’s business, financial condition, results of operations and prospects.
Political, economic or other factors beyond Smaaash’s control may have an adverse impact on Smaaash’s business, financial condition, results of operations and prospects.
The following external risks may have an adverse impact on Smaaash’s business, financial condition, results of operations and prospects, should any of them materialize:
– | the lingering effects of the global economic slowdown have generally dampened business confidence and made credit markets more volatile, as well as negatively impacting other industry players, including companies in Smaaash’s industry; |
– | increase in interest rates may adversely affect Smaaash’s access to capital and increase Smaaash’s borrowing costs, which may constrain Smaaash’s ability to grow Smaaash’s business and operate profitably |
– | political instability, resulting from a change in governmental or economic and fiscal policies, may adversely affect economic conditions in India. In recent years, India has implemented various economic and political reforms. For instance, reforms in relation to land acquisition policies and trade barriers have led to social and civil unrest in India, and there may be such agitation in the future for reasons Smaaash may not be able to anticipate, and over which Smaaash would have no control; |
– | terrorist attacks, regional conflicts or situations or war; and |
If such events should impact the national or any regional economies, Smaaash’s business, financial condition, results of operations and prospects may be adversely affected. In addition, the occurrence of any of these events may result in a loss of investor confidence, which could potentially lead to economic recession and generally have an adverse effect on Smaaash’s business, financial condition, results of operations and prospects.
Changing laws, rules and regulations and legal uncertainties specifically relating to tax laws, may adversely affect Smaaash’s business, financial condition, results of operations and prospects.
Smaaash operates in a rapidly evolving regulatory and policy environment. Regulatory and policy changes may adversely affect Smaaash’s business, financial condition, results of operations and prospects, to the extent that Smaaash is unable to suitably respond to, and comply with, any changes in applicable law and policy. The Central or State Governments in the countries Smaaash operate in may implement new regulations and policies which will require us to obtain additional approvals and licenses from the government and other regulatory bodies or may impose onerous requirements and conditions on Smaaash’s operations.
The Competition Act, 2002 (the “Competition Act”) regulates practices that could have an appreciable adverse effect on competition in the relevant market in India. Any adverse application or interpretation of the Competition Act could adversely affect Smaaash’s business, financial condition, results of operations and prospects.
Under the Competition Act, any arrangement, understanding or action in concert, whether formal or informal, which causes or is likely to cause an appreciable adverse effect on competition in India is void and may result in substantial monetary penalties and compensation to be paid to persons shown to have suffered losses. Any agreement among competitors, which, directly or indirectly, determines purchase or sale prices, results in bid rigging or collusive bidding, limits or controls production, supply, markets, technical development, investment or provision of services, or shares the market or source of production or provision of services in any manner, including by way of allocation of geographical area or types of goods or services or number of customers in the market, is presumed to have an appreciable adverse effect on competition.
Further, the Competition Act prohibits abuse of a dominant position by any enterprise, directly or indirectly, including by way of unfair or discriminatory pricing or conditions in sale of goods or services, limiting production of goods, provision of services, or technical or scientific developments relating to goods or services to the prejudice of consumers, using a dominant position in one relevant market to enter into, or protect, another relevant market, denial of market access, or making the conclusion of contracts subject to acceptance of unrelated supplementary obligations. Such practices are subject to substantial monetary penalties and may also be subject to compensation for losses and orders to divide the enterprise.
Although Smaaash has not historically undertaken any inorganic growth initiatives, as part of its expansion strategy Smaaash intends to do so in the future, if suitable opportunities arise. If Smaaash or any of its affiliates are affected, directly or indirectly, by the application or interpretation of any provision of the Competition Act, proceedings initiated by the CCI, any claim by any party under the Competition Act, or any adverse publicity due to scrutiny or prosecution under the Competition Act, including financial penalties, Smaaash’s business, financial condition, results of operations and prospects may be adversely affected. Acquisitions, mergers and consolidations that exceed certain revenue and asset thresholds require prior approval by the CCI. Any acquisitions, mergers or consolidations that have an appreciable adverse effect on competition in India may be subject to remedial measures proposed by the CCI. Smaaash may not obtain approval for any such future transactions on satisfactory terms, or at all.
Regional hostilities, terrorist attacks, communal disturbances, civil unrest and other acts of violence or war involving India and other countries may result in a loss of investor confidence and a decline in the value of Smaaash’s equity shares.
Terrorist attacks, civil unrest and other acts of violence or war may negatively affect the Indian markets in which Smaaash operates its business and also adversely affect the worldwide financial markets. In addition, Asia has from time to time experienced instances of civil unrest and hostilities among neighboring countries. Hostilities and tensions may occur in the future and on a wider scale. Military activity or terrorist attacks in India, such as the attacks in Mumbai in November 2008 and in July 2011, may result in investor concern about stability in the region, which may adversely affect the value of Smaaash’s equity shares. Events of this nature in the future, as well as social and civil unrest within other countries in Asia, could influence the Indian economy and could have an adverse effect on the Smaaash’s business, including the value of equity shares.
The occurrence of natural disasters may adversely affect Smaaash’s business, financial condition and results of operations.
The occurrence of natural disasters, including hurricanes, floods, earthquakes, tornadoes, fires and pandemic disease may adversely affect Smaaash’s business, financial condition or results of operations. For instance, India has experienced several natural calamities such as earthquakes, tsunamis, floods and drought in recent years, including Cyclone Phailin, which affected the coastal areas of the States of Odisha and Andhra Pradesh, the earthquake in the state of Uttarakhand in 2013, floods in the Kashmir valley in 2014 and the floods in Chennai in the state of Tamil Nadu in 2015. The extent and severity of such natural disasters determines their effect on the regional and national economy.
Any downgrade of credit ratings of India or Indian companies may adversely affect Smaaash’s ability to raise debt financing.
India’s sovereign foreign currency long-term debt is currently rated (i) “BBB-” (negative) by Standard & Poor’s Rating Group, a division of McGraw-Hill Companies, Inc., or Standard & Poor’s, (ii) “BBB-” (negative) by Fitch Ratings Ltd, or Fitch, and (iii) “Baa3” (stable) by Moody’s Investors Services Limited, or Moody’s. These ratings reflect an assessment of the GoI’s overall financial capacity to pay its obligations and its ability or willingness to meet its financial commitments as they become due. Further, rating agencies may change their methodology for rating, which may impact the rating. No assurance can be given that Standard & Poor’s, Fitch, Moody’s or any other statistical rating organization will not downgrade the credit ratings of India. Any adverse revisions to India’s credit ratings for domestic and international debt by international rating agencies may negatively impact both the perception of credit risk associated with Smaaash’s current variable rate debt and its ability to access the debt markets on favorable terms in the future.
A decline in India’s foreign exchange reserves may affect liquidity and interest rates in the Indian economy.
According to a report released by Reserve Bank of India (RBI), India’s foreign exchange reserves totaled approximately $320 billion as of December 19, 2014. India’s foreign exchange reserves have declined recently and may have negatively affected the valuation of the Rupee. Further declines in foreign exchange reserves could adversely affect the valuation of the Rupee and could result in reduced liquidity and higher interest rates that could adversely affect Smaaash’s future financial condition.
Smaaash is exposed to foreign currency fluctuation risks, particularly in relation to import of equipment for Smaaash’s games, to the extent such exposures are not set off by Smaaash’s product sales to overseas customers. A depreciation of the Indian Rupee against the U.S. Dollar or other major foreign currencies may adversely impact Smaaash’s results of operations by increasing Smaaash’s import costs and capital expenditures.
Smaaash’s financial statements are presented in Indian Rupees. However, Smaaash incurs expenses in foreign currencies to the extent that Smaaash imports game equipment or components from overseas vendors and thus has foreign currency denominated trade payables. Smaaash also earns income in foreign currencies to the extent that Smaaash conducts product sales overseas. Smaaash may also have foreign currency borrowings from time to time, and thus incur foreign currency denominated finance charges. The exchange rates between the Indian Rupee and the U.S. Dollar or other relevant foreign currencies have fluctuated significantly in the past. Smaaash is exposed to foreign currency fluctuation risks particularly to the extent that such exposures are not set off by Smaaash’s product sales to overseas customers. A depreciation of the Indian Rupee against the U.S. Dollar or other major foreign currencies may adversely impact Smaaash’s results of operations by increasing Smaaash’s import costs and capital expenditure. A sustained appreciation of the Indian Rupee may negatively impact Smaaash’s revenue and results of operations.
Since a majority of Smaaash’s directors, officers and assets reside or are located outside of the United States, I-AM Capital may have difficulty enforcing judgments against Smaaash, its directors and officers.
Smaaash is incorporated under the laws of India. Further, Smaaash conducts substantially all of its operations in India. The majority of its directors and officers, reside outside the United States, and a majority of Smaaash’s assets and some or all of the assets of such persons are located outside the United States. As a result, it may be difficult or impossible to effect service of process within the United States upon Smaaash or those persons, or to recover against Smaaash or those persons on judgments of United States courts, including judgments predicated upon the civil liability provisions of the United States federal securities laws. An award of punitive damages by a United States courts based upon United States federal securities laws is likely to be construed by Indian courts to be penal in nature and therefore unenforceable in India. Further, no claim may be brought in India against Smaaash or its directors and officers in the first instance for a violation of United States federal securities laws because these laws have no extraterritorial application under Indian law and are not enforceable in India. However, an Indian courts may impose civil liability, including the possibility of monetary damages, on Smaaash or its directors and officers if the facts alleged in a complaint constitute or give rise to a cause of action under Indian law. Moreover, it is unlikely that a courts in India would award damages on the same basis as a foreign courts if an action were brought in India or that the Indian courts would enforce foreign judgments if it viewed the amount of damages as excessive or inconsistent with Indian practice or public policy.
The courts of India will not automatically enforce judgments of United States courts obtained in actions against Smaaash or its directors and officers, predicated upon the civil liability provisions of the United States federal securities laws, or entertain actions brought in India against Smaaash or such persons predicated solely upon United States federal securities laws. Further, the United States has not been declared by the Government of India to be a reciprocating territory for the purposes of enforcement of foreign judgments, and there are grounds upon which Indian courts may decline to enforce the judgments of United States courts. Some remedies available under the laws of United States jurisdictions, including remedies available under the United States federal securities laws, may not be allowed in Indian courts if contrary to public policy in India. Because judgments of United States courts are not automatically enforceable in India, it may be difficult for you to recover against Smaaash or its directors and officers or some experts named in this proxy statement based upon such judgments. In India, prior approval of the RBI is required in order to repatriate any amount recovered pursuant to such judgments. See “Enforceability of Civil Liabilities.”"
Risks Related to Smaaash’s Share Equity
Smaaash has not paid dividends in the past. Smaaash’s ability to pay dividends in the future will depend on, among other things, Smaaash’s future earnings, cash flows, financial condition, working capital requirements and capital expenditures.
Smaaash has no formal dividend policy and has not paid any dividends in the past. Smaaash cannot assure you that Smaaash will pay any dividends in the future, or provide any assurance as to the amounts of such future dividend payments. The declaration and payment of dividends, if any, will be recommended by Smaaash’s board of directors and approved by Smaaash’s shareholders at their discretion, subject to the provision of its Articles of Association and the Companies Act. The payment of dividends, if any, will depend upon Smaaash’s future earnings, financial condition, cash flows, working capital requirements, capital expenditures and other factors. Additionally, Smaaash may be prohibited by the terms of Smaaash’s future debt financing agreements to make any dividend payments until a certain time period as may be agreed with lenders.
There is currently no trading market for Smaaash’s equity shares and liquidity of the equity shares is limited.
Smaaash’s equity shares of are not registered under the securities laws of India, the United States or any state or other jurisdiction, and accordingly there is no public trading market for the equity shares that I-AM Capital will receive in the Transaction and no public trading market is expected to develop in the foreseeable future. Therefore, I-AM Capital may not be able to readily sell or transfer the Smaaash equity shares that it receives in the transaction.
Smaaash’s principal stockholders and management own a significant percentage of its share equity stock and will be able to exert significant control over matters subject to shareholder approval.
Assuming no redemptions and the investment of the full $49.0 million, Shripal Morakhia and AHA Holdings Private Limited, his affiliated entity, and FW Metis, Smaaash’s principal shareholders, beneficially owned approximately 24.34% and 21.23%, respectively, of Smaaash’s share equity after to the Transaction. Accordingly, these shareholders have significant influence over the outcome of corporate actions requiring shareholder approval, including the election of directors, any merger, consolidation or sale of all or substantially all of its assets or any other significant corporate transaction. The interests of these shareholders may not be the same as or may even conflict with I-AM Capital’s interests. The concentration in ownership may have the effect of delaying, preventing or deterring a change in control of Smaaash and deprive Smaaash’s shareholders of an opportunity to receive a premium for their equity shares as part of a sale of Smaaash.
Risks Related to I-AM Capital and the Transaction
I-AM Capital may become subject to the requirements of the Investment Company Act, which would limit I-AM Capital’s business operations and require it to spend significant resources to comply with such act.
The Investment Company Act defines an “investment company” as an issuer that is engaged in the business of investing, reinvesting, owning, holding or trading in securities and owns investment securities having a value exceeding 40 percent of the issuer’s unconsolidated assets, excluding cash items and securities issued by the federal government. While we believe that a reasonable investor would not conclude that we are engaged primarily in investing in securities based on our business plan focused on serving as the sole distributor for Smaaash games and as the master franchisee for Smaaash centers in North and South America and making acquisitions in the active entertainment industry in the United States, the composition of our assets after the Transaction, including our ownership of Smaaash equity shares, could contribute to a conclusion that we meet the threshold definition of an investment company. While the Investment Company Act also has several exclusions and exceptions that we would seek to rely upon to avoid being deemed an investment company, our reliance on any such exclusions or exceptions may be misplaced resulting in violation of the Investment Company Act, the consequences of which can be significant. For example, investment companies that fail to register under the Investment Company Act are prohibited from conducting business in interstate commerce, which includes selling securities or entering into other contracts in interstate commerce. Section 47(b) of the Investment Company Act provides that a contract made, or whose performance involves, a violation of the Investment Company Act is unenforceable by either party unless a court finds that enforcement would produce a more equitable result than non-enforcement. Similarly, a court may not deny rescission to any party seeking to rescind a contract that violates the Investment Company Act, unless the court finds that denial of rescission would produce more equitable result than granting rescission.
If we are deemed to be an investment company under the Investment Company Act, Rule 3a-2 of the Investment Company Act provides that inadvertent or transient investment companies will not be treated as investment companies subject to the provisions of the Investment Company Act, provided the issuer has the requisite intent to be engaged in a non-investment business, evidenced by the issuer’s business activities and an appropriate resolution of the issuer’s board of directors, within one year from the commencement of the earlier of (1) the date on which the issuer owns securities and/or cash having a value exceeding 50% of the value of such issuer’s total assets on either a consolidated or unconsolidated basis, or (2) the date on which an issuer owns or proposes to acquire investment securities (as defined in section 3(a) of the Investment Company Act) having a value exceeding 40% of the value of such issuer’s total assets (exclusive of government securities and cash items) on an unconsolidated basis. If the Company becomes an inadvertent investment company, and fails to meet the requirements of the transient investment company exemption under Rule 3a-2 of the Investment Company Act, then we will be required to register as an investment company with the SEC.
I-AM Capital’s Sponsor and certain of its officers and directors either directly or indirectly beneficially own shares of I-AM Capital common stock and have obligations and interests in the Transaction that are different from, or in addition to, I-AM Capital stockholders. If the Transaction is not approved, the securities held by the Sponsor will likely become worthless.
The Sponsor has agreed to vote its founder shares, and each of its executive officers and directors have also agreed to vote any shares purchased by them during or after I-AM Capital’s initial public offering, in favor of the Transaction. Accordingly, it is more likely that the requisite stockholder approval will be received than would be the case if the Sponsor had agreed to vote its founder shares in accordance with the majority of votes cast by I-AM Capital’s public stockholders. As of the record date, the Sponsor directly and certain of the officers and directors of I-AM Capital beneficially own, in the aggregate, approximately 22.92% of the issued and outstanding shares of I-AM Capital common stock.
In light of the amount of consideration paid, the Sponsor will likely significantly benefit from the consummation of the Transaction, even if the Transaction causes the market price of I-AM Capital’s securities to significantly decline. Furthermore, the $2,545,000 purchase price of the 254,500 private placement units acquired by the Sponsor will be included in the working capital that is distributed to I-AM Capital’s public stockholders in the event of I-AM Capital’s dissolution and liquidation if I-AM Capital fails to consummate an initial business combination by August 21, 2018 (unless extended). These factors may influence the Sponsor in promoting the Transaction and/or soliciting proxies for the approval and adoption of the Business Combination Proposal. I-AM Capital’s common stock and warrants held by the Sponsor had an aggregate market value (without taking into account any discount that may be attributed to such securities due to their restricted nature or any exercise limitations of the private placement warrants) of $15,894,055 based on the closing sale prices of $10.10 and $0.47, respectively, on NASDAQ on May 9, 2018. The founder shares are subject to lock-up agreements, and the Sponsor has waived any rights to receive any liquidation proceeds that may be distributed upon I-AM Capital’s liquidation in respect of the founder shares. Therefore, if the Business Combination Proposal is not approved by I-AM Capital’s stockholders, and I-AM Capital is subsequently required to commence proceedings to dissolve and liquidate, the founder shares and private placement warrants held directly or beneficially by the Sponsor will be worthless.
In addition, in considering the recommendation of I-AM Capital’s board of directors elsewhere in this proxy statement to vote “FOR” the Business Combination Proposal, you should also be aware that (i) it is currently anticipated that F. Jacob Cherian and Suhel Kanuga, each of whom is a current member of I-AM Capital’s board of directors, will each be appointed as a director of Smaaash following the Transaction and will be compensated for such service in the same manner as the other directors of Smaaash, and (ii) if the Business Combination Proposal is not approved and I-AM Capital has not completed an alternative business combination by August 21, 2018 (unless extended), the founder shares and private placement warrants held by the Sponsor will be worthless because they are not entitled to receive any of the funds held in the trust account that of may be distributed upon liquidation of I-AM Capital.
In addition, if I-AM Capital dissolves and liquidates prior to the consummation of an initial business combination, the Sponsor, pursuant to certain written agreements executed in connection with I-AM Capital’s initial public offering, will be liable for any successful claims made by third parties for services rendered or products sold to I-AM Capital and by potential target businesses who entered into written agreements, such as a letter of intent or confidentiality agreement, with I-AM Capital and who did not waive all of their rights to make claims against the proceeds in the trust account, to the extent such claims reduce the amounts in the trust account to below the lesser of (i) $10.15 per share and (ii) the actual amount per share held in the trust account as of the date of the liquidation of the trust account, in each case less taxes payable and up to $600,000 of working capital expenses.
I-AM Capital’s directors will not receive reimbursement for any out-of-pocket expenses incurred by them on I-AM Capital’s behalf incident to identifying, investigating and consummating a business combination to the extent such expenses exceed the amount not required to be retained in the trust account, unless a business combination is consummated.
The personal and financial interests of I-AM Capital’s directors may have influenced their decision as members of I-AM Capital’s board of directors to approve and adopt the Subscription Agreement and the adoption of the Business Combination Proposal, you should consider these interests. Additionally, the exercise of the directors’ discretion in agreeing to changes or waivers in the terms of the Subscription Agreement prior to the vote by the stockholders, may result in a conflict of interest when determining whether such changes or waivers are appropriate and in the stockholders’, best interest.
In connection with the stockholder vote to approve the Business Combination Proposal, the Sponsor, I-AM Capital’s directors, executive officers, advisors or their affiliates may elect to purchase public shares from I-AM Capital’s public stockholders, which may influence the vote on the Business Combination Proposal.
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In connection with the stockholder vote to approve the Business Combination Proposal, the Sponsor, I-AM Capital’s directors, executive officers, advisors or their affiliates may purchase shares in privately negotiated transactions or in the open market either prior to or following the completion of our initial business combination, although they are under no obligation to do so. Such a purchase may include a contractual acknowledgement that such stockholder, although still the record holder of our shares is no longer the beneficial owner thereof and therefore agrees not to exercise its redemption rights. In the event that our Sponsor, directors, executive officers, advisors or their affiliates purchase shares in privately negotiated transactions from public stockholders who have already elected to exercise their redemption rights, such selling stockholders would be required to revoke their prior elections to redeem their shares. The purpose of such purchases could be to vote such shares in favor of the business combination and thereby increase the likelihood of obtaining stockholder approval of the Business Combination Proposal or to satisfy a closing condition in an agreement with a target that requires us to have a minimum net worth or a certain amount of cash at the closing of the Transaction, where it appears that such requirement would otherwise not be met. This may result in the completion of our business combination that may not otherwise have been possible.
If a stockholder fails to receive notice of I-AM Capital’s offer of redemption in connection with the vote to approve the Business Combination Proposal, such shares may not be redeemed.
I-AM Capital will comply with the proxy rules when conducting redemptions in connection with the stockholder vote to approve the Business Combination Proposal. Despite compliance with these rules, if a stockholder fails to receive the proxy materials, such stockholder may not become aware of the opportunity to redeem his, her or its public shares. In addition, the proxy materials that I-AM Capital is furnishing to holders of its shares in connection with the Transaction describe the various procedures that must be complied with in order to validly redeem the shares. In the event that a stockholder fails to comply with these procedures, such stockholder’s shares may not be redeemed.
I-AM Capital’s security holders will not have any rights or interests in funds from the trust account, except under certain limited circumstances, to liquidate their investment, therefore, I-AM Capital’s security holders may be forced to sell their shares or warrants, potentially at a loss if they do not elect to redeem.
I-AM Capital’s public stockholders will be entitled to receive funds from the trust account only upon the earlier to occur of: (i) I-AM Capital’s completion of an initial business combination, and then only in connection with those shares of I-AM Capital’s common stock that such stockholder properly elected to redeem, subject to the limitations described herein, and (ii) the redemption of I-AM Capital’s public shares if it is unable to complete an initial business combination by August 21, 2018 (or May 21, 2019, if we extend the period of time to consummate a business combination), subject to applicable law and as further described herein. In no other circumstances will an I-AM Capital public stockholder have any right or interest of any kind in the trust account. Accordingly, to liquidate their investment, I-AM Capital’s security holders may be forced to sell their I-AM Capital shares, rights or warrants, potentially at a loss.
The ability of I-AM Capital’s stockholders to exercise redemption rights with respect to a large number of I-AM Capital’s shares could increase the probability that the Transaction would be unsuccessful and that I-AM Capital’s stockholders would have to wait for liquidation in order to redeem their stock.
The probability that the Transaction with Smaaash will be unsuccessful is increased if a large number of I-AM Capital’s public shares are tendered for redemption. If the Transaction is unsuccessful, I-AM Capital’s public stockholders will not receive their pro rata portion of the trust account until the trust account is liquidated. If I-AM Capital’s public stockholders are in need of immediate liquidity, they could attempt to sell their stock in the open market; however, at such time, I-AM Capital’s stock may trade at a discount to the pro rata per share amount in the trust account. In either situation, I-AM Capital’s stockholders may suffer a material loss on their investment or lose the benefit of funds expected in connection with the redemption until I-AM Capital is liquidated or I-AM Capital’s stockholders are able to sell their stock in the open market.
If an I-AM Capital stockholder chooses to redeem his, her or its shares, he, she or it may not exercise his, her or its redemption rights to cause the redemption of his, her or its shares of I-AM Capital’s common stock for a pro rata portion of the trust account, including any interest earned thereon, less taxes payable and up to $600,000 of working capital expenses, until the date that is two business days prior to the date of the special meeting of I-AM Capital’s stockholders.
Stockholders holding shares of I-AM Capital’s common stock issued in I-AM Capital’s initial public offering, whether or not they vote against the Business Combination Proposal, may elect to redeem all or a portion of their shares of common stock upon the completion of the Transaction for cash equal to their pro rata share of the aggregate amount on deposit in the trust account which holds the proceeds of I-AM Capital’s initial public offering as of two business days prior to the consummation of the transactions contemplated by the Subscription Agreement, including interest, less taxes payable and up to $600,000 of working capital expenses, upon the closing of the Transaction. Any stockholder who seeks to exercise this redemption right must, with respect to the portion of shares he, she or it wishes to redeem, prior to 4:30 p.m. Eastern time on __________,August 13, 2018 (two business days before the special meeting), (i) submit a written request to Smaaash’s transfer agent that I-AM Capital redeem such public shares for cash, and (ii) deliver their stock to I-AM Capital’s transfer agent physically or electronically through Depository Trust Company, or DTC.
If an individual stockholder or a “group” of stockholders are deemed to hold in excess of 15% of I-AM Capital’s common stock, that individual or group will lose the ability to redeem all such shares in excess of 15% of I-AM Capital’s common stock.
I-AM Capital’s Restated Certificate provides that a public stockholder, together with any affiliate of such stockholder or any other person with whom such stockholder is acting in concert or as a “group” (as defined under Section 13 of the Exchange Act), will be restricted from seeking redemption rights with respect to more than an aggregate of 15% of the public shares (the “Excess Shares”). However, stockholders are not restricted from voting all of their shares (including Excess Shares) for or against the Transaction. The inability to redeem the Excess Shares will reduce the influence of I-AM Capital’s stockholders over I-AM Capital’s ability to complete the Transaction, and such stockholders could suffer a material loss on their investment in I-AM Capital if they sell their Excess Shares in open market transactions. Additionally, such stockholders will not receive redemption distributions with respect to the Excess Shares if I-AM Capital completes the Transaction. As a result, such stockholders would continue to hold that number of shares exceeding 15% and, in order to dispose of such shares, would be required to sell their stock in open market transactions, potentially at a loss.
I-AM Capital expects to incur significant costs associated with the Transaction, whether or not the Transaction is completed.
Whether or not the Transaction is completed, I-AM Capital expects to incur significant costs associated with the Transaction, including due diligence, legal, accounting and other expenses associated with structuring, negotiating and documenting the Transaction. If the parties do not consummate the Transaction, and if time permits I-AM Capital to seek an alternative business combination, then the costs I-AM Capital will have incurred with respect to its proposed business combination with Smaaash will reduce the amount of cash otherwise available to complete an alternative business combination. I-AM Capital estimates that it will incur significant transaction costs associated with the Transaction of at least approximately $1.2 million.
When the Smaaash Founders acquire additional shares of I-AM Capital pursuant to the Subscription Agreement they may be able to influence major corporate decisions of I-AM Capital or their interests may conflict with the interests of other holders of our common stock.
Under the Subscription Agreement, the Smaaash Founders have agreed that within six months of the Closing they shall transfer all of their ownership interest in Smaaash (which represented 33.6% of the share capital of Smaaash on a fully diluted basis as of June 22, 2018 and shall represent 24.34% immediately after the Investment) to I-AM Capital in exchange for newly issued shares of common stock of I-AM Capital in an amount that would enable the Smaaash Founders to retain a 24.34% ownership interest in Smaaash indirectly through their interest in I-AM Capital. Consequently, the Smaaash Founders shall be issued and shall beneficially own 6,473,573 shares of common stock of I-AM Capital representing approximately -46.97% of the voting power of our outstanding common stock (including shares issued upon conversion of rights). As a result of such stock ownership, the Smaaash Founders will have the ability to significantly influence the outcome of most corporate actions requiring stockholder approval, including a merger by I-AM Capital with or into another company, the sale of all or substantially all of I-AM Capital’s assets and amendments to its certificate of incorporation. The Smaaash Founders may also have interests that differ from other stockholders and may vote in a way with which you disagree and which may be adverse to your interests. This concentration of ownership may also have the effect of delaying, deferring or preventing a change of control of I-AM Capital, which may be disadvantageous to other stockholders.
Smaaash may fail to realize all of the anticipated benefits of the Transaction.
The success of the Transaction will depend, in part, on Smaaash’s ability to realize the anticipated benefits from the availability of the cash currently in I-AM Capital’s trust account to Smaaash following the completion of the Transaction. To realize these anticipated benefits, Smaaash must successfully manage and apply I-AM Capital’s cash and use the available shares of I-AM Capital as currency to fund potential future acquisitions of target companies.
Following the consummation of the Transaction, we might require additional equity or debt financing to fund operations and/ or future acquisitions.
Although I-AM Capital intends to enter into a backstop agreement(s) for up to $7 million (or 14% of the maximum Investment Amount) in funds as a backstop to cover redemptions by public stockholders, to help fund the Transaction and related expenses, as well as for working capital, I-AM Capital may still need access to additional debt or equity capital to fund operations or to fund potential acquisitions. If additional capital is required, I-AM Capital may not be able to obtain debt and/or equity financing on terms favorable to it, or at all. The failure to obtain additional funding could result in a curtailment of I-AM Capital’s operations and future development, which in turn could adversely affect I-AM Capital’s business, results of operations, and financial condition.
I-AM Capital may not be able to obtain backstop financing on commercially reasonable terms.
I-AM Capital intends to seek to obtain up to $7 million (or 14% of the maximum Investment Amount) in funds as a backstop to cover redemptions by public stockholders, to help fund the Transaction and related expenses, as well as for working capital. If I-AM Capital is unable to obtain such financing on commercially reasonable terms, it may not be able to complete the Transaction.
Subsequent to the completion of the Transaction, Smaaash may be required to subsequently take write-downs or write-offs, restructuring and impairment or other charges that could have a significant negative effect on its financial condition, results of operations and share price, which could cause you to lose some or all of your investment.
Even if I-AM Capital conducts extensive due diligence on Smaaash, this diligence may not expose all material issues that may be present inside Smaaash, that it would be possible to uncover all material issues through a customary amount of due diligence, or that factors outside of Smaaash’s and I-AM Capital’s control will not later arise. As a result of these factors, Smaaash may be forced to later write-down or write-off assets, restructure its operations, or incur impairment or other charges that could result in reporting losses. Even if due diligence successfully identifies certain risks, unexpected risks may arise and previously known risks may materialize in a manner not consistent with the preliminary risk analysis. Even though these charges may be non-cash items and not have an immediate impact on Smaaash’s liquidity, the fact that charges of this nature are reported could contribute to negative market perceptions about Smaaash or its securities. In addition, charges of this nature may cause Smaaash to violate net worth or other covenants to which it may be subject as a result of assuming pre-existing debt held by a target business or by virtue of its obtaining post-combination debt financing. Accordingly, any stockholders who choose to remain stockholders following the Transaction could suffer a reduction in the value of their shares. Such stockholders are unlikely to have a remedy for such reduction in value unless they are able to successfully claim that the reduction was due to the breach by Smaaash’s officers or directors of a duty of care or other fiduciary duty owed to them, or if they are able to successfully bring a private claim under securities laws that the tender offer materials or proxy statement relating to the Transaction contained an actionable material misstatement or material omission.
If Smaaash or third parties bring claims against I-AM Capital, the proceeds held in the trust account could be reduced and the per-share redemption amount received by stockholders may be less than $10.15 per share.
I-AM Capital’s placing of funds in the trust account may not protect those funds from third party claims against it. Although I-AM Capital will seek to have all vendors, service providers, prospective target businesses or other entities with which it does business agree to waive any right, title, interest or claim of any kind in or to any monies held in the trust account for the benefit of I-AM Capital’s public stockholders, such parties may not execute such agreements, or, even if they execute such agreements, may not be prevented from bringing claims against the trust account, including, but not limited to, fraudulent inducement, breach of fiduciary responsibility or other similar claims, as well as claims challenging the enforceability of the waiver, in each case in order to gain advantage with respect to a claim against I-AM Capital’s assets, including the funds held in the trust account. If any third party refuses to execute an agreement waiving such claims to the monies held in the trust account, I-AM Capital’s management will perform an analysis of the alternatives available to it and will only enter into an agreement with a third party that has not executed a waiver if I-AM Capital’s management believes that such third party’s engagement would be significantly more beneficial to I-AM Capital than any other alternative.
Examples of possible instances where I-AM Capital may engage a third party that refuses to execute a waiver include the engagement of a third party consultant whose particular expertise or skills are believed by I-AM Capital’s management to be significantly superior to those of other consultants that would agree to execute a waiver or in cases where I-AM Capital’s management is unable to find a service provider willing to execute a waiver. In addition, there is no guarantee that such entities will agree to waive any claims that they may have in the future as a result of, or arising out of, any negotiations, contracts or agreements with I-AM Capital and will not seek recourse against the trust account for any reason. Upon redemption of its shares, if I-AM Capital is unable to complete the Transaction with Smaaash within the prescribed timeframe, or upon the exercise of a redemption right in connection with the Transaction, I-AM Capital will be required to provide for payment of claims of creditors that were not waived that may be brought against I-AM Capital within the 10 years following redemption. Accordingly, the per-share redemption amount received by public stockholders could be less than the $10.15 per share currently held in the trust account, due to claims of such creditors. The Sponsor has agreed that it will be liable to us if and to the extent any claims by a vendor for services rendered or products sold to us, or a prospective target business with which we have discussed entering into a transaction agreement, reduce the amount of funds in the trust account to below (i) $10.15 per public share (or such higher amount then held in trust) or (ii) such lesser amount per public share held in the trust account as of the date of the liquidation of the trust account due to reductions in the value of the trust assets, in each case net of the interest which may be withdrawn to pay taxes or up to a maximum of $600,000 of working capital expenses, except as to any claims by a third party who executed a waiver of any and all rights to seek access to the trust account and except as to any claims under our indemnity of the underwriters of this offering against certain liabilities, including liabilities under the Securities Act. Moreover, in the event that an executed waiver is deemed to be unenforceable against a third party, the Sponsor will not be responsible to the extent of any liability for such third party claims. I-AM Capital has not independently verified whether the Sponsor has sufficient funds to satisfy its indemnity obligations and believes that the Sponsor’s only assets are securities of I-AM Capital. I-AM Capital has not asked the Sponsor to reserve for such indemnification obligations. Therefore, the Sponsor may not be able to satisfy those obligations. I-AM Capital believes that the likelihood of the Sponsor having to indemnify the trust account is limited because it will endeavor to have all vendors and prospective target businesses, including Smaaash, as well as other entities execute agreements with it waiving any right, title, interest or claim of any kind in or to monies held in the trust account.
I-AM Capital’s directors may decide not to enforce the indemnification obligations of our sponsor, resulting in a reduction in the amount of funds in the trust account available for distribution to our public stockholders.
In the event that the proceeds in the trust account are reduced below the lesser of (i) $10.15 per share (or such higher amount then held in trust) or (ii) such lesser amount per share held in the trust account as of the date of the liquidation of the trust account due to reductions in the value of the trust assets other than due to the failure to obtain such waiver, in each case net of the interest which may be withdrawn to pay taxes or up to a maximum of $600,000 of working capital expenses, and the Sponsor asserts that it is unable to satisfy its obligations or that it has no indemnification obligations related to a particular claim, I-AM Capital’s independent directors would determine whether to take legal action against the Sponsor to enforce its indemnification obligations. While I-AM Capital currently expects that its independent directors would take legal action on its behalf against the sponsor to enforce its indemnification obligations to it, it is possible that such independent directors in exercising their business judgment may choose not to do so in any particular instance. If the independent directors choose not to enforce these indemnification obligations, the amount of funds in the trust account available for distribution to I-AM Capital’s public stockholders may be reduced below $10.15 per share (or such higher amount then held in trust).
If, after I-AM Capital distributes the proceeds in the trust account to its public stockholders, it files a bankruptcy petition or an involuntary bankruptcy petition is filed against it that is not dismissed, a bankruptcy courts may seek to recover such proceeds, and the members of I-AM Capital’s board of directors may be viewed as having breached their fiduciary duties to I-AM Capital’s creditors, thereby exposing the members of the board of directors and I-AM Capital to claims of punitive damages.
If, after the proceeds in the trust account are distributed to I-AM Capital’s public stockholders, it files a bankruptcy petition or an involuntary bankruptcy petition is filed against it that is not dismissed, any distributions received by I-AM Capital’s stockholders could be viewed under applicable debtor/creditor and/or bankruptcy laws as either a “preferential transfer” or a “fraudulent conveyance.” As a result, a bankruptcy courts could seek to recover all amounts received by I-AM Capital’s stockholders. In addition, I-AM Capital’s board of directors may be viewed as having breached its fiduciary duty to I-AM Capital’s creditors and/or having acted in bad faith, thereby exposing itself and I-AM Capital to claims of punitive damages, by paying public stockholders from the trust account prior to addressing the claims of creditors.
If, before distributing the proceeds in the trust account to its public stockholders, I-AM Capital files a bankruptcy petition or an involuntary bankruptcy petition is filed against I-AM Capital that is not dismissed, the claims of creditors in such proceeding may have priority over the claims of I-AM Capital’s stockholders and the per-share amount that would otherwise be received by I-AM Capital’s stockholders in connection with its liquidation may be reduced.
If, before distributing the proceeds in the trust account to its public stockholders, I-AM Capital files a bankruptcy petition or an involuntary bankruptcy petition is filed against it that is not dismissed, the proceeds held in the trust account could be subject to applicable bankruptcy law, and may be included in I-AM Capital’s bankruptcy estate and subject to the claims of third parties with priority over the claims of I-AM Capital’s stockholders. To the extent any bankruptcy claims deplete the trust account, the per-share amount that would otherwise be received by I-AM Capital’s stockholders in connection with its liquidation may be reduced.
I-AM Capital is not required to obtain an opinion from an independent investment banking or accounting firm, and consequently, you may have no assurance from an independent source that the price of the investment in Smaaash is fair to our company from a financial point of view.
Unless I-AM Capital completes a business combination with an affiliated entity, it is not required to obtain an opinion from an independent investment banking or accounting firm that the price it is paying is fair from a financial point of view. An opinion is not required for the minority equity investment in Smaaash. If no opinion is obtained, the I-AM Capital stockholders will be relying on the judgment of its board of directors, who will determine fair market value based on standards generally accepted by the financial community.
Since I-AM Capital’s initial stockholder, executive officers and directors will lose their entire investment in us if our business combination is not completed, a conflict of interest may arise in determining whether a particular business combination target is appropriate for our initial business combination.
I-AM Capital’s Initial stockholder currently owns 1,561,500 shares of common stock (which includes 261,500 private placement shares). I-AM Capital’s initial stockholder also owns 261,500 private placement warrants and 261,500 private placement rights that will be cancelled and become worthless if we do not complete a business combination. The holder has agreed (A) to vote any shares owned by it in favor of any proposed business combination and (B) not to redeem any shares in connection with a stockholder vote to approve the Transaction. The personal and financial interests of I-AM Capital’s executive officers and directors may influence their motivation in completing the Transaction and influencing the operation of the business following the initial business combination.
I-AM Capital has no prior history as an operating company and may be subject to the risks encountered by early-stage companies.
I-AM Capital was founded as a blank check company on April 17, 2017. Because I-AM Capital has no history as an operating company, you should consider and evaluate its operating prospects in light of the risks and uncertainties frequently encountered by early- stage operating companies in rapidly evolving markets. For I-AM Capital, these risks include:
● | that it may not have sufficient capital to achieve its growth strategy; | |
● | that it may not develop its product and service offerings in a manner that enables us to be profitable and meet its customers’ requirements; | |
● | that its growth strategy may not be successful; and | |
● | that fluctuations in its operating results will be significant relative to our revenues. |
I-AM Capital’s future growth will depend substantially on its ability to address these and the other risks described in this section. If we do not successfully address these risks, our business could be significantly harmed.
After the consummation of the Transaction, I-AM Capital may not have sufficient capital to fund its ongoing operations, effectively pursue its strategy or sustain its growth initiatives.
After the consummation of the Transaction, I-AM Capital’s remaining liquidity and capital resources may not be sufficient to allow it to fund its ongoing operations, effectively pursue its strategy or sustain its growth initiatives. As of May 31, 2018, excluding accrued interest set aside for working capital, I-AM Capital had $52.78 million of cash in its trust account. Assuming, the minimum number of shares are tendered for redemption by I-AM Capital’s stockholders, after transaction costs, expenses and taxes payable we estimate that approximately $49.0 million will be invested in Smaaash, leaving minimal cash to fund I-AM Capital’s ongoing operations, pursue its strategy and sustain its growth initiatives. In addition, aFurthermore, under the amendment to the Subscription Agreement, I-AM Capital has agreed to invest any and all monies it receives, (i) pursuant to the exercise of outstanding warrants for its capital stock and (ii) from capital raises of additional funds outside of India, whether from the public or in private transactions, into Smaaash as consideration for the subscription of additional shares of Smaaash, which obligation further limits I-AM Capital’s liquidity and capital resources. A portion of the $250,000 that Smaaash intends to initially contribute to I-AM Capital to set up the initial Centers in the United States may however be used for working capital.
In order to augment I-AM Capital’s working capital, I-AM Capital and Smaaash have entered into a loanan agreement, pursuant to which Smaaash will arrange for a line of credit to I-AM Capital in accordance with Indian law, the proceeds of which will be used to fund the operating expenses of I-AM Capital after the Transaction until such time as the revenue that I-AM Capital generates is sufficient to meet its ongoing expenses. While the line of credit from Smaaash will increase I-AM Capital’s working capital, funds drawn on the line of credit will also increase I-AM Capital’s debt. I-AM Capital’s ability to repay the principal and accrued interest on the debt to Smaaash under the line of credit at maturity will depend upon its future revenues. I-AM Capital future revenues and financial performance are, to a certain extent, subject to general economic, financial, competitive, legislative, regulatory and other factors beyond its control. There can be no assurance that I-AM Capital will generate sufficient revenue to repay the amounts borrowed under the line of credit when due and as a result if its anticipated revenues are inadequate to repay the debt, it could default on the loan, which could cause material adverse consequences for I-AM Capital.
In addition, there can be no assurance that Smaaash will be in a financial position to extend the full amount of funds required by I-AM Capital at the time such funds are needed by I-AM Capital or that disbursement of the loans will not be restricted due to currency or other regulatory restrictions in India. If the transfers of funds from Smaaash under the line of credit are delayed or the amounts are reduced below the amounts requested, I-AM Capital’s financial position could be materially and adversely affected.
If I-AM Capital requires additional capital resources and is unable to obtain such funds under the Smaaash line of credit, it may seek such funds directly from third party sources; however, it may not be able to obtain sufficient equity capital and/or debt financing from third parties to allow it to fund its expected ongoing operations or it may not be able to obtain such equity capital or debt financing on acceptable terms or conditions. Factors affecting the availability of equity capital or debt financing to I-AM Capital on acceptable terms and conditions include:
● | I-AM Capital’s current and future financial results and position; |
● | the collateral availability of I-AM Capital’s otherwise unsecured assets; |
● | the |
● | the perception in the equity and debt markets of I-AM Capital’s ability to execute its business plan or achieve its operating results expectations; and |
● | the price, volatility and trading volume and history of I-AM Capital’s common stock. |
If I-AM Capital is unable to obtain the equity capital or debt financing necessary to fund its ongoing operations, pursue its strategy and sustain its growth initiatives it may be forced to scale back its operations or its expansion initiatives, and its business and operating results will be materially adversely affected.
I-AM Capital’s growth strategy depends on the availability of suitable locations for its Centers and its ability to open new Centers and operate them profitably.
A key element of I-AM Capital’s growth strategy is to extend the Smaaash brand by opening additional Centers in locations in North and South America that it believes will provide attractive returns on investment. I-AM Capital has initially identified six sites in the United States for potential Centers, however, desirable locations for additional Center openings may not be available at an acceptable cost when I-AM Capital identifies a particular opportunity for a new Center.
In addition,I-AM Capital’s ability to open new Centers on a timely and cost-effective basis, or at all, is dependent on a number of factors, many of which are beyond its control, including its ability or the ability of the selected franchisee to:
reach acceptable agreements regarding the lease of the locations; |
comply with applicable zoning, licensing, land use and environmental regulations; |
raise or have available an adequate amount of cash or currently available financing for construction and opening costs; |
timely hire, train and retain the skilled management and other employees necessary to meet staffing needs; |
obtain, for acceptable cost, required permits and approvals, including liquor licenses; and |
efficiently manage the amount of time and money used to build and open each new Center. |
If I-AM Capital succeeds in opening new Centers on a timely and cost-effective basis, it may nonetheless be unable to attract enough customers to the new Centers because potential customers may be unfamiliar with its Centers or concept, or its entertainment and menu options might not appeal to them. I-AM Capital’s new Centers may not meet or exceed I-AM Capital’s performance targets, including target cash-on-cash returns. New Centers may even operate at a loss, which could have a significant adverse effect on I-AM Capital’s overall operating results.
I-AM Capital may not be able to compete favorably in the highly competitive out-of-home and home-based entertainment and restaurant market in North and South America, which could have a material adverse effect on its business, results of operations or financial condition.
The out-of-home entertainment market in North American and South America is highly competitive. I-AM Capital’s Centers in North and South America will compete for customers'customers’ discretionary entertainment dollars with providers of out-of-home entertainment, including localized attraction facilities such as movie theatres, sporting events, bowling alleys, sports activity centers, arcades and entertainment centers, nightclubs and restaurants as well as theme parks. Many of the entities operating these businesses are larger and have significantly greater financial resources, a greater number of locations, have been in business longer, have greater name and brand recognition and are better established in the local markets where I-AM Capital’s Centers are planned to be located. As a result, they may be able to invest greater resources than I-AM Capital can in attracting customers and succeed in attracting customers who would otherwise come to I-AM Capital’s Centers. In North America, the legalization of casino gambling in geographic areas near any future Center would create the possibility for adult entertainment alternatives, which could have a material adverse effect on I-AM Capital’s business and financial condition. I-AM Capital will also face competition from local, regional and national establishments that offer entertainment experiences similar to it and restaurants that are highly competitive with respect to price, quality of service, location, ambience and type and quality of food and beverages. I-AM Capital’s Centers will also face competition from increasingly sophisticated home-based forms of entertainment, such as internet and video gaming and home movie streaming and delivery. If I-AM Capital’s fails to compete favorably in the competitive out-of-home and home-based entertainment and restaurant markets it could have a material adverse effect on its business, results of operations and financial condition.
I-AM Capital may not be able to operate its Centers in North America and South America, or obtain and maintain licenses and permits necessary for such operation, in compliance with laws, regulations and other requirements, which could adversely affect I-AM Capital’s business, results of operations or financial condition.
Each Center in North America and South America will be subject to licensing and regulation by alcoholic beverage control, amusement, health, sanitation, safety, building code and fire agencies in the country, state, county and/or municipality in which the Center is located. In North America, each Center with a restaurant or bar will be required to obtain a license to sell alcoholic beverages on the premises from a state authority and, in certain locations, county and municipal authorities. Typically, licenses must be renewed annually and may be revoked or suspended for cause at any time. In some states, the loss of a license for cause with respect to one Center may lead to the loss of licenses at all Centers in that state and could make it more difficult to obtain additional licenses in that state. Alcoholic beverage control regulations relate to numerous aspects of the daily operations of each Center, including minimum age of patrons and employees, hours of operation, advertising, wholesale purchasing, inventory control and handling and storage and dispensing of alcoholic beverages. The failure of I-AM Capital or a franchisee in obtaining and maintaining the required licenses, permits and approvals at any one Center could impact the continuing operations of existing Centers, or delay or prevent the opening of new Centers. Although I-AM Capital does not anticipate any material difficulties occurring in the future, the failure to receive or retain a liquor license, or any other required permit or license, in a particular location, or to continue to qualify for, or renew licenses, could have a material adverse effect on operations and its ability to obtain such a license or permit in other locations.
As a result of operating certain entertainment games and attractions, including skill-based games that offer redemption prizes, I-AM Capital’s Centers in North and South America are subject to amusement licensing and regulation by the countries, states, provinces, counties and municipalities in which its Centers are located. These laws and regulations can vary significantly by country, state, province, county, and municipality and, in some jurisdictions, may require I-AM Capital to modify its business operations or alter the mix of redemption games and simulators it offers. Moreover, as more states and provinces in the United States and Canada and local communities implement legalized gambling, the laws and corresponding enabling regulations may also be applicable to I-AM Capital’s redemption games and regulators may create new licensing requirements, taxes or fees, or restrictions on the various types of redemption games it offers. Furthermore, other states, provinces, counties and municipalities may make changes to existing laws to further regulate legalized gaming and illegal gambling. Adoption of these laws, or adverse interpretation of existing laws, after I-AM Capital has established a Center in the jurisdiction could require the existing center in these jurisdictions to alter the mix of games, modify certain games, limit the number of tickets that may be won by a customer from a redemption game, change the mix of prizes that it may offer or terminate the use of specific games, any of which could adversely affect its operations.
I-AM Capital is also subject to laws and regulations governing its relationship with its employees, including those related to minimum wage requirements, exempt status, overtime, health insurance mandates, working and safety conditions, immigration status requirements, child labor, and non- discrimination. Additionally, changes in federal labor laws, including card verification regulations, could result in portions of I-AM Capital workforce being subjected to greater organized labor influence, which could result in an increase to its labor costs. A significant portion of Center personnel will be paid at minimum wage rates established by federal, state and municipal law. Increases in the minimum wage result in higher labor costs, which may be only partially offset by price increases and operational efficiencies.
I-AM Capital is also subject to the rules and regulations of the Federal Trade Commission and various state laws regulating the offer and sale of franchises. The Federal Trade Commission and various state laws require that I-AM Capital furnish a franchise disclosure document containing certain information to prospective franchisees, and a number of states require registration of the franchise disclosure document with state authorities. State laws that regulate the franchisor-franchisee relationship presently exist in a substantial number of states, and bills have been introduced in Congress from time to time that would provide for federal regulation of the franchisor-franchisee relationship. The state laws often limit, among other things, the duration and scope of non-competition provisions, the ability of a franchisor to terminate or refuse to renew a franchise and the ability of a franchisor to designate sources of supply. I-AM Capital shall endeavor to make sure that any franchise disclosure document it provides, together with any applicable state versions or supplements, and franchising procedures, comply in all material respects with both the Federal Trade Commission guidelines and all applicable state laws regulating franchising in those states in which we have offered franchises.
If I-AM Capital and its franchisees fail to comply with such laws and regulations, it may be subject to various sanctions and/or penalties and fines or may be required to cease operations until it achieves compliance, which could have an adverse effect on its business and its financial results.
I-AM Capital’s success depends upon its ability to recruit and retain qualified management, culinary professionals and operating personnel at its Smaassh Centers in North and South America.
I-AM Capital and its franchisees must attract, retain and motivate a sufficient number of qualified management, culinary professionals and operating personnel in order to maintain consistency in it service, hospitality, quality and atmosphere of its Centers in the North America and South America. In particular, I-AM capital and its franchisees will need to hire and retain an experiences team of culinary professionals to create appealing food and beverage menus, tailored to the tastes and preferences of the locations in which it will operate. Qualified management, culinary professionals and operating personnel are typically in high demand. If I-AM Capital and its franchisees are unable to attract and retain a satisfactory number of qualified management, culinary professionals and operating personnel, labor shortages could delay the planned openings of new Centers which could have a material adverse effect on I-AM Capital’s business and results of operations.
I-AM Capital’s senior management team has limited experience in establishing, operating, licensing rights to and franchising entertainment centers and related products.
The members of I-AM Capital’s senior management team have extensive backgrounds in finance and the management and operation of special purpose acquisition companies, however, they have limited prior experience in establishing, operating, licensing rights to and franchising entertainment centers and restaurants and operating businesses in South America. I-AM Capital will need to expand its management team, to include individuals with expertise in establishing and operating entertainment centers and restaurants as well as individuals with expertise in product licensing and franchise operations in North and South America. If I-AM Capital is unable to recruit professionals with acceptable backgrounds in establishing and operating entertainment centers and restaurants and with backgrounds in product licensing and financing, it may not be able to pursuit its growth strategy which could have a material adverse effect on its business and results of operations.
I-AM Capital could face liability from or as a result of its franchisees.
Various state and federal laws will govern the relationship between I-AM Capital and franchisees and the potential sale of a franchise. If I-AM Capital fails to comply with these laws, it could be liable for damages to franchisees and fines or other penalties. A franchisee or government agency may bring legal action against I-AM Capital based on the franchisee/franchisor relationship. Also, under the franchise business model, I-AM Capital may face claims and liabilities based on vicarious liability, joint-employer liability, or other theories or liabilities. Such legal actions could result in expensive litigation with its franchisees or government agencies that could adversely affect both I-AM Capital’s profits and its important relations with its franchisees. In addition, regulatory or legal developments could result in changes to laws or the franchisor/franchisee relationship that could negatively impact the franchise business model and, accordingly, I-AM Capital’s profits.
A failure or unanticipated delay in securing any necessary or desired certification for Smaaash products from government or regulatory organizations could impair distribution of Smaaash products and materially and adversely affect I-AM Capital’s results of operations and financial condition.
In order for certain Smaaash products to be commercially distributed for use in certain target markets, they must first be certified by certain government or regulatory organizations, such as the Underwriters Laboratory (UL) in the U.S. and the Technischer Überwachungs-Verein (TÜV) and Conforme Européene (CE) in Europe. A failure or unanticipated delay in securing any necessary or desired certification for the Smaaash products could impair sales of Smaaash products and materially and adversely affect I-AM Capital’s business, results of operations and financial condition.
If Smaaash fails to keep pace with changing industry technology and consumer preferences, I-AM Capital will be at a competitive disadvantage.
The Smaaash VR and AR products that I_AM Capital will distribute also compete within industries that are characterized by swiftly changing technology, evolving industry standards, frequent new and enhanced product introductions, rapidly changing consumer preferences and product obsolescence. In order to continue to compete effectively, Smaaash needs to respond quickly to technological changes and to understand their impact on customers'customers’ preferences. It may take significant time and resources to respond to these technological changes and changes in consumer preferences. I-AM Capital’s business and results of operations may be negatively impacted if the products it distributes fail to keep pace with these changes.
Various product safety laws and governmental regulations applicable to the distributor of Smaaash products may adversely affect I-AM Capital’s business, results of operations and financial condition.
I-AM Capital’s distribution of Smaaash products will be subject to numerous federal, state, provincial, local and foreign laws and regulations, including laws and regulations with respect to product safety, including regulations enforced by the United States Consumer Products Safety Commission. I-AM Capital and its franchisees could incur costs in complying with these regulations and, if they fail to comply, could incur significant penalties.
A failure to comply with applicable laws and regulations, or concerns about product safety, may also lead to a recall or post-manufacture repair of selected Smaaash products, resulting in the rejection of the products by I-AM Capital’s franchisees, lost sales, increased customer service and support costs, and costly litigation.
Risks Associated with Doing Business in South America
To the extent I-AM Capital starts the Smaaash Center operations in South America, it will be subject to the following risks associated with doing business in South America.
Political or economic instability in South America could have an adverse impact on I-AM Capital’s results of operations due to diminished revenues.
I-AM Capital plans to set up and operate Smaaash Centers in South America. To the extent it starts operations in South America, it may derive a portion of its future revenues from countries within South America. Political or economic instability in countries within South America could have an adverse impact on I-AM Capital’s results of operations due to diminished revenues. I-AM Capital’s future revenues, costs of operations and profits could also be affected by a number of other factors related to its anticipated South American operations, including changes in economic conditions in such countries, changes in a country’s political condition, trade protection measures, licensing and other legal requirements, and local tax issues.
Fluctuations in local currency exchange rates could negatively affect I-AM Capital’s performance.
Unanticipated exchange rate fluctuations in the local currencies could lead to lower reported consolidated results of operations due to the translation of these currencies into U.S. dollars when I-AM Capital consolidates its financial results for any subsidiaries that it established in South America. A decrease in the value of the U.S. dollar in relation to the applicable local currency could increase I-AM Capital’s cost of doing business in the relevant jurisdiction.
Governmental policies in the South American countries where Smaaash Centers are located could impact I-AM Capital’s business.
Changes in local governmental policies in the South American countries where Smaaash Centers are expected to be located, and which could be expected to have a substantial impact on I-AM Capital’s business, include:
● | new laws and regulations or new interpretations of those laws and regulations; |
● | the introduction of measures to control inflation or stimulate growth; |
● | changes in the rate or method of taxation; |
● | the imposition of additional restrictions on currency conversion and remittances abroad; and |
● | any actions which limit I-AM Capital’s ability to finance and operate its business in such jurisdictions. |
SELECTED HISTORICAL FINANCIAL INFORMATION OF SMAAASH
The following table sets forth selected historical financial information derived from Smaaash’s unaudited financial statements included elsewhere in this proxy statement as of December 31, 2017 and for the nine months then ended and its audited financial statements included elsewhere in this proxy statement as of March 31, 2018, 2017 and 2016 and for the years ended March 31, 2018, 2017 and 2016. Historical results are not necessarily indicative of results to be expected in any future period. You should read the following selected financial information in conjunction with the section entitled “”Smaaash Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Smaaash’s financial statements and the related notes appearing elsewhere in this proxy statement.
Year Ended March 31, | Nine month period ended December 31, | |||||||||||
(Rs. in thousands) | 2016 | 2017 | 2017 | |||||||||
Income Statement Information: | ||||||||||||
Total Revenue | 573,669 | 1,171,183 | 1,460,727 | |||||||||
Total Expenses | 818,509 | 1,524,082 | 1,963,303 | |||||||||
Profit/(Loss) before tax | (244,840 | ) | (352,899 | ) | (518,447 | ) | ||||||
Profit/(Loss) from continuing operations | (174,549 | ) | (247,551 | ) | (363,316 | ) | ||||||
Profit/(Loss) for the period | (189,823 | ) | (263,017 | ) | (363,185 | ) | ||||||
Statement of Financial Position Information (at period end): | ||||||||||||
Total non-current assets | 1,715,897 | 2,762,432 | 4,740,764 | |||||||||
Total current assets | 326,440 | 439,041 | 824,802 | |||||||||
Total Assets | 2,042,337 | 3,201,474 | 5,565,566 | |||||||||
Total Equity | 875,153 | 824,303 | 1,897,802 | |||||||||
Total non-current liabilities | 857,980 | 1,775,193 | 2,732,091 | |||||||||
Total current liabilities | 309,204 | 601,977 | 935,673 | |||||||||
Total Liabilities | 1,167,184 | 2,377,170 | 3,667,765 | |||||||||
Total equity and liabilities | 2,042,337 | 3,201,474 | 5,565,566 |
Year Ended March 31, | ||||||||||||
(Rs. in thousands) | 2016 | 2017 | 2018 | |||||||||
Income Statement Information: | ||||||||||||
Total Revenue | 573,669 | 1,169,786 | 2,143,884 | |||||||||
Total Expenses | 818,509 | 1,522,685 | 2,709,668 | |||||||||
Profit/(Loss) before tax | (244,840 | ) | (352,899 | ) | (565,784 | ) | ||||||
Profit/(Loss) from continuing operations | (174,549 | ) | (247,550 | ) | (329,783 | ) | ||||||
Profit/(Loss) for the period | (189,823 | ) | (263,016 | ) | (329,749 | ) | ||||||
Statement of Financial Position information (at period end): | ||||||||||||
Total non-current assets | 1,715,897 | 2,770,269 | 4,863,147 | |||||||||
Total current assets | 326,440 | 431,206 | 965,428 | |||||||||
Total Assets | 2,042,337 | 3,201,475 | 5,828,575 | |||||||||
Total Equity | 875,153 | 824,304 | 2,435,593 | |||||||||
Total non-current liabilities | 857,980 | 1,775,194 | 1,565,601 | |||||||||
Total current liabilities | 309,204 | 601,977 | 1,827,381 | |||||||||
Total Liabilities | 1,167,184 | 2,377,171 | 3,392,982 | |||||||||
Total equity and liabilities | 2,042,337 | 3,201,475 | 5,828,575 |
The following tables show, for the periods indicated, information concerning the exchange rate between the U.S. dollar and the rupee. This information is provided solely for your convenience, and Smaaash and I-AM Capital do not represent that rupees have been converted into U.S. dollars at these rates or at any other rate. These rates may differ from the rates used by Smaaash in the preparation of its consolidated financial statements or other financial information appearing in this proxy statement.
The data provided in the following tables are expressed in Indian Rupees per US Dollar and are based on the noon buying rate in The City of New York for cable transfers of Indian Rupees as certified for customs purposes by the Federal Reserve Bank of New York.
On May 7, 2018, the last trading day before Smaaash and I-AM Capital announced the execution of the Subscription Agreement, the exchange rate between the U.S. dollar and the rupee expressed in Indian Rupees per U.S. dollar was $1 = Rs. 67.13. On May 8, 2018, the day of the public disclosure of the Transaction, the exchange rate between the U.S. dollar and the rupee expressed in Indian Rupees per U.S dollar was $1 = Rs.67.12. On June 15, 2018, the most recent practicable day prior to the date of this proxy statement, the exchange rate was $1 = Rs. 68.0641. (Source: Federal Reserve of New York).
High | Low | Average(1) | Period End | |||||||||||||
(Indian Rupees per US Dollar) | ||||||||||||||||
Annual Data (Year Ended March 31) | ||||||||||||||||
2018 | 65.71 | 63.38 | 64.46 | 65.11 | ||||||||||||
2017 | 68.86 | 64.85 | 67.01 | 64.85 | ||||||||||||
2016 | 68.84 | 61.99 | 65.39 | 66.25 |
(1) | The average rates for annual periods were calculated by taking the simple average of the exchange rates on the last business day of each month during the relevant period. |
High | Low | |||||||
(Indian Rupees per US Dollar) | ||||||||
Recent Monthly Data | ||||||||
June 2017 | 64.66 | 64.23 | ||||||
July 2017 | 64.84 | 64.11 | ||||||
August 2017 | 64.16 | 63.64 | ||||||
September 2017 | 65.71 | 63.78 | ||||||
October 2017 | 65.48 | 64.70 | ||||||
November 2017 | 65.46 | 64.29 | ||||||
December 2017 | 64.57 | 63.83 | ||||||
January 2018 | 64.01 | 63.38 | ||||||
February 2018 | 65.20 | 63.93 | ||||||
March 2018 | 65.24 | 64.83 | ||||||
April 2018 | 66.92 | 64.92 |
The following table sets forth historical comparative share information for Smaaash and unaudited pro forma share information after giving effect to the Transaction, assuming (i) under the minimum scenario that no holders of public shares exercise their redemption rights and (ii) under the maximum scenario that holders of 90% of the public shares exercise their redemption rights. The historical information should be read in conjunction with “Selected Historical Financial Information of Smaaash” included elsewhere in this proxy statement and the historical financial statements of Smaaash included elsewhere in this proxy statement.
The unaudited pro forma combined share information does not purport to represent what the actual results of operations of Smaaash would have been had the Transaction been completed or to project Smaaash’s results of operations that may be achieved after the Transaction. The unaudited pro forma book value per share information below does not purport to represent what the value of Smaaash would have been had the Transaction been completed nor the book value per share for any future date or period.
Historical | Pro forma (minimum) | Pro forma (maximum) | ||||||||||
As of and for the 9 month period ended December 31, 2017 | ||||||||||||
Book value (deficit) per share (Rs.)(a) | 8.8 | 18.4 | 10.1 | |||||||||
Shares outstanding | 185,734,979 | 262,376,136 | 193,555,505 | |||||||||
Basic earnings (loss attributable to common stock) per share (Rs.) for the 9 month period ended December 31, 2017 | (2.3 | ) | (1.6 | ) | (2.2 | ) | ||||||
Diluted earnings (loss attributable to common stock) per share (Rs.) for the 9 month period ended December 31, 2017 | (2.1 | ) | (1.4 | ) | (2.0 | ) | ||||||
Historical | Pro forma (minimum) | Pro forma (maximum) | ||||||||||
As of and for the year ended March 31, 2018 | ||||||||||||
Book value (deficit) per share (Rs.)(a) | 11.0 | 19.0 | 12.1 | |||||||||
Shares outstanding | 185,734,979 | 275,318,194 | 194,876,123 | |||||||||
Basic earnings (loss attributable to common stock) per share (Rs.) for the year ended March 31, 2018 | (2.0 | ) | (1.3 | ) | (1.9 | ) | ||||||
Diluted earnings (loss attributable to common stock) per share (Rs.) for the year ended March 31, 2018 | (1.8 | ) | (1.2 | ) | (1.7 | ) |
(a) | Book value per share is calculated using the following formula: Book value per share = (Total Shareholders’ Equity excluding Preferred Equity)/Total Outstanding Shares). |
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
Smaaash and I-AM Capital make forward-looking statements in this proxy statement. These forward-looking statements relate to expectations for future financial performance, business strategies or expectations for their respective businesses, and the timing and ability to complete the Transaction. Specifically, forward-looking statements may include statements relating to:
● | the benefits of the Transaction; |
● | the future financial performance of Smaaash following the Transaction; |
● | changes in the market for Smaaash products; |
● | expansion plans and opportunities; and |
● | other statements preceded by, followed by or that include the words “estimate,” “plan,” “project,” “forecast,” “intend,” “expect,” “anticipate,” “believe,” “seek,” “target” or similar expressions. |
These forward-looking statements are based on information available to Smaaash or I-AM Capital, as applicable, as of the date of this proxy statement, and current expectations, forecasts and assumptions, and involve a number of risks and uncertainties. Accordingly, forward-looking statements should not be relied upon as representing the views of Smaaash or I-AM Capital as of any subsequent date, and neither Smaaash nor I-AM Capital undertakes any obligation to update forward-looking statements to reflect events or circumstances after the date they were made, whether as a result of new information, future events or otherwise, except as may be required under applicable securities laws.
You should not place undue reliance on these forward-looking statements in deciding how to grant your proxy or instruct how your vote should be cast or vote your shares on the proposals set forth in this proxy statement. As a result of a number of known and unknown risks and uncertainties, actual results or performance may be materially different from those expressed or implied by these forward-looking statements. Some factors that could cause actual results to differ include:
● | the occurrence of any event, change or other circumstances that could give rise to the termination of the Subscription Agreement; |
● | the outcome of any legal proceedings that may be instituted against Smaaash or I-AM Capital following announcement of the proposed Transaction and related transactions contemplated thereby; |
● | the inability to complete the Transaction due to the failure to obtain approval of the stockholders of I-AM Capital, or any conditions to closing in the Subscription Agreement; |
● | the risk that the proposed Transaction disrupts current plans and operations of Smaaash as a result of the announcement and consummation of the Transaction; |
● | the ability to recognize the anticipated benefits of the Transaction, which may be affected by, among other things, competition and the ability of Smaaash to grow and manage growth profitably; |
● | costs related to the Transaction; |
● | changes in applicable laws or regulations; |
● | the possibility that Smaaash or I-AM Capital may be adversely affected by other economic, business, and/or competitive factors; and |
● | other risks and uncertainties indicated in this proxy statement, including those under “Risk Factors.” |
SPECIAL MEETING OF I-AM CAPITAL STOCKHOLDERS
General
I-AM Capital is furnishing this proxy statement to its stockholders as part of the solicitation of proxies by its board of directors for use at the special meeting to be held on ____________,September 7, 2018, and at any adjournment or postponement thereof. This proxy statement is first being furnished to I-AM Capital stockholders on or about _____________, 2018. This proxy statement provides you with information you need to know to be able to vote or instruct your vote to be cast at the special meeting. In connection with the special meeting, we are also providing you with our Annual Report on Form 10-K for the fiscal year ended May 31, 2018, which includes I-AM Capital financial statements for the year ended May 31, 2018 and I-AM Capital Management’s Discussion and Analysis of Financial Condition and Results of Operation.
Date, Time and Place of Special Meeting
The special meeting will be held at 10:00 a.m. Eastern time, on ____________,September 7, 2018, at the offices of Ellenoff Grossman & Schole LLP, 1345 Avenue of the Americas, 11th Floor, New York, New York, or such other date, time and place to which such meeting may be adjourned or postponed, to consider and vote upon the proposals.
Voting Power; Record Date
You will be entitled to vote or direct votes to be cast at the special meeting if you owned shares of I-AM Capital common stock at the close of business on ______,July 25, 2018, which is the record date for the special meeting. You are entitled to one vote for each share of I-AM Capital common stock that you owned as of the close of business on the record date. If your shares are held in “street name” or are in a margin or similar account, you should contact your broker, bank or other nominee to ensure that votes related to the shares you beneficially own are properly counted. On the record date, there were 6,813,500 shares of I-AM Capital common stock outstanding, consisting of 5,200,000 public shares, 1,561,500 founder shares, and 52,000 shares held by the underwriters of I-AM Capital’s initial public offering.
Vote of I-AM Capital FounderSponsor
In connection with I-AM Capital’s initial public offering, I-AM Capital and the underwriters of the initial public offering entered into agreements with each of the Sponsor and I-AM Capital’s executive officers and directors pursuant to which the Sponsor and the officers and directors agreed to vote the founder shares and any other shares acquired during and after I-AM Capital’s initial public offering in favor of the initial business combination.
The Sponsor, executive officers and directors have waived any redemption rights, including with respect to shares of common stock purchased in I-AM Capital’s initial public offering or in the aftermarket, in connection with Transaction. The founder shares held by the Sponsor have no redemption rights upon I-AM Capital’s liquidation and will be worthless if no business combination is effected by I-AM Capital prior to by August 21, 2018 (or May 21, 2019, if we extend the period to consummate a business combination).
Quorum and Required Vote for Proposals for the Special Meeting
A quorum of I-AM Capital stockholders is necessary to hold a valid meeting. A quorum will be present at the special meeting if a majority of the I-AM Capital common stock outstanding and entitled to vote at the special meeting is represented in person or by proxy. Abstentions will count as present for the purposes of establishing a quorum.
The approval of the Business Combination Proposal, the Incentive Plan Proposal, the Auditor Ratification Proposal, and the Adjournment Proposal require the affirmative vote of the holders of a majority of the votes cast thereon at the special meeting. Accordingly, abstentions, a broker non-vote and shares not in attendance at the special meeting will have no effect on the outcome of any vote on the Business Combination, the Incentive Plan Proposal, the Auditor Ratification Proposal, and the Adjournment Proposal, respectively.
The approval of the Certificate Amendment Proposal requires the affirmative vote of the holders of a majority of the outstanding shares of I-AM Capital common stock. Accordingly, a stockholder’s failure to vote by proxy or to vote in person at the special meeting, an abstention from voting or a broker non-vote will have the same effect as a vote “AGAINST” the Certificate Amendment Proposal.
The affirmative vote of a plurality of the votes cast by the stockholders present in person or represented by proxy at the special meeting and entitled to vote thereon is required for the election of directors. Accordingly, abstentions, a broker non-vote and shares not in attendance at the special meeting will have no effect on the outcome of any vote on the Director Election Proposal.
The Certificate Amendment Proposal and the election of Shripal Morakhia, the director nominee, as a director are conditioned on the approval of the Business Combination Proposal. If the Business Combination Proposal is not approved, the Certificate Amendment Proposal and the election of Mr. Morakhia will have no effect, even if such proposals are approved by the requisite vote.
Recommendation to I-AM Capital Stockholders
I-AM Capital’s board of directors believes that each of the Business Combination Proposal, the Certificate Amendment Proposal, the Director Election Proposal, the Incentive Plan Proposal, the Auditor Ratification Proposal and the Adjournment Proposal to be presented at the special meeting is in the best interests of I-AM Capital and its stockholders and unanimously recommends that its stockholders vote “FOR” each of the proposals and for the re-election of the four current directors standing for re-election and the election of the director nominee named in the Director Election Proposal.
When you consider the recommendation of I-AM Capital’s board of directors in favor of approval of the Business Combination Proposal, you should keep in mind that its directors and officers have interests in the Transaction that are different from, or in addition to, your interests as a stockholder. These interests include, among other things:
● | the appointment of two of I-AM Capital’s executive officers and directors, as directors (but not officers) of Smaaash even though Mr. Cherian and Mr. Kanuga will not receive any compensation for their services as directors of Smaaash; |
● | the continued indemnification of current directors and officers of I-AM Capital and the continuation of directors’ and officers’ liability insurance after the Transaction; |
● | unless I-AM Capital consummates an initial business combination, its officers, directors and the Sponsor will not receive reimbursement for any out-of-pocket expenses incurred by them to the extent that such expenses exceed the amount of available proceeds not deposited in the trust account; |
● | the Sponsor has agreed that the private placement units, and all of their underlying securities, will not be sold or transferred by it until I-AM Capital has completed a business combination; |
● | the Sponsor paid an aggregate of $25,000 for the founder shares and such securities will have a significantly higher value at the time of the Transaction; |
● | the Sponsor has agreed not to redeem any of the founder shares in connection with a stockholder vote to approve a proposed initial business combination; |
● | if I-AM Capital does not complete an initial business combination by August 21, 2018 (or May |
● | if the trust account is liquidated, including in the event I-AM Capital is unable to complete an initial business combination within the required time period, the Sponsor has agreed to indemnify I-AM Capital to ensure that the proceeds in the trust account are not reduced below (i) $10.15 per public share (or such higher amount then held in trust) or (ii) such lesser amount per public share held in the trust account as of the date of the liquidation of the trust account by the claims of prospective target businesses with which I-AM has entered into an acquisition agreement or claims of any third party for services rendered or products sold to I-AM Capital, but only if such a vendor or target business has not executed a waiver of any and all rights to seek access to the trust account. |
Broker Non-Votes and Abstentions
Under the rules of various national and regional securities exchanges your broker, bank or nominee cannot vote your shares with respect to non-discretionary matters unless you provide instructions on how to vote in accordance with the information and procedures provided to you by your broker, bank or nominee. I-AM Capital believes the proposals presented to its stockholders (other than the Auditor Ratification Proposal) will be considered non-discretionary and therefore your broker, bank or nominee cannot vote your shares without your instruction. If you do not provide instructions with your proxy, your bank, broker or other nominee may deliver a proxy card expressly indicating that it is NOT voting your shares; this indication that a bank, broker or nominee is not voting your shares is referred to as a “broker non-vote.”
Abstentions are considered present for the purposes of establishing a quorum but will have the same effect as a vote “AGAINST” the Certificate Amendment Proposal, but will have no effect on the Business Combination Proposal, the Director Election Proposal, the Incentive Plan Proposal, the Auditor Ratification Proposal, or the Adjournment Proposal. Broker non-votes will have the effect of a vote “AGAINST” the Certificate Amendment Proposal, but will have no effect on the Business Combination Proposal, the Director Election Proposal, the Incentive Plan Proposal, Auditor Ratification Proposal or the Adjournment Proposal.
Voting Your Shares
Each share of I-AM Capital common stock that you own in your name entitles you to one vote on each of the proposals for the special meeting. Your one or more proxy cards show the number of shares of I-AM Capital common stock that you own. There are several ways to have your shares voted:
● | You can submit your vote by |
● | You can attend the special meeting and vote in person even if you have previously voted by submitting a proxy. You will be given a ballot when you arrive. However, if your shares of common stock are held in the name of your broker, bank or other nominee, you must get a proxy from the broker, bank or other nominee. That is the only way we can be sure that the broker, bank or nominee has not already voted your shares of common stock. |
Revoking Your Proxy
If you give a proxy, you may revoke it at any time before the special meeting, or at such meeting by doing any one of the following:
● | you may send another proxy card with a later date; |
● | you may notify Suhel Kanuga, I-AM Capital’s Secretary, in writing before the special meeting that you have revoked your proxy; or |
● | you may attend the special meeting, revoke your proxy, and vote in person, as indicated above. |
Additional Matters May Be Presented at the Special Meeting
The special meeting has been called to consider the approval of the Business Combination Proposal, the Certificate Amendment Proposal, the Director Election Proposal, the Incentive Plan Proposal, the Auditor Ratification Proposal and the Adjournment Proposal. The stockholder may also consider and transact such other procedural matters as may properly come before the special meeting.
Who Can Answer Your Questions About Voting
If you have any questions about how to vote or direct a vote in respect of your shares of I-AM Capital common stock, you may call ____________,Morrow, I-AM Capital’s proxy solicitor, at (_____) __________.(800) 662-5200 or banks and brokers can call (203) 658-9400.
Redemption Rights
Pursuant to I-AM Capital’s Restated Certificate, any holders of public shares may demand that such shares be redeemed in exchange for a per-share price, payable in cash, equal to the aggregate amount then on deposit in the trust account as of two business days prior to the consummation of the Transaction, including interest, less taxes payable and up to $600,000 of working capital expenses, divided by the number of then outstanding public shares, subject to the limitations described herein. If demand is properly made and the Transaction is consummated, these shares, immediately prior to the Transaction, will cease to be outstanding and will represent only the right to receive a per-share price, payable in cash, equal to the aggregate amount then on deposit in the trust account as of two business days prior to the consummation of the Transaction, including interest, divided by the number of then outstanding public shares, subject to the limitations described herein. For illustrative purposes, based on funds in the trust account of approximately $52,780,000 on May 31, 2018 (excluding accrued interest set aside for working capital purposes), the estimated per share redemption price would have been approximately $10.15.
In order to exercise your redemption rights, you must, prior to 4:30 p.m. Eastern time on _________,August 13, 2018 (two business days before the special meeting), both:
● | Submit a request in writing that I-AM Capital redeem your public shares for cash to Continental Stock Transfer & Trust Company, I-AM Capital’s transfer agent, at the following address: |
Continental Stock Transfer & Trust Company
One State Street Plaza, 30th Floor
New York, New York 10004
Attn: _________Mark Zimkind
E-mail: _________mZimkind@continentalstock.com
and
● | Deliver your public shares either physically or electronically through DTC to the transfer agent. Stockholders seeking to exercise their redemption rights and opting to deliver physical certificates should allot sufficient time to obtain physical certificates from the transfer agent. It is I-AM Capital’s understanding that stockholders should generally allot at least two weeks to obtain physical certificates from the transfer agent. However, I-AM Capital does not have any control over this process and it may take longer than two weeks. Stockholders who hold their shares in street name will have to coordinate with their bank, broker or other nominee to have the shares certificated or delivered electronically. If you do not submit a written request and deliver your public shares as described above, your shares will not be redeemed. |
Any demand for redemption, once made, may be withdrawn at any time until the deadline for exercising redemption requests and thereafter, with I-AM Capital’s consent, until the vote is taken with respect to the Transaction. If you delivered your shares for redemption to I-AM Capital’s transfer agent and decide within the required timeframe not to exercise your redemption rights, you may request that the transfer agent return the shares (physically or electronically). You may make such request by contacting the transfer agent at the email or physical address listed above.
Each redemption of I-AM Capital common stock by our public stockholders will decrease the amount in our trust account, which held $52,780,000 as of May 31, 2018 (excluding accrued interest set aside for working capital purposes), and thereby reduces the equity interests in Smaaash that I-AM Capital receives in the Investment. In no event, however, will I-AM Capital redeem public shares in an amount that would cause its net tangible assets to be less than $5,000,001 immediately prior to the Investment. If I-AM Capital receives redemption requests in an amount that would cause our net tangible assets to be less than $5,000,001, the Transaction will not be consummated.
Prior to exercising redemption rights, stockholders should verify the market price of I-AM Capital common stock as they may receive higher proceeds from the sale of their common stock in the public market than from exercising their redemption rights if the market price per share is higher than the redemption price. No assurance can be made that you will be able to sell your shares of I-AM Capital common stock in the open market, even if the market price per share is higher than the redemption price stated above, as there may not be sufficient liquidity in I-AM Capital common stock when you wish to sell your shares.
If you exercise your redemption rights, your shares of I-AM Capital common stock will cease to be outstanding immediately prior to the Transaction and will only represent the right to receive the per-share redemption price. You will no longer own those shares.shares and will not be entitled to the Special Dividend. You will be entitled to receive cash for these shares only if you properly demand redemption.
If the Transaction is not approved and I-AM Capital does not consummate an initial business combination by August 21, 2018 (unless such date is extended by its stockholders)extended), I-AM Capital will be required to dissolve and liquidate and its warrants will expire worthless.
Appraisal Rights
Appraisal rights are not available to holders of shares of I-AM Capital common stock in connection with the Transaction.
PROPOSAL NO. 1 —THE BUSINESS COMBINATION PROPOSAL
I-AM Capital is asking its stockholders to approve the subscription for equity shares of Smaaash pursuant to the terms of the Subscription Agreement and the other transactions contemplated thereby. I-AM Capital stockholders should read carefully this proxy statement in its entirety for more detailed information concerning the Transaction and the Subscription Agreement, which is attached asAnnex A to this proxy statement and is incorporated by reference herein. Please see the subsection entitled “The Subscription Agreement” below for additional information and a summary of certain terms of the Subscription Agreement. You are urged to read carefully the Subscription Agreement in its entirety before voting on this proposal.
Because I-AM Capital is holding a stockholder vote on the Transaction, its Restated Certificate provides that it may consummate the Transaction only if it is approved by the affirmative vote of the holders of a majority of the shares of I-AM Capital common stock that are voted at the special meeting.
The Transaction
Pursuant to the Subscription Agreement, I-AM Capital will invest into Smaaash the funds held in the trust account, less transaction expenses, amounts used to pay I-AM Capital stockholders who properly exercise their redemption rights in connection with the vote to approve the Business Combination Proposal, and reserves for liquidation and liquidation expenses, in exchange for equity shares of Smaaash. I-AM Capital estimates that if $49.0 million is invested in Smaaash, the equity shares issued by Smaaash will constitute up to approximately 27.53% of the issued share capital of Smaaash, provided that such percentage shall decrease proportionately depending on the number of shares redeemed by I-AM Capital’s public stockholders. See “Unaudited Pro Forma Condensed Financial Information”" for further information. A copy of the Subscription Agreement is attached to this proxy statement asAnnex A.
In connection with the Investment, I-AM Capital shall change its name to “Smaaash Entertainment Inc.” and it shall receive the right under the Master Distribution Agreement and the Master Franchise Agreement to become (i) the sole distributor of Smaaash games in North America and South America and (ii) the master franchisee for Smaaash centers in North America and South America. After the Transaction, I-AM Capital shall also pursue acquisitions within the active entertainment industry in the United States with the objective of facilitating the transformation of Smaaash from an India focused company to a globally recognized brand within the active entertainment industry.
In connection with, and as a condition to, the Investment, the Shareholders’ Agreement that I-AM Capital previously entered into, pursuant to which it will have the right to, among other things, appoint two directors and jointly consent to the appointment of three additional directors to the board of directors of Smaaash (which board may have up to 10 directors), will become effective. Copies of the Master Distribution Agreement, the Master Franchise Agreement and the Shareholders’ Agreement are attached to this proxy statement asAnnex B, Annex C, andAnnex D, respectively.
The Subscription Agreement
The following is a summary of the material provisions of the Subscription Agreement between Smaaash and I-AM Capital and the other parties thereto (which we refer to as the Subscription Agreement). This summary is qualified in its entirety by reference to the Subscription Agreement, a copy of which is included as Annex A to this proxy statement and is incorporated into this proxy statement by reference. References to the Subscription Agreement include its exhibits and schedules unless the context otherwise requires. You should read the Subscription Agreement in its entirety, as it is the legal document governing this transaction. The Subscription Agreement and this summary of its terms have been included with this proxy statement to provide you with information regarding the terms of the Subscription Agreement.
In reviewing the representations and warranties contained in the Subscription Agreement and described in this summary it must be recognized that the parties negotiated the representations and warranties with the principal purpose of establishing the circumstances in which a party to the Subscription Agreement may have liability in the event that a representation or warranty is untrue due to a change in circumstance or otherwise, and allocating risk between the parties, rather than establishing matters as facts.
The Subscription Agreement has been entered into by and between I-AM Capital, Smaaash and AHA Holdings Private Limited and Mr. Shripal Morakhia (the “Smaaash Founders”).the Smaaash Founders.
Capitalized terms used but not defined herein shall have the meanings ascribed to them under the Subscription Agreement.
Pursuant to the Subscription Agreement and subject to the satisfaction or waiver of certain conditions set forth therein, I-AM Capital has agreed to subscribe to 89,583,215 shares for a consideration of up to $49,000,000. This amount will be paid through normal banking channels in accordance with Applicable Laws. The amount shall then be utilized to fuel the growth of Smaaash in accordance with the Business Plan, principally to fund acquisitions and for the repayment of existing debt up to an amount of $22,500,000.
Conditions to Closing
The parties have agreed to fulfilment of certain conditions to Closing. I-AM Capital shall make its investment in Smaaash subject to fulfilment of such conditions. Some of these include: finalization and execution of the Shareholders’ Agreement and any other Transaction Documents; there being no legal or other issue that may interfere with the consummation of any of the transactions contemplated under the Subscription Agreement; no Material Adverse Effect having occurred; all authorizations, approvals, permits, consents and waivers, having been obtained to enter into the transaction; corporate actions such as holding board and shareholder meetings, filings with the registrar of companies having been undertaken; and accounts, financials and projections of Smaaash being provided to I-AM Capital. I-AM Capital may also exercise discretion and choose to waive certain conditions.
Conduct Prior to Closing
The Subscription Agreement provides that during the period between the Effective Date and the Closing Date, Smaaash shall continue to conduct its business in its ordinary course consistent with past practices, and shall not (other than to the extent required to fulfil Conditions Precedent to Closing), without the prior written consent of I-AM Capital (which consent shall not be unreasonably withheld) undertake actions such as alter its share capital; take any action that has the effect of re-organization, consolidation, merger, demerger or sale of all or substantially all of its Assets; enter into any transactions over a value of INR 5,000,000; dissolve, wind-up or liquidate Smaaash, whether or not voluntary, or permit any restructuring of itself; incur any indebtedness over INR 500,000,000; create any security, indemnity or guarantee of value over INR 1,000,000; alter the terms of or employment of or appoint any key managerial personnel; amend the tax policies; amend the constitutional documents of Smaaash; or do or permit anything which would constitute a breach of any of the Representations and Warranties or any covenant under the Subscription Agreement.
Closing of the Transaction
Once the Conditions Precedent have been fulfilled, Smaaash shall issue a notice to I-AM Capital informing it of the completion of the Conditions Precedent. The Closing under the Subscription Agreement is expected to take place within seven (7) days of completion of the Conditions Precedent or its waiver, or such other date as may be agreed between Smaaash and I-AM Capital. The date on which the actual Closing occurs is the “Closing Date”". At Closing, I-AM Capital shall remit the Investment Amount and Smaaash shall hold a meeting of its Board and its shareholders in order to ensure all corporate actions are given effect to,such asissue and allotment of the shares to I-AM Capital, entering the name of I-AM Capital as the registered holder of the Subscription Shares in the statutory records of Smaaash; approving amendment to the Articles of Smaaash and appointment of Directors nominated by I-AM Capital, to the Board. All the Closing actions shall occur simultaneously on the Closing Date itself.
Stockholders should note that depending on the level of redemptions by the I-AM Capital stockholders, I-AM Capital may own less than 50% of the share capital of Smaaash on a fully diluted basis even after the transfer by the Smaaash Founders of all of their equity ownership to I-AM Capital.
The following tables illustrate varying ownership levels assuming varying levels of investments and redemptions by I-AM Capital stockholders on the Closing Date and upon the transfer by the Smaaash Founders of their ownership in smaaash six (6) months after the Closing Date:
On the Closing Date: | |||||||||||||||
Investment Amount (US Dollars in Millions) | $5 | $25 | $35 | $49 | |||||||||||
% of I-AM Capital Public Shares Redeemed | 90 | % | 49 | % | 29 | % | 0.00 | % | |||||||
Current Smaaash Shareholders | 96.27 | % | 83.76 | % | 78.66 | % | 72.47 | % | |||||||
I-AM Capital | 3.73 | % | 16.24 | % | 21.34 | % | 27.53 | % |
After the Transfer by the Smaaash Founders Six Months After the Closing Date: | |||||||||||||||
Investment Amount (US Dollars in Millions) | $5 | $25 | $35 | $49 | |||||||||||
% of I-AM Capital Public Shares Redeemed | 90 | % | 49 | % | 29 | % | 0.00 | % | |||||||
Current Smaaash Shareholders (Less Founders) | 71.93 | % | 59.42 | % | 54.32 | % | 48.13 | % | |||||||
I-AM Capital | 28.07 | % | 40.58 | % | 45.68 | % | 51.87 | % |
Upon Closing having occurred, the following items shall be completed: filings with the relevant Registrar of Companies, India with respect to the appointment of Directors by I-AM Capital; filing of Advance Reporting Form along with the supporting documents to the Reserve Bank of India on the e-Biz platform with regard to the Investment Amount; filing of Form FC-GPR along with the supporting documents to the Reserve Bank of India on the e-Biz platform with regard to the Subscription Shares. If any of the provisions relating to Closing are not complied with, then, unless otherwise agreed by I-AM Capital, Smaaash shall, immediately repay the Investment Amount to I-AM Capital in accordance with Applicable Laws, and thereafter the Subscription Agreement shall terminate and cease to have effect.
Covenants and Agreements
Parties have made certain covenants under the Subscription Agreement such as: Parties agree that no publicity or dissemination of information in any manner with regard to the transactions contemplated in the Subscription Agreement shall be made without the prior written consent of I-AM Capital; Parties shall keep confidential any non-public information; Parties shall use their best efforts to cause the transactions contemplated by the Subscription Agreement including obtaining all Approvals of Governmental Authorities and other Persons as may be necessary or required by I-AM Capital and its nominees in order to achieve the objectives of the Subscription Agreement.
In addition, the Parties agreed that l-AMI-AM Capital shall invest any and all monies it receives, (i) pursuant to the exercise of outstanding warrants for its capital stock and (ii) from capital raises of additional funds outside of India whether from the public or in private transactions, into Smaaash as consideration for the subscription of additional shares of Smaaash, and any such investment in Smaaash will be at the same valuation as the valuation used when the warrants were issued or the funds were raised, as the case may be. There is no investment limit or ceiling on the investment of proceeds from exercise of outstanding warrants and capital raised outside of India.
The Smaaash Founders also agreed that if Smaaash does not meet its projected EBITDA target of $45 million for the fiscal year ending March 31, 2020, they would, at the sole discretion of l-AMI-AM Capital, either (i) transfer such number of equity shares of Smaaash coustitutingconstituting 5% (five percent) of the share capital of Smaaash, as of June 22, 2018, as held by the Smaaash Founders in Smaaash, to l-AMI-AM Capital, or (ii) dilute their shareholding in l-AMI-AM Capital (if any, as on that date) by 5% (five percent) or more (as may be agreed between the Smaaash Founders and l-AMI-AM Capital) at no cost or the lowest permissible price under applicable laws.
The Smaaash Founders further agreed that within six (6) months following the Closing Date, they shall transfer all of their ownership interest in Smaaash (representing 33.6% of the share capital of Smaaash on a fully diluted basis as of June 22, 2018)2018 and which will represent 24.34% of the share capital of Smaaash on a fully diluted basis immediately after the Investment) to l-AMI-AM Capital in exchange for newly issued shares of common stock of l-AMI-AM Capital in an amount which would enable the Smaaash Founders to retain their 33.6%24.34% post-Investment ownership interest in Smaaash throughtheir interest in l-AMI-AM Capital.
Smaaash agreed that on the Closing Date it shall make a lump sum payment of $250,000 to l-AMI-AM Capital to be used as working capital and to set up the entertainment centers in North America. Smaaash further agreed that it shall arrange for a line of credit for l-AMI-AM Capital under applicable Indian law in an amount of up to $200,000.$2,000,000, which amount is subject to review from time to time by the board of directors of Smaaash and l-AMI-AM Capital, until such time as the revenue that l-AMI-AM Capital generates is sufficient to meet its ongoing expenses.
Representations and Warranties
Under the Subscription Agreement, Smaaash and Smaaash Founders jointly and severally make representations and warranties relating to the organization, authorization to execute the Subscription Agreement, corporate matters, compliance with applicable laws, authorization and ownership of the shares of Smaaash. In addition, Smaaash and the Smaaash Founders jointly and severally also make representations and warranties relating to financial statements and financial matters, business and its operations, taxation, assets and properties, commercial matters, employees, litigation, insolvency, completeness of statements and environment related matters. Smaaash and the Smaaash Founders have, wherever applicable, made few disclosures against the representations and warranties, as an exception to such representation and warranty. No disclosures are, however, made against Fundamental Warranties. I-AM Capital makes certain representations and warranties under the Subscription Agreement, as well. These include representations relating to its organization, its power and authority to execute the Subscription Agreement, non-violation of any other agreements in its entering into the Subscription Agreement and non-contravention of applicable laws.
Indemnification
The Subscription Agreement contains certain indemnification obligations of the Smaaash Founders. The Smaaash Founders agree to indemnify I-AM Capital, its Affiliates and its directors, employees, agents, representatives, successors and assigns from and against any and all direct (and not remote) losses, costs, claims, damages and expenses (including reasonable attorney fees) and interest incurred or suffered by the foregoing Persons in relation to any and all claims, demands, notices of claims issued by any Person, Actions, causes of actions, suits, litigation or any proceeding by virtue of: (a) any inaccuracy in or misrepresentation or breach of any of the Representations and Warranties (except as disclosed in the Disclosure Schedule or the Updated Disclosure Schedule, as the case may be, except for Fundamental Warranties), (b) notwithstanding anything contained in the Subscription Agreement or the Disclosure Schedule and/or the Updated Disclosure Schedule, failure on behalf of the Smaaash Founders or Smaaash to obtain (i) necessary registrations for the purpose of the conduct of the business; or (ii) such other registrations mandated under Applicable Law, with respect to Smaaash and each of its Subsidiaries; (c) any fraudulent conduct, gross negligence, willful misconduct or intentional concealment of information, of or by the Smaaash Founders or Smaaash; (d) any breach of or default by any of the Smaaash Founders and/or Smaaash of any covenants or undertakings of the Smaaash Founders and/or Smaaash or any other provision contained in the Transaction Documents; or (e) any and all Actions, causes of Action and suits arising out of, relating to or in connection with the operation of Smaaash, pursuant to which I-AM Capital is named a party.
The indemnity is meant to operate in a manner so as to place I-AM Capital or, at its election, Smaaash, in the same position as it would have been in, had there not been any breach or inaccuracy, and as if the indemnity, had not been triggered.
The total aggregate liability of the Smaaash Founders in respect of all Claims made pursuant to the indemnity provisions of the Subscription Agreement shall not exceed the Investment Amount. This, however, shall not be applicable to indemnity Claims made in relation to (i) breach of Fundamental Warranties; (ii) any Claims pursuant to fraud, willful misconduct and (iii) claims pursuant to sub-clause (b) above. The claim for indemnity by I-AM Capital is not subject to the requirement of ade minimis orper deductible cap.
Limitations on Warranties and Survival of Indemnity
I-AM Capital shall not be entitled to make a Claim for a breach of Representations and Warranties, unless such Claim has been made on or before the expiry of the relevant Claim Period.
Termination
The Subscription Agreement may be terminated by the mutual agreement in writing of the parties. In addition, I-AM Capital has the right to terminate the Subscription Agreement immediately if (i) the conditions precedent to the Closing have not been fulfilled to I-AM Capital’s satisfaction within 30 days of the Effective Date; (ii) there is a breach by Smaaash or the Smaaash Founders of their representations and warranties; (iii) updated disclosure schedules provided by Smaaash and the Smaaash Founders are not acceptable to I-AM Capital; or (iv) an event occurs that has a material adverse effect, as defined in the Subscription Agreement. If the Subscription Agreement is terminated, all of the rights and obligations of the parties under the Subscription Agreement will terminate, except for rights that have already accrued and the rights and obligations under the provisions relating to indemnification, Effective Date and termination, confidentiality, notices, and governing law and arbitration.law.
Governing Law and Dispute Resolution
The governing law shall be the laws of India. Any disputes arising out of the Shareholders Agreement shall be resolved by arbitration, by a single arbitrator, which shall be governed by the rules of Singapore International Arbitration Centre.
Agreements Related to the Subscription Agreement
Shareholders Agreement
The Shareholders Agreement which has been negotiated and finalized by I-AM Capital sets out the rights of I-AM Capital vis-à-vis the other shareholders of Smaaash and Smaaash. The Shareholders Agreement further, inter alia, sets out the management and governance rights, nomination rights to the board of directors, information and inspection rights and the reserved matter rights of I-AM Capital, which has been detailed below. The Shareholders Agreement shall be adopted by all the shareholders of Smaaash in a meeting of the members convened by Smaaash and shall be entrenched into the articles of association of Smaaash, which shall make it binding on all shareholders of Smaaash. Capitalized terms used but not defined herein shall have the meanings ascribed to them under the Shareholders Agreement. The Shareholders Agreement has been entered into by and between I-AM Capital, FW Metis Limited, Mitesh R Gowani, Smaaash Founders (being Mr. Shripal Morakhia and AHA Holdings Private Limited) and Smaaash.
Further Issue of Securities
If the board of Smaaash decides to raise fresh capital contributions, I-AM Capital shall have the right to subscribe to such number of securities of Smaaash so as to maintain its shareholding in Smaaash on a Fully Diluted Basis, simultaneous with the investment by the proposed subscriber. Further, if any other existing shareholder of Smaaash who has a similar right to subscribe to additional shares fails to exercise his right, the entitlement of such existing shareholder shall automatically devolve upon I-AM Capital who will have to accept and exercise the devolved entitlement.
Valuation Protection
If Smaaash issues any New Securities at a price per Security that is lower than the I-AM Capital Issue Price, then I-AM Capital shall be entitled to broad based weighted average anti-dilution protection. Smaaash and the Smaaash Founders shall take necessary steps to issue additional equity shares to I-AM Capital, at no additional amounts or at the lowest price required to be paid under applicable law, in accordance with the broad based weighted average anti -dilution formula.
Transfer Restrictions
Transfer by I-AM Capital
I-AM Capital shall not have any restrictions on transfer of shares to its Affiliates. I-AM Capital may transfer shares to any person who is not a Restricted Person until the Metis Fall Away Date. After the Metis Fall Away Date or upon the occurrence of an Event of Default, I-AM Capital shall have the right to transfer its shares to any Person including a Restricted Person but other than a Person who has been convicted of a criminal or an economic offence where the punishment is not less than imprisonment of six (6) months, without any restriction whatsoever or any obligation to make an offer to the Smaaash Founders, together with any or all of the rights of I-AM Capital.
Smaaash Founder Shares Lock-in
The Smaaash Founders shall not transfer any shares without the consent of I-AM Capital except to Permitted Smaaash Founder Transferees. Any transfer of shares by the Smaaash Founders with the consent of I-AM Capital shall be subject to, inter alia, the right of first offer and tag along right of I-AM Capital.
Right of First Offer
If any Smaaash Founder Shares are sought to be Transferred, or if I-AM Capital seeks to Transfer any Securities held by it, then the Transferring Shareholder shall provide to the Non-Transferring Shareholder(s) the right of first offer with respect to the Securities that are proposed to be Transferred by the Transferring Shareholder. However, there shall be no right of first offer between the Shareholders of Smaaash other than the Smaaash Founders, in the event of Transfer of Shares by them.
Tag Along Right
In case any or all Smaaash Founders, individually or collectively, propose to Transfer any Shares held by them in Smaaash, then I-AM Capital shall, in addition to its right of first offer, be entitled to exercise its Tag Right, along with Metis and the other Shareholders of Smaaash. If the Smaaash Founders Transfer equal to more than 10% of the Smaaash Founder Shares in aggregate either in a single or series of transactions, then I-AM Capital shall have the right to Transfer all the Securities held by I-AM Capital in Smaaash.
Board, Management and Other Related Matters
The board of Smaaash shall be comprised of up to a maximum of ten (10) Directors. I-AM Capital shall have the right to nominate two (2) directors and the right to jointly nominate an additional three (3) directors. I-AM Capital may also nominate one (1) Observer on the Board. Mr. Shripal Morakhia shall not resign from full time employment of Smaaash until such time as I-AM Capital no longer holds any Securities in Smaaash. The mandatory quorum for all board meetings shall inter alia include presence of 1 (one) I-AM Capital director throughout the meeting. The mandatory quorum for all meetings of the members shall also require one representative of I-AM Capital.
Reserved Matters
No action shall be taken by Smaaash or a resolution passed by the Board, or committees of the Board or by the Shareholders, except with the affirmative vote (in person or in writing) of I-AM Capital, or the prior written consent of I-AM Capital or such Person(s) as may be nominated by I-AM Capital in this regard, in respect of the matters listed in the Shareholders Agreement. The Reserved Matters include all the significant strategic, commercial and management decisions which may be taken by Smaaash, including, (i) any alteration to the rights, preferences, or privileges of any Securities to the extent it affects the rights of I-AM Capital, (ii) divestment of or sale of assets or business of Smaaash, (iii) any modification to the business plan, (iv) merger, demerger, restructuring, acquisition, change of voting control, (v) change to the Board composition, and (vi) authorizing any indebtedness exceeding five (5) times the debt to EBITDA ratio of Smaaash for each financial year.
Exit
Smaaash and the Smaaash Founders agree and covenant to endeavour to provide an exit to I-AM Capital (at the option and with the approval of I-AM Capital by way of a QIPO or secondary sale), at any time after the Investor Exit Date, but prior to the Final Deadline Date. For clarity, the Investor Exit Date is March 31, 2022 and the Final Deadline Date is six (6) months from the Investor Exit Date. In a secondary sale, the consideration to be received by I-AM Capital shall not be less than the sum of the Investment Amount and an IRR of 20% (twenty percent). In the event Smaaash fails to provide a complete exit to I-AM Capital on or prior to the Final Deadline Date, then I-AM Capital may require Smaaash by delivering a Buy-back Notice, to buyback all or any of the Subscription Shares in one or more tranches; and/or require the Smaaash Founders by way of a Notice, to purchase all or any of the Subscription Shares, in each case, at a price not less than the sum of the Investment Amount and an IRR of 20% (twenty percent). In case (i) Smaaash and the Smaaash Founders fail to provide a complete exit to I-AM Capital on or prior to the Final Deadline Date or (ii) in case the Smaaash Founders have committed fraud or embezzlement in relation to the affairs of Smaaash, then I-AM Capital (along with other shareholders, as applicable) shall have the right but not the obligation to require the Smaaash Founders (including Group Companies or the Immediate Family Members) to and cause the Smaaash Founders to require BCCL, SRT and Mr. Samir Patel, by way of a written notice in this regard to undertake a sale of all or a part of their shareholding of Smaaash.
Liquidation Preference
Upon the occurrence of a Liquidation Event, I-AM Capital shall be entitled to be paid an amount equal to the Investor Exit Price pari passu and simultaneously with the payment of liquidation preference amounts to Metis, Qualified Investors, BCCL and SRT, as set out in the Articles.
Governing Law and Jurisdiction
The governing law shall be the laws of India. Any disputes arising out of the Shareholders Agreement shall be resolved by arbitration, by a single arbitrator, which shall be governed by the rules of Singapore International Arbitration Centre.
Master Franchise Agreement
Franchise and license right. Under the Master Franchise Agreement, Smaaash has granted to I-AM Capital an exclusive right to establish and operate Smaaash Centers (as defined under the Master Franchise Agreement) and to sublicense the right to establish and operate Smaaash Centers to third party franchisees, and a license to use the products and other services developed by Smaaash with respect to the Smaaash Centers, in the territories of North America and South America (“Territory”). Further, Smaaash has granted to I-AM Capital the limited license to use the Trademarks of Smaaash (as set out in the Master Franchise Agreement) for the purposes of establishing and operating the Smaaash Centers in the Territory. The Master Franchise Agreement has been executed on an arms’ length basis between Smaaash and I-AM Capital.
Obligations of I-AM Capital. All future rights, goodwill and reputation of the Smaaash Marks shall inure to the benefit of Smaaash. I-AM Capital shall not directly or indirectly engage or be concerned with any business which competes with Smaaash’s business in the Territory during the term of the Master Franchise Agreement. I-AM Capital shall market, promote and publicize the Smaaash Centers in the Territory. I-AM or third party sub-franchisees shall be under an obligation to set up at least six Smaaash Centers during the first calendar year.
Obligations of Smaaash. Smaaash shall assist in training and installing the equipment and bear all the costs associated therewith. The franchisee or sub-franchisee will bear the cost to set up the Smaaash Center.
License fees and other payments. Franchisee or the third party franchisee shall be entitled to receive the revenue generated from each of the Smaaash Centers. In connection with the operations of the Smaaash Centers by sub-franchisees, I-AM Capital shall be entitled to receive (i) a signup fee equal to 5% of the capital expenditure of the sub-franchisee, (ii) 5% of the revenue of the sub-franchisee on an annual basis; and (iii) a 15% markup of the products sold to the sub-franchisee. Smaaash will not receive any portion of the revenue or other fees in connection with the Master Franchise Agreement.
Ownership of Smaaash Marks. Smaaash shall be the sole owner of all intellectual property related to the Smaaash Centers.
Term of the Agreement. The Master Franchise Agreement shall commence from its execution date and continue until the agreement is terminated in accordance with the Master Franchise Agreement.
Termination. The Master Franchise Agreement may be terminated (i) by the mutual written agreement of parties or (ii) by Smaaash if I-AM Capital fails to make a payment, ceases to operate or abandon’s the Smaaash Centers or fails to use best efforts to market the Smaaash Centers and such failure is not cured within 30 days’ of notice of the failure.
Governing laws and jurisdiction of courts. The governing law of the Master Franchise Agreement shall be laws of the State of New York and New York State Supreme Court, County of New York or in the United States District Court for the Southern District of New York shall have exclusive jurisdiction with respect to matters arising out of the Master Franchise Agreement.
Master Distribution Agreement
Grant of license and distribution rights. Under the Master Distribution Agreement, Smaaash has granted to I-AM Capital an exclusive right to purchase from Smaaash specialized equipment and products related to sports and recreational activities (“Products”) in the territory under the brand name of Smaaash and sell them with a 15% markup to the customers which shall be the sub-franchisees of I-AM Capital who shall operate the Smaaash Centers, as specified in the Master Franchise Agreement.
Pricing. The pricing of the sale of the Products to the customers by I-AM Capital shall be as mutually discussed and agreed among the parties. Further, I-AM Capital shall receive a markup of 15% for the distribution of the Products.
Grant of license in Smaaash Marks.Smaaash has also granted a license I-AM Capital to use the Trademarks (as set out in the Agreement) on a royalty free basis for the purpose of promoting the sale of the Products in the Territory.
Ownership of the Smaaash Games. Smaaash shall be the sole owner of any intellectual property rights relating to the Products and all the goodwill relating thereto.
Term. The Master Distribution Agreement shall commence from its execution date and continue until the agreement is terminated in accordance with the Master Distribution Agreement.
Termination.The Master Distribution Agreement may be terminated (i) by the mutual written agreement of parties, (ii) by Smaaash if I-AM Capital fails to make a payment or use best efforts to market the Products and such failure is not cured within 30 days’ of notice of the failure, and (iii) by I-AM Capital for any reason upon 120 days’ notice.
Governing laws and jurisdiction of courts. The governing law of the Master Distribution Agreement shall be laws of the State of New York and New York State Supreme Court, County of New York or in the United States District Court for the Southern District of New York shall have exclusive jurisdiction with respect to matters arising out of the Master Distribution Agreement.
Plan of Operations
Under the Master Franchise Agreement and the Master Distribution Agreement, I-AM Capital will become the master franchisee for the Smaaash Centers in North and South America as well as the sole distributor of Smaaash games and equipment in North America and South America. In addition, I-AM Capital will pursue acquisitions within the U.S. entertainment industry to facilitate the transformation of Smaaash from an India focused company to a globally recognized brand in the entertainment industry. Set forth below is the plan of operations of I-AM Capital following the consummation of the Transaction.
Smaaash Centers
I-AM Capital will work with Smaaash to identify franchisees for Smaaash centers in North and South America. Initially, the focus will be on expansion in North America while working in parallel to identify growth markets in South America. I-AM Capital plans to identify franchisees to set up a minimum of 6 new centers in New Jersey, Pennsylvania, Delaware, California, Florida and Illinois in the United States within the first year, with an estimated capital expenditure of around $900,000 to $1,500,000 per center, depending on the size of the center. Smaaash has already entered into an agreement with Simon Properties, one of the largest mall operators in the United States, which allows Smaaash Centers to be opened at specific Simon-operated malls throughout the United States. The first such Simon-property selected is in Menlo Park, New Jersey, where a Smaaash Center owned by Smaaash is expected to be operational in the second half of 2018. The arrangement with Simon Properties provides the Company with access to potential locations where Centers can be opened by third party franchisees through the Company'sCompany’s master franchise agreement. I-AM Capital is currently in discussion with various potential franchisees.
I-AM Capital will help market, promote and publicize these centers to strengthen the Smaaash brand and products across the United States. I-AM Capital will appoint a Chief Operating Officer for the Smaaash Center operations within two months following the closing of the Transaction and Smaaash will designate personnel from their team in India to assist and train the franchisees in setting up the centers.
The formats available for franchising in the United States includes Smaaash Zone, Smaaash and Smaaash Mega. The table below shows the size, costs, time and number of employees required to set up different type of Smaaash centers in the United States and the services available at each type of center.
Smaaash Zone | Smaaash | Smaaash Mega | ||||||||||
Size (sq. ft.) | 6,000 | 12,000 | 18,000 | |||||||||
Capital expenditure (USD) | 900,000 | 1,200,000 | 1,500,000 | |||||||||
Time required to set up a center (days) | 90 | 120 | 120 | |||||||||
No. of employees required to run center (#) | 10 | 16 | 22 | |||||||||
Attractions and facilities | Sports, VR and Arcade games | Sports, VR and Arcade games and F&B and Banquets | Sports, VR and Arcade games and F&B and Banquets |
Smaaash will make a one-time payment of $250,000 to I-AM Capital as working capital and to help it identify franchisees and set up on its own Smaaash Centers. Smaaash also agreed to arrange for a line of credit in accordance with Indian law to fund I-AM Capital’s operations after the closing of the Transaction until such time as I-AM Capital generates sufficient revenue to support its operations. The operations of Smaaash Centers will be funded by franchisees. I-AM Capital will receive (i) a signup fee equal to 5% of the capital expenditure of the franchisee; (ii) 5% of the revenues of the franchisee on an annual basis and (iii) a 15% markup of the products sold to the franchisee.
The investment in Smaaash will help expand the Smaaash brand franchise in North and South America as well as help it capitalize on the potential of entertainment centers in the United States, specifically VR/AR gaming. The investment in Smaaash will help Smaaash in achieving its growth plans in India and international markets.
I-AM Capital will benefit from the investment in Smaaash. In connection with the investment, I-AM Capital will become the master franchisee for the Smaaash Centers as well as the sole distributor of Smaaash games and equipment in North and South America. I-AM Capital will begin its franchise operations and product distribution and generate revenue from such operations. The investment will better align I-AM Capital’s interest with Smaaash’s and promote the growth of Smaaash. The success of Smaaash and its ability to continually invest and develop products in the gaming space will directly affect I-AM Capital’s franchisee business in North and South America and financial results.
In the future, I-AM Capital may open and operate the Smaaash centers on its own with capital from its operations or proceeds from financing.
The operations of Smaaash Centers in North and South America involve various risks. See “Risk Factors.”
Product Distribution
I-AM Capital will focus largely on theme parks having an annual attendance of 500,000 or more to sell Smaaash’s gaming products relating to sports and virtual reality. I-AM Capital is in the process of hiring a sales manager dedicated for this purpose.
Distribution of Smaaash products in North and South America involve various risks. See “Risk Factors.”
Government Regulations
The development and operation of Centers in the United States is subject to numerous federal, state and local governmental regulations, including those relating to the operation of redemption, video, and arcade games and rides,the preparation and sale of food and alcoholic beverages, sanitation, public health, fire codes, zoning, and building requirements. Each Center with a restaurant requires appropriate licenses from regulatory authorities allowing it to sell liquor, beer and wine, and each restaurant requires food service licenses from local health authorities. Smaaash Centers licenses to sell alcoholic beverages must be renewed annually and may be suspended or revoked at any time for cause, including violation by us or our employees of any law or regulation pertaining to alcoholic beverage control, such as those regulating the minimum age of employees or patrons who may serve or be served alcoholic beverages, the serving of alcoholic beverages to visibly intoxicated patrons, advertising, wholesale purchasing and inventory control. In order to reduce this risk, restaurant employees shall be trained in standardized operating procedures designed to assure compliance with all applicable codes and regulations. The Centers shall also be subject to governmental regulations, such as the Foreign Corrupt Practices Act, that impact the way I-AM Capital does business with its international franchisees and vendors, and, as it expands into international markets, it may be subject to various foreign regulations. I-AM Capital intends to implemented policies, procedures and training to ensure compliance with these regulations.
I-AM Capital and its franchisees will also be subject to laws governing their relationship with employees including those related to minimum wage requirements, exempt status, overtime, health insurance mandates, working and safety conditions, immigration status requirements, child labor, and non- discrimination. I-AM Capital’s failure or the failure of its franchisees to comply with international, federal, state and local employment laws and regulations may subject it to losses and harm its brands. The laws and regulations govern such matters as wage and hour requirements; workers’ compensation insurance; unemployment and other taxes; working and safety conditions; and citizenship and immigration status. Significant additional government-imposed regulations under the Fair Labor Standards Act and similar laws related to increases in minimum wages, overtime pay, paid leaves of absence, scheduling, and mandated health benefits, may also impact the performance of franchised operations. In addition, employee claims based on, among other things, discrimination, harassment, wrongful termination, wage and hour requirements and payments to employees who receive gratuities, may divert financial and management resources and adversely affect operations. The losses that may be incurred as a result of any violation of such governmental regulations by I-AM Capital or its franchisees are difficult to quantify.
In addition, I-AM Capital will be subject to various state and federal laws relating to the offer and sale of franchises and the franchisor-franchisee relationship. In general, these laws and regulations impose specific disclosure and registration requirements prior to the sale and marketing of franchises and regulate certain aspects of the relationship between franchisor and franchisee.
Background of the Transaction
The terms of the Transaction are the result of negotiations between the representatives of I-AM Capital and Smaaash. The following is a brief description of the background of these negotiations and the resulting Transaction.
I-AM Capital is a blank check company organized under the laws of the State of Delaware on April 17, 2017. The Company was formed for the purpose of effecting a merger, share exchange, asset acquisition, share purchase, reorganization or similar business combination with one or more businesses. Although I-AM Capital is not limited to a particular industry or geographic region for purposes of consummating a business combination, I-AM Capital focuses on businesses with a connection to India.
On May 31, 2017, I-AM Capital issued 1,437,500 shares of I-AM Capital’s common stock to the Sponsor in exchange for a capital contribution of $25,000. Upon the partial exercise of the underwriters’ over-allotment option on September 13, 2017, 137,500 founder shares were forfeited by the Sponsor.
The founder shares are identical to the shares of common stock included in the units and holders of founder shares have the same stockholder rights as public stockholders, except that (i) the founder shares and the shares of common stock underlying the private units are subject to certain transfer restrictions, and (ii) the Sponsor has entered into a letter agreement, pursuant to which it has agreed (A) to waive its redemption rights with respect to the founder shares, and the shares of common stock underlying the private units and the public units in connection with the completion of a business combination and (B) to waive its rights to liquidating distributions from the trust account with respect to the founder shares and the shares of common stock underlying the private units if I-AM Capital fails to complete a business combination within 12 months from the closing of the initial public Offering (or up to 21 months from the closing of the initial public offering if I-AM Capital extends the period of time to consummate a business combination).
On August 22, 2017, I-AM Capital sold 5,000,000 public units at a purchase price of $10.00 per public unit in its initial public offering, generating gross proceeds of $50.0 million. I-AM Capital incurred offering costs of approximately $3.7 million, inclusive of approximately $3.2 million of underwriting fees. I-AM Capital paid $1 million of underwriting fees upon the closing of the initial public offering, issued 50,000 shares of common stock for underwriting fees, and deferred $1.75 million of underwriting fees until the consummation of the initial business combination. Each unit consists of one share of I-AM Capital’s common stock, one right to receive one-tenth of one share of I-AM Capital’s common stock upon consummation of I-AM Capital’s initial business combination, and one redeemable warrant. Each warrant entitles the holder to purchase one share of common stock at an exercise price of $11.50 per share, subject to adjustment. No fractional shares will be issued upon exercise of the warrants. The warrants will become exercisable on the later of (i) 30 days after the completion of the initial business combination and (ii) 12 months from the closing of the initial public offering, and will expire five years after the completion of the initial business combination or earlier upon redemption or liquidation. There will be no redemption rights or liquidating distributions with respect to the warrants and rights, which will expire worthless if I-AM Capital fails to complete it business combination within the above specified period. The Company granted the underwriters a 45-day option to purchase up to 750,000 additional public units to cover any over-allotment, at the initial public offering price less any underwriting discounts and commissions. On September 13, 2017 the underwriters purchased 200,000 additional public units for gross proceeds of $2,000,000 less commissions of $110,000, of which $70,000 are deferred. The Company issued Maxim Group LLC, as compensation for the initial public offering, 50,000 shares at the closing of the initial public offering, plus an additional 2,000 shares upon partial exercise of the over-allotment.
Concurrently with the closing of the initial public offering, the Sponsor purchased an aggregate of 254,500 private placement units at $10.00 per private placement unit, generated gross proceeds of $2,545,000 in a private placement. The private placement units (including their component securities) will not be transferable, assignable or salable until 30 days after the completion of the initial business combination and the warrants included in the private units will be non-redeemable so long as they are held by the Sponsor or its permitted transferees. After deducting underwriting discounts and commissions and offering expenses, $50,750,000 of the proceeds of I-AM Capital’s initial public offering and the private units was placed in a trust account with Continental Stock Transfer & Trust Company as trustee. Currently $52,780,000 is in trust following the underwriter partially exercising its overallotment option and the sale of additional private placement units to the Sponsor. The trust proceeds are invested in U.S. government treasury bills with a maturity of 180 days or less or money market funds meeting certain conditions under Rule 2a-7 under the Investment Company Act, which invest only in direct U.S. government treasury obligations.
Upon completion of the IPO of I-AM Capital in August 22, 2017, Mr. Cherian and Mr. Kanuga prepared an extensive list of their relationships and contacts, which would be helpful in identifying a suitable business combination opportunity. They determined investment banks, private equity firms, deal advisers, law firms, and accounting firms would provide good deal flow.
Mr. Kanuga travelled to Mumbai, India on August 23, 2017 and began tapping the networks and relationships, introducing I-AM Capital Acquisition Company, and the type of companies/sectors I-AM Capital was looking to invest in.
From mainly September to December 2017, Mr. Kanuga met with over 15 private equity firms, investment banks, deal advisers, accounting firms and law firms. Mr Cherian assisted in these meetings during his visits to India in September and October.
Mr. Cherian met also representatives of Nomura and UBS in New York, with the objective of tapping their networks for deals connected to India. Nomura presented Mr. Cherian with a pitchbook on suitable opportunities for I-AM Capital, particularly in the technology and services sectors. UBS introduced Mr. Cherian to the UBS India team, who were closer to deals on the ground in India.
From September to December 2017, Mr. Cherian and Mr. Kanuga met with a number of potential attractive companies to consider a transaction with. Of the companies that Messrs. Cherian and Kanuga met with, four were in the technology sector, three companies operate in the infrastructure sector, including toll road operation and road building, two companies were in the financial services sector, two companies operate in the energy sector, one company was in the specialized plastics sector and one company was in the manufacturing sector. Mr. Cherian and Mr. Kanuga deliberated extensively on the merits of each deal, looking closely at the sector, the growth opportunity, scalability of the business model, impact of technology, operating and financial metrics, government regulation, and strength of management team. Based on these factors, an IT infrastructure and services company (“Target 1”1") ranked ahead of the others given the scalable opportunity in areas such as Smart Cities, Public Wifi, and Intelligent Transit Systems. Mr. Cherian and Mr. Kanuga commenced detailed discussions with Target 1 on a transaction.
Over the next few months, mainly from October 2017 to February 2018, Mr. Cherian and Mr. Kanuga pursued Target 1. Target 1 was going through a Strategic Debt Restructuring, which would have provided attractive investment terms for I-AM Capital, once Target 1’s long term debt and working capital limits were restructured. Accordingly, Mr. Kanuga spent considerable time on-the-ground in India meeting with and working with Target 1’s lenders, along with the management team of Target 1, in order to arrive at a suitable plan under the Strategic Debt Restructuring, which would then have to be approved by the Joint Lenders Forum. The State Bank of India, India’s largest public sector bank, was the lead lender to Target 1, and as such, Mr. Kanuga collaborated closely with senior officials of SBI to draft acceptable terms for restructuring Target 1’s debt. Once draft terms were negotiated, Mr. Kanuga also travelled to New York in November with the Founder of Target 1. Along with the Founder of Target 1, Mr. Cherian and Mr. Kanuga met with Maxim, Nomura, and SunTrust, presenting the draft restructuring plan they had arrived at with Target 1’s lenders, and soliciting input. Meetings were also held with I-AM Capital Chairman Mr. Caldwell, and Board member Mr. Franklin. Meetings were also held with key officials at NASDAQ. Overall feedback was positive, and Mr. Kanuga travelled to India to continue to pursue the transaction, while continuing to meet other potential opportunities.
In November and December 2017, Mr. Kanuga received proposals from Aarayaa Advisory Services, a key adviser to investment funds in India. After a number of meetings to vet potential deals, Mr. Kanuga spoke with and met with an aircraft maintenance company, one of their key investors GTE Capital, a US investment fund with offices in India. Mr. Kanuga also deliberated with, a unicorn technology firm (ecommerce firm).After completing its analysis, I-AM Capital determined that this company did not represent the best opportunity for a successful business combination based on its large writedowns, conflicted investor base and declining market share.
Mr. Kanuga received a proposal from Grant Thornton, recommending a flooring company (“Target 2”2"). Mr. Kanuga subsequently met with the management team at Target 2. I-AM Capital decided not to pursue a business combination with Target 2 because of its small revenues, lack of clear business strategy and trading company status.
Mr. Kanuga spoke with YES Securities (India) Limited, a leading mid-market Investment Bank in India (“Yes Securities”), who presented proposals for Smaaash Entertainment (entertainment and virtual reality gaming company) and a media technology company. YES Securities spoke with both companies and Smaaash was interested in exploring a transaction. Mr. Kanuga met with the founder and management team of Smaaash, and meetings were positive.
Mr. Cherian travelled to India in December 2017. Mr. Cherian and Mr. Kanuga continued to work on Target 1, met with SBI and other Lenders, and continued discussions on the debt restructuring arriving at better deal terms. Sensing that negotiations with Lenders were proceeding slowing, given that there were around 16 different lenders and private equity investors, Mr. Cherian and Mr. Kanuga delivered a firm message to the lenders that if the restructuring discussions were not concluded in a timely way with mutually agreeable terms, I-AM Capital would have to focus on other opportunities. Mr. Cherian and Mr. Kanuga also met with a digital media company and Smaaash.
Over the next month and a half, Mr. Kanuga pursued Target 1, aiming to secure an agreement with the entire group of lenders and private equity investors in Target 1. The lenders agreed to improved terms over the course of many negotiations. Mr. Kanuga travelled to New York in January along with the founder of Target 1. Meetings were held with Maxim, Nomura, and SunTrust to discuss improved deal terms. The Founder of Smaaaash also visited New York, and various meetings were held with Maxim, SunTrust, and Nomura. I-AM Capital board member Roman Franklin also participated in various meetings with Smaaash. Positive feedback was received on Smaaash and Target 1.
The Reserve Bank of India (RBI) made a surprise announcement in India on February 12, 2018 essentially eliminating all existing debt structuring rules (including the strategic debt restructuring and the joint lenders forum, which was the regulatory framework I-AM Capital was utilizing to negotiate terms with Target 1’s lenders). RBI announced implementation of the new framework for stressed assets, effective immediately, and scrapped all negotiations that had not been concluded under the older frameworks.
Mr. Caldwell travelled to India that very same day (in February 2018), and had meetings with founder and management team of Target 1, Target 1’s lenders, and Smaaash. Mr. Kanuga and Mr. Cherian and Mr. Caldwell discussed the change in the regulations, and determined that I-AM Capital should consult major law firms to understand the impact of these changes, and determine whether I-AM Capital could move forward with Target 1 in a timely way. Mr. Kanuga spent time with various law firms including Nishith Desai Associates, AZB Partners, Luthra & Luthra, to understand the full impact of the new regulations, including the ability of I-AM Capital to move forward in a timely way. In the following week, Mr. Cherian travelled to India, and along with Mr. Kanuga, continued to solicit views of various law firms, who indicated that substantial delays could be expected in such a situation, as new regulatory prescriptions could take much more time to be announced and streamlined. RBI in its own circular, indicated it may take up to two years further to finalize regulatory rules for companies with debt below a certain threshold ($300 mn), as in the case of Target 1. Given the overall uncertainly, Mr. Cherian, Mr. Kanuga, and Mr. Caldwell conferred, and decided to focus on exploring a transaction with Smaaash.
Representatives of Nomura contacted Mr. Cherian, and introduced him to the management of a technology services company based out of Philadelphia. Because this company had low growth rate with low profit margins, was highly leveraged with high-cost debt and did not have a clear India- focused growth strategy, I-AM Capital did not pursue a business combination with it.
Mr. Kanuga and Mr. Cherian met with representatives of Yes Securities to discuss the key terms for a potential transaction between I-AM Capital and Smaaash. The discussion covered the business of Smaaash, the Media and Entertainment sector in India and overseas, and valuation of Smaaash. To arrive at a potential valuation range, they discussed a number of factors, including: recent transaction multiples and listed company multiples in the Media and Entertainment sector in India; the strengths of Smaaash, including its market leader position in India, strong growth in sales, rapid expansion of centers, attractive operating margins, vertically integrated nature of the business including development of games in-house, and the track record of success of the founder of Smaaash; valuation of last round of capital raise; the positive global brand; the technology sales to marquis customers in 30 countries worldwide; the successful setup of the first center in the US in the Mall of America; the scalable nature of the business model, and the global expansion underway, the attractiveness of virtual reality and interactive sports entertainment businesses; growth rates of comparable firms in the USUnited States as well as lack of profitability which could hinder growth without sufficient capital. Based on these factors,Yes Securities indicated that the founder of Smaaash would not be open to a low evaluation, as there were credible investors who participated in the last round of financing in Smaaash and who would not support a lower valuation, given the positive growth prospects of the business. Mr. Cherian and Mr. Kanuga arrived atindicated that they were not open to a potentialpremium valuation, range for Smaaash. They also discussed corporate governance requirements including representation onas U.S. investors expected an upside. Accordingly, Yes Securities recommended keeping the Boardvaluation in line with the last round of financing of Smaaash. The parties then discussed the enterprise value of Smaaash of approximately $155 million in its recent financing where Smaaash raised $30 million. Based on these factors, Yes Securities recommended a range of $175- $200 million, factoring in the capital raised in the last round and Smaaash’s projected EBITDA of approximately $25 million for its fiscal year 2019.
The next day, Mr. Cherian and Mr. Kanuga, along with representatives from Yes Securities, met with the founder of Smaaash, and engaged in a discussion around the key terms of a potential transaction with Smaaash. They discussedThe founder of Smaaash indicated Smaaash had raised a substantial amount of capital from credible institutional and high net worth investors in the potentialmost recent round of financing, and he would not be able to offer a valuation rangelower than that as the deal would not meet with a favorable response as the business had grown substantially. The founder of Smaaash stated that he would want a premium, given the growth prospects of Smaaash. Yes Securities then recommended keeping the valuation at the same level as the last round, to satisfy existing investors in Smaaash and also offering the U.S. investors an equity upside. After some back and forth, Yes Securities recommended that Smaaash offer a valuation of approximately $180 million at a price per share of $0.50- $0.60 for Smaaash, in line with its last round of financing. Based on the valuation recommended by Yes Securities, the Smaaash founder and the factors in arrivingMessrs. Cherian and Kanuga reached a consensus and arrived at a per share price of approximately $0.50 per share.
Mr. Cherian and Mr. Kanuga articulated that range, as discussed with Yes Securities. They also discussed key corporate governance requirements, includingwas of paramount importance to U.S. investors, and asked for at least two boardBoard seats on the Smaaash board of directors, to ensure adequate representation of US investors.for I-AM Capital. They also discussed the global aspirations of Smaaash, international expansion currently underway, and furthering international growth through master franchise agreements, global technology sales agreements, and acquisitions outside of India, particularly in the United States and Europe. After discussion, the founder of Smaaash agreed with Mr. Cherian and Mr. Kanuga on the key terms of a potential transaction between I-AM Capital and Smaaash including the valuation of Smaaash, and the appointment of Messrs. Cherian and Kanuga to the Smaaash board of directors.two Board seats for I-AM Capital.
Mr. Cherian and Mr. Kanuga discussed with the founder of Smaaash the potential terms for franchise and distribution agreements. They covered various industry models including fixed fee or revenue sharing models, commission levels prevalent in the industry, sign-up fees, as well as revenue sharing arrangements. They agreed that a model linking the success of the franchise operator with Smaaash was a sound way to grow the business. In the case of product sales, they agreed on a commission model prevalent in the industry.
Representatives of YES Securities, Nishith Desai and Associates, lawyers representing I-AM Capital, IndusLaw, lawyers representing Smaaash, and Shardul Amarchand Mangaldas, lawyers representing Fidelis World, an existing investor of Smaaash, met with the founder of Smaaash and Messrs. Cherian and Kanuga to discuss in detail the rights, representations, warranties and covenants under the Subscription Agreement and Shareholders’ Agreement. IndusLaw and Nishith Desai and Associates discussed and mutually decided the roles and representations each party would require in Smaaash post the Transaction including board representation, future financing by Smaaash, hiring of key management, valuation protection mechanisms for the investors, exit rights, and fall-away of rights. Messrs. Cherian and Kanuga also discussed corporate governance, including for Nasdaq companies, and the necessity to have an independent Board of experienced executives with public company, industry and financial expertise. Fidelis World is an existing investor of Smaaash and participated in the negotiations to align the interest of I-AM Capital and Fidelis World in Smaaash.
The parties specifically discussed the following key covenants and agreements in the Subscription Agreement: (i) restrictions on Smaaash to raise additional capital, to make or declare any dividend or redeem directly or indirectly any share capital dividend and (ii) indemnity provided by Smaaash to I-AM Capital. The covenants and agreements under the Shareholders’ Agreement that were discussed among the parties include: (i) exit options to be provided by Smaaash, (ii) restriction on Mr. Morakhia to transfer his interest in AHA Holdings, (iii) right to nominate directors, (iv) liquidation preference and (v) other covenants such as non-compete and non-solicit.
After multiple rounds of discussions with counsel, a near-final draft of the Shareholders’ Agreement was circulated and an all-party meeting was held at Smaaash’s office where all open issues were negotiated and finalized. Parties agreed to move forward with the due diligence and definitive agreements and other aspects of a proxy filing.
Mr. Kanuga travelled to New York in March with the founder of Smaaash. Various meetings were held with Maxim to discuss the key terms of a potential transaction. The I-AM Capital Board met in New York, and the founder of Smaaash presented his vision to the Board; the Board deliberated and agreed it made sense to pursue a transaction.
Mr. Kanuga travelled to India and proceeded to work on the definitive agreements, due diligence and IFRS audits, assisted by professional teams from Nishith Desai Associates, YES Securities, IndusLaw, Grant Thornton and Shardul Amarchand Mangaldas, Deloitte and Prager Metis.
Mr. Cherian travelled to India in April 2018. Meetings were held with the Principals of Fidelis, the Private Equity Investor in Smaaash. Various meetings were held with the full team of lawyers and the parties arrived at the key terms for the transaction.
Mr. Kanuga travelled to New York in April with the Founder of Smaaash. All terms were finalized. Mr. Cherian and Mr. Kanuga regularly consulted with the Board of I-AM Capital along the way. The Board was supportive, and upon deliberating the key terms, agreed to move forward with Smaaash. Definitive Agreements were executed by all the Principals. Meetings were held with EGS to prepare proxy filing.
I-AM Capital’s Board of Directors’ Reasons for the Approval of the Business Combination
On May 1, 2018, I-AM Capital board of directors unanimously (i) approved the Subscription Agreement and the transactions contemplated thereby, and (ii) directed that the Subscription Agreement be submitted to-AMto I-AM Capital’s stockholders, for approval and adoption, and recommended that Smaaash’s stockholders approve the Transaction and approve and adopt the Subscription Agreement.
I-AM Capital’s board of directors considered a wide variety of factors in connection with its evaluation of the Transaction, including the following, although not weighted in any order of significance:
Positve Factors:
High growth company operating in highly scalable markets.Smaaash has a proven business model not only in India, but also globally. Smaaash can also grow quickly by making acquisitions globally, in addition to organic growth.
Business with multiple and diverse s potential drivers of revenue and with earnings growth potential.Smaaash’s family entertainment centers draw customers from various backgrounds and age groups, as the interactive sports and virtual reality entertainment experience, combined with food and beverage options, creates an attractive place for customers. Smaaash games are also being sold to third-party customers, creating further growth opportunities.
Experienced and motivated management team.Smaaash’s founder is a visionary entrepreneur with a proven ability to build value for investors, and a track record of success.
Negative Factors:
Less than majority equity position in Smaaash.I-AM will initially not acquire a majority interest in Smaaash and, as a result, may not have effective control over the operations of Smaaash.
Possibility of becoming an investment company pursuant to the Investment Company Act. Following the Transaction, I-AM Capital may become subject to the requirements of the Investment Company Act, which would limit I-AM Capital’s business operations and require it to spend significant resources to comply with such act.
Increase in Losses.The increase in Smaaash’s losses from the year ended March 31, 2017 to the nine month period ended December 31, 2017 was primarily due to Smaaash incurring significant high-cost debt to fund its acquisitions. Without further injection of capital, Smaaash may not be able to effectively reduce its costs and expenses, and thereby continue to suffer losses.
In light of the complexity of those factors, I-AM Capital’s board of directors, as a whole, did not consider it practicable to, nor did it attempt to, quantify or otherwise assign relative weight to the specific factors it took into account in reaching its decision. Individual members of I-AM Capital’s board of directors may have given different weight to different factors. This explanation of the reasons for the board of director’s approval of the Transaction, and all other information presented in this section is forward-looking and should be read in light of the factors discussed under “Cautionary Note Regarding Forward-Looking Statements.”
Before reaching its decision, I-AM Capital’s board of directors reviewed the results of management’s due diligence, which included:
● | research on industry trends, content and other operating cost projections, and other industry factors; |
● | extensive meetings and calls with Smaaash’s management team and representatives regarding operations, company services, major vendors and financial prospects, among other customary due diligence matters; |
● | personal visits to Smaaash’s headquarters in Mumbai, India; |
● | review of Smaaash’s material business contracts and certain other legal diligence; |
● | financial and accounting diligence; and |
● | creation of an independent financial model in conjunction with management of Smaaash. |
In the prospectus for I-AM Capital’s IPO, I-AM Capital identified the following general criteria and guidelines that its management believed would be important in evaluating prospective target businesses, including the following:
● | Opportunities in the faster-growing segments of the economy, including consumer, technology and services driven companies; | |
● | Businesses with multiple, diverse potential drivers of revenue and earnings growth; | |
● | Companies with potential for strong free cash flow generation; | |
● | Under-valued companies impacted by rapidly shifting market dynamics, market dislocations, gaps in understanding of a company’s future prospects, or liquidity-driven valuation discounts; and | |
● | Obtain a platform for continued growth through serial acquisitions, organic growth in existing business or new business initiatives. |
In considering the Transaction, I-AM Capital’s board of directors concluded that Smaaash substantially satisfied the above criteria.
Certain Benefits of I-AM Capital’s Directors and Officers and Others in the Business Combination
In considering the recommendation of I-AM Capital’s board of directors in favor of approval of the Transaction, it should be noted that I-AM Capital’s directors and officers have interests in the Business Combination that are different from, or in addition to, your interests as a stockholder. These interests include, among other things:
● | the appointment of F. Jacob Cherian and Suhel Kanuga, executive officers and directors of I-AM Capital, as directors, but not as officers, of Smaaash even though Mr. Cherian and Mr. Kanuga will not receive any compensation for their services as directors of Smaaash; |
● | the continued indemnification of current directors and officers of I-AM Capital and the continuation of directors’ and officers’ liability insurance after the Business Combination. |
Neither Mr. Cherian nor Mr. Kanuga is now, or has ever been, an officer or director of Smaaash.
Potential Purchases of Public Shares
In connection with the stockholder vote to approve the Transaction, the Sponsor, I-AM Capital’s directors, officers, or advisors or their respective affiliates may privately negotiate transactions to purchase shares from stockholders who would have otherwise elected to have their shares redeemed in conjunction with a proxy solicitation pursuant to the proxy rules for a per-share pro rata portion of the trust account. None of I-AM Capital’s directors, officers or advisors or their respective affiliates will make any such purchases when they are in possession of any material non-public information not disclosed to the seller or during a restricted period under Regulation M under the Exchange Act. Such a purchase of shares may include a contractual acknowledgement that such stockholder, although still the record holder of I-AM Capital’s public shares is no longer the beneficial owner thereof and therefore agrees not to exercise its redemption rights. In the event that the Sponsor, I-AM Capital’s directors, officers or advisors or their affiliates purchase shares in privately negotiated transactions from public stockholders who have already elected to exercise their redemption rights, such selling stockholders would be required to revoke their prior elections to redeem their shares. Any such privately negotiated purchases may be effected at purchase prices that are in excess of the per-share pro rata portion of the trust account. The purpose of such purchases would be to increase the likelihood of obtaining stockholder approval of the Transaction or, where the purchases are made by our Sponsor, directors, officers or advisors or their respective affiliates, to satisfy a closing condition in an agreement related to the Business Combination.
As of the date of this proxy statement, no agreements with respect to the private purchase of public shares by I-AM Capital or the persons described above have been entered into with any such investor or holder. We will file a Current Report on Form 8-K or other required forms with the SEC to disclose private arrangements entered into or significant private purchases made by any of the aforementioned persons that would affect the vote on the Business Combination Proposal or other proposals.
Redemption Rights
Pursuant to I-AM Capital’s Restated Certificate, holders of public shares may elect to have their shares redeemed for cash at the applicable redemption price per share calculated in accordance with its Restated Certificate. As of May 31, 2018, this would have amounted to approximately $[10.15]$10.15 per share and assuming that accrued interest and other funds set aside in a separate account are sufficient to pay estimated taxes payable of $10,000 in taxes payable and working capital expenses. If a holder exercises its redemption rights, then such holder will be exchanging its shares of common stock for cash and will no longer own shares of I-AM Capital. Such a holder will be entitled to receive cash for its public shares only if it properly demands redemption and delivers its shares (either physically or electronically) to I-AM Capital’s transfer agent in accordance with the procedures described herein. See the section entitled “Special Meeting of I-AM Capital Stockholders — Redemption Rights “ for“for the procedures to be followed if you wish to redeem your shares for cash. A holder who chooses to redeem its shares will not receive the Special Dividend.
Appraisal Rights
Appraisal rights are not available to holders of shares of I-AM Capital common stock in connection with the Transaction.
Vote Required for Approval
Approval of this proposal is a condition to the completion of the Transaction. If this proposal is not approved, the Transaction will not occur. The affirmative vote of a majority of the votes cast by the holders of common stock of I-AM Capital in person or represented by proxy at the special meeting and entitled to vote thereon is required to approve the Business Combination Proposal. Abstentions and broker non-votes will have no effect on this proposal.
As of the record date, our Sponsor has agreed to vote its founder shares and any public shares purchased during or after the initial public offering in favor of the Business Combination Proposal and our executive officers and directors have also agreed to vote any public shares purchased during or after the initial public offering in favor of the Business Combination Proposal.
Recommendation of the Board
I-AM CAPITAL’S BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT OUR
STOCKHOLDERS VOTE “FOR” THE APPROVAL OF THE BUSINESS COMBINATION PROPOSAL.
PROPOSAL NO. 2 —THE CERTIFICATE AMENDMENT PROPOSAL
I-AM Capital stockholders are being asked to vote upon and approve the third amended and restated certificate of incorporation of I-AM Capital attached hereto asAnnex E, which amends the Restated Certificate to:
i. change I-AM Capital’s name to “Smaaash Entertainment Inc.”; and
ii. make certain changes related to I-AM Capital’s transition from a blank check company to an operating company.
I-AM Capital is required to change its name in connection with the Transaction. I-AM Capital has agreed to change its name to reflect I-AM Capital’s new business and operations following completion of the Transaction and use a similar name as the one with which its business is known to customers, suppliers and the industry.
In addition, upon consummation of the Transaction, I-AM Capital will cease to be a blank check company. As such, I-AM Capital is proposing to change the provisions in its Restated Certificate related to its corporate purpose in connection with its transition to an operating company. I-AM Capital is also proposing the removal of the provisions related to the waiver of the corporate opportunity doctrine and the redemption rights.
The following table sets forth a summary of the material differences between the Restated Certificate the proposed third amended and restated certificate of incorporation:
Proposed Changes to Amended and Restated Certificate of Incorporation Pursuant to Proposal 2
Current Certificate | Proposed Certificate | |||
Purpose | The Restated Certificate provides that I-AM Capital’s purpose is to engage in any lawful act or activity for which corporations may be organized under the Delaware General Corporation Law, as amended, and that, in addition to the powers and privileges conferred upon I-AM Capital by law and those incidental thereto, I-AM Capital possesses and may exercise all the powers and privileges that are necessary or convenient to the conduct, promotion or attainment of the business or purposes of I-AM Capital including, but not limited to, effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar business combination, involving I-AM Capital and one or more businesses. | The proposed certificate provides that I-AM Capital’s purpose is to engage in any lawful act or activity for which corporations may be organized under the DGCL. | ||
Corporate Opportunity | The Restated Certificate provides that the doctrine of corporate opportunity, or any other analogous doctrine, shall not apply with respect to I-AM Capital or any of its officers or directors in circumstances where the application of any such doctrine would conflict with any fiduciary duties or contractual obligations they may have. | The proposed certificate does not include this corporate opportunity provision because such provision is not typical for an operating public company. | ||
Redemption Rights | The Restated Certificate provides for the redemption of the public shares upon the consummation of a business combination. | The proposed certificate does not include redemption provisions as it will no longer be applicable if the Transaction has been consummated. |
Vote Required for Approval
The affirmative vote of holders of a majority of the outstanding shares of I-AM Capital’s common stock is required to approve the Certificate Amendment Proposal. Broker non-votes, abstentions or the failure to vote on this proposal will have the same effect as a vote “AGAINST” this proposal.
This proposal is conditioned upon the approval of the Business Combination Proposal. If the Business Combination Proposal is not approved, this proposal will have no effect. By approving this Certificate Amendment Proposal, the I-AM Capital’s stockholders are approving the proposed third amended and restated certificate of incorporation of I-AM Capital’s which is attached hereto to asAnnex E and which reflects the amendments contemplated by this Certificate Amendment Proposal.
Recommendation of the Board
I-AM CAPITAL’S BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT OUR STOCKHOLDERS VOTE “FOR” THE APPROVAL OF THE CERTIFICATE AMENDMENT PROPOSAL.
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PROPOSAL NO. 3— THE DIRECTOR ELECTION PROPOSAL
Overview
There are currently eight members of I-AM Capital’s board of directors. I-AM Capital’s board of directors is divided into two classes, Class I and Class II with only one class of directors being elected in each year and each class (except for those directors appointed prior to I-AM Capital’s first annual meeting of stockholders) serving a two-year term. The term of office of the Class I directors, consisting of Messrs. Caldwell, Leavy, Franklin andJaroski will expire at the special meeting at which time each of these four incumbents will stand for re-election. In addition, in connection with the Transaction, Shripal Morakhia has been nominated to serve on the board of directors. The four Class I directors standing for re-election, if elected, will serve a two-year term until the 2020 annual meeting of stockholders and until their successors are duly elected and qualified. The Class II director nominee standing for election, if elected, will serve a one-year term until the 2019 annual meeting of stockholders and until his successor is duly elected and qualified.
Nominees
The board of directors has nominated the following individuals to serve on the board of directors in the classes set forth below:
● Donald R. Caldwell | Class I |
● Roman Franklin | Class I |
● Frank Leavy | Class I |
● Edward Leonard Jaroski | Class I |
● Shripal Morakhia | Class II |
Business background and biographical information on Donald R. Caldwell,Roman Franklin, Frank Leavy, Edward Leonard Jaroski andShripal Morakhia is set forth below under “Information about I-AM Capital–Management–Directors and Executive Officers” and “Smaaash Management”"
Vote Required
A plurality of the shares present in person or represented by proxy at the meeting and entitled to vote on the election of directors will be required to re-elct the current directors and to elect nominees. The five individuals receiving the highest number of affirmative votes cast at the special meeting will be elected as our directors. Proxies cannot be voted for a greater number of persons than the number of nominees named.
The approval of Shripal Morakhia, the director nominee, is conditioned upon the approval of the Business Combination Proposal. If the Business Combination Proposal is not approved the election of Shripal Morakhia will have no effect.
Recommendation of the Board
I-AM CAPITAL’S BOARD OF DIRECTORS RECOMMENDS THAT OUR STOCKHOLDERS VOTE “FOR” THE ELECTION OF EACH OF THE ABOVE-LISTED DIRECTORS AND NOMINEES.
Unless marked otherwise, proxies received will be voted “FOR” the election of each of the current directors and the director nominee listed above.
PROPOSAL NO. 4 —THE INCENTIVE PLAN PROPOSAL
I-AM Capital board of directors has unanimously approved and adopted the I-AM Capital 2018 Equity Incentive Plan (the “Equity Incentive Plan”), and I-AM Capital’s board has unanimously approved and recommended that I-AM Capital’s stockholders approve and adopt the Equity Incentive Plan.
Stockholders are being asked to approve the Equity Incentive Plan. Stockholder approval of the Equity Incentive Plan is necessary for certain purposes. If I-AM Capital’s stockholders do not approve the Equity Incentive Plan, the Equity Incentive Plan will not go into effect.
The principal features of the Equity Incentive Plan are summarized below, but the summary is qualified in its entirety by reference to the complete text of the I-AM Capital 2018 Equity Incentive Plan document, which is attached asAnnex E to this proxy statement.
Highlights of the Equity Incentive Plan
Following the consummation of the Transaction, I-AM Capital will be an operating company and will be (i) the sole distributor of Smaaash games in North and South America and (ii) the master franchisee for Smaaash centers in North and South America. I-AM Capital adopted the Equity Incentive Plan to enable us and I-AM Capital’s affiliated companies to: (a) recruit and retain highly qualified employees, directors and consultants; (b) offer them a greater stake in I-AM Capital’s success and a closer identity with our company; and (c) encourage ownership of I-AM Capital’s stock by such individuals.
The Equity Incentive Plan permits the grant of (i) nonqualified stock options (“NQSOs”) and incentive stock options (“ISOs”) (collectively, “Options”); (ii) restricted stock awards; (iii) restricted stock units (“RSUs”), (iv) stock appreciation rights (“SARs”), (v) other stock bonus awards, and (vi) performance compensation awards, which I-AM Capital refer to collectively as “Awards,” as more fully described below.
Some of the key features of the Equity Incentive Plan that reflect I-AM Capital’s commitment to effective management of incentive compensation are as follows:
No In-the-Money Options. The Equity Incentive Plan prohibits the grant of Options with an exercise or base price less than the fair market value of I-AM Capital’s common stock as of the date of grant.
Independent Administration. The compensation committee, which consists of only independent directors, will be responsible for the general administration of the Equity Incentive Plan with respect to Awards, provided however, that the compensation committee may delegate to one or more officers or Board members the authority to grant Awards to eligible individuals, who are neither subject to the requirements of Rule 16b-3 of the Exchange Act nor “covered employees” within the meaning of Section 162(m) of the Internal Revenue Code of 1986, as amended (the “Code”).
All Awards granted under the Equity Incentive Plan are governed by separate Award Agreements between us and the participants. No Awards may be granted after the 10th anniversary of the date on which the Equity Incentive Plan was approved by the stockholders, although Awards granted before that time will remain valid in accordance with their terms.
Eligibility. Any of I-AM Capital’s employees, officers, directors, consultants (who are natural persons) are eligible to participate in the Equity Incentive Plan if selected by the compensation committee (the “Participants”). The basis of participation of an individual under the Equity Incentive Plan, and the type and amount of any Award that an individual will be entitled to receive under the Equity Incentive Plan, will be determined by the compensation committee based on its judgment as to the best interests of I-AM Capital and I-AM Capital’s stockholders, and therefore cannot be determined in advance.
Subject to certain adjustments, the maximum number of shares of common stock that may be issued under the Equity Incentive Plan in connection with Awards is 500,000. Any shares tendered by a Participant in payment of an exercise price for an Award or the tax liability with respect to an Award, including shares withheld from any such Award, that are used or withheld to satisfy tax withholding obligations of a Participant, or which are subject to a SAR that are not issued in connection with the stock settlement of the SAR upon exercise, shall not be available for future Awards hereunder. Additionally, any shares subject to an Award under the Plan that are forfeited, cancelled, expire unexercised, or are settled in cash shall again be available for Awards under the Equity Incentive Plan.
In the event of any dividend, recapitalization, forward or reverse stock split, reorganization, merger, amalgamation, consolidation, split-up, split-off, combination, repurchase or exchange of common stock or other securities of I-AM Capital, issuance of warrants or other rights to acquire common stock or other securities of I-AM Capital, or other similar corporate transaction or event, which affects the common stock, or unusual or nonrecurring events affecting I-AM Capital, or the financial statements of I-AM Capital, or changes in applicable rules, rulings, regulations or other requirements of any governmental body or securities exchange or inter-dealer quotation system, accounting principles or law, the compensation committee may make such adjustment, which is appropriate in order to prevent dilution or enlargement of the rights of Participants under the Equity Incentive Plan, to (i) the number and kind of shares of common stock which may thereafter be issued in connection with Awards, (ii) the number and kind of shares of common stock issuable in respect of outstanding Awards, (iii) the aggregate number and kind of shares of common stock available under the Equity Incentive Plan, (iv) the exercise price or grant price relating to any Award or, if deemed appropriate, make provision for a cash payment with respect to any outstanding Award, and (vi) if applicable to the performance goals applicable to any such Award.
Options.The compensation committee is authorized to grant Options to purchase shares of common stock that are either ISOs meaning they are intended to satisfy the requirements of Section 422 of the Code, or NQSOs, meaning they are not intended to satisfy the requirements of Section 422 of the Code. Options granted under the Equity Incentive Plan will be subject to the terms and conditions established by the compensation committee. Under the terms of the Equity Incentive Plan, unless the compensation committee determines otherwise in the case of an Option substituted for another Option in connection with a corporate transaction, the exercise price of the Options will not be less than the fair market value (as determined under the Equity Incentive Plan) of the shares at the time of grant. Options granted under the Equity Incentive Plan will be subject to such terms, including the exercise price and the conditions and timing of exercise, as may be determined by the compensation committee and specified in the applicable award agreement. The maximum term of an option granted under the Equity Incentive Plan will be ten years from the date of grant (or five years in the case of an ISO granted to a 10% stockholder). Payment in respect of the exercise of an Option may be made in cash or by check, by surrender of unrestricted shares (at their fair market value on the date of exercise) that have been held by the participant for any period deemed necessary by I-AM Capital’s accountants to avoid an additional compensation charge or have been purchased on the open market, or the compensation committee may, in its discretion and to the extent permitted by law, allow such payment to be made through a broker-assisted cashless exercise mechanism, a net exercise method, or by such other method as the compensation committee may determine to be appropriate.
Unless otherwise provided in an Award Agreement or as may be determined by the compensation committee, upon a Participant’s termination of service with I-AM Capital or its affiliates, the unvested portion of such Participant’s Options shall cease to vest and shall be forfeited with no further compensation due to the Participant and the vested portion of such Participant’s Options shall remain exercisable by the Participant or the Participant’s beneficiary or legal representative, as the case may be, for a period of (i) 90 days in the event of a Participant’s termination of service by I-AM Capital or a Subsidiary without Cause (as such term is defined in the Equity Incentive Plan), and (ii) one year in the event of a Participant’s termination of service due to death or disability; provided, however, that in no event shall any Option be exercisable after its stated term has expired. All of a Participant’s Options shall be forfeited immediately upon such Participant’s termination by I-AM Capital for Cause.
Restricted Stock. A restricted stock award is a grant of shares of common stock, which are subject to forfeiture restrictions during a restriction period. The compensation committee will determine the price, if any, to be paid by the Participant for each share of common stock subject to a restricted stock award. The compensation committee may condition the expiration of the restriction period, if any, upon: (i) the Participant’s continued service over a period of time with I-AM Capital or its affiliates; (ii) the achievement by the Participant, us or our affiliates of any other performance goals set by the compensation committee; or (iii) any combination of the above conditions as specified in the Award Agreement. If the specified conditions are not attained, the Participant will forfeit the portion of the restricted stock award with respect to which those conditions are not attained, and the underlying common stock will be forfeited to us. At the end of the restriction period, if the conditions, if any, have been satisfied, the restrictions imposed will lapse with respect to the applicable number of shares. During the restriction period, unless otherwise provided in an Award Agreement, a Participant will have the right to vote the shares underlying the restricted stock; however, all dividends will remain subject to restriction until the stock with respect to which the dividend was issued lapses. The compensation committee may, in its discretion, accelerate the vesting and delivery of shares of restricted stock. Unless otherwise provided in an Award Agreement or as may be determined by the compensation committee, upon a Participant’s termination of service with I-AM Capital, the unvested portion of a restricted stock award will be forfeited.
RSUs. RSUs are granted in reference to a specified number of shares of common stock and entitle the holder to receive, on achievement of specific performance goals established by the compensation committee, after a period of continued service with us or our affiliates or any combination of the above as set forth in the applicable Award Agreement, one share of common stock for each such share of common stock covered by the RSU; provided, that the compensation committee may elect to pay cash, or part cash and part common stock in lieu of delivering only common stock. The compensation committee may, in its discretion, accelerate the vesting of RSUs. Unless otherwise provided in an Award Agreement or as may be determined by the compensation committee, upon a Participant’s termination of service with I-AM Capital, the unvested portion of the RSUs will be forfeited.
Stock Appreciation Rights. An SAR entitles the recipient to receive, upon exercise of the SAR, the increase in the fair market value of a specified number of shares of common stock from the date of the grant of the SAR and the date of exercise payable in shares of common stock. Any grant may specify a vesting period or periods before the SAR may become exercisable and permissible dates or periods on or during which the SAR shall be exercisable. No SAR may be exercised more than ten years from the grant date. Upon a Participant’s termination of service, the same general conditions applicable to Options as described above would be applicable to the SAR.
Other Stock-Based Awards. Other stock-based Awards may be granted by the compensation committee in the form and on such terms and conditions as the compensation committee shall determine.
Performance Goals. Performance goals may be linked to a variety of factors including the Participant’s completion of a specified period of employment or service with us or an affiliated company. Additionally, performance goals can include objectives stated with respect to an individual Participant, I-AM Capital or the subsidiary, division, department or function in which the Participant is employed. Performance goals may be measured on an absolute or relative basis. Relative performance may be measured by a group of peer companies or by a financial market index. The performance goals are limited to one or more of the following:
● revenue;
● sales;
● Profit (net profit, gross profit, operating profit, economic profit, profit margins or other corporate profit measures);
● earnings (EBIT, EBITDA, earnings per share, or other corporate earnings measures);
● net income (before or after taxes, operating income or other income measures);
● cash (cash flow, cash generation or other cash measures);
● stock price or performance;
● total stockholder return (stock price appreciation plus reinvested dividends divided by beginning share price);
● economic value added;
● return measures (including, but not limited to, return on assets, capital, equity, investments or sales, and cash flow return on assets, capital, equity, or sales);
● market share;
● improvements in capital structure;
● expenses (expense management, expense ratio, expense efficiency ratios or other expense measures);
● business expansion or consolidation (acquisitions and divestitures);
● internal rate of return or increase in net present value;
● working capital targets relating to inventory and/or accounts receivable;
● inventory management;
● service or product delivery or quality;
● customer satisfaction;
● employee retention;
● safety standards;
● productivity measures;
● cost reduction measures; and/or
● strategic plan development and implementation.
The compensation committee may impose restrictions on the grant, exercise or payment of an Award as it determines appropriate. Generally, Awards granted under the Equity Incentive Plan shall be nontransferable except by will or by the laws of descent and distribution. No Participant shall have any rights as a stockholder with respect to shares covered by Options, SARs, restricted stock awards, or RSUs, unless and until such Awards are settled in shares of common stock.
No Option (or, if applicable, SARs) shall be exercisable, no shares of common stock shall be issued, no certificates for shares of common stock shall be delivered and no payment shall be made under the Equity Incentive Plan except in compliance with all applicable laws.
I-AM Capital’s board of directors may amend, alter, suspend, discontinue or terminate the Equity Incentive Plan and the compensation committee may amend any outstanding Award at any time; provided that (a) such amendment, alteration, suspension, discontinuation, or termination shall be subject to the approval of I-AM Capital’s stockholders if such approval is necessary to comply with any tax or regulatory requirement applicable to the Equity Incentive Plan (including, without limitation, as necessary to comply with any rules or requirements of any national securities exchange or inter-dealer quotation system on which the shares of common stock may be listed or quoted or to prevent us from being denied a tax deduction under Section 162(m) of the Code) and (b) no such amendment or termination may adversely affect Awards then outstanding without the Award holder’s permission.
In the event of a change of control (as defined in the Equity Incentive Plan) and except to the extent otherwise provided in an Award Agreement, (i) all of the then outstanding Options and SARs shall immediately vest and become immediately exercisable as of a time prior to the change in control, (ii) the restricted period with respect to any restricted awards and RSUs shall expire as of a time prior to the change in control (including without limitation a waiver of any applicable performance goals) and (iii) performance periods in effect on the date the change in control occurs shall end on such date, and the compensation committee shall (A) determine the extent to which performance goals with respect to each such performance period have been met based upon such audited or unaudited financial information or other information then available as it deems relevant and (B) cause the Participant to receive partial or full payment of Awards for each such performance period based upon the compensation committee’s determination of the degree of attainment of the performance goals, or assuming that the applicable “target” levels of performance have been attained or on such other basis determined by the compensation committee. To the extent practicable, any actions taken by the compensation committee under the immediately preceding clauses (i) through (iii) shall occur in a manner and at a time which allows affected Participants the ability to participate in the change in control transactions with respect to the shares of common stock subject to their Awards. The judgment of the compensation committee with respect to a change of control shall be conclusive and binding upon each Participant without the need for any amendment to the Equity Incentive Plan.
New Plan Benefits
Because I-AM Capital’s compensation committee has discretion to grant future Awards of a design and amount determined in its discretion, (i) it is not possible at present to specify the persons to whom Awards will be granted under the Equity Incentive Plan in the future or the amounts and types of individual grants and (ii) it would not be possible to predict what Awards would have been granted had the Equity Incentive Plan been in existence in the prior fiscal year. However, it is anticipated that, among others, all of I-AM Capital’s current executive officers, including I-AM Capital’s named executive officers, will receive Awards under the Equity Incentive Plan.
Section 162(m) of the Internal Revenue Code
Section 162(m) of the Code limits the federal income tax deductions a publicly held company can claim for compensation in excess of $1,000,000 paid to certain executive officers (generally, the officers who are “named executive officers” in the summary compensation table in the issuer’s proxy statement). Accordingly, there can be no assurance that awards under the Equity Incentive Plan will be fully deductible under all circumstances.
Federal Income Tax Consequences Relating to Awards Under the Equity Incentive Plan
The material United States federal income tax treatment of Awards under the Equity Incentive Plan is generally described below. This description of tax consequences is not a complete description. There may be different income tax consequences under certain circumstances, and there may be gift and estate tax consequences. Local, state and other taxing authorities may also tax Awards under the Equity Incentive Plan. Tax laws are subject to change.
Nonqualified Stock Options
There are generally no federal income tax consequences to a Participant or to I-AM Capital upon the grant of an NQSO. Upon the exercise of an NQSO, a Participant will recognize ordinary income in an amount equal to the excess of the fair market value of the shares at the time of exercise over the aggregate exercise price paid. The Company generally will be entitled to a corresponding federal income tax deduction. The Participant will have a tax basis in the shares equal to the exercise price plus the amount of income recognized at the time of exercise.
When a Participant sells shares of stock acquired through the exercise of an NQSO, the Participant will have a capital gain or loss in an amount equal to the difference between the amount realized on the sale and the tax basis in the shares. The capital gain tax rate will depend on a number of factors, including the length of time the Participant held the shares prior to selling them.
Incentive Stock Options
There are a number of requirements that must be met for an Option to be treated as an ISO. One such requirement is that common stock acquired through the exercise of an ISO cannot be disposed of before the later of (i) two years from the date of grant of the Option, or (ii) one year from the date of exercise. Participants who receive ISOs will generally incur no federal income tax liability at the time of grant or upon exercise of those Options. However, the spread at exercise will be an “item of tax preference,” which may give rise to “alternative minimum tax” liability for the taxable year in which the exercise occurs.
If the Participant does not dispose of the shares before the later of two years following the date of grant and one year following the date of exercise, the difference between the exercise price and the amount realized upon disposition of the shares will constitute long- or short-term capital gain or loss, as the case may be. Assuming both holding periods are satisfied, no deduction will be allowed to us for federal income tax purposes in connection with the grant or exercise of the ISO. If, within two years following the date of grant or within one year following the date of exercise, the Participant disposes of the shares acquired through the exercise of an ISO, the Participant will generally realize taxable compensation at the time of such disposition equal to the difference between the exercise price and the lesser of the fair market value of the common stock on the date of exercise or the amount realized on the subsequent disposition of the shares, and that amount will generally be deductible by us for federal income tax purposes, subject to the possible limitations on deductibility under Sections 280G and 162(m) of the Code for compensation paid to executives designated in those Sections. Finally, if an otherwise ISO becomes first exercisable in any one year for shares having an aggregate value in excess of $100,000 (based on the grant date value), the portion of the ISO in excess of that limit will be treated as a NQSO for federal income tax purposes.
Restricted Stock
Unless a Participant makes a valid Section 83(b) election as described below, such Participant will generally not recognize federal taxable income when he or she receives a grant of restricted stock, and I-AM Capital will not be entitled to a deduction until the stock is transferable by the Participant or is otherwise no longer subject to a substantial risk of forfeiture. When the stock is either transferable or is no longer subject to a substantial risk of forfeiture, the Participant will recognize ordinary income in an amount equal to the fair market value of the shares at that time (less any amounts paid for the shares), and generally, I-AM Capital will be entitled to a deduction in the same amount. Any gain or loss recognized by the Participant upon a later disposition of the common stock will be capital gain or loss. A Participant’s holding period for purposes of determining whether that capital gain or loss is long-term or short-term will be counted from the date the stock became transferable or ceased to be subject to a substantial risk of forfeiture.
A Participant may elect to recognize ordinary income at the time that a restricted stock award is granted in an amount equal to the fair market value of the shares subject to the Award (less any amounts paid for such shares) at the time of grant, determined without regard to certain restrictions. This election is referred to as a Section 83(b) election. In that event, I-AM Capital will be entitled to a corresponding deduction in the same year. Any gain or loss recognized by the Participant upon a later disposition of the shares will be capital gain or loss. A Participant’s holding period for purposes of determining whether that capital gain or loss is long-term or short-term will be counted from the date of the original transfer to the Participant. The Participant may not claim a credit for any tax previously paid on stock that is later forfeited.
Restricted Stock Units
If a Participant is granted an RSU, he or she will not be required to recognize any taxable income at the time of grant or at the time that the RSU vests. Upon distribution of shares or cash in respect of an RSU, the fair market value of those shares or the amount of that cash will be taxable to the Participant as ordinary income and I-AM Capital will receive a deduction equal to the income recognized by the Participant. The subsequent disposition of shares acquired pursuant to an RSU will result in capital gain or loss (based on the difference between the price received on disposition and the market value of the shares at the time of their distribution). The capital gain tax rate will depend on a number of factors, including the length of time the Participant held the shares prior to selling them.
Stock Appreciation Rights
A Participant realizes no taxable income and I-AM Capital is not entitled to a deduction when a SAR is granted. Upon exercising a SAR, a Participant will realize ordinary income in an amount equal to the fair market value of the shares received minus any amount paid for the shares, and I-AM Capital will be entitled to a corresponding deduction. A Participant’s tax basis in the shares of common stock received upon exercise of a SAR will be equal to the fair market value of such shares on the exercise date, and the Participant’s holding period for such shares will begin at that time. Upon sale of the shares of common stock received upon exercise of a SAR, the Participant will realize short-term or long-term capital gain or loss, depending upon the applicable holding period. The amount of such gain or loss will be equal to the difference between the amount realized in connection with the sale of the shares and the Participant’s tax basis in such shares.
Stock Bonus Awards
The tax consequences of receiving stock bonus awards will generally be governed by the principles set forth in the Code. These tax consequences may vary depending upon the terms and conditions of such Awards.
Interest of Certain Persons in the Equity Incentive Plan
Stockholders should understand that I-AM Capital’s executive officers and non-employee directors may be considered to have an interest in the approval of the Equity Incentive Plan because they may in the future receive Awards under it. Nevertheless, I-AM Capital’s board of directors believes that it is important to provide incentives and rewards for superior performance and the retention of experienced directors by implementing the Equity Incentive Plan.
Equity Awards
The grant of Options and other equity or cash awards under the Equity Incentive Plan is discretionary and I-AM Capital cannot determine now the specific number or type of equity or cash awards to be granted in the future to any particular person or group. Any such grants of Awards will be made in the sole discretion of I-AM Capital’s compensation committee, in such amounts and to such persons, as I-AM Capital’s compensation committee deems appropriate.
Vote Required for Approval
The affirmative vote of a majority of the votes cast by the holders of common stock of I-AM Capital present in person or represented by proxy at the special meeting and entitled to vote thereon is required to approve the Equity Incentive Plan. Abstentions and broker-non votes will have no effect on the outcome of the vote on this proposal.
Recommendation of the Board
I-AM CAPITAL’S BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT OUR STOCKHOLDERS VOTE “FOR” THE APPROVAL OF THE INCENTIVE PLAN PROPOSAL.
PROPOSAL NO. 5 — THE AUDITOR RATIFICATION PROPOSAL
On [●], 2017,July 23, 2018, the audit committee of the board of directors appointed the firm ofPrager Metis CPAs, LLC (“Prager Metis”) to serve as our independent auditors for our fiscal year ending May 31, 2019. Stockholders will be asked to ratify the appointment of the Auditor to serve as I-AM Capital’s independent auditors. The audit committee is directly responsible for appointing I-AM Capital’s independent registered public accounting firm. The audit Committee is not bound by the outcome of this vote but will consider these voting results when selecting I-AM Capital’s independent auditor for fiscal year 2019. The Auditor was engaged as our independent registered public accounting firm in connection with our initial public offering. The Auditor has audited all of our annual financial statements since our inception in April 2017 and the financial statements of our combined entity following the Transaction. A representative of the Auditor is not expected to be present at the special meeting.
The audit committee reviews and approves the audit and non-audit services to be provided by our independent registered public accounting firm during the year, considers the effect that performing those services might have on audit independence and approves management’s engagement of our independent registered public accounting firm to perform those services. The audit committee reserves the right to appoint a different independent registered public accounting firm at any time during the year if the board of directors of I-AM Capital and the audit committee believe that a change is in the best interest of I-AM Capital and our stockholders.
The aggregate fees billed for the fiscal years ended May 31, 2018 and May 31, 2017 for (i) professional services rendered by the principal accountant for the audit of its annual financial and review of financial statements included in Form 10-Q (“Audit Fees”), (ii) assurance and related services by the principal accountant that are reasonably related to the performance of the audit or review of the financial statements and not reportable under Audit Fees (the “Audit Related Fees”), (iii) tax compliance, advice, and planning (“Tax Fees”), and (iv) other products or services provided (“Other Fees”) were:
Year Ended May 31, 2018 | Year Ended May 31, 2017 | |||||||
Audit Fees | $ | 15,000 | $ | 0 | ||||
Audit Related Fees | $ | 23,500 | $ | 0 | ||||
Tax Fees | $ | 0 | $ | 0 | ||||
All Other Fees | $ | 0 | $ | 0 | ||||
Total | $ | 38,500 | $ | 0 |
Our audit committee has determined that the services provided byPrager Metis are compatible with maintaining the independence of the Auditor as our independent registered public accounting firm.
Required Vote
The affirmative vote of a majority of the votes cast by the holders of common stock of I-AM Capital present in person or represented by proxy at the special meeting and entitled to vote thereon is required to approve the Auditor Ratification Proposal.
Recommendation of the Board
I-AM CAPITAL’S BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT OUR STOCKHOLDERS VOTE “FOR” THE APPROVAL OF THE AUDITOR RATIFICATION PROPOSAL.
PROPOSAL NO. 6 — THE ADJOURNMENT PROPOSAL
The Adjournment Proposal, if adopted, will allow I-AM Capital’s board of directors to adjourn the special meeting to a later date or dates. The Adjournment Proposal will only be presented to stockholders if I-AM Capital determines that there are not sufficient votes to approve one or more proposals presented at the special meeting or that one or more closing conditions under the Subscription Agreement will not be satisfied. In no event will I-AM Capital’s board of directors adjourn the special meeting or consummate the Transaction beyond the date by which it may properly do so under its Restated Certificate and Delaware law.
Consequences if the Adjournment Proposal is Not Approved
If the Adjournment Proposal is not approved by I-AM Capital stockholders, I-AM Capital’s board of directors may not be able to adjourn the special meeting to a later date, if I-AM Capital determines that there are not sufficient votes to approve one or more proposals presented at the special meeting or that one or more closing conditions under the Subscription Agreement will not be satisfied.
Required Vote
The affirmative vote of a majority of the votes cast by the holders of common stock of I-AM Capital present in person or represented by proxy at the special meeting and entitled to vote thereon is required for the adoption of the Adjournment Proposal. Adoption of the Adjournment Proposal is not conditioned upon the adoption of any of the other proposals.
Recommendation of the Board
I-AM CAPITAL’S BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT OUR STOCKHOLDERS VOTE “FOR” THE APPROVAL OF THE ADJOURNMENT PROPOSAL.
I-AM CAPITAL UNAUDITED PRO FORMA FINANCIAL INFORMATION
The following unaudited I-AM Capital pro forma financial information, which is referred to as the pro forma financial information, shows the pro forma effect of the consummation of the Transaction between I-AM Capital and Smaaash, for balance sheet purposes, as if it had occurred on February 28,May 31, 2018. The pro forma financial information should be read in conjunction with the historical financial statements of I-AM Capital in its Annual Report on Form 10-K provided with this proxy statement.
The pro forma financial information is presented for illustrative purposes only and, therefore, does not purport to represent what the actual financial condition of I-AM Capital would have been if the Transaction had occurred on the date assumed, and it is not necessarily indicative of the company’s future financial position. In this regard, the pro forma financial information does not give effect to any benefits that may be derived from the company’s growth projects or expansions resulting from the cash proceeds received.
● | Assuming Minimum Redemption: This presentation assumes that no I-AM Capital stockholders exercise their redemption rights. This assumption presumes transaction expenses of $1.2 million. |
The $49.0 million estimate represents the proposed maximum aggregate Investment Amount which assumes the minimum redemptions by I-AM Capital stockholders. This pro forma information is subject to risks and uncertainties, including those discussed in the section of this proxy statement titled “Risk Factors.”
The following table sets forth the unaudited pro forma balance sheet of I-AM Capital as of February 28,May 31, 2018, giving effect to the proposed Transaction as if it had occurred on February 28,May 31, 2018.
I-AM CAPITAL ACQUSITION COMPANY
PRO FORMABALANCE SHEET
(Unaudited)
Pro Forma | ||||||||||||
February 28, 2018 | Adjustments | Pro Forma | ||||||||||
ASSETS | ||||||||||||
Current Assets | ||||||||||||
Cash and cash equivalents | $ | 483,867 | 483,867 | |||||||||
Deferred offering costs | — | — | ||||||||||
Total Current Assets | 483,867 | — | 483,867 | |||||||||
Cash held in Trust Account | 52,874,359 | (52,120,000 | ) | 754,359 | ||||||||
Investment in non-consolidated subsidiary | 50,200,000 | 50,200,000 | ||||||||||
Total Assets | $ | 53,358,226 | $ | (1,920,000 | ) | $ | 51,438,226 | |||||
LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||||||
Current Liabilities | ||||||||||||
Loan payable - Related party | $ | 81,618 | 81,618 | |||||||||
Accrued expenses | 49,750 | — | 49,750 | |||||||||
Income taxes payable | 2,145 | 2,145 | ||||||||||
Deferred legal fees | 100,000 | (100,000 | ) | — | ||||||||
Total current liabilities | 233,513 | (100,000 | ) | 133,513 | ||||||||
Deferred underwriting fees | 1,820,000 | (1,820,000 | ) | — | ||||||||
Total Liabilities | 2,053,513 | (1,920,000 | ) | 133,513 | ||||||||
Commitments | ||||||||||||
Common stock subject to possible redemption, $.0001 par value; 4,562,252 shares | 46,304,712 | — | 46,304,712 | |||||||||
Stockholders' equity | ||||||||||||
Preferred Stock - $0.0001 par value, 1,000,000 shares authorized; no shares issued and outstanding | — | — | — | |||||||||
Common Stock - $0.0001 par value; 20,000,000 shares authorized; 2,251,248 shares issued and outstanding (excluding 4,562,252 shares subject to possible redemption) | 225 | 225 | ||||||||||
Additional paid-in capital | 4,996,283 | 4,996,283 | ||||||||||
Retained earnings | 3,493 | 3,493 | ||||||||||
Total stockholders' equity | 5,000,001 | — | 5,000,001 | |||||||||
Total Liabilities and stockholders' equity | $ | 53,358,226 | $ | (1,920,000 | ) | $ | 51,438,226 |
Pro Forma | ||||||||||||
May 31, 2018 | Adjustments | Pro Forma | ||||||||||
ASSETS | ||||||||||||
Current Assets | ||||||||||||
Cash and cash equivalents | $ | 458,063 | 458,063 | |||||||||
Prepaid expenses | 3,168 | 3,168 | ||||||||||
Total Current Assets | 461,231 | — | 461,231 | |||||||||
Cash held in Trust Account | 52,895,652 | (52,120,000 | ) | 775,652 | ||||||||
Investment in non-consolidated subsidiary | 50,200,000 | 50,200,000 | ||||||||||
Total Assets | $ | 53,356,883 | $ | (1,920,000 | ) | $ | 51,436,883 | |||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||||||
Current Liabilities | ||||||||||||
Loan payable - Related party | $ | 81,618 | 81,618 | |||||||||
Accrued expenses | 63,579 | — | 63,579 | |||||||||
Deferred legal fees | 100,000 | (100,000 | ) | — | ||||||||
Total current liabilities | 245,197 | (100,000 | ) | 145,197 | ||||||||
Deferred underwriting fees | 1,820,000 | (1,820,000 | ) | — | ||||||||
Total Liabilities | 2,065,197 | (1,920,000 | ) | 145,197 | ||||||||
Commitments | ||||||||||||
Common stock subject to possible redemption, $.0001 par value; 4,560,757 shares | 46,291,685 | — | 46,291,685 | |||||||||
Stockholders’ equity | ||||||||||||
Preferred Stock - $0.0001 par value, 1,000,000 shares authorized; no shares issued and outstanding | — | — | — | |||||||||
Common Stock - $0.0001 par value; 20,000,000 shares authorized; 2,252,743 shares issued and outstanding (excluding 4,560,757 shares subject to possible redemption) | 225 | 225 | ||||||||||
Additional paid-in capital | 5,009,310 | 5,009,310 | ||||||||||
Accumulated deficit | (9,534 | ) | (9,534 | ) | ||||||||
Total stockholders’ equity | 5,000,001 | — | 5,000,001 | |||||||||
Total Liabilities and stockholders’ equity | $ | 53,356,883 | $ | (1,920,000 | ) | $ | 51,436,883 |
MATERIAL U.S. FEDERAL INCOME TAX CONSIDERATIONS—REDEMPTION OF I-AM CAPITAL COMMON STOCK
The following is a discussion of the material U.S. federal income tax considerations for holders of I-AM Capital common stock that elect to have their I-AM Capital common stock redeemed for cash if the acquisition is completed. This summary is based upon the Internal Revenue Code of 1986, as amended (the “Code”), the regulations promulgated by the U.S. Treasury Department, current administrative interpretations and practices of the Internal Revenue Services (the “IRS”) and judicial decisions, all as currently in effect and all of which are subject to differing interpretations or to change, possibly with retroactive effect. No assurance can be given that the IRS would not assert, or that a court would not sustain, a position contrary to any of the tax considerations described below. No advance ruling has been or will be sought from the IRS regarding any matter discussed in this summary. This summary does not discuss the impact that U.S. state and local taxes and taxes imposed by non-U.S. jurisdictions could have on the matters discussed in this summary. This summary does not purport to discuss all aspects of U.S. federal income taxation that may be important to a particular stockholder in light of its investment or tax circumstances or to stockholders subject to special tax rules, such as:
● | certain U.S. expatriates; |
● | traders in securities that elect mark-to-market treatment; |
● | S corporations; |
● | U.S. stockholders (as defined below) whose functional currency is not the U.S. dollar; |
● | financial institutions; |
● | mutual funds; |
● | qualified plans, such as 401(k) plans, individual retirement accounts, etc.; |
● | insurance companies; |
● | broker-dealers; |
● | regulated investment companies (or RICs); |
● | real estate investment trusts (or REITs); |
● | persons holding I-AM Capital common stock as part of a “straddle,” “hedge,” “conversion transaction,” “synthetic security” or other integrated investment; |
● | persons subject to the alternative minimum tax provisions of the Code; |
● | tax-exempt organizations; |
● | persons that actually or constructively own 5 percent or more of I-AM Capital common stock; and |
● | non-U.S. stockholders (as defined below, and except as otherwise discussed below). |
If any partnership (including for this purpose any entity treated as a partnership for U.S. federal income tax purposes) holds I-AM Capital common stock, the tax treatment of a partner will depend on the status of the partner and the activities of the partner and the partnership. If you are a partner of a partnership holding I-AM Capital common stock, you should consult your tax advisor. This summary assumes that stockholders hold I-AM Capital common stock as capital assets within the meaning of Section 1221 of the Code, which means as property held for investment and not as a dealer or for sale to customers in the ordinary course of the stockholder’s trade or business.
WE URGE HOLDERS OF I-AM CAPITAL COMMON STOCK CONTEMPLATING EXERCISE OF THEIR REDEMPTION RIGHTS TO CONSULT THEIR TAX ADVISOR REGARDING THE U.S. FEDERAL, STATE, LOCAL, AND FOREIGN INCOME AND OTHER TAX CONSEQUENCES THEREOF.
U.S. Federal Income Tax Considerations to U.S. I-AM Capital Stockholders
This section is addressed to U.S. holders of I-AM Capital common stock that elect to have their I-AM Capital common stock redeemed for cash as described in the section entitled “Special Meeting in Lieu of an Annual Meeting of I-AM Capital Stockholders — Redemption Rights.” For purposes of this discussion, a “Redeeming U.S. Holder” is a beneficial owner that so redeems its I-AM Capital common stock and is:
● | a citizen or resident of the United States; |
● | a corporation (including an entity treated as a corporation for U.S. federal income tax purposes) created or organized in or under the laws of the United States or any political subdivision thereof; |
● | an estate the income of which is subject to U.S. federal income taxation regardless of its source; or |
● | any trust if (1) a U.S. court is able to exercise primary supervision over the administration of such trust and one or more U.S. persons have the authority to control all substantial decisions of the trust or (2) it has a valid election in place to be treated as a U.S. person. |
A Redeeming U.S. Holder will recognize capital gain or loss equal to the difference between the amount realized on the redemption and such stockholder’s adjusted basis in the I-AM Capital common stock exchanged therefor if the Redeeming U.S. Holder’s ownership of stock in I-AM Capital is completely terminated or if the redemption meets certain other tests described below. Special constructive ownership rules apply in determining whether a Redeeming U.S. Holder’s ownership of stock in I-AM Capital is treated as completely terminated. Pursuant to these constructive ownership rules, a Redeeming U.S. Holder will be deemed to own stock that is actually or constructively owned by certain members of his or her family (spouse, children, grandchildren and parents) and other related parties including, for example, certain entities in which such Redeeming U.S. Holder has a direct or indirect interest (including partnerships, estates, trusts and corporations), as well as shares of stock that such Redeeming U.S. Holder (or a related person) has the right to acquire upon exercise of an option or conversion right. In addition, if a shareholder lives in a community property state, the community property laws of that state may have an effect on the constructive ownership rules. Certain exceptions to the family attribution rules for the purpose of determining a complete termination. If a Redeeming U.S. Holder intends to rely upon these exceptions, the Redeeming U.S. Holder must file a “waiver of family attribution” statement with the shareholder’s tax return and must comply with certain other requirements set forth in the Code and the income tax regulations promulgated thereunder. If gain or loss treatment applies, such gain or loss will be long-term capital gain or loss if the holding period of such stock is more than one year at the time of the exchange. Stockholders who hold different blocks of I-AM Capital common stock (generally, shares of I-AM Capital common stock purchased or acquired on different dates or at different prices) should consult their tax advisors to determine how the above rules apply to them.
Cash received upon redemption that does not completely terminate the Redeemed U.S. Holder’s interest will still give rise to capital gain or loss, if the redemption is either (i) “substantially disproportionate” or (ii) “not essentially equivalent to a dividend.” In determining whether the redemption is substantially disproportionate or not essentially equivalent to a dividend with respect to a Redeeming U.S. Holder, that Redeeming U.S. Holder is deemed to own not just stock he, she or it actually owned but also, in some cases, stock owned by certain family members, certain estates and trusts of which the Redeeming U.S. Holder is a beneficiary, and certain other affiliated entities.
For purposes of these tests, the redemption will be “substantially disproportionate” with respect to the Redeeming U.S. Holder if (i) the Redeeming U.S. Holder’s percentage ownership of the outstanding voting stock (including all classes which carry voting rights) of I-AM Capital is reduced immediately after the redemption to less than 80% of the Redeeming U.S. Holder’s percentage interest in such stock immediately before the redemption; (ii) the Redeeming U.S. Holder’s percentage ownership of the outstanding common stock (both voting and nonvoting) immediately after the redemption is reduced to less than 80% of such percentage ownership immediately before the redemption; and (iii) the Redeeming U.S. Holder owns, immediately after the redemption, less than 50% of the total combined voting power of all classes of stock of I-AM Capital entitled to vote. Whether the redemption will be considered “not essentially equivalent to a dividend” with respect to a Redeeming U.S. Holder will depend upon the particular circumstances of that U.S. holder. At a minimum, however, the redemption must result in a meaningful reduction in the Redeeming U.S. Holder’s actual or constructive percentage ownership of I-AM Capital. The IRS has ruled that any reduction in a stockholder’s proportionate interest generally is a “meaningful reduction” if the stockholder’s relative interest in the corporation is minimal and the stockholder does not have meaningful control over the corporation.
If none of the redemption tests described above give rise to capital gain or loss, the consideration paid to the Redeeming U.S. Holder will be treated as a distribution by us to such Redeeming U.S. Holder, which will be treated as dividend income for U.S. federal income tax purposes to the extent of our current or accumulated earnings and profits. However, for the purposes of the dividends-received deduction and of “qualified dividend” treatment, due to the redemption right, a Redeeming U.S. Holder may be unable to include the time period prior to the redemption in the stockholder’s “holding period” as part of the Redeeming U.S. Holder’s determination as to whether such gain or loss would be treated as short term or long term for U.S. federal income tax purposes. Any distribution in excess of our earnings and profits will reduce the Redeeming U.S. Holder’s basis in the I-AM Capital common stock (but not below zero), and any remaining excess will be treated as gain realized on the sale or other disposition of the I-AM Capital common stock.
These rules are complex and U.S. holders of I-AM Capital common stock considering exercising their redemption rights should consult their own tax advisors as to whether the redemption will be treated as a sale or as a distribution under the Code.
Certain Redeeming U.S. Holders who are individuals, estates or trusts pay a 3.8% tax on all or a portion of their “net investment income” or “undistributed net investment income” (as applicable), which may include all or a portion of their capital gain or dividend income from their redemption of I-AM Capital common stock. Redeeming U.S. Holders should consult their tax advisors regarding the effect, if any, of the net investment income tax.
U.S. Federal Income Tax Considerations to Non-U.S. I-AM Capital Stockholders
This section is addressed to non-U.S. holders of I-AM Capital common stock that elect to have their I-AM Capital common stock redeemed for cash as described in the section entitled “Special Meeting in Lieu of an Annual Meeting of I-AM Capital Stockholders — Redemption Rights.” For purposes of this discussion, a “Redeeming Non-U.S. Holder” is a beneficial owner (other than a partnership) that so redeems its I-AM Capital common stock and is not a Redeeming U.S. Holder.
Except as discussed in the following paragraph, a Redeeming Non-U.S. Holder who elects to have its I-AM Capital common stock redeemed will be treated in the same manner as a U.S. Holder for U.S. federal income tax purposes. See the discussion above under “U.S. Federal Income Tax Considerations to U.S. I-AM Capital Stockholders.”
Any Redeeming Non-U.S. Holder will not be subject to U.S. federal income tax on any capital gain recognized as a result of the exchange unless:
● | such stockholder is an individual who is present in the United States for 183 days or more during the taxable year in which the redemption takes place and certain other conditions are met, in which case the Redeeming Non-U.S. Holder will be subject to a 30% tax on the individual’s net capital gain for the year; or |
● | such stockholder is engaged in a trade or business within the United States and any gain recognized in the exchange is treated as effectively connected with such trade or business (and, if an income tax treaty applies, the gain is attributable to a permanent establishment maintained by such holder in the United States), in which case the Redeeming Non-U.S. Holder will be subject to the same treatment as a Redeeming U.S. Holder with respect to the exchange, and a corporate Redeeming Non-U.S. Holder may be subject to the branch profits tax at a 30% rate (or lower rate as may be specified by an applicable income tax treaty). |
With respect to any redemption treated as a distribution rather than a sale, any amount treated as dividend income to a Redeeming Non-U.S. Holder will generally be subject to U.S. withholding tax at a rate of 30%, unless the Redeeming Non-U.S. Holder is entitled to a reduced rate of withholding under an applicable income tax treaty. Dividends received by a Redeeming Non-U.S. Holder that are effectively connected with such holder’s conduct of a U.S. trade or business (and, if an income tax treaty applies, such dividends are attributable to a permanent establishment maintained by the Redeeming Non-U.S. Holder in the United States), are includible in the Redeeming Non-U.S. Holder’s gross income in the taxable year received. Although not subject to withholding tax (except as may be required by the “backup withholding” or “FATCA” rules, in each case as described below), such dividends are taxed at the same graduated rates applicable to Redeeming U.S. Holders, net of certain deductions and credits, subject to an applicable income tax treaty providing otherwise. In addition, dividends received by a corporate Redeeming Non-U.S. Holder that are effectively connected with the holder’s conduct of a U.S. trade or business may also be subject to a branch profits tax at a rate of 30% or such lower rate as may be specified by an applicable income tax treaty.
Non-U.S. holders of I-AM Capital common stock considering exercising their redemption rights should consult their own tax advisors as to whether the redemption of their I-AM Capital common stock will be treated as a sale or as a distribution under the Code.
Under the Foreign Account Tax Compliance Act (“FATCA”) and U.S. Treasury regulations and administrative guidance thereunder, a 30% United States federal withholding tax may apply to any dividends paid to (i) a “foreign financial institution” (as specifically defined in FATCA), whether such foreign financial institution is the beneficial owner or an intermediary, unless such foreign financial institution agrees to verify, report and disclose its United States “account” holders (as specifically defined in FATCA) and meets certain other specified requirements or (ii) a non-financial foreign entity, whether such non-financial foreign entity is the beneficial owner or an intermediary, unless such entity provides a certification that the beneficial owner of the payment does not have any substantial United States owners or provides the name, address and taxpayer identification number of each such substantial United States owner and certain other specified requirements are met. In certain cases, the relevant foreign financial institution or non-financial foreign entity may qualify for an exemption from, or be deemed to be in compliance with, these rules. Redeeming Non-U.S. Holders should consult their own tax advisors regarding this legislation and whether it may be relevant to their disposition of I-AM Capital common stock.
Backup Withholding
Proceeds received from the exercise of redemption rights will be subject to backup withholding for a non-corporate U.S. stockholder that:
● | fails to provide an accurate taxpayer identification number; |
● | is notified by the IRS regarding a failure to report all interest or dividends required to be shown on his or her federal income tax returns; or |
● | in certain circumstances, fails to comply with applicable certification requirements. |
A non-U.S. stockholder may eliminate the requirement for information reporting and backup withholding by providing certification of its foreign status, under penalties of perjury, on a duly executed applicable IRS Form W-8 or by otherwise establishing an exemption.
Any amount withheld under these rules will be creditable against the U.S. stockholder’s or non-U.S. stockholder’s U.S. federal income tax liability or refundable to the extent that it exceeds this liability, provided that the required information is timely furnished to the IRS and other applicable requirements are met.
MATERIAL INDIAN TAX CONSIDERATIONS
Introduction
The following is a summary of the material Indian income tax consequences of the acquisition, ownership and disposal of the equity shares (“Target equity shares”) of Smaaash (“Target”) for I-AM Capital (“Acquirer”). For the purpose of this summary, it is assumed that the Acquirer is a non-resident in India for the purposes of the (Indian) Income Tax Act, 1961, as amended (“IT Act”) and is a tax resident in the United States of America. The summary only addresses the tax consequences for the Acquirer on equity shares of the Target as capital assets and does not address the tax consequences in other cases. The summary proceeds on the basis that the Acquirer continues to remain a non-resident when the income by way of dividends and capital gains are earned. The summary is based on Indian tax laws and relevant interpretations thereof as are in force as on May 3, 2018, and are subject to change. This summary is not intended to constitute a complete analysis of all the tax consequences for the Acquirer under Indian law in relation to the acquisition, ownership and disposal of the Target equity shares and does not deal with all possible tax consequences relating to an investment in the Target equity shares, such as the tax consequences under state, local and other (for example, non-Indian) tax laws. The Acquirer should therefore consult their own tax advisers on the tax consequences of such acquisition, ownership and disposal of the Target equity shares under Indian law including specifically, the tax treaty between India and USA and the law of the jurisdiction in USA.
Taxation of Income arising from sale of Target equity shares
Section 112 of the IT Act provides that Capital gains accruing to a non-resident from the sale of unlisted equity shares, in this case- Target equity shares, on the sale of the equity shares will be subject to capital gains tax in India. Such capital gains are computed as the difference between the sales consideration received for such shares less their cost of acquisition. In the event the sales consideration is less than the Fair market value, the fair value as determined in accordance with the Income-tax Rules, 1962 (“IT Rules”) will be deemed to be the sales consideration.
Capital gains realized in respect of unlisted equity shares of Indian public companies held by a non-resident investor for more than 24 months will be treated as long-term capital gains and will be subject to tax at a maximum effective rate of 10.92% (including surcharge @ 5% and cess at 4%), provided the non-resident forgoes the benefit of neutralization of foreign exchange fluctuations. Capital gains realized in respect of equity shares held by the non-resident investor for 24 months or less will be treated as short-term capital gains and will be subject to tax at ordinary tax rates applicable to non-residents (Maximum effective rate of 43.68% including surcharge @ 5% and cess at 4%). Taxes, if any, payable on the sale of equity shares by the seller, are required to be withheld by the purchaser from the purchase consideration at the applicable rate. Further, the tax treatment discussed above is subject to Double Taxation Avoidance Agreements between India and USA.
This summary only addresses the tax consequences for non-resident investors who hold the Target equity shares as capital assets and does not address the tax consequences where such shares are held as “stock in trade”. If such shares are held as stock in trade, the income arising from the transfer of these shares would be treated as business income, which would be taxable in India if it arises through or from the non-resident seller’s business connection in India, if any. However, if the Acquirer is registered as a ‘Foreign Institutional Investor (FII)’ under the regulations prescribed by Securities and Exchange Board of India (SEBI), any investment by such FII shall be deemed to be a capital asset.The Acquirer should consult their own tax advisers on the tax consequences in India of holding the Target equity shares as a capital asset or as stock in trade, including in relation to the applicable DTAA.
Capital Losses
The losses arising from a transfer of a capital asset in India can only be set off against capital gains and not against any other income in accordance with the IT Act. A long-term capital loss may be set off only against a long-term capital gain. To the extent that the losses are not absorbed in the year of transfer, they may be carried forward for a period of eight years immediately succeeding the year for which the loss was first computed and may be set off against the capital gains assessable for such subsequent years. In order to get the benefit of set-off of the capital losses in this manner, the non-resident investor must file appropriate and timely tax returns in India and undergo the usual assessment procedures.
Corporate Tax
The Target will be liable to a headline corporate tax in India @ 34.94% (including surcharge and cess).
Taxation of Dividends
Dividends paid the Acquirer would not be subject to tax in the hands of such holder. However, the Target will be liable to pay a “dividend distribution tax” currently at an effective rate of 21.17% (inclusive of surcharge @ 12% and cess @ 4% as computed on grossed up basis).
Tax Treaties
The above mentioned tax rates and the consequent taxation are subject to any benefits available to the Acquirer under the provisions of the DTAA entered into between the Government of USA and the Government of India.
Gift Tax
S. 56(2)(x) of the IT Act provides that in the event the transfer of any unlisted shares is undertaken at less than fair value (as determined by the IT Rules) or for NIL consideration, the whole of the difference between the fair value and actual consideration payable (if such difference exceeds INR 50,000) shall be deemed to be a gift in the hands of the recipient and the same would be taxable at applicable tax rates.
Tax Credit
The Acquirer may be entitled to a tax credit with respect to any withholding tax paid by us or any other person for their account in accordance with the laws of USA and the provisions of the tax treaty between India and USA.
INFORMATION ABOUT I-AM CAPITAL
General
I-AM Capital is a blank check company organized under the laws of the State of Delaware on April 17, 2017. The Company was formed for the purpose of effecting a merger, share exchange, asset acquisition, share purchase, reorganization or similar business combination with one or more businesses. Although I-AM Capital is not limited to a particular industry or geographic region for purposes of consummating a business combination, I-AM Capital focuses on businesses with a connection to India.
On May 31, 2017, I-AM Capital issued 1,437,500 founder shares to the Sponsor in exchange for a capital contribution of $25,000. Upon the partial exercise of the underwriters'underwriters’ over-allotment option on September 13, 2017, 137,500 founder shares were forfeited by the Sponsor.
The founder shares are identical to the shares of common stock included in the public units sold in I-AM Capital’s initial public offering and holders of founder shares have the same stockholder rights as public stockholders, except that (i) the founder shares and the shares of common stock underlying the private units are subject to certain transfer restrictions, and (ii) the Sponsor has entered into a letter agreement, pursuant to which it has agreed (A) to waive its redemption rights with respect to the founder shares, and the shares of common stock underlying the private units and the public units in connection with the completion of a business combination and (B) to waive its rights to liquidating distributions from the trust account with respect to the founder shares and the shares of common stock underlying the private units if I-AM Capital fails to complete a business combination within 12 months from the closing of the initial public offering (or up to 21 months from the closing of the initial public offering if I-AM Capital extends the period of time to consummate a business combination).
On August 22, 2017, I-AM Capital sold 5,000,000 public units at a purchase price of $10.00 per public unit in its initial public offering, generating gross proceeds of $50.0 million. The Company incurred offering costs of approximately $3.7 million, inclusive of approximately $3.2 million of underwriting fees. The Company paid $1 million of underwriting fees upon the closing of the initial public offering, issued 50,000 shares of common stock for underwriting fees, and deferred $1.75 million of underwriting fees until the consummation of the initial business combination. Each public unit consists of one share of I-AM Capital'sCapital’s common stock, one right to receive one-tenth of one share of I-AM Capital'sCapital’s common stock upon consummation of I-AM Capital'sCapital’s initial business combination, and one redeemable warrant. Each warrant entitles the holder to purchase one share of common stock at an exercise price of $11.50 per share, subject to adjustment. No fractional shares will be issued upon exercise of the warrants. The warrants will become exercisable on the later of (i) 30 days after the completion of the initial business combination and (ii) 12 months from the closing of the initial public offering, and will expire five years after the completion of the initial business combination or earlier upon redemption or liquidation. There will be no redemption rights or liquidating distributions with respect to the warrants and rights, which will expire worthless if I-AM Capital fails to complete it business combination within the period specified above. The Company granted the underwriters a 45-day option to purchase up to 750,000 additional public units to cover any over-allotment, at the initial public offering price less any underwriting discounts and commissions. On September 13, 2017, the underwriters purchased 200,000 additional public units for gross proceeds of $2,000,000 less commissions of $110,000, of which $70,000 are deferred. The Company issued Maxim Group LLC, as compensation for the initial public offering, 50,000 shares at the closing of the initial public offering, plus an additional 2,000 shares upon partial exercise of the over-allotment.
Concurrently with the closing of the initial public offering, the Sponsor purchased an aggregate of 254,500 private placement units at $10.00 per private unit, generating gross proceeds of $2,545,000 in a private placement. The private placement units (including their component securities) will not be transferable, assignable or salable until 30 days after the completion of the initial business combination and the warrants included in the private placement units will be non-redeemable so long as they are held by the Sponsor or their permitted transferees. After deducting underwriting discounts and commissions and offering expenses, $50,750,000 of the proceeds of I-AM Capital'sCapital’s initial public offering and the private units was placed in a trust account with Continental Stock Transfer & Trust Company as trustee. On September 13, 2017, upon the partial exercise of the underwriter’s over-allotment option for 200,000 public units and the purchase by the Sponsor of an additional 7,000 private placement units, after deducting underwriting commissions, an additional $2,030,000 of net proceeds was deposited into the trust account, for a balance of $52,780,000. The trust proceeds are invested in U.S. government treasury bills with a maturity of 180 days or less or money market funds meeting certain conditions under Rule 2a-7 under the Investment Company Act, which invest only in direct U.S. government treasury obligations.
I-AM Capital’s Restated Certificate provides that, other than the withdrawal of interest to pay taxes or up to a maximum of $600,000 of working capital expenses, if any, none of the funds held in trust will be released until the earlier of: (i) the completion of the initial business combination; or (ii) the redemption of 100% of the shares of common stock sold in the initial public offering if I-AM Capital is unable to complete its initial business combination within 12 months (or 21 months if extended) from the closing of the initial public offering (subject to the requirements of law).
Fair Market Value of Target Business
I-AM Capital’s initial business combination must occur with one or more target businesses that together have an aggregate fair market value of at least 80% of the assets held in the trust account (excluding the deferred underwriting commissions and taxes payable on the income earned on the trust account) at the time of the agreement to enter into the initial business combination. I-AM Capital’s board of directors determined that the fair market value of Smaaash satisfies the 80% of net assets test based upon one or more standards generally accepted by the financial community, such as discounted cash flow valuation or value of comparable businesses.
Submission of the Transaction to a Stockholder Vote
Since I-AM Capital is seeking stockholder approval of the Transaction, I-AM Capital is distributing proxy materials and, in connection therewith, providing its public stockholders with the redemption rights described above upon completion of the Transaction. Public stockholders electing to exercise their redemption rights will be entitled to receive cash equal to their pro rata share of the aggregate amount then on deposit in the trust account as of two business days prior to the consummation of the Transaction, including any amounts representing interest earned on the trust account (less taxes payable and up to $600,000 of working capital expenses), provided that such stockholders follow the specific procedures for redemption set forth in this proxy statement relating to the stockholder vote on the Transaction. I-AM Capital’s public stockholders are not required to vote against the Transaction in order to exercise their redemption rights. If the Transaction is not completed, then public stockholders electing to exercise their redemption rights will not be entitled to receive such payments.
I-AM Capital will complete the Transaction if the votes cast by the holders of common stock of I-AM Capital present in person or represented by proxy at the special meeting and entitled to vote thereon vote in favor of the Business Combination Proposal. The initial stockholder have agreed to vote their founder shares and any public shares purchased during or after the initial public offering in favor of the Transaction. In addition, the initial stockholder have agreed to waive their redemption rights with respect to their founder shares and public shares in connection with the consummation of the Transaction.
The Sponsor, directors, officers, advisors or their affiliates may purchase shares in privately negotiated transactions or in the open market either prior to or following the completion of the Transaction. They will not make any such purchases when they are in possession of any material non-public information not disclosed to the seller or if such purchases are prohibited by Regulation M under the Exchange Act. Such a share purchase may include a contractual acknowledgement that such stockholder, although still the record holder of I-AM Capital shares, is no longer the beneficial owner thereof and therefore agrees not to exercise its redemption rights. In the event that the Sponsor, directors, officers, advisors or their affiliates purchase shares in privately negotiated transactions from public stockholders who have already elected to exercise their redemption rights, such selling stockholders would be required to revoke their prior elections to redeem their shares. It is not anticipated that such purchases, if any, would constitute a tender offer subject to the tender offer rules under the Exchange Act or a going-private transaction subject to the going-private rules under the Exchange Act; however, if the purchasers determine at the time of any such purchases that the purchases are subject to such rules, the purchasers will comply with such rules.
The purpose of such purchases would be to vote such shares in favor of the Transaction and thereby increase the likelihood of obtaining stockholder approval of the Transaction. This may result in the completion of the Transaction that may not otherwise have been possible.
Redemption Rights for Holders of Public Shares Upon Consummation of the Transaction
I-AM Capital is providing its public stockholders with the opportunity to redeem all or a portion of their shares of common stock upon the completion of the Transaction at a per-share price, payable in cash, equal to the aggregate amount on deposit in the trust account as of two business days prior to the consummation of the Transaction, including interest, divided by the number of then outstanding public shares, subject to the limitations described herein. The amount in the trust account is anticipated to be approximately $10.15 per public share. The Sponsor and the Company’s executive officers and directors have entered into letter agreements with I-AM Capital, pursuant to which they have agreed to waive their redemption rights with respect to their founder shares and any public shares they may hold in connection with the completion of the Transaction.
In addition, I-AM Capital has agreed to issue a Special Dividend of common stock on all shares of I-AM Capital common stock that are outstanding immediately prior to the closing of the Transaction, to each stockholder who beneficially owns such shares as of such time (other than the Sponsor, Maxim and its affiliates, who have agreed to waive their rights to such dividend). The number of shares to be issued in the Special Dividend for each outstanding share shall be equal to 600,000 divided by the number of shares of common stock eligible to receive such dividend. In connection with the Special Dividend, the Sponsor has agreed to cancel a number of founder shares equal to the aggregate number of shares issued in the Special Dividend. To the extent you transfer or redeem your shares of I-AM Capital common stock prior to the closing of the Transaction, you will not receive the Special Dividend.
Limitation on Redemption Rights Upon Completion of the Transaction
Notwithstanding the foregoing, I-AM Capital’s Restated Certificate provides that a public stockholder, together with any affiliate of such stockholder or any other person with whom such stockholder is acting in concert or as a “group” (as defined under Section 13 of the Exchange Act), will be restricted from seeking redemption rights with respect to more than an aggregate of 15% of the shares sold in I-AM Capital’s initial public offering. This restriction may discourage stockholders from accumulating large blocks of shares, and subsequent attempts by such holders to use their ability to exercise their redemption rights against a proposed business combination as a means to force I-AM Capital or its management to purchase their shares at a significant premium to the then-current market price or on other undesirable terms. Absent this provision, a public stockholder holding more than an aggregate of 15% of the shares sold in I-AM Capital’s initial public offering could threaten to exercise its redemption rights if such holder’s shares are not purchased by I-AM Capital or I-AM Capital’s management at a premium to the then-current market price or on other undesirable terms. By limiting stockholders’ ability to redeem to no more than 15% of the shares sold in I-AM Capital’s initial public offering, the ability of a small group of stockholders to unreasonably attempt to block the completion of the Transaction is limited. However, stockholders’ ability to vote all of their shares (including all shares held by those stockholders that hold more than 15% of the shares sold in the initial public offering) for or against the Transaction is not restricted.
Redemption of Public Shares and Liquidation if No Initial Business Combination
The Sponsor, executive officers and directors have agreed that I-AM Capital must complete its initial business combination by August 21, 2018 (or May 21, 2019, if we extend the period to consummate a business combination). If I-AM Capital is unable to complete its business combination within such time frame, it will:
● | cease all operations except for the purpose of winding up; |
● | as promptly as reasonably possible but not more than ten business days thereafter, redeem the public shares, at a per-share price, payable in cash, equal to the aggregate amount then on deposit in the trust account, including interest (less up to $50,000 of interest to pay liquidation expenses), less taxes payable and up to $600,000 of working capital expenses, divided by the number of then outstanding public shares, which redemption will completely extinguish public stockholders’ rights as stockholders (including the right to receive further liquidation distributions, if any), subject to applicable law; and |
● | as promptly as reasonably possible following such redemption, subject to the approval of the remaining stockholders and I-AM Capital’s board of directors, dissolve and liquidate; |
subject in each case to obligations under Delaware law to provide for claims of creditors and the requirements of other applicable law.
Pursuant to its Restated Certificate, I-AM Capital’s powers following the expiration of the permitted time period for consummating a business combination will automatically thereafter be limited to acts and activities relating to dissolving and winding up its affairs.
Management
Directors and Executive Officers
I-AM Capital’s directors and executive officers are as follows:
Name | Age | Position | ||
F. Jacob Cherian | 53 | Chief Executive Officer and Class II Director | ||
Suhel Kanuga | 43 | Chief Financial Officer, Secretary and Class II Director | ||
Donald R. Caldwell | 71 | Chairman and Class I Director | ||
Roman Franklin | 34 | Class I Director | ||
Max Hooper | 71 | Class II Director | ||
Frank Leavy | 65 | Class I Director | ||
Edward Leonard Jaroski | 71 | Class I Director | ||
William H. Herrmann, Jr. | 72 | Class II Director |
F. Jacob Cherian, has served as our Chief Executive Officer and has been a member of our board of directors since inception. Mr. Cherian is also one of the managing members of our Sponsor Mr. Cherian co-founded and served as Chairman, Chief Executive Officer and director of Millennium India from July 2006 to October 2013, completing a $58 million initial public offering in July 2006. Millennium India completed a business combination with SMC, an India-headquartered diversified financial services company with over 2,500 locations in over 500 cities in India serving approximately 1.7 million investors by acquiring a 14.9% interest in SMC. Mr. Cherian served on the Board of Directors of SMC from 2008 to December 2017, and also served on the Board of Directors of Moneywise Financial Services, a non-bank finance company in India, from 2008 to December 2017. From April 2004 to July 2006, Mr. Cherian served as Partner in the financial services division of Computer Sciences Corporation (“CSC”), a Fortune 500 firm with approximately $15.0 billion in annual revenues. Mr. Cherian’s prior work experience includes positions as a director in New York with KPMG LLP / KPMG Consulting from October 1998 to March 2004, and JP Morgan & Co from September 1995 to September 1998 in its Fixed Income Credit Portfolio & Derivatives Division. Mr. Cherian has extensive international experience and has relocated to, and had multi-year residences in, both Europe and India. He is frequently featured in leading publications and industry conferences for his insights on emerging trends and growth markets, and is a respected authority on South Asian and India-related affairs. Mr. Cherian holds a Bachelor of Arts degree in Accounting & Information Systems from Queens College of CUNY and an MBA in International Finance from St. John’s University. He has also served as Adjunct Professor of Finance at the Tobin College of Business at St. John’s University’s MBA Program for ten years.
We believe Mr. Cherian’s extensive executive experience and leadership in global including India related business transactions qualifies him to serve on our board of directors.
Suhel Kanuga, has served as our Chief Financial Officer and Secretary and has been a member of our board of directors since inception. Mr. Kanuga is also one of the managing members of our Sponsor. Mr. Kanuga co-founded Millennium India, completing a $58 million initial public offering in July 2006 and consummated a business combination with SMC and served at various positions including President, Chief Financial Officer, Treasurer, Secretary, Chief Compliance Officer and Director from March 2006 through May 2015. Mr. Kanuga also served on the Board of Directors of SAM Global Securities, prior to its amalgamation with SMC from January 2008 to February 2009. From April 2004 to July 2006, Mr. Kanuga served as Principal in the financial services division of CSC. He also held management positions at KPMG Consulting in New York from January 1999 to August 2004 and prior to that, U.S. West, Inc. Mr. Kanuga has significant international management experience, having worked with businesses across the United States, Europe and Asia. Mr. Kanuga is experienced in identifying business value, and structuring investments and acquisitions to scale up businesses. Mr. Kanuga has been interviewed in the media for his views and expertise on emerging markets/India investments and governance, and has also presented at industry conferences. He holds Bachelor’s degrees in Mathematics and Economics from Lawrence University.
We believe Mr. Kanuga’s deep understanding of finance and international business management and transactions qualifies him to serve on our board of directors.
Donald R. Caldwell, who has been an independent director and the Chairman of our board of directors since August 16, 2017, is an experienced investor, co-founded Cross Atlantic Capital Partners, Inc., a venture capital management company, where he has served as its Chairman and Chief Executive Officer since 1999. At Cross Atlantic Capital Partners, Inc., Mr. Caldwell has raised four investment funds totaling over $500 million of committed capital and is responsible for the firm’s operations, building the investment team, and growing the Cross Atlantic franchise through fundraising, network development, and deal flow generation. Prior to founding Cross Atlantic Capital Partners, Inc. in March 1999, Mr. Caldwell was President and Chief Operating Officer of Safeguard Scientifics, Inc. (NYSE: SFE) (“Safeguard”) from 1996 to 1999, where he also previously served as Executive Vice President from 1993 to 1996. In addition to his service on our board, Mr. Caldwell currently serves on the board of directors of three public companies: InsPro Technologies Corporation (OTC: ITCC) since 2008, where he serves as chairman of the board and member of the audit committee; Lightning Gaming, Inc., since June 2015, where he serves as a director and chairman of the audit committee; and Quaker Chemical Corporation (NYSE: KWR) since 1997, where he serves as lead director, as chairman of the executive committee and member of the compensation and audit committees; Mr. Caldwell was previously a member of the board of directors of Diamond Cluster International, Inc. from 1994 to 2010 and has served as a director for several private companies and non-profit organizations, including software and money management firms as well as the Pennsylvania Academy of the Fine Arts and the Committee for Economic Development. Mr. Caldwell is a Certified Public Accountant (Retired) and holds a Bachelor of Science degree from Babson College and a Master of Business Administration from the Graduate School of Business at Harvard University.
We believe Mr. Caldwell’s deep financial, entrepreneurial and business expertise and extensive experience as a member of the boards and board committees of other public companies qualifies him to serve on our board of directors.
Roman Franklin, has been an independent director since August 16, 2017. Mr. Franklin has been Chief Investment Officer of SMC Global USA since March 2016, and prior, President of Franklin Financial Planning from 2005 to 2016. Roman Franklin is a 14-year veteran of the financial services industry. By the age of 22 he held FINRA Series 7, Series 66, and Life, Health, and Variable Insurance Licenses. In 2005, he founded a fee-only registered investment advisory firm. In 2008, he was one of the youngest recipients of the National Association of Financial Advisors (“NAPFA”) Registered Financial Advisor (RFA) designation. In 2015, he was elected as a Board Member of the NAPFA, South Region Board of Directors, overseeing more than a dozen states from Texas, to Florida, to North Carolina. Mr. Franklin has experience in domestic and international investment, and has been involved in multiple business transactions tied to India, including the sale of a 50% equity stake in his wealth management business to Indian financial services firm SMC. Mr. Franklin holds a Bachelor’s Science degree in Management from Barry University and an M.B.A. in Finance from the Graduate School of Business at Stetson University. His civic organization roles include School Advisory Council for Volusia County Schools, City of DeLand Economic Development Committee, and the Boys’ and Girls’ Clubs of Central Florida.
We believe Mr. Franklin’s strong expertise in finance and international and domestic business transactions, in particular those with Indian exposure, qualifies him to serve on our board of directors.
Max Hooper, who has been an independent director since August 16, 2017, serves as Managing Director of Merging Traffic, a web-based crowdsourcing portal, since September 2015 and Head of Investment Banking and Senior Vice President of Triloma Securities, a subsidiary of Triloma Financial Group LLC, since January 2016. Dr. Hooper is also the founder and owner of Partners Advisory Group and Partners Capital Group, two financial advisory firms since January 2014. Since February 2018, Dr. Hooper’s primary focus has been as Managing Director/CEO of Managing Traffic and co-owner of Triloma Financial Group. Prior to that, Dr. Hooper was co-founder of Equity Broadcasting Corporation, a media company that owned and operated more than one hundred television stations across the United States. Dr. Hooper is an accomplished entrepreneur and has started multiple businesses in technology/internet, lodging, and services industries. Dr. Hooper has served on the investment committee of several venture capital and angel funds, and has completed “work out” transactions as a Certified Debt Arbitrator representing banks and private transactions. Dr. Hooper also has prior experience with SPACs such as transaction structuring, administration, research, and execution. Dr. Hooper has earned five doctorate degrees from a variety of institutions.
We believe Dr. Hooper’s expertise in investment, management and mergers and acquisitions over various industries qualify him to serve on our board of directors.
Frank Leavy, has been an independent director since August 16, 2017. Since 2007, Mr. Leavy has been the Senior Vice President and Director of Finance and Administration for Blake’s All Natural Foods, a manufacturer of “better for you” frozen entrees. Prior to that, he held various financial officer positions at member companies of Group Rossignol, a world leading company in the winter sports industry. Specifically, he was Controller of Rossignol Ski Company from 1982 to 2006 and Vice President of Finance of Skis Dynastar, Inc. and Skis Dynastar Canada from 2000 to 2006. He also served as Chief Operating Officer at Roger Cleveland Golf Company, a subsidiary of Group Rossignol from 1999 to 2000 and was elected a director of the company from 2003 to 2005. Mr. Leavy holds a Bachelor of Arts degree from the College of the Holy Cross and a Master of Science degree in accounting from the Graduate School of Professional Accounting at Northeastern University.
We believe Mr. Leavy’s extensive experience in corporate finance qualify him to serve on our board of directors.
Edward Leonard Jaroski, has been an independent director since October 2017. Mr. Jaroski was the founder of Fixed Income Portfolio Manager at Capstone Asset Management Company and has served as its President and Chief Executive Officer since from Mr. Jaroski has been Chairman, Chief Executive Officer and President of various Capstone/Steward Funds in the fund complex from 1987 through 2016. Mr. Jaroski was at Tenneco Financial Services from 1981 to 1987, where he was the Executive Vice President. He started his career at Philadelphia Life Insurance Company as Manager of Investments in 1969, where he served until 1981 and also served as its Vice President of Finance. He also served as a Director of Philadelphia Life Asset Management Company. Mr. Jaroski holds the insurance industry professional designations of Chartered Life Underwriter, Charter Financial Consultant and Fellow Life Management Institute. He holds a B.B.A. degree in Accounting from Temple University.
We believe Mr. Jaroski’s experience in investments and asset management qualify him to serve on our board of directors.
William H. Herrmann, Jr., has been an independent director since October 2017. Mr. Herrmann has over 40 years of experience in financial services, and insurance and investment planning industries. Presently, Mr. Herrmann is the Owner of Herrmann & Associates, a financial services firm affiliated with Hudson Heritage Capital Management Inc., a Registered Investment Advisor since February 15, 2006. Mr. Herrmann has also served as Director of Steward Funds, since 2011, and presently serves as it lead independent director. Mr. Herrmann serves as the Chairman of the Nominating and Corporate Governance Committee of Steward Funds. He previously served as the Chairman of the Contracts Committee of Steward Funds. Mr. Herrmann is also a Director of Church Capital Fund, where he serves as the Chairman of the Nominating and Corporate Governance Committees. Mr. Herrmann is also a Trustee of LuLu Shriners Investment Advisory Committee and the Chairman of Beta Rho Property Company. Mr. Herrmann holds a B.A. from the University of Pennsylvania, and an MBA from Temple University, and holds the Chartered Life Underwriter (CLU) designation from American College. Mr. Herrmann holds Series 7, 63, and 65 securities licenses as well as insurance licenses in multiple states.
We believe Mr. Herrmann’s experience in financial services and the investment planning industry qualify him to serve on our board of directors.
Our officers and board of directors are well qualified as leaders. In their prior positions they have gained experience in core management skills, such as strategic and financial planning, public company financial reporting, compliance, risk management, and leadership development. Our officers and directors also have experience serving on boards of directors and board committees of other public companies and private companies, and have an understanding of corporate governance practices and trends, which provides an understanding of different business processes, challenges, and strategies.
Number and Terms of Office of Officers and Directors
Our board of directors is divided into two classes, Class I and Class II, with only one class of directors being elected in each year and each class (except for those directors appointed prior to our first annual meeting of stockholders) serving a two-year term. The term of office of the Class I director, consisting of Messrs. Caldwell, Leavy, Franklin andJaroski, will expire at the special meeting of stockholders. The term of office of the Class II directors, consisting of Messrs. Cherian, Kanuga and Herrmann and Dr. Hooper, will expire at the second annual meeting of stockholders.
Our officers are elected by the board of directors and serve at the discretion of the board of directors, rather than for specific terms of office. Our board of directors is authorized to appoint persons to the offices set forth in our bylaws as it deems appropriate. Our bylaws provide that our officers may consist of a Chief Executive Officer, President, Chief Financial Officer, Vice Presidents, Secretary, Assistant Secretaries, Treasurer and such other offices as may be determined by the board of directors.
Director Independence
NASDAQ listing standards require that a majority of our board of directors be independent. An “independent director” is defined generally as a person other than an officer or employee of the company or its subsidiaries or any other individual having a relationship which in the opinion of the company’s board of directors, would interfere with the director’s exercise of independent judgment in carrying out the responsibilities of a director. Our board of directors has determined that Messrs. Caldwell, Leavy, Franklin,Jaroski and Herrmann and Dr. Hooper are “independent directors” as defined in the NASDAQ listing standards and applicable SEC rules. Our independent directors will have regularly scheduled meetings at which only independent directors are present.
Executive Officer and Director Compensation
Prior to the Transaction, none of our executive officers, directors or director nominees received any cash (or non-cash) compensation for services rendered to us. We pay an affiliate of our executive officers a total of $10,000 per month for office space, utilities and secretarial support. Prior to the Transaction our Sponsor, executive officers and directors, or any of their respective affiliates, were entitled to be reimbursed for any out-of-pocket expenses incurred in connection with activities on our behalf such as identifying potential target businesses and performing due diligence on suitable business combinations. Our independent directors will review on a quarterly basis all payments that were made to our Sponsor, officers, directors or their affiliates.
After the completion of the Transaction, directors or members of our management team who remain with us may be paid consulting, management or other fees. All of these fees will be fully disclosed to stockholders. Any compensation to be paid to our officers will be determined by out compensation committee.
Committees of the Board of Directors
Our board of directors has two standing committees: an audit committee and a compensation committee. Both our audit committee and our compensation committee are composed solely of independent directors.
Audit Committee
Messrs. Caldwell and Franklin and Dr. Hooper serve as members of our audit committee. Mr. Caldwell serves as chairman of the audit committee. Under NASDAQ listing standards and applicable SEC rules, I-AM Capital is required to have three members of the audit committee, all of whom must be independent. Messrs. Caldwell and Roman and Dr. Hooper are independent.
Each member of the audit committee is financially literate and our board of directors has determined that Mr. Caldwell qualifies as an “audit committee financial expert” as defined in applicable SEC rules.
Responsibilities of the audit committee include:
● | the appointment, compensation, retention, replacement, and oversight of the work of the independent auditors and any other independent registered public accounting firm engaged by us; | |
● | pre-approving all audit and non-audit services to be provided by the independent auditors or any other registered public accounting firm engaged by us, and establishing pre-approval policies and procedures; |
● | reviewing and discussing with the independent auditors all relationships the auditors have with us in order to evaluate their continued independence; | |
● | setting clear hiring policies for employees or former employees of the independent auditors; | |
● | setting clear policies for audit partner rotation in compliance with applicable laws and regulations; | |
● | obtaining and reviewing a report, at least annually, from the independent auditors describing (i) the independent auditor’s internal quality-control procedures and (ii) any material issues raised by the most recent internal quality-control review, or peer review, of the audit firm, or by any inquiry or investigation by governmental or professional authorities, within, the preceding five years respecting one or more independent audits carried out by the firm and any steps taken to deal with such issues; | |
● | reviewing and approving any related party transaction required to be disclosed pursuant to Item 404 of Regulation S-K promulgated by the SEC prior to us entering into such transaction; and | |
● | reviewing with management, the independent auditors, and our legal advisors, as appropriate, any legal, regulatory or compliance matters, including any correspondence with regulators or government agencies and any employee complaints or published reports that raise material issues regarding our financial statements or accounting policies and any significant changes in accounting standards or rules promulgated by the Financial Accounting Standards Board, the SEC or other regulatory authorities. |
Compensation Committee
The members of our compensation committee are Messrs. Caldwell and Franklin and Dr. Hooper. Mr. Caldwell serves as chairman of the compensation committee. I-AM Capital has adopted a compensation committee charter, which details the principal functions of the compensation committee, including:
● | reviewing and approving the compensation of all of our other executive officers; | |
● | reviewing our executive compensation policies and plans; | |
● | implementing and administering our incentive compensation equity-based remuneration plans; | |
● | assisting management in complying with our proxy statement and annual report disclosure requirements; | |
● | approving all special perquisites, special cash payments and other special compensation and benefit arrangements for our executive officers and employees; | |
● | producing a report on executive compensation to be included in our annual proxy statement; and | |
● | reviewing, evaluating and recommending changes, if appropriate, to the remuneration for directors. |
The charter also provides that the compensation committee may, in its sole discretion, retain or obtain the advice of a compensation consultant, legal counsel or other adviser and will be directly responsible for the appointment, compensation and oversight of the work of any such adviser. However, before engaging or receiving advice from a compensation consultant, external legal counsel or any other adviser, the compensation committee will consider the independence of each such adviser, including the factors required by NASDAQ and the SEC.
Director Nominations
We do not have a standing nominating committee. In accordance with Rule 5605(e)(2) of the NASDAQ rules, a majority of the independent directors may recommend a director nominee for selection by the board of directors. The board of directors believes that the independent directors can satisfactorily carry out the responsibility of properly selecting or approving director nominees without the formation of a standing nominating committee. The directors who shall participate in the consideration and recommendation of director nominees are Messrs. Caldwell and Franklin and Dr. Hooper. In accordance with Rule 5605(e)(1)(A) of the NASDAQ rule, all such directors are independent. As there is no standing nominating committee, we do not have a nominating committee charter in place.
The board of directors will also consider director candidates recommended for nomination by our stockholders during such times as they are seeking proposed nominees to stand for election. Our stockholders that wish to nominate a director for election to the board of directors should follow the procedures set forth in our bylaws.
I-AM Capital has not formally established any specific, minimum qualifications that must be met or skills that are necessary for directors to possess. In general, in identifying and evaluating nominees for director, the board of directors considers educational background, diversity of professional experience, knowledge of our business, integrity, professional reputation, independence, wisdom, and the ability to represent the best interests of our stockholders.
Code of Ethics
I-AM Capital has adopted a Code of Ethics applicable to our directors, officers and employees. I-AM Capital has previously filed a copy of our form of Code of Ethics as an exhibit to our registration statement on Form S-1 (File 333-219251). You will be able to review these documents by accessing our public filings at the SEC’s web site atwww.sec.gov. In addition, a copy of the Code of Ethics will be provided without charge upon request from us. We intend to disclose any amendments to or waivers of certain provisions of our Code of Ethics in a Current Report on Form 8-K. See “Where You Can Find Additional Information.”
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act, requires our officers, directors and persons who beneficially own more than ten percent of our common stock to file reports of ownership and changes in ownership with the SEC. These reporting persons are also required to furnish us with copies of all Section 16(a) forms they file. Messrs. Jaroski and Herrmann did not file Form 3s upon their appointment to the board of directors. Based solely upon a review of such forms, we believe that except as provided above during the year fiscal ending May 31, 2018 there were no delinquent filers.
Board Meetings and Attendance at Annual Meetings
In the fiscal year ending May 31, 2018, I-AM Capital’s board of directors held four meetings, and its audit committee and compensation committee did not meet.
Limitation on Liability and Indemnification of Officers and Directors
Our Restated Certificate provides that our officers and directors will be indemnified by us to the fullest extent authorized by Delaware law, as it now exists or may in the future be amended. In addition, our Restated Certificate provides that our directors will not be personally liable for monetary damages to us for breaches of their fiduciary duty as directors, except to the extent such exemption from liability or limitation thereof is not permitted by the DGCL.
I-AM Capital has entered into agreements with our officers and directors to provide contractual indemnification in addition to the indemnification provided for in our Restated Certificate. Our bylaws also permit us to maintain insurance on behalf of any officer, director or employee for any liability arising out of his or her actions, regardless of whether Delaware law would permit such indemnification. I-AM Capital has purchased a policy of directors’ and officers’ liability insurance that insures our officers and directors against the cost of defense, settlement or payment of a judgment in some circumstances and insures us against our obligations to indemnify our officers and directors.
Our officers and directors have agreed to waive any right, title, interest or claim of any kind in or to any monies in the trust account, and have agreed to waive any right, title, interest or claim of any kind they may have in the future as a result of, or arising out of, any services provided to us and will not seek recourse against the trust account for any reason whatsoever. Accordingly, any indemnification we provide to our officers and directors will only be able to be satisfied by us if (i) I-AM Capital has sufficient funds outside of the trust account or (ii) we consummate an initial business combination.
These provisions may discourage stockholders from bringing a lawsuit against our directors for breach of their fiduciary duty. These provisions also may have the effect of reducing the likelihood of derivative litigation against officers and directors, even though such an action, if successful, might otherwise benefit us and our stockholders. Furthermore, a stockholder’s investment may be adversely affected to the extent we pay the costs of settlement and damage awards against officers and directors pursuant to these indemnification provisions.
We believe that these provisions, the insurance and the indemnity agreements are necessary to attract and retain talented and experienced officers and directors.
The Board’s Role in Risk Oversight
Although our management is primarily responsible for managing our risk exposure on a daily basis, our board of directors oversees the risk management processes. Our board, as a whole, determines the appropriate level of risk for our Company, assesses the specific risks that we face, and reviews management’s strategies for adequately mitigating and managing the identified risks. Although our board administers this risk management oversight function, our audit committee supports our board in discharging its oversight duties and addresses risks inherent in its area.
Employees
Prior to the Transaction, I-AM Capital has two executive officers. Members of the management team are not and will not be obligated to devote any specific number of hours to I-AM Capital’s matters, but they intend to devote as much of their time as they deem necessary to its affairs until the initial business combination is complete. The amount of time that members of management will devote in any time period will vary based on whether a target business has been selected for the initial business combination and the current stage, if any, of any business combination. I-AM Capital has one full time administrative employee and does not intend to have any other employees prior to the completion of the initial business combination.
Legal Proceedings
There are no legal proceedings pending against I-AM Capital.
Properties
I-AM Capital currently leases executive offices at 1345 Avenue of the Americas, 11th Floor, New York, New York. I-AM Capital considers the current office space adequate for its current operations.
Available Information
I-AM Capital is required to file Annual Reports on Form 10-K and Quarterly Reports on Form 10-Q with the SEC on a regular basis, and is required to disclose certain material events (e.g., changes in corporate control, acquisitions or dispositions of a significant amount of assets other than in the ordinary course of business and bankruptcy) in a Current Report on Form 8-K. The public may read and copy any materials filed with the SEC at the SEC’s Public Reference Room at 100 F Street, NE, Washington, DC 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC also maintains an Internet website that contains reports, proxy and information statements and other information regarding issuers that file electronically with the SEC. The SEC’s Internet website is located athttp://www.sec.gov.
Beneficial Ownership
The following table sets forth information regarding the beneficial ownership of I-AM Capital’s common stock as of ______,July 25, 2018 by:
● | each person known by I-AM Capital to be a beneficial owner of more than 5% of its outstanding 6,813,500 shares of common stock; |
● | each of I-AM Capital’s officers and directors; and |
● | all of I-AM Capital’s officers and directors as a group. |
Unless otherwise indicated, it is believed that all persons named in the table below have sole voting and investment power with respect to all shares of common stock beneficially owned by them. The following table does not reflect record or beneficial ownership of the public rights or public warrants or the private placement rights or private placement warrants as these rights and warrants are not convertible or exercisable, respectively, within 60 days of the date of this proxy statement.
Name and Address of Beneficial Owners(2) | Amount and nature of beneficial ownership(1) | Percentage of outstanding common stock | ||||||
Five Percent Owners: | ||||||||
I-AM Capital Partners LLC(3) | 1,561,500 | 22.9 | % | |||||
Boothbay Absolute Return Strategies LP(4) | 568,400 | 8.3 | % | |||||
Polar Asset Management Partners Inc.(5) | 458,000 | 6.7 | % | |||||
Karpus Management, Inc.(6) | 457,125 | 6.7 | % | |||||
AQR Capital Management, LL(7) | 450,000 | 6.6 | % | |||||
Hudson Bay Capital Management LP(8) | 425,000 | 6.2 | % | |||||
HGC Investment Management Inc.(9) | 408,750 | 6.0 | % | |||||
The K2 Principal Fund, L.P.(10) | 400,000 | 5.9 | % | |||||
Directors and Officers: | ||||||||
F. Jacob Cherian(3) | 1,561,500 | 22.9 | % | |||||
Suhel Kanuga(3) | 1,561,500 | 22.9 | ||||||
Donald R. Caldwell(11) | — | — | ||||||
Roman Franklin(11) | — | — | ||||||
Max Hooper(11) | — | — | ||||||
Frank Leavy(11) | — | — | ||||||
Edward Leonard Jaroski(11) | — | — | ||||||
William H. Herrmann, Jr.,(11) | — | — | ||||||
All Directors and Officers as a group (eight persons) | 1,561,500 | 22.9 | % |
(1) | Does not include the exercise of the 5,200,000 warrants or rights included in the public units sold at the initial public offering and upon the exercise of the underwriter’s over-allotment option or the 261,500 warrants or rights that are included in the private placement units purchased by our Sponsor at the initial public offering and upon the exercise of the underwriter’s over-allotment option. Includes 52,000 shares issued to Maxim at closing of the initial public offering and the exercise of the underwriter’s over-allotment option, which do not have redemption rights to the trust. |
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(2) | Unless otherwise indicated, the business address of each of the stockholders is 1345 Avenue of the Americas, 11th Floor, New York, NY 10105.
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(3) | Represents shares of common stock held directly by I-AM Capital Partners LLC, our sponsor. F. Jacob Cherian and Suhel Kanuga are managers and members of our sponsor and share voting and dispositive control over the securities held by our sponsor, and thus share beneficial ownership of such securities. Each of Messrs. Cherian and Kanuga disclaims beneficial ownership over any securities owned by our Sponsor in which he does not have any pecuniary interest.
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(4) | According to a Schedule 13G filed with the SEC on October 20, 2017 on behalf of Boothbay Absolute Return Strategies LP, a Delaware limited partnership, Boothbay Fund Management, LLC, a Delaware limited liability company and Ari Glass. Mr. Glass is the Managing Member of Boothbay Fund Management, LLC. The principal office of the stockholder is 810 7th Avenue, Suite 615, New York, NY 10019-5818.
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(5) | According to a Schedule 13G filed with the SEC on February 14, 2018, on behalf of Polar Asset Management Partners Inc., a company incorporated under the laws on Ontario, Canada. The principal office of the stockholder is 401 Bay Street, Suite 1900, PO Box 19, Toronto, Ontario M5H 2Y4, Canada.
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(6) | According to a Schedule 13G filed with the SEC on February 14, 2018, on behalf of Karpus Management, Inc., d/b/a Karpus Investment Management, a New York corporation. The principal office of the stockholder is 183
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(7) | According to a Schedule 13G filed with the SEC on February 14, 2018, on behalf of AQR Capital Management, LLC, AQR Capital Management Holdings, LLC and CNH Partners, LLC. AQR Capital Management, LLC is a wholly owned subsidiary of AQR Capital Management Holdings, LLC. CNH Partners, LLC is deemed to be controlled by AQR Capital Management, LLC. The principal office of the stockholder is Two Greenwich Plaza, Greenwich, CT 0683. | |
(8) | According to a Schedule 13G filed with the SEC on February 2, 2018, on behalf of Hudson Bay Capital Management LP and Sander Gerber. Mr. Gerber serves as the managing member of Hudson Bay Capital GP LLC, which is the general partner of Hudson Bay Capital Management LP. Mr. Gerber disclaims beneficial ownership of these securities. The principal office of the stockholder is 777 Third Avenue, 30th Floor, New York, NY 10017. | |
(9) | According to a Schedule 13G filed with the SEC on February 1, 2018, on behalf of HGC Investment Management Inc. a company incorporated under the laws of Canada. The principal office of the stockholder is 366 Adelaide, Suite 601, and Toronto, Ontario M5V 1R9, Canada. | |
(10) | According to a Schedule 13G filed with the SEC on August 30, 2017 on behalf of Shawn Kimel (“Kimel”), Shawn Kimel Investments, Inc., an Ontario corporation (“SKI”), The K2 Principal Fund, L.P., an Ontario limited partnership (the “Fund”), K2 GenPar L.P., an Ontario limited partnership (the “GP”), K2 GenPar 2009 Inc., an Ontario corporation (“GenPar |
(11) | Indirectly have an interest in the founder shares of common stock held directly by the Sponsor due to their partial ownership of the Sponsor. |
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF I-AM CAPITAL
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the financial statements and the notes thereto contained elsewhere in this proxy statement. Certain information contained in the discussion and analysis set forth below includes forward-looking statements that involve risks and uncertainties. Unless otherwise indicated, references in this section to “we,” “our,” “us” and other similar terms refer to I-AM Capital before the Transaction.
Overview
We are a blank check company incorporated on April 17, 2017 in Delaware and formed for the purpose of effecting a merger, share exchange, asset acquisition, share purchase, reorganization or similar business combination with one or more businesses. We intend to effectuate our business combination using cash from the proceeds of our IPO and the private placement, our securities, debt or a combination of cash, securities and debt.
The issuance of additional shares of common stock or preferred stock:
● | may significantly dilute the equity interest of our investors; | |
● | may subordinate the rights of holders of common stock if we issue preferred shares with rights senior to those afforded to our common stock; | |
● | could cause a change in control if a substantial number of our shares of common stock are issued, which may affect, among other things, our ability to use our net operating loss carry forwards, if any, and could result in the resignation or removal of our present officers and directors; | |
● | may have the effect of delaying or preventing a change of control of us by diluting the stock ownership or voting rights of a person seeking to obtain control of us; and | |
● | may adversely affect prevailing market prices for our securities. |
Similarly, if we issue debt securities, it could result in:
● | default and foreclosure on our assets if our operating revenues after our business combination are insufficient to pay our debt obligations; | |
● | acceleration of our obligations to repay the indebtedness even if we have made all principal and interest payments when due if we breach certain covenants that require the maintenance of certain financial ratios or reserves without a waiver or renegotiation of that covenant; | |
● | our immediate payment of all principal and accrued interest, if any, if the debt security is payable on demand; |
● | our inability to obtain additional financing if the debt security contains covenants restricting our ability to obtain additional financing while such security is outstanding; | |
● | our inability to pay dividends on our common stock; | |
● | using a substantial portion of our cash flow to pay principal and interest on our debt, which will reduce the funds available for dividends on our common stock if declared, expenses, capital expenditures, acquisitions and other general corporate purposes; | |
● | limitations on our flexibility in planning for and reacting to changes in our business and in the industry in which we operate; | |
● | increased vulnerability to adverse changes in general economic, industry and competitive conditions and adverse changes in government regulation; and | |
● | limitations on our ability to borrow additional amounts for expenses, capital expenditures, acquisitions, debt service requirements, execution of our strategy and other purposes and other disadvantages compared to our competitors who have less debt. |
We expect to continue to incur significant costs in the pursuit of our acquisition plans. Our plans to raise capital or to complete a business combination may not be successful.
Recent Events
On May 3, 2018, we entered into a definitive agreement to invest up to $49 million in Smaaash. Following the closing, our primary business will be to act as the sole master distributor of Smaaash’s active entertainment games in North and South America and as the master franchisee for Smaaash’s active entertainment centers in North and South America. The transaction is subject to customary closing conditions. See our Current Reports on Form 8-K filed with the SEC on May 9, 2018 and June 28, 2018 for further information.
Results of Operations
We have neither engaged in any operations nor generated any revenues to date. Our only activities from April 17, 2017 (date of inception) through May 31, 2018 were organizational activities, those necessary to prepare for our IPO, which was consummated on August 22, 2017, and identifying a target company for a business combination including the Transaction. Following our IPO, we have not generated any operating revenues and will not until after the completion of our initial business combination. We have generated $521,702 through May 31, 2018 of non-operating income in the form of interest income. We expect to incur increased expenses as a result of being a public company (for legal, financial reporting, accounting and auditing compliance), as well as for due diligence expenses.
For the year ended May 31, 2018, we had net loss of $8,862, which consists of operating costs of $530,564 offset by interest income of $521,702 on cash and marketable securities held in the trust account.
Liquidity and Capital Resources
The completion of our IPO and simultaneous private placement, inclusive of the underwriters’ partial exercise of their over-allotment option, generated gross proceeds to us of $54,615,000. Related transaction costs amounted to approximately $3,838,000, consisting of $3,360,000 of underwriting fees, including $1,820,000 of deferred underwriting commissions payable (which are held in the trust account) and $478,000 of IPO costs.
Following our IPO and the partial exercise of the over-allotment option, a total of $55,740,000 was placed in the trust account and we had $552,190 of cash held outside of the trust account, after payment of all costs related to the IPO.
As of May 31, 2018, we had cash and marketable securities held in the trust account of $53,353,715, substantially all of which is invested in U.S. treasury bills with a maturity of 180 days or less. Interest income earned on the balance in the trust account may be available to us to pay taxes. Since inception, we have withdrawn $406,050 of interest income from the trust account.
As of May 31, 2018, we had cash of $458,063 held outside the trust account, which is available for use by us to cover the costs associated with identifying a target business including Smaaash, negotiating a business combination, due diligence procedures and other general corporate uses. In addition, as of May 31, 2018, we had accrued expenses of $63,579.
For the year ended May 31, 2018, cash used in operating activities amounted to $470,153, mainly resulting from net loss of $8,862, offset by interest earned on marketable securities held in the trust account of $521,702. Changes in our operating assets and liabilities generated cash of $60,411.
We intend to use substantially all of the funds held in the trust account, including any amounts representing interest earned on the trust account (which interest shall be net of taxes payable and up to a maximum of $600,000 of working capital released to us and excluding deferred underwriting commissions) to complete our initial business combination. We may withdraw interest to pay taxes and up to $600,000 for working capital expenses, if any. To the extent that our capital stock or debt is used, in whole or in part, as consideration to complete our initial business combination, the remaining proceeds held in the trust account will be used as working capital to finance the operations of the target business or businesses, make other acquisitions and pursue our growth strategies.
We intend to use the funds held outside the trust account primarily to identify and evaluate target businesses, perform business due diligence on prospective target businesses, travel to and from the offices, plants or similar locations of prospective target businesses or their representatives or owners, review corporate documents and material agreements of prospective target businesses (as well as pay personnel and advisors to do the forgoing), structure, negotiate and complete a business combination, and to pay taxes to the extent the interest earned on the trust account is not sufficient to pay our taxes.
In order to fund working capital deficiencies or finance transaction costs in connection with an intended initial business combination, our sponsor or an affiliate of our sponsor or certain of our officers and directors may, but are not obligated to, loan us funds as may be required. If we complete our initial business combination, we would repay such loaned amounts. In the event that our initial business combination does not close, we may use a portion of the working capital held outside the trust account to repay such loaned amounts but no proceeds from our trust account would be used for such repayment.
We do not believe we will need to raise additional funds in order to meet the expenditures required for operating our business. However, if our estimates of the costs of identifying a target business, undertaking in-depth due diligence and negotiating an initial business combination are less than the actual amount necessary to do so, we may have insufficient funds available to operate our business prior to our business combination. Moreover, we may need to obtain additional financing either to complete our business combination or because we become obligated to redeem a significant number of our public shares upon completion of our business combination, in which case we may issue additional securities or incur debt in connection with such business combination. Subject to compliance with applicable securities laws, we would only complete such financing simultaneously with the completion of our business combination. In the current economic environment, it has become especially difficult to obtain acquisition financing. If we are unable to complete our initial business combination because we do not have sufficient funds available to us, we will be forced to cease operations and liquidate the trust account. In addition, following our initial business combination, if cash on hand is insufficient, we may need to obtain additional financing in order to meet our obligations.
Off-balance sheet financing arrangements
We have no obligations, assets or liabilities which would be considered off-balance sheet arrangements. We do not participate in transactions that create relationships with unconsolidated entities or financial partnerships, often referred to as variable interest entities, which would have been established for the purpose of facilitating off-balance sheet arrangements. We have not entered into any off-balance sheet financing arrangements, established any special purpose entities, guaranteed any debt or commitments of other entities, or purchased any non-financial assets.
Contractual obligations
We do not have any long-term debt, capital lease obligations, operating lease obligations or long-term liabilities, other than an agreement to pay the sponsor a monthly fee of $10,000 for office space, utilities and administrative support provided to us. We began incurring these fees on August 16, 2017 and will continue to incur these fees monthly until the earlier of the completion of our initial business combination or our liquidation.
Critical Accounting Policies
The preparation of financial statements and related disclosures in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and income and expenses during the periods reported. Actual results could materially differ from those estimates. The Company has not identified any critical accounting policies.
The information contained in this section is derived from various third party data sources including data from Government of India publications and industry sources. Industry sources and publications generally state that the information contained therein has been obtained from sources generally believed to be reliable, but that their accuracy, completeness and underlying assumptions are not guaranteed and their reliability cannot be assured. Industry and Government of India’s publications are also prepared based on information as of specific dates and may no longer be current or reflect current trends. However, we believe the information under this section to be accurate and complete.
Overview of the Indian Economy
India has emerged as the fastest growing major economy in the world as per the Central Statistics Organisation (CSO) and International Monetary Fund (IMF) and it is expected to be one of the top three economic powers of the world over the next 10-15 years, backed by its strong democracy and partnerships. India’s gross domestic product (GDP) is estimated to have increased 6.6% in 2017-18 and is expected to grow 7.3% in 2018-19.
Market size
India'sIndia’s GDP at constant prices grew by 7.2% in September-December 2017 quarter as per the Central Statistics Organisation (CSO). Corporate earnings in India are expected to grow by 15 to 20% in fiscal year 2018-19 supported by recovery in capital expenditure, according to JM Financial. The tax collection figures between April 2017- February 2018 show an increase in net direct taxes by 19.5% year-on-year and an increase in net direct taxes by 22.2% year-on-year.
India has retained its position as the third largest startup base in the world with over 4,750 technology startups, with about 1,400 new start-ups being founded in 2016, according to a report by NASSCOM.
India'sIndia’s labor force is expected to reach 160-170 million by 2020, based on rate of population growth, increased labor force participation, and higher education enrolment, among other factors, according to a study by ASSOCHAM and Thought Arbitrage Research Institute.
India'sIndia’s foreign exchange reserves were $422.53 billion in the week up to March 23, 2018, according to data from the RBI.
Recent Developments
With the improvement in the economic scenario, there have been various investments in various sectors of the economy. The M&A activity in India increased 53.3% to $77.6 billion in 2017 while private equity (PE) deals reached $24.4 billion. Some of the important recent developments in Indian economy are as follows:
● | Indian companies raised Rs 1.6 trillion ($24.96 billion) through primary market in 2017. |
● | Moody’s upgraded India’s sovereign rating after 14 years to Baa2 with a stable economic outlook. |
● | India has improved its ranking in the World |
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● | India is expected to have 100,000 startups by 2025, which will create employment for 3.25 million people and $500 billion in value, as per Mr. T V Mohan Das Pai, Chairman, Manipal Global Education. |
● | The total projected expenditure of Union Budget 2018-19 is Rs 23.4 lakh crore ($371.81 billion), 9% higher than previous |
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● | India received the highest ever inflow of equity in the form of foreign direct investments (FDI) worth $43.4 billion in 2016-17 and has become one of the most open global economies by ushering in liberalization measures, as per the mid-year economic survey of India. Total FDI investments in India during April-December 2017 stood at $35.94 billion. |
● | The World Bank has stated that private investments in India is expected to grow by 8.8% in Fiscal Year 2018-19 to overtake private consumption growth of 7.4%, and thereby drive the growth in |
● | The Indian Government has also introduced the Digital India initiative, which focuses on three core components: creation of digital infrastructure, delivering services digitally and to increase the digital literacy. |
Road Ahead
India'sIndia’s gross domestic product (GDP) is expected to reach $6 trillion by 2027 and achieve upper-middle income status on the back of digitization, globalization, favorable demographics, and reforms.
India is expected to be the third largest consumer economy as its consumption may triple to $4 trillion by 2025, owing to shift in consumer behavior and expenditure pattern, according to a Boston Consulting Group (BCG) report; and is estimated to surpass USA to become the second largest economy in terms of purchasing power parity (PPP) by the year 2040, according to a report by Pricewaterhouse Coopers.
Overview of the Indian Media & Entertainment Sector (Source: FICCI – EY M&E Report 2018)
The Media & Entertainment (“M&E”) sector in India is also experiencing good growth. Favorable demographics, rising consumer incomes, and demand for knowledge, entertainment, experiences, news, and sports aided the growth of the Indian M&E sector, which reached $23 billion in 2017, a growth of almost 13% from 2016. This growth was led by digital, film, gaming and events.
While the M&E sector was traditionally characterized by television, print and the new-age M&E sectors which are now growing include digital, family entertainment centers, virtual reality and augmented reality experiences, and online gaming.
Family Entertainment Center (“FEC”) Market Overview (Source: Global Family/Indoor Entertainment Centers report by Future Market Insights
Family entertainment centers (FECs) are small amusement parks or entertainment zones that typically serve local communities in big and small cities. These centers are designed to keep the entire family engaged, generally at a significantly less per-person cost than a traditional amusement park. They offer varied amusement options such as gaming consoles, arcades, video games, indoor playground systems, soft play areas, redemption machines, children’s rides, skill-based machine games and games based on virtual and augmented reality. FECs also host private celebrations such as birthday parties and corporate events. FECs are attractively located in areas such as malls, where customers often visit.
Globally, the FEC market is expected to increase from $17 billion in 2017 to $61 billion in 2027, especially given the launch of new and differentiated FECs that provide technology-rich and interactive experiences.
Global Family/Indoor Entertainment Centers Industry Analysis and Opportunity Assessment
In terms of value, the arcade studios segment is projected to be the most attractive segment in the global family/indoor entertainment centers market during the assessment period. Virtual reality (VR) gaming zones are expected to register a moderate year over year growth rate throughout the forecast period. In terms of value, the VR gaming zones segment is expected to register a compound annual growth rate (“CAGR”) of 15.9% during the assessment period. In 2017, the arcade studios segment is estimated to be valued at $6.0819 billion and is expected to register steady growth in terms of revenue throughout the period of forecast. With an increasing number of malls in various cities globally, consumers visit these malls on weekends, usually for shopping and dining at restaurants. The presence of entertainment centers at these malls allows customers to spend quality time with their family and friends, while playing games and other indoor sports. Hence, entertainment centers are becoming attractive places for families to spend time since they provide a combination of dining, and play areas. Family entertainment centers are attracting families in large numbers, which is expected to positively impact revenue growth of the market.
US and India markets are specifically fast-growing due to emergence of new gaming technologies and increasing trend of indoor gaming centers.
Diversified gaming and entertainment options available in FECs supporting global market growth:
With continuous innovations in technology, family entertainment centers are offering a diversified range of entertainment options for their customers. New technologies such as virtual reality gaming, 3D technology, and interactive sports entertainment are attracting consumers who prefer this form of entertainment over traditional entertainment options.
Rising preference for indoor entertainment is fueling the market growth of FECs:
Indoor entertainment centers, typically climate-controlled, are increasingly preferred as entertainment and leisure options by families over outdoor entertainment centers, in order to ensure that environmental factors and weather changes do not negatively affect the leisure time or experience of customers. Along with this, companies are offering food and other services at indoor entertainment centers under a single roof, which is another factor prompting customers to visit FECs and this factor is expected to drive growth of the FEC market.
Increasing disposable income and changing lifestyles:
Rising income among families has led to increased spending on entertainment and leisure activities. Families with children are spending more on entertainment activities such as bowling, and arcade games due to the interest of children in these kinds of games. Also, due to rapid industrialization and crowded cities, the lifestyle of people across the world has been hampered. With these changes in lifestyles, preference for quality time spending along with entertainment, food and beverages and other leisure activities is increased. This aids in attracting customers to the family entertainment centers for spending their leisure time also for celebrations, relaxation, and adventure experiences.
Geographical Expansion providing access to new consumer groups:
With the rising popularity of family entertainment centers as a leisure time spending option, the owners of the FEC’s have started to partner with the international brands specifically known for their entertainment. This partnership helps in value addition to the FEC’s as well as contributes significantly in the promotions of the FEC. It also helps in generating new international customer groups present in the other countries.
India FEC Market: (Source: Persistence Market Research):
The Indian family entertainment centers market is estimated to grow at a CAGR of 17.2% between 2018 and 2022. The market is expected to be valued at $1.598 billion by the end of 2018, and is expected to reach $3.014 billion by 2022. Increasing disposable incomes of Indian customers is expected to boost the family entertainment centers market in the coming years. In terms of market value share by end-2018, the arcade studios segment is estimated to hold nearly 41.9% of the Indian FEC market, and reach $670.0 million by end-2018.
Due to the advances in entertainment technology such as virtual reality, augmented reality and interactive sports experiences, family entertainment center owners are focused on offering advanced entertainment experiences to increase the revenue generation of the FECs. Hence, the VR gaming zones segment in the Indian FEC market are expected to grow at the highest CAGR over the forecast period. India, with solid GDP growth and a young and growing population, is expected to be attractive market for the family entertainment centers model.
The entry fees and ticket sales segment is estimated to gain significant market share, owing to the increasing retail traffic of teenage (12-18) customers in India.
India Family Entertainment Centers Market Value (US$ Mn) Forecast by FEC Type, 2018-2022
FEC Type | 2018E | 2019F | 2020F | 2021F | 2022F | CAGR (2018-2022) |
Arcade | 670 | 754 | 864 | 1,010 | 1,208 | 15.9% |
VR Gaming | 319 | 376 | 451 | 551 | 690 | 21.2% |
Sports Arcades | 442 | 506 | 588 | 697 | 847 | 17.6% |
Others | 166 | 183 | 204 | 232 | 268 | 12.8% |
Total | 1598 | 1820 | 2108 | 2491 | 3014 | 17.2% |
U.S. FEC Market: (Source: Persistence Market Research):
Revenue from the U.S. family entertainment centers market is expected to increase from $6.711 billion in 2018 to $10.981 billion by the end of 2022, representing a CAGR of 13.1% from 2018 to 2022. The growth of the FEC market in the U.S. is attributed to the increased gaming and entertainment options for young adults (18-24) in the U.S. FECs in the U.S. are focusing on introducing new VR games and interactive experiences to provide a better entertainment experience to consumers.
Revenue generation from the entry fees and ticket sales segment is estimated to dominate the market by 2018 end, by holding a market share of 32.5% in the overall U.S. family entertainment centers market, and this trend is expected to continue to the end of 2022.
Revenue generation from the food & beverages source in FECs is expected to grow at the highest CAGR, due to the increasing availability of different food options for kids as well as adults. In addition to this, people are also preferring FECs as a ‘location of choice’ for corporate parties and birthday parties for children as well as adults, and this trend is increasing revenue generation from the food and beverages section from the FECs.
The entry fees and tickets segment is projected to grow higher year over year as compared to other revenue sources in the U.S. Family entertainment centers market.
U.S. Family Entertainment Centers Market Value (US$ Mn) Forecast by FEC Type, 2018-2022
FEC Type | 2018E | 2019F | 2020F | 2021F | 2022F | CAGR (2018-2022) |
Arcade | 2407 | 2653 | 2933 | 3252 | 3609 | 10.7% |
VR Gaming | 1724 | 2003 | 2333 | 2726 | 3187 | 16.6% |
Sports Arcades | 2127 | 2404 | 2726 | 3101 | 3530 | 13.5% |
Others | 453 | 501 | 550 | 602 | 655 | 9.6% |
Total | 6711 | 7562 | 8543 | 9682 | 10981 | 13.1% |
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Overview
Smaaash operates state-of-the-art games and entertainment centers (the “Centers” and each a “Center”) across 31 locations in India and one location in the U.S., in addition to carrying out product sales of Smaaash’s games and equipment that Smaaash has developed in-house, supported by Smaaash’s sponsorship and other revenues.
Smaaash’s core concept is to offer an interactive, immersive and fun experience to customers at Smaaash’s Centers, blending Augemented Reality (AR) and Virtual Reality (VR) and other games, interactive sports experiences, indoor entertainment, and attractive food and beverage options, customized to the tastes and preferences of a diverse set of customers across age groups, genders and backgrounds, including corporate customers, families, friends and children. Smaaash’s game concepts are supported by Smaaash’s in-house technology, value engineering and systems integration capabilities.
Smaaash’s game attractions are classified as follows:
● | Active games and interactive sports simulators (“Active Games”), including active game options such as single and multi-level go-karting lanes and bowling alleys, as well as interactive simulator-based game options such as Super Keeper, Hoop Shot, Extreme Drone Racing and more; |
● | In-house developed AR and VR games, including Finger Coaster, Jurassic Escape, Vertigo Walk The Plank, Fly Max and Haunted Hospital; and |
● | Arcade games and others, including Camel Racing, Hoop Shot and Human Claw; soft play zones (indoor play areas for young children, including a ball pool, designed to encourage longer and repeat visits to Smaaash’s Centers, doing away with the requirement for families to make alternative childcare arrangements for the duration of their visits to Smaaash’s Centers); and indoor game viewing areas, complemented by its in-house food and beverage services. |
Smaaash launched its flagship Center in November 2012, at Kamala Mills in Lower Parel, Mumbai, with a proprietary cricket game (obtained via a perpetual license from its Promoter and the patent-holder, Shripal Morakhia, for a one-time fee) as its anchor attraction. Over the last five years, Smaaash has transformed into a multi-center integrated games and entertainment company, with a wide suite of in-house developed AR and VR and other games, as well as food and beverage options at each of its Centers. Among other marketing initiatives, from time to time, Smaaash’s sponsorships with local athletes, sports icons and celebrities, including cricket, football, basketball and ice hockey players, to customize its games and increase their appeal to its customers, including via brand ambassadorships and game options designed around specific sports personalities.
Smaaash launched its first international Center in December 2016, at the Mall of America in Minnesota, USA. Smaaash’s star attraction in its U.S. Center is a multi-level go-karting track and games developed and launched by Smaash specifically for this Center, keeping in mind local preferences, such as its ice hockey-themed game called “What the Puck”", and Active Games such as Super Keeper, Hoop Shot and Extreme Drone Racing, among others.
In fiscal year-ended March 2018, Smaaash bought PVR bluO and SVM bowling and gaming assets to expand its footprint across India. The acquisitions added 20 centers to Smaaash’s already existing portfolio. Smaaash is in the final stages of launching its Center in Dubai, in this quarter.
History & Key Milestones
Since the commencement of its business, Smaaash has developed and launched 55 games, in terms of either rolling out these games at its Centers, or conducting product sales to third parties. SMAAASH Labs, the research and development hub of Smaaash, includes a group of over 50 engineering professionals that has designed and built reality and interactive games, including interactive sports experiences such as the world’s first 360 degrees cricket simulator. Sporting experiences include soccer, ice hockey and basketball. Smaaash is also endorsed by Virat Kohli, Captain of India’s cricket team. Smaaash currently has over 25 new games under development, intended for launch during calendar 2018. Based on Smaaash’s in-house product development capability, Smaaash has also recently diversified its revenue mix by entering into product sales, including domestic and export sales, where Smaaash retains the intellectual property rights. Despite its limited operating history in this business, which Smaaash commenced during fiscal 2016, Smaaash has already established a global footprint with sales of its in-house developed games and equipment in global markets, including USA, Germany, Mexico, China, Turkey and Israel. Smaaash has received several awards and accolades, including, recently, the Asia Retail Congress (Entertainment and Fun) Award and Times Food and Nightlife Awards for Verbena, India Mice Awards for 18.99 Latitude Banquets, Best Indoor Kids Play Area for Mumbai and Runnerup Best Indoor Kids Play Area for Delhi in the year 2017.
Strengths
Smaaash considers the following to be its core competitive strengths:
Strategically located interactive and immersive entertainment centers.
Smaaash’s operate state-of-the-art games and entertainment Centers, offering an interactive, immersive and fun experience to customers at its Centers, blending AR and VR and other games, indoor entertainment and attractive food and beverage options, customized to the tastes and preferences of a diverse set of customers across age groups, genders and backgrounds, including families, friends and children, as well as corporate customers.
Smaaash has over 802 games in total across its Centers in India and 29 games in total at its Center in the U.S., at a range of attractive price points. Smaaash also has several other games in varying stages of conception and development, including over 25 games proposed to be launched during calendar year 2018. To complement Smaaash’s games and recreation options, Smaaash offers in-house food and beverage services at each of its Centers. Each of Smaaash’s Centers in India (except its Center at Cyberhub, in the National Capital Region of Delhi, or “Delhi NCR”) includes a circus and carnival-themed multi-cuisine café, under the brand “Mighty Small”". At Smaaash’s Center at Cyberhub, Delhi NCR, Smaaash has a restaurant and bar named “Uncorked”". Smaaash also runs a micro-brewery and go-karting center called “Pitstop Brewpub and Smaaash Skykarting” at Smaaash’s Center in HUDA Center, Delhi NCR.
As Smaaash’s Centers are primarily designed as indoor complexes, the games and entertainment options at its Centers are not designed around or dependent on any seasons, in order to attract customers, and are not unduly affected by adverse weather conditions. Smaaash believes it has the “first mover advantage”, as its unique and differentiated blend of games, indoor entertainment and food and beverage attractions at Smaaash’s Centers cannot be easily replicated. Moreover, Smaaash’s Centers are strategically located in easily accessible locations in densely populated urban centers, with wide catchment areas, in terms of being located near commercial hubs or relatively upmarket areas. For instance, Smaaash’s flagship Center in India is at Kamala Mills in Lower Parel, while its Center in the Mall of America, with its several stores and dining options, is located in Bloomington, Minnesota, close to downtown Minneapolis.
Culture of innovation and value engineering.
Smaaash, through Smaaash Labs, has robust in-house research and development (“R&D”), value engineering and systems integration capabilities, across multiple technology and product platforms. Smaaash commenced its operations by launching a proprietary cricket game as its anchor attraction at Smaaash’s first and flagship Center in Mumbai. Since then, Smaaash has developed 55 games in-house and have a pipeline of over 25 such games intended for launch during 2018. Smaaash continue to place emphasis on enhancing its R&D, value engineering and systems integration capabilities. Headed by Smaaash’s CTO, Kaizad Bajina, its in-house R&D team consists of 50 employees. Smaaash has also set up a dedicated product development laboratory in Worli, Mumbai. Smaaash has 99 registered trademarks owned or perpetually licensed and 219 trademark registrations applied for.
Among other things, Smaaash’s ability to develop its own games in-house allows it to operate such games at its Centers without high-cost licensing, royalty and maintenance expenses, and to explore monetization opportunities through product sales.
Smaaash’s value engineering capability also allows it to keep pace with evolving technology and customer preferences and provides us with operational flexibility, in terms of Smaaash’s ability to enhance and reconfigure games and components at a fast pace and controlled cost, for instance, by reducing power consumption or floor space usage, increasing load capacity or durability, and reducing reliance on staff to operate the games and maintain the equipment at its Centers.
Strong, unique and differentiated brand with broad customer appeal.
At its Centers, Smaaash blends games and recreation with attractive food and beverage and dining concepts into uniquely immersive, involved and fun indoor social entertainment experiences. Despite its relatively short operating history, Smaaash has established strong brand recall and a proposition that appeals to a wide range of customers of all ages, genders and backgrounds, across geographies and seasons. Smaaash’s in-house R&D and innovation enable it to differentiate its brand and value proposition, compared to other companies that are traditionally focused on arcade games, or that focus solely on certain customer segments such as children and families (family entertainment centers, or “FECs”) or adults, or food and beverage operators, including sports bars; innovating, customizing and upgrading Smaaash’s games by leveraging on the “novelty factor”, local customer preferences, psychographic or demographic fit, game or footprint size, competitive element, and other social and aspirational elements affecting its customers.
In addition, Smaaash place emphasis on its marketing and sales initiatives. At its Centers, Smaaash offers aspirational redemptions, including in the form of opportunities for customers to play simulated games with and against global sporting idols, and rewards in terms of prizes for winning games at its Centers. From time to time, Smaaash also ties up with local athletes and sports icons, such as cricket, football, basketball and ice hockey players, to customize its games and increase their appeal to Smaaash’s customers, including via brand ambassadorships. Smaaash also continually refines its pricing and promotions strategy to coincide with various sports and other events, festivals, seasons and holidays through the year, targeted promotions such as to corporate customers for hosting corporate events and off-sites, or college and school students, or “ladies nights” and “happy hours”, birthday and other parties and celebrations, and other social events, as well as utilizing Smaaash’s loyalty program, “Smaaash Insiders”", and feedback tools to obtain customer insights, as part of its overall commitment to customer satisfaction. In addition, Smaaash advertises on and sell tickets to customers through third party mobile application (“app”)-based or online aggregators, allowing it to introduce its offerings to, and draw in customers from, beyond the immediate physical vicinity and catchment areas of its Centers.
Scalable business model, uniquely positioned for growth.
Smaaash’s diversified revenue base extends beyond game revenues from its Centers, to include product sales and sponsorship and other income sources. Smaaash’s games are designed to have a relatively long “shelf life”, based on the enduring popularity of sports such as cricket in the Indian market and ice hockey in the U.S. market. Smaaash continues to evolve and optimize its operations at its Centers to support Smaaash’s future growth. For instance, supported by Smaaash’s in-house R&D, discussed in more detail above, each of its Centers includes modular components that can be arranged in various combinations to fit into differently shaped sites and to facilitate future expansion and redesign, also allowing attractions or components to be moved from one Center to another for re-deployment, depending on customer preferences and geographies.
Smaaash’s in-house R&D and value engineering capability also serves to accelerate product sales. Despite a relatively short operating history in this vertical, which Smaaash commenced only in fiscal 2016, Smaaash has developed some marquee customer relationships. Smaaash’s popular product sales include some of Smaaash’s in-house developed games, the “Finger Coaster”", “"Walk the Plank” and “Cricket Lanes”". The success of its Centers, based on Smaaash’s scalable business model, also enables Smaaash to earn sponsorship revenues. In addition to such internal factors, Smaaash is uniquely positioned to leverage favorable macroeconomic and demographic factors and other external contributors for growth.
Experienced founder, supported by professional key management and staff.
Smaaash was founded by its Chief Executive Officer (“CEO”) Emeritus, Shripal Morakhia, an entrepreneur associated in the past with Sharekhan, SSKI and YoBoHo. Among other things, Smaaash benefits from Mr. Morakhia’s vision, strategic guidance, years of entrepreneurial and managerial experience, and his relationships in the industry. Smaaash has a young and dynamic management team, of which various members have contributed to its track record of growth, including: Vishwanath Kotian, Chief Financial Officer (“CFO”), with extensive experience in the M&E sector, having been CFO of ACK Media and in the M&E team at Ernst & Young; Kaizad Bajina, Smaaash’s Chief Technology Officer (“CTO”), with over 15 years of experience at systems integration companies, previously as chief of operations and technology at Strix System Inc and Lifestyle Networks Limited;
Smaaash also actively recruits professionally qualified individuals with a professional and educational background that Smaaash considers appropriate to a business of its size and nature.
Strategies
Smaaash considers the following to be its core growth strategies:
Expand Smaaash’s network of Centers across India and overseas.
Smaaash continues to explore opportunities to set up and expand operations primarily in mall and shopping center locations in India and overseas, typically with revenue share arrangements with the respective property developers, based on Smaaash’s potential to attract and increase high quality consumer traffic. In India, Smaaash intends to expand its network of Centers with a focus on urban locations across India, particularly towns with increasing urban populations in North and Western India, expecting to grow to approximately 60 centers within the next two years. In India, while Smaaash has historically focused on organic growth, Smaaash intends to also explore commercially viable franchisee arrangements or opportunities for future inorganic growth, including in tier-II and tier-III cities and towns in India. Smaaash is also exploring opportunities for strategic overseas expansion, particularly in developed and emerging markets such as North America and the Middle East, including through joint ventures. At each of Smaaash’s new Centers, Smaaash intends to offer targeted attractions, for instance, including cricket-themed attractions for its customers in India; ice hockey and American football themed attractions for its customers in the North American market; and football and cricket themed attractions for Smaaash’s customers in the Middle East market, including the Indian diaspora in the Middle East market. Moreover, Smaaash intends to continue targeted promotions to increase bulk bookings at its Centers, particularly for corporate events. As Smaaash increases its network of Centers in the future, Smaaash will seek to leverage economies of scale, including by reducing its overhead and optimizing its procurement strategy and channels, as and when suitable opportunities arise.
Grow Smaaash’s range of games and entertainment attractions, across its Centers.
Smaaash’s strategic objective of growing its range of games and entertainment options at its Centers is intended to increase Smaaash’s popularity with customers, encourage repeat visits from customers. This strategy is based on Smaaash’s pipeline of new games in various stages of in-house ideation and development, to create targeted attractions based around sports and celebrities that are popular in local markets. Smaaash is also constantly evolving its marketing and promotional activities to increase its popularity with customers and improve the customer experience at its Centers. For example, in the past, Smaaash has developed cricket-themed games for Smaaash’s Centers in India, ice hockey and basketball themed games for its Center in the Mall of America in Minnesota, U.S., and football themed games for Smaaash’s planned centers in the Middle East, where these sports are very popular locally. Smaaash also expects that customer demand for indoor game viewing areas, complemented by Smaaash’s in-house food and beverage services, will be one of the key drivers of Smaaash’s growth in the future. Smaaash has used its flagship center in Mumbai as a testing ground for games that Smaaash has launched across its other Centers in India, and Smaaash intends to continue doing so in the future. Going forward, Smaaash’s objective will be to also use its Center in the U.S. as a testing ground to innovate and develop customized attractions for future international expansions in Canada and the U.S. and other developed game markets. Smaaash may also explore similar opportunities to incubate and develop new game ideas at any existing, planned or future centers.
Increase Smaaash’s product sales, worldwide.
Smaaash intends to continue increasing its product sales, with a focus on exports, including through Smaaash’s expansion into different global markets, particularly large and attractive markets in Asia, such as China, Korea and Japan, and in the U.S. and Canada. Smaaash intends to continue to develop a pipeline of new games, to support the growth of its product sales business worldwide, supported by its in-house R&D and value engineering capability. In addition, Smaaash expects to continue its participation in industry fairs and exhibitions, particularly with a view to increasing Smaaash’s product sales business. Smaaash’s planned increase in its product sales would balance Smaaash’s revenue mix between games, product sales, and sponsorship and other income. Moreover, as Smaaash increase its product sales in the future, including through possible growth and diversification in Smaaash’s distributor network, Smaaash would seek to leverage economies of scale, including in terms of obtaining insights and strategic access to high-value customers and markets.
Enhance Smaaash’s marketing and advertising initiatives to retain and increase Smaaash’s customer appeal and strengthen its brand value.
One aspect of Smaaash’s planned digital customer outreach will be digital sales, including through its own website and the launch of its own app for mobile phones and smart devices, allowing customers planning to visit Smaaash’s Centers to pre-purchase games and packages digitally prior to their visits to its Centers, and to leave their valuable feedback digitally, in a manner that may be more convenient for them, while also being easier for Smaaash to track and utilize. Another aspect of Smaaash’s planned digital outreach will be Smaaash’s continuing initiative to reach out to a wider customer base through app-based or online aggregators.
Smaaash’s digital customer outreach initiatives are intended to reduce Smaaash’s promotional expenses, increase its brand management flexibility, and expand recognition of its brand and value proposition beyond the immediate physical vicinity and catchment areas of its Centers. Through Smaaash’s digital customer outreach, Smaaash would, among other things, seek to draw increasing numbers of new customers to its Centers, increase the number of return customers at its Centers, and increase per capita and overall customer spend at its Centers. In addition to the above, Smaaash also intends to continue to refine Smaaash’s pricing and promotions strategy to coincide with various sports and other events, festivals, seasons and holidays through the year, targeted promotions such as to corporate customers for hosting corporate events and off-sites, or college and school students, or “ladies nights” and “happy hours”, birthday and other parties and celebrations, and other social events, as well as utilizing Smaaash’s loyalty program, “Smaaash Insiders”", and feedback tools (in the future, in particular, including through Smaaash’s digital outreach, as indicated above) to obtain customer insights, as part of its overall commitment to customer satisfaction. Smaaash would also seek to continue tying up with sports icons and other celebrities to act as Smaaash’s brand ambassadors, and offering aspirational rewards by way of prizes for winning games at its Centers.
Increase and diversify Smaaash’s sponsorship revenue.
Historically, while its sponsorship revenues have primarily been pursuant to long-term arrangements with a satellite television channel broadcaster, Smaaash is currently evaluating, and shall continue to explore, arrangements of varying terms with various third parties for on-ground brand activation and outreach, including co-branding, at a game or zone level.
In this regard Smaaash’s twofold objective would be to increase its sponsorship revenues over time, and reduce and mitigate its exposure to possible risks arising in the future from concentration with a single or relatively small set of sponsorship arrangements.
Centers and Games
As of this date, Smaaash has 32 operational centers out of which 28 are company operated and four centers are franchised and operated by third parties. The detail of the centers are set forth below under Properties.
Revenue Sharing Agreements
Smaaash has entered into revenue sharing arrangements with the property developers for 22 Centers in India. Under such revenue sharing arrangements with property developers, Smaaash is typically liable to pay monthly rent by way of a fixed percentage of the monthly net retail sales amount (which is generally reset to a higher percentage after the completion of a specified initial duration within the rental period) or, in certain cases, either a monthly minimum guaranteed amount, or a fixed percentage of the monthly net retail sales amount (which is reset to a higher percentage after the completion of a specified initial duration within the rental period), whichever is higher.
Certain of these rental and revenue sharing arrangements are subject to a lock-in period, during which time, Smaaash may prematurely terminate these arrangements only subject to payment of the agreed rent for the entire lock-in period. After the lapse of the lock-in period, Smaaash may terminate the arrangements with prior notice.
The licensors can typically terminate the arrangements at any time, with prior notice, with or without cause, including in the event of a default or material default by us, in making due monthly payments or in complying with applicable law and regulations applicable to such premises.
Principles of Game Selection:
Commercial Criteria | Other Criteria |
☐ Minimize operator requirement. ☐ Revenue per square foot / meter of space. ☐ Single user vs. multi user. ☐ Cycle time. ☐ Repeat value. ☐ Development and production cost. ☐ Operating cost. ☐ Ability to create additional games on the same platform.
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☐ Early adoption of newly evolving technology. ☐ Safety. ☐ Novelty factor. ☐ Target group fit. ☐ Psychographic fit. ☐ Game footprint size. ☐ Competitive element. ☐ Social element.
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Sponsorship
Historically, while Smaaash’s sponsorship revenues have primarily been pursuant to long-term arrangements with a satellite television channel broadcaster, Smaaash is currently evaluating, and shall continue to explore, arrangements of varying terms with various third parties for on-ground brand activation and outreach, at a game or zone level.
In relation to Smaaash’s flagship Center in Mumbai, which commenced commercial operations in November 2012, Smaaash has entered into a sponsorship agreement dated July 6, 2012, with a satellite television channel broadcaster, in terms of which, the broadcaster had agreed to exclusively sponsor Smaaash’s Mumbai Center and, at its option, subject to a right of first refusal (although not obligation) held by this broadcaster, other Centers. This agreement lapsed on July 6, 2017 and has not been renewed.
In addition, Smaaash entered into a sponsorship agreement dated November 30, 2013, with the same broadcaster, for Smaaash’s Center at Cyberhub, in Delhi NCR, for a period of five years, i.e., until November 30, 2018, as well as a sponsorship agreement dated February 17, 2014, with the same broadcaster, for Smaaash’s Center in Delhi NCR (Noida), for a period of five years, i.e., until February 17, 2019. Smaaash does not currently have similar sponsorship agreements with this broadcaster for Smaaash’s other Centers. Under these agreements, Smaaash is entitled to a sponsorship fee, including a non-refundable upfront onetime fee and quarterly advance payments commencing from the date of commercial operations at the respective Centers specified in these agreements and for the term of such agreements, and also acquired rights to use certain specified trademarks, without the right to sub-license such marks. Other than the requirement to make payments of the sponsorship fees due to us from the broadcaster and to provide the broadcaster’s approval or input on the promotional materials used by us in respect of the trademarks licensed by us from the broadcaster, the arrangements described above do not require or entitle the broadcaster to operate, manage or control Smaaash’s Centers, or to be responsible or liable for its employees, agents or subcontractors, among other things.
These agreements are terminable with advance notice by us, or terminable by the broadcaster on account of any default by us, and contain standard indemnity, confidentiality and other similar provisions.
Going forward, Smaaash’s twofold objective would be to increase its sponsorship revenues over time, and to reduce and mitigate Smaaash’s potential exposure to possible risks arising in the future from concentration with a single or relatively small set of sponsorship arrangements.
Others
In addition to Smaaash’s core business, described above, Smaaash currently has the following other business initiatives:
Specialty Restaurants and Convention Center
Adjacent to Smaaash’s Center at Kamala Mills in Mumbai, Smaaash operates one specialty restaurant, with several signature dishes across a range of attractive price points. These include a rooftop brewpub and primarily continental restaurant called “"Verbena”", which Smaaash launched in January, 2017. In addition, also adjacent to the Center at Kamala Mills in Mumbai, Smaaash operates a 1,000 seat convention center, spread over approximately 13,500 square feet carpet area, called “18.99 Latitude”", which Smaaash launched in October 2016. This convention center features a large banquet and convention facility, smaller partitioned units for breakaway meetings and events, gourmet catering with a separate Jain vegetarian kitchen, power backup, Wi-Fi connectivity, parking, and other facilities. These premises are leased and operated by Smaaash and Smaaash does not outsource any functions at these premises to any third party, other than non-core functions, such as security or housekeeping functions, which may be outsourced by Smaaash to various third party contractors from time to time.
Among other things, Smaaash’s specialty dining and convention center facilities serve to complement Smaaash’s range of games and entertainment options, particularly for its corporate customers, who may make bulk bookings a its Centers for corporate offsites and other corporate events, from time to time. However, Smaaash’s income from the above businesses forms part of its Banquet Income.
Smaaash Shivfit
Adjacent to Smaaash’s Center at Kamala Mills in Mumbai, Smaaash has opened a co-branded fitness center known as SMAAASH SHIVFIT, in May 2017.
These premises are leased and operated by Smaaash. The brand SHIVFIT is owned by Mr. Shivoham and Ms. Vrinda Mehta.
SMAAASH SHIVFIT is an integrated physical and mental fitness program, which was conceptualized by Mr. Shivoham and Ms. Vrinda Mehta. The fitness program aims to provide a holistic solution for all the fitness needs of an individual, through a combination of an integrated mind and body fitness program, a high intensity functional training for the body, and effective vibrations process for mental health. At SMAAASH-SHIVFIT, Smaaash offers several specialty classes and tailor-made workout programs and solutions, including cross-functional training, boxing, pilates, total resistance exercise (“TRX”), yoga, wrestling and mind workshops for athletes, corporate professionals and others, boot camps, personal training, corporate training and corporate retreats, along with a conventional gymnasium and weight training area, which offers cardio, machines, free weights, diet consultancy and personal training.
Under the terms of Smaaash’s agreement with Mr. Shivoham and Ms. Vrinda Mehta, Smaaash has paid a one-time license fee and are liable to pay an annual royalty commission for the use of the SHIVFIT brand, marks and concept.
Among other things, Smaaash’s SMAAASH SHIVFIT gym facility serves to complement its range of indoor, primarily sports-themed games and entertainment options.
However, Smaaash’s income from the above business would form part of its sponsorship and other income.
Brand-building, Marketing and Advertising
Smaaash has a dedicated marketing team headed by Mr. Nilendu Mitra, Smaaash’s VP Marketing and Sales.
Smaaash benefits significantly from word of mouth referrals by Smaaash’s customers, including through social media. Among other things, Smaaash seeks to connect with larger numbers of customers by encouraging bulk bookings by families or friends or colleagues visiting in groups. At Smaaash’s Centers, Smaaash offers aspirational redemptions, including in the form of opportunities for customers to play simulated games with and against global sporting idols, and rewards in terms of prizes for winning games at its Centers. From time to time, Smaaash also tie up with local athletes and sports icons, such as cricket, football, basketball and ice hockey players, to customize Smaaash’s games and increase their appeal to its customers, including via brand ambassadorships.
Smaaash also undertakes other extensive brand-building and sales and marketing initiatives, including in-center pricing and promotions to coincide with various sports and other events, festivals, seasons and holidays through the year, targeted promotions such as to corporate customers for hosting corporate events and off-sites, or college and school students, or “ladies nights” and “happy hours”, birthday and other parties and celebrations, and other social events, as well as utilizing Smaaash’s loyalty program, “Smaaash Insiders”", and feedback tools to obtain customer insights, as part of Smaaash’s overall commitment to customer satisfaction. In addition, Smaaash advertises on and sell tickets to customers through third party mobile app-based or online aggregators, allowing it to introduce Smaaash’s offerings to, and draw in customers from, beyond the immediate physical vicinity and catchment areas of Smaaash’s Centers. Moreover, Smaaash participates in industry fairs and exhibitions, particularly with a view to increasing Smaaash’s product sales business. Given the increase of internet and mobile telephony penetration in India, Smaaash has recently increased Smaaash’s own focus on digital and social media. Going forward, Smaaash intends to launch and focus on digital sales through Smaaash’s website and it is also exploring the launch of a mobile app for mobile phones and smart devices. Through this app, as Smaaash’s customers increasingly begin to engage and interact with Smaaash digitally in the future, Smaaash would seek to draw new customers, increase the number of Smaaash’s return customers, and increase its share of customer wallets, for instance, by allowing customers to pre-purchase games and packages digitally, and to leave Smaaash their valuable feedback in a manner that may be more convenient to them, while also being easier for it to track and utilize.
Innovation & Information Technology
Principles of Game Development
Smaaash conducts game development not only to roll out its own games at Smaaash’s own Centers, but also to monetize product development through product sales to third parties, where Smaaash would retain the IPR.
With a dedicated product development laboratory in Worli, Mumbai called Smaaash Labs, Smaaash currently has over 25 new games under development, intended for launch during calendar year 2018.
Smaaash’s principles of in-house game development are twofold, as set out below:
Expansion Plan
Domestic Expansion:
Smaaash has already shortlisted the following cities to open further centers in India:
Seasonality
Smaaash’s business does not exhibit seasonality. However, Smaaash does have increased retail traffic during the holiday seasons and during sporting events such as the IPL, football and cricket matches which is not necessarily seasonal.
Raw Material Costs & Suppliers
Smaaash incurs significant raw material costs, including import costs. During fiscal year 2017, Smaaash’s cost of raw materials accounted for 20% of Smaaash’s total expenditure. Reliance is placed on purchase orders to procure such raw materials and currently Smaaash does not have any long-term contracts with its vendors.
Third-party Sales
Smaaash relies on distributors for third party sales and does not have exclusive or long term arrangements with such distributors. If the distributor agreements are terminated or not renewed or replaced in a timely manner, this may result in a disruption in third-party sales, in particular, the loss of business from any significant distributors. Smaaash’s future product sales business growth may also depend on its ability to attract additional dealerships and widen our distributor network.
Intellectual Property (patents, trademarks, licenses)
Smaaash has in-house developed games, components and technology which is used in Smaaash centers as well as sold to third-party players. Smaaash’s general policy is to seek intellectual property protection for the innovations and improvements which are likely to be incorporated into Smaaash’s business or to give it a competitive advantage. Moreover, in relation to third party sales, Smaaash retains intellectual property rights as a matter of practice and policy.
In this relation, Smaaash relies on a variety of website domain names, trademark registrations and other proprietary information, as well as confidentiality agreements or arrangements with its employees and consultants or other third parties to protect its intellectual property rights. For instance, Smaaash’s corporate trade name and logo, are assigned to us by Star India Private Limited (“Star India”) pursuant to a deed of perpetual assignment dated November 30, 2013, effective. Under this deed, Smaaash has perpetual rights to use 30 trademarks for the SMAAASH device and word mark, in various classes, throughout the territory of India, for which registration applications have been filed with the Trademark Registry. Further, under this deed of assignment, Star India has confirmed that it has no right or claims to such trademark outside the territory of India. In addition, Smaaash has applied for 219 trademarks, in various classes.
Dependence on a single customer or a few customers
Smaaash’s business model does not depend on a single customer or a few customers as it mainly derives revenue from gaming and F&B offerings to the visitors to its centers. For its product sales business, the revenue from top 5 customers constitute 52% of its total revenue from Product Sales for the nine month period ended 31 December 2017 and 82% for the year ended 31 March 2017.
Properties
The following table describes Smaaash’s Centers:
Sr No. | Center | Location | Launch Date | Carpet Area (in sq. ft) | Key Game attractions | food and beverage attractions |
1. | Mumbai | Kamala Mills Compound, Gate No. 4, Lower Parel, Mumbai - 400 013 | 5thNovember, 2012 | Carpet Area: 34,147 sq.ft. | ● SkyKarting ● Twilight Bowling ● VR Games ● Stimulation Games ● Arcade Games ● Trampolin ● Lazer Blast | ● Mighty Small ● Legend (Banqueting ) ● Victrian (Banqueting ) |
2. | Mumbai | Verbena, Kamala Mills Compound, Gate No. 4, Lower Parel, Mumbai - 400 013 | 25thJanuary 2017 | 10,000 sq ft including kitchen and bar | ● Restaurant | ● Restaurant & Bar |
3. | Mumbai | 18.99, Kamala Mills Compound, Gate No. 4, Lower Parel, Mumbai - 400 013 | 6thOctober 2016 | 15000 sq ft (pillarless banquet hall) | ● Banquet Hall | ● |
4. | Gurgaon – DLF Cyber Hub | DLF Cyber Hub, Cyber City, Phase 2, NH 8, Gurgaon, Haryana - 122 002 | 29thMay, 2015 | Super Area: 50,466 sq.ft. | ● Smaaash Cricket ● Twilight Bowling ● VK Games ● Stimulation Games ● Arcade Games | ● Gurgaon Pub Exchange ● Unforked Cafe (Banqueting )
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5. | Gurgaon - Oyster | Sector 29, Adjoining Huda City Centre Metro Station, Gurgaon - 122002 | 21stJanuary, 2017 | Covered Area: 3000 sq.ft + Open Terrace Space: 30,000 sq.ft. | ● SkyKarting
| ● Pitstop Brew Pub with Micro Brewery |
6. | Noida | A-501, B 504, 4th Floor, DLF Mall Of India, Sector 18, Noida - 201 301 | 28thApril, 2016 | Super Area: 47033 sq.ft. | ● Smaaash Cricket ● Twilight Bowling ● VK Games ● Stimulation Games ● Arcade Games | ● Noida Pub Exchange ● Champions Lounge (Banqueting ) |
7. | Hyderabad | L-5, 3rd Floor, Inorbit Mall -Cyberbad, Apiic Software Layout, Hi-Tech City, Madhapur, Hyderabad- 500 081 | 24thJune, 2015 | Carpet Area: 21,173 sq.ft.
| ● Smaaash Cricket 3 lanes ● Twilight Bowling ● VR Games ● Stimulation Games ● Arcade Games ● Trampoline park | ● Mighty Small Restaurant & Bar |
8. | Bangalore | 2nd& 3rd Floor, 1MG - Lido Mall, Trinity Circle, MG Road, Bengaluru - 560 001 | 21stJanuary 2016 | Carpet Area: 17,795 sq.ft. | ● Cricket ● Twilight Bowling ● VR Games ● Arcade Games ● Trampoline | Pub Exchange |
9. | Ludhiana - Neopolis Mall | 2ndFloor, MBD Neopolis Mall, Ferozepur Road, Ludhiana - 141 004 | 14thOctober, 2016 | Covered Area: 20,000 sq.ft. | ● Cricket ● Twilight Bowling ● VR Games ● Arcade Games ● Trampoline | Verbana Brew Pub |
10. | Indore | Treasure Island Next Mall, 5th Floor, 170 , RNT Marg Road, near SSP Office, Indore, 452001 | 16thJanuary, 2018 | Covered Carpet Area 9,811 sq. ft. | ● Cricket ● Twilight Bowling ● VR Games ● Arcade Games | F&B to be launched |
11. | DB City, Bhopal | R-9, 3rd Floor DB CITY Corporate Park, Arera Hills, Opp. Zone I, M.P. Nagar, Bhopal. (M .P.) India – 462011 | 15 April 2018 | Covered Area: 5,068 sq.ft. | ● Cricket ● VR Games ● Arcade Games | |
12. | Seawoods | Unit Nos. S-09 food and beverage, S-10 food and beverage & S-11, 2nd Floor, Seawoods Grand Central Mall, Sector 40 Node Nerul, Seawoods Railway Station, Navi Mumbai – 400706 | 5thMay 2018 | Covered Area: 9,102 sq. ft. & additional open area of approx. 2560 sq. ft. and an open area of approx. 1072 sq. ft. | ● Cricket ● Twilight Bowling ● VR Games ● Arcade Games ● Dance Off | F&B to be launched (additional Covered Carpet Area of 4,199 sq. ft. |
13. | USA | Mall of America, 60E, Broadway Bloomington, Minnesota | 20thDecember 2016 | Floor Area: 57,552 sq.ft. | ● VR Games ● Stimulation Games ● Arcade Games ● SkyKarting ● Lazer Blast | Café & Bar |
14. | Delhi | Ambience Mall, Plot No. 2, Nelson Mandela Marg, Vasant Kunj, New Delhi, Delhi 110070 | 28thNovember, 2017 | Super Area: 48006 sq.ft. | ● Smaaash Cricket ● Twilight Bowling ● VK Games ● Stimulation Games ● Arcade Games ● Lazer Blast | ● Unforked Cafe & Bar |
15. | Gurgaon - Ambience Mall | 4th Floor, Ambience Mall, Gurgaon, Haryana 122001 | 28thNovember, 2017 | Super Area: 42,500 sq.ft. | ● Smaaash Cricket ● Twilight Bowling ● VK Games ● Stimulation Games ● Arcade Games ● Jungle Golf | ● Unforked Cafe & Bar |
16. | Ludhiana - Pavilion Mall | 5th Floor, Pavilion Mall, Old Session Court, Near Fountain Chowk, Ludhiana, Punjab - 141001 | 4thApril, 2015 | Gross leaseable Area: 33,775.75 sq.ft.; Usable area: 20225 sq.ft. | ● Twilight Bowling
| Café & Bar |
17. | Chandigarh | Plot No. 178-178 A, 3rd Floor, Elante Mall, Industrial & Business Park - 1, Chandigarh - 160002 | 21stNovember, 2013 | Occupied Area: 30,970 sq.ft. | ● Smaaash Cricket ● Twilight Bowling ● VK Games ● Stimulation Games ● Arcade Games ● Laser Tag | Café & Bar |
18. | Bengaluru - Phoenix Market City | 2ndFloor, Phoenix Market City, Whitefield Road, Devasandra Industrial Estate, Mahadevapura, Bengaluru, Karnataka 560048 | 29 November 2012 | Carpet Area: 26,883 sq.ft. | ● Smaaash Cricket ● Twilight Bowling ● VK Games ● Stimulation Games ● Arcade Games | Café & Bar |
19. | Bangalore – Orion Mall | 4th Floor, Orion Mall, Brigade Gateway 26/1 Malleshwarm West, Bangalore-560055 | 12 August 2012 | Super Built Up Area: 39,920 sq.ft. | ● Bowling | Café & Bar |
20. | Pune | Shop No 28, Ground Floor, Phoenix Marketcity, Viman Nagar, Nagar Road, Pune-411014 | 9thNovember, 2012 | Carpet Area: 24,081 sq.ft. | ● Smaaash Cricket ● Twilight Bowling ● VK Games ● Stimulation Games ● Arcade Games | Café & Bar |
21. | Hyderabad - Forum Sujana Mall | Unit No. 03-01, Forum Sujana Mall, Kukkatpally Village, Balanagar Mandal, Ranga Reddy District, Hyderabad | 19thApril, 2018 | Super Built up area: 25,092 sq.ft. | ● 4 lane Bowling Alley ● VR Games ● Arcade Games ● XD theater ● Adventure zone ● Air riders ( Inflatable bumper cars) ● Trampoline park ● Indoor Water Zorb roller. ● 3 floor kids soft play area | ● Kiosk Café ● Soft beverages
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22. | Mangalore | Unit No. 325, 3rd floor, Forum Fiza Mall, Attavara Village, Cantonment Ward, Pandeshwar Road, Mangalore. | 19thApril, 2018 | Super Built up area: 16,680 sq.ft. | ● 4 lane Bowling Alley ● VR Games ● Arcade Games ● Air riders ● Trampoline park ● kids soft play area | |
23. | Mysore | 4th floor, Mall of Mysore, Ittige Goddu- Indranagar Extension, Nazarabad, Mysore, Karnataka | 19thApril, 2018 | Super Area: 9625 sq.ft. Chargeable Area: 9250 sq.ft. | ● 4 lane Bowling Alley ● VR Games ( Receiving today) ● Arcade Games | |
24. | Hyderabad | Zonah’s Neptune, Road No. 36, Jubilee Hills, Hyderabad | 19thApril, 2018 | 4,145 Sq.ft. | ● 5 lane Twilight Bowling Alley | ● Soft beverages |
25. | Hyderabad | 6 Mall, Fourth Floor, Tyagaraya Nagar, Kothapet, Ranga Reddy, Hyderabad | 19thApril, 2018 | 15,296 sq.ft. | ● 4 lane Bowling Alley ● VR Games ● Arcade Games ● kids soft play area ● Air riders | ● Soft beverages |
26. | Hyderabad | 2ndFloor, City Centre Mall, Road No. 1 & 10, Banjara Hills, Hyderabad - 500034 | 19thApril, 2018 | Carpet Area: 7261 sq.ft. | ● 4 lane Bowling Alley ● VR Games ● Arcade Games ● Kids soft play area | ● Soft beverages |
27. | Vijaywada | 2ndfloor, LEPL CENTRO Mall, M.G. Road, Labbipet, Vijayawada – 520 010 | 19thApril, 2018 | Chargeable Area: 4,419 sq.ft. | ● 4 lane Bowling Alley ● VR Games ● Arcade Games | - |
28. | Madurai | Anchor 1 & 2, 4th Floor, Vishaal De Mall, No. 31 Gokhale Road, Chinna Chokkikulam, Madurai - 625002 | 19thApril, 2018 | Carpet Area: 6933 sq.ft | ● 3 lane Bowling Alley ● VR Games ● Arcade Games | - |
29. | Pune, Spot 18 Mall (Franchised) | Shop No. 202, Spot 18 Mall, Rahatani, Pune - 411017 | December 2016 | Carpet Area: 4000 sq ft | ● Bowling ● Arcade Games | |
30. | Hyderabad, Manjeera Mall (Franchised) | 3rdfloor, Manjeera Mall, Kukatpally, Hyderabad - 500070 | 28thFebruary 2015 | Carpet Area: 8600 sq ft | ● Bowling ● Playpen ● Air Riders ● Arcade Games | |
31. | Hyderabad (Franchised) | Unit 4b, Shri Tirumala Platinum -Janardhana Hills, Gachibowli village, Serilingampally Mandal, Ranga Reddy District | 21stAugust 2015 | Carpet Area: 3300 sq ft | ● Bowling | |
32. | Hyderabad (Franchised) | 4thfloor, Secunderabad Centre, Neredmet Cross Roads, Secunderabad | 1stSeptember 2017 | Carpet Area: 6000 sq ft | ● Bowling ● 7D Theatre ● Playpen ● Egg VR ● Cricket ● Arcade Games |
As of this date, 28 centers are company operated and 4 centers are franchised and operated by third parties.
Government Regulations
Smaaash is subject to various laws and regulations in India arising from its operations in India, including specific regulations and policies applicable to the gaming and F&B sector.
Gaming regulations in various states
In terms of section 33 of the Bombay Police Act, 1951, The Rules for Licensing and Controlling Places of Public Amusement (other than cinemas) and Performances for Public Amusement including Pool game Parlors, Amusement Parlors providing Computer Games, Virtual Reality Games, Cyber Cafes, Games with net, internet or intranet connectivity, Bowling Alleys, Card Rooms, Social Clubs, Sports Clubs, Cabaret performances, Discotheque, Games, Melas and Tamashas Rules, 1960, have been notified. These contain provisions on licensing, registration and regulatory provisions which are applicable.
Municipality laws in various states
The state legislatures in India are empowered to endow the municipalities with the power to implement schemes and perform functions in relation to matters listed in the Twelfth Schedule to the Constitution of India which includes regulation of public health. Various states of India have notified laws empowering the municipalities to regulate public health including the issuance of a health trade license for operating eating outlets and implementation of regulations relating to such licenses along with penalties for non-compliance.
Public order and police laws in various states
The state legislatures in India are empowered to notify laws in relation to public order and police under Entries 1 and 2 of the State List (List II) of Twelfth Schedule to the Constitution of India, pursuant to which various states of India have enacted laws regulating such establishments which include registering eating houses, places of public entertainment and gaming parlors, and obtaining a ‘no objection certificate’ for operating such establishments, along with prescribed penalties for non-compliance.
Fire safety laws in various states
The fire acts of various states provide that the occupier of the building shall provide fire prevention and life safety measures in such building or part thereof, minimum firefighting installations as specified against such buildings and the occupier shall maintain the prevention and life safety measures in good repair and efficient condition at all times, in accordance with the provisions of the various fire acts or the rules made thereunder. The said owner or the occupier shall also obtain a certificate from the relevant authority in terms of the fire acts applicable in that particular state in relation to the aforesaid compliance.
Legal Proceedings There are no legal proceedings pending against I-AM Capital. Properties I-AM Capital currently leases executive offices at 1345 Avenue of the Americas, 11th Floor, New York, New York. I-AM Capital considers the current office space adequate for its current operations. Available Information I-AM Capital is required to file Annual Reports on Form 10-K and Quarterly Reports on Form 10-Q with the SEC on a regular basis, and is required to disclose certain material events (e.g., changes in corporate control, acquisitions or dispositions of a significant amount of assets other than in the ordinary course of business and bankruptcy) in a Current Report on Form 8-K. The public may read and copy any materials filed with the SEC at the SEC’s Public Reference Room at 100 F Street, NE, Washington, DC 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC also maintains an Internet website that contains reports, proxy and information statements and other information regarding issuers that file electronically with the SEC. The SEC’s Internet website is located athttp://www.sec.gov. Beneficial Ownership The following table sets forth information regarding the beneficial ownership of I-AM Capital’s common stock as of July 25, 2018 by: Unless otherwise indicated, it is believed that all persons named in the table below have sole voting and investment power with respect to all shares of common stock beneficially owned by them. The following table does not reflect record or beneficial ownership of the public rights or public warrants or the private placement rights or private placement warrants as these rights and warrants are not convertible or exercisable, respectively, within 60 days of the date of this proxy statement. �� Unless otherwise indicated, the business address of each of the stockholders is 1345 Avenue of the Americas, 11th Floor, New York, NY 10105. Represents shares of common stock held directly by I-AM Capital Partners LLC, our sponsor. F. Jacob Cherian and Suhel Kanuga are managers and members of our sponsor and share voting and dispositive control over the securities held by our sponsor, and thus share beneficial ownership of such securities. Each of Messrs. Cherian and Kanuga disclaims beneficial ownership over any securities owned by our Sponsor in which he does not have any pecuniary interest. According to a Schedule 13G filed with the SEC on October 20, 2017 on behalf of Boothbay Absolute Return Strategies LP, a Delaware limited partnership, Boothbay Fund Management, LLC, a Delaware limited liability company and Ari Glass. Mr. Glass is the Managing Member of Boothbay Fund Management, LLC. The principal office of the stockholder is 810 7th Avenue, Suite 615, New York, NY 10019-5818. According to a Schedule 13G filed with the SEC on February 14, 2018, on behalf of Polar Asset Management Partners Inc., a company incorporated under the laws on Ontario, Canada. The principal office of the stockholder is 401 Bay Street, Suite 1900, PO Box 19, Toronto, Ontario M5H 2Y4, Canada. According to a Schedule 13G filed with the SEC on February 14, 2018, on behalf of Karpus Management, Inc., d/b/a Karpus Investment Management, a New York corporation. The principal office of the stockholder is 183 Sully’s Trail, Pittsford, New York 14534. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF I-AM CAPITAL The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the financial statements and the notes thereto contained elsewhere in this proxy statement. Certain information contained in the discussion and analysis set forth below includes forward-looking statements that involve risks and uncertainties. Unless otherwise indicated, references in this section to “we,” “our,” “us” and other similar terms refer to I-AM Capital before the Transaction. Overview We are a blank check company incorporated on April 17, 2017 in Delaware and formed for the purpose of effecting a merger, share exchange, asset acquisition, share purchase, reorganization or similar business combination with one or more businesses. We intend to effectuate our business combination using cash from the proceeds of our IPO and the private placement, our securities, debt or a combination of cash, securities and debt. The issuance of additional shares of common stock or preferred stock: Similarly, if we issue debt securities, it could result in: We expect to continue to incur significant costs in the pursuit of our acquisition plans. Our plans to raise capital or to complete a business combination may not be successful. Recent Events On May 3, 2018, we entered into a definitive agreement to invest up to $49 million in Smaaash. Following the closing, our primary business will be to act as the sole master distributor of Smaaash’s active entertainment games in North and South America and as the master franchisee for Smaaash’s active entertainment centers in North and South America. The transaction is subject to customary closing conditions. See our Current Reports on Form 8-K filed with the SEC on May 9, 2018 and June 28, 2018 for further information. Results of Operations We have neither engaged in any operations nor generated any revenues to date. Our only activities from April 17, 2017 (date of inception) through May 31, 2018 were organizational activities, those necessary to prepare for our IPO, which was consummated on August 22, 2017, and identifying a target company for a business combination including the Transaction. Following our IPO, we have not generated any operating revenues and will not until after the completion of our initial business combination. We have generated $521,702 through May 31, 2018 of non-operating income in the form of interest income. We expect to incur increased expenses as a result of being a public company (for legal, financial reporting, accounting and auditing compliance), as well as for due diligence expenses. For the year ended May 31, 2018, we had net loss of $8,862, which consists of operating costs of $530,564 offset by interest income of $521,702 on cash and marketable securities held in the trust account. Liquidity and Capital Resources The completion of our IPO and simultaneous private placement, inclusive of the underwriters’ partial exercise of their over-allotment option, generated gross proceeds to us of $54,615,000. Related transaction costs amounted to approximately $3,838,000, consisting of $3,360,000 of underwriting fees, including $1,820,000 of deferred underwriting commissions payable (which are held in the trust account) and $478,000 of IPO costs. Following our IPO and the partial exercise of the over-allotment option, a total of $55,740,000 was placed in the trust account and we had $552,190 of cash held outside of the trust account, after payment of all costs related to the IPO. As of May 31, 2018, we had cash and marketable securities held in the trust account of $53,353,715, substantially all of which is invested in U.S. treasury bills with a maturity of 180 days or less. Interest income earned on the balance in the trust account may be available to us to pay taxes. Since inception, we have withdrawn $406,050 of interest income from the trust account. As of May 31, 2018, we had cash of $458,063 held outside the trust account, which is available for use by us to cover the costs associated with identifying a target business including Smaaash, negotiating a business combination, due diligence procedures and other general corporate uses. In addition, as of May 31, 2018, we had accrued expenses of $63,579. For the year ended May 31, 2018, cash used in operating activities amounted to $470,153, mainly resulting from net loss of $8,862, offset by interest earned on marketable securities held in the trust account of $521,702. Changes in our operating assets and liabilities generated cash of $60,411. We intend to use substantially all of the funds held in the trust account, including any amounts representing interest earned on the trust account (which interest shall be net of taxes payable and up to a maximum of $600,000 of working capital released to us and excluding deferred underwriting commissions) to complete our initial business combination. We may withdraw interest to pay taxes and up to $600,000 for working capital expenses, if any. To the extent that our capital stock or debt is used, in whole or in part, as consideration to complete our initial business combination, the remaining proceeds held in the trust account will be used as working capital to finance the operations of the target business or businesses, make other acquisitions and pursue our growth strategies. We intend to use the funds held outside the trust account primarily to identify and evaluate target businesses, perform business due diligence on prospective target businesses, travel to and from the offices, plants or similar locations of prospective target businesses or their representatives or owners, review corporate documents and material agreements of prospective target businesses (as well as pay personnel and advisors to do the forgoing), structure, negotiate and complete a business combination, and to pay taxes to the extent the interest earned on the trust account is not sufficient to pay our taxes. In order to fund working capital deficiencies or finance transaction costs in connection with an intended initial business combination, our sponsor or an affiliate of our sponsor or certain of our officers and directors may, but are not obligated to, loan us funds as may be required. If we complete our initial business combination, we would repay such loaned amounts. In the event that our initial business combination does not close, we may use a portion of the working capital held outside the trust account to repay such loaned amounts but no proceeds from our trust account would be used for such repayment. We do not believe we will need to raise additional funds in order to meet the expenditures required for operating our business. However, if our estimates of the costs of identifying a target business, undertaking in-depth due diligence and negotiating an initial business combination are less than the actual amount necessary to do so, we may have insufficient funds available to operate our business prior to our business combination. Moreover, we may need to obtain additional financing either to complete our business combination or because we become obligated to redeem a significant number of our public shares upon completion of our business combination, in which case we may issue additional securities or incur debt in connection with such business combination. Subject to compliance with applicable securities laws, we would only complete such financing simultaneously with the completion of our business combination. In the current economic environment, it has become especially difficult to obtain acquisition financing. If we are unable to complete our initial business combination because we do not have sufficient funds available to us, we will be forced to cease operations and liquidate the trust account. In addition, following our initial business combination, if cash on hand is insufficient, we may need to obtain additional financing in order to meet our obligations. Off-balance sheet financing arrangements We have no obligations, assets or liabilities which would be considered off-balance sheet arrangements. We do not participate in transactions that create relationships with unconsolidated entities or financial partnerships, often referred to as variable interest entities, which would have been established for the purpose of facilitating off-balance sheet arrangements. We have not entered into any off-balance sheet financing arrangements, established any special purpose entities, guaranteed any debt or commitments of other entities, or purchased any non-financial assets. Contractual obligations We do not have any long-term debt, capital lease obligations, operating lease obligations or long-term liabilities, other than an agreement to pay the sponsor a monthly fee of $10,000 for office space, utilities and administrative support provided to us. We began incurring these fees on August 16, 2017 and will continue to incur these fees monthly until the earlier of the completion of our initial business combination or our liquidation. Critical Accounting Policies The preparation of financial statements and related disclosures in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and income and expenses during the periods reported. Actual results could materially differ from those estimates. The Company has not identified any critical accounting policies. The information contained in this section is derived from various third party data sources including data from Government of India publications and industry sources. Industry sources and publications generally state that the information contained therein has been obtained from sources generally believed to be reliable, but that their accuracy, completeness and underlying assumptions are not guaranteed and their reliability cannot be assured. Industry and Government of India’s publications are also prepared based on information as of specific dates and may no longer be current or reflect current trends. However, we believe the information under this section to be accurate and complete. Overview of the Indian Economy India has emerged as the fastest growing major economy in the world as per the Central Statistics Organisation (CSO) and International Monetary Fund (IMF) and it is expected to be one of the top three economic powers of the world over the next 10-15 years, backed by its strong democracy and partnerships. India’s gross domestic product (GDP) is estimated to have increased 6.6% in 2017-18 and is expected to grow 7.3% in 2018-19. Market size India’s GDP at constant prices grew by 7.2% in September-December 2017 quarter as per the Central Statistics Organisation (CSO). Corporate earnings in India are expected to grow by 15 to 20% in fiscal year 2018-19 supported by recovery in capital expenditure, according to JM Financial. The tax collection figures between April 2017- February 2018 show an increase in net direct taxes by 19.5% year-on-year and an increase in net direct taxes by 22.2% year-on-year. India has retained its position as the third largest startup base in the world with over 4,750 technology startups, with about 1,400 new start-ups being founded in 2016, according to a report by NASSCOM. India’s labor force is expected to reach 160-170 million by 2020, based on rate of population growth, increased labor force participation, and higher education enrolment, among other factors, according to a study by ASSOCHAM and Thought Arbitrage Research Institute. India’s foreign exchange reserves were $422.53 billion in the week up to March 23, 2018, according to data from the RBI. Recent Developments With the improvement in the economic scenario, there have been various investments in various sectors of the economy. The M&A activity in India increased 53.3% to $77.6 billion in 2017 while private equity (PE) deals reached $24.4 billion. Some of the important recent developments in Indian economy are as follows: Road Ahead India’s gross domestic product (GDP) is expected to reach $6 trillion by 2027 and achieve upper-middle income status on the back of digitization, globalization, favorable demographics, and reforms. India is expected to be the third largest consumer economy as its consumption may triple to $4 trillion by 2025, owing to shift in consumer behavior and expenditure pattern, according to a Boston Consulting Group (BCG) report; and is estimated to surpass USA to become the second largest economy in terms of purchasing power parity (PPP) by the year 2040, according to a report by Pricewaterhouse Coopers. Overview of the Indian Media & Entertainment Sector (Source: FICCI – EY M&E Report 2018) The Media & Entertainment (“M&E”) sector in India is also experiencing good growth. Favorable demographics, rising consumer incomes, and demand for knowledge, entertainment, experiences, news, and sports aided the growth of the Indian M&E sector, which reached $23 billion in 2017, a growth of almost 13% from 2016. This growth was led by digital, film, gaming and events. While the M&E sector was traditionally characterized by television, print and the new-age M&E sectors which are now growing include digital, family entertainment centers, virtual reality and augmented reality experiences, and online gaming. Family Entertainment Center (“FEC”) Market Overview (Source: Global Family/Indoor Entertainment Centers report by Future Market Insights Family entertainment centers (FECs) are small amusement parks or entertainment zones that typically serve local communities in big and small cities. These centers are designed to keep the entire family engaged, generally at a significantly less per-person cost than a traditional amusement park. They offer varied amusement options such as gaming consoles, arcades, video games, indoor playground systems, soft play areas, redemption machines, children’s rides, skill-based machine games and games based on virtual and augmented reality. FECs also host private celebrations such as birthday parties and corporate events. FECs are attractively located in areas such as malls, where customers often visit. Globally, the FEC market is expected to increase from $17 billion in 2017 to $61 billion in 2027, especially given the launch of new and differentiated FECs that provide technology-rich and interactive experiences. Global Family/Indoor Entertainment Centers Industry Analysis and Opportunity Assessment In terms of value, the arcade studios segment is projected to be the most attractive segment in the global family/indoor entertainment centers market during the assessment period. Virtual reality (VR) gaming zones are expected to register a moderate year over year growth rate throughout the forecast period. In terms of value, the VR gaming zones segment is expected to register a compound annual growth rate (“CAGR”) of 15.9% during the assessment period. In 2017, the arcade studios segment is estimated to be valued at $6.0819 billion and is expected to register steady growth in terms of revenue throughout the period of forecast. With an increasing number of malls in various cities globally, consumers visit these malls on weekends, usually for shopping and dining at restaurants. The presence of entertainment centers at these malls allows customers to spend quality time with their family and friends, while playing games and other indoor sports. Hence, entertainment centers are becoming attractive places for families to spend time since they provide a combination of dining, and play areas. Family entertainment centers are attracting families in large numbers, which is expected to positively impact revenue growth of the market. US and India markets are specifically fast-growing due to emergence of new gaming technologies and increasing trend of indoor gaming centers. Diversified gaming and entertainment options available in FECs supporting global market growth: With continuous innovations in technology, family entertainment centers are offering a diversified range of entertainment options for their customers. New technologies such as virtual reality gaming, 3D technology, and interactive sports entertainment are attracting consumers who prefer this form of entertainment over traditional entertainment options. Rising preference for indoor entertainment is fueling the market growth of FECs: Indoor entertainment centers, typically climate-controlled, are increasingly preferred as entertainment and leisure options by families over outdoor entertainment centers, in order to ensure that environmental factors and weather changes do not negatively affect the leisure time or experience of customers. Along with this, companies are offering food and other services at indoor entertainment centers under a single roof, which is another factor prompting customers to visit FECs and this factor is expected to drive growth of the FEC market. Increasing disposable income and changing lifestyles: Rising income among families has led to increased spending on entertainment and leisure activities. Families with children are spending more on entertainment activities such as bowling, and arcade games due to the interest of children in these kinds of games. Also, due to rapid industrialization and crowded cities, the lifestyle of people across the world has been hampered. With these changes in lifestyles, preference for quality time spending along with entertainment, food and beverages and other leisure activities is increased. This aids in attracting customers to the family entertainment centers for spending their leisure time also for celebrations, relaxation, and adventure experiences. Geographical Expansion providing access to new consumer groups: With the rising popularity of family entertainment centers as a leisure time spending option, the owners of the FEC’s have started to partner with the international brands specifically known for their entertainment. This partnership helps in value addition to the FEC’s as well as contributes significantly in the promotions of the FEC. It also helps in generating new international customer groups present in the other countries. India FEC Market: (Source: Persistence Market Research): The Indian family entertainment centers market is estimated to grow at a CAGR of 17.2% between 2018 and 2022. The market is expected to be valued at $1.598 billion by the end of 2018, and is expected to reach $3.014 billion by 2022. Increasing disposable incomes of Indian customers is expected to boost the family entertainment centers market in the coming years. In terms of market value share by end-2018, the arcade studios segment is estimated to hold nearly 41.9% of the Indian FEC market, and reach $670.0 million by end-2018. Due to the advances in entertainment technology such as virtual reality, augmented reality and interactive sports experiences, family entertainment center owners are focused on offering advanced entertainment experiences to increase the revenue generation of the FECs. Hence, the VR gaming zones segment in the Indian FEC market are expected to grow at the highest CAGR over the forecast period. India, with solid GDP growth and a young and growing population, is expected to be attractive market for the family entertainment centers model. The entry fees and ticket sales segment is estimated to gain significant market share, owing to the increasing retail traffic of teenage (12-18) customers in India. India Family Entertainment Centers Market Value (US$ Mn) Forecast by FEC Type, 2018-2022 U.S. FEC Market: (Source: Persistence Market Research): Revenue from the U.S. family entertainment centers market is expected to increase from $6.711 billion in 2018 to $10.981 billion by the end of 2022, representing a CAGR of 13.1% from 2018 to 2022. The growth of the FEC market in the U.S. is attributed to the increased gaming and entertainment options for young adults (18-24) in the U.S. FECs in the U.S. are focusing on introducing new VR games and interactive experiences to provide a better entertainment experience to consumers. Revenue generation from the entry fees and ticket sales segment is estimated to dominate the market by 2018 end, by holding a market share of 32.5% in the overall U.S. family entertainment centers market, and this trend is expected to continue to the end of 2022. Revenue generation from the food & beverages source in FECs is expected to grow at the highest CAGR, due to the increasing availability of different food options for kids as well as adults. In addition to this, people are also preferring FECs as a ‘location of choice’ for corporate parties and birthday parties for children as well as adults, and this trend is increasing revenue generation from the food and beverages section from the FECs. The entry fees and tickets segment is projected to grow higher year over year as compared to other revenue sources in the U.S. Family entertainment centers market. U.S. Family Entertainment Centers Market Value (US$ Mn) Forecast by FEC Type, 2018-2022 92 Overview Smaaash operates state-of-the-art games and entertainment centers (the “Centers” and each a “Center”) across 31 locations in India and one location in the U.S., in addition to carrying out product sales of Smaaash’s games and equipment that Smaaash has developed in-house, supported by Smaaash’s sponsorship and other revenues. Smaaash’s core concept is to offer an interactive, immersive and fun experience to customers at Smaaash’s Centers, blending Augemented Reality (AR) and Virtual Reality (VR) and other games, interactive sports experiences, indoor entertainment, and attractive food and beverage options, customized to the tastes and preferences of a diverse set of customers across age groups, genders and backgrounds, including corporate customers, families, friends and children. Smaaash’s game concepts are supported by Smaaash’s in-house technology, value engineering and systems integration capabilities. Smaaash’s game attractions are classified as follows: Smaaash launched its flagship Center in November 2012, at Kamala Mills in Lower Parel, Mumbai, with a proprietary cricket game (obtained via a perpetual license from its Promoter and the patent-holder, Shripal Morakhia, for a one-time fee) as its anchor attraction. Over the last five years, Smaaash has transformed into a multi-center integrated games and entertainment company, with a wide suite of in-house developed AR and VR and other games, as well as food and beverage options at each of its Centers. Among other marketing initiatives, from time to time, Smaaash’s sponsorships with local athletes, sports icons and celebrities, including cricket, football, basketball and ice hockey players, to customize its games and increase their appeal to its customers, including via brand ambassadorships and game options designed around specific sports personalities. Smaaash launched its first international Center in December 2016, at the Mall of America in Minnesota, USA. Smaaash’s star attraction in its U.S. Center is a multi-level go-karting track and games developed and launched by Smaash specifically for this Center, keeping in mind local preferences, such as its ice hockey-themed game called “What the Puck", and Active Games such as Super Keeper, Hoop Shot and Extreme Drone Racing, among others. In fiscal year-ended March 2018, Smaaash bought PVR bluO and SVM bowling and gaming assets to expand its footprint across India. The acquisitions added 20 centers to Smaaash’s already existing portfolio. Smaaash is in the final stages of launching its Center in Dubai, in this quarter. History & Key Milestones Since the commencement of its business, Smaaash has developed and launched 55 games, in terms of either rolling out these games at its Centers, or conducting product sales to third parties. SMAAASH Labs, the research and development hub of Smaaash, includes a group of over 50 engineering professionals that has designed and built reality and interactive games, including interactive sports experiences such as the world’s first 360 degrees cricket simulator. Sporting experiences include soccer, ice hockey and basketball. Smaaash is also endorsed by Virat Kohli, Captain of India’s cricket team. Smaaash currently has over 25 new games under development, intended for launch during calendar 2018. Based on Smaaash’s in-house product development capability, Smaaash has also recently diversified its revenue mix by entering into product sales, including domestic and export sales, where Smaaash retains the intellectual property rights. Despite its limited operating history in this business, which Smaaash commenced during fiscal 2016, Smaaash has already established a global footprint with sales of its in-house developed games and equipment in global markets, including USA, Germany, Mexico, China, Turkey and Israel. Smaaash has received several awards and accolades, including, recently, the Asia Retail Congress (Entertainment and Fun) Award and Times Food Strengths Smaaash considers the following to be its core competitive strengths: Strategically located interactive and immersive entertainment centers. Smaaash’s operate state-of-the-art games and entertainment Centers, offering an interactive, immersive and fun experience to customers at its Centers, blending AR and VR and other games, indoor entertainment and attractive food and beverage options, customized to the tastes and preferences of a diverse set of customers across age groups, genders and backgrounds, including families, friends and children, as well as corporate customers. Smaaash has over 802 games in total across its Centers in India and 29 games in total at its Center in the U.S., at a range of attractive price points. Smaaash also has several other games in varying stages of conception and development, including over 25 games proposed to be launched during calendar year 2018. To complement Smaaash’s games and recreation options, Smaaash offers in-house food and beverage services at each of its Centers. Each of Smaaash’s Centers in India (except its Center at Cyberhub, in the National Capital Region of Delhi, or “Delhi NCR”) includes a circus and carnival-themed multi-cuisine café, under the brand “Mighty Small". At Smaaash’s Center at Cyberhub, Delhi NCR, Smaaash has a restaurant and bar named “Uncorked". Smaaash also runs a micro-brewery and go-karting center called “Pitstop Brewpub and Smaaash Skykarting” at Smaaash’s Center in HUDA Center, Delhi NCR. As Smaaash’s Centers are primarily designed as indoor complexes, the games and entertainment options at its Centers are not designed around or dependent on any seasons, in order to attract customers, and are not unduly affected by adverse weather conditions. Smaaash believes it has the “first mover advantage”, as its unique and differentiated blend of games, indoor entertainment and food and beverage attractions at Smaaash’s Centers cannot be easily replicated. Moreover, Smaaash’s Centers are strategically located in easily accessible locations in densely populated urban centers, with wide catchment areas, in terms of being located near commercial hubs or relatively upmarket areas. For instance, Smaaash’s flagship Center in India is at Kamala Mills in Lower Parel, while its Center in the Mall of America, with its several stores and dining options, is located in Bloomington, Minnesota, close to downtown Minneapolis. Culture of innovation and value engineering. Smaaash, through Smaaash Labs, has robust in-house research and development (“R&D”), value engineering and systems integration capabilities, across multiple technology and product platforms. Smaaash commenced its operations by launching a proprietary cricket game as its anchor attraction at Smaaash’s first and flagship Center in Mumbai. Since then, Smaaash has developed 55 games in-house and have a pipeline of over 25 such games intended for launch during 2018. Smaaash continue to place emphasis on enhancing its R&D, value engineering and systems integration capabilities. Headed by Smaaash’s CTO, Kaizad Bajina, its in-house R&D team consists of 50 employees. Smaaash has also set up a dedicated product development laboratory in Worli, Mumbai. Smaaash has 99 registered trademarks owned or perpetually licensed and 219 trademark registrations applied for. Among other things, Smaaash’s ability to develop its own games in-house allows it to operate such games at its Centers without high-cost licensing, royalty and maintenance expenses, and to explore monetization opportunities through product sales. Smaaash’s value engineering capability also allows it to keep pace with evolving technology and customer preferences and provides us with operational flexibility, in terms of Smaaash’s ability to enhance and reconfigure games and components at a fast pace and controlled cost, for instance, by reducing power consumption or floor space usage, increasing load capacity or durability, and reducing reliance on staff to operate the games and maintain the equipment at its Centers. Strong, unique and differentiated brand with broad customer appeal. At its Centers, Smaaash blends games and recreation with attractive food and beverage and dining concepts into uniquely immersive, involved and fun indoor social entertainment experiences. Despite its relatively short operating history, Smaaash has established strong brand recall and a proposition that appeals to a wide range of customers of all ages, genders and backgrounds, across geographies and seasons. Smaaash’s in-house R&D and innovation enable it to differentiate its brand and value proposition, compared to other companies that are traditionally focused on arcade games, or that focus solely on certain customer segments such as children and families (family entertainment centers, or “FECs”) or adults, or food and beverage operators, including sports bars; innovating, customizing and upgrading Smaaash’s games by leveraging on the “novelty factor”, local customer preferences, psychographic or demographic fit, game or footprint size, competitive element, and other social and aspirational elements affecting its customers. In addition, Smaaash place emphasis on its marketing and sales initiatives. At its Centers, Smaaash offers aspirational redemptions, including in the form of opportunities for customers to play simulated games with and against global sporting idols, and rewards in terms of prizes for winning games at its Centers. From time to time, Smaaash also ties up with local athletes and sports icons, such as cricket, football, basketball and ice hockey players, to customize its games and increase their appeal to Smaaash’s customers, including via brand ambassadorships. Smaaash also continually refines its pricing and promotions strategy to coincide with various sports and other events, festivals, seasons and holidays through the year, targeted promotions such as to corporate customers for hosting corporate events and off-sites, or college and school students, or “ladies nights” and “happy hours”, birthday and other parties and celebrations, and other social events, as well as utilizing Smaaash’s loyalty program, “Smaaash Insiders", and feedback tools to obtain customer insights, as part of its overall commitment to customer satisfaction. In addition, Smaaash advertises on and sell tickets to customers through third party mobile application (“app”)-based or online aggregators, allowing it to introduce its offerings to, and draw in customers from, beyond the immediate physical vicinity and catchment areas of its Centers. Scalable business model, uniquely positioned for growth. Smaaash’s diversified revenue base extends beyond game revenues from its Centers, to include product sales and sponsorship and other income sources. Smaaash’s games are designed to have a relatively long “shelf life”, based on the enduring popularity of sports such as cricket in the Indian market and ice hockey in the U.S. market. Smaaash continues to evolve and optimize its operations at its Centers to support Smaaash’s future growth. For instance, supported by Smaaash’s in-house R&D, discussed in more detail above, each of its Centers includes modular components that can be arranged in various combinations to fit into differently shaped sites and to facilitate future expansion and redesign, also allowing attractions or components to be moved from one Center to another for re-deployment, depending on customer preferences and geographies. Smaaash’s in-house R&D and value engineering capability also serves to accelerate product sales. Despite a relatively short operating history in this vertical, which Smaaash commenced only in fiscal 2016, Smaaash has developed some marquee customer relationships. Smaaash’s popular product sales include some of Smaaash’s in-house developed games, the “Finger Coaster", "Walk the Plank” and “Cricket Lanes". The success of its Centers, based on Smaaash’s scalable business model, also enables Smaaash to earn sponsorship revenues. In addition to such internal factors, Smaaash is uniquely positioned to leverage favorable macroeconomic and demographic factors and other external contributors for growth. Experienced founder, supported by professional key management and staff. Smaaash was founded by its Chief Executive Officer (“CEO”) Emeritus, Shripal Morakhia, an entrepreneur associated in the past with Sharekhan, SSKI and YoBoHo. Among other things, Smaaash benefits from Mr. Morakhia’s vision, strategic guidance, years of entrepreneurial and managerial experience, and his relationships in the industry. Smaaash has a young and dynamic management team, of which various members have contributed to its track record of growth, including: Vishwanath Kotian, Chief Financial Officer (“CFO”), with extensive experience in the M&E sector, having been CFO of ACK Media and in the M&E team at Ernst & Young; Kaizad Bajina, Smaaash’s Chief Technology Officer (“CTO”), with over 15 years of experience at systems integration companies, previously as chief of operations and technology at Strix System Inc and Lifestyle Networks Limited; Smaaash also actively recruits professionally qualified individuals with a professional and educational background that Smaaash considers appropriate to a business of its size and nature. Strategies Smaaash considers the following to be its core growth strategies: Expand Smaaash’s network of Centers across India and overseas. Smaaash continues to explore opportunities to set up and expand operations primarily in mall and shopping center locations in India and overseas, typically with revenue share arrangements with the respective property developers, based on Smaaash’s potential to attract and increase high quality consumer traffic. In India, Smaaash intends to expand its network of Centers with a focus on urban locations across India, particularly towns with increasing urban populations in North and Western India, expecting to grow to approximately 60 centers within the next two years. In India, while Smaaash has historically focused on organic growth, Smaaash intends to also explore commercially viable franchisee arrangements or opportunities for future inorganic growth, including in tier-II and tier-III cities and towns in India. Smaaash is also exploring opportunities for strategic overseas expansion, particularly in developed and emerging markets such as North America and the Middle East, including through joint ventures. At each of Smaaash’s new Centers, Smaaash intends to offer targeted attractions, for instance, including cricket-themed attractions for its customers in India; ice hockey and American football themed attractions for its customers in the North American market; and football and cricket themed attractions for Smaaash’s customers in the Middle East market, including the Indian diaspora in the Middle East market. Moreover, Smaaash intends to continue targeted promotions to increase bulk bookings at its Centers, particularly for corporate events. As Smaaash increases its network of Centers in the future, Smaaash will seek to leverage economies of scale, including by reducing its overhead and optimizing its procurement strategy and channels, as and when suitable opportunities arise. Grow Smaaash’s range of games and entertainment attractions, across its Centers. Smaaash’s strategic objective of growing its range of games and entertainment options at its Centers is intended to increase Smaaash’s popularity with customers, encourage repeat visits from customers. This strategy is based on Smaaash’s pipeline of new games in various stages of in-house ideation and development, to create targeted attractions based around sports and celebrities that are popular in local markets. Smaaash is also constantly evolving its marketing and promotional activities to increase its popularity with customers and improve the customer experience at its Centers. For example, in the past, Smaaash has developed cricket-themed games for Smaaash’s Centers in India, ice hockey and basketball themed games for its Center in the Mall of America in Minnesota, U.S., and football themed games for Smaaash’s planned centers in the Middle East, where these sports are very popular locally. Smaaash also expects that customer demand for indoor game viewing areas, complemented by Smaaash’s in-house food and beverage services, will be one of the key drivers of Smaaash’s growth in the future. Smaaash has used its flagship center in Mumbai as a testing ground for games that Smaaash has launched across its other Centers in India, and Smaaash intends to continue doing so in the future. Going forward, Smaaash’s objective will be to also use its Center in the U.S. as a testing ground to innovate and develop customized attractions for future international expansions in Canada and the U.S. and other developed game markets. Smaaash may also explore similar opportunities to incubate and develop new game ideas at any existing, planned or future centers. Increase Smaaash’s product sales, worldwide. Smaaash intends to continue increasing its product sales, with a focus on exports, including through Smaaash’s expansion into different global markets, particularly large and attractive markets in Asia, such as China, Korea and Japan, and in the U.S. and Canada. Smaaash intends to continue to develop a pipeline of new games, to support the growth of its product sales business worldwide, supported by its in-house R&D and value engineering capability. In addition, Smaaash expects to continue its participation in industry fairs and exhibitions, particularly with a view to increasing Smaaash’s product sales business. Smaaash’s planned increase in its product sales would balance Smaaash’s revenue mix between games, product sales, and sponsorship and other income. Moreover, as Smaaash increase its product sales in the future, including through possible growth and diversification in Smaaash’s distributor network, Smaaash would seek to leverage economies of scale, including in terms of obtaining insights and strategic access to high-value customers and markets. Enhance Smaaash’s marketing and advertising initiatives to retain and increase Smaaash’s customer appeal and strengthen its brand value. One aspect of Smaaash’s planned digital customer outreach will be digital sales, including through its own website and the launch of its own app for mobile phones and smart devices, allowing customers planning to visit Smaaash’s Centers to pre-purchase games and packages digitally prior to their visits to its Centers, and to leave their valuable feedback digitally, in a manner that may be more convenient for them, while also being easier for Smaaash to track and utilize. Another aspect of Smaaash’s planned digital outreach will be Smaaash’s continuing initiative to reach out to a wider customer base through app-based or online aggregators. Smaaash’s digital customer outreach initiatives are intended to reduce Smaaash’s promotional expenses, increase its brand management flexibility, and expand recognition of its brand and value proposition beyond the immediate physical vicinity and catchment areas of its Centers. Through Smaaash’s digital customer outreach, Smaaash would, among other things, seek to draw increasing numbers of new customers to its Centers, increase the number of return customers at its Centers, and increase per capita and overall customer spend at its Centers. In addition to the above, Smaaash also intends to continue to refine Smaaash’s pricing and promotions strategy to coincide with various sports and other events, festivals, seasons and holidays through the year, targeted promotions such as to corporate customers for hosting corporate events and off-sites, or college and school students, or “ladies nights” and “happy hours”, birthday and other parties and celebrations, and other social events, as well as utilizing Smaaash’s loyalty program, “Smaaash Insiders", and feedback tools (in the future, in particular, including through Smaaash’s digital outreach, as indicated above) to obtain customer insights, as part of its overall commitment to customer satisfaction. Smaaash would also seek to continue tying up with sports icons and other celebrities to act as Smaaash’s brand ambassadors, and offering aspirational rewards by way of prizes for winning games at its Centers. Increase and diversify Smaaash’s sponsorship revenue. Historically, while its sponsorship revenues have primarily been pursuant to long-term arrangements with a satellite television channel broadcaster, Smaaash is currently evaluating, and shall continue to explore, arrangements of varying terms with various third parties for on-ground brand activation and outreach, including co-branding, at a game or zone level. In this regard Smaaash’s twofold objective would be to increase its sponsorship revenues over time, and reduce and mitigate its exposure to possible risks arising in the future from concentration with a single or relatively small set of sponsorship arrangements. Centers and Games As of this date, Smaaash has 32 operational centers out of which 28 are company operated and four centers are franchised and operated by third parties. The detail of the centers are set forth below under Properties. Revenue Sharing Agreements Smaaash has entered into revenue sharing arrangements with the property developers for 22 Centers in India. Under such revenue sharing arrangements with property developers, Smaaash is typically liable to pay monthly rent by way of a fixed percentage of the monthly net retail sales amount (which is generally reset to a higher percentage after the completion of a specified initial duration within the rental period) or, in certain cases, either a monthly minimum guaranteed amount, or a fixed percentage of the monthly net retail sales amount (which is reset to a higher percentage after the completion of a specified initial duration within the rental period), whichever is higher. Certain of these rental and revenue sharing arrangements are subject to a lock-in period, during which time, Smaaash may prematurely terminate these arrangements only subject to payment of the agreed rent for the entire lock-in period. After the lapse of the lock-in period, Smaaash may terminate the arrangements with prior notice. The licensors can typically terminate the arrangements at any time, with prior notice, with or without cause, including in the event of a default or material default by us, in making due monthly payments or in complying with applicable law and regulations applicable to such premises. Principles of Game Selection: ☐ Minimize operator requirement. ☐ Revenue per square foot / meter of space. ☐ Single user vs. multi user. ☐ Cycle time. ☐ Repeat value. ☐ Development and production cost. ☐ Operating cost. ☐ Ability to create additional games on the same platform. ☐ Early adoption of newly evolving technology. ☐ Safety. ☐ Novelty factor. ☐ Target group fit. ☐ Psychographic fit. ☐ Game footprint size. ☐ Competitive element. ☐ Social element. Sponsorship Historically, while Smaaash’s sponsorship revenues have primarily been pursuant to long-term arrangements with a satellite television channel broadcaster, Smaaash is currently evaluating, and shall continue to explore, arrangements of varying terms with various third parties for on-ground brand activation and outreach, at a game or zone level. In relation to Smaaash’s flagship Center in Mumbai, which commenced commercial operations in November 2012, Smaaash has entered into a sponsorship agreement dated July 6, 2012, with a satellite television channel broadcaster, in terms of which, the broadcaster had agreed to exclusively sponsor Smaaash’s Mumbai Center and, at its option, subject to a right of first refusal (although not obligation) held by this broadcaster, other Centers. This agreement lapsed on July 6, 2017 and has not been renewed. In addition, Smaaash entered into a sponsorship agreement dated November 30, 2013, with the same broadcaster, for Smaaash’s Center at Cyberhub, in Delhi NCR, for a period of five years, i.e., until November 30, 2018, as well as a sponsorship agreement dated February 17, 2014, with the same broadcaster, for Smaaash’s Center in Delhi NCR (Noida), for a period of five years, i.e., until February 17, 2019. Smaaash does not currently have similar sponsorship agreements with this broadcaster for Smaaash’s other Centers. Under these agreements, Smaaash is entitled to a sponsorship fee, including a non-refundable upfront onetime fee and quarterly advance payments commencing from the date of commercial operations at the respective Centers specified in these agreements and for the term of such agreements, and also acquired rights to use certain specified trademarks, without the right to sub-license such marks. Other than the requirement to make payments of the sponsorship fees due to us from the broadcaster and to provide the broadcaster’s approval or input on the promotional materials used by us in respect of the trademarks licensed by us from the broadcaster, the arrangements described above do not require or entitle the broadcaster to operate, manage or control Smaaash’s Centers, or to be responsible or liable for its employees, agents or subcontractors, among other things. These agreements are terminable with advance notice by us, or terminable by the broadcaster on account of any default by us, and contain standard indemnity, confidentiality and other similar provisions. Going forward, Smaaash’s twofold objective would be to increase its sponsorship revenues over time, and to reduce and mitigate Smaaash’s potential exposure to possible risks arising in the future from concentration with a single or relatively small set of sponsorship arrangements. Others In addition to Smaaash’s core business, described above, Smaaash currently has the following other business initiatives: Specialty Restaurants and Convention Center Adjacent to Smaaash’s Center at Kamala Mills in Mumbai, Smaaash operates one specialty restaurant, with several signature dishes across a range of attractive price points. These include a rooftop brewpub and primarily continental restaurant called "Verbena", which Smaaash launched in January, 2017. In addition, also adjacent to the Center at Kamala Mills in Mumbai, Smaaash operates a 1,000 seat convention center, spread over approximately 13,500 square feet carpet area, called “18.99 Latitude", which Smaaash launched in October 2016. This convention center features a large banquet and convention facility, smaller partitioned units for breakaway meetings and events, gourmet catering with a separate Jain vegetarian kitchen, power backup, Wi-Fi connectivity, parking, and other facilities. These premises are leased and operated by Smaaash and Smaaash does not outsource any functions at these premises to any third party, other than non-core functions, such as security or housekeeping functions, which may be outsourced by Smaaash to various third party contractors from time to time. Among other things, Smaaash’s specialty dining and convention center facilities serve to complement Smaaash’s range of games and entertainment options, particularly for its corporate customers, who may make bulk bookings a its Centers for corporate offsites and other corporate events, from time to time. However, Smaaash’s income from the above businesses forms part of its Banquet Income. Smaaash Shivfit Adjacent to Smaaash’s Center at Kamala Mills in Mumbai, Smaaash has opened a co-branded fitness center known as SMAAASH SHIVFIT, in May 2017. These premises are leased and operated by Smaaash. The brand SHIVFIT is owned by Mr. Shivoham and Ms. Vrinda Mehta. SMAAASH SHIVFIT is an integrated physical and mental fitness program, which was conceptualized by Mr. Shivoham and Ms. Vrinda Mehta. The fitness program aims to provide a holistic solution for all the fitness needs of an individual, through a combination of an integrated mind and body fitness program, a high intensity functional training for the body, and effective vibrations process for mental health. At SMAAASH-SHIVFIT, Smaaash offers several specialty classes and tailor-made workout programs and solutions, including cross-functional training, boxing, pilates, total resistance exercise (“TRX”), yoga, wrestling and mind workshops for athletes, corporate professionals and others, boot camps, personal training, corporate training and corporate retreats, along with a conventional gymnasium and weight training area, which offers cardio, machines, free weights, diet consultancy and personal training. Under the terms of Smaaash’s agreement with Mr. Shivoham and Ms. Vrinda Mehta, Smaaash has paid a one-time license fee and are liable to pay an annual royalty commission for the use of the SHIVFIT brand, marks and concept. Among other things, Smaaash’s SMAAASH SHIVFIT gym facility serves to complement its range of indoor, primarily sports-themed games and entertainment options. However, Smaaash’s income from the above business would form part of its sponsorship and other income. Brand-building, Marketing and Advertising Smaaash has a dedicated marketing team headed by Mr. Nilendu Mitra, Smaaash’s VP Marketing and Sales. Smaaash benefits significantly from word of mouth referrals by Smaaash’s customers, including through social media. Among other things, Smaaash seeks to connect with larger numbers of customers by encouraging bulk bookings by families or friends or colleagues visiting in groups. At Smaaash’s Centers, Smaaash offers aspirational redemptions, including in the form of opportunities for customers to play simulated games with and against global sporting idols, and rewards in terms of prizes for winning games at its Centers. From time to time, Smaaash also tie up with local athletes and sports icons, such as cricket, football, basketball and ice hockey players, to customize Smaaash’s games and increase their appeal to its customers, including via brand ambassadorships. Smaaash also undertakes other extensive brand-building and sales and marketing initiatives, including in-center pricing and promotions to coincide with various sports and other events, festivals, seasons and holidays through the year, targeted promotions such as to corporate customers for hosting corporate events and off-sites, or college and school students, or “ladies nights” and “happy hours”, birthday and other parties and celebrations, and other social events, as well as utilizing Smaaash’s loyalty program, “Smaaash Insiders", and feedback tools to obtain customer insights, as part of Smaaash’s overall commitment to customer satisfaction. In addition, Smaaash advertises on and sell tickets to customers through third party mobile app-based or online aggregators, allowing it to introduce Smaaash’s offerings to, and draw in customers from, beyond the immediate physical vicinity and catchment areas of Smaaash’s Centers. Moreover, Smaaash participates in industry fairs and exhibitions, particularly with a view to increasing Smaaash’s product sales business. Given the increase of internet and mobile telephony penetration in India, Smaaash has recently increased Smaaash’s own focus on digital and social media. Going forward, Smaaash intends to launch and focus on digital sales through Smaaash’s website and it is also exploring the launch of a mobile app for mobile phones and smart devices. Through this app, as Smaaash’s customers increasingly begin to engage and interact with Smaaash digitally in the future, Smaaash would seek to draw new customers, increase the number of Smaaash’s return customers, and increase its share of customer wallets, for instance, by allowing customers to pre-purchase games and packages digitally, and to leave Smaaash their valuable feedback in a manner that may be more convenient to them, while also being easier for it to track and utilize. Innovation & Information Technology Principles of Game Development Smaaash conducts game development not only to roll out its own games at Smaaash’s own Centers, but also to monetize product development through product sales to third parties, where Smaaash would retain the IPR. With a dedicated product development laboratory in Worli, Mumbai called Smaaash Labs, Smaaash currently has over 25 new games under development, intended for launch during calendar year 2018. Smaaash’s principles of in-house game development are twofold, as set out below: Expansion Plan Domestic Expansion: Smaaash has already shortlisted the following cities to open further centers in India: Seasonality Smaaash’s business does not exhibit seasonality. However, Smaaash does have increased retail traffic during the holiday seasons and during sporting events such as the IPL, football and cricket matches which is not necessarily seasonal. Raw Material Costs & Suppliers Smaaash incurs significant raw material costs, including import costs. During fiscal year 2017, Smaaash’s cost of raw materials accounted for 20% of Smaaash’s total expenditure. Reliance is placed on purchase orders to procure such raw materials and currently Smaaash does not have any long-term contracts with its vendors. Third-party Sales Smaaash relies on distributors for third party sales and does not have exclusive or long term arrangements with such distributors. If the distributor agreements are terminated or not renewed or replaced in a timely manner, this may result in a disruption in third-party sales, in particular, the loss of business from any significant distributors. Smaaash’s future product sales business growth may also depend on its ability to attract additional dealerships and widen our distributor network. Intellectual Property (patents, trademarks, licenses) Smaaash has in-house developed games, components and technology which is used in Smaaash centers as well as sold to third-party players. Smaaash’s general policy is to seek intellectual property protection for the innovations and improvements which are likely to be incorporated into Smaaash’s business or to give it a competitive advantage. Moreover, in relation to third party sales, Smaaash retains intellectual property rights as a matter of practice and policy. In this relation, Smaaash relies on a variety of website domain names, trademark registrations and other proprietary information, as well as confidentiality agreements or arrangements with its employees and consultants or other third parties to protect its intellectual property rights. For instance, Smaaash’s corporate trade name and logo, are assigned to us by Star India Private Limited (“Star India”) pursuant to a deed of perpetual assignment dated November 30, 2013, effective. Under this deed, Smaaash has perpetual rights to use 30 trademarks for the SMAAASH device and word mark, in various classes, throughout the territory of India, for which registration applications have been filed with the Trademark Registry. Further, under this deed of assignment, Star India has confirmed that it has no right or claims to such trademark outside the territory of India. In addition, Smaaash has applied for 219 trademarks, in various classes. Dependence on a single customer or a few customers Smaaash’s business model does not depend on a single customer or a few customers as it mainly derives revenue from gaming and F&B offerings to the visitors to its centers. For its product sales business, the revenue from top 5 customers constitute 52% of its total revenue from Product Sales for the nine month period ended 31 December 2017 and 82% for the year ended 31 March 2017. Properties The following table describes Smaaash’s Centers: ● SkyKarting ● Twilight Bowling ● VR Games ● Stimulation Games ● Arcade Games ● Trampolin ● Lazer Blast ● Mighty Small ● Legend (Banqueting ) ● Victrian (Banqueting ) ● Smaaash Cricket ● Twilight Bowling ● VK Games ● Stimulation Games ● Arcade Games ● Gurgaon Pub Exchange ● Unforked Cafe (Banqueting ) ● SkyKarting ● Smaaash Cricket ● Twilight Bowling ● VK Games ● Stimulation Games ● Arcade Games ● Noida Pub Exchange ● Champions Lounge (Banqueting ) Carpet Area: 21,173 sq.ft. ● Smaaash Cricket 3 lanes ● Twilight Bowling ● VR Games ● Stimulation Games ● Arcade Games ● Trampoline park ● Cricket ● Twilight Bowling ● VR Games ● Arcade Games ● Trampoline ● Cricket ● Twilight Bowling ● VR Games ● Arcade Games ● Trampoline ● Cricket ● Twilight Bowling ● VR Games ● Arcade Games ● Cricket ● VR Games ● Arcade Games ● Cricket ● Twilight Bowling ● VR Games ● Arcade Games ● Dance Off ● VR Games ● Stimulation Games ● Arcade Games ● SkyKarting ● Lazer Blast ● Smaaash Cricket ● Twilight Bowling ● VK Games ● Stimulation Games ● Arcade Games ● Lazer Blast ● Smaaash Cricket ● Twilight Bowling ● VK Games ● Stimulation Games ● Arcade Games ● Jungle Golf ● Twilight Bowling ● Smaaash Cricket ● Twilight Bowling ● VK Games ● Stimulation Games ● Arcade Games ● Laser Tag ● Smaaash Cricket ● Twilight Bowling ● VK Games ● Stimulation Games ● Arcade Games ● Smaaash Cricket ● Twilight Bowling ● VK Games ● Stimulation Games ● Arcade Games ● 4 lane Bowling Alley ● VR Games ● Arcade Games ● XD theater ● Adventure zone ● Air riders ( Inflatable bumper cars) ● Trampoline park ● Indoor Water Zorb roller. ● 3 floor kids soft play area ● Kiosk Café ● Soft beverages ● 4 lane Bowling Alley ● VR Games ● Arcade Games ● Air riders ● Trampoline park ● kids soft play area Super Area: 9625 sq.ft. Chargeable Area: 9250 sq.ft. ● 4 lane Bowling Alley ● VR Games ( Receiving today) ● Arcade Games ● 4 lane Bowling Alley ● VR Games ● Arcade Games ● kids soft play area ● Air riders ● 4 lane Bowling Alley ● VR Games ● Arcade Games ● Kids soft play area ● 4 lane Bowling Alley ● VR Games ● Arcade Games ● 3 lane Bowling Alley ● VR Games ● Arcade Games ● Bowling ● Arcade Games ● Bowling ● Playpen ● Air Riders ● Arcade Games ● Bowling ● 7D Theatre ● Playpen ● Egg VR ● Cricket ● Arcade Games As of this date, 28 centers are company operated and 4 centers are franchised and operated by third parties. Government Regulations Smaaash is subject to various laws and regulations in India arising from its operations in India, including specific regulations and policies applicable to the gaming and F&B sector. Gaming regulations in various states In terms of section 33 of the Bombay Police Act, 1951, The Rules for Licensing and Controlling Places of Public Amusement (other than cinemas) and Performances for Public Amusement including Pool game Parlors, Amusement Parlors providing Computer Games, Virtual Reality Games, Cyber Cafes, Games with net, internet or intranet connectivity, Bowling Alleys, Card Rooms, Social Clubs, Sports Clubs, Cabaret performances, Discotheque, Games, Melas and Tamashas Rules, 1960, have been notified. These contain provisions on licensing, registration and regulatory provisions which are applicable. Municipality laws in various states The The The Legal Proceedings There are no legal proceedings pending against I-AM Capital. Properties I-AM Capital currently leases executive offices at 1345 Avenue of the Americas, 11th Floor, New York, New York. I-AM Capital considers the current office space adequate for its current operations. Available Information I-AM Capital is required to file Annual Reports on Form 10-K and Quarterly Reports on Form 10-Q with the SEC on a regular basis, and is required to disclose certain material events (e.g., changes in corporate control, acquisitions or dispositions of a significant amount of assets other than in the ordinary course of business and bankruptcy) in a Current Report on Form 8-K. The public may read and copy any materials filed with the SEC at the SEC’s Public Reference Room at 100 F Street, NE, Washington, DC 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC also maintains an Internet website that contains reports, proxy and information statements and other information regarding issuers that file electronically with the SEC. The SEC’s Internet website is located athttp://www.sec.gov. Beneficial Ownership The following table sets forth information regarding the beneficial ownership of I-AM Capital’s common stock as of July 25, 2018 by: Unless otherwise indicated, it is believed that all persons named in the table below have sole voting and investment power with respect to all shares of common stock beneficially owned by them. The following table does not reflect record or beneficial ownership of the public rights or public warrants or the private placement rights or private placement warrants as these rights and warrants are not convertible or exercisable, respectively, within 60 days of the date of this proxy statement. �� Unless otherwise indicated, the business address of each of the stockholders is 1345 Avenue of the Americas, 11th Floor, New York, NY 10105. Represents shares of common stock held directly by I-AM Capital Partners LLC, our sponsor. F. Jacob Cherian and Suhel Kanuga are managers and members of our sponsor and share voting and dispositive control over the securities held by our sponsor, and thus share beneficial ownership of such securities. Each of Messrs. Cherian and Kanuga disclaims beneficial ownership over any securities owned by our Sponsor in which he does not have any pecuniary interest. According to a Schedule 13G filed with the SEC on October 20, 2017 on behalf of Boothbay Absolute Return Strategies LP, a Delaware limited partnership, Boothbay Fund Management, LLC, a Delaware limited liability company and Ari Glass. Mr. Glass is the Managing Member of Boothbay Fund Management, LLC. The principal office of the stockholder is 810 7th Avenue, Suite 615, New York, NY 10019-5818. According to a Schedule 13G filed with the SEC on February 14, 2018, on behalf of Polar Asset Management Partners Inc., a company incorporated under the laws on Ontario, Canada. The principal office of the stockholder is 401 Bay Street, Suite 1900, PO Box 19, Toronto, Ontario M5H 2Y4, Canada. According to a Schedule 13G filed with the SEC on February 14, 2018, on behalf of Karpus Management, Inc., d/b/a Karpus Investment Management, a New York corporation. The principal office of the stockholder is 183 Sully’s Trail, Pittsford, New York 14534. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF I-AM CAPITAL The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the financial statements and the notes thereto contained elsewhere in this proxy statement. Certain information contained in the discussion and analysis set forth below includes forward-looking statements that involve risks and uncertainties. Unless otherwise indicated, references in this section to “we,” “our,” “us” and other similar terms refer to I-AM Capital before the Transaction. Overview We are a blank check company incorporated on April 17, 2017 in Delaware and formed for the purpose of effecting a merger, share exchange, asset acquisition, share purchase, reorganization or similar business combination with one or more businesses. We intend to effectuate our business combination using cash from the proceeds of our IPO and the private placement, our securities, debt or a combination of cash, securities and debt. The issuance of additional shares of common stock or preferred stock: Similarly, if we issue debt securities, it could result in: We expect to continue to incur significant costs in the pursuit of our acquisition plans. Our plans to raise capital or to complete a business combination may not be successful. Recent Events On May 3, 2018, we entered into a definitive agreement to invest up to $49 million in Smaaash. Following the closing, our primary business will be to act as the sole master distributor of Smaaash’s active entertainment games in North and South America and as the master franchisee for Smaaash’s active entertainment centers in North and South America. The transaction is subject to customary closing conditions. See our Current Reports on Form 8-K filed with the SEC on May 9, 2018 and June 28, 2018 for further information. Results of Operations We have neither engaged in any operations nor generated any revenues to date. Our only activities from April 17, 2017 (date of inception) through May 31, 2018 were organizational activities, those necessary to prepare for our IPO, which was consummated on August 22, 2017, and identifying a target company for a business combination including the Transaction. Following our IPO, we have not generated any operating revenues and will not until after the completion of our initial business combination. We have generated $521,702 through May 31, 2018 of non-operating income in the form of interest income. We expect to incur increased expenses as a result of being a public company (for legal, financial reporting, accounting and auditing compliance), as well as for due diligence expenses. For the year ended May 31, 2018, we had net loss of $8,862, which consists of operating costs of $530,564 offset by interest income of $521,702 on cash and marketable securities held in the trust account. Liquidity and Capital Resources The completion of our IPO and simultaneous private placement, inclusive of the underwriters’ partial exercise of their over-allotment option, generated gross proceeds to us of $54,615,000. Related transaction costs amounted to approximately $3,838,000, consisting of $3,360,000 of underwriting fees, including $1,820,000 of deferred underwriting commissions payable (which are held in the trust account) and $478,000 of IPO costs. Following our IPO and the partial exercise of the over-allotment option, a total of $55,740,000 was placed in the trust account and we had $552,190 of cash held outside of the trust account, after payment of all costs related to the IPO. As of May 31, 2018, we had cash and marketable securities held in the trust account of $53,353,715, substantially all of which is invested in U.S. treasury bills with a maturity of 180 days or less. Interest income earned on the balance in the trust account may be available to us to pay taxes. Since inception, we have withdrawn $406,050 of interest income from the trust account. As of May 31, 2018, we had cash of $458,063 held outside the trust account, which is available for use by us to cover the costs associated with identifying a target business including Smaaash, negotiating a business combination, due diligence procedures and other general corporate uses. In addition, as of May 31, 2018, we had accrued expenses of $63,579. For the year ended May 31, 2018, cash used in operating activities amounted to $470,153, mainly resulting from net loss of $8,862, offset by interest earned on marketable securities held in the trust account of $521,702. Changes in our operating assets and liabilities generated cash of $60,411. We intend to use substantially all of the funds held in the trust account, including any amounts representing interest earned on the trust account (which interest shall be net of taxes payable and up to a maximum of $600,000 of working capital released to us and excluding deferred underwriting commissions) to complete our initial business combination. We may withdraw interest to pay taxes and up to $600,000 for working capital expenses, if any. To the extent that our capital stock or debt is used, in whole or in part, as consideration to complete our initial business combination, the remaining proceeds held in the trust account will be used as working capital to finance the operations of the target business or businesses, make other acquisitions and pursue our growth strategies. We intend to use the funds held outside the trust account primarily to identify and evaluate target businesses, perform business due diligence on prospective target businesses, travel to and from the offices, plants or similar locations of prospective target businesses or their representatives or owners, review corporate documents and material agreements of prospective target businesses (as well as pay personnel and advisors to do the forgoing), structure, negotiate and complete a business combination, and to pay taxes to the extent the interest earned on the trust account is not sufficient to pay our taxes. In order to fund working capital deficiencies or finance transaction costs in connection with an intended initial business combination, our sponsor or an affiliate of our sponsor or certain of our officers and directors may, but are not obligated to, loan us funds as may be required. If we complete our initial business combination, we would repay such loaned amounts. In the event that our initial business combination does not close, we may use a portion of the working capital held outside the trust account to repay such loaned amounts but no proceeds from our trust account would be used for such repayment. We do not believe we will need to raise additional funds in order to meet the expenditures required for operating our business. However, if our estimates of the costs of identifying a target business, undertaking in-depth due diligence and negotiating an initial business combination are less than the actual amount necessary to do so, we may have insufficient funds available to operate our business prior to our business combination. Moreover, we may need to obtain additional financing either to complete our business combination or because we become obligated to redeem a significant number of our public shares upon completion of our business combination, in which case we may issue additional securities or incur debt in connection with such business combination. Subject to compliance with applicable securities laws, we would only complete such financing simultaneously with the completion of our business combination. In the current economic environment, it has become especially difficult to obtain acquisition financing. If we are unable to complete our initial business combination because we do not have sufficient funds available to us, we will be forced to cease operations and liquidate the trust account. In addition, following our initial business combination, if cash on hand is insufficient, we may need to obtain additional financing in order to meet our obligations. Off-balance sheet financing arrangements We have no obligations, assets or liabilities which would be considered off-balance sheet arrangements. We do not participate in transactions that create relationships with unconsolidated entities or financial partnerships, often referred to as variable interest entities, which would have been established for the purpose of facilitating off-balance sheet arrangements. We have not entered into any off-balance sheet financing arrangements, established any special purpose entities, guaranteed any debt or commitments of other entities, or purchased any non-financial assets. Contractual obligations We do not have any long-term debt, capital lease obligations, operating lease obligations or long-term liabilities, other than an agreement to pay the sponsor a monthly fee of $10,000 for office space, utilities and administrative support provided to us. We began incurring these fees on August 16, 2017 and will continue to incur these fees monthly until the earlier of the completion of our initial business combination or our liquidation. Critical Accounting Policies The preparation of financial statements and related disclosures in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and income and expenses during the periods reported. Actual results could materially differ from those estimates. The Company has not identified any critical accounting policies. The information contained in this section is derived from various third party data sources including data from Government of India publications and industry sources. Industry sources and publications generally state that the information contained therein has been obtained from sources generally believed to be reliable, but that their accuracy, completeness and underlying assumptions are not guaranteed and their reliability cannot be assured. Industry and Government of India’s publications are also prepared based on information as of specific dates and may no longer be current or reflect current trends. However, we believe the information under this section to be accurate and complete. Overview of the Indian Economy India has emerged as the fastest growing major economy in the world as per the Central Statistics Organisation (CSO) and International Monetary Fund (IMF) and it is expected to be one of the top three economic powers of the world over the next 10-15 years, backed by its strong democracy and partnerships. India’s gross domestic product (GDP) is estimated to have increased 6.6% in 2017-18 and is expected to grow 7.3% in 2018-19. Market size India’s GDP at constant prices grew by 7.2% in September-December 2017 quarter as per the Central Statistics Organisation (CSO). Corporate earnings in India are expected to grow by 15 to 20% in fiscal year 2018-19 supported by recovery in capital expenditure, according to JM Financial. The tax collection figures between April 2017- February 2018 show an increase in net direct taxes by 19.5% year-on-year and an increase in net direct taxes by 22.2% year-on-year. India has retained its position as the third largest startup base in the world with over 4,750 technology startups, with about 1,400 new start-ups being founded in 2016, according to a report by NASSCOM. India’s labor force is expected to reach 160-170 million by 2020, based on rate of population growth, increased labor force participation, and higher education enrolment, among other factors, according to a study by ASSOCHAM and Thought Arbitrage Research Institute. India’s foreign exchange reserves were $422.53 billion in the week up to March 23, 2018, according to data from the RBI. Recent Developments With the improvement in the economic scenario, there have been various investments in various sectors of the economy. The M&A activity in India increased 53.3% to $77.6 billion in 2017 while private equity (PE) deals reached $24.4 billion. Some of the important recent developments in Indian economy are as follows: Road Ahead India’s gross domestic product (GDP) is expected to reach $6 trillion by 2027 and achieve upper-middle income status on the back of digitization, globalization, favorable demographics, and reforms. India is expected to be the third largest consumer economy as its consumption may triple to $4 trillion by 2025, owing to shift in consumer behavior and expenditure pattern, according to a Boston Consulting Group (BCG) report; and is estimated to surpass USA to become the second largest economy in terms of purchasing power parity (PPP) by the year 2040, according to a report by Pricewaterhouse Coopers. Overview of the Indian Media & Entertainment Sector (Source: FICCI – EY M&E Report 2018) The Media & Entertainment (“M&E”) sector in India is also experiencing good growth. Favorable demographics, rising consumer incomes, and demand for knowledge, entertainment, experiences, news, and sports aided the growth of the Indian M&E sector, which reached $23 billion in 2017, a growth of almost 13% from 2016. This growth was led by digital, film, gaming and events. While the M&E sector was traditionally characterized by television, print and the new-age M&E sectors which are now growing include digital, family entertainment centers, virtual reality and augmented reality experiences, and online gaming. Family Entertainment Center (“FEC”) Market Overview (Source: Global Family/Indoor Entertainment Centers report by Future Market Insights Family entertainment centers (FECs) are small amusement parks or entertainment zones that typically serve local communities in big and small cities. These centers are designed to keep the entire family engaged, generally at a significantly less per-person cost than a traditional amusement park. They offer varied amusement options such as gaming consoles, arcades, video games, indoor playground systems, soft play areas, redemption machines, children’s rides, skill-based machine games and games based on virtual and augmented reality. FECs also host private celebrations such as birthday parties and corporate events. FECs are attractively located in areas such as malls, where customers often visit. Globally, the FEC market is expected to increase from $17 billion in 2017 to $61 billion in 2027, especially given the launch of new and differentiated FECs that provide technology-rich and interactive experiences. Global Family/Indoor Entertainment Centers Industry Analysis and Opportunity Assessment In terms of value, the arcade studios segment is projected to be the most attractive segment in the global family/indoor entertainment centers market during the assessment period. Virtual reality (VR) gaming zones are expected to register a moderate year over year growth rate throughout the forecast period. In terms of value, the VR gaming zones segment is expected to register a compound annual growth rate (“CAGR”) of 15.9% during the assessment period. In 2017, the arcade studios segment is estimated to be valued at $6.0819 billion and is expected to register steady growth in terms of revenue throughout the period of forecast. With an increasing number of malls in various cities globally, consumers visit these malls on weekends, usually for shopping and dining at restaurants. The presence of entertainment centers at these malls allows customers to spend quality time with their family and friends, while playing games and other indoor sports. Hence, entertainment centers are becoming attractive places for families to spend time since they provide a combination of dining, and play areas. Family entertainment centers are attracting families in large numbers, which is expected to positively impact revenue growth of the market. US and India markets are specifically fast-growing due to emergence of new gaming technologies and increasing trend of indoor gaming centers. Diversified gaming and entertainment options available in FECs supporting global market growth: With continuous innovations in technology, family entertainment centers are offering a diversified range of entertainment options for their customers. New technologies such as virtual reality gaming, 3D technology, and interactive sports entertainment are attracting consumers who prefer this form of entertainment over traditional entertainment options. Rising preference for indoor entertainment is fueling the market growth of FECs: Indoor entertainment centers, typically climate-controlled, are increasingly preferred as entertainment and leisure options by families over outdoor entertainment centers, in order to ensure that environmental factors and weather changes do not negatively affect the leisure time or experience of customers. Along with this, companies are offering food and other services at indoor entertainment centers under a single roof, which is another factor prompting customers to visit FECs and this factor is expected to drive growth of the FEC market. Increasing disposable income and changing lifestyles: Rising income among families has led to increased spending on entertainment and leisure activities. Families with children are spending more on entertainment activities such as bowling, and arcade games due to the interest of children in these kinds of games. Also, due to rapid industrialization and crowded cities, the lifestyle of people across the world has been hampered. With these changes in lifestyles, preference for quality time spending along with entertainment, food and beverages and other leisure activities is increased. This aids in attracting customers to the family entertainment centers for spending their leisure time also for celebrations, relaxation, and adventure experiences. Geographical Expansion providing access to new consumer groups: With the rising popularity of family entertainment centers as a leisure time spending option, the owners of the FEC’s have started to partner with the international brands specifically known for their entertainment. This partnership helps in value addition to the FEC’s as well as contributes significantly in the promotions of the FEC. It also helps in generating new international customer groups present in the other countries. India FEC Market: (Source: Persistence Market Research): The Indian family entertainment centers market is estimated to grow at a CAGR of 17.2% between 2018 and 2022. The market is expected to be valued at $1.598 billion by the end of 2018, and is expected to reach $3.014 billion by 2022. Increasing disposable incomes of Indian customers is expected to boost the family entertainment centers market in the coming years. In terms of market value share by end-2018, the arcade studios segment is estimated to hold nearly 41.9% of the Indian FEC market, and reach $670.0 million by end-2018. Due to the advances in entertainment technology such as virtual reality, augmented reality and interactive sports experiences, family entertainment center owners are focused on offering advanced entertainment experiences to increase the revenue generation of the FECs. Hence, the VR gaming zones segment in the Indian FEC market are expected to grow at the highest CAGR over the forecast period. India, with solid GDP growth and a young and growing population, is expected to be attractive market for the family entertainment centers model. The entry fees and ticket sales segment is estimated to gain significant market share, owing to the increasing retail traffic of teenage (12-18) customers in India. India Family Entertainment Centers Market Value (US$ Mn) Forecast by FEC Type, 2018-2022 U.S. FEC Market: (Source: Persistence Market Research): Revenue from the U.S. family entertainment centers market is expected to increase from $6.711 billion in 2018 to $10.981 billion by the end of 2022, representing a CAGR of 13.1% from 2018 to 2022. The growth of the FEC market in the U.S. is attributed to the increased gaming and entertainment options for young adults (18-24) in the U.S. FECs in the U.S. are focusing on introducing new VR games and interactive experiences to provide a better entertainment experience to consumers. Revenue generation from the entry fees and ticket sales segment is estimated to dominate the market by 2018 end, by holding a market share of 32.5% in the overall U.S. family entertainment centers market, and this trend is expected to continue to the end of 2022. Revenue generation from the food & beverages source in FECs is expected to grow at the highest CAGR, due to the increasing availability of different food options for kids as well as adults. In addition to this, people are also preferring FECs as a ‘location of choice’ for corporate parties and birthday parties for children as well as adults, and this trend is increasing revenue generation from the food and beverages section from the FECs. The entry fees and tickets segment is projected to grow higher year over year as compared to other revenue sources in the U.S. Family entertainment centers market. U.S. Family Entertainment Centers Market Value (US$ Mn) Forecast by FEC Type, 2018-2022 92 Overview Smaaash operates state-of-the-art games and entertainment centers (the “Centers” and each a “Center”) across 31 locations in India and one location in the U.S., in addition to carrying out product sales of Smaaash’s games and equipment that Smaaash has developed in-house, supported by Smaaash’s sponsorship and other revenues. Smaaash’s core concept is to offer an interactive, immersive and fun experience to customers at Smaaash’s Centers, blending Augemented Reality (AR) and Virtual Reality (VR) and other games, interactive sports experiences, indoor entertainment, and attractive food and beverage options, customized to the tastes and preferences of a diverse set of customers across age groups, genders and backgrounds, including corporate customers, families, friends and children. Smaaash’s game concepts are supported by Smaaash’s in-house technology, value engineering and systems integration capabilities. Smaaash’s game attractions are classified as follows: Smaaash launched its flagship Center in November 2012, at Kamala Mills in Lower Parel, Mumbai, with a proprietary cricket game (obtained via a perpetual license from its Promoter and the patent-holder, Shripal Morakhia, for a one-time fee) as its anchor attraction. Over the last five years, Smaaash has transformed into a multi-center integrated games and entertainment company, with a wide suite of in-house developed AR and VR and other games, as well as food and beverage options at each of its Centers. Among other marketing initiatives, from time to time, Smaaash’s sponsorships with local athletes, sports icons and celebrities, including cricket, football, basketball and ice hockey players, to customize its games and increase their appeal to its customers, including via brand ambassadorships and game options designed around specific sports personalities. Smaaash launched its first international Center in December 2016, at the Mall of America in Minnesota, USA. Smaaash’s star attraction in its U.S. Center is a multi-level go-karting track and games developed and launched by Smaash specifically for this Center, keeping in mind local preferences, such as its ice hockey-themed game called “What the Puck", and Active Games such as Super Keeper, Hoop Shot and Extreme Drone Racing, among others. In fiscal year-ended March 2018, Smaaash bought PVR bluO and SVM bowling and gaming assets to expand its footprint across India. The acquisitions added 20 centers to Smaaash’s already existing portfolio. Smaaash is in the final stages of launching its Center in Dubai, in this quarter. History & Key Milestones Since the commencement of its business, Smaaash has developed and launched 55 games, in terms of either rolling out these games at its Centers, or conducting product sales to third parties. SMAAASH Labs, the research and development hub of Smaaash, includes a group of over 50 engineering professionals that has designed and built reality and interactive games, including interactive sports experiences such as the world’s first 360 degrees cricket simulator. Sporting experiences include soccer, ice hockey and basketball. Smaaash is also endorsed by Virat Kohli, Captain of India’s cricket team. Smaaash currently has over 25 new games under development, intended for launch during calendar 2018. Based on Smaaash’s in-house product development capability, Smaaash has also recently diversified its revenue mix by entering into product sales, including domestic and export sales, where Smaaash retains the intellectual property rights. Despite its limited operating history in this business, which Smaaash commenced during fiscal 2016, Smaaash has already established a global footprint with sales of its in-house developed games and equipment in global markets, including USA, Germany, Mexico, China, Turkey and Israel. Smaaash has received several awards and accolades, including, recently, the Asia Retail Congress (Entertainment and Fun) Award and Times Food and Nightlife Awards for Verbena, India Mice Awards for 18.99 Latitude Banquets, Best Indoor Kids Play Area for Mumbai and Runnerup Best Indoor Kids Play Area for Delhi in the year 2017. Strengths Smaaash considers the following to be its core competitive strengths: Strategically located interactive and immersive entertainment centers. Smaaash’s operate state-of-the-art games and entertainment Centers, offering an interactive, immersive and fun experience to customers at its Centers, blending AR and VR and other games, indoor entertainment and attractive food and beverage options, customized to the tastes and preferences of a diverse set of customers across age groups, genders and backgrounds, including families, friends and children, as well as corporate customers. Smaaash has over 802 games in total across its Centers in India and 29 games in total at its Center in the U.S., at a range of attractive price points. Smaaash also has several other games in varying stages of conception and development, including over 25 games proposed to be launched during calendar year 2018. To complement Smaaash’s games and recreation options, Smaaash offers in-house food and beverage services at each of its Centers. Each of Smaaash’s Centers in India (except its Center at Cyberhub, in the National Capital Region of Delhi, or “Delhi NCR”) includes a circus and carnival-themed multi-cuisine café, under the brand “Mighty Small". At Smaaash’s Center at Cyberhub, Delhi NCR, Smaaash has a restaurant and bar named “Uncorked". Smaaash also runs a micro-brewery and go-karting center called “Pitstop Brewpub and Smaaash Skykarting” at Smaaash’s Center in HUDA Center, Delhi NCR. As Smaaash’s Centers are primarily designed as indoor complexes, the games and entertainment options at its Centers are not designed around or dependent on any seasons, in order to attract customers, and are not unduly affected by adverse weather conditions. Smaaash believes it has the “first mover advantage”, as its unique and differentiated blend of games, indoor entertainment and food and beverage attractions at Smaaash’s Centers cannot be easily replicated. Moreover, Smaaash’s Centers are strategically located in easily accessible locations in densely populated urban centers, with wide catchment areas, in terms of being located near commercial hubs or relatively upmarket areas. For instance, Smaaash’s flagship Center in India is at Kamala Mills in Lower Parel, while its Center in the Mall of America, with its several stores and dining options, is located in Bloomington, Minnesota, close to downtown Minneapolis. Culture of innovation and value engineering. Smaaash, through Smaaash Labs, has robust in-house research and development (“R&D”), value engineering and systems integration capabilities, across multiple technology and product platforms. Smaaash commenced its operations by launching a proprietary cricket game as its anchor attraction at Smaaash’s first and flagship Center in Mumbai. Since then, Smaaash has developed 55 games in-house and have a pipeline of over 25 such games intended for launch during 2018. Smaaash continue to place emphasis on enhancing its R&D, value engineering and systems integration capabilities. Headed by Smaaash’s CTO, Kaizad Bajina, its in-house R&D team consists of 50 employees. Smaaash has also set up a dedicated product development laboratory in Worli, Mumbai. Smaaash has 99 registered trademarks owned or perpetually licensed and 219 trademark registrations applied for. Among other things, Smaaash’s ability to develop its own games in-house allows it to operate such games at its Centers without high-cost licensing, royalty and maintenance expenses, and to explore monetization opportunities through product sales. Smaaash’s value engineering capability also allows it to keep pace with evolving technology and customer preferences and provides us with operational flexibility, in terms of Smaaash’s ability to enhance and reconfigure games and components at a fast pace and controlled cost, for instance, by reducing power consumption or floor space usage, increasing load capacity or durability, and reducing reliance on staff to operate the games and maintain the equipment at its Centers. Strong, unique and differentiated brand with broad customer appeal. At its Centers, Smaaash blends games and recreation with attractive food and beverage and dining concepts into uniquely immersive, involved and fun indoor social entertainment experiences. Despite its relatively short operating history, Smaaash has established strong brand recall and a proposition that appeals to a wide range of customers of all ages, genders and backgrounds, across geographies and seasons. Smaaash’s in-house R&D and innovation enable it to differentiate its brand and value proposition, compared to other companies that are traditionally focused on arcade games, or that focus solely on certain customer segments such as children and families (family entertainment centers, or “FECs”) or adults, or food and beverage operators, including sports bars; innovating, customizing and upgrading Smaaash’s games by leveraging on the “novelty factor”, local customer preferences, psychographic or demographic fit, game or footprint size, competitive element, and other social and aspirational elements affecting its customers. In addition, Smaaash place emphasis on its marketing and sales initiatives. At its Centers, Smaaash offers aspirational redemptions, including in the form of opportunities for customers to play simulated games with and against global sporting idols, and rewards in terms of prizes for winning games at its Centers. From time to time, Smaaash also ties up with local athletes and sports icons, such as cricket, football, basketball and ice hockey players, to customize its games and increase their appeal to Smaaash’s customers, including via brand ambassadorships. Smaaash also continually refines its pricing and promotions strategy to coincide with various sports and other events, festivals, seasons and holidays through the year, targeted promotions such as to corporate customers for hosting corporate events and off-sites, or college and school students, or “ladies nights” and “happy hours”, birthday and other parties and celebrations, and other social events, as well as utilizing Smaaash’s loyalty program, “Smaaash Insiders", and feedback tools to obtain customer insights, as part of its overall commitment to customer satisfaction. In addition, Smaaash advertises on and sell tickets to customers through third party mobile application (“app”)-based or online aggregators, allowing it to introduce its offerings to, and draw in customers from, beyond the immediate physical vicinity and catchment areas of its Centers. Scalable business model, uniquely positioned for growth. Smaaash’s diversified revenue base extends beyond game revenues from its Centers, to include product sales and sponsorship and other income sources. Smaaash’s games are designed to have a relatively long “shelf life”, based on the enduring popularity of sports such as cricket in the Indian market and ice hockey in the U.S. market. Smaaash continues to evolve and optimize its operations at its Centers to support Smaaash’s future growth. For instance, supported by Smaaash’s in-house R&D, discussed in more detail above, each of its Centers includes modular components that can be arranged in various combinations to fit into differently shaped sites and to facilitate future expansion and redesign, also allowing attractions or components to be moved from one Center to another for re-deployment, depending on customer preferences and geographies. Smaaash’s in-house R&D and value engineering capability also serves to accelerate product sales. Despite a relatively short operating history in this vertical, which Smaaash commenced only in fiscal 2016, Smaaash has developed some marquee customer relationships. Smaaash’s popular product sales include some of Smaaash’s in-house developed games, the “Finger Coaster", "Walk the Plank” and “Cricket Lanes". The success of its Centers, based on Smaaash’s scalable business model, also enables Smaaash to earn sponsorship revenues. In addition to such internal factors, Smaaash is uniquely positioned to leverage favorable macroeconomic and demographic factors and other external contributors for growth. Experienced founder, supported by professional key management and staff. Smaaash was founded by its Chief Executive Officer (“CEO”) Emeritus, Shripal Morakhia, an entrepreneur associated in the past with Sharekhan, SSKI and YoBoHo. Among other things, Smaaash benefits from Mr. Morakhia’s vision, strategic guidance, years of entrepreneurial and managerial experience, and his relationships in the industry. Smaaash has a young and dynamic management team, of which various members have contributed to its track record of growth, including: Vishwanath Kotian, Chief Financial Officer (“CFO”), with extensive experience in the M&E sector, having been CFO of ACK Media and in the M&E team at Ernst & Young; Kaizad Bajina, Smaaash’s Chief Technology Officer (“CTO”), with over 15 years of experience at systems integration companies, previously as chief of operations and technology at Strix System Inc and Lifestyle Networks Limited; Smaaash also actively recruits professionally qualified individuals with a professional and educational background that Smaaash considers appropriate to a business of its size and nature. Strategies Smaaash considers the following to be its core growth strategies: Expand Smaaash’s network of Centers across India and overseas. Smaaash continues to explore opportunities to set up and expand operations primarily in mall and shopping center locations in India and overseas, typically with revenue share arrangements with the respective property developers, based on Smaaash’s potential to attract and increase high quality consumer traffic. In India, Smaaash intends to expand its network of Centers with a focus on urban locations across India, particularly towns with increasing urban populations in North and Western India, expecting to grow to approximately 60 centers within the next two years. In India, while Smaaash has historically focused on organic growth, Smaaash intends to also explore commercially viable franchisee arrangements or opportunities for future inorganic growth, including in tier-II and tier-III cities and towns in India. Smaaash is also exploring opportunities for strategic overseas expansion, particularly in developed and emerging markets such as North America and the Middle East, including through joint ventures. At each of Smaaash’s new Centers, Smaaash intends to offer targeted attractions, for instance, including cricket-themed attractions for its customers in India; ice hockey and American football themed attractions for its customers in the North American market; and football and cricket themed attractions for Smaaash’s customers in the Middle East market, including the Indian diaspora in the Middle East market. Moreover, Smaaash intends to continue targeted promotions to increase bulk bookings at its Centers, particularly for corporate events. As Smaaash increases its network of Centers in the future, Smaaash will seek to leverage economies of scale, including by reducing its overhead and optimizing its procurement strategy and channels, as and when suitable opportunities arise. Grow Smaaash’s range of games and entertainment attractions, across its Centers. Smaaash’s strategic objective of growing its range of games and entertainment options at its Centers is intended to increase Smaaash’s popularity with customers, encourage repeat visits from customers. This strategy is based on Smaaash’s pipeline of new games in various stages of in-house ideation and development, to create targeted attractions based around sports and celebrities that are popular in local markets. Smaaash is also constantly evolving its marketing and promotional activities to increase its popularity with customers and improve the customer experience at its Centers. For example, in the past, Smaaash has developed cricket-themed games for Smaaash’s Centers in India, ice hockey and basketball themed games for its Center in the Mall of America in Minnesota, U.S., and football themed games for Smaaash’s planned centers in the Middle East, where these sports are very popular locally. Smaaash also expects that customer demand for indoor game viewing areas, complemented by Smaaash’s in-house food and beverage services, will be one of the key drivers of Smaaash’s growth in the future. Smaaash has used its flagship center in Mumbai as a testing ground for games that Smaaash has launched across its other Centers in India, and Smaaash intends to continue doing so in the future. Going forward, Smaaash’s objective will be to also use its Center in the U.S. as a testing ground to innovate and develop customized attractions for future international expansions in Canada and the U.S. and other developed game markets. Smaaash may also explore similar opportunities to incubate and develop new game ideas at any existing, planned or future centers. Increase Smaaash’s product sales, worldwide. Smaaash intends to continue increasing its product sales, with a focus on exports, including through Smaaash’s expansion into different global markets, particularly large and attractive markets in Asia, such as China, Korea and Japan, and in the U.S. and Canada. Smaaash intends to continue to develop a pipeline of new games, to support the growth of its product sales business worldwide, supported by its in-house R&D and value engineering capability. In addition, Smaaash expects to continue its participation in industry fairs and exhibitions, particularly with a view to increasing Smaaash’s product sales business. Smaaash’s planned increase in its product sales would balance Smaaash’s revenue mix between games, product sales, and sponsorship and other income. Moreover, as Smaaash increase its product sales in the future, including through possible growth and diversification in Smaaash’s distributor network, Smaaash would seek to leverage economies of scale, including in terms of obtaining insights and strategic access to high-value customers and markets. Enhance Smaaash’s marketing and advertising initiatives to retain and increase Smaaash’s customer appeal and strengthen its brand value. One aspect of Smaaash’s planned digital customer outreach will be digital sales, including through its own website and the launch of its own app for mobile phones and smart devices, allowing customers planning to visit Smaaash’s Centers to pre-purchase games and packages digitally prior to their visits to its Centers, and to leave their valuable feedback digitally, in a manner that may be more convenient for them, while also being easier for Smaaash to track and utilize. Another aspect of Smaaash’s planned digital outreach will be Smaaash’s continuing initiative to reach out to a wider customer base through app-based or online aggregators. Smaaash’s digital customer outreach initiatives are intended to reduce Smaaash’s promotional expenses, increase its brand management flexibility, and expand recognition of its brand and value proposition beyond the immediate physical vicinity and catchment areas of its Centers. Through Smaaash’s digital customer outreach, Smaaash would, among other things, seek to draw increasing numbers of new customers to its Centers, increase the number of return customers at its Centers, and increase per capita and overall customer spend at its Centers. In addition to the above, Smaaash also intends to continue to refine Smaaash’s pricing and promotions strategy to coincide with various sports and other events, festivals, seasons and holidays through the year, targeted promotions such as to corporate customers for hosting corporate events and off-sites, or college and school students, or “ladies nights” and “happy hours”, birthday and other parties and celebrations, and other social events, as well as utilizing Smaaash’s loyalty program, “Smaaash Insiders", and feedback tools (in the future, in particular, including through Smaaash’s digital outreach, as indicated above) to obtain customer insights, as part of its overall commitment to customer satisfaction. Smaaash would also seek to continue tying up with sports icons and other celebrities to act as Smaaash’s brand ambassadors, and offering aspirational rewards by way of prizes for winning games at its Centers. Increase and diversify Smaaash’s sponsorship revenue. Historically, while its sponsorship revenues have primarily been pursuant to long-term arrangements with a satellite television channel broadcaster, Smaaash is currently evaluating, and shall continue to explore, arrangements of varying terms with various third parties for on-ground brand activation and outreach, including co-branding, at a game or zone level. In this regard Smaaash’s twofold objective would be to increase its sponsorship revenues over time, and reduce and mitigate its exposure to possible risks arising in the future from concentration with a single or relatively small set of sponsorship arrangements. Centers and Games As of this date, Smaaash has 32 operational centers out of which 28 are company operated and four centers are franchised and operated by third parties. The detail of the centers are set forth below under Properties. Revenue Sharing Agreements Smaaash has entered into revenue sharing arrangements with the property developers for 22 Centers in India. Under such revenue sharing arrangements with property developers, Smaaash is typically liable to pay monthly rent by way of a fixed percentage of the monthly net retail sales amount (which is generally reset to a higher percentage after the completion of a specified initial duration within the rental period) or, in certain cases, either a monthly minimum guaranteed amount, or a fixed percentage of the monthly net retail sales amount (which is reset to a higher percentage after the completion of a specified initial duration within the rental period), whichever is higher. Certain of these rental and revenue sharing arrangements are subject to a lock-in period, during which time, Smaaash may prematurely terminate these arrangements only subject to payment of the agreed rent for the entire lock-in period. After the lapse of the lock-in period, Smaaash may terminate the arrangements with prior notice. The licensors can typically terminate the arrangements at any time, with prior notice, with or without cause, including in the event of a default or material default by us, in making due monthly payments or in complying with applicable law and regulations applicable to such premises. Principles of Game Selection: ☐ Minimize operator requirement. ☐ Revenue per square foot / meter of space. ☐ Single user vs. multi user. ☐ Cycle time. ☐ Repeat value. ☐ Development and production cost. ☐ Operating cost. ☐ Ability to create additional games on the same platform. ☐ Early adoption of newly evolving technology. ☐ Safety. ☐ Novelty factor. ☐ Target group fit. ☐ Psychographic fit. ☐ Game footprint size. ☐ Competitive element. ☐ Social element. Sponsorship Historically, while Smaaash’s sponsorship revenues have primarily been pursuant to long-term arrangements with a satellite television channel broadcaster, Smaaash is currently evaluating, and shall continue to explore, arrangements of varying terms with various third parties for on-ground brand activation and outreach, at a game or zone level. In relation to Smaaash’s flagship Center in Mumbai, which commenced commercial operations in November 2012, Smaaash has entered into a sponsorship agreement dated July 6, 2012, with a satellite television channel broadcaster, in terms of which, the broadcaster had agreed to exclusively sponsor Smaaash’s Mumbai Center and, at its option, subject to a right of first refusal (although not obligation) held by this broadcaster, other Centers. This agreement lapsed on July 6, 2017 and has not been renewed. In addition, Smaaash entered into a sponsorship agreement dated November 30, 2013, with the same broadcaster, for Smaaash’s Center at Cyberhub, in Delhi NCR, for a period of five years, i.e., until November 30, 2018, as well as a sponsorship agreement dated February 17, 2014, with the same broadcaster, for Smaaash’s Center in Delhi NCR (Noida), for a period of five years, i.e., until February 17, 2019. Smaaash does not currently have similar sponsorship agreements with this broadcaster for Smaaash’s other Centers. Under these agreements, Smaaash is entitled to a sponsorship fee, including a non-refundable upfront onetime fee and quarterly advance payments commencing from the date of commercial operations at the respective Centers specified in these agreements and for the term of such agreements, and also acquired rights to use certain specified trademarks, without the right to sub-license such marks. Other than the requirement to make payments of the sponsorship fees due to us from the broadcaster and to provide the broadcaster’s approval or input on the promotional materials used by us in respect of the trademarks licensed by us from the broadcaster, the arrangements described above do not require or entitle the broadcaster to operate, manage or control Smaaash’s Centers, or to be responsible or liable for its employees, agents or subcontractors, among other things. These agreements are terminable with advance notice by us, or terminable by the broadcaster on account of any default by us, and contain standard indemnity, confidentiality and other similar provisions. Going forward, Smaaash’s twofold objective would be to increase its sponsorship revenues over time, and to reduce and mitigate Smaaash’s potential exposure to possible risks arising in the future from concentration with a single or relatively small set of sponsorship arrangements. Others In addition to Smaaash’s core business, described above, Smaaash currently has the following other business initiatives: Specialty Restaurants and Convention Center Adjacent to Smaaash’s Center at Kamala Mills in Mumbai, Smaaash operates one specialty restaurant, with several signature dishes across a range of attractive price points. These include a rooftop brewpub and primarily continental restaurant called "Verbena", which Smaaash launched in January, 2017. In addition, also adjacent to the Center at Kamala Mills in Mumbai, Smaaash operates a 1,000 seat convention center, spread over approximately 13,500 square feet carpet area, called “18.99 Latitude", which Smaaash launched in October 2016. This convention center features a large banquet and convention facility, smaller partitioned units for breakaway meetings and events, gourmet catering with a separate Jain vegetarian kitchen, power backup, Wi-Fi connectivity, parking, and other facilities. These premises are leased and operated by Smaaash and Smaaash does not outsource any functions at these premises to any third party, other than non-core functions, such as security or housekeeping functions, which may be outsourced by Smaaash to various third party contractors from time to time. Among other things, Smaaash’s specialty dining and convention center facilities serve to complement Smaaash’s range of games and entertainment options, particularly for its corporate customers, who may make bulk bookings a its Centers for corporate offsites and other corporate events, from time to time. However, Smaaash’s income from the above businesses forms part of its Banquet Income. Smaaash Shivfit Adjacent to Smaaash’s Center at Kamala Mills in Mumbai, Smaaash has opened a co-branded fitness center known as SMAAASH SHIVFIT, in May 2017. These premises are leased and operated by Smaaash. The brand SHIVFIT is owned by Mr. Shivoham and Ms. Vrinda Mehta. SMAAASH SHIVFIT is an integrated physical and mental fitness program, which was conceptualized by Mr. Shivoham and Ms. Vrinda Mehta. The fitness program aims to provide a holistic solution for all the fitness needs of an individual, through a combination of an integrated mind and body fitness program, a high intensity functional training for the body, and effective vibrations process for mental health. At SMAAASH-SHIVFIT, Smaaash offers several specialty classes and tailor-made workout programs and solutions, including cross-functional training, boxing, pilates, total resistance exercise (“TRX”), yoga, wrestling and mind workshops for athletes, corporate professionals and others, boot camps, personal training, corporate training and corporate retreats, along with a conventional gymnasium and weight training area, which offers cardio, machines, free weights, diet consultancy and personal training. Under the terms of Smaaash’s agreement with Mr. Shivoham and Ms. Vrinda Mehta, Smaaash has paid a one-time license fee and are liable to pay an annual royalty commission for the use of the SHIVFIT brand, marks and concept. Among other things, Smaaash’s SMAAASH SHIVFIT gym facility serves to complement its range of indoor, primarily sports-themed games and entertainment options. However, Smaaash’s income from the above business would form part of its sponsorship and other income. Brand-building, Marketing and Advertising Smaaash has a dedicated marketing team headed by Mr. Nilendu Mitra, Smaaash’s VP Marketing and Sales. Smaaash benefits significantly from word of mouth referrals by Smaaash’s customers, including through social media. Among other things, Smaaash seeks to connect with larger numbers of customers by encouraging bulk bookings by families or friends or colleagues visiting in groups. At Smaaash’s Centers, Smaaash offers aspirational redemptions, including in the form of opportunities for customers to play simulated games with and against global sporting idols, and rewards in terms of prizes for winning games at its Centers. From time to time, Smaaash also tie up with local athletes and sports icons, such as cricket, football, basketball and ice hockey players, to customize Smaaash’s games and increase their appeal to its customers, including via brand ambassadorships. Smaaash also undertakes other extensive brand-building and sales and marketing initiatives, including in-center pricing and promotions to coincide with various sports and other events, festivals, seasons and holidays through the year, targeted promotions such as to corporate customers for hosting corporate events and off-sites, or college and school students, or “ladies nights” and “happy hours”, birthday and other parties and celebrations, and other social events, as well as utilizing Smaaash’s loyalty program, “Smaaash Insiders", and feedback tools to obtain customer insights, as part of Smaaash’s overall commitment to customer satisfaction. In addition, Smaaash advertises on and sell tickets to customers through third party mobile app-based or online aggregators, allowing it to introduce Smaaash’s offerings to, and draw in customers from, beyond the immediate physical vicinity and catchment areas of Smaaash’s Centers. Moreover, Smaaash participates in industry fairs and exhibitions, particularly with a view to increasing Smaaash’s product sales business. Given the increase of internet and mobile telephony penetration in India, Smaaash has recently increased Smaaash’s own focus on digital and social media. Going forward, Smaaash intends to launch and focus on digital sales through Smaaash’s website and it is also exploring the launch of a mobile app for mobile phones and smart devices. Through this app, as Smaaash’s customers increasingly begin to engage and interact with Smaaash digitally in the future, Smaaash would seek to draw new customers, increase the number of Smaaash’s return customers, and increase its share of customer wallets, for instance, by allowing customers to pre-purchase games and packages digitally, and to leave Smaaash their valuable feedback in a manner that may be more convenient to them, while also being easier for it to track and utilize. Innovation & Information Technology Principles of Game Development Smaaash conducts game development not only to roll out its own games at Smaaash’s own Centers, but also to monetize product development through product sales to third parties, where Smaaash would retain the IPR. With a dedicated product development laboratory in Worli, Mumbai called Smaaash Labs, Smaaash currently has over 25 new games under development, intended for launch during calendar year 2018. Smaaash’s principles of in-house game development are twofold, as set out below: Expansion Plan Domestic Expansion: Smaaash has already shortlisted the following cities to open further centers in India: Seasonality Smaaash’s business does not exhibit seasonality. However, Smaaash does have increased retail traffic during the holiday seasons and during sporting events such as the IPL, football and cricket matches which is not necessarily seasonal. Raw Material Costs & Suppliers Smaaash incurs significant raw material costs, including import costs. During fiscal year 2017, Smaaash’s cost of raw materials accounted for 20% of Smaaash’s total expenditure. Reliance is placed on purchase orders to procure such raw materials and currently Smaaash does not have any long-term contracts with its vendors. Third-party Sales Smaaash relies on distributors for third party sales and does not have exclusive or long term arrangements with such distributors. If the distributor agreements are terminated or not renewed or replaced in a timely manner, this may result in a disruption in third-party sales, in particular, the loss of business from any significant distributors. Smaaash’s future product sales business growth may also depend on its ability to attract additional dealerships and widen our distributor network. Intellectual Property (patents, trademarks, licenses) Smaaash has in-house developed games, components and technology which is used in Smaaash centers as well as sold to third-party players. Smaaash’s general policy is to seek intellectual property protection for the innovations and improvements which are likely to be incorporated into Smaaash’s business or to give it a competitive advantage. Moreover, in relation to third party sales, Smaaash retains intellectual property rights as a matter of practice and policy. In this relation, Smaaash relies on a variety of website domain names, trademark registrations and other proprietary information, as well as confidentiality agreements or arrangements with its employees and consultants or other third parties to protect its intellectual property rights. For instance, Smaaash’s corporate trade name and logo, are assigned to us by Star India Private Limited (“Star India”) pursuant to a deed of perpetual assignment dated November 30, 2013, effective. Under this deed, Smaaash has perpetual rights to use 30 trademarks for the SMAAASH device and word mark, in various classes, throughout the territory of India, for which registration applications have been filed with the Trademark Registry. Further, under this deed of assignment, Star India has confirmed that it has no right or claims to such trademark outside the territory of India. In addition, Smaaash has applied for 219 trademarks, in various classes. Dependence on a single customer or a few customers Smaaash’s business model does not depend on a single customer or a few customers as it mainly derives revenue from gaming and F&B offerings to the visitors to its centers. For its product sales business, the revenue from top 5 customers constitute 52% of its total revenue from Product Sales for the nine month period ended 31 December 2017 and 82% for the year ended 31 March 2017. Properties The following table describes Smaaash’s Centers: ● SkyKarting ● Twilight Bowling ● VR Games ● Stimulation Games ● Arcade Games ● Trampolin ● Lazer Blast ● Mighty Small ● Legend (Banqueting ) ● Victrian (Banqueting ) ● Smaaash Cricket ● Twilight Bowling ● VK Games ● Stimulation Games ● Arcade Games ● Gurgaon Pub Exchange ● Unforked Cafe (Banqueting ) ● SkyKarting ● Smaaash Cricket ● Twilight Bowling ● VK Games ● Stimulation Games ● Arcade Games ● Noida Pub Exchange ● Champions Lounge (Banqueting ) Carpet Area: 21,173 sq.ft. ● Smaaash Cricket 3 lanes ● Twilight Bowling ● VR Games ● Stimulation Games ● Arcade Games ● Trampoline park ● Cricket ● Twilight Bowling ● VR Games ● Arcade Games ● Trampoline ● Cricket ● Twilight Bowling ● VR Games ● Arcade Games ● Trampoline ● Cricket ● Twilight Bowling ● VR Games ● Arcade Games ● Cricket ● VR Games ● Arcade Games ● Cricket ● Twilight Bowling ● VR Games ● Arcade Games ● Dance Off ● VR Games ● Stimulation Games ● Arcade Games ● SkyKarting ● Lazer Blast ● Smaaash Cricket ● Twilight Bowling ● VK Games ● Stimulation Games ● Arcade Games ● Lazer Blast ● Smaaash Cricket ● Twilight Bowling ● VK Games ● Stimulation Games ● Arcade Games ● Jungle Golf ● Twilight Bowling ● Smaaash Cricket ● Twilight Bowling ● VK Games ● Stimulation Games ● Arcade Games ● Laser Tag ● Smaaash Cricket ● Twilight Bowling ● VK Games ● Stimulation Games ● Arcade Games ● Smaaash Cricket ● Twilight Bowling ● VK Games ● Stimulation Games ● Arcade Games ● 4 lane Bowling Alley ● VR Games ● Arcade Games ● XD theater ● Adventure zone ● Air riders ( Inflatable bumper cars) ● Trampoline park ● Indoor Water Zorb roller. ● 3 floor kids soft play area ● Kiosk Café ● Soft beverages ● 4 lane Bowling Alley ● VR Games ● Arcade Games ● Air riders ● Trampoline park ● kids soft play area Super Area: 9625 sq.ft. Chargeable Area: 9250 sq.ft. ● 4 lane Bowling Alley ● VR Games ( Receiving today) ● Arcade Games ● 4 lane Bowling Alley ● VR Games ● Arcade Games ● kids soft play area ● Air riders ● 4 lane Bowling Alley ● VR Games ● Arcade Games ● Kids soft play area ● 4 lane Bowling Alley ● VR Games ● Arcade Games ● 3 lane Bowling Alley ● VR Games ● Arcade Games ● Bowling ● Arcade Games ● Bowling ● Playpen ● Air Riders ● Arcade Games ● Bowling ● 7D Theatre ● Playpen ● Egg VR ● Cricket ● Arcade Games As of this date, 28 centers are company operated and 4 centers are franchised and operated by third parties. Government Regulations Smaaash is subject to various laws and regulations in India arising from its operations in India, including specific regulations and policies applicable to the gaming and F&B sector. Gaming regulations in various states In terms of section 33 of the Bombay Police Act, 1951, The Rules for Licensing and Controlling Places of Public Amusement (other than cinemas) and Performances for Public Amusement including Pool game Parlors, Amusement Parlors providing Computer Games, Virtual Reality Games, Cyber Cafes, Games with net, internet or intranet connectivity, Bowling Alleys, Card Rooms, Social Clubs, Sports Clubs, Cabaret performances, Discotheque, Games, Melas and Tamashas Rules, 1960, have been notified. These contain provisions on licensing, registration and regulatory provisions which are applicable. Municipality laws in various states The state legislatures in India are empowered to endow the municipalities with the power to implement schemes and perform functions in relation to matters listed in the Twelfth Schedule to the Constitution of India which includes regulation of public health. Various states of India have notified laws empowering the municipalities to regulate public health including the issuance of a health trade license for operating eating outlets and implementation of regulations relating to such licenses along with penalties for non-compliance. Public order and police laws in various states The state legislatures in India are empowered to notify laws in relation to public order and police under Entries 1 and 2 of the State List (List II) of Twelfth Schedule to the Constitution of India, pursuant to which various states of India have enacted laws regulating such establishments which include registering eating houses, places of public entertainment and gaming parlors, and obtaining a ‘no objection certificate’ for operating such establishments, along with prescribed penalties for non-compliance. Fire safety laws in various states The fire acts of various states provide that the occupier of the building shall provide fire prevention and life safety measures in such building or part thereof, minimum firefighting installations as specified against such buildings and the occupier shall maintain the prevention and life safety measures in good repair and efficient condition at all times, in accordance with the provisions of the various fire acts or the rules made thereunder. The said owner or the occupier shall also obtain a certificate from the relevant authority in terms of the fire acts applicable in that particular state in relation to the aforesaid compliance. Food Services Regulations The Food Safety and Standards Act, 2006 (the “FSSA”) The FSSA was enacted on August 23, 2006 with a view to consolidate the laws relating to food and to establish the Food Safety and Standards Authority of India (the “FSSAI”). The FSSAI sets out scientific standards for articles of food and regulates the manufacture, storage, storage, distribution, sale, and import and ensure availability of safe and wholesome food for human consumption. The FSSAI is required to provide scientific advice and technical support to the Government of India and the state governments in framing the policy and rules relating to food safety and nutrition. In exercise of powers under FSSA, the FSSAI has framed the Food Safety and Standards Rules, 2011, which have been operative since August 5, 2011. These rules provide the procedure for registration and licensing under the FSSA for every person or entity carrying on the food business. The rules also lay down detailed standards for various food products and the responsibilities and liabilities of food business operators. Legal Metrology Act, 2009 (the “Legal Metrology Act”) The Legal Metrology Act has come into effect from March 1, 2011 and seeks to establish and enforce standards of weights and measures, regulate trade and commerce in weights, measures and other goods which are sold or distributed by weight, measure or numbers and for matters connected therewith or incidental thereto. Excise laws The provisions of various excise legislations prohibit the sale of alcohol without obtaining a license in terms of their provisions and prescribe penalties for non-compliance. Bombay Prohibition Act, 1949 (the “Bombay Prohibition Act”) The Bombay Prohibition Act prohibits the sale of alcohol without obtaining a license in terms of its provisions. Also, sale of foreign liquor has to be made in terms of the Bombay Foreign Liquor Rules, 1953. The Andhra Pradesh Prohibition Act, 1995 (the “Andhra Pradesh Prohibition Act”) The Andhra Pradesh Prohibition Act prohibits the selling, buying, being in possession and consumption of liquor otherwise than in accordance with the provisions, of the Andhra Pradesh Excise Act, 1968. The Karnataka Prohibition Act, 1961 (the “Karnataka Prohibition Act”) The Karnataka Prohibition Act prohibits the manufacture, traffic in and consumption of liquors, save in the manner provided under the provisions of this Act or in accordance with the terms and conditions of a license, permit, pass or authorization granted. Intellectual Property Regulations Trade Marks Act, 1999 (the “Trade Marks Act”) The Trade Marks Act provides for the application and registration of trademarks in India. The purpose of the Trade Marks Act is to grant exclusive rights to marks such as a brand, label or heading and to obtain relief in case of infringement for commercial purposes as a trade description. An application for trademark registration has to be made to the Controller General of Patents, Designs and Trade Marks who is the Registrar of Trademarks for the purposes of the Trade Marks Act. The Trade Marks Act prohibits any registration of deceptively similar trademarks or chemical compound, among others. It also provides for penalties for infringement, falsifying and falsely applying trademarks. Patents Act, 1970 (the “Patents Act”) The Patents Act provides the exclusive rights for the owner of a patent to make, use, exercise, distribute and sell a patented invention. The Patents Act recognizes process patents as well as product patents. An application for a patent can be made by (i) person claiming to be the true and first inventor of the invention; (ii) person being the assignee of the person claiming to be the true and first inventor in respect of the right to make such an application; and (iii) legal representative of any deceased person who immediately before his death was entitled to make such an application. Copyright Act, 1957 (the “Copyright Act”) The Copyright Act protects literary and dramatic works, musical works, artistic works including maps and technical drawings, photographs and audio-visual works. The Copyright Act specifies that for the purposes of public performance of Indian or international music a public performance license must be obtained else it will invite criminal action. All those who play pre-recorded music in the form of gramophone records, music cassettes or compact discs in public places are required permission of the Phonographic Performance Limited for this purpose. Environmental Regulations The major statutes in India which seek to regulate and protect the environment against pollution related activities in India are the Environment (Protection) Act, 1986, the Air (Prevention and Control of Pollution) Act, 1981, the Water (Prevention and Control of Pollution) Act, 1974 and the rules made thereunder. The basic purpose of these statutes is to control, abate and prevent pollution. In order to achieve these objectives, central and state pollution control boards (“PCBs”), vested with powers to deal with water and air pollution, have been set up in each state. The PCBs are responsible for setting standards for maintenance of clean air and water and directing the installation of pollution control devices in industries to ensure that industries are functioning in compliance with the standards prescribed. PCBs also have the power of search, seizure and investigation if they are aware of, or suspect pollution. All industries and factories are required to obtain consent orders from the PCBs under the provisions of the above-mentioned statutes, are in compliance with the prescribed pollution control norms laid down. These consents are required to be renewed periodically. Foreign investment in India Foreign investment in India is governed primarily by the provisions of the Foreign Exchange Management Act, 1999 and the rules, regulations and notifications thereunder, as issued by the Reserve Bank of India from time to time, and the policy prescribed by the Department of Industrial Policy and Promotion, Ministry of Commerce and Industry, Government of India including the Consolidated Foreign Direct Investment Policy currently, effective from August 28, 2017 (the “FDI Policy”). Under the FDI Policy, there is presently no sectoral restriction on foreign direct investment in the sector in which the Target operates. However, there are constraints on and reporting requirements on foreign investments under the portfolio investment route in general, or through entities that are registered as foreign portfolio investors, or investors that qualify as non-resident Indians. The FDI Policy provides the methodology for calculation of total foreign investment (i.e., whether direct or indirect foreign investment) in an Indian company, which would apply at every stage of investment in Indian companies (i.e., including downstream investments in Indian companies). Recent regulatory developments in India have enabled cross-border mergers between Indian and overseas companies. Specifically, the Reserve Bank of India notified the Foreign Exchange Management (Cross Border Mergers) Regulations, 2018 on March 20, 2018. Based on these regulations, Shripal Morakhia, the founder and beneficial owner of approximately 33.6% of Smaaash as of the date of this proxy statement, has agreed to transfer the founder group’s complete equity interest in Smaaash (equal to his 33.6% which will represent 24.34% after the Investment) to I-AM Capital (the “Future Consolidation”) within three to six months after the closing of the Transaction. When combined with the Smaaash equity position being acquired by I-AM Capital in the Transaction, following the Future Consolidation, depending on amount of redemptions by I-AM Capital’s public stockholders, I-AM Capital may hold the equity shares of Smaaash in the range as shown in the table below. Even prior to the consummation of the Future Consolidation, Shripal Morakhia has agreed that following the Transaction he will vote all of the shares of Smaaash equity that he beneficially owns in sync with the way I-AM Capital votes its shares of Smaaash, effectively giving I-AM Capital significant control over the operations of Smaaash. Other laws In addition to the foregoing, taxation statutes such as the Income Tax Act, 1961, Finance Act, 1994, and applicable local sales tax statutes, as well as labour and employment-related statutes such as the Shops and Establishments Act, 1958 (as applicable in various states in India), entertainment duty (as applicable in various states in India), the Electricity Act, 2003, Employees’ State Insurance Act, 1948, Employees’ Provident Funds and Miscellaneous Provisions Act, 1952, Minimum Wages Act, 1948, Payment of Bonus Act, 1965, Payment of Wages Act, 1936, Payment of Gratuity Act, 1972, the Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013 and, among other laws, the Companies Act 2013, and Information Technology Act, 2000, apply to the Target as to any other Indian company. Further, Goods & Services Tax was introduced with effect from 1st July 2017, to replace excise duty and VAT, besides some other taxes. Employees The following table shows information regarding Smaaash’s employees for the periods indicated: In addition, as of March 31, 2018, Smaaash utilized the services of over 255 persons on a contract basis. Smaaash’s employee compensation and benefits include salaries, discretionary bonuses and health insurance. Pension contributions are limited to contributions required to be made under Indian & US laws to state-run compulsory pension programs. Smaaash’s employees are not unionized and Smaaash has not experienced any work stoppages or significant labor disruptions during its operational history. Legal Proceedings Smaaash has initiated civil proceedings against the Municipal Corporation of Greater Mumbai in the High Court of Bombay. As a result of a fire that occurred in one of the restaurants in Kamla Mills, Lower Parel, Mumbai, the Bombay Municipal Corporation (“BMC”), initiated the large scale demolition of several bars, eateries and restaurants in Mumbai. In the course of the demolition, the BMC, its officers and the demolition squad engaged by them visited the Pravas restaurant and the Smaaash center, both a part of Smaaash, and without any notice and/or without following due process of law started to demolish the same. Smaaash alleges that the BMC officers thereafter orally threatened that they would also demolish portions of Smaaash’s go-karting track. Smaaash believes that the BMC officials may also attempt to demolish portions of the Verbena restaurant and bar premises and the banquet hall, 18.99 Latitude, which are also operated by Smaaash. Thus, Smaaash approached the Honorable High Court of Bombay to obtain urgent relief by filing a writ petition on January 1, 2018. The matter has been scheduled for hearing on November 26, 2018. SMAAASH’S MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis of Smaaash’s financial condition and results of operations is based upon, and should be read in conjunction with Smaaash’s financial statements) and related notes that appear elsewhere in this proxy statement/prospectus. Smaaash’s financial statements are prepared in accordance with IFRS. Smaaash’s fiscal year ends on March 31 of each year. Accordingly, all references to a particular fiscal year are to the twelve months ended March 31 of that year. The following discussion and analysis contains forward-looking statements that involve risks and uncertainties. For additional information regarding such risks and uncertainties, see “Risk Factors” and “Cautionary Note Regarding Forward-Looking Statements.” Overview Smaaash operates 32 state-of-the-art games and entertainment centers (the “Centers”) across 31 Centers in India and one international Center in the U.S., in addition to carrying out product sales of its games and equipment that Smaaash has developed in-house, supported by its sponsorship and other revenues. Smaaash’s core concept is to offer an interactive, immersive and fun experience to customers at its Centers, blending Augmented Reality (“AR”) and Virtual Reality (“VR”) and other games, indoor entertainment, and attractive food and beverage (“F&B”) options, customized to the tastes and preferences of a diverse set of customers across age groups, genders and backgrounds, including corporate customers, families, friends and children. Smaaash’s game concepts are supported by its in-house technology, value engineering and systems integration capabilities. Smaaash’s game attractions are classified as follows: Smaaash’s game offerings are complemented by its in-house food & beverage services. Smaaash launched its flagship Center in November 2012, at Kamala Mills in Lower Parel, Mumbai, with a proprietary cricket game (obtained by Smaaash under a perpetual license from its founder and the patent-holder, Shripal Morakhia, for a one-time fee) as anchor attraction. Over the last five years, Smaaash has transformed into a multi-center integrated games and entertainment company, with a wide suite of in-house developed AR and VR and other games, as well as F&B options at each of its Centers. Among other marketing initiatives, from time to time, Smaaash ties up with local athletes, sports icons and celebrities, including cricket, football, basketball and ice hockey players, to customize its games and increase their appeal to its customers, including via brand ambassadorships and game options designed around specific sports personalities. Smaaash launched its first international Center in December 2016, at the Mall of America in Minnesota, USA. Its star attraction in its U.S. Center is a multi-level go-karting track and games developed and launched by us specifically for this Center, keeping in mind local preferences, such as its ice hockey-themed game called “What the Puck In fiscal year 2018, Smaaash acquired PVR bluO and SVM’s bowling and gaming assets to expand its footprint across India. The acquisitions added 20 centers to Smaaash’s portfolio. Factors Affecting Visitors to the centers: Smaaash derives a significant portion of its revenue from operations through gaming revenues that are dependent on the visitors to its Centers. Smaaash also derives income from its F&B offerings. Smaaash seeks to attract visitors to its centers by continuously improving and increasing its gaming and F&B offerings, providing innovative products and technology and quality customer service. Product Sales: With a dedicated product development laboratory located at Worli, in Mumbai, India, Smaaash currently has over 25 new games under development, intended for launch during calendar year 2018. Based on its in-house product development capability, Smaaash has also recently diversified its revenue mix by entering into product sales, including domestic and export sales, where Smaaash retains the intellectual property rights (the “IPR”). Despite its limited operating history in this business, which Smaaash commenced during fiscal year 2016, Smaaash has already established a global footprint with sales of its in-house developed games and equipment in several countries, including USA, Germany, Mexico, China, Turkey and Israel. Smaaash relies on distributors for its third-party sales and does not have long-term contracts or arrangements with such distributors. Employee Costs: Smaaash incurs employee costs for proper functioning of its centers and also to carry out other admin and selling processes such as Finance, IT and marketing. Employee costs in fiscal Rental: Smaaash is required to pay rent for its premises including its centers and corporate office. Lease expenses in fiscal Finance Costs: Smaaash uses debt to finance its operations. Smaaash has a total long-term and short-term borrowings outstanding of Raw Material Costs: Smaaash’s total cost of raw materials As Smaaash incurs significant raw material costs, including import costs, and does not have long term purchase contracts with its vendors, Smaaash may be susceptible to pricing pressures or disruptions in our relationships with our vendors. Critical Accounting Policies In preparing its consolidated financial statements, Smaaash makes estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. Smaaash bases its estimates on historical experience and various assumptions that it believes to be reasonable under the circumstances, the results of which form its basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Smaaash’s results of operations may differ if prepared under different assumptions or conditions. Smaaash believes the following principal accounting policies affect the more significant judgments and estimates used in the preparation of its consolidated financial statements: Impairment reviews IFRS requires management to undertake an annual test for impairment for finite lived assets, to test for impairment if events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Impairment testing is an area involving management judgment, requiring assessment as to whether the carrying value of assets can be supported by the net present value of future cash flows derived from such assets using cash flow projections which have been discounted at an appropriate rate. In calculating the net present value of the future cash flows, certain assumptions are required to be made in respect of highly uncertain matters including management’s expectations of: Income taxes Smaaash is subject to income taxes in a number of Indian jurisdictions. A significant amount of judgment is required to determine the amount of provision for income taxes. There are certain transactions and calculations for which the ultimate determination by the relevant taxing authorities is uncertain. Smaaash recognizes liabilities for anticipated tax audit issues based on estimates of whether additional taxes will be found to be due. Where the final tax outcome of these matters is different from the amounts that were initially recorded, such differences will impact the current and deferred income tax assets and liabilities in the period in which such determination is made. Where considered necessary, estimates are computed by management based on advice from an external specialist, such as actuaries. Employee benefits The present value of the employee benefit obligation is determined upon actuarial valuation made in conformity with generally accepted actuarial principles and practices by the professional actuary, industry practices and underlying assumptions. The assumptions used in determining the net cost (income) for employment benefits include mortality, retirement age, attrition rate, salary escalation rate, discount rate, and others which are done by professional actuary as per the actuary practices prevailing in India. For example, management confirmed the discount rate of Property, plant and equipment Estimates of useful life The charge in respect of periodic depreciation is derived after determining an estimate of an asset’s expected useful life and the expected residual value at the end of its life. Depreciation is charged so as to write off the cost of assets, other than land and properties under construction, using the straight-line method, over their estimated useful lives/rate of depreciation, as follows: Leasehold Improvements are amortized over the unexpired period of lease on a straight-line basis. Increasing an asset’s expected life or its residual value would result in a reduced depreciation charge in the income statement. The useful lives and residual values of Smaaash’s assets are determined by management at the time the asset is acquired and reviewed annually for appropriateness. The lives are based on historical experience with similar assets, certificates obtained from technical persons and anticipation of future events which may impact their life such as changes in technology. Historically changes in useful lives and residual values have not resulted in material changes to Smaaash’s depreciation charge and as of date hereof no such adjustments have been made. Results of Operations The following table sets forth select financial data from Smaaash’s income statement for the periods 112 Revenue● each person known by I-AM Capital to be a beneficial owner of more than 5% of its outstanding 6,813,500 shares of common stock; ● each of I-AM Capital’s officers and directors; and ● all of I-AM Capital’s officers and directors as a group. Name and Address of Beneficial Owners(2) Amount and
nature of
beneficial
ownership(1) Percentage of
outstanding
common stock Five Percent Owners: I-AM Capital Partners LLC(3) 1,561,500 22.9 % Boothbay Absolute Return Strategies LP(4) 568,400 8.3 % Polar Asset Management Partners Inc.(5) 458,000 6.7 % Karpus Management, Inc.(6) 457,125 6.7 % AQR Capital Management, LL(7) 450,000 6.6 % Hudson Bay Capital Management LP(8) 425,000 6.2 % HGC Investment Management Inc.(9) 408,750 6.0 % The K2 Principal Fund, L.P.(10) 400,000 5.9 % Directors and Officers: F. Jacob Cherian(3) 1,561,500 22.9 % Suhel Kanuga(3) 1,561,500 22.9 Donald R. Caldwell(11) — — Roman Franklin(11) — — Max Hooper(11) — — Frank Leavy(11) — — Edward Leonard Jaroski(11) — — William H. Herrmann, Jr.,(11) — — All Directors and Officers as a group (eight persons) 1,561,500 22.9 % (1) Does not include the exercise of the 5,200,000 warrants or rights included in the public units sold at the initial public offering and upon the exercise of the underwriter’s over-allotment option or the 261,500 warrants or rights that are included in the private placement units purchased by our Sponsor at the initial public offering and upon the exercise of the underwriter’s over-allotment option. Includes 52,000 shares issued to Maxim at closing of the initial public offering and the exercise of the underwriter’s over-allotment option, which do not have redemption rights to the trust. (2) (3) (4) (5) (6) (7) According to a Schedule 13G filed with the SEC on February 14, 2018, on behalf of AQR Capital Management, LLC, AQR Capital Management Holdings, LLC and CNH Partners, LLC. AQR Capital Management, LLC is a wholly owned subsidiary of AQR Capital Management Holdings, LLC. CNH Partners, LLC is deemed to be controlled by AQR Capital Management, LLC. The principal office of the stockholder is Two Greenwich Plaza, Greenwich, CT 0683. (8) According to a Schedule 13G filed with the SEC on February 2, 2018, on behalf of Hudson Bay Capital Management LP and Sander Gerber. Mr. Gerber serves as the managing member of Hudson Bay Capital GP LLC, which is the general partner of Hudson Bay Capital Management LP. Mr. Gerber disclaims beneficial ownership of these securities. The principal office of the stockholder is 777 Third Avenue, 30th Floor, New York, NY 10017. (9) According to a Schedule 13G filed with the SEC on February 1, 2018, on behalf of HGC Investment Management Inc. a company incorporated under the laws of Canada. The principal office of the stockholder is 366 Adelaide, Suite 601, and Toronto, Ontario M5V 1R9, Canada. (10) According to a Schedule 13G filed with the SEC on August 30, 2017 on behalf of Shawn Kimel (“Kimel”), Shawn Kimel Investments, Inc., an Ontario corporation (“SKI”), The K2 Principal Fund, L.P., an Ontario limited partnership (the “Fund”), K2 GenPar L.P., an Ontario limited partnership (the “GP”), K2 GenPar 2009 Inc., an Ontario corporation (“GenPar 2009"), and K2 & Associates Investment Management Inc., an Ontario corporation. Mr. Kimel is president of each of SKI, the GP, GenPar 2009 and K2 & Associates. The GP is the general partner of the Fund, and GenPar 2009 is the general partner of the GP. GenPar 2009 is a direct wholly-owned subsidiary of SKI. K2 & Associates is a direct 66.5% owned subsidiary of SKI, and is the investment manager of the Fund. The principal office of the stockholder is 2 Bloor St West, Suite 801, Toronto, Ontario, M4W 3E2. (11) Indirectly have an interest in the founder shares of common stock held directly by the Sponsor due to their partial ownership of the Sponsor. ● may significantly dilute the equity interest of our investors; ● may subordinate the rights of holders of common stock if we issue preferred shares with rights senior to those afforded to our common stock; ● could cause a change in control if a substantial number of our shares of common stock are issued, which may affect, among other things, our ability to use our net operating loss carry forwards, if any, and could result in the resignation or removal of our present officers and directors; ● may have the effect of delaying or preventing a change of control of us by diluting the stock ownership or voting rights of a person seeking to obtain control of us; and ● may adversely affect prevailing market prices for our securities. ● default and foreclosure on our assets if our operating revenues after our business combination are insufficient to pay our debt obligations; ● acceleration of our obligations to repay the indebtedness even if we have made all principal and interest payments when due if we breach certain covenants that require the maintenance of certain financial ratios or reserves without a waiver or renegotiation of that covenant; ● our immediate payment of all principal and accrued interest, if any, if the debt security is payable on demand; ● our inability to obtain additional financing if the debt security contains covenants restricting our ability to obtain additional financing while such security is outstanding; ● our inability to pay dividends on our common stock; ● using a substantial portion of our cash flow to pay principal and interest on our debt, which will reduce the funds available for dividends on our common stock if declared, expenses, capital expenditures, acquisitions and other general corporate purposes; ● limitations on our flexibility in planning for and reacting to changes in our business and in the industry in which we operate; ● increased vulnerability to adverse changes in general economic, industry and competitive conditions and adverse changes in government regulation; and ● limitations on our ability to borrow additional amounts for expenses, capital expenditures, acquisitions, debt service requirements, execution of our strategy and other purposes and other disadvantages compared to our competitors who have less debt. ● Indian companies raised Rs 1.6 trillion ($24.96 billion) through primary market in 2017. ● Moody’s upgraded India’s sovereign rating after 14 years to Baa2 with a stable economic outlook. ● India has improved its ranking in the World Bank’s Doing Business Report by 30 spots over its 2017 ranking and is ranked 100 among 190 countries in 2018 edition of the report. ● India’s ranking in the world has improved to 126 in terms of its per capita GDP, based on purchasing power parity (PPP) as it increased to $7,170 in 2017, as per data from the International Monetary Fund (IMF). ● India is expected to have 100,000 startups by 2025, which will create employment for 3.25 million people and $500 billion in value, as per Mr. T V Mohan Das Pai, Chairman, Manipal Global Education. ● The total projected expenditure of Union Budget 2018-19 is Rs 23.4 lakh crore ($371.81 billion), 9% higher than previous year’s budget, as laid out in the Medium Term Expenditure Framework (MTEF). ● India’s revenue receipts are estimated to touch Rs 28-30 trillion ($436- 467 billion) by 2019, owing to Government of India’s reforms like demonetisation and Goods and Services Tax (GST). ● India received the highest ever inflow of equity in the form of foreign direct investments (FDI) worth $43.4 billion in 2016-17 and has become one of the most open global economies by ushering in liberalization measures, as per the mid-year economic survey of India. Total FDI investments in India during April-December 2017 stood at $35.94 billion. ● The World Bank has stated that private investments in India is expected to grow by 8.8% in Fiscal Year 2018-19 to overtake private consumption growth of 7.4%, and thereby drive the growth in India’s gross domestic product (GDP) in Fiscal Year 2018-19. ● The Indian Government has also introduced the Digital India initiative, which focuses on three core components: creation of digital infrastructure, delivering services digitally and to increase the digital literacy. FEC Type 2018E 2019F 2020F 2021F 2022F CAGR (2018-2022) Arcade 670 754 864 1,010 1,208 15.9% VR Gaming 319 376 451 551 690 21.2% Sports Arcades 442 506 588 697 847 17.6% Others 166 183 204 232 268 12.8% Total 1598 1820 2108 2491 3014 17.2% FEC Type 2018E 2019F 2020F 2021F 2022F CAGR (2018-2022) Arcade 2407 2653 2933 3252 3609 10.7% VR Gaming 1724 2003 2333 2726 3187 16.6% Sports Arcades 2127 2404 2726 3101 3530 13.5% Others 453 501 550 602 655 9.6% Total 6711 7562 8543 9682 10981 13.1% ● Active games and interactive sports simulators (“Active Games”), including active game options such as single and multi-level go-karting lanes and bowling alleys, as well as interactive simulator-based game options such as Super Keeper, Hoop Shot, Extreme Drone Racing and more; ● In-house developed AR and VR games, including Finger Coaster, Jurassic Escape, Vertigo Walk The Plank, Fly Max and Haunted Hospital; and ● Arcade games and others, including Camel Racing, Hoop Shot and Human Claw; soft play zones (indoor play areas for young children, including a ball pool, designed to encourage longer and repeat visits to Smaaash’s Centers, doing away with the requirement for families to make alternative childcare arrangements for the duration of their visits to Smaaash’s Centers); and indoor game viewing areas, complemented by its in-house food and beverage services. Servicesand Nightlife Awards for Verbena, India Mice Awards for 18.99 Latitude Banquets, Best Indoor Kids Play Area for Mumbai and Runnerup Best Indoor Kids Play Area for Delhi in the year 2017.Commercial Criteria Other Criteria Sr No. Center Location Launch Date Carpet Area (in sq. ft) Key Game attractions food and beverage attractions 1. Mumbai Kamala Mills Compound, Gate No. 4, Lower Parel, Mumbai - 400 013 5thNovember, 2012 Carpet Area: 34,147 sq.ft. 2. Mumbai Verbena, Kamala Mills Compound, Gate No. 4, Lower Parel, Mumbai - 400 013 25thJanuary 2017 10,000 sq ft including kitchen and bar ● Restaurant ● Restaurant & Bar 3. Mumbai 18.99, Kamala Mills Compound, Gate No. 4, Lower Parel, Mumbai - 400 013 6thOctober 2016 15000 sq ft (pillarless banquet hall) ● Banquet Hall ● 4. Gurgaon – DLF Cyber Hub DLF Cyber Hub, Cyber City, Phase 2, NH 8, Gurgaon, Haryana - 122 002 29thMay, 2015 Super Area: 50,466 sq.ft. 5. Gurgaon - Oyster Sector 29, Adjoining Huda City Centre Metro Station, Gurgaon - 122002 21stJanuary, 2017 Covered Area: 3000 sq.ft + Open Terrace Space: 30,000 sq.ft. ● Pitstop Brew Pub with Micro Brewery 6. Noida A-501, B 504, 4th Floor, DLF Mall Of India, Sector 18, Noida - 201 301 28thApril, 2016 Super Area: 47033 sq.ft. 7. Hyderabad L-5, 3rd Floor, Inorbit Mall -Cyberbad, Apiic Software Layout, Hi-Tech City, Madhapur, Hyderabad- 500 081 24thJune, 2015 ● Mighty Small Restaurant & Bar 8. Bangalore 2nd& 3rd Floor, 1MG - Lido Mall, Trinity Circle, MG Road, Bengaluru - 560 001 21stJanuary 2016 Carpet Area: 17,795 sq.ft. Pub Exchange 9. Ludhiana - Neopolis Mall 2ndFloor, MBD Neopolis Mall, Ferozepur Road, Ludhiana - 141 004 14thOctober, 2016 Covered Area: 20,000 sq.ft. Verbana Brew Pub 10. Indore Treasure Island Next Mall, 5th Floor, 170 , RNT Marg Road, near SSP Office, Indore, 452001 16thJanuary, 2018 Covered Carpet Area 9,811 sq. ft. F&B to be launched 11. DB City, Bhopal R-9, 3rd Floor DB CITY Corporate Park, Arera Hills, Opp. Zone I, M.P. Nagar, Bhopal. (M .P.) India – 462011 15 April 2018 Covered Area: 5,068 sq.ft. 12. Seawoods Unit Nos. S-09 food and beverage, S-10 food and beverage & S-11, 2nd Floor, Seawoods Grand Central Mall, Sector 40 Node Nerul, Seawoods Railway Station, Navi Mumbai – 400706 5thMay 2018 Covered Area: 9,102 sq. ft. & additional open area of approx. 2560 sq. ft. and an open area of approx. 1072 sq. ft. F&B to be launched (additional Covered Carpet Area of 4,199 sq. ft. 13. USA Mall of America, 60E, Broadway Bloomington, Minnesota 20thDecember 2016 Floor Area: 57,552 sq.ft. Café & Bar 14. Delhi Ambience Mall, Plot No. 2, Nelson Mandela Marg, Vasant Kunj, New Delhi, Delhi 110070 28thNovember, 2017 Super Area: 48006 sq.ft. ● Unforked Cafe & Bar 15. Gurgaon - Ambience Mall 4th Floor, Ambience Mall, Gurgaon, Haryana 122001 28thNovember, 2017 Super Area: 42,500 sq.ft. ● Unforked Cafe & Bar 16. Ludhiana - Pavilion Mall 5th Floor, Pavilion Mall, Old Session Court, Near Fountain Chowk, Ludhiana, Punjab - 141001 4thApril, 2015 Gross leaseable Area: 33,775.75 sq.ft.; Usable area: 20225 sq.ft. Café & Bar 17. Chandigarh Plot No. 178-178 A, 3rd Floor, Elante Mall, Industrial & Business Park - 1, Chandigarh - 160002 21stNovember, 2013 Occupied Area: 30,970 sq.ft. Café & Bar 18. Bengaluru - Phoenix Market City 2ndFloor, Phoenix Market City, Whitefield Road, Devasandra Industrial Estate, Mahadevapura, Bengaluru, Karnataka 560048 29 November 2012 Carpet Area: 26,883 sq.ft. Café & Bar 19. Bangalore – Orion Mall 4th Floor, Orion Mall, Brigade Gateway 26/1 Malleshwarm West, Bangalore-560055 12 August 2012 Super Built Up Area: 39,920 sq.ft. ● Bowling Café & Bar 20. Pune Shop No 28, Ground Floor, Phoenix Marketcity, Viman Nagar, Nagar Road, Pune-411014 9thNovember, 2012 Carpet Area: 24,081 sq.ft. Café & Bar 21. Hyderabad - Forum Sujana Mall Unit No. 03-01, Forum Sujana Mall, Kukkatpally Village, Balanagar Mandal, Ranga Reddy District, Hyderabad 19thApril, 2018 Super Built up area: 25,092 sq.ft. 22. Mangalore Unit No. 325, 3rd floor, Forum Fiza Mall, Attavara Village, Cantonment Ward, Pandeshwar Road, Mangalore. 19thApril, 2018 Super Built up area: 16,680 sq.ft. 23. Mysore 4th floor, Mall of Mysore, Ittige Goddu- Indranagar Extension, Nazarabad, Mysore, Karnataka 19thApril, 2018 24. Hyderabad Zonah’s Neptune, Road No. 36, Jubilee Hills, Hyderabad 19thApril, 2018 4,145 Sq.ft. ● 5 lane Twilight Bowling Alley ● Soft beverages 25. Hyderabad 6 Mall, Fourth Floor, Tyagaraya Nagar, Kothapet, Ranga Reddy, Hyderabad 19thApril, 2018 15,296 sq.ft. ● Soft beverages 26. Hyderabad 2ndFloor, City Centre Mall, Road No. 1 & 10, Banjara Hills, Hyderabad - 500034 19thApril, 2018 Carpet Area: 7261 sq.ft. ● Soft beverages 27. Vijaywada 2ndfloor, LEPL CENTRO Mall, M.G. Road, Labbipet, Vijayawada – 520 010 19thApril, 2018 Chargeable Area: 4,419 sq.ft. - 28. Madurai Anchor 1 & 2, 4th Floor, Vishaal De Mall, No. 31 Gokhale Road, Chinna Chokkikulam, Madurai - 625002 19thApril, 2018 Carpet Area: 6933 sq.ft - 29. Pune, Spot 18 Mall (Franchised) Shop No. 202, Spot 18 Mall, Rahatani, Pune - 411017 December 2016 Carpet Area: 4000 sq ft 30. Hyderabad, Manjeera Mall (Franchised) 3rdfloor, Manjeera Mall, Kukatpally, Hyderabad - 500070 28thFebruary 2015 Carpet Area: 8600 sq ft 31. Hyderabad (Franchised) Unit 4b, Shri Tirumala Platinum -Janardhana Hills, Gachibowli village, Serilingampally Mandal, Ranga Reddy District 21stAugust 2015 Carpet Area: 3300 sq ft ● Bowling 32. Hyderabad (Franchised) 4thfloor, Secunderabad Centre, Neredmet Cross Roads, Secunderabad 1stSeptember 2017 Carpet Area: 6000 sq ft Food Safetystate legislatures in India are empowered to endow the municipalities with the power to implement schemes and Standards Act, 2006 (the “FSSA”)The FSSA was enacted on August 23, 2006 withperform functions in relation to matters listed in the Twelfth Schedule to the Constitution of India which includes regulation of public health. Various states of India have notified laws empowering the municipalities to regulate public health including the issuance of a view to consolidate the lawshealth trade license for operating eating outlets and implementation of regulations relating to food and to establish the Food Safety and Standards Authority of India (the “FSSAI”). The FSSAI sets out scientific standards for articles of food and regulates the manufacture, storage, storage, distribution, sale, and import and ensure availability of safe and wholesome food for human consumption. The FSSAI is required to provide scientific advice and technical support to the Government of India and the state governments in framing the policy and rules relating to food safety and nutrition.In exercise of powers under FSSA, the FSSAI has framed the Food Safety and Standards Rules, 2011, which have been operative since August 5, 2011. These rules provide the procedure for registration and licensing under the FSSA for every person or entity carrying on the food business. The rules also lay down detailed standards for various food products and the responsibilities and liabilities of food business operators.Legal Metrology Act, 2009 (the “Legal Metrology Act”)The Legal Metrology Act has come into effect from March 1, 2011 and seeks to establish and enforce standards of weights and measures, regulate trade and commerce in weights, measures and other goods which are sold or distributed by weight, measure or numbers and for matters connected therewith or incidental thereto.Excise lawsThe provisions of various excise legislations prohibit the sale of alcohol without obtaining a license in terms of their provisions and prescribesuch licenses along with penalties for non-compliance.Bombay Prohibition Act, 1949 (the “Bombay Prohibition Act”)Public order and police laws in various statesBombay Prohibition Act prohibitsstate legislatures in India are empowered to notify laws in relation to public order and police under Entries 1 and 2 of the saleState List (List II) of alcohol withoutTwelfth Schedule to the Constitution of India, pursuant to which various states of India have enacted laws regulating such establishments which include registering eating houses, places of public entertainment and gaming parlors, and obtaining a license in terms of its provisions. Also, sale of foreign liquor has to be made in terms of the Bombay Foreign Liquor Rules, 1953.‘no objection certificate’ for operating such establishments, along with prescribed penalties for non-compliance.The Andhra Pradesh Prohibition Act, 1995 (the “Andhra Pradesh Prohibition Act”)Fire safety laws in various statesAndhra Pradesh Prohibition Act prohibitsfire acts of various states provide that the selling, buying, beingoccupier of the building shall provide fire prevention and life safety measures in possessionsuch building or part thereof, minimum firefighting installations as specified against such buildings and consumption of liquor otherwise thanthe occupier shall maintain the prevention and life safety measures in good repair and efficient condition at all times, in accordance with the provisions of the Andhra Pradesh Excise Act, 1968.various fire acts or the rules made thereunder. The said owner or the occupier shall also obtain a certificate from the relevant authority in terms of the fire acts applicable in that particular state in relation to the aforesaid compliance.The Karnataka Prohibition Act, 1961 (the “Karnataka Prohibition Act”)The Karnataka Prohibition Act prohibits the manufacture, traffic in and consumption of liquors, save in the manner provided under the provisions of this Act or in accordance with the terms and conditions of a license, permit, pass or authorization granted.104Intellectual Property RegulationsTrade Marks Act, 1999 (the “Trade Marks Act”)The Trade Marks Act provides for the application and registration of trademarks in India. The purpose of the Trade Marks Act is to grant exclusive rights to marks such as a brand, label or heading and to obtain relief in case of infringement for commercial purposes as a trade description. An application for trademark registration has to be made to the Controller General of Patents, Designs and Trade Marks who is the Registrar of Trademarks for the purposes of the Trade Marks Act. The Trade Marks Act prohibits any registration of deceptively similar trademarks or chemical compound, among others. It also provides for penalties for infringement, falsifying and falsely applying trademarks.Patents Act, 1970 (the “Patents Act”)The Patents Act provides the exclusive rights for the owner of a patent to make, use, exercise, distribute and sell a patented invention. The Patents Act recognizes process patents as well as product patents. An application for a patent can be made by (i) person claiming to be the true and first inventor of the invention; (ii) person being the assignee of the person claiming to be the true and first inventor in respect of the right to make such an application; and (iii) legal representative of any deceased person who immediately before his death was entitled to make such an application.Copyright Act, 1957 (the “Copyright Act”)The Copyright Act protects literary and dramatic works, musical works, artistic works including maps and technical drawings, photographs and audio-visual works. The Copyright Act specifies that for the purposes of public performance of Indian or international music a public performance license must be obtained else it will invite criminal action. All those who play pre-recorded music in the form of gramophone records, music cassettes or compact discs in public places are required permission of the Phonographic Performance Limited for this purpose.Environmental RegulationsThe major statutes in India which seek to regulate and protect the environment against pollution related activities in India are the Environment (Protection) Act, 1986, the Air (Prevention and Control of Pollution) Act, 1981, the Water (Prevention and Control of Pollution) Act, 1974 and the rules made thereunder.The basic purpose of these statutes is to control, abate and prevent pollution. In order to achieve these objectives, central and state pollution control boards (“PCBs”), vested with powers to deal with water and air pollution, have been set up in each state. The PCBs are responsible for setting standards for maintenance of clean air and water and directing the installation of pollution control devices in industries to ensure that industries are functioning in compliance with the standards prescribed. PCBs also have the power of search, seizure and investigation if they are aware of, or suspect pollution. All industries and factories are required to obtain consent orders from the PCBs under the provisions of the above-mentioned statutes, are in compliance with the prescribed pollution control norms laid down. These consents are required to be renewed periodically.Foreign investment in IndiaForeign investment in India is governed primarily by the provisions of the Foreign Exchange Management Act, 1999 and the rules, regulations and notifications thereunder, as issued by the Reserve Bank of India from time to time, and the policy prescribed by the Department of Industrial Policy and Promotion, Ministry of Commerce and Industry, Government of India including the Consolidated Foreign Direct Investment Policy currently, effective from August 28, 2017 (the “FDI Policy”).Under the FDI Policy, there is presently no sectoral restriction on foreign direct investment in the sector in which the Target operates. However, there are constraints on and reporting requirements on foreign investments under the portfolio investment route in general, or through entities that are registered as foreign portfolio investors, or investors that qualify as non-resident Indians. The FDI Policy provides the methodology for calculation of total foreign investment (i.e., whether direct or indirect foreign investment) in an Indian company, which would apply at every stage of investment in Indian companies (i.e., including downstream investments in Indian companies).Recent regulatory developments in India have enabled cross-border mergers between Indian and overseas companies. Specifically, the Reserve Bank of India notified the Foreign Exchange Management (Cross Border Mergers) Regulations, 2018 on March 20, 2018. Based on these regulations, Shripal Morakhia, the founder and beneficial owner of approximately 33.6% of Smaaash, has agreed to transfer the founder group's complete equity interest in Smaaash (equal to his 33.6%) to I-AM Capital (the “Future Consolidation”) within three to six months after the closing of the Transaction. When combined with the Smaaash equity position being acquired by I-AM Capital in the Transaction, following the Future Consolidation, I-AM Capital will own more than 50% of the voting securities of Smaaash. Even prior to the consummation of the Future Consolidation, Shripal Morakhia has agreed that following the Transaction he will vote all of the shares of Smaaash equity that he beneficially owns in sync with the way I-AM Capital votes its shares of Smaaash, effectively giving I-AM Capital significant control over the operations of Smaaash.Other lawsIn addition to the foregoing, taxation statutes such as the Income Tax Act, 1961, Finance Act, 1994, and applicable local sales tax statutes, as well as labour and employment-related statutes such as the Shops and Establishments Act, 1958 (as applicable in various states in India), entertainment duty (as applicable in various states in India), the Electricity Act, 2003, Employees’ State Insurance Act, 1948, Employees’ Provident Funds and Miscellaneous Provisions Act, 1952, Minimum Wages Act, 1948, Payment of Bonus Act, 1965, Payment of Wages Act, 1936, Payment of Gratuity Act, 1972, the Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013 and, among other laws, the Companies Act 2013, and Information Technology Act, 2000, apply to the Target as to any other Indian company. Further, Goods & Services Tax was introduced with effect from 1st July 2017, to replace excise duty and VAT, besides some other taxes.105EmployeesThe following table shows information regarding Smaaash’s employees for the periods indicated: As of March 31, Title 2017 2018 General Management, Corporate and Administration 54 67 Sales and Marketing 41 52 Finance and Accounts 21 39 Front-end Staff 604 751 R&D and Manufacturing 13 25 Technical, IT & Maintenance 59 124 In addition, as of March 31, 2018, Smaaash utilized the services of over 255 persons on a contract basis. Smaaash’s employee compensation and benefits include salaries, discretionary bonuses and health insurance. Pension contributions are limited to contributions required to be made under Indian & US laws to state-run compulsory pension programs. Smaaash’s employees are not unionized and Smaaash has not experienced any work stoppages or significant labor disruptions during its operational history.● each person known by I-AM Capital to be a beneficial owner of more than 5% of its outstanding 6,813,500 shares of common stock; ● each of I-AM Capital’s officers and directors; and ● all of I-AM Capital’s officers and directors as a group. Name and Address of Beneficial Owners(2) Amount and
nature of
beneficial
ownership(1) Percentage of
outstanding
common stock Five Percent Owners: I-AM Capital Partners LLC(3) 1,561,500 22.9 % Boothbay Absolute Return Strategies LP(4) 568,400 8.3 % Polar Asset Management Partners Inc.(5) 458,000 6.7 % Karpus Management, Inc.(6) 457,125 6.7 % AQR Capital Management, LL(7) 450,000 6.6 % Hudson Bay Capital Management LP(8) 425,000 6.2 % HGC Investment Management Inc.(9) 408,750 6.0 % The K2 Principal Fund, L.P.(10) 400,000 5.9 % Directors and Officers: F. Jacob Cherian(3) 1,561,500 22.9 % Suhel Kanuga(3) 1,561,500 22.9 Donald R. Caldwell(11) — — Roman Franklin(11) — — Max Hooper(11) — — Frank Leavy(11) — — Edward Leonard Jaroski(11) — — William H. Herrmann, Jr.,(11) — — All Directors and Officers as a group (eight persons) 1,561,500 22.9 % (1) Does not include the exercise of the 5,200,000 warrants or rights included in the public units sold at the initial public offering and upon the exercise of the underwriter’s over-allotment option or the 261,500 warrants or rights that are included in the private placement units purchased by our Sponsor at the initial public offering and upon the exercise of the underwriter’s over-allotment option. Includes 52,000 shares issued to Maxim at closing of the initial public offering and the exercise of the underwriter’s over-allotment option, which do not have redemption rights to the trust. (2) (3) (4) (5) (6) (7) According to a Schedule 13G filed with the SEC on February 14, 2018, on behalf of AQR Capital Management, LLC, AQR Capital Management Holdings, LLC and CNH Partners, LLC. AQR Capital Management, LLC is a wholly owned subsidiary of AQR Capital Management Holdings, LLC. CNH Partners, LLC is deemed to be controlled by AQR Capital Management, LLC. The principal office of the stockholder is Two Greenwich Plaza, Greenwich, CT 0683. (8) According to a Schedule 13G filed with the SEC on February 2, 2018, on behalf of Hudson Bay Capital Management LP and Sander Gerber. Mr. Gerber serves as the managing member of Hudson Bay Capital GP LLC, which is the general partner of Hudson Bay Capital Management LP. Mr. Gerber disclaims beneficial ownership of these securities. The principal office of the stockholder is 777 Third Avenue, 30th Floor, New York, NY 10017. (9) According to a Schedule 13G filed with the SEC on February 1, 2018, on behalf of HGC Investment Management Inc. a company incorporated under the laws of Canada. The principal office of the stockholder is 366 Adelaide, Suite 601, and Toronto, Ontario M5V 1R9, Canada. (10) According to a Schedule 13G filed with the SEC on August 30, 2017 on behalf of Shawn Kimel (“Kimel”), Shawn Kimel Investments, Inc., an Ontario corporation (“SKI”), The K2 Principal Fund, L.P., an Ontario limited partnership (the “Fund”), K2 GenPar L.P., an Ontario limited partnership (the “GP”), K2 GenPar 2009 Inc., an Ontario corporation (“GenPar 2009"), and K2 & Associates Investment Management Inc., an Ontario corporation. Mr. Kimel is president of each of SKI, the GP, GenPar 2009 and K2 & Associates. The GP is the general partner of the Fund, and GenPar 2009 is the general partner of the GP. GenPar 2009 is a direct wholly-owned subsidiary of SKI. K2 & Associates is a direct 66.5% owned subsidiary of SKI, and is the investment manager of the Fund. The principal office of the stockholder is 2 Bloor St West, Suite 801, Toronto, Ontario, M4W 3E2. (11) Indirectly have an interest in the founder shares of common stock held directly by the Sponsor due to their partial ownership of the Sponsor. ● may significantly dilute the equity interest of our investors; ● may subordinate the rights of holders of common stock if we issue preferred shares with rights senior to those afforded to our common stock; ● could cause a change in control if a substantial number of our shares of common stock are issued, which may affect, among other things, our ability to use our net operating loss carry forwards, if any, and could result in the resignation or removal of our present officers and directors; ● may have the effect of delaying or preventing a change of control of us by diluting the stock ownership or voting rights of a person seeking to obtain control of us; and ● may adversely affect prevailing market prices for our securities. ● default and foreclosure on our assets if our operating revenues after our business combination are insufficient to pay our debt obligations; ● acceleration of our obligations to repay the indebtedness even if we have made all principal and interest payments when due if we breach certain covenants that require the maintenance of certain financial ratios or reserves without a waiver or renegotiation of that covenant; ● our immediate payment of all principal and accrued interest, if any, if the debt security is payable on demand; ● our inability to obtain additional financing if the debt security contains covenants restricting our ability to obtain additional financing while such security is outstanding; ● our inability to pay dividends on our common stock; ● using a substantial portion of our cash flow to pay principal and interest on our debt, which will reduce the funds available for dividends on our common stock if declared, expenses, capital expenditures, acquisitions and other general corporate purposes; ● limitations on our flexibility in planning for and reacting to changes in our business and in the industry in which we operate; ● increased vulnerability to adverse changes in general economic, industry and competitive conditions and adverse changes in government regulation; and ● limitations on our ability to borrow additional amounts for expenses, capital expenditures, acquisitions, debt service requirements, execution of our strategy and other purposes and other disadvantages compared to our competitors who have less debt. ● Indian companies raised Rs 1.6 trillion ($24.96 billion) through primary market in 2017. ● Moody’s upgraded India’s sovereign rating after 14 years to Baa2 with a stable economic outlook. ● India has improved its ranking in the World Bank’s Doing Business Report by 30 spots over its 2017 ranking and is ranked 100 among 190 countries in 2018 edition of the report. ● India’s ranking in the world has improved to 126 in terms of its per capita GDP, based on purchasing power parity (PPP) as it increased to $7,170 in 2017, as per data from the International Monetary Fund (IMF). ● India is expected to have 100,000 startups by 2025, which will create employment for 3.25 million people and $500 billion in value, as per Mr. T V Mohan Das Pai, Chairman, Manipal Global Education. ● The total projected expenditure of Union Budget 2018-19 is Rs 23.4 lakh crore ($371.81 billion), 9% higher than previous year’s budget, as laid out in the Medium Term Expenditure Framework (MTEF). ● India’s revenue receipts are estimated to touch Rs 28-30 trillion ($436- 467 billion) by 2019, owing to Government of India’s reforms like demonetisation and Goods and Services Tax (GST). ● India received the highest ever inflow of equity in the form of foreign direct investments (FDI) worth $43.4 billion in 2016-17 and has become one of the most open global economies by ushering in liberalization measures, as per the mid-year economic survey of India. Total FDI investments in India during April-December 2017 stood at $35.94 billion. ● The World Bank has stated that private investments in India is expected to grow by 8.8% in Fiscal Year 2018-19 to overtake private consumption growth of 7.4%, and thereby drive the growth in India’s gross domestic product (GDP) in Fiscal Year 2018-19. ● The Indian Government has also introduced the Digital India initiative, which focuses on three core components: creation of digital infrastructure, delivering services digitally and to increase the digital literacy. FEC Type 2018E 2019F 2020F 2021F 2022F CAGR (2018-2022) Arcade 670 754 864 1,010 1,208 15.9% VR Gaming 319 376 451 551 690 21.2% Sports Arcades 442 506 588 697 847 17.6% Others 166 183 204 232 268 12.8% Total 1598 1820 2108 2491 3014 17.2% FEC Type 2018E 2019F 2020F 2021F 2022F CAGR (2018-2022) Arcade 2407 2653 2933 3252 3609 10.7% VR Gaming 1724 2003 2333 2726 3187 16.6% Sports Arcades 2127 2404 2726 3101 3530 13.5% Others 453 501 550 602 655 9.6% Total 6711 7562 8543 9682 10981 13.1% ● Active games and interactive sports simulators (“Active Games”), including active game options such as single and multi-level go-karting lanes and bowling alleys, as well as interactive simulator-based game options such as Super Keeper, Hoop Shot, Extreme Drone Racing and more; ● In-house developed AR and VR games, including Finger Coaster, Jurassic Escape, Vertigo Walk The Plank, Fly Max and Haunted Hospital; and ● Arcade games and others, including Camel Racing, Hoop Shot and Human Claw; soft play zones (indoor play areas for young children, including a ball pool, designed to encourage longer and repeat visits to Smaaash’s Centers, doing away with the requirement for families to make alternative childcare arrangements for the duration of their visits to Smaaash’s Centers); and indoor game viewing areas, complemented by its in-house food and beverage services. Commercial Criteria Other Criteria Sr No. Center Location Launch Date Carpet Area (in sq. ft) Key Game attractions food and beverage attractions 1. Mumbai Kamala Mills Compound, Gate No. 4, Lower Parel, Mumbai - 400 013 5thNovember, 2012 Carpet Area: 34,147 sq.ft. 2. Mumbai Verbena, Kamala Mills Compound, Gate No. 4, Lower Parel, Mumbai - 400 013 25thJanuary 2017 10,000 sq ft including kitchen and bar ● Restaurant ● Restaurant & Bar 3. Mumbai 18.99, Kamala Mills Compound, Gate No. 4, Lower Parel, Mumbai - 400 013 6thOctober 2016 15000 sq ft (pillarless banquet hall) ● Banquet Hall ● 4. Gurgaon – DLF Cyber Hub DLF Cyber Hub, Cyber City, Phase 2, NH 8, Gurgaon, Haryana - 122 002 29thMay, 2015 Super Area: 50,466 sq.ft. 5. Gurgaon - Oyster Sector 29, Adjoining Huda City Centre Metro Station, Gurgaon - 122002 21stJanuary, 2017 Covered Area: 3000 sq.ft + Open Terrace Space: 30,000 sq.ft. ● Pitstop Brew Pub with Micro Brewery 6. Noida A-501, B 504, 4th Floor, DLF Mall Of India, Sector 18, Noida - 201 301 28thApril, 2016 Super Area: 47033 sq.ft. 7. Hyderabad L-5, 3rd Floor, Inorbit Mall -Cyberbad, Apiic Software Layout, Hi-Tech City, Madhapur, Hyderabad- 500 081 24thJune, 2015 ● Mighty Small Restaurant & Bar 8. Bangalore 2nd& 3rd Floor, 1MG - Lido Mall, Trinity Circle, MG Road, Bengaluru - 560 001 21stJanuary 2016 Carpet Area: 17,795 sq.ft. Pub Exchange 9. Ludhiana - Neopolis Mall 2ndFloor, MBD Neopolis Mall, Ferozepur Road, Ludhiana - 141 004 14thOctober, 2016 Covered Area: 20,000 sq.ft. Verbana Brew Pub 10. Indore Treasure Island Next Mall, 5th Floor, 170 , RNT Marg Road, near SSP Office, Indore, 452001 16thJanuary, 2018 Covered Carpet Area 9,811 sq. ft. F&B to be launched 11. DB City, Bhopal R-9, 3rd Floor DB CITY Corporate Park, Arera Hills, Opp. Zone I, M.P. Nagar, Bhopal. (M .P.) India – 462011 15 April 2018 Covered Area: 5,068 sq.ft. 12. Seawoods Unit Nos. S-09 food and beverage, S-10 food and beverage & S-11, 2nd Floor, Seawoods Grand Central Mall, Sector 40 Node Nerul, Seawoods Railway Station, Navi Mumbai – 400706 5thMay 2018 Covered Area: 9,102 sq. ft. & additional open area of approx. 2560 sq. ft. and an open area of approx. 1072 sq. ft. F&B to be launched (additional Covered Carpet Area of 4,199 sq. ft. 13. USA Mall of America, 60E, Broadway Bloomington, Minnesota 20thDecember 2016 Floor Area: 57,552 sq.ft. Café & Bar 14. Delhi Ambience Mall, Plot No. 2, Nelson Mandela Marg, Vasant Kunj, New Delhi, Delhi 110070 28thNovember, 2017 Super Area: 48006 sq.ft. ● Unforked Cafe & Bar 15. Gurgaon - Ambience Mall 4th Floor, Ambience Mall, Gurgaon, Haryana 122001 28thNovember, 2017 Super Area: 42,500 sq.ft. ● Unforked Cafe & Bar 16. Ludhiana - Pavilion Mall 5th Floor, Pavilion Mall, Old Session Court, Near Fountain Chowk, Ludhiana, Punjab - 141001 4thApril, 2015 Gross leaseable Area: 33,775.75 sq.ft.; Usable area: 20225 sq.ft. Café & Bar 17. Chandigarh Plot No. 178-178 A, 3rd Floor, Elante Mall, Industrial & Business Park - 1, Chandigarh - 160002 21stNovember, 2013 Occupied Area: 30,970 sq.ft. Café & Bar 18. Bengaluru - Phoenix Market City 2ndFloor, Phoenix Market City, Whitefield Road, Devasandra Industrial Estate, Mahadevapura, Bengaluru, Karnataka 560048 29 November 2012 Carpet Area: 26,883 sq.ft. Café & Bar 19. Bangalore – Orion Mall 4th Floor, Orion Mall, Brigade Gateway 26/1 Malleshwarm West, Bangalore-560055 12 August 2012 Super Built Up Area: 39,920 sq.ft. ● Bowling Café & Bar 20. Pune Shop No 28, Ground Floor, Phoenix Marketcity, Viman Nagar, Nagar Road, Pune-411014 9thNovember, 2012 Carpet Area: 24,081 sq.ft. Café & Bar 21. Hyderabad - Forum Sujana Mall Unit No. 03-01, Forum Sujana Mall, Kukkatpally Village, Balanagar Mandal, Ranga Reddy District, Hyderabad 19thApril, 2018 Super Built up area: 25,092 sq.ft. 22. Mangalore Unit No. 325, 3rd floor, Forum Fiza Mall, Attavara Village, Cantonment Ward, Pandeshwar Road, Mangalore. 19thApril, 2018 Super Built up area: 16,680 sq.ft. 23. Mysore 4th floor, Mall of Mysore, Ittige Goddu- Indranagar Extension, Nazarabad, Mysore, Karnataka 19thApril, 2018 24. Hyderabad Zonah’s Neptune, Road No. 36, Jubilee Hills, Hyderabad 19thApril, 2018 4,145 Sq.ft. ● 5 lane Twilight Bowling Alley ● Soft beverages 25. Hyderabad 6 Mall, Fourth Floor, Tyagaraya Nagar, Kothapet, Ranga Reddy, Hyderabad 19thApril, 2018 15,296 sq.ft. ● Soft beverages 26. Hyderabad 2ndFloor, City Centre Mall, Road No. 1 & 10, Banjara Hills, Hyderabad - 500034 19thApril, 2018 Carpet Area: 7261 sq.ft. ● Soft beverages 27. Vijaywada 2ndfloor, LEPL CENTRO Mall, M.G. Road, Labbipet, Vijayawada – 520 010 19thApril, 2018 Chargeable Area: 4,419 sq.ft. - 28. Madurai Anchor 1 & 2, 4th Floor, Vishaal De Mall, No. 31 Gokhale Road, Chinna Chokkikulam, Madurai - 625002 19thApril, 2018 Carpet Area: 6933 sq.ft - 29. Pune, Spot 18 Mall (Franchised) Shop No. 202, Spot 18 Mall, Rahatani, Pune - 411017 December 2016 Carpet Area: 4000 sq ft 30. Hyderabad, Manjeera Mall (Franchised) 3rdfloor, Manjeera Mall, Kukatpally, Hyderabad - 500070 28thFebruary 2015 Carpet Area: 8600 sq ft 31. Hyderabad (Franchised) Unit 4b, Shri Tirumala Platinum -Janardhana Hills, Gachibowli village, Serilingampally Mandal, Ranga Reddy District 21stAugust 2015 Carpet Area: 3300 sq ft ● Bowling 32. Hyderabad (Franchised) 4thfloor, Secunderabad Centre, Neredmet Cross Roads, Secunderabad 1stSeptember 2017 Carpet Area: 6000 sq ft Investment Amount (US Dollars in Millions) $5 $25 $35 $49 % of I-AM Capital Public Shares Redeemed 90% 49% 29% 0.00% Current Smaaash Shareholders (Less founders) 71.93% 59.42% 54.32% 48.13% I-AM Capital 28.07% 40.58% 45.68% 51.87% As of March 31, Title 2017 2018 General Management, Corporate and Administration 54 67 Sales and Marketing 41 52 Finance and Accounts 21 39 Front-end Staff 604 751 R&D and Manufacturing 13 25 Technical, IT & Maintenance 59 124 106● Active games and interactive sports simulators (“Active Games”), including active game options such as single and multi-level go-karting lanes and bowling alleys, as well as interactive simulator-based game options such as Super Keeper, Hoop Shot, Extreme Drone Racing and more; ● In-house developed AR and VR games, including Finger Coaster, Jurassic Escape, Vertigo Walk The Plank, Fly Max and Haunted Hospital; and ● Arcade games and others, including Camel Racing, Hoop Shot and Human Claw; soft play zones which are conceptualized as indoor play areas for young children, including a ball pool, designed to encourage longer and repeat visits to Smaaash’s Centers and doing away with the requirement for families to make alternative childcare arrangements for the duration of their visits to its Centers; and indoor game viewing areas. ”", and Active Games such as Super Keeper, Hoop Shot and Extreme Drone Racing, among othersSmaash’sSmaaash’s Results of Operationsyear 2016 andyears 2017 and the nine-month period ended December 31, 20172018 were Rs.141 million, Rs.243 million and Rs.281Rs.385 million, respectivelyrespectively.2016 and 2017 and for the nine-month period ended December 31, 20172018 were Rs.74 million, Rs.131 million and Rs.180Rs.267 million, respectively. The rent is either on a minimum guarantee basis or revenue sharing or a combination of the two.107Rs. 976 million, Rs.2.043 billion, and Rs. 3.0082.936 billion, as of fiscal 2016 andMarch 31, 2017 and December 31, 2017,2018, respectively. Finance costs in fiscal 2016 and 2017 and the nine-month period ended December 31, 2017 Rs.73 million,2018 were Rs.236 million and Rs.338Rs.433 million, respectively. Smaaash expects that it will continue to use debt to finance itits business and operation.accountedconsumed was Rs. 225 million and Rs. 142 million for 20% of its total expenditure, during fiscal year 2017.2018 and 2017, respectively. ● growth in EBITDA, calculated as operating profit before depreciation and amortization; ● timing and quantum of future capital expenditures; ● long-term growth rates; and ● the selection of discount rates to reflect the risks involved. 7.95%7.35% and 7.35%7.40% for the fiscal years 20162017 and 2017,2018 respectively. Any changes in these assumptions will have an effect on the carrying amount of employment benefits. After considering professional advice, management determines the appropriate discount rate at the end of each fiscal year. This is the interest rate used to discount the defined benefit obligation and calculate the net interest recognized in profit or loss on the net defined benefit liability. In determining the appropriate discount rate, consideration is given to the interest rates of high quality corporate bonds that are denominated in the currency in which the benefits are to be paid and that have terms of maturity approximating the terms of the related pension obligation. For example, management confirmed the other key assumptions relevant to the defined employment benefit obligations are based in part on current market conditions.108 Type of asset Estimated useful lives
(Years) Office Equipment 5 Plant and machinery 8-15 Furniture & Fixtures 5-11 Vehicles 8 Computers 3 Electrical Equipments 10 indicated:indicated (in Rs. Thousands): Sr No. Particulars For the year
ended March
31, 2018 For the year
ended March
31, 2017 I Revenue from operations 1,746,459 995,489 II Product sales 378,466 153,101 III Other income 18,959 21,196 III Total revenue 2,143,884 1,169,786 IV Expenses Cost of material consumed 224,832 142,370 Purchase of stock-in-trade 304,951 116,434 Change in inventories of stock-in-trade (46,131 ) (17,963 ) Employee benefit expense 385,306 242,633 Finance costs 433,184 235,528 Depreciation and amortisation expense 553,552 298,361 Pre launch expenses 36,991 41,872 Other expenses 816,983 463,450 Total expenses 2,709,668 1,522,685 Loss from operations (III - IV) (565,784 ) (352,897 ) Exceptional Items 26,813 V Loss before tax (III - IV) (592,597 ) (352,899 ) VI Tax expense Current tax (2,091 ) 1,173 Deferred tax (260,723 ) (106,522 ) Total tax expense (262,814 ) (105,349 ) VII Loss for the period from continuing operations (V - VI) (329,783 ) (247,550 ) VIII Loss from discontinued operations before tax 34 (15,933 ) IX Tax expense of discontinued operations — (467 ) X Loss from discontinued operations after tax (VIII - IX) 34 (15,466 ) XI Loss for the period (VII + X) (329,749 ) (263,016 ) XII Other comprehensive income 2,920 (17,299 ) XIII Total comprehensive income for the period (XI + XII) (326,829 ) (280,315 ) 109 (Rs. in thousands) Sr No. Particulars For the nine
months ended
December 31,
2017For the year
ended March
31, 2017For the year
ended March
31, 2016 I Revenue from operations 1,232,783 995,489 527,710 II Product sales 211,815 153,101 17,980 III Other income 16,129 22,593 27,979 III Total revenue 1,460,727 1,171,183 573,669 IV Expenses Cost of material consumed 169,709 142,370 72,925 Purchase of stock-in-trade 233,121 116,434 5,962 Change in inventories of stock-in-trade (57,931) (17,963) 1,636 Employee benefit expense 281,402 242,632 141,324 Finance costs 338,467 235,528 73,361 Depreciation and amortisation expense 381,301 298,361 161,203 Other expenses 617,234 506,720 362,098 Total expenses 1,963,303 1,524,082 818,509 Loss from operations (III - IV) (502,576) (352,899) (244,840) Impairment of leasehold improvements 15,871 V Loss before tax (III - IV) (518,447) (352,899) (244,840) VI Tax expense Current tax (1,083) 1,173 — Deferred tax (154,048) (106,522) (70,291) Total tax expense (155,131) (105,348) (70,291) VII Loss for the period from continuing operations (V - VI) (363,316) (247,551) (174,549) VIII Loss from discontinued operations before tax 131 (15,933) (15,749) IX Tax expense of discontinued operations — (467) (475) X Loss from discontinued operations after tax (VIII - IX) 131 (15,466) (15,274) XI Loss for the period (VII + X) (363,185) (263,017) (189,823) XII Other comprehensive income (1,792) (17,299) (144) XIII Total comprehensive income for the period (XI + XII) (364,977) (280,315) (189,967)
Smaaash’s revenue comprises revenue from operations and other income.
Revenue from Operations
The following table shows a breakdown of Smaaash’s revenue from operations including product sales for the periods indicated:indicated (in Rs. Thousands):
(Rs. in thousands)
| |||||||||||
Particulars | For the nine months ended December 31, 2017 | For the year ended March 31, 2017 | For the year ended March 31, 2016 | For the year ended March 31, 2018 | For the year ended March 31, 2017 | ||||||
a) Revenue from rendering of services | |||||||||||
- Gaming | 552,413 | 478,562 | 249,756 | 801,526 | 478,562 | ||||||
- Food and beverages | 339,053 | 216,777 | 115,554 | 477,646 | 216,777 | ||||||
- Banquet, corporate events and others | 279,760 | 246,073 | 114,637 | 355,228 | 246,073 | ||||||
- Sponsorship fees | 55,820 | 50,748 | 43,722 | 97,035 | 50,748 | ||||||
b) Other operating revenue | |||||||||||
- Professional charges | 498 | 20 | — | 3,154 | 20 | ||||||
- Income from exhibits, merchandise and others | 5,239 | 3,309 | 4,041 | 11,870 | 3,309 | ||||||
c) Product Sales | 211,815 | 153,101 | 17,980 | 378,466 | 153,101 | ||||||
Total | 1,444,598 | 1,148,590 | 545,690 | 2,124,924 | 1,148,592 |
Smaaash’s revenue from operations are categorized into three components:
Revenue from rendering of services: This comprises (i) revenue from gaming (ii) revenue from food & beverages sold at the centers (iii) revenue from banqueting services which include corporate events, weddings, etcetc. (iv) revenue from sponsorship fees. The total amount of revenue from services depends on the number of retail traffic at our centers and their propensity to spend. Ability to continually attract corporate and wedding events also contribute significantly to the revenue under this head.
Other Operating Revenue: This comprises (i) professional charges and (ii) income from exhibits, sale of merchandise, etc.
Product Sales: This revenue is for the sale of Smaaash’s gaming AR & VR products to third-party users, including leading international theme parks. To boost its revenues Smaaash continually and actively participates in trade fairs, exhibitions and industry conventions to expand its client base.
Smaaash’s revenue from operations increased by 110% to Rs. 1,149 million inFor the fiscal year 2017 from Rs. 546 million in fiscal year 2016, primarily on account of the addition of new centers and the launch of a banquet facility, 18.99 Latitude and the restaurants Verbena and Pravas in the vicinity of the Mumbai center. Addition of new centers has also contributed to the growth in revenues from gaming and food & beverage. Further, for the nine-month period ended DecemberMarch 31, 2017,2018, the revenue from operations is Rs 1.4452.124 billion, an increase of 92%85% over the nine-month period ended December 31, 2016fiscal year 2017 numbers as the numbers for the nine-month period ended December 31, 2017 includesinclude revenues from inorganic acquisitions by Smaaash of PVR Blu O and assets of SVM centers.
The Product Sales business has grown to Rs 212378 million in the nine-month period ended December 31, 2017 from Rs 97 million for the nine-month period ended December 31, 2016 and from 18 million in fiscal year 2016 to2018 from Rs 153 million for the fiscal year 2017 on account of the expansion of our product folio and the addition of new customers.
Other Income
The following table shows Smaaash’s components of other income for the periods indicated:indicated (in Rs. Thousands):
(Rs. in thousands) | |||||||||||
Particulars | For the nine months ended December 31, 2017 | For the year ended March 31, 2017 | For the year ended March 31, 2016 | For the year ended March 31, 2018 | For the year ended March 31, 2017 | ||||||
a) Interest income: | |||||||||||
- Bank deposits | 2,268 | 2,234 | 2,708 | 2,456 | 2,234 | ||||||
- Other financial assets carried at amortised cost | — | — | — | ||||||||
- Unwinding of security deposits | 6,858 | 8,855 | 5,290 | 9,056 | 8,855 | ||||||
- Income tax refund | — | 166 | 188 | — | 166 | ||||||
b) Sundry credit balances written back | 12,144 | 16,117 | 13,916 | 12,449 | 16,117 | ||||||
c) Net foreign exchange gain/ (loss) | 1,074 | — | 4,383 | 5,056 | (1,397 | ) | |||||
d) Other income: | |||||||||||
- Net gain/(loss) arising on financial assets carried at FVTPL | 1,643 | 7,078 | 1,480 | 1,681 | 7,078 | ||||||
- Net gain/(loss) arising on financial liabilities carried at amortised cost | (9,028) | (12,337) | (225) | (9,028 | ) | (12,337 | ) | ||||
- Advances written off | — | ||||||||||
- Net gain/(loss) arising on financial liabilities carried at FVTPL | (6,869 | ) | — | ||||||||
- Miscellaneous income | 1,170 | 480 | 239 | 4,158 | 480 | ||||||
Total | 16,129 | 22,593 | 27,979 | 18,959 | 21,196 |
Smaaash’s Other Income comprises interest income on bank deposits, security deposits and income tax refund. It also includes sundry credit balances written back on account of the unutilized balances lying unused for more than 6 months in gaming cards written back. This amount keeps fluctuating based on the usage of the cards. The Other Income category also includes foreign exchange gain and notional gains / (losses) arising from valuation of financial assets and liabilities.
Expenses
Smaaash’s expenses mainly comprise of (i) Employee Benefit Expenses, (ii) Other Expenses, and (iii) Finance CostsCosts.
Employee Benefits Expense: Smaaash’s employee benefits expense is comprise of salaries, discretionary bonuses and allowances, contributions to Provident and other funds, and staff welfare expenses. The following table shows the components of Smaaash’s employee benefits expenses for the periods indicated:indicated (in Rs. Thousands):
(Rs. in thousands)
| |||||||||||
Particulars | For the nine months ended December 31, 2017 | For the year ended March 31, 2017 | For the year ended March 31, 2016 | For the year ended March 31, 2018 | For the year ended March 31, 2017 | ||||||
a) Salaries and wages, including bonus | 240,102 | 209,532 | 112,206 | 335,089 | 209,532 | ||||||
b) Contribution to provident and other funds | 26,637 | 19,320 | 14,992 | 27,616 | 19,320 | ||||||
c) Gratuity | 14,381 | 10,465 | 12,451 | 2,800 | 3,315 | ||||||
d) Staff welfare expenses | 282 | 3,315 | 1,675 | 19,801 | 10,466 | ||||||
Total employee benefit expense | 281,402 | 242,632 | 141,324 | 385,306 | 242,633 |
Smaaash’s employee benefits expense comprises salaries, discretionary bonuses and allowances, contributions to provident and other funds, gratuity and staff welfare expenses. Smaaash’s employee benefit expenses have increased by 72%58% to Rs. 385 million in fiscal year 2018 from Rs. 243 million in fiscal year 2017 from Rs. 141 million in fiscal year 2016 and is Rs. 281 million for the nine-month period ended December 31, 2017 as compared to Rs 160 million for the nine-month period ended December 31, 2016.2017. The increase in employee cost has been primarily on account of addition of headcount for supporting the growth of the business at the center and at the corporate level. The employee strength has doubled to 1,393 as on December 31, 2017 from 777 as on March 31, 2017 and 625 as on March 31, 2016.
Other Expenses: Other expenses include, among other things, expenses related to state government fees and taxes, travelling and conveyance expenses, rent, office and general expenses and power and fuel expenses. The following table shows the components of Smaaash’s other expenses for the periods indicated:indicated (in Rs. Thousands):
(Rs. in thousands) | |||
Particulars | For the nine months ended December 31, 2017 | For the year ended March 31, 2017 | For the year ended March 31, 2016 |
Stores and spares consumed | 23,758 | 13,562 | 6,458 |
Utility charges | 84,607 | 68,390 | 41,563 |
Lease expense | 180,016 | 130,595 | 74,393 |
Repairs and maintenance charges | 34,843 | 24,060 | 14,896 |
Insurance | 6,973 | 7,215 | 1,457 |
Rates, taxes and license fee | 34,877 | 44,473 | 22,311 |
Communication expenses | 9,714 | 7,378 | 5,079 |
Travelling and conveyance expenses | 23,817 | 22,960 | 14,968 |
Printing and stationery | 3,227 | 4,517 | 4,606 |
Branding expenses | 17,191 | 43,034 | 79,592 |
Advertisement and business promotion | 57,523 | 51,477 | 44,297 |
Legal and other professional costs | 69,288 | 26,225 | 20,243 |
Fund raising and related costs | — | 9,366 | 2,250 |
Recruitment charges | 1,317 | 5,660 | 1,010 |
House keeping charges | 17,263 | 12,885 | 7,622 |
Hire charges | 619 | 646 | 911 |
Labour and other related expenses | 3,032 | 3,961 | 3,402 |
Security charges | 7,223 | 7,209 | 6,729 |
Payment to auditors | 1,923 | 3,032 | 1,400 |
Bank charges and credit card commission | 17,552 | 12,223 | 5,148 |
Bad debts | — | — | 1,248 |
Advances written off | — | 1,091 | — |
Provision for doubtful debts | 1,198 | 716 | — |
Foreign exchange loss (net) | — | 1,397 | — |
Donation | 44 | 46 | 500 |
Loss on property, plant and equipment sold/ written off | 9,143 | — | — |
Miscellaneous expenses | 12,086 | 4,602 | 2,015 |
Total | 617,234 | 506,720 | 362,098 |
Particulars | For the year ended March 31, 2018 | For the year ended March 31, 2017 | ||||||
Stores and spares consumed | 33,885 | 13,562 | ||||||
Utility charges | 117,285 | 68,390 | ||||||
Lease expense | 267,467 | 130,595 | ||||||
Repairs and maintenance charges | 34,977 | 24,060 | ||||||
Insurance | 11,826 | 7,215 | ||||||
Rates, taxes and license fee | 69,935 | 44,473 | ||||||
Communication expenses | 14,460 | 7,378 | ||||||
Travelling and conveyance expenses | 35,725 | 22,960 | ||||||
Printing and stationery | 4,415 | 4,517 | ||||||
Branding expenses | — | 1,163 | ||||||
Advertisement and business promotion | 80,021 | 51,477 | ||||||
Legal and other professional costs | 76,457 | 26,225 | ||||||
Fund raising and related costs | — | 9,366 | ||||||
Recruitment charges | 2,326 | 5,660 | ||||||
House keeping charges | 26,974 | 12,885 | ||||||
Hire charges | 1,004 | 646 | ||||||
Labour and other related expenses | 3,905 | 3,961 | ||||||
Security charges | 13,813 | 7,209 | ||||||
Payment to auditors | 4,707 | 3,032 | ||||||
Advances written off | — | 1,091 | ||||||
Provision for doubtful debts | 1,551 | 716 | ||||||
Donation | 44 | 46 | ||||||
Loss on property, plant and equipment sold/ written off | 455 | — | ||||||
Miscellaneous expenses | 15,751 | 16,823 | ||||||
Total | 816,983 | 463,450 |
Smaaash’s other expenses have increased by 40%76% to Rs. 507816 million in fiscal year 20172018 from Rs. 362463 million in fiscal year 2016. The other expenses for the nine-month period ended December 31, 2017 is Rs 617 million, a 69% increase from Rs 364 million for the nine-month period ended December 31, 2016.2017. The increase in other expenses, including but not limited to lease rentals, increase in use of consumables, utility charges, advertising and branding charges, was due to the increased number of centers. The legal and professional charges of Rs 7076 million for the period ended nine-month December 31, 2017fiscal year 2018 compared to Rs 2426 million for the nine-month period ended December 31, 2016fiscal year 2017 was on account of the payments made to advisors for the acquisitions and one-off legal expenses. A large proportion of Smaaash’s expenses is relatively fixed, including the cost of full-time employees, fixed rentals, interest costs, security and insurance, and would not vary significantly with retail traffic at our Centers. However, these expenses may continue to increase, in the aggregate, from year to year, particularly as we continue to expand our network of centers in the future.
Finance Costs: The following table shows the components of Smaaash’s finance costs for the periods indicated:indicated (in Rs. Thousands):
(Rs. in thousands) | |||||||||||
Particulars | For the nine months ended December 31, 2017 | For the year ended 31st March, 2017 | For the year ended 31st March, 2016 | For the year ended 31st March, 2018 | For the year ended 31st March, 2017 | ||||||
a) Interest costs: | |||||||||||
- on loans from banks | 10,103 | 16,773 | 29,664 | 15,861 | 16,773 | ||||||
- on loans from financial institutions | 74,840 | 71,205 | 42,389 | 98,804 | 71,205 | ||||||
- on debentures | 242,894 | 128,643 | — | 305,740 | 128,643 | ||||||
- other interest expenses | 474 | 366 | — | 642 | 366 | ||||||
b) Processing fees and related costs | 10,156 | 18,541 | 1,308 | 12,137 | 18,541 | ||||||
Total | 338,467 | 235,528 | 73,361 | 433,184 | 235,528 |
Smaaash has been constantly expanding by opening up new centers organically and inorganically. Company has been utilizing debt to fund such expansion which has contributed to the high-growth trajectory of the business. The total borrowings as at March 31, 2017 was Rs. 2.043 billion and Rs 2.936 billion as at March 31, 2016 was Rs. 976 million. The total borrowings as at December 31, 2017 was Rs. 3.008 billion and as at December 31, 2016 was Rs. 1.928 billion.2018. The variation in debt for such periods has contributed to the variance in finance costs for the said periods.
Depreciation, Amortization and Impairment Expense: Depreciation and amortization expense comprises depreciation of plant and machinery and other equipment, furniture, office equipment, vehicles, computer hardware and amortization of computer software and other intangible assets. Smaaash’s depreciation, amortization and impairment expense increased to Rs.298 million forFor the fiscal year ended March 31, 2017 from Rs.161 million for the fiscal year March 31, 2016. For the nine-month period ended December 31, 2017,2018, the depreciation and amortization expense was Rs. 381553 million, an 88%85% increase from Rs. 203298 million for the nine-month period ended December 31, 2016.fiscal year 2017. This was primarily as a result of an increase in capital assets resulting from an increase in the number of centers.
Income Tax Expense:
Income tax comprises current tax and deferred tax. Provision for current income tax is made on the assessable income and benefits at the rate applicable to the relevant assessment year. Deferred tax assets and liabilities are recognized for the future tax consequences of timing differences, subject to certain considerations. Deferred tax is measured using the tax rates enacted or substantively enacted as of the balance sheet date. Deferred assets carried forward are reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow the benefit of part or all of the deferred tax asset to be utilized. Any reduction shall be reversed to the extent that it becomes probable that sufficient taxable profit will be available.
Financial Condition, Liquidity and Sources of Capital
Cash Flows
The table below summarizes Smaaash’s cash flows for the fiscal years 20172018 and 2016 and nine-month period ended December 31, 2017 (in Rs. Thousands):
For the nine months ended December 31, 2017 | Fiscal Year 2017 | Fiscal Year 2016 | Fiscal Year 2018 | Fiscal Year 2017 | ||||||||||||||||
Net Cash From/(Used in) Operating Activities | (13,229 | ) | 171,179 | (82,685 | ) | (143,077 | ) | 190,306 | ||||||||||||
Net Cash From/(Used in) Investing Activities | (1,962,531 | ) | (1,152,892 | ) | (853,954 | ) | (2,151,435 | ) | (1,152,892 | ) | ||||||||||
Net Cash Provided By/(Used in) Financing Activities | 2,012,547 | 1,090,613 | 923,408 | 2,280,823 | 1,071,486 | |||||||||||||||
Net Increase in/(Decrease in) Cash And Cash Equivalents | 36,787 | 108,900 | (13,230 | ) | (13,689 | ) | 108,900 |
Operating Activities
Net cash from operating activities consisted of a net loss before tax as adjusted primarily for non-cash and non-operating items, such as depreciation, amortization and impairment, finance costs, and gains / losses arising from accounting valuation of financial assets and liabilities. The change from fiscal year 20162017 to fiscal year 20162018 is mainly due to difference in operating profit before working capital changes. Changes in working capital primarily constitute of changes in trade and other receivables, inventory and trade payables. The changes in cash flow from operating activities for the nine-month period ended December 31, 2016 to the nine-month period ended December 31, 2016 is due to significant amount of change in working capital.
Investing Activities
Net cash from investing activities consisted primarily of payments for property, plant and equipment. Payments for property, plant and equipment for 9 months ended December 31, 2017purchase of fixed assets was Rs. 1.978 billionRs 2,182 million fiscal year 2018 compared to Rs. 900Rs 1,200 million for the nine-month period ended December 31, 2016. In fiscal year 2017, the payment was Rs. 1.201 billion against Rs. 793 million paid in fiscal year 2016.2017.
Financing Activities
Net cash from financing activities constitutes mainly of proceeds and repayment of borrowings and issue of share capital. The proceeds from borrowings for fiscal year 2017 was Rs. 2.096 billion while it was Rs. 956 millionRs 3.011 billion in fiscal year 2016.2018. Smaaash repaid Rs 1.035 billion in fiscal year 2017 and Rs. 134 million2.136 billion in fiscal year 2016. For the nine-month period ended December 31, 2017, the amount received from issue of share capital was Rs 736 million. For the nine-month period ended December 31, 2016, this was Rs. 234 million. Borrowings repaid in the nine-month period ended December 31, 2017 was Rs 1.689 billion while it was Rs. 962 million for the nine-month period ended December 31, 2016.2018.
Borrowings
The total borrowings as at DecemberMarch 31, 20172018 was Rs. 3.0082.936 billion compared to Rs. 1.9282.043 billion as at DecemberMarch 31, 2016.2017. The increase in debt is primarily due to additional debt taken for the inorganic acquisitions of PVR bluO and assets of SVM centers. Smaaash is continuously expanding its center portfolio and has taken additional debt for such expansion. As a result of such debt, the total borrowings have increased from Rs. 976 million in fiscal year 2016 to Rs. 2.043 billion in fiscal year 2017.
The following table summarizes Smaaash’s secured and unsecured long-term indebtedness as of December 2017:March 31, 2018:
Particulars | Secured / Unsecured | Outstanding indebtedness as of December 31, 2017 (Rs. Million) | Interest Rate %* | Secured / Unsecured | Outstanding indebtedness as of March 31, 2018 (Rs. Million) | Interest Rate %* | |||||||
NCD- ECL Finance | Secured | 2,137 | 14.75% | Secured | 2,200 | 14.75 | % | ||||||
SIDBI – Loan 1 | Secured | 90 | 15.50% | Secured | 90 | 15.50 | % | ||||||
SIDBI- Loan 2 | Secured | 99 | 13.95% | Secured | 99 | 13.95 | % | ||||||
Tata Capital | Secured | 246 | 12.25% | Secured | 206 | 12.25 | % | ||||||
HDFC- Loan 1 | Secured | 100 | 12.50% | Secured | 25 | 12.50 | % | ||||||
HDFC – Loan 2 | Secured | 100 | 12.50% | Secured | 75 | 12.50 | % | ||||||
HDFC – Loan 3 | Secured | 100 | 12.50% | Secured | 100 | 12.50 | % | ||||||
YES Bank | Secured | 133 | 11.00% | Secured | 135 | 11.00 | % | ||||||
AHA Holdings | Unsecured | 3.0 | Interest Free | Unsecured | 6 | Interest Free | |||||||
Total | 3,008 | 2,936 |
A. Details of Secured Borrowings of Smaaash
Set forth below is a summary of Smaaash’s secured borrowings as of DecemberMarch 31, 20172018 (unless otherwise stated)
Lender | Amount Outstanding as of 31, million) | Repayment / Tenor | Security |
NCD- ECL Finance | Issuer shall repay to debenture holder 50%, 4%, 13% 15% and 18% of investment amount in fiscal year 2019, fiscal year 2020, fiscal year 2021, fiscal year 2022 and in fiscal year 2023 respectively | 1. A-2/5, A-2/6 in building no. A known as “Prithvi Apartments” of Prithvi Apartments Co-op. Hsg. Soc. Ltd.” situated at Altamount Road, Mumbai- 400 026 property owned by Mrs. Kalpana Morakhia 2. Plot No. 10, Lonawala Bungalow property owned by AHA Holdings Private Limited 3. SAM Family Trust to create mortgage over its immovable properties situated at Plot No. 1, Survey No 1088 & 109, Village – Kunenama, Taluka – Maval, District Pune 410401 4. B-4501, B4601 - Lodha Premises owned by AHA Holding Private Limited 5. Mr. Sushil Karalkar and Elements Learning Centre Private Limited to create mortgage over its immovable properties situated at Gut No. 219A & 219B at Village Atone, Tal. Sudhagad, Dist. Raigad 6. Harihar para. Gobindapur, baruipur road. Harinabhi. P.s: sonarpur. Dt: 24 pargana( south) . Kolkata -700145. 6. Pledge 100% shareholding of AHA Holdings Private Limited. 7. Pledge 100% shareholding of Elements Learning Centre Private Limited. 8. Pledge 100% shareholding of Gir Holiday Resorts Private Limited. 9. Pledge 100% shareholding of Smaaash Leisure Limited (Formerly known as PVR Bluo Entertainment Limited). 10. Pledge over equity shares of Smaaash Entertainment Private Limited held by AHA Holdings Private Limited. 11. Charge on investments held in Kotak India Venture Fund – I, Kotak India Growth Fund – II and Kotak Alternate Opportunities (India) Fund held by AHA Holdings Private Limited 12. Exclusive charge over all fixed, movable & current assets of Smaaash Entertainment Private Limited 13. Charge over warrants of Yoboho New Media Private Limited held by AHA Holdings Private Limited. 14. Mr. Paresh Patel to create mortgage over its immovable properties situated at Survey No – 361, Village Gadhiya, Taluka Dhari, District Amreli, Gujarat. 13. Corporate Guarantee by AHA Holdings Private Limited 14. Personal Guarantee by Mr. Shripal Morakhia & Mrs. Kalpana Morakhia 15. Corporate Guarantee by Smaaash Entertainment USA Limited |
SIDBI – Loan 1 | 90 | Loan shall be repaid in 84 monthly instalments after a moratorium of 36 month commencing from February 10, 2018. After 36 month the loan amount will be repaid in 47 instalments of Rs 2.1 million each and balance Rs 1.3 million in last instalment. | The loan amount is secured by second charge on all movables assets including current assets of Smaaash. The charge would be subservient to all the existing and prospective charges created/to be created by Smaaash on the said assets in favour of those banks/ financial institution which have extended/would extend business loans (viz. term loans for machineries, business premises and working capital) to Smaaash for the same business for which SIDBI has extended this sub-debt. All such aforesaid lenders would be referred to as Irrevocable and unconditional guarantee of Shripal Morakhia and Ms Ami Zaveri. The guarantee shall be joint and several. |
SIDBI- Loan 2 | 99 | Loan shall be repaid in 72 monthly instalments after a moratorium of 24 month commencing from April 10, 2018. | Primary Security First pari passu charge with Piramal over the movable and current assets of the borrower pertaining to Bangalore, Ludhiana and Mumbai Go Karting projects. Collateral security First charge by way of mortgage of all immovable properties owned by Shri Nitya Gopal Bank situated at Harihar Para, Gobindapur, Baruipur road, Harinabhi, P.S. Sonarpur District 24, Parganas (South), Kolkata, bearing survey/block/plot no. JL no. 76, Touzi no. 70/71, Khatian no. 30,31,627,325,329,330,327, Plot no. 602,619,607,620,644,597,598,497,623,500,585,625,621,586,622,617,P.S Sonarpur district 24 Pargana (South), admeasuring 4 acres. Guarantee Irrevocable and unconditional guarantee of Shripal Morakhia, Ami Zaveri, Nitya Gopal Banik, Aha holding Private Limited and Mrs Kalpana Morakhia. The guarantee shall be joint and several. |
Tata Capital | Principal will be repaid in 36 months after the moratorium period of 12 months and the same will be repayable in balance 24 equated monthly instalments start from date of first tranche disbursement. | Primary Security Mortgage of certain immovable property owned by Mr. Nidhiram Mandal and Mr. Khudiram Mandal (situated at 1230,31,32,33,34,35,36,37,38,39,40,41,42,43,44,45,46,47 and 1248 Police station Bhangar, Sonapore, 24 Parganas (South)). having clear and marketable title standing in the name of Borrower / Mortgagor. Collateral Security Security in form of fixed deposit of Rs 6 Crores with bank as acceptable and same provided by Aha Holding Private Limited. | |
HDFC- Loan 1 | Rs 25 million per month | a) Mortgage of property situated at Khatian number LR-817 & RS-817, Tambuldaha-I, Bibirabad, Jibantala, 24 Parganas (South) b) Charge on cashflows from Mumbai Lower Parel Smaaash, Convention center, Verbena Brew Pub & Sky Garden, Pravas Restuarant, Mumbai Go-Karting. c) Corporate guarantee of Aha Holdings Private Limited d) Personal Guarantee of Mr. Shripal Morakhia | |
HDFC – Loan 2 | Rs 25 million per month March 31,2018 | a) Mortgage of property situated at Khatian number LR-817 & RS-817, Tambuldaha-I, Bibirabad, Jibantala, 24 Parganas (South) b) Charge on cashflows from Mumbai Lower Parel Smaaash, Convention center, Verbena Brew Pub & Sky Garden, Pravas Restuarant, Mumbai Go-Karting. c) Corporate guarantee of Aha Holdings Private Limited d) Personal Guarantee of Mr. Shripal Morakhia | |
HDFC – Loan 3 | 100 | Rs 25 million per month from April 30,2018 | a) Mortgage of property situated at Khatian number LR-817 & RS-817, Tambuldaha-I, Bibirabad, Jibantala, 24 Parganas (South) b) Charge on cashflows from Mumbai Lower Parel Smaaash, Convention center, Verbena Brew Pub & Sky Garden, Pravas Restuarant, Mumbai Go-Karting. c) Corporate guarantee of Aha Holdings Private Limited d) Personal Guarantee of Mr. Shripal Morakhia |
Yes Bank | Quarterly installment of Rs 13.5 million starting from June 29,2018 | Personal guarantee of Mr.Shripal Morakhia (Director) and Sponsorship receivable. |
B. Details of Unsecured Borrowings of Smaaash
Set forth below is a summary of Smaaash’s secured borrowings as of DecemberMarch 31, 20172018 (unless otherwise stated)
Lender | Amount outstanding as of (Rs. million) | Repayment/Tenor | Security | ||||
AHA Holdings Private Limited | Payable on demand | Nil |
Director and Executive Officers
The following table sets forth information regarding the directors and executive officers of Smaaash.
Name | Age | Position | ||
Shripal Morakhia | 59 | Chief Executive Officer and Director | ||
Vishwanath Kotian | 45 | Chief Financial Officer | ||
Kaizad Bajina | 33 | Chief Technology Officer & Chief Revenue Officer | ||
Nilendu Mitra | 46 | Vice President, Marketing | ||
Daniel Johansson | 37 | Head - Virtual Reality and other Special Projects | ||
Ravikiran Amin | 43 | Assistant Vice President - Design | ||
Chirag Gehlot | 31 | Vice President, Engineering | ||
Abhishek Agarwal | 32 | Head of Digital | ||
Anand S Krishnan | 60 | Director | ||
Rajeev Kalambi | 44 | Director | ||
Amit Ram Krishnan | 32 | Director | ||
Nikhil Vora | 47 | Additional Director | ||
Vijayender Tulla | 39 | Additional Director |
Shripal Morakhia, is the founder of Smaaash which was incorporated in 2009. Mr. Morakhia is the Chief Executive Officer of Smaaash Entertainment Private Limited and is a visionary serial entrepreneur with a track record of building successful businesses. He has over 35 years of experience across stock broking, investment banking, telecom, media and entertainment and digital sectors. In 1983, Mr. Morakhia promoted India’s first home grown institutional broking and investment banking company SSKI and an e-share trading platform ShareKhan. His majority stake in SSKI was sold to IDFC Ltd in 2007 which now has a market cap of INR 85.1 billion (as on May 10, 2018) and Sharekhan was acquired by Citi Venture Capital. Mr. Morakhia is credited with being one of the first to professionalize the broking and investment banking setup in India which was unorganized at the time. In 2006, Mr. Morakhia invested in the ailing Indian heritage comic book company, Amar Chitra Katha, to revive it and also digitize the same and successfully then sold it to the Future Group in India in 2011. He also founded a children’s multi-channel network on YouTube, called Yoboho which was acquired by Broadband TV, a subsidiary of the Bertelsmann Group, in 2015. Mr. Morakhia is now fully dedicated to take the Smaaash brand globally. Mr. Morakhia holds a Masters in Business Administration from Wagner College, New York and has served as the Executive Assistant to the President of the New York Stock Exchange from 1981 to 1982.
Vishwanath Kotian, was appointed as the Chief Financial Officer of Smaaash on June 9, 2016. Mr. Kotian joined Smaaash on January 2, 2015. Prior to joining Smaaash he worked for Amarchitra Katha Private Limited from May 2010 to December 2014 and prior to that he was with S.R. Batliboi & Associates from December 2007 to April 2010. Vishwanath has accumulated 23 years of experience in accounting and finance. Presently, he manages the finance related activities of Smaaash, including accounting and controls, business planning and analysis, audits and compliances, mergers & acquisitions and private equity funding. Mr. Kotian holds a graduate degree from Mangalore University and also holds a membership with the Institute of Chartered Accountants of India.
Kaizad Bajina, was appointed as the Chief Technology Officer & Chief Revenue Officer of Smaaash on April 1, 2015. Prior to joining Smaaash he worked for Lifestyle Networks from October 2004 to March 2015. Mr. Bajina has 12 years of experience in developing and conceptualizing new games and technologies and is extensively involved in the product sales business of Smaaash. Mr. Bajina heads the Smaaash Labs team, a dedicated R&D team that has designed and built several interactive VR & AR games. Mr. Bajina holds a bachelor degree in management studies from H.R. College of Commerce & Economics and an Advanced Diploma in Business Administration from Welingkar Institute of Management Development.
Nilendu Mitra, was appointed as Vice President, Marketing of Smaaash on March 1, 2018 and is responsible for leading marketing strategy for Smaaash. Prior to joining Smaaash he worked with Gitanjali fromDecember 2014 to February 2018 and TBZ-The Original from September 2012 to November 2014. Mr. Mitrahas 22 years of experience in retail sales and marketing. Mr. Mitra holds a MS from Mercy College, New York.
Daniel Johansson, has been Head - Virtual Reality and other Special Projects of Smaaash since April 1, 2017 and is responsible for R&D and Game Development. He joined Smaaash on May 1, 2018 and prior to joining Smaaash as an employee he was working in the capacity as a Consultant to Smaaash from January 2015.Prior to that he worked for WalkMouse AS, Norway, between 2012 and 2014 and for MSE AB, Sweden, between 2006 and 2012. He has 15 of years of experience across Virtual Reality, Automation and Mechatronics. Mr. Johansson holds a Ph.D. degree from University of Orebro, Sweden.
Ravikiran Amin, was appointed as Assistant Vice President - Design of Smaaash in September 2017. Presently he is responsible for creating Smaaash’s gaming and entertainment destinations along with its food and beverage outlets such as Pub exchange and Verbena. Prior to joining Smaaash Mr. Amin worked forKalpakaaru Projects India from October 2012 to September 2014 and Platinum Cinemas (Jakarta) from November 2014 to June 2017. Mr. Amin holds an IIID degree from St. Francis institute of Technical Education. He has 22 years of experience designing Entertainment destinations like Gaming zones, Cinemas, Bars, Restaurants, Retail and Corporate offices across the globe.
Abhishek Agarwal, was appointed as Head of Digital of Smaaash on January 23, 2017 and is responsible for heading the Smaaash digital venture. Prior to joining Smaaash he worked for Shop Your World Pte Ltd from August 2013 to March 2015 and Browntape Ecommerce Pvt Ltd from April 2015 to December 2015. Abhishek has also worked in Jucy Group Ltd from January 2016 to December 2016. Mr. Agarwal has more than 12 of years of experience across apps and digital marketing, technology and automation and business management. Mr. Agarwal holds a Management degree from IIM Kolkata.
Chirag Gehlot, was appointed as Vice President, Engineering of Smaaash on April 1, 2018 and is responsible for Smaaash digital. Mr. Gehlot joined Smaaash as a Vice President, Engineering from May 4, 2018. Prior to joining Smaaash he worked for Tiny Owl from January 2014 to October 2015, Craftvilla from January 2016 to February 2017 and Flexiloans from March 2017 to March 2018. Mr. Gehlot has 10 of years of experience in technology and engineering. Mr. Gehlot holds a BIT degree from University of Swinburne University.
Anand S. Krishnan,a director of Smaaash, is the founder of FidelisWorld (www.fidelisworld.com), a Mauritius-based investment group in the field of sports, entertainment and media and serves as the Managing Partner of the company since its inception in September 2013. In 2013 he established FW Sports Investment Fund (“FSIF”), a pan-Asia technology, media, and entertainment investment vehicle. The FSIF completed its first close on September 30, 2013 and has deployed capital in assets such as Technology Frontiers, an in-stadia technology services provider; Smaaash Entertainment, a consumer-facing active entertainment chain; and FW Sports and Media India, a digital content house. Mr. Krishnan’s prior work experience includes a five year stint with Dubai International Capital (DIC), a reputed private equity firm in the Emirate of Dubai. He retired in 2011 as CEO of DIC. Prior to this, he was with JPMorganChase (JPM) for nineteen years based out of New York, Hong Kong and Singapore, and left JPM as a Managing Director. Mr. Krishnan was part of a professional team responsible to build a private equity platform and played a significant role in the success of DIC, providing leadership and building world-class governance. The 2008 financial crisis also required Mr. Krishnan to apply skills from his previous experiences in restructuring the firm and its debt. He has successfully invested in, restructured, and exited investments at multiples that provided significant value to shareholders. Mr. Krishnan was a Director on the Board of DIC and also served as the Chairman of the DIC Investment Committee. Mr. Krishnan also served on the boards of the key DIC portfolio companies and on various tax and accounting committees. At JPM, his career spanned a total of 19 years and involved eight mergers and acquisitions at the corporate level. His tenure at JPM included senior positions such as the Hong Kong-based Chief Financial Officer of the Asia Pacific region from 2000 to 2004, and Business Manager for the South and South East Asia Region from 1994 to 2000 while based in Singapore. Mr. Krishnan is a Founder Member of the Foundation for the Restoration of National Values (FRNV) in India, and continues as the President of the Centre for Inner Resources Development (CIRD) N.A. Mr. Krishnan graduated from Delhi University with an Honors degree in Finance and Accounting and has a post graduate degree. He has been part of various corporate leadership and management programs over the years.
Rajeev Kalambi, a director of Smaaash, has over 19 years of experience in various facets of finance, consulting, research and corporate & investment banking. Mr. Kalambi has been the Principal of FW Asset Management Limited, the advisory firm to FSIF, since January 2015. Prior to joining FidelisWorld, he was an investment banker with SMC Capitals. He was a corporate banker with HSBC and Development Bank of Singapore followed by investment banking stints at Edelweiss Capital and a boutique Private Equity & M&A firm, during which he concluded several transactions in corporate lending, structured finance, term lending (onshore and offshore) and advised companies on corporate finance strategy and capital raising. Rajeev received his master’s degree from Delhi School of Economics and an MBA from the Indian School of Business (ISB), Hyderabad.
Amit R. Krishnan,a director of Smaaash, is Principal of FW Asset Management. Mr. Krishnan has been involved in various capacities in fundraising, deal sourcing, diligence, transaction negotiation, and final closure of six investments over five years, including one exit. He was responsible for the overall strategy and corporate practice of FidelisWorld, a sports and media investment firm, and its portfolio companies. Amit’s previous experience includes helping to manage the acquisition and integration of major Middle Eastern steel foundry and valve manufacturer by Tyco, the global industrial firm. Amit is graduate of the Georgetown University School of Foreign Service and the General Course at the London School of Economics with a major in International Political Economy.
Nikhil Vora,a director of Smaaash,the founder & CEO of Sixth Sense Ventures Advisors LLP, India’s first consumer centric domestic venture fund, since its inception in July 2014. Nikhil was earlier the Managing Director / Head of Research at IDFC Securities, and has been regarded as one of the strongest analytical minds in the country. Mr Vora has presented strategic roadmaps for various consumer brands including Nestle India, Unilever, Aditya Birla Group, Marico, Godrej, NIIT, Navneet etc. His research has been accredited by some of the largest global funds like Capital, Fidelity, Alliance Bernstein, Putnam, Schroder’s etc. In the Asia Money polls 2012, Nikhil was voted as India’s No.1 analyst. He was also voted Asia’s Best Analyst by the Wall Street Journal in the same year. Mr Vora is also an active venture capital investor and a board member on its investee companies. Mr. Vora has a post-graduate degree in Management from the Said Business School, University of Oxford, London, and while there Mr. Vora was a member participant at the Future Leaders Program. Mr. Vora has also received multiple awards such as the ‘Thought Leadership’ award by IDFC Ltd.
Vijayender Tulla, a director of Smaaash, has over 16 years of exclusive experience in Information Technology Space, Healthcare, Hospitality, Infrastructure, Real-estate and Entertainment. Mr. Tulla, has been the Chairman and Managing Director of SVM since 2008. SVM is a fully integrated entertainment company operating from different real estate platforms – multiplexes, stand-alone entertainment centers, bowling alleys, gaming, food courts and other prime properties - to deliver innovative, appropriate and cutting-edge content. Mr Tulla has been leading SVM’s interests in the entertainment, infrastructure development and construction and information technology. Mr. Tulla is on the Board of various multi diversified global companies including Biomax Fuels Limited, one of Asia’s largest bio-diesel manufactures. Mr. Tulla was the founder and Chief Executive Officer of Resource America Information Technology, Chicago which focused on software development and human resources. Mr. Tulla was Vice President of Human Resources for Megasoft in which capacity he was responsible for managing the human resources function for the World Bank in Washington DC. While at Megasoft Mr. Tulla was exposured to human resource management, administration, marketing and sales areas. In 2005, Mr. Vijayender joined CARE Hospitals and worked as Managing Director at Synapse Care, a CARE Hospitals company offering knowledge process outsourcing and business management services to global stakeholders. Mr. Tulla has a bachelor of general studies degree from Northern Illinois University, Chicago.
MANAGEMENT AFTER THE TRANSACTION
Directors, Executive Officers and Director Nominees of I-AM Capital
The current board of directors of I-AM Capital consists of eight directors. Pursuant to the Restated Certificate, the board may expand the number of members and elect the new Directors to fill the vacancy created by the increase in the size of the board. In contemplation of stockholder approval of the Transaction, our existing board of directors, consisting of eight directors, will exercise its power under the Restated Certificate to expand the board to nine directors. The I-AM Capital board of directors intends to fill the vacancies created by the increase in board size with one person nominated by Smaaash. The following table sets forth information regarding the directors and executive officers of I-AM Capital upon completion of the Transaction:
Name | Age | Position | ||
F. Jacob Cherian | 53 | Chief Executive Officer and Class II Director | ||
Suhel Kanuga | 43 | Chief Financial Officer, Secretary and Class II Director | ||
Donald R. Caldwell | 71 | Chairman and Class I Director | ||
Roman Franklin | 34 | Class I Director | ||
Max Hooper | 71 | Class II Director | ||
Frank Leavy | 65 | Class I Director | ||
Edward Leonard Jaroski | 71 | Class I Director | ||
William H. Herrmann, Jr. | 72 | Class II Director | ||
Shripal Morakhia | 59 | Class II Director Nominee* | ||
*This individual has indicated his assent to occupy such position.
For the background of the current directors and executive officers of I-AM Capital, see “Information about I-AM Capital–Management–Directors and Executive Officers” and for the director nominee, see “Smaaash Management”".
Our officers and board of directors are well qualified as leaders. In their prior positions they have gained experience in core management skills, such as strategic and financial planning, public company financial reporting, compliance, risk management, and leadership development. Our officers and directors also have experience serving on boards of directors and board committees of other public companies and private companies, and have an understanding of corporate governance practices and trends, which provides an understanding of different business processes, challenges, and strategies.
Number and Terms of Office of Officers and Directors
Our board of directors is divided into two classes, Class I and Class II, with only one class of directors being elected in each year and each class (except for those directors who were appointed prior to the special meeting) serving a two-year term. The initial term of office of the Class I directors, consisting of Messrs. Caldwell, Leavy and Franklin expires at the special meeting. The term of office of the Class I directors after the Transaction, consisting of Messrs. Caldwell, Leavy, Franklin, and Jaroski will expire at the second succeeding annual meeting after the special meeting. The term of office of the Class II directors, consisting of Messrs. Cherian, Kanuga, Herrmann and Morakhia and Dr. Hooper, will expire at the next annual meeting of stockholders.
Our officers are elected by the board of directors and serve at the discretion of the board of directors, rather than for specific terms of office. Our board of directors is authorized to appoint persons to the offices set forth in our bylaws as it deems appropriate. Our bylaws provide that our officers may consist of a Chief Executive Officer, President, Chief Financial Officer, Vice Presidents, Secretary, Assistant Secretaries, Treasurer and such other offices as may be determined by the board of directors.
Committees of the Board of Directors
Our board of directors has two standing committees: an audit committee and a compensation committee. Both our audit committee and our compensation committee are composed solely of independent directors.
Audit Committee
For information regarding the duties and responsibilities of the Audit Committee, see “Information About I-AM Capital –Management – Audit Committee.”
Upon consummation of the Transaction, Messrs. Caldwell and Franklin and Dr. Hooper will serve as members of our audit committee. Mr. Caldwell serves as chairman of the audit committee. Under NASDAQ listing standards and applicable SEC rules, I-AM Capital is required to have three members of the audit committee, all of whom must be independent. Messrs. Caldwell, and Franklin and Dr. Hooper are independent.
Compensation Committee
For information regarding the duties and responsibilities of the compensation committee and the compensation committee charter, see “Information about I-AM Capital–Management–Compensation Committee.”
Upon consummation of the Transaction, the members of our compensation committee are Messrs. Caldwell and Franklin and Dr. Hooper. Mr. Caldwell serves as chairman of the compensation committee.
Director Nominations
For information regarding director nominations, see “Information about I-AM Capital–Management–Director Nominations.”
Code of Ethics
For information regarding director nominations, see “Information about I-AM Capital –Management–Code of Ethics.”
Conflicts of Interest
In general, officers and directors of a corporation incorporated under the laws of the State of Delaware are required to present business opportunities to a corporation if:
● | the corporation could financially undertake the opportunity; | |
● | the opportunity is within the corporation’s line of business; and | |
● | it would not be fair to the corporation and its stockholders for the opportunity not to be brought to the attention of the corporation. |
Certain of our executive officers and directors presently have, and any of them in the future may have additional, fiduciary or contractual obligations to another entity pursuant to which such officer or director is required to present a business combination opportunity to such entity. Prior to the Transaction, if any of the above executive officers or directors becomes aware of a business combination opportunity which is suitable for an entity to which he or she has current fiduciary or contractual obligations, the Restated Certificate permitted such director to honor his or her fiduciary or contractual obligations to present such business combination opportunity to such entity and only present it to I-AM Capital if such entity rejected the opportunity. If the Certificate Amendment Proposal is approved and the Transaction is consummated, the exception to the Delaware corporate opportunity doctrine will be removed from I-AM’s certificate of incorporation.
As of the record date, our Sponsor has agreed to vote its founder shares and any public shares purchased during or after the initial public offering in favor of the Business Combination Proposal and our officers and directors have also agreed to vote any public shares purchased during or after the initial public offering in favor of the Business Combination Proposal.
The Board’s Role in Risk Oversight
For information regarding board’s role in risk oversight, see “Information about I-AM Capital–Management – The Board’s Role in Risk Oversight.”
Executive Compensation
Overview
Following the closing of the Transaction, the Company intends to develop an executive compensation program that is consistent with its existing compensation policies and philosophies, which are designed to align compensation with our business objectives and the creation of stockholder value, while enabling I-AM Capital to attract, motivate and retain individuals who contribute to the long-term success of the Company.
Decisions on the executive compensation program will be made by the compensation committee. The following discussion is based on the present expectations as to the executive compensation program to be adopted by the compensation committee. The executive compensation program actually adopted will depend on the judgment of the members of the compensation committee and may differ from that set forth in the following discussion.
We anticipate that decisions regarding executive compensation will reflect our belief that the executive compensation program must be competitive in order to attract and retain our executive officers. We anticipate that the compensation committee will seek to implement our compensation policies and philosophies by linking a significant portion of our executive officers’ cash compensation to performance objectives and by providing a portion of their compensation as long-term incentive compensation in the form of equity awards (for more information relating to our intended equity compensation plan, please refer to the Incentive Plan Proposal).
We anticipate that compensation for our executive officers will have three primary components: base salary, an annual cash incentive bonus and long-term incentive compensation in the form of share-based awards, if any.
Base Salary
Upon completion of the Transaction, our compensation committee will determine base salaries and manage the base salary review process, subject to existing employment agreements.
Annual Bonuses
I-AM Capital intends to use annual cash incentive bonuses for the executive officers to tie a portion of their compensation to financial and operational objectives achievable within the applicable fiscal year. I-AM Capital expects that, near the beginning of each year, the compensation committee will select the performance targets, target amounts, target award opportunities and other term and conditions of annual cash bonuses for the executive officers, subject to the terms of any employment agreement. Following the end of each year, the compensation committee will determine the extent to which the performance targets were achieved and the amount of the award that is payable to the executive officers.
Stock-Based Awards
I-AM Capital intends to use stock-based awards to reward long-term performance of the executive officers. I-AM Capital believes that providing a meaningful portion of the total compensation package in the form of stock-based awards will align the incentives of its executive officers with the interests of its stockholders and serve to motivate and retain the individual executive officers. Stock-based awards will be awarded under the Incentive Plan, which has been adopted by I-AM Capital’s Board of Directors and is being submitted to our shareholders for approval at the special meeting in lieu of an annual meeting. For a description of the Incentive Plan, please see the section of this proxy statement under the heading “Incentive Plan Proposal.”
Executive Employment Agreements
I-AM Capital currently does not have any employment agreements with its executive officers.
COMPARISON OF RIGHTS AS A HOLDER OF I-AM CAPITAL
COMMON STOCK AND THE RIGHTS OF THE COMPANY AS A HOLDER OF
SMAAASH EQUITY SHARES
Smaaash is a company organized under the laws of India and is governed by Indian law, including the Indian Companies Act. As Smaaash is an Indian company, the rights of holders of Smaaash’s equity shares will be governed by Indian law and by Smaaash’s Memorandum and Articles of Association. See “Description of Smaaash Share Capital.” I-AM Capital is a Delaware corporation and is governed by the DGCL. The rights of I-AM Capital stockholders are governed by Delaware law, including the DGCL, and by I-AM Capital’s Restated Certificate and bylaws. The rights of shareholders under Indian law and the rights of stockholders under Delaware law differ in certain respects.
The following discussion of the material differences between the rights of holders of the Smaaash equity shares and holders of I-AM Capital common stock is only a summary and does not purport to be a complete description of these differences. The following discussion is qualified in its entirety by reference to Indian Law, including the Indian Companies Act, and Delaware law, including the DGCL, as well as Smaaash’s Memorandum and Articles of Association and I-AM Capital’s Restated Certificate and bylaws, currently in effect. For information on how you can obtain copies of these documents, See “WhereYou Can Find More Information.”"
I-AM Capital | Smaaash |
CORPORATE GOVERNANCE | |
I-AM Capital’s Restated Certificate, its bylaws and Delaware law, including the DGCL, govern the rights of holders of I-AM Capital common stock. If the Business Combination Proposal and the Certificate Amendment Proposal are both approved, the third amended and restated certificate of incorporation shall govern the rights of holders of I-AM Capital common stock after the Transaction. | Smaaash’s Memorandum of Association and Articles of Association, and applicable provisions of Indian law, including the Indian Companies Act, govern the rights of shareholders of Smaaash. |
AUTHORIZED CAPITAL STOCK | |
I-AM Capital’s authorized capital stock currently consists of 20,000,000 shares of common stock, par value $0.0001 per share, and 1,000,000 shares of preferred stock, par value $0.0001 per share. As of the record date, there were 6,813,500 shares of common stock issued and outstanding and no shares of preferred stock issued and outstanding. | Smaaash’s current authorized share capital is Rs. 2750,000,000, divided into 215,000,000 equity shares; and 60,000,000 CCPS of face value Rs.10 per equity share and Rs. 10 per CCPS. As of May 14, 2018, Smaaash’s paid-up share capital was Rs. 2358,189,450, divided into 185,734,979 equity shares and 50,083,966 CCPS of face value Rs. 10 per equity share and Rs. 10 per CCPS. |
VOTING RIGHTS. ACTION BY WRITTEN CONSENT. QUORUM | |
Voting Rights. Pursuant to the DGCL and I-AM Capital’s Restated Certificate, holders of common stock are entitled to one vote per share on all matters to be voted on by stockholders.
Action by Written Consent. Unless the certificate of incorporation of a Delaware corporation otherwise provides, the DGCL permits the stockholders of a Delaware corporation to act by written consent in lieu of an annual or special meeting of stockholders, provided that the holders of the outstanding stock having not less than the minimum number of votes that would be necessary to authorize such action at a meeting at which all shares entitled to vote thereon were present in person and voted. I-AM Capital’s Restated Certificate prohibits its stockholders from acting by written consent in lieu of a meeting of stockholders from and after the consummation of its initial public offering.
| There is no concept of shareholder action without a meeting under Indian law.
As per the Shareholders’ Agreement, I-AM Capital can vote in proportion to its shareholding. Further, it also has an affirmative voting right on certain actions (“Reserved Matters”) to be undertaken by Smaaash. The Reserved Matters are set out in Schedule 7 of the Shareholders’ Agreement.
As per the Shareholders’ Agreement, one representative of I-AM Capital and one representative of the Smaaash Founders shall be required to constitute quorum for board and general meeting.
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I-AM Capital | Smaaash |
Quorum.The DGCL and I-AM Capital’s bylaws require that a quorum of stockholders be present in person or by proxy for the purpose of transacting business at any meeting of I-AM Capital’s stockholders. I-AM Capital’s bylaws further provide that the holders of a majority of I-AM Capital’s capital stock issued and outstanding and entitled to vote must be present in person or by proxy to constitute a quorum. Accordingly, the holders of at least a majority of I-AM Capital’s common stock issued and outstanding must be present in person or by proxy for the transaction of business at any meeting of I-AM Capital’s stockholders.
| Quorum: In accordance with the Indian Companies Act and Smaaash’s Articles of Association, five shareholders present in person will constitute a quorum for a general meeting. A shareholder may exercise his voting rights by proxy to be given in the form required by the Articles of Association of Smaaash. The instrument appointing a proxy is required to be lodged with Smaaash at least 48 hours before the time of the meeting or in the case of a poll, at least 24 hours before the time appointed for the taking of the poll. A proxy may not vote except on a poll and does not have a right to speak at meetings.
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AMENDMENT TO THE CERTIFICATE OF INCORPORATION | |
Generally, under the DGCL, an amendment or restatement of I-AM Capital’s certificate of incorporation requires (i) the board of directors to adopt a resolution setting forth the proposed amendment or amendment and restatement and declaring its advisability and (ii) the holders of at least a majority of I-AM Capital’s common stock outstanding and entitled to vote thereon to adopt such amendment.
I-AM Capital’s Restated Certificate further requires, prior to the consummation of a “business combination” as defined therein, the affirmative vote of at least 65% of the voting power of the then outstanding shares of I-AM Capital’s common stock, to amend Article IX of the Restated Certificate, which relates to:
● the establishment and operation of and permitted disbursements from the trust account formed immediately after the closing of I-AM Capital’s initial public offering on behalf of stockholders for the purpose of effecting a business combination.
● the right of I-AM Capital stockholders to exercise their option to cause I-AM Capital to redeem some or all of such holders’ shares before a “business combination” as defined in I-AM Capital’s restated certificate of incorporation is consummated, provided that on no account will such holder, together with his affiliate or group as defined by Section 13(d) of the Securities Act be permitted to redeem more than an aggregate of 15% of the outstanding common stock issued during I-AM Capital’s initial public offering.
● the obligation of I-AM Capital to cease all operations other than winding up and to redeem I-AM Capital stockholders’ shares if a business combination is not effected within 12 months of the date of the closing of I-AM Capital’s initial public offering (21 months from the closing of its initial public offering if extended by the stockholders). The Restated Certificate additionally requires that if any amendment is made to this section that would affect the substance or timing of I-AM Capital’s obligation to redeem stockholders’ outstanding shares upon failure to timely consummate a business combination, I-AM Capital shall provide stockholders with the opportunity to redeem their shares upon the approval of any such amendment.
| Under the Indian Companies Act, at the time of incorporation of a company, the relevant registrar of companies issues a certificate of incorporation in the name of such company. In the event of a change in name, or in the event the registered office of the company is shifted outside the jurisdiction of such registrar of companies, a new certificate of incorporation will be issued by the relevant registrar of companies. Both a change in the name of the company and a shift in the registered office to another state requires approval of the shareholders in a general meeting through a special resolution. At least 75% of the total votes cast must be in favor of the resolution.
The Indian Companies Act also provides that any change in the name of a company will require Central Government approval in writing. Provided that no such approval shall be necessary where only the change in the name of the company is the deletion or addition of the word “Private”, consequent on conversion of any one class of companies to another class.
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I-AM Capital | Smaaash |
● the requirement that the business or businesses targeted for a business combination have a fair market value of at least 80% of the proceeds held in the trust account, established immediately after the closing of I-AM Capital’s initial public offering.
● the requirement that I-AM Capital not enter into transactions with other blank check companies, and receive a fairness opinion from an independent investment banking firm that is a member of the Financial Industry Regulatory Authority before entering into a transaction with an affiliate.
If the Business Combination Proposal and the Certificate Amendment Proposal are approved the foregoing provision will no longer be in effect.
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AMENDMENT TO THE BYLAWS | |
As permitted by the DGCL, I-AM Capital’s Restated Certificate authorizes a majority of I-AM Capital’s board to make, alter and repeal I-AM Capital’s bylaws. I-AM Capital’s stockholders also have the power to adopt, amend or repeal I-AM Capital’s bylaws by a majority vote of all of the then outstanding shares of capital stock of I-AM Capital entitled to vote. | Under the Indian Companies Act, subject to certain specified amendments that require the additional approvals of the central government, a company may make amendments to its articles of association with the approval of its shareholders in the general meeting through a special resolution. At least 75% of the total votes cast must be in favor of the resolution. |
RIGHT TO DIVIDENDS AND TRUST ACCOUNT DISTRIBUTIONS | |
Dividends. The DGCL permits a Delaware corporation, by action of its board of directors, subject to any restrictions contained in the corporation’s certificate of incorporation, to declare and pay dividends out of “surplus” or, if there is no “surplus,” out of its net profits for the fiscal year in which the dividend is declared and/or the preceding fiscal year. The DGCL defines “surplus” as the excess of the net assets of the corporation over the amount determined to be the capital of the corporation by the board of directors. The “capital” of the corporation is typically calculated to be (and cannot be less than) the aggregate par value of all issued shares of capital stock. “Net assets” means, under the DGCL, total assets minus total liabilities. The DGCL also provides that if the capital of a Delaware corporation shall have been diminished by depreciation in the value of its property, or by losses, or otherwise, to an amount less than the aggregate amount of capital represented by the issued and outstanding stock of all classes having a preference upon the distribution of assets, the directors of such corporation shall not declare and pay out of net profits any dividends upon any shares of any classes of its capital stock until the deficiency in the amount of capital represented by the issued and outstanding stock of all classes having a preference upon the distribution of assets shall have been repaired.
| Under Indian law, a company pays dividends upon a recommendation by its board of directors and approval by a majority of the shareholders at the annual general meeting held each fiscal year. Subject to certain conditions prescribed under the Indian Companies Act, no dividend can be declared or paid by a company for any fiscal year except out of profits of the company for that year, calculated in accordance with the provisions of the Indian Companies Act or out of profits of the company for any previous fiscal year(s) as set forth in the Indian Companies Act. Further, in the absence of profits in any year, a company may declare dividends out of surplus, provided: (a) the rate of dividend declared shall not exceed the average of the rates at which a dividend was declared by the company in the three years immediately preceding that year; (b) the total amount to be drawn from such accumulated profits shall not exceed one-tenth of the sum of its paid up share capital and free reserves as per the latest audited balance sheet; (c) the amount so drawn shall be first utilized to set off the losses incurred in the financial year in which the dividend is declared before any dividend in respect of equity shares is declared; (d) the balance of reserves after such withdrawal shall not fall below 15% of its paid up share capital as per the latest audited balance sheet of the company; and (e) no company shall declare a dividend unless carried over previous losses and depreciation not provided in previous years are set off against profit of the company of the current year. Further no dividend shall be declared or paid by a company from its reserves other than free reserves. |
I-AM Capital | Smaaash |
I-AM Capital’s bylaws provide that dividends upon the capital stock of I-AM Capital may be declared by the board of directors from time to time, subject to the provisions of I-AM Capital’s Restated Certificate. I-AM Capital’s Restated Certificate contains no limitation on the declaration and payment of dividends. I-AM Capital’s bylaws provide that dividends may be paid in cash, in property, or in shares of capital stock, subject to the provisions of the certificate of incorporation.
Trust Account. Pursuant to I-AM Capital’s Restated Certificate and the trust agreement between I-AM Capital and Continental Stock Transfer and Trust Company, the holders of shares of I-AM Capital’s common stock are entitled to receive distributions from the trust account established in connection with I-AM Capital’s initial public offering only in the event of a dissolution of I-AM Capital and a liquidation of the trust account in accordance with the terms of such trust agreement, or in the event such stockholder exercises its redemption rights through the procedures described in this proxy statement. In no other circumstances will any stockholder have any right or interest of any kind in or to the trust account. Each of I-AM Capital’s founder has waived its right to receive liquidating distributions from the trust account with respect to its founder shares, but is entitled to redemption rights with respect to any public shares owned.
If the Business Combination Proposal and the Certificate Amendment Proposal are approved, this provision will no longer be in effect.
| Pursuant to the Articles of Association of Smaaash, the amount of dividends approved by Smaaash’s shareholders cannot exceed the amount recommended by Smaaash’s board of directors. In addition, Smaaash’s board of directors may pay interim dividends as appear to it to be justified by the profits of Smaaash, subject to the requirements of the Indian Companies Act. |
REDEMPTION RIGHTS | |
Pursuant to I-AM Capital’s Restated Certificate, no later than two days prior to the consummation of a proposed business combination, each holder of shares of I-AM Capital common stock who validly elects to exercise his stockholder’s redemption rights will have the right, if such business combination is approved and consummated, to cause the redemption of some or all of such holder’s shares of common stock in exchange for payment of a cash amount per share (calculated two business days prior to the proposed completion of such business combination) equal to the aggregate amount then on deposit in the trust account, including interest, less taxes payable and up to $600,000 of working capital expenses, divided by the number of then outstanding public shares, subject to the limitations described in the Restated Certificate. Payment of the amounts necessary to satisfy the redemption rights of the holders of all shares who have duly exercised such rights shall be made as promptly as practicable following the completion of the business combination. I-AM Capital’s founder has waived its right to cause the redemption of its founder shares. | A company may reduce its capital in accordance with the Indian Companies Act by way of a share buy-back out of its free reserves or securities premium account or the proceeds of any shares or other specified securities (other than the kind of shares or other specified securities proposed to be bought back) subject to certain conditions, including, (i) the buy-back must be authorized by the company’s articles of association; (ii) the buy-back is limited to 25% of the company’s total paid up capital and free reserves; and (iii) the ratio of debt owed is not more than twice the paid-up capital and free reserves after such buy-back, provided, that no buy-back shall be made within 365 days from the date of any previous buy-back. If such buy-back constitutes more than 10% of the total paid-up equity capital and free reserves of the company, it must be authorized by a special resolution of the company at a general meeting. Smaaash’s Articles of Association permit Smaaash to buy back its equity shares. |
I-AM Capital | Smaaash |
If the Business Combination Proposal and the Certificate Amendment Proposal are approved, this provision will no longer be in effect.
| Any equity shares which have been bought back by Smaaash must be cancelled within seven days. Further, Smaaash will not be permitted to buy back any securities for a period of one year or to issue new securities for six months except by way of a bonus issue or in discharge of Smaaash’s existing obligations such as conversion of warrants, stock option schemes, sweat equity or conversion of preference shares or debentures into equity. . Under clause 8.1(e) of the Shareholders’ Agreement, I-AM Capital has a buyback right. Subject to the terms provided under the Shareholders’ Agreement, it enables I-AM Capital to invoke its right to have Smaaash initiate and undertake a buyback of the equity shares held by them as an exit route for their investment.
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APPRAISAL RIGHTS | |
The DGCL provides that the stockholders of a Delaware corporation involved in a merger, other than the merger of a wholly owned subsidiary of the corporation with and into the corporation or a holding company merger pursuant to Section 251(g) of the DGCL, and other than a merger involving a corporation that is listed on a national securities exchange or held of record by more than 2,000 stockholders, whose stockholders receive in such merger (i) shares of the resulting or surviving corporation or depository receipts in respect thereof, (ii) shares of any other corporation or depository receipts in respect thereof, which shares or depository receipts are listed on a national securities exchange or held of record by more than 2,000 stockholders, (iii) cash in lieu of fractional shares or (iv) a combination of shares of stock, depository receipts and cash described in clauses (i) through (iii), have the right to seek a judicial determination of the fair value of their shares, taking into account all relevant factors, but exclusive of any element of value arising from the accomplishment or expectation of such merger, together with interest, if any, to be paid on the amount determined to be fair value. A stockholder seeking to exercise its rights to a judicial determination of the fair value of its shares in such a merger must follow the procedures set forth in Section 262 of the DGCL. | Under the Indian Companies Act, a company which undergoes a merger, amalgamation, demerger, reorganization, or such similar arrangement, shall adopt a scheme for such merger or similar arrangement, which scheme shall contain all terms and conditions including cash consideration for shares and/ or exchange ratio. The proposed terms of the scheme must be approved by the relevant National Company Law Tribunal in India. For this purpose, the company involved in the scheme will have to file a fairness opinion on valuation by an appraiser. The Supreme Court of India has laid down appropriate combination of the following valuation methodologies: discounted cash flow, comparable companies, and book value. Any shareholder or creditor can challenge the consideration if it doesn’t reflect the fair value. The Indian courts, or more particularly National Company Law Tribunals, do not usually determine the valuation themselves, to verify the claim of any objecting shareholder or creditor. As a part of the process, the National Company Law Tribunal appoints the Regional Director, Ministry of Corporate Affairs to evaluate whether the scheme is just and fair. The court or National Company Law Tribunal relies on the Regional Director’s analysis of the scheme. In certain cases, if any objecting shareholders establishes a glaring error or overwhelming evidence of impropriety, the National Company Law Tribunal may appoint an independent appraiser. |
I-AM Capital | Smaaash |
PREEMPTIVE RIGHTS | |
Under the DGCL, “preemptive” rights to subscribe to an additional issue of capital stock or to any security convertible into such capital stock must be expressly granted by the certificate of incorporation to a stockholder. I-AM Capital’s Restated Certificate does not expressly grant any of its stockholders “preemptive” rights. | Subject to the provisions of the Indian Companies Act, Smaaash may increase its share capital by issuing new shares on such terms and with such rights as it, by action of its shareholders in a general meeting, may determine. According to Section 62(1)(a) of the Indian Companies Act, such new shares shall be offered to existing shareholders in proportion to the amount paid upon those shares at that date. The offer is deemed to include a right exercisable by the person concerned to renounce the shares offered to him in favor of any other person. In the event such person does not accept the offer, the board shall have the right to dispose of the shares in such a manner which shall not be disadvantageous to the shareholders or the company Under the provisions of Section 62(1)(c) of the Indian Companies Act, new shares may be offered to any persons whether or not those persons include existing shareholders, either for cash or for consideration other than cash, if the price of such shares is determined by the valuation report of a registered appraiser subject to certain prescribed conditions and procedures, if a special resolution to that effect is passed by Smaaash’s shareholders in a general meeting. |
ATTENDANCE AND VOTING AT MEETINGS OF STOCKHOLDERS | |
Pursuant to I-AM Capital’s bylaws, every stockholder of record as of the applicable record date has the right to notice of and to vote, in person or by proxy, at any stockholders’ meeting. | In accordance with the Indian Companies Act and the Articles of Association of Smaaash, every shareholder has the right to notice of and to vote, in person or by proxy, at any general meeting of shareholders. |
SPECIAL MEETINGS OF STOCKHOLDERS | |
I-AM Capital’s Restated Certificate provides that special meetings of I-AM Capital stockholders may be called only by:
the chairman of the board;
the chief executive officer; or
a resolution adopted by a majority of the board
Stockholders do not have the right to call a special meeting.
| In accordance with the Indian Companies Act and the Articles of Association of Smaaash, Smaaash must convene its annual general meeting within six months of the end of each financial year and must ensure that the intervening period between two annual general meetings does not exceed 15 months. The Registrar of Companies may extend this period in special circumstances, but not exceeding three months, at the request of Smaaash. Extraordinary general meetings may be convened at any time by Smaaash’s board of directors at their discretion or at the request of the shareholders holding in the aggregate not less than 10% of the paid-up share capital of Smaaash. |
I-AM Capital | Smaaash |
STOCKHOLDER PROPOSALS AND NOMINATIONS | |
Stockholder Proposals. I-AM Capital’s bylaws provide that business may be transacted at an annual meeting of stockholders only if such business is (i) specified in the notice of the annual meeting given by or at the direction of the board of directors or a committee of the board of directors, (ii) otherwise brought before the annual meeting by or at the direction of the board of directors or a committee of the board of directors, or (iii) brought before the meeting by a I-AM Capital stockholder who is a stockholder of record on the date of the giving of notice of the annual meeting to I-AM Capital stockholders and on the record date for the determination of I-AM Capital stockholders entitled to vote at such annual meeting and who complies with the procedures described below. I-AM Capital’s bylaws provide that a stockholder submitting proposed business to be considered at an annual meeting of I-AM Capital’s stockholders must deliver a written notice to I-AM Capital’s secretary no later than the close of business on the 90thday nor earlier than the close of business on the 120thday prior to the first anniversary of the preceding year’s annual meeting of stockholders. The notice must set forth as to each matter such stockholder proposes to bring before the annual meeting:
● a brief description of the business the stockholder desires to bring before the annual meeting and the reasons for conducting such business at the annual meeting;
● the name and record address of such stockholder of record and beneficial owner (if any);
● the class or series and number of shares of capital stock of I-AM Capital which such stockholder owns, beneficially or of record;
a description of all arrangements or understandings between such stockholder and any other person or persons (including their names) in connection with the proposal of such business by the proposing stockholder and any material interest of such stockholder in such business; and | Shareholder requisition: In accordance with the Indian Companies Act and as per the Articles of Association of Smaaash, an extraordinary general meetings may be convened at any time by Smaaash’s board of directors at their discretion or at the request of the shareholders holding in the aggregate not less than 10% of the paid-up share capital of Smaaash. The shareholders may requisition an extraordinary general meeting by providing such requisitions in writing or electronically at least clear 21 days prior to the proposed date of the meeting. The notice shall specify the place, date, day and Smaaash’s of the meeting agenda and contain the business to be transacted at the meeting and should be signed by all of the requesting parties or by a duly authorized representative.
The Shareholders’ Agreement also provides in accordance with the Indian Companies Act for calling of a general meeting at shorter notice by not less than 95% of the member entitled to vote at such a meeting should consent in writing (including electronic mode),
Director Nomination: In accordance with the Indian Companies Act and the Articles of Association of Smaaash, every director will be appointed by the shareholders at a general meeting. The board of directors of Smaaash may appoint an additional director on the board of directors at any time who will hold office up to the date of the next annual general meeting or the last date on which the annual general meeting should have been held, whichever is earlier. Every person proposed to be appointed as a director by the company shall furnish his Director Identification Number or such other number as may be prescribed by the Indian Companies Act (obtained in accordance with the provisions of the Indian Companies Act), a declaration that he is not disqualified under the Indian Companies Act to become a director and must give consent to hold office as a director.
In case of appointment of an independent director, the explanatory statement for such appointment annexed to the notice for the general meeting should include a statement that in the opinion of the board of directors of Smaaash he fulfils the conditions specified in the Indian Companies Act for appointment as an independent director. |
I-AM Capital | Smaaash |
a representation that such stockholder intends to appear in person or by proxy at the annual meeting to bring such business before the meeting
Director Nominations. I-AM Capital’s bylaws provide that persons may be nominated for election as directors of I-AM Capital at an annual meeting of stockholders or a special meeting of stockholders called for the purpose of electing directors only (i) by or at the direction of the board of directors or (ii) by a I-AM Capital stockholder who is a stockholder of record on the date of the giving of notice of the meeting to I-AM Capital stockholders and on the record date for the determination of I-AM Capital stockholders entitled to vote at such meeting and who complies with the procedures described below. I-AM Capital’s bylaws provide that a stockholder making a nomination of a person for election to the board of directors at an annual meeting of stockholders or a special meeting of stockholders called for the purpose of electing directors must deliver written notice to I-AM Capital’s secretary no later than the close of business on the 90th day nor earlier than the close of business on the 120th day prior to the first anniversary of the preceding year’s annual meeting of stockholders, or the close of business on the 10th day following the day on which public announcement of the date of the annual meeting was first made by I-AM Capital, or, in the case of a special meeting of stockholders, not later than the 10th day following the day on which public notice of the date of the special meeting of stockholders was first made, whichever occurs first, in the case of a special meeting of stockholders called for the purpose of electing directors. In addition, any stockholder desiring to nominate any person for election as director must deliver a notice that sets forth (a) as to each person whom the stockholder proposes to nominate for election as a director:
• the name, age, business address and residence address of the person;
• the person’s principal occupation or employment;
• the class or series and number of shares of capital stock of I-AM Capital which such the person owns beneficially or of record; and
• any other information relating to the person that would be required to be disclosed in a proxy statement or other filings required to be made in connection with solicitations of proxies for election of directors pursuant to Section 14 of the Exchange Act and the rules and regulations promulgated thereunder; |
I-AM Capital | Smaaash |
and (b) as to the stockholder giving notice of the proposed nomination of a director:
• the name and record address of the stockholder;
• the class or series and number of shares of I-AM Capital’s capital stock which are beneficially owned or owned of record by the stockholder;
• a description of all arrangements or understandings between such stockholder and each proposed nominee and any other person or persons (including their names) pursuant to which the nomination(s) are to be made by such stockholder;
• a representation that such stockholder intends to appear in person or by proxy at the meeting to nominate the persons named in its notice; and
• any other information relating to such stockholder that would be required to be disclosed in a proxy statement or other filings required to be made in connection with solicitations of proxies for election of directors pursuant to Section 14 of the Exchange Act and the rules and regulations promulgated thereunder.
The stockholder’s notice must be accompanied by a written consent of each proposed nominee to being named as a nominee and to serve as a director if elected.
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STOCKHOLDER SUITS | |
Under Delaware law, stockholders may bring derivative actions on behalf of the corporation to enforce certain rights of the corporation. Prior to bringing an action, a stockholder plaintiff must make a demand on the directors of the corporation to assert the claim, and may only bring an action if the stockholder’s demand is wrongfully refused, unless the stockholder plaintiff is able to show, and alleges in the complaint, that making such a demand would be futile. In order to maintain a derivative suit, a person must have been a stockholder at the time of the transaction that is the subject of the suit and must also generally maintain its status as a stockholder throughout the duration of the suit. In certain cases, class action lawsuits are also available to stockholders. | Under the Indian Companies Act, shareholders holding not less than one-tenth of the issued shareholder capital, shareholders representing not less than one-tenth of the total number of members or one hundred members, provided that they have paid all calls and other sums due on their shares, have the right to request the National Company Law Tribunal (or the authority notified as competent in this regard), for an order or injunction as to the taking or not taking of an action by the company on the following grounds of oppression or mismanagement: (i) that the company’s affairs are being conducted in a manner prejudicial to public interest, in a manner oppressive to any member or members or in a manner prejudicial to the interests of the company; and (ii) that a material change has taken place in the management or control of the company, whether by a change in the board of directors or management or in the ownership of the company’s shares, and by reason of such change it is likely that the affairs of the company will be conducted in a manner prejudicial to public interest or in a manner prejudicial to the interests of the company. |
I-AM Capital | Smaaash |
RIGHTS OF INSPECTION | |
Under the DGCL, stockholders have the right to inspect during normal business hours the corporation’s stock ledger, a list of the corporation’s stockholders, and other books and records of the corporation, after making a written demand complying with the form and manner requirements of Section 220 of the DGCL for a proper purpose reasonably related to the person’s interest as a stockholder.
The DGCL requires the officer who has the charge of the corporation’s stock ledger to prepare and make, at least 10 days before every meeting of stockholders, a complete list of stockholders entitled to vote at such meeting. The DGCL requires that this list (i) be open to the examination of any stockholder of the corporation for any purpose germane to the meeting for at least 10 days prior to the meeting during ordinary business hours at the principal place of business of the corporation, and (ii) be available for inspection by any stockholder present at the meeting at the time and place of the meeting, during the whole time thereof.
| In accordance with the Indian Companies Act and the Articles of Association of Smaaash, the statutory registers (register of charges, register of members, register of debenture holders, register of any other security holders, the register and index of beneficial owners and annual return, register of loans, guarantees, security and acquisitions, register of investments not held in its own name and register of contracts and arrangements) and copies of annual returns shall be open for inspection during business hours on all working days, at the registered office of Smaaash. |
BOARD OF DIRECTORS
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Size and Classification of Board of Directors
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I-AM Capital’s Restated Certificate provides that the board of directors shall be divided into two classes, as nearly equal in number as possible and designated Class I and Class II.
I-AM Capital’s Restated Certificate also provides that the number of directors shall be fixed from time to time by a resolution of the board. There are currently eight members of I-AM Capital’s board of directors. In connection with the Transaction the board of directors has increased the size of the board of directors to nine members.
| In accordance with the Indian Companies Act Smaaash’s Articles of Association provide that the number of directors (including alternate directors) on the board of directors shall not be less than two or more than fifteen, unless otherwise approved by the shareholders in a general meeting. There are currently six directors on the board of directors of Smaaash. Upon completion of this Transaction, F. Jacob Cherian and Suhel Kanuga (along with alternate directors for each, if any) will be appointed to the board of directors of Smaaash.
The Shareholders’ Agreement provides that the board of directors of Smaaash shall comprise maximum 10 directors.
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Election | |
I-AM Capital’s Restated Certificate provides that a plurality of votes cast at a stockholders meeting on the election of directors shall suffice to elect directors. I-AM Capital maintains a classified board structure. Each director elected to the board shall hold office for up to two years or until the annual meeting of stockholders to elect new board members of such director’s class has taken place and such replacement director has been elected and qualified, or until such director’s earlier death, resignation, retirement, disqualification or removal. | In accordance with the Indian Companies Act and Smaaash’s Articles of Association, appointment of directors is required to be approved by Smaaash’s shareholders. Additional directors appointed by the board can hold office up to the date of the next annual general meeting or the last date on which the annual general meeting should have been held, whichever is earlier.
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I-AM Capital | Smaaash |
The Indian Companies Act provides that Independent directors appointed by the shareholders shall hold a term of up to five consecutive years on the board, but will be eligible for re-appointment on passing of a special resolution (which requires that at least 75% of the total votes cast must be in favor of the resolution) by the company. However, an independent director cannot hold office for more than two consecutive terms, but can be eligible for re-appointment after a cool off period of three years during which he or she cannot be associated with the company in any other capacity, directly or indirectly.
The Shareholders’ Agreement provides that there shall be three (3) independent directors on the board of Smaaash.
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Removal | |
I-AM Capital’s Restated Certificate provides that I-AM Capital’s stockholders, acting by the majority vote of the holders of the outstanding shares then entitled to vote at an election of directors, may remove the entire board of directors or any individual director from office, but only for cause. | In accordance with the Indian Companies Act, a director may be removed before the end of his or her term, by an ordinary resolution of a company’s shareholders, after giving him or her a reasonable opportunity to be heard. A special notice (i.e. a notice of intention to move such resolution shall be given to the company by such number of members holding not less than one percent of total voting power or holding shares on which an aggregate sum of INR 500,000 has been paid on the date of the notice) shall be required of any resolution, to remove a director.
The Shareholders’ Agreement provides that the removal and re-appointment of an I-AM Capital director shall be subject to prior written consent of Investor. Subject to the other provisions of the Shareholders’ Agreement, the I-AM Capital director may be removed by I-AM Capital by giving a written notice to Smaaash. Subject to the other provisions of the Shareholders’ Agreement, I-AM Capital shall be entitled to nominate another director in its place for appointment by giving notice in writing to Smaaash. Any such removal shall take effect upon receipt of such notice by Smaaash subject to approval of I-AM Capital and any appointment shall take effect from the date the nominee is appointed by a resolution of the board of directors of Smaaash or the Shareholders, as the case may be.
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Vacancies | |
I-AM Capital’s Restated Certificate provides that a majority of the directors then in office, although less than a quorum, or a sole remaining director, may act to fill vacancies and newly created directorships resulting from any increase in the authorized number of directors or from any other cause. Each director so chosen shall hold office until the next annual meeting and until such director’s successor shall be duly elected and shall qualify, subject, however, to such director’s earlier death, resignation, retirement, disqualification or removal. | The Indian Companies Act provides that the board of directors have the power to appoint any qualified person to be a director to fill a casual vacancy on the board of directors. Any person so appointed shall hold office only for such period as the director in whose place he or she is appointed would have held office if it had not been vacated, but he or she shall then be eligible for re-election.
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I-AM Capital | Smaaash |
Smaaash’s Articles of Association do not have any specific provisions on filling in vacancies.
The Shareholders’ Agreement provides that in the event of a casual vacancy arising on account of the resignation of an I-AM Capital director or the office of the I-AM Capital director becomes vacant for any reason then I-AM Capital shall be entitled to designate a director to fill the vacancy.
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Director Liability and Indemnification | |
As permitted by the DGCL, I-AM Capital’s Restated Certificate provides that a director of I-AM Capital shall not be personally liable to I-AM Capital or its stockholders for monetary damages for breach of fiduciary duty as a director, except to the extent such exemption from liability or limitation thereof is not permitted by the DGCL as the same exists or may be amended in the future. I-AM Capital’s Restated Certificate provides that any amendment, repeal or modification of this provision by the stockholders of I-AM Capital or otherwise shall not adversely affect any right or protection of a director of I-AM Capital with respect to any act or omission occurring prior to the time of such amendment, repeal or modification.
I-AM Capital’s Restated Certificate further provides that, to the fullest extent permitted by the DGCL, I-AM Capital must indemnify and hold harmless any person, such person referred to as an “indemnitee,” who was or is made or is threatened to be made a party or is otherwise involved in any action, suit or proceeding, whether civil, criminal, administrative or investigative (a “proceeding”), by reason of the fact that he or she, or a person for whom he or she is a legal representative, is or was a director or officer of I-AM Capital, or, while a director or officer of I-AM Capital, is or was serving at the request of I-AM Capital as a director, officer, employee or agent of another corporation or of a partnership, joint venture, trust, other enterprise or non-profit entity, including service with respect to employee benefit plans, against all liability and loss suffered and expenses (including attorneys’ fees) incurred by indemnitee. I-AM Capital’s Restated Certificate provides that, to the fullest extent permitted by the DGCL, as the same exists or may be amended in the future, I-AM Capital must pay all expenses that a covered person incurs (including attorneys’ fees) in defending any proceeding. I-AM Capital must do so in advance of the final disposition of such proceeding upon receipt of an undertaking by or on behalf of such director or officer to repay such amount if it shall ultimately be determined that he or she is not entitled to be indemnified by I-AM Capital as authorized by I-AM Capital’s Restated Certificate.
| Generally, Indian law provides that directors are not personally liable in respect of contracts of the company. However, where a director acts without the approval or ratification of the company, such director may be personally liable. Directors are also personally liable for breach of trust or misfeasance, both civil and criminal. The Indian Companies Act contains certain provisions making directors personally liable to discharge certain monetary obligations in their capacity as directors, such as the acceptance of monies or making an offer for subscription of securities on private placement in contravention of the Indian Companies Act. Similarly, the Indian Companies Act provides for civil liability of directors for misstatements in a prospectus issued by the company that has been signed by the directors, including the obligation to pay compensation to any persons subscribing to the shares of the company on the faith of statements made in the prospectus.
The Shareholders’ Agreement provides that under the Articles of Association of Smaaash, Smaaash shall provide to indemnify and keep indemnified all I-AM Capital directors to the maximum extent permitted by applicable law and the Articles of Association of Smaaash shall contain a provision for providing the broadest permissible indemnification by Smaaash to the I-AM Capital directors.
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I-AM Capital | Smaaash |
ANTI-TAKEOVER PROVISIONS
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Business Combinations
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I-AM Capital is governed by the provisions of Section 203 of the DGCL, which generally has an anti-takeover effect for transactions not approved in advance by its board of directors. This may discourage takeover attempts that might result in payment of a premium over the market price for the shares of common stock held by stockholders. In general, Section 203 prohibits a publicly held Delaware corporation from engaging in a “business combination” with an “interested stockholder” for a three-year period following the time that such stockholder becomes an interested stockholder, unless certain conditions are met as described below. A “business combination” includes, among other things, a merger, asset or stock sale or other transaction resulting in a financial benefit to the interested stockholder. An “interested stockholder” is a person who, together with affiliates and associates, owns, or did own within three years prior to the determination of interested stockholder status, 15% or more of the corporation’s voting stock.
Under Section 203 of the DGCL, a business combination between a corporation and an interested stockholder is prohibited unless it satisfies one of the following conditions:
● the board of directors approved either the business combination or the transaction which resulted in the stockholder becoming an interested stockholder before the stockholder became an interested stockholder;
● upon consummation of the business combination which resulted in the stockholder becoming an interested stockholder, the interested stockholder owned at least 85% of the voting stock of the corporation outstanding at the time the transaction commenced, excluding for purposes of determining the voting stock outstanding, shares owned by persons who are both directors and officers, and employee stock plans (in certain instances); or
| Under the Indian Companies Act, the merger of two companies is required to be approved by a court of competent jurisdiction and by a three-fourth of the company’s majority of each class of shareholders and creditors of the company present and voting at the meetings held to approve the merger. |
I-AM Capital | Smaaash |
● at or after the time the stockholder became an interested stockholder: (1) the board of directors of the corporation approved the business combination and (2) the stockholders, at an annual or special meeting (and not by written consent), approved the business combination by an affirmative vote of at least two-thirds of the outstanding voting stock which is not owned by the interested stockholder.
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DUTIES OF DIRECTORS | |
Under Delaware law, the business and affairs of a Delaware corporation such as I-AM Capital are managed by or under the direction of a board of directors. In managing the business and affairs of the corporation, the directors owe fiduciary duties, including the duties of care and loyalty (including good faith), to the corporation and its stockholders, and in certain circumstances, to the corporation’s creditors. The duty of care essentially requires directors to be attentive and inform themselves of all material facts regarding a decision before taking action. The duty of loyalty generally requires that the directors’ actions be motivated solely by the best interests of the corporation and its stockholders. In addition, under certain circumstances, directors owe a duty of full and fair disclosure.
The DGCL provides that no contract or transaction between a Delaware corporation and one or more of its directors, or between the corporation and any other corporation, partnership, association or other organization in which one or more of its directors are directors or officers or have a financial interest are void or voidable solely for this reason, or solely because such director is present at or participates in the meeting of the board of directors which authorizes the contract or transaction, or solely because any such director’s votes are counted for such purpose if: (i) the material facts as to the director’s relationship or interest and as to the contract or transaction are disclosed to or are known to the board of directors or a committee of the board of directors and the board or committee in good faith authorizes the contract or transaction by the affirmative votes of a majority of the disinterested directors, even though less than a quorum; (ii) the material facts as to the director’s relationship or interest and as to the contract or transaction are disclosed to or are known to the stockholders entitled to vote thereon, and the contract or transaction is specifically approved in good faith by a vote of the stockholders; or (iii) the contract or transaction is fair as to the corporation at the time it is authorized by the board of directors, a committee of the board of directors or the stockholders.
| In accordance with the Indian Companies Act, a director of a company is to act in accordance with the Articles of Association of the company. A director is required to act in good faith in order to promote the objects of the company for the benefit of the shareholders as a whole, and in the best interests of the company, its employees, the shareholders, and the community and for the protection of the environment. A director is required to exercise his duties with due and reasonable care, skill and diligence and exercise independent judgment. A director shall not involve himself or herself in a situation in which he or she may have a direct or indirect interest that conflicts, or potentially may conflict, with the interests of the company. Further, a director cannot achieve or attempt to achieve any undue gain or advantage, either to himself or to his relatives, partners, or associates, and if such director is found guilty of making any undue gain, he or she will be liable to pay an amount equal to that gain to the company. A director cannot assign his or her office, and any assignment so made shall be void. In accordance with the Indian Companies Act, a director who is in any way, directly or indirectly, concerned or interested in any contract or arrangement or proposed contract or arrangement entered into or to be entered into with either a body corporate in which such director holds two percent shareholding or is a promoter or manager or chief executive officer of, or a firm or any other entity in which such director is a partner, owner or member, is required to disclose the nature of his or her concern or interest at the meeting of the board where such a contract is being discussed and cannot participate in the meeting. , unless such disclosure has been made. A contract or arrangement entered into without such disclosure is voidable at the option of the company. |
DESCRIPTION OF SMAAASH SHARE CAPITAL
Set forth below is information relating to Smaaash’s share capital, including brief summaries of certain provisions of its Memorandum and Articles of Association, the (Indian) Companies Act, 2013, and the rules promulgated thereunder, the (Indian) Companies Act, 1956 (to the extent in force), which we refer to, together as the Indian Companies Act, and certain related Indian laws, all as currently in effect. The following description of share capital is subject in its entirety to Smaaash’s Memorandum of Association and Articles of Association, the provisions of the Indian Companies Act and other applicable provisions of Indian law.
The rights of shareholders described in this section are available only to Smaaash’s shareholders. For the purposes of this prospectus, a “shareholder” means a person who holds certificated shares of Smaaash or is recorded as a beneficial owner of shares of Smaaash with a depository pursuant to the Depositories Act, 1996, as amended from time to time. Smaaash’s equity shares are in registered physical form as well as non-physical or book-entry form.
SMAAASH
Smaaash was incorporated in Mumbai, India, as a private limited company on November 30, 2009. Smaaash’s registration number is 197424 and its registered office is presently situated 2nd Floor, Trade View Building, Oasis Complex, PB Marg, Lower Parel, Mumbai – 400013, Maharashtra, India
Share Capital
Smaaash’s authorized share capital is Rs. 2,750,000,000, divided into (a) 215,000,000 equity shares of face value Rs.10 per equity share and (b) 60,000,000 CCPS of face value Rs.10. As of May 14, 2018, Smaaash’s paid-up share capital was Rs. 2,358,189,450, divided into 185,734,979 equity shares of face value Rs. 10 per equity share and 50,083,966 CCPS of face value Rs.10.
Shareholders’ Agreement
For a description of the material terms of the Shareholders Agreement please seeProposal No. 1- The Business Combination – Shareholders Agreement.
Memorandum of Association and Articles of Association
Memorandum of Association
The memorandum of association (“MoA”) sets out the authorized share capital limit of Smaaash. As of May 14, 2018, the authorized share capital of Smaaash is Rs. 2750,000,000, divided into (a) 215,000,000 equity shares of face value Rs. 10 per equity share, and (b) 60,000,000 CCPS of face value Rs. 10. The paid-up share capital of Smaaash as of May 14, 2018, is Rs. 2358,189,450, divided into 185,734,979 equity shares of face value Rs. 10 per equity share and 50,083,966 CCPS of face value Rs. 10 per CCPS. Therefore, to accommodate the 7,66,41,157 equity shares which shall be issued to I-AM Capital pursuant to its investment into Smaaash, the authorized share capital limit as set out in the MoA shall be increased by way of a resolution passed by the shareholders of Smaaash in a general meeting.
Articles of Association
The existing articles of association of Smaaash (“Articles”)inter alia, covers the rights of its existing equity shareholders, including the rights and obligations of FW Metis Limited (“Metis”), certain high net worth individuals as identified in the Articles (the “Qualified Investors”), Sachin Ramesh Tendulkar (“SRT”), Bennet Coleman and Company (“BCCL”) and Mitesh R Gowani (“MRG”). The Articles are divided into Part A (whichinter alia sets out the rights of Metis, SRT, BCCL and MRG), Part B, C and D (whichinter aliasets out the rights of the Qualified Investors). It is clarified that all the qualified investors hold compulsorily convertible preference shares in Smaaash.
As a condition precedent to the closing (as defined under the Subscription Agreement), i.e. disbursement of the investment amount from I-AM Capital into Smaaash, the rights and obligations of I-AM Capital as negotiated and set out in the Shareholders Agreement shall be entrenched into the Articles by way of a special resolution passed by the shareholders of Smaaash in a general meeting. The entrenched provisions of the Articles shall come into effect upon the closing date as set out in the Subscription Agreement.
The material provisions of the Articles which are applicable to the equity shares of Smaaash have been set out below. The rights have been categorized into 2 (two) categories, (i) general provisions, where the provisions are applicable to all shareholders of Smaaash, and (ii) specific provisions (as set out in the comparative table below) which apply to specific shareholders of Smaaash.
General provisions: Please see below the general provisions incorporated under the Articles, which are applicable to all shareholders of Smaaash:
General Meetings of Shareholders –A minimum 21 (twenty one) days’ notice of the general meeting shall be provided to the shareholders of Smaaash accompanied by the agenda of the meeting. No business shall be transacted at a general meeting, unless the quorum as specified in the Articles and under the Indian Companies Act, 2013 is present. If there is no quorum, the meeting shall be adjourned.
Voting Rights -The shareholders of Smaaash shall be entitled to vote by way of show of hands or on a poll. Each shareholder shall have one vote in a show of hands. In a poll, the voting rights of the shareholders shall be in proportion to their share in paid up equity share capital of Smaaash.
Dividends -Smaaash shall declare dividends in a general meeting, but such dividends shall not exceed the amount determined by the board of directors of Smaaash. The board can also declare interim dividends subject to applicable law. After declaring a dividend, the board may set aside such sums as may be required out of the profits of Smaaash as a reserve. The dividend shall be distributed among the shareholders in proportion to their shares held in Smaaash.
Transfer of Shares –The relevant provisions have been summarized in the comparative table below.
Disclosure of Ownership Interest –Except as specified by law, no person shall be recognized by Smaaash as holding any share upon any trust, and Smaaash shall not be bound to recognize any equitable, contingent, future or partial interest in any share or any other rights in respect of any share except an absolute right to the entirety thereof in the registered holder.
Alteration of Shareholder Rights –The relevant provisions have been summarized in the comparative table below.
Share Register and Record Dates –Every person whose name is entered as a member in the register of members shall be entitled to receive their respective share certificates within 2 (two) months after incorporation (in case of subscribers to the memorandum of association of Smaaash), or after allotment or within 1 (one) month after the application for the registration of transfer or transmission or within such other periods as the conditions of issue shall provide.
Books of accounts -The board of directors of Smaaash shall determine the accounts and books of Smaaash. The shareholders of Smaaash shall not have the right to inspect the books and accounts of Smaaash except as conferred by law, or authorized by the board or by Smaaash in a general meeting.
Borrowing Powers –The relevant provisions have been summarized in the comparative table below.
Preemptive Rights and Alteration of Share Capital -The relevant provisions have been summarized in the comparative table below. Further, general powers have been provided to Smaaash to increase the authorized share capital of Smaaash.
Capitalization of Reserves and Issue of Bonus Shares –Smaaash shall in a general meeting, upon the recommendation of the board of directors, resolve the capitalization of any part of the amount for the time being standing to the credit of any of Smaaash’s reserve accounts or to the credit of the profit and loss account or otherwise available for distribution. Further, such sum shall be set free for distribution amongst the shareholders of Smaaash (in the manner specified in the Articles) who would have been entitled thereto, if distributed by way of dividend and in the same proportion. The sums aforesaid can be appliedinter aliatowards the securities premium account and a capital redemption reserve account which can be applied in the paying up of unissued shares to be issued to the shareholders of Smaaash as fully paid bonus shares.
Purchase of Own Equity Shares –Subject to the other provisions of the Articles, and any other applicable provisions of the Companies Act, 2013 or any other law for the time being in force, Smaaash may purchase its own shares or other specified securities.
Liquidation rights –The relevant provisions have been summarized in the comparative table below.
Specific Provisions:The comparative table below sets out the specific rights of Metis and the Qualified Investors as incorporated into the Articles. For ease of reference, we have also set out the rights which have been negotiated by I-AM Capital which have been incorporated in the Shareholders Agreement, and which shall be entrenched into the Articles (which shall be effective from the closing date, as set out in the Share Subscription Agreement).
Provisions | Metis | I-AM Capital | Qualified Investors |
New Issuances at same or higher price | ● No new issuance of securities shall be undertaken by Smaaash at a price which is the same as the issue price of Metis securities, or at a price higher than the price of the Metis securities, without the prior written approval of Metis. | ● I-AM Capital shall have the right to subscribe to such number of securities in a new issuance proposed by Smaaash, in order to maintain its shareholding on a fully diluted basis. | ● Smaaash shall not issue any securities at a price or term which is the same or more favorable than the securities of the Qualified Investors without the prior written consent of the Qualified Investors. |
Provisions | Metis | I-AM Capital | Qualified Investors |
● Metis or any person nominated by Metis shall have the first right to subscribe such portion of the new issuance to enable Metis to maintain its equity shareholding in Smaaash on a fully diluted basis.
● Any unsubscribed shares by the other shareholders shall also be first offered to Metis or any person nominated by Metis.
| ● If any other shareholder fails to exercise their entitlement rights with respect to a proposed issuance of securities by Smaaash, such shareholder’s entitlement to the new securities shall automatically devolve upon I-AM Capital.
| ● The Qualified Investors shall have the right to be offered such number of securities out of the proposed new issuance by Smaaash, so as to maintain their shareholding in Smaaash on a fully diluted basis.
| |
New issuances of securities at lower valuation | ● Smaaash shall not undertake any new issuance of securities at a lower valuation without the prior written approval of Metis.
● Metis or any person nominated by Metis shall have the first right to subscribe to all or any of such new issuance of securities.
● If the new issuance at a lower valuation is offered to any person other than Metis, then Metis has the right to a full ratchet adjustment to ensure the acquisition cost per Metis security is lowered to the price of the lower valuation.
| ● If Smaaash issues any new securities to a person or undertakes any action including effecting any change in the share capital structure of Smaaash, at a price per security lower than the issue price of securities held by I-AM Capital, then I-AM Capital shall be entitled to broad based weighted average anti-dilution protection in accordance with the formula set out in the Shareholders Agreement and consequently in the Articles.
● Smaaash shall issue additional equity shares or cause the Smaaash Founders to transfer equity shares to I-AM Capital at the lowest price payable as per applicable law, in accordance with the broad based weighted average formula.
| ● If any proposed issuance is undertaken by Smaaash at a lower valuation than the valuation at which the Qualified Investors subscribed to their shares in Smaaash, then the Qualified Investors shall be entitled to exercise their right to a full ratchet adjustment to ensure that the acquisition cost per their security on a fully diluted basis is lowered to the price of the lower valuation. |
New Issuances of convertible instruments at higher rates | If Smaaash undertakes a new issuance of convertible instruments at a higher rate to any person other than Metis, Metis shall have full ratchet adjustment right. The aggregate rate of return on Metis convertible instruments shall be increased to ensure that the rate of return on the Metis convertible instruments shall be deemed to have been in effect from the date of issuance of the Metis securities. | N.A. | The Qualified Investors have been provided with similar rights as that provided to Metis. |
Provisions | Metis | I-AM Capital | Qualified Investors |
Rights in the company and alteration of rights | ● Smaaash or its promoters shall not provide any rights in Smaaash to any person without prior written consent of Metis.
● Any such rights provided to any other person by Smaaash shall be equally available to Metis (except any rights provided to SRT). No rights shall be granted by Smaaash which are superior to the rights of Metis.
● Any alteration of the rights attached to the Metis securities shall be undertaken only with the prior written consent from Metis.
| ● Any alteration or change to the rights, preferences or privileges of any securities of Smaaash to the extent that such alteration or change affects the rights of I-AM Capital is an I-AM Capital reserved matter, and shall require the prior written consent of I-AM Capital. | ● Smaaash cannot amend the Articles which has the effect of diluting the rights of the Qualified Investors without the prior written consent from the Qualified Investors.
● If any rights and benefits are made available to a person by Smaaash, such rights shall be equally available to the Qualified Investors.
|
Alteration of share capital | Alteration of share capital of Smaaash is a Metis reserved matter right and shall require the prior written consent of Metis.
| Any creation of a new class or series of securities by Smaaash is an I-AM Capital reserved matter, and shall require the prior written consent from I-AM Capital. Further, any acquisition of securities or voting power by Smaaash in any other person shall also require the prior written consent of I-AM Capital. | N.A. |
General meeting of shareholders | No resolution can be passed at a general meeting of the shareholders of Smaaash with respect to the Metis reserved matters without the prior written consent of Metis.
| No action shall be taken by Smaaash or resolution passed by the shareholders of Smaaash, except with the affirmative consent of I-AM Capital or such person as nominated by I-AM Capital, with respect to the I-AM Capital reserved matters, as set out in the Shareholders Agreement, and consequently in the Articles. | N.A. |
Voting rights | The general provisions as set out above shall apply. | The general provisions as set out above shall apply. | ● The Qualified Investors shall be entitled to vote on every resolution at a general meeting.
● The Qualified Investors shall carry voting rights on a fully diluted basis. If they are not able to vote due to any applicable law restrictions, the Smaaash Founders shall vote on behalf of the Qualified Investors.
|
Provisions | Metis | I-AM Capital | Qualified Investors |
Indebtedness | Any incurrence of indebtedness by Smaaash or alteration in the terms and conditions thereof, over and above the amount set out in the business plan of Smaaash is a Metis reserved matter. | Any authorization by Smaaash of an indebtedness exceeding 5 (five) times the debt to EBITDA ratio of Smaaash for each financial year or creation of any lien or charges on the assets of Smaaash in connection therewith is an I-AM Capital reserved matter. | N.A. |
Transfer of Promoter Shares | ● The Smaaash Founders shall not transfer any Promoter Shares (as defined under the Articles) without the prior approval of Metis, and the Promoter Shares shall be locked in, unless Metis sells more than 75% of their securities and ceases to hold 10% of the equity share capital of Smaaash, or upon the successful completion of a qualified initial public offering or compulsory initial public offering).
● The promoters shall be entitled to transfer their shareholding to one or more of their group companies or the immediate family members.
| ● The Smaaash Founders shall not transfer any Promoter Shares (as defined under the Shareholders Agreement) without the prior approval of I-AM Capital. The Promoter Shares shall be locked in till I-AM Capital holds any shares in Smaaash or if I-AM Capital ceases to hold 10% of the equity share capital of Smaaash on a fully diluted basis. The lock in shall also fall away upon the successful completion of a QIPO.
● The promoters shall be entitled to transfer their shareholding to one or more of their group companies or the immediate family members.
| ● Promoter Shares are locked in till the Qualified Investors are provided with an exit.
● Certain transfers are permitted of the Promoter Shares, which are similar to the Metis and I-AM Capital rights.
|
Transfer restrictions on the shareholders | Metis can transfer its securities to any of its affiliates without any restriction, provided it is not a competitor or restricted person as set out in the Articles and subject to the right of first offer of the Smaaash Founders. | I-AM Capital can transfer its securities to any of its affiliates without any restriction, provided it is not a competitor or restricted person as set out in the Articles and subject to the right of first offer of the Smaaash Founders. | The Qualified Investors shall be entitled to freely transfer their securities except to a restricted person (as defined under the Articles), and subject to the right of first offer of the Smaaash Founders. |
Right of First Offer | Upon transfer of promoter shares or Metis securities, Metis and Smaaash Founders respectively shall have a right of first offer. | Upon transfer of promoter shares or I-AM Capital securities, I-AM Capital and Smaaash Founders respectively shall have a right of first offer. | Upon transfer of promoter shares or Qualified Investor securities, Qualified Investors and the Promoters respectively shall have a right of first offer. |
Tag Along right | Metis shall have a tag along right for any transfer of shares by Smaaash Founders, exceeding the specified number as set out in the Articles. | I-AM Capital shall have a tag along right for any transfer of shares by the Smaaash Founders. If Smaaash Founders propose to transfer equal to or more than 10% of the promoter shares in aggregate, then I-AM Capital shall be entitled to transfer all their securities in Smaaash. | Qualified Investors shall have a tag along right for any transfer of shares by Smaaash Founders, exceeding the specified number as set out in the Articles. |
Provisions | Metis | I-AM Capital | Qualified Investors |
IPO | ● Metis has an exit option by way of a qualified initial public offering (“QIPO”), which must be completed prior to September 30, 2018.
● If QIPO is not provided as an exit option prior to the cut-off date, Metis shall be entitled by delivery of a notice to Smaaash and Smaaash Founders, to require Smaaash and the Promoters to initiate a compulsory initial public offering.
| ● Smaaash is liable to provide an exit by way of a QIPO to I-AM Capital. The QIPO shall be subject to the conditions set out in the Shareholders Agreement and consequently the Articles. | Similar rights and restrictions as that of Metis have been provided to the Qualified Investors. |
Buyback | If Smaaash fails to achieve a QIPO or fails to provide a complete exit to Metis on or prior to the final deadline date, Metis shall be entitled to require Smaaash to buyback all or any of the Metis securities in one or more tranches, or Smaaash shall have the right to voluntarily offer to purchase all of Metis securities. | If Smaaash fails to provide a complete exit to I-AM Capital on or prior to the final deadline date, I-AM Capital shall be entitled to require Smaaash to buyback all or any of the I-AM Capital securities at a price not less than sum of the investment amount by I-AM Capital and an internal rate of return of 20%. | Similar buyback rights as that of Metis have been provided to the Qualified Investors. |
Secondary Sale | Smaaash shall be entitled to provide an exit by secondary sale after September 30, 2018 and prior to June 30, 2019 by way of secondary sale. | Smaaash shall be entitled to provide an exit by secondary sale to I-AM Capital within the prescribed exit timelines at a price not less than sum of the investment amount by I-AM Capital and an internal rate of return of 20%. | Similar rights and restrictions as that of Metis have been provided to the Qualified Investors. |
Drag Along right | ● If Smaaash Founders have committed fraud or embezzlement in relation to the affairs of Smaaash, or if Smaaash has failed to list its equity shares pursuant to an QIPO or a compulsory IPO or to complete a buy back or promoter purchase or the secondary sale prior to the specified deadline date, Metis shall be entitled to exercise its drag along right.
● Metis shall have the right to require Smaaash Founders and other specified shareholders to sell all or part of their securities as a part of the drag along right.
| ● If Smaaash Founders have committed fraud or embezzlement in relation to the affairs of Smaaash, or if Smaaash has failed to provide an exit to I-AM Capital prior to the specified deadline date, I-AM Capital shall be entitled to exercise its drag along right.
● I-AM Capital shall have the right to require Smaaash Founders and other specified shareholders to sell all or part of their securities as a part of the drag along right.
| Similar rights and restrictions as that of Metis have been provided to the Qualified Investors. |
Reserved Matters | No Metis Reserved Matters (as set out in the Articles) shall be undertaken without the prior consent of Metis. | No I-AM Capital reserved matters (as set out in the Articles) shall be undertaken without the prior consent of I-AM Capital. | N.A. |
Provisions | Metis | I-AM Capital | Qualified Investors |
Dividend | Declaration or payment of dividend or other distributions on any equity shares or other securities of Smaaash shall require the prior written consent from Metis or the directors nominated by Metis.
| Declaration or payment of any dividend or deemed dividend or other distributions on securities of Smaaash shall require the prior written consent I-AM Capital.
| The Qualified Investor securities shall carry a non – cumulative dividend of 0.01% per annum. |
Resignation of Shripal | Shripal Morakhia shall not resign from full time employment with Smaaash till Metis ceases to hold any securities.
| Shripal Morakhia shall not resign from full time employment with Smaaash till I-AM Capital ceases to hold any securities.
| N.A. |
Board | Metis has the right to nominate 2 (two) directors, and jointly nominate 2 (two) independent directors on the board of directors of Smaaash. Further, Metis has the right to appoint 1 (one) observer. | I-AM Capital has the right to nominate 2 (two) directors, and jointly nominate 3 (three) independent directors on the board of directors of Smaaash. Further, Metis has the right to appoint 1 (one) observer. | N.A. |
Liquidation preference | ● The liquidation of Smaaash or its winding up or any steps in connection therewith is a reserved matter item of Metis, and shall not be undertaken without the prior written consent from Metis.
● A liquidation event has been defined under the Articles to mean, (a) liquidation, winding up or dissolution of Smaaash, (b) sale of Smaaash through merger, consolidation, sale of all or substantial part of shares or assets, or any other means in which the shareholders do not retain a majority of the voting powers of the surviving corporation based on the valuation of an independent valuer appointed as per the Articles.
● In case of a liquidation event, the proceeds shall be distributed (in the quantum set out in the Articles), first, pro – rate inter se, to Metis, the Qualified Investors, Bennet Coleman and Company Limited (“BCCL”) and SRT. Thereafter, all Smaaash Founders and thereafter all the shareholders of Smaaash shall receive the proceeds in the manner set out in the Articles.
| ● Smaaash or its subsidiaries shall not undertake any liquidation event without the prior written consent from I-AM Capital.
● Liquidation event with respect to I-AM Capital shall mean winding up, liquidation, reconstruction, consolidation, reorganization, amalgamation, merger, sale of assets or business of Smaaash.
● Upon the occurrence of a liquidation event, I-AM Capital shall be entitled to be paid an amount equal to the I-AM Capital exit price (as set out in the Shareholders Agreement) pari passu and simultaneously with the payment of liquidation preference amounts to Metis, Qualified Investors, BCCL and SRT.
| In case of a liquidation event, the proceeds shall be distributed (in the quantum set out in the Articles), first, pro – rate inter se, to Metis, the Qualified Investors, BCCL and SRT. Thereafter, all Smaaash Founders and thereafter all the shareholders of Smaaash shall receive the proceeds in the manner set out in the Articles. |
In addition to the rights captured in the comparative table below, the following shareholders have certain specific rights which have been briefly summarized below:
(i) | Sachin Ramesh Tendulkar |
SRT reserved matters. No resolution can be passed at a general meeting of the shareholders of Smaaash with respect to the SRT reserved matters (as specified in the Articles) without the prior written consent of SRT.
Transfer of SRT shares. SRT is entitled to transfer any part or portion of his shareholding in Smaaash to his relatives with the prior consent of AHA Holdings Private Limited or other shareholders of Smaaash. For any transfer of the SRT shares, AHA Holdings Private Limited shall have a right of first refusal.
SRT put option. Upon the expiry of five years from the date of execution of the subscription agreement with SRT (dated May 22, 2012) and prior to expiry of six years from the execution date of the subscription agreement, SRT shall have the right to require AHA Holdings to purchase the SRT shares by issuing a notice. SRT shall also have a put option on AHA Holding Private Limited upon the occurrence of any events specified in the Articles.
SRT tag right. SRT has a tag along right in the event of any transfer of shares of Smaaash by AHA Holdings Private Limited.
(ii) | Mitesh R Gowani |
Transfer of MRG shares. For any transfer of the MRG shares, AHA Holdings Private Limited shall have a right of first refusal.
MRG tag right. MRG has a tag along right in the event of any transfer of shares of Smaaash by AHA Holdings Private Limited.
(iii) | Bennet Coleman and Company |
BCCL has been issued warrants in Smaaash and BCCL shall be entitled to subscribe to such number of shares in accordance with the provisions of the BCCL subscription agreements (as defined under the Articles).
Transfer of Smaaash founder shares. Any transfer of shareholding of the Smaaash Founders shall be with the prior written consent of BCCL.
BCCL put option. BCCL shall have the right to require the Smaaash Founders to purchase all or some of the shares held by BCCL in Smaaash (in the manner set out in the Articles), if BCCL is not provided with an exit opportunity prior to October 30, 2019 or in case of any breach of any representations, warranties or covenants of the BCCL definitive documents by Smaaash and / or Smaaash Founders.
BCCL drag along right. If the BCCL shares are not purchased by Smaaash Founders within the stipulated time period in the exercise of the BCCL put option, BCCL shall be entitled to drag Smaaash Founders and cause them to sell their shares to an identified third party buyer.
BCCL right of first refusal. Any transfer of the BCCL shares shall be subject to a right of first refusal by the Smaaash Founders.
BCCL tag along right. If Smaaash Founders or their affiliates transfer their shareholding in Smaaash resulting in Smaaash Founders’ shareholding falling below 26% of the issued share capital of Smaaash or sale or disposal of more than 10% of the shareholding by Smaaash Founders in a single tranche, then BCCL shall have a tag along right.
BCCL call option. If the shareholding of BCCL in Smaaash pursuant to the exercise of its warrants exceed 15% of the issued paid up capital of Smaaash, then Smaaash Founders shall be entitled to exercise their call option and purchase the shares held by BCCL.
GOVERNMENT APPROVALS AND THIRD- PARTY APPROVALS
Government of India (“GOI”) Approval
For the purpose of consummating the Investment and issuance of Smaaash’s equity shares to I-AM Capital, as per the foreign direct investment policy of GOI (“("FDI Policy”"), the investment of I-AM Capital in Smaaash falls under the automatic route which means the entry route through which investment by a person resident outside India does not require the prior Reserve Bank of India approval or GOI approval.
Post Investment Reporting Requirements
An Indian company which has issued shares under the FDI Policy has a reporting requirement to file the Advance Remittance (Reporting) Form not later than 30 days from the date of receipt of the consideration and to file the form FC-GPR not later than 30 days from the date of issuance of the capital instruments. Accordingly, Smaaash shall within 30 days from the consummation of the transaction (Closing Date) file the Advance Remittance (Reporting) Form and the form FC-GPR (both forms attached as Annex F and G, respectively).FC-GPR.
Third Party Approvals
For the purpose of consummation of the Investment and issuance of Smaaash’s equity shares to I-AM Capital, Smaaash will require consent of (i) certain shareholders as provided under the Articles of Association; and (ii) certain lenders under the existing financing agreements.
BENEFICIAL OWNERSHIP OF SMAAASH SECURITIES
The following table sets forth information with respect to the beneficial ownership of Smaaash’s equity shares as of _____________,July 25, 2018, the record date for the special meeting, and as adjusted to reflect the issuance of Smaaash equity shares under the Transaction held by:
● | each of Smaaash’s directors and executive officers who own beneficially more than 1.0% of Smaaash’s outstanding equity share capital; and |
● | each person known to Smaaash to own beneficially more than 5.0% of Smaaash’s outstanding equity share capital. |
Each of Smaaash’s shareholders is entitled to one vote on all matters that require a vote of shareholders, and none of its shareholders has any contractual or other special voting rights. Smaaash is not aware of any arrangement that may, at a subsequent date, result in a change of control of Smaaash. As of _____________,July 25, 2018, Smaaash did not have any U.S. record holders of its equity shares.
Name of Beneficial Owner | Pre-Transaction | Post-Transaction(1) | ||||||||||||||||||||||
Number | Percent | Number (assuming no | Percent (assuming no redemptions) | Number (assuming | Percent (assuming maximum redemptions) | |||||||||||||||||||
Directors and Executive Officers | ||||||||||||||||||||||||
F. Jacob Cherian (2) | — | — | 89,583,215 | 27.53 | % | 9,141,144 | 3.73 | % | ||||||||||||||||
Suhel Kanuga (2) | — | — | 89,583,215 | 27.53 | % | 9,141,144 | 3.73 | % | ||||||||||||||||
Shripal Morakhia (3) | 79,217,442 | 33.59 | % | 79,217,442 | 24.34 | % | 79,217,442 | 32.34 | % | |||||||||||||||
Vishwanath Kotian | — | — | — | — | — | — | ||||||||||||||||||
Kaizad Bajina | — | — | — | — | — | — | ||||||||||||||||||
Anand S. Krishnan | — | — | — | — | — | — | ||||||||||||||||||
Rajeev Kalambi | — | — | — | — | — | — | ||||||||||||||||||
Amit Ram Krishnan | — | — | — | — | — | — | ||||||||||||||||||
Nikhil Vora | — | — | — | — | — | — | ||||||||||||||||||
Vijayender Tulla | — | — | — | — | — | — | ||||||||||||||||||
Anand S Krishnan | — | — | — | — | — | — | ||||||||||||||||||
Nilendu Mitra | — | — | — | — | — | — | ||||||||||||||||||
Daniel Johansson | — | — | — | — | — | — | ||||||||||||||||||
Ravikiran Amin | — | — | — | — | — | — | ||||||||||||||||||
Chirag Gehlot | — | — | — | — | — | — | ||||||||||||||||||
Abhishek Agarwal | — | — | — | — | — | — | ||||||||||||||||||
Principal Shareholders (more than 5%): | ||||||||||||||||||||||||
AHA Holdings Private Limited | 79,217,442 | 33.59 | % | 79,217,442 | 24.34 | % | 79,217,442 | 32.34 | % | |||||||||||||||
FW Metis Limited | 69,088,409 | 29.30 | % | 69,088,409 | 21.23 | % | 69,088,409 | 28.20 | % | |||||||||||||||
I-AM Capital Acquisition Company | — | — | 89,583,215 | 27.53 | % | 9,141,144 | 3.73 | % | ||||||||||||||||
Mitesh Gowani | 21,821,451 | 9.25 | % | 21,821,451 | 6.71 | % | 21,821,451 | 8.91 | % |
(1) | Held in the form of equity shares. |
(2) | Represents equity shares of held directly by I-AM Capital Partners LLC, the Sponsor of I-AM Capital. F. Jacob Cherian and Suhel Kanuga are managers and members of the Sponsor and share voting and dispositive control over the securities held by the Sponsor, and thus share beneficial ownership of such securities. Each of Messrs. Cherian and Kanuga disclaims beneficial ownership over any securities owned by our sponsor in which he does not have any pecuniary interest. |
(3) | Shripal Morakhia assists in the governance, operation and management of AHA Holdings Private Limited. He also has voting and dispositive control over the securities held by AHA Holdings Private Limited, and has beneficial ownership of such securities. |
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
I-AM Capital
Founder Shares
On May 31, 2017, I-AM Capital issued 1,437,500 shares of I-AM Capital’s common stock to the Sponsor (the founder shares in exchange for a capital contribution of $25,000. On September 13, 2017, 137,500 founder shares were forfeited by the Sponsor upon the partial exercise of the underwriters’ over-allotment option.
The founder shares are identical to the shares of common stock included in the Units and holders of Founder Shares have the same stockholder rights as public stockholders, except that (i) the founder shares and the shares of common stock underlying the private placement units are subject to certain transfer restrictions, and (ii) the Sponsor has entered into a letter agreement, pursuant to which it has agreed (A) to waive its redemption rights with respect to the founder shares, and the shares of common stock underlying the private placement units and the public units in connection with the completion of a business combination and (B) to waive its rights to liquidating distributions from the trust account with respect to the founder shares and the shares of common stock underlying the private placement units if I-AM Capital fails to complete a business combination within 12 months from the closing of the initial public offering (or up to 21 months from the closing of the initial public offering if I-AM Capital extends the period of time to consummate a business combination).
With certain limited exceptions, the founder shares are not transferable, assignable or salable (except to I-AM Capital’s officers and directors and other persons or entities affiliated with the Sponsor, each of whom will be subject to the same transfer restrictions) until the earlier of one year after the completion of an initial business combination or earlier of (i) subsequent to I-AM Capital’s business combination, the last sale price of the common stock equals or exceeds $12.00 per share (as adjusted for stock splits, stock dividends, reorganizations, recapitalizations and the like) for any 20 trading days within any 30-trading day period commencing at least 150 days after an initial Business Combination, or (ii) the date following the completion of an Initial Business Combination on which I-AM Capital completes a liquidation, merger, stock exchange or other similar transaction that results in all stockholders having the right to exchange their shares of common stock for cash, securities or other property. The initial stockholder have agreed to vote their founder shares and any public shares purchased during or after I-AM Capital’s initial public offering in favor of the Transaction.
In connection with the Special Dividend, the Sponsor has agreed to cancel a number of founder shares equal to the aggregate number of shares issued in the Special Dividend.
Private Placement Units
In addition, the Sponsor purchased, pursuant to a written agreement, an aggregate of 254,500 private placement units at $10.00 per private placement unit for proceeds of $2,545,000 in the aggregate in the private placement. This purchase took place on a private placement basis simultaneously with the completion of the initial public offering. This issuance was made pursuant to the exemption from registration contained in Section 4(a)(2) of the Securities Act.
The Sponsor committed to purchase from I-AM Capital up to an additional 26,250 private placement units if the underwriters’ over-allotment option was exercised in full. On September 13, 2017, 7,000 additional private placement units were purchased by the Sponsor at $10.00 per private placement unit upon the partial exercise of the over-allotment option.
Administrative Services
I-AM Capital has agreed, commencing on the effective date of the initial public offering through the earlier of I-AM Capital’s consummation of a business combination or its liquidation, to pay the Sponsor a monthly fee of $10,000 for office space, utilities and secretarial and administrative support. As of April 30, 2018, I-AM Capital has paid $70,000 which is presented as general and administrative expense on the accompanying statement of operations.
Working Capital Loan
The Sponsor has loaned I-AM Capital $201,707 in the aggregate, to be used for a portion of the expenses of the initial public offering and working capital purposes. The loan is non-interest bearing, unsecured and was due at the earlier of December 31, 2017 or the closing of the initial public offering. As of February 28, 2018, $120,089 of the Sponsor’s loan has been repaid and the balance due is $81,618.
Registration Rights
Pursuant to a registration rights agreement I-AM Capital entered into with its initial stockholder and initial purchasers of the private placement units (and constituent securities) at the closing of the initial public offering, I-AM Capital is required to register certain securities for sale under the Securities Act. These holders are entitled under the registration rights agreement to make up to three demands that I-AM Capital register certain of its securities held by them for sale under the Securities Act and to have the securities covered thereby registered for resale pursuant to Rule 415 under the Securities Act. In addition, these holders have the right to include their securities in other registration statements filed by I-AM Capital. The Company will bear the costs and expenses of filing any such registration statements.
SMAAASH
Issue of Shares
Shares were issued to AHA Holdings Private Limited against optionally convertible preference shares. This transaction amounted to $ 3.27 million for the nine-month period ended 31 December 2017. For the year ended 31 March 2017, the issue of optionally convertible preference shares to AHA Holdings Private Limited amounted to $3.27 million. There was also a rights issue of shares to AHA Holdings Private Limited for $3.36 million for the nine-month period ended 31 December 2017. The Chief Executive Officer of Smaaash has significant influence over AHA Holdings Private Limited. Smaaash also issued shares to FW Metis Ltd for $3.60 million for the year ended 31 March 2017. This includes the share premium amount. FW Metis Ltd has significant influence over Smaaash.
Borrowings
Smaaash incurred short-term borrowings of $2.01 million for the nine-month period ended 31 December 2017 and $2.24 million for the year ended 31 March 2017 from AHA Holdings Private Limited. The loan is interest free and repayable on demand. Smaaash repaid to AHA Holdings Private Limited $2.16 million during the nine-month period ended 31 December 2017 and $2.61 million for the year ended 31 March 2017. As at 31 December 2017, the balance due was $0.05 million and as at 31 March 2017 the balance due was $0.19 million. The balance due by AHA Holdings Private Limited to Smaaash for a short-term loan given to them was $1.02 million as at 31 December 2017.
PRICE RANGE OF SECURITIES AND DIVIDENDS
I-AM Capital
Price Range of I-AM Capital Securities
I-AM Capital’s units, common stock, rights and warrants are currently quoted on the NASDAQ Capital Market, or NASDAQ under the symbols “IAM,” “IAMXR” and “IAMXW,” respectively. I-AM Capital intends to apply to change its ticker symbol to “SMSH” in connection with the closing of the Transaction, in which case its common stock and warrants will be quoted on the NASDAQ under the symbols “SMSH,” and “SMSHW,” respectively. The rights expire upon the consummation of the Transaction.
The following table includes the high and low bids for I-AM Capital’s common stock, rights and warrants for the periods presented, since the consummation of I-AM Capital’s initial public offering on August 15,22, 2017.
Common Stock(1) | Rights(2) | Warrants(3) | ||||||||||||||||||||||
High | Low | High | Low | High | Low | |||||||||||||||||||
Fiscal Year 2018 | ||||||||||||||||||||||||
March 1 to May 31, 2018 (4) | $ | 10.52 | 9.90 | 0.42 | 0.32 | 0.50 | 0.34 | |||||||||||||||||
December 1, 2017 to February 28, 2018 | $ | 10.02 | 9.80 | 0.43 | 0.28 | 0.60 | 0.21 | |||||||||||||||||
September 1 to November 30, 2017 | $ | 9.98 | 9.80 | 0.35 | 0.27 | 0.34 | 0.26 | |||||||||||||||||
August 16 to August 31, 2017 (5) | $ | N/A | N/A | N/A | N/A | N/A | N/A |
(1) | I-AM Capital’s common stock began separate trading on NASDAQ on October 9, 2017. |
(2) | I-AM Capital’s rights began separate trading on NASDAQ on October 9, 2017. |
(3) | I-AM Capital’s warrants began separate trading on NASDAQ on October 9, 2017. |
(4) | Reflect prices for the period through May 10, 2018. |
(5) | I-AM Capital’s common stock, rights and warrants did not trade separately from its units until October 9, 2017. |
On May 9, 2018, the date after the public announcement of the Transaction, I-AM Capital’s common stock, rights and warrants closed at $10.10, $0.40 and $0.47, respectively.
Holders
As of May 9, 2018, there were four holders of record of I-AM Capital’s common stock, two holders of record of its rights and two holders of record of its warrants.
Dividends
I-AM Capital has not paid any cash dividends on its common stock to date and does not intend to pay cash dividends prior to the completion of the Transaction.
SMAAASH
Price Range of Smaaash Securities
Historical market price information regarding Smaaash is not provided because there is no public market for Smaaash’s equity shares.
As of the date of this proxy statement, there were 92 holders of Smaaash equity shares.
Dividend Policy of Smaaash
Smaaash currently has no formal dividend policy and has not paid any dividends in the past.
Dividend Policy Following the Transaction
Following completion of the Transaction, Smaaash’s board of directors will consider whether or not to institute a dividend policy. It is the present intention of Smaaash to retain any earnings for use in its business operations and, accordingly, Smaaash does not anticipate the board of directors declaring any dividends in the foreseeable future.
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMS
The unaudited financial statements of Smaaash Limited as of December 31, 2017 and for the nine months ended December 31, 2017 included in this proxy statement have been so included in reliance on the review of Prager Metis, an independent registered public accounting firm, appearing elsewhere herein given on the authority of said firm as experts in auditing and accounting.
The audited financial statements of Smaaash Limited as of March 31, 2018, 2017 and 2016 and for each of the years ended March 31, 2018, 2017 and 2016 included in this proxy statement have been so included in reliance on the report of Prager Metis, an independent registered public accounting firm, appearing elsewhere herein given on the authority of said firm as experts in auditing and accounting.
I-AM Capital stockholders do not have appraisal rights in connection with the Transaction under Delaware law.
ENFORCEABILITY OF CIVIL LIABILITIES
Smaaash is a private limited company organized under the laws of India. Substantially all of the directors and executive officers of Smaaash (other than F. Jacob Cherian and Suhel Kanuga), and certain of the experts named in this proxy statement are residents of non-United States jurisdictions and all or a substantial portion of the assets of such persons are located outside the United States. As a result, it may not be possible for investors to effect service of process within the United States upon such persons with respect to matters arising under the Securities Act or to enforce against them, in original actions or in actions for enforcement of judgments of United States courts, liabilities predicated upon the United States federal securities laws.
Irrespective of any jurisdictional issues, Indian courts may not enforce a provision of the U.S. federal securities laws that is either penal in nature or contrary to public policy. An action brought pursuant to a public or penal law, the purpose of which is the enforcement of a sanction, power or right at the instance of the state in its sovereign capacity, is unlikely to be entertained by Indian courts. Specified remedies available under the laws of U.S. jurisdictions, including specified remedies under U.S. federal securities laws, would not be available under Indian law or enforceable in an Indian courts, if they are considered to be contrary to Indian public policy (as the case may be). An award of punitive damages under a United States courts judgment based upon United States federal securities laws is likely to be construed by Indian courts to be penal in nature and therefore unenforceable in India.
Section 44A of the C.P.C., provides that where a foreign judgment has been rendered by a superior courts in any country or territory outside of India which the GoI has by notification declared to be a reciprocating territory, such foreign judgment may be enforced in India by proceedings in execution as if the judgment had been rendered by an appropriate courts in India. However, the enforceability of such judgments is subject to the exceptions set forth in Section 13 of the C.P.C. This section, which is the statutory basis for the recognition of foreign judgments, states that a foreign judgment is conclusive as to any matter directly adjudicated upon except:
● | where the judgment has not been pronounced by a courts of competent jurisdiction; |
● | where the judgment has not been given on the merits of the case; |
● | where the judgment appears on the face of the proceedings to be founded on an incorrect view of international law or a refusal to recognize the law of India in cases where such law is applicable; |
● | where the proceedings in which the judgment was obtained were opposed to natural justice; |
● | where the judgment has been obtained by fraud; or |
● | where the judgment sustains a claim founded on a breach of any law in force in India. |
India is not a signatory to the “Convention on the Recognition and Enforcement of Foreign Judgments in Civil and Commercial Matters” or any other international treaty in relation to the recognition or enforcement of foreign judgments. Section 44A of the C.P.C. provides that where a foreign judgment has been rendered by a superior courts in any country or territory outside India which the Government of India has declared to be a reciprocating territory, it may be enforced in India as if the judgment had been rendered in India. The United States has not been declared by the GoI to be a reciprocating territory for the purposes of Section 44A of the C.P.C. If a judgment of a foreign courts is not enforceable under Section 44A of the C.P.C. as described above, it may be enforced in India only by a suit filed upon the judgment, subject to Section 13 of the C.P.C., and not by proceedings in execution. Accordingly, a judgment of a courts in the United States may be enforced only by filing a fresh suit on the basis of the judgment and not by proceedings in execution. The suit must be brought in India within three years from the date of the judgment in the same manner as any other suit filed to enforce a civil liability in India. It is difficult to predict whether a suit brought in an Indian courts will be disposed of in a timely manner or be subject to untimely delay. Furthermore, it is unlikely that an Indian courts would enforce a foreign judgment if it viewed the amount of damages awarded as excessive or inconsistent with public policy or practice in India.
A party seeking to enforce a foreign judgment in India is required to obtain prior approval from the Reserve Bank of India under the Foreign Exchange Management Act, 1999, as amended, to repatriate any amount recovered pursuant to such enforcement. Any judgment in a foreign currency would be converted into Indian Rupees on the date of judgment and not on the date of payment.
DELIVERY OF DOCUMENTS TO STOCKHOLDERS
Pursuant to the rules of the SEC, I-AM Capital and servicers that it employs to deliver communications to I-AM Capital stockholders are permitted to deliver to two or more stockholders sharing the same address a single copy of the proxy statement. Upon written or oral request, I-AM Capital will deliver a separate copy of the proxy statement to any stockholder at a shared address to which a single copy of the proxy statement was delivered and who wishes to receive separate copies in the future. Stockholders receiving multiple copies of the proxy statement may likewise request that I-AM Capital deliver single copies of the proxy statement in the future. Stockholders may notify I-AM Capital of their requests by calling or writing I-AM Capital at I-AM Capital’s principal executive offices at 1345 Avenue of the Americas, 11th Floor, New York, New York 10105, Attn: Secretary.
The transfer agent for I-AM Capital’s securities is Continental Stock Transfer & Trust Company.
SUBMISSION OF STOCKHOLDER PROPOSALS
I-AM Capital’s board of directors is aware of no other matter that may be brought before the special meeting. Under Delaware law, only business that is specified in the notice of the special meeting to stockholders may be transacted at the special meeting.
Stockholder proposals for the 2019 annual meeting must be received at I-AM Capital’s principal executive offices within a reasonable time before I-AM Capital begins to print and send proxy materials, and must otherwise comply with the SEC’s rules, to be considered for inclusion in I-AM Capital’s proxy materials.
If you intend to present a proposal at the I-AM Capital’s next annual meeting, or if you want to nominate one or more directors, you must give timely notice thereof in writing to I-AM Capital. I-AM Capital must receive this notice no earlier than the opening of business on the 120thday before the meeting and no later than (x) the close of business on the 90th day before the meeting or (y) the close of business on the 10th day following the day on which public announcement of the date of the annual meeting is first made by I-AM Capital.
If you intend to present a proposal at the 2019 annual meeting, or if you want to nominate one or more directors at the 2019 annual meeting, you must comply with the advance notice provisions of I-AM Capital’s bylaws. If the Transaction is completed, I-AM Capital’s bylaws will be amended and restated. You may contact I-AM Capital’s Secretary at I-AM Capital’s principal executive offices for a copy of the relevant bylaw provisions regarding the requirements for making stockholder proposals and nominating director candidates.
WHERE YOU CAN FIND MORE INFORMATION
I-AM Capital files reports, proxy statements/prospectus and other information with the SEC as required by the Exchange Act. You can read I-AM Capital’s SEC filings, including this proxy statement, over the Internet at the SEC’s website athttp://www.sec.gov. You may also read and copy any document I-AM Capital files with the SEC at the SEC public reference room located at 100 F Street, N.E., Room 1580 Washington, D.C., 20549. You may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. You may also obtain copies of the materials described above at prescribed rates by writing to the SEC, Public Reference Section, 100 F Street, N.E., Washington, D.C. 20549.
If you would like additional copies of this proxy statement at no cost or if you have questions about the Transaction or the proposals to be presented at the special meeting, you should contact I-AM Capital by telephone or in writing:
Suhel Kanuga, Secretary
I-AM Capital Acquisition Company
1345 Avenue of the Americas, 11th Floor
New York, New York 10105
Tel: (212) 878-3684
Email: ______________sk@i-amcapital.com
You may also obtain these documents at no cost by requesting them in writing or by telephone from I-AM Capital’s proxy solicitation agent at the following address and telephone number:
____________________Telephone: __________
Morrow Sodali LLC
470 West Avenue
Stamford, CT 06902
Tel: (800) 662-5200
or banks and brokers can call (203) 658-9400
Email: __________IAM.info@morrowsodali.com
If you are a stockholder of I-AM Capital and would like to request documents, please do so by _______,August 8, 2018 to receive them before the I-AM Capital special meeting. If you request any documents from I-AM Capital, it will mail them to you by first class mail, or another equally prompt means.
All information contained or incorporated by reference in this proxy statement relating to I-AM Capital has been supplied by I-AM Capital, and all such information relating to Smaaash has been supplied by Smaaash. Information provided by either I-AM Capital or Smaaash does not constitute any representation, estimate or projection of any other party.
This document is a proxy statement of I-AM Capital for the special meeting of I-AM Capital stockholders. I-AM Capital has not authorized anyone to give any information or make any representation about the Transaction, I-AM Capital or Smaaash that is different from, or in addition to, that contained in this proxy statement. Therefore, if anyone does give you information of this sort, you should not rely on it. The information contained in this document speaks only as of the date of this document unless the information specifically indicates that another date applies.
SMAAASH ENTERTAINMENT PRIVATE LIMITED
INDEX TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS
PAGE | |
Report of Independent Public Accounting Firm | F-2 |
Consolidated Statement of Financial Position as of March 31, | F-3 |
Consolidated Statement of Profit | F-4 |
Consolidated Statement of Changes in | F-5 |
Consolidated Statement of Cash Flows for the Years Ended March 31, | |
Notes to the Consolidated Financial Statements |
I-AM CAPITAL ACQUSITION COMPANY
Report of Independent Registered Public Accounting FirmAuditor’s Report
To the shareholders and the boardBoard of directorsDirectors of Smaaash Entertainment Pvt. Ltd. and subsidiaries
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated statements of financial positionstatements of Smaaash Entertainment Pvt. Ltd. and subsidiaries (the "Company"“Company”), which comprise the consolidated statements of financial position as of March 31, 2017, 20162018 and April 1, 20152017 and the related consolidated statements of profit or loss and comprehensive loss, changes in stockholders' equity, and cash flows, for each of the two years in the periodthen ended, March 31, 2017 and 2016, and the related notes (collectively referred to as the "financial statements"). In our opinion, the consolidated financial statements present fairly, in all material respects,statements.
Management’s Responsibility for the Financial Statements
Management is responsible for the preparation and fair presentation of these consolidated financial position of the Company as of March 31, 2017, 2016 and April 1, 2015, and the consolidated results of its operations and its cash flows for each of the two yearsstatements in the period ended March 31, 2017 and 2016, in conformityaccordance with International Financial Reporting Standards.Accounting Principles; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.
Basis for OpinionAuditor’s Responsibility
These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's consolidatedthese 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 auditing standards generally accepted in the standardsUnited States of the PCAOB.America. Those standards require that we plan and perform the auditaudits to obtain reasonable assurance about whether the consolidated financial statements are free offrom material misstatement, whether due to error or fraud. Our audits includedmisstatement.
An audit involves performing procedures to assessobtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to errorfraud or fraud,error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and performingfair presentation of the financial statements in order to design audit procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosuresare appropriate in the consolidated financial statements. Our auditscircumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includedincludes evaluating the appropriateness of accounting principlespolicies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.
We believe that our auditsthe audit evidence we have obtained is sufficient and appropriate to provide a reasonable basis for our audit opinion.
Opinion
/s/
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Smaaash Entertainment Pvt. Ltd. and subsidiaries as of March 31, 2018 and 2017, and the results of its operations, changes in equity and its cash flows for the years then ended in accordance with International Financial Accounting Principles
Prager Metis CPAs, LLC
We have served as the Company's auditor since2018.New York, New York
July 27, 2018
Basking Ridge, New Jersey
Smaaash Entertainment Private Limited
Consolidated statement of financial position at March 31, 2018 and 2017
All amounts are in Rs. ’000 unless otherwise stated
May 15, 2018
Particulars | Notes | As at March 31, 2018 | As at March 31, 2017 | |||
Assets | ||||||
I | Non-current assets | |||||
(a) | Property, plant and equipment | 6 | 3,242,264 | 1,859,347 | ||
(b) | Capital work-in-progress | 6 | 182,669 | 202,840 | ||
(c) | Goodwill | 7 | 13,604 | — | ||
(d) | Other intangible assets | 8 | 505,625 | 269,669 | ||
(e) | Intangible assets under development | 8 | 48,992 | — | ||
(f) | Investments | 9 | 6,496 | 18,586 | ||
(g) | Other financial assets | 10 | 206,192 | 138,243 | ||
(h) | Deferred tax assets (net) | 11 | 488,766 | 234,749 | ||
(i) | Non-current tax assets (net) | 12 | 18,949 | 6,198 | ||
(j) | Other non-current assets | 13 | 149,590 | 40,637 | ||
Total non-current assets | 4,863,147 | 2,770,269 | ||||
II | Current assets | |||||
(a) | Inventories | 14 | 160,594 | 75,503 | ||
(b) | Investments | 9 | 11,012 | 8,198 | ||
(c) | Trade receivables | 15 | 177,947 | 26,551 | ||
(d) | Cash and bank balances | 16 | 119,840 | 133,529 | ||
(e) | Loans | 17 | 412 | 1,897 | ||
(f) | Other financial assets | 10 | 87,288 | 56,062 | ||
(g) | Other current assets | 13 | 408,335 | 129,466 | ||
Total current assets | 965,428 | 431,206 | ||||
Total assets | 5,828,575 | 3,201,475 | ||||
Equity and liabilities | ||||||
Capital and reserves | ||||||
(a) | Issued capital and share premium | 18 | 3,653,881 | 1,747,763 | ||
(b) | Other reserves | 19 | 65,206 | 30,451 | ||
(c) | Accumulated deficit | 20 | (1,283,494) | (953,910) | ||
Total equity | 2,435,593 | 824,304 | ||||
Liabilities | ||||||
I | Non-current liabilities | |||||
(a) | Borrowings | 21 | 1,360,980 | 1,662,912 | ||
(b) | Other financial liabilities | 22 | 194,270 | 103,417 | ||
(c) | Provisions | 23 | 2,327 | — | ||
(d) | Other non-current liabilities | 24 | 8,024 | 8,865 | ||
Total non-current liabilities | 1,565,601 | 1,775,194 | ||||
II | Current liabilities | |||||
(a) | Borrowings | 21 | 205,535 | 325,083 | ||
(b) | Trade payables | 25 | 228,616 | 133,489 | ||
(c) | Other financial liabilities | 22 | 1,314,196 | 58,027 | ||
(d) | Provisions | 23 | 9,015 | 6,930 | ||
(e) | Other current liabilities | 24 | 70,019 | 78,448 | ||
Total current liabilities | 1,827,381 | 601,977 | ||||
Total equity and liabilities | 5,828,575 | 3,201,475 |
F-3
Smaaash Entertainment Private Limited
Consolidated statement of profit and loss and other comprehensive income for the period ended March 31, 2018 and 2017
All amounts are in Rs. ’000 unless otherwise stated
SMAAASH Entertainment Private Limited
(Amounts in thousands of Indian Rupee (INR), unless otherwise stated)
SMAAASH Entertainment Private Limited
(Amounts in thousands of Indian Rupee (INR), unless otherwise stated)
XII | Other comprehensive loss | ||||
A | Items that will not be reclassified subsequently to profit or loss: | ||||
Remeasurements of the defined benefit plans | 2,646 | (208) | |||
Income tax relating to items that will not be reclassified subsequently to profit or loss | 32 | (818) | 64 | ||
B | Items that may be reclassified subsequently to profit or loss: | ||||
Exchange differences on translating foreign subsidiary | 18 | (19,127) | — | ||
Total other comprehensive loss | (17,299) | (144) | |||
XIII | Total comprehensive loss for the period (XI + XII) | (280,315) | (189,967) | ||
XIV | Total comprehensive loss for the period attributable to: | ||||
Owners of the Company | (280,315) | (189,967) | |||
Non-controlling interests | — | — |
See accompanying notes to the consolidated financial statements
SMAAASH Entertainment Private Limited
(Amounts in thousands of Indian Rupee (INR), unless otherwise stated)
(b) Other Equity | (Rs. in Thousands) | ||||
Securities premium reserve | Foreign Currency Translation Reserve | Contribution from promotors/ shareholders | Accumulated Deficit | Total | |
As at April 1, 2015 | 372,668 | — | 30,797 | (502,755) | (99,290) |
Addition during the year | — | 18,781 | 18,781 | ||
Utilised during the year towards share issue expenses | (2,868) | (2,868) | |||
Total comprehensive income for the year | — | ||||
- Loss for the year | — | — | (189,823) | (189,823) | |
- Other comprehensive income arising from remeasurement of defined benefit obligation net of income tax | — | — | (144) | (144) | |
As at March 31, 2016 | 369,800 | — | 49,578 | (692,722) | (273,344) |
Addition during the year | — | — | — | — | — |
Utilised during the year towards share issue expenses | (4,509) | (19,127) | — | — | (23,636) |
Total comprehensive income for the year | — | ||||
- Loss for the year | — | — | — | (263,017) | (263,017) |
- Other comprehensive income arising from remeasurement of defined benefit obligation net of income tax | — | — | — | 1,828 | 1,828 |
As at March 31, 2017 | 365,291 | (19,127) | 49,578 | (953,910) | (558,168) |
Particulars | Notes | For the year ended March 31, 2018 | For the year ended March 31, 2017 | ||
I | Revenue from operations | 26 | 1,746,459 | 995,489 | |
II | Product sales | 378,466 | 153,101 | ||
III | Other income | 27 | 18,959 | 21,196 | |
IV | Total revenue | 2,143,884 | 1,169,786 | ||
V | Expenses | ||||
(a) | Cost of material consumed | 28 | 224,832 | 142,370 | |
(b) | Purchase of stock-in-trade | 304,951 | 116,434 | ||
(c) | Change in inventories of stock-in-trade | 29 | (46,131) | (17,963) | |
(d) | Employee benefit expense | 30 | 385,306 | 242,633 | |
(e) | Finance costs | 31 | 433,184 | 235,528 | |
(f) | Depreciation and amortization expense | 6&7 | 553,552 | 298,361 | |
(g) | Pre-launch expenses | 32 | 36,991 | 41,872 | |
(h) | Other expenses | 33 | 816,983 | 463,450 | |
Total expenses | 2,709,668 | 1,522,685 | |||
VI | Loss before exceptional items and tax(IV - V) | (565,784) | (352,899) | ||
Exceptional Items | 34 | 26,813 | — | ||
VII | Loss before tax | (592,597) | (352,899) | ||
VIII | Tax expense | ||||
(1) | Current tax | 35 | (2,091) | 1,173 | |
(2) | Deferred tax | 35 | (260,723) | (106,522) | |
Total tax expense | (262,814) | (105,349) | |||
IX | Loss for the period from continuing operations (VII - VIII) | (329,783) | (247,550) | ||
X | Loss from discontinued operations before tax | 36 | 34 | (15,933) | |
XI | Tax expense of discontinued operations | — | (467) | ||
XII | Income (Loss) from discontinued operations after tax (X - XI) | 34 | (15,466) | ||
XIII | Loss for the period (IX + XII) | (329,749) | (263,016) | ||
XIV | Other comprehensive income (loss) | ||||
A | Items that will not be reclassified subsequently to profit or loss: | ||||
Remeasurements of the defined benefit plans | 239 | 2,646 | |||
Equity instruments through other comprehensive income | 717 | — | |||
Income tax relating to items that will not be reclassified subsequently to profit or loss | 35 | (74) | (818) | ||
B | Items that may be reclassified subsequently to profit or loss: | ||||
Exchange differences on translating foreign subsidiary | 19 | 2,038 | (19,127) | ||
Total other comprehensive income (loss) | 2,920 | (17,299) | |||
XV | Total comprehensive loss for the period (XIII + XIV) | (326,829) | (280,315) | ||
XVI | Total comprehensive loss for the period attributable to: | ||||
Owners of the Company | (326,829) | (280,315) | |||
Non-controlling interests | — | — |
See accompanying notes to the consolidated financial statements
F-5
SMAAASHSmaaash Entertainment Private Limited
Consolidated statement of changes in equity for the period ended March 31, 2018 and 2017
(AmountsAll amounts are in thousands of Indian Rupee (INR),Rs. ’000 unless otherwise stated)stated
Notes:(a) Equity Share Capital
Particulars | Number of shares | Equity share capital |
As at April 1, 2016 | 114,849,740 | 1,148,497 |
Issue of shares | 23,397,500 | 233,975 |
As at March 31, 2017 | 138,247,240 | 1,382,472 |
Issue of shares | 26,221,451 | 262,215 |
Conversion of optional convertible preference shares into equity shares | 21,266,288 | 212,663 |
As at March 31, 2018 | 185,734,979 | 1,857,350 |
See accompanying notes to the consolidated financial statements(b) Compulsorily convertible preference shares
Particulars | Number of shares | Preference share capital |
As at April 1, 2016 | — | — |
Issue of shares | — | — |
As at March 31, 2017 | — | — |
Issue of shares | 39,443,000 | 394,430 |
As at March 31, 2018 | 39,443,000 | 394,430 |
SMAAASHSmaaash Entertainment Private Limited
Consolidated statement of changes in equity for the period ended March 31, 2018 and 2017
All amounts are in Rs. ’000 unless otherwise stated
(c) Other Equity
Share application money pending allotment | Reserves & Surplus | Other comprehensive income | Total | ||||
Securities premium reserve | Foreign Currency Translation Reserve | Contribution from promoters/ shareholders | Accumulated deficit | Reserve for equity instruments through other comprehensive income | |||
As at April 1, 2016 | — | 369,800 | — | 49,578 | (692,722) | — | (273,344) |
Addition during the year | — | — | — | — | — | — | — |
utilized during the year towards share issue expenses | — | (4,509) | — | — | — | — | (4,509) |
Created during the year | — | — | (19,127) | — | — | — | (19,127) |
Total comprehensive income for the year | — | ||||||
- Loss for the year | — | — | — | — | (263,016) | — | (263,016) |
- Other comprehensive income net of income tax | — | — | — | — | 1,828 | — | 1,828 |
As at March 31, 2017 | — | 365,291 | (19,127) | 49,578 | (953,910) | — | (558,168) |
Addition during the year | 32,000 | 1,101,249 | — | — | — | — | 1,133,249 |
utilized during the year towards share issue expenses | — | (64,439) | — | — | — | — | (64,439) |
Created during the year | — | — | 2,038 | — | — | — | 2,038 |
Total comprehensive income for the year | — | ||||||
- Loss for the year | — | — | — | — | (329,749) | — | (329,749) |
- Other comprehensive income net of income tax | — | — | — | — | 165 | 717 | 882 |
As at March 31, 2018 | 32,000 | 1,402,101 | (17,089) | 49,578 | (1,283,494) | 717 | 183,813 |
Smaaash Entertainment Private Limited
Consolidated statement of cash flows for the period ended March 31, 2018 and 2017
All amounts are in Rs. ’000 unless otherwise stated
Particulars | For the year ended March 31, 2018 | For the year ended March 31, 2017 | |
A. | Cash flows from operating activities | ||
Consolidated loss for the year | (329,749) | (263,016) | |
Adjustments for: | |||
Income tax expense recognized in profit or loss (continuing and discontinued operations) | (262,814) | (105,816) | |
Loss on disposal of property, plant and equipment | 455 | — | |
Provision for expected credit loss recognized on trade receivables | — | (420) | |
Exceptional items | 26,813 | — | |
Bad debts | — | — | |
Provision for doubtful advances | 1,551 | 716 | |
Depreciation and amortization of non-current assets | 553,552 | 298,361 | |
Depreciation and amortization of non-current assets (Discontinued) | 7,443 | 6,113 | |
Finance Charges | 432,542 | 235,163 | |
Other interest expenses | 642 | 366 | |
Net gain/(loss) arising on financial assets carried at FVTPL | (1,681) | (7,078) | |
Net gain/(loss) arising on financial liabilities carried at amortized cost | 9,028 | 12,337 | |
Net gain/(loss) arising on financial liabilities carried at amortized cost | 6,869 | — | |
Unwinding of security deposits | (9,056) | (8,855) | |
Sundry credit balances written back | 2,655 | — | |
Lease rent adjustment | 7,487 | 9,933 | |
Interest Income | (2,456) | (2,399) | |
Remeasurements of the defined benefit plans- gains/(losses) | 239 | 2,646 | |
Operating profit before working capital changes | 443,520 | 178,051 | |
Movements in working capital: | |||
Increase in trade and other receivables | (427,942) | (17,831) | |
(Increase) / decrease in inventories | (90,620) | (35,007) | |
(Increase) / decrease in trade receivables | (152,946) | (11,295) | |
Increase / (decrease) in provisions | 4,411 | 806 | |
Increase / (decrease) in trade payables | 92,472 | 44,181 | |
Increase / (decrease) in other payables | (9,083) | 33,320 | |
Increase / (decrease) in temporary overdrawn bank balance | 990 | — | |
Cash generated from operations | (139,198) | 192,225 | |
Income taxes paid | (3,879) | (1,919) | |
Net cash generated by/(used in) operating activities | (143,077) | 190,306 | |
B. | Cash flows from investing activities | ||
Net proceeds from investments in mutual funds and others | 19,041 | 45,508 | |
Interest income | 2,456 | 2,399 | |
Proceeds from sale of property, plant and equipments and intangibles | 9,412 | — | |
Purchase of property, plant and equipments and intangibles | (2,182,344) | (1,200,799) | |
Net cash generated by/(used in) investing activities | (2,151,435) | (1,152,892) | |
Smaaash Entertainment Private Limited
Consolidated statement of cash flows for the period ended March 31, 2018 and 2017
All amounts are in Rs. ’000 unless otherwise stated
Particulars | For the year ended March 31, 2018 | For the year ended March 31, 2017 | |
C. | Cash flows from financing activities | ||
Interest paid | (534,181) | (199,666) | |
Repayment of borrowings | (2,336,234) | (1,034,787) | |
Proceeds of borrowings | 3,211,081 | 2,095,600 | |
Issue of Share Capital | 869,309 | 233,975 | |
Share premium received (net of share issue expenses) | 1,036,809 | (4,509) | |
Increase / (decrease) Other reserves | 34,039 | (19,127) | |
Net cash generated by/(used in) financing activities | 2,280,823 | 1,071,486 | |
Net increase in cash and cash equivalents (A+B+C) | (13,689) | 108,900 | |
Cash at the beginning of the year | 133,529 | 24,629 | |
Cash at the end of the year | 119,840 | 133,529 | |
Components of cash | |||
Cash / Cheques on hand | 9,065 | 4,283 | |
With Banks - on Current account/Balance in Cash Credit Accounts | 110,775 | 129,246 | |
119,840 | 133,529 | ||
Smaaash Entertainment Private Limited
Notes to consolidated financial statements for the period ended March 31, 2018 AND 2017
(AmountsAll amounts are in thousands of Indian Rupee (INR),Rs. ’000 unless otherwise stated)stated
General information
Smaaash Entertainment Private Limited (‘Smaaash’(’Smaaash’ or the ‘Company’) was incorporated as a private limited company in India on November 30, 2009. The Company is engaged in the business of operating entertainment centers. Smaaash presents a various range of games that offer a superlative virtual-reality experience and combines the best of sports, music and dining into a highly immersive, interactive, innovative and involved entertainment experience. The Company is also involved in the Product sales i.e. sale of in-house developed games with the help of innovative ideas and cutting edge technology.
The address of its registered office is 2nd Floor, Trade wing building, Oasis complex, P B Marg, Lower Parel, Mumbai 400 013 and principal place of business is Mumbai, India.
Basis of preparation and significant accounting policies
1. | Basis of preparation |
The financial statements of the Company, entities controlled by the Company and its subsidiaries (together ‘the Group’) have been prepared in accordance with International Financial Reporting Standards (‘IFRS’).
Upto the year ended March 31, 2017, the Group prepared its financial statements in accordance with the requirements of previous Indian GAAP, which includes Standards notified under the Companies (Accounting Standards) Rules, 2006. These are the Group’s first IFRS financial statement. The date of transition to IFRS is April 1, 2015. Refer Note 3.21 for the details of first-time adoption exemptions availed by the Group.
In accordance with IFRS 1 First-time Adoption of International Financial Reporting Standards, the Group has presented a reconciliation from Previous GAAP to IFRS of total equity as at March 31, 2017, 2016, and April 1, 2015 and of the total of comprehensive income for the year ended March 31, 2017 and 2016.
These consolidated financial statements were approved by the Board of Directors onMay 15,July 26, 2018.
The aforesaid consolidated financial statement have been prepared in Indian Rupee (INR) and denominated in Thousands.
1.1 | Historical cost convention |
These consolidated financial statements have been prepared and presented on the historical cost basis except for certain financial instruments that are measured at fair values at the end of each reporting period, as explained in the accounting policies below.
Historical cost is generally based on the fair value of the consideration given in exchange for goods and services.
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, regardless of whether that price is directly observable or estimated using another valuation technique. In estimating the fair value of an asset or a liability, the Group takes into account the characteristics of the asset or liability if market participants would take those characteristics into account when pricing the asset or liability at the measurement date. Fair value for measurement and/or disclosure purposes in these consolidated financial statement is determined on such a basis, except for leasing transactions that are within the scope of IAS 17, and measurements that have some similarities to fair value but are not fair value, such as net realisablerealizable value in IAS 2 or value in use in IAS 36.
In addition, for financial reporting purposes, fair value measurements are categorised into Level 1, 2 or 3 based on the degree to which the inputs to the fair value measurements are observable and the significance of the inputs to the fair value measurement in its entirety, which are described as follows:
● | Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the measurement date; |
● | Level 2 inputs are inputs, other than quoted prices included within Level 1, that are observable for the asset or liability, either directly or indirectly; and |
● | Level 3 inputs are unobservable inputs for the asset or liability. |
SMAAASH Entertainment Private Limited
Notes to consolidated financial statements
(Amounts in thousands of Indian Rupee (INR), unless otherwise stated)
1.2 | Classification of current/non-current assets and liabilities |
The consolidated balance sheet presents current and non-current assets, and current and non-current liabilities, as separate classifications. For this purpose, an asset is classified as current if:
● | It is expected to be |
F-9
Smaaash Entertainment Private Limited
Notes to consolidated financial statements for the period ended March 31, 2018 AND 2017
All amounts are in Rs. '000 unless otherwise stated
● | It is held primarily for the purpose of trading; or |
● | It is expected to |
● | The asset is a cash or equivalent unless it is restricted from being exchanged or used to settle a liability for at least 12 months after the reporting period. |
All other assets are classified as non-current.
Similarly, a liability is classified as current if:
● | It is expected to be settled in the normal operating cycle; or |
● | It is held primarily for the purpose of trading; or |
● | It is due to be settled within 12 months after the reporting period; or |
● | The Group does not have an unconditional right to defer the settlement of the liability for at least 12 months after the reporting period. Terms of a liability that could result in its settlement by the issue of equity instruments at the option of the counterparty does not affect this classification. |
All other liabilities are classified as non-current.
2. | Basis of consolidation |
The consolidated financial statements incorporated the financial statement of the Company and entities (including structured entities) controlled by the Company and its subsidiaries. Control is achieved when the Company:
● | has power over the investee; |
● | is exposed, or has rights, to variable returns from its involvement with the investee; and |
● | has the ability to use its power to affect its returns. |
The Company reassesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more of the three elements of control listed above.
List of entities that are being are been consolidated:
Name of Subsidiaries | Country of incorporation/ Principal Place of Business | Effective percentage of shareholding | |
As at March 31, 2018 | As at March 31, 2017 | ||
Smaaash Innovation Private Limited | India | 100% | 100% |
Adrenaline Foods Private Limited | India | 100% | 100% |
Smaaash Entertainment USA Limited | USA | 100% | 100% |
Smaaash Village Private Limited | India | 100% | 100% |
Smaaash Leisure Limited (Formerly known as PVR BluO Entertainment Limited) | India | 100% | — |
When the Company has less than a majority of the voting rights of an investee, it has power over the investee when the voting rights are sufficient to give it the practical ability to direct the relevant activities of the investee unilaterally. The Company considers all relevant facts and circumstances in assessing whether or not the Company’s voting rights in an investee are sufficient to give it power, including:
● | the size of the Company’s holding of voting rights relative to the size and dispersion of holdings of the other vote holders; |
● | potential voting rights held by the Company, other vote holders or other parties; |
● | rights arising from other contractual arrangements; and |
● | any additional facts and circumstances that indicate that the Company has, or does not have, the current ability to direct the relevant activities at the time that decisions need to be made, including voting patterns at previous shareholders’ meetings. |
Consolidation of a subsidiary begins when the Company obtains control over the subsidiary and ceases when the Company loses control of the subsidiary. Specifically, income and expenses of a subsidiary acquired or disposed of during the year are included in the consolidated statement of profit and loss from the date the Company gains control until the date when the Company ceases to control the subsidiary.
Smaaash Entertainment Private Limited
Notes to consolidated financial statements for the period ended March 31, 2018 AND 2017
All amounts are in Rs. '000 unless otherwise stated
Profit or loss and each component of other comprehensive income are attributed to the owners of the Company and to the non-controlling interests. Total comprehensive income of subsidiaries is attributed to the owners of the Company and to the non-controlling interests even if this results in the non-controlling interests having a deficit balance.
When necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies into line with the Group’s accounting policies.
All intragroup assets and liabilities, equity, income, expenses, and cash flows relating to transactions between members of the Group are eliminated in full on consolidation.
2.1 | Changes in the Group’s ownership interests in existing subsidiaries |
SMAAASH Entertainment Private Limited
NotesChanges in the Group’s ownership interests in subsidiaries that do not result in the Group losing control over the subsidiaries are accounted for as equity transactions. The carrying amounts of the Group’s interests and the non-controlling interests are adjusted to consolidated financial statementsreflect the changes in their relative interests in the subsidiaries. Any difference between the amount by which the non-controlling interests are adjusted and the fair value of the consideration paid or received is recognized directly in equity and attributed to owners of the Company.
(Amounts
When the Group loses control of a subsidiary, a gain or loss is recognized in thousandsprofit or loss and is calculated as the difference between (i) the aggregate of Indian Rupee (INR)the fair value of the consideration received and the fair value of any retained interest and (ii) the previous carrying amount of the assets (including goodwill), unless otherwise stated)and liabilities of the subsidiary and any non-controlling interests. All amounts previously recognized in other comprehensive income in relation to that subsidiary are accounted for as if the Group had directly disposed of the related assets or liabilities of the subsidiary (i.e. reclassified to profit or loss or transferred to another category of equity as specified/permitted by applicable IFRS). The fair value of any investment retained in the former subsidiary at the date when control is lost is regarded as the fair value on initial recognition for subsequent accounting under IAS 39, or, when applicable, the cost on initial recognition of an investment in an associate or a joint venture.
3. | Significant accounting policies |
3.1 | Revenue recognition |
3.1.1 | Rendering of Services |
Revenue from rendering of services is measured at fair value of consideration received or receivable. Revenue is recognized over of the life of the contract using percentage completion method and when the outcome of the transaction is estimated reliably.
The outcome of a transaction is estimated reliably when all the following conditions are satisfied:
the amount of revenue can be measured reliably; |
it is probable that the economic benefits associated with the transaction will flow to the entity; |
the stage of completion of the transaction at the end of the reporting period can be measured reliably; and |
the costs incurred for the transaction and the costs to complete the transaction can be measured reliably |
When the outcome of the transaction involving the rendering of services cannot be estimated reliably, revenue shall be recognisedrecognized only to the extent of the expenses recognisedrecognized that are recoverable.
Rendering of services include:
a) | Revenue from the gaming service is |
Smaaash Entertainment Private Limited
Notes to consolidated financial statements for the period ended March 31, 2018 AND 2017
All amounts are in Rs. '000 unless otherwise stated
b) | Revenue from banquet, corporate events and others is |
3.1.2 | Sale of goods |
Revenue from the sale of goods is recognized when the goods are delivered and titles have passed, at which time all the following conditions are satisfied:
● | the Group has transferred to the buyer the significant risks and rewards of ownership of the goods; |
● | the Group retains neither continuing managerial involvement to the degree usually associated with ownership nor effective control over the goods sold; |
● | the amount of revenue can be measured reliably; |
● | it is probable that the economic benefits associated with the transaction will flow to the Group; and |
● | the costs incurred or to be incurred in respect of the transaction can be measured reliably. |
Revenue from sale of goods is measured at fair value of the consideration received or receivable, net of returns and trade discounts and includes excise duty but excludes sales tax, value added tax and Goods and Service Tax (GST).
Revenue from sale of goods include:
Product sales - Revenue from sale of gaming products is |
Revenue from Sale of food and beverages is |
SMAAASH Entertainment Private Limited
Notes to consolidated financial statements
(Amounts in thousands of Indian Rupee (INR), unless otherwise stated)
3.1.3 | Bonus Points: |
The fair value of the consideration on gaming services that result in bonus point credits for customers, under the Group’s bonus point schemes, is allocated between the normal points supplied and the bonus point credit granted. The consideration allocated to the bonus point credits is measured by reference to fair value from the standpoint of the holder and is recognisedrecognized as revenue on redemption and / or expected redemption after breakage.
3.1.4 | Dividend and interest income |
Dividend income from investments is recognisedrecognized when the shareholder’s right to receive payment has been established (provided that it is probable that the economic benefits will flow to the Group and the amount of income can be measured reliably).
Interest income from a financial asset is recognisedrecognized when it is probable that the economic benefits will flow to the Group and the amount of income can be measured reliably. Interest income is accrued on a time basis, by reference to the principal outstanding and at the effective interest rate applicable, which is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset to that asset’s net carrying amount on initial recognition.
3.2 | Business Combination |
Acquisitions of businesses are accounted for using the acquisition method. The consideration transferred in a business combination is measured at fair value, which is calculated as the sum of the acquisition-date fair values of the assets transferred by the Group, liabilities incurred by the Group to the former owners of the acquiree and the equity interests (if any) issued in exchange of control of the acquiree. Acquisition-related costs are generally recognisedrecognized in profit or loss as incurred.
At the acquisition date, the identifiable assets acquired and the liabilities assumed are recognisedrecognized at their fair value, except that:
● | deferred tax assets or liabilities, and assets or liabilities related to employee benefit arrangements are |
Smaaash Entertainment Private Limited
Notes to consolidated financial statements for the period ended March 31, 2018 AND 2017
All amounts are in Rs. '000 unless otherwise stated
● | assets (or disposal groups) that are classified as held for sale in accordance with IFRS 5 Non-current Assets Held for Sale and Discontinued Operations are measured in accordance with that Standard. |
Goodwill is measured as the excess of the sum of the consideration transferred, and the fair value of the acquirer’s previously held equity interest in the acquiree (if any) over the net of the acquisition-date amounts of the identifiable assets acquired and the liabilities assumed.
3.3 | Goodwill |
Goodwill represents the cost of acquired business as established at the date of acquisition of the business in excess of the acquirer’s interest in the net fair value of the identifiable assets, liabilities and contingent liabilities less accumulated impairment losses, if any. Goodwill is tested for impairment annually or when events or circumstances indicate that the implied fair value of goodwill is less than its carrying amount.
For the purposes of impairment testing, goodwill is allocated to each of the Group’s cash-generating units (or groups of cash-generating units) that is expected to benefit from the synergies of the combination.
A cash-generating unit to which goodwill has been allocated is tested for impairment annually, or more frequently when there is an indication that the unit may be impaired. If the recoverable amount of the cash-generating unit is less than its carrying amount, the impairment loss is allocated first to reduce the carrying amount of any goodwill allocated to the unit and then to the other assets of the unit pro rata based on the carrying amount of each asset in the unit. Any impairment loss for goodwill is recognized directly in profit or loss. An impairment loss recognized for goodwill is not reversed in subsequent periods.
On disposal of the relevant cash-generating unit, the attributable amount of goodwill is included in the determination of the profit or loss on disposal.
3.4 | Leasing |
Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee. All other leases are classified as operating leases.
Group as a lessee: |
Finance leases are capitalisedcapitalized at the lease’s inception at the fair value of the leased property or, if lower, the present value of the minimum lease payments. The corresponding rental obligations, net of finance charges, are included in borrowings or other financial liabilities as appropriate. Each lease payment is allocated between the liability and finance cost. The finance cost is charged to the profit or loss over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period.
The Group’s significant operating leasing arrangements are in respect of office premises and godownwarehouse at various locations. Rental expense from operating leases is generally recognisedrecognized on a straight-line basis over the term of the relevant lease. Where the rentals are structured solely to increase in line with expected general inflation to compensate for the Group’s expected inflationary cost increases, such increases are recognisedrecognized in the year in which such benefits accrue. Initial direct costs incurred in negotiating and arranging an operating lease are added to the carrying amount of the leased asset and recognisedrecognized on a straight-line basis over the lease term.
Group as a lessor: |
Rental income from operating leases is generally recognisedrecognized on a straight-line basis over the term of the relevant lease. Initial direct costs incurred in negotiating and arranging an operating lease are added to the carrying amount of the leased asset and recognisedrecognized on a straight-line basis over the lease term.
SMAAASH Entertainment Private Limited
Notes to consolidated financial statements
(Amounts in thousands of Indian Rupee (INR), unless otherwise stated)
Foreign currencies |
In preparing the financial statements of each individual group entity, transactions in currencies other than the entity’s functional currency (foreign currencies) are recognisedrecognized at the rates of exchange prevailing at the dates of the transactions. At the end of each reporting period, monetary items denominated in foreign currencies are retranslatedtranslated at the rates prevailing at that date. Non-monetary items carried at fair value that are denominated in foreign currencies are retranslatedtranslated at the rates prevailing at the date when the fair value was determined. Non-monetary items that are measured in terms of historical cost in a foreign currency are not retranslated.translated.
Smaaash Entertainment Private Limited
Notes to consolidated financial statements for the period ended March 31, 2018 AND 2017
All amounts are in Rs. '000 unless otherwise stated
Exchange differences on monetary items are recognisedrecognized in profit or loss in the period in which they arise.
For the purposes of presenting these consolidated financial statements, the assets and liabilities of the Group’s foreign subsidiary are translated into Indian Rupees (INR) using exchange rates prevailing at the end of each reporting period. Income and expense items are translated at the average exchange rates for the period, unless exchange rates fluctuate significantly during that period, in which case the exchange rates at the dates of the transactions are used. Exchange differences arising, if any, are recognisedrecognized in other comprehensive incomeloss and accumulated in equity.
Borrowing costs |
Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, which are assets that necessarily take a substantial period of time to get ready for their intended use or sale, are added to the cost of those assets, until such time as the assets are substantially ready for their intended use or sale.
All other borrowing costs are recognisedrecognized in profit or loss in the period in which they are incurred.
Government grants |
Government grants are not recognisedrecognized until there is reasonable assurance that the Group will comply with the conditions attaching to them and that the grants will be received.
Government grants are recognisedrecognized in profit or loss on a systematic basis over the periods in which the Group recognisesrecognizes as expenses the related costs for which the grants are intended to compensate. Specifically, government grants whose primary condition is that the Group should purchase, construct or otherwise acquire non-current assets are recognisedrecognized as deferred revenue in the consolidated statement of financial position and transferred to profit or loss on a systematic and rational basis.
Government grants that are receivable as compensation for expenses or losses already incurred or for the purpose of giving immediate financial support to the Group with no future related costs are recognisedrecognized in profit or loss in the period in which they become receivable.
Non-current asset held for sale |
Non-current assets and disposal groups are classified as held for sale if their carrying amount will be recovered principally through a sale transaction rather than through continuing use. This condition is regarded as met only when the asset (or disposal group) is available for immediate sale in its present condition subject only to terms that are usual and customary for sales of such asset (or disposal group) and its sale is highly probable. Management must be committed to the sale, which should be expected to qualify for recognition as a completed sale within one year from the date of classification.
Non-current assets (and disposal groups) classified as held for sale are measured at the lower of their carrying amount and fair value less costs to sell.
Employee benefits |
Retirement benefit costs and termination benefits |
Employee benefits include provident fund, employee state insurance scheme, gratuity fund and compensated absences.
SMAAASH Entertainment Private Limited
Notes to consolidated financial statements
(Amounts in thousands of Indian Rupee (INR), unless otherwise stated)
Payments to defined contribution retirement benefit plans are recognisedrecognized as an expense when employees have rendered service entitling them to the contributions.
Smaaash Entertainment Private Limited
Notes to consolidated financial statements for the period ended March 31, 2018 AND 2017
All amounts are in Rs. '000 unless otherwise stated
For defined retirement benefit plans, the cost of providing benefits is determined using the projected unit credit method, with actuarial valuations being carried out at the end of each annual reporting period. Re-measurement, comprising actuarial gains and losses, the effect of the changes to the asset ceiling (if applicable) and the return on plan assets (excluding net interest), is reflected immediately in the balance sheet with a charge or credit recognisedrecognized in other comprehensive income in the period in which they occur. Remeasurement recognisedrecognized in other comprehensive income is reflected immediately in retained earningsaccumulated deficit and is not reclassified to profit or loss. Past service cost is recognisedrecognized in profit or loss in the period of a plan amendment. Net interest is calculated by applying the discount rate at the beginning of the period to the net defined benefit liability or asset. Defined benefit costs are categorised as follows:
a) | service cost (including current service cost, past service cost, as well as gains and losses on curtailments and settlements); |
b) | net interest expense or income; and |
c) | re-measurement |
The Group presents the first two components of defined benefit costs in profit or loss in the line item ‘Employee benefits expense’. Curtailment gains and losses are accounted for as past service costs.
The present value of the defined benefit plan liability is calculated using a discount rate, which is determined by reference to market yields at the end of the reporting period on government bonds.
The retirement benefit obligation recognisedrecognized in the balance sheet represents the actual deficit or surplus in the Group’s defined benefit plans. Any surplus resulting from this calculation is limited to the present value of any economic benefits available in the form of refunds from the plans or reductions in future contributions to the plans.
A liability for a termination benefit is recognisedrecognized at the earlier of when the entity can no longer withdraw the offer of the termination benefit and when the entity recognisesrecognizes any related restructuring costs.
Short-term and other long-term employee benefits |
“A liability is recognisedrecognized for benefits accruing to employees in respect of salaries, wages and other short term employee benefits in the period the related service is rendered at the undiscounted amount of the benefits expected to be paid in exchange for that service.
Provision for leave benefits to employees is based on actuarial valuation done by projected accrued benefit method at the reporting date.
Taxation |
Income tax expense represents the sum of the tax currently payable and deferred tax.
Current tax |
The tax currently payable is based on taxable profit for the year. Taxable profit differs from ‘profit before tax’ as reported in the statement of profit and loss because of items of income or expense that are taxable or deductible in other years and items that are never taxable or deductible. The Group’s current tax is calculated using tax rates that have been enacted or substantively enacted by the end of the reporting period.
Deferred tax |
Deferred tax is recognisedrecognized on temporary differences between the carrying amounts of assets and liabilities in the consolidated financial statement and the corresponding tax bases used in the computation of taxable profit. Deferred tax liabilities are generally recognisedrecognized for all taxable temporary differences. Deferred tax assets are generally recognisedrecognized for all deductible temporary differences to the extent that it is probable that taxable profits will be available against which those deductible temporary differences can be utilised.utilized. Such deferred tax assets and liabilities are not recognisedrecognized if the temporary difference arises from the initial recognition (other than in a business combination) of assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit. In addition, deferred tax liabilities are not recognisedrecognized if the temporary difference arises from the initial recognition of goodwill.
SMAAASHSmaaash Entertainment Private Limited
Notes to consolidated financial statements for the period ended March 31, 2018 AND 2017
(AmountsAll amounts are in thousands of Indian Rupee (INR),Rs. '000 unless otherwise stated)stated
Deferred tax liabilities are recognisedrecognized for taxable temporary differences associated with investments in subsidiaries and associates, and interests in joint ventures, except where the Group is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future. Deferred tax assets arising from deductible temporary differences associated with such investments and interests are only recognisedrecognized to the extent that it is probable that there will be sufficient taxable profits against which to utiliseutilize the benefits of the temporary differences and they are expected to reverse in the foreseeable future.
The carrying amount of deferred tax assets is reviewed at the end of each reporting period and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered.
Deferred tax liabilities and assets are measured at the tax rates that are expected to apply in the period in which the liability is settled or the asset realised,realized, based on tax rates (and tax laws) that have been enacted or substantively enacted by the end of the reporting period.
The measurement of deferred tax liabilities and assets reflects the tax consequences that would follow from the manner in which the Group expects, at the end of the reporting period, to recover or settle the carrying amount of its assets and liabilities.
Minimum alternate tax |
Minimum alternate tax (MAT) paid in a year is charged to Consolidated statement of profit and loss as current tax. The Group recognizes the MAT credit available as an asset only to the extent that there is convincing evidence that the Group will pay normal income tax during the specified period i.e. the period for which the MAT credit is allowed to be carried forward. In the year in which the Group recognizes the MAT credit as an asset in accordance with the Guidance note on Accounting for Credit available in respect of Minimum Alternate Tax under the Income tax Act, 1961, the said asset is created by way of credit to the consolidated statement of profit and loss and shown as “MATMAT Credit Entitlement”Entitlement under the deferred tax assets. The Group reviews the “MATMAT Credit Entitlement”Entitlement asset at each reporting date and writes down the asset to the extent the Group does not have convincing evidence that it will pay normal tax during the specified period.
Current and deferred tax for the year |
Current and deferred tax are recognisedrecognized in profit or loss, except when they relate to items that are recognisedrecognized in other comprehensive income or directly in equity, in which case, the current and deferred tax are also recognisedrecognized in other comprehensive income or directly in equity respectively. Where current tax or deferred tax arises from the initial accounting for a business combination, the tax effect is included in the accounting for the business combination.
Property, plant and equipment |
Property, plant and equipment held for use in the production or supply of goods or services, or for administrative purposes, are stated in the balance sheet at their cost less accumulated depreciation and accumulated impairment losses. The cost of property, plant and equipments includes freight, duties, taxes (to the extent not recoverable from tax authorities) and any directly attributable expenditure for making the assets ready for its intended use. It also includes initial estimate of the costs of dismantling and removing the item and restoring the site on which it is located. Replacement cost of an item of property, plant and equipment is capitalisedcapitalized if replacement meets the recognition criteria.
Depreciation is recognisedrecognized so as to write off the cost or valuation of assets less their residual values over their useful lives, using the straight-line method. The estimated useful lives, residual values and depreciation method are reviewed at the end of each reporting period, with the effect of any changes in estimate accounted for on a prospective basis.
Estimated useful lives of the assets are as follows:
Plant and machinery | 8 years - 15 years |
Office | 5 years |
Furniture and fixtures | 5 years - 11 years |
Vehicles | 8 years |
Computers | 3 years |
Electrical | 10 years |
SMAAASHSmaaash Entertainment Private Limited
Notes to consolidated financial statements for the period ended March 31, 2018 AND 2017
(AmountsAll amounts are in thousands of Indian Rupee (INR),Rs. '000 unless otherwise stated)stated
Leasehold Improvements are amortized over the unexpired period of lease on a straight-line basis.
Individual assets costing uptoup to Rs.5,000 are depreciated at the rate of 100% prorata over a period of one year from the date of purchase.
Estimates of residual value of Property, plant and equipment is reviewed at least at each year-end.
An item of property, plant and equipment is derecognisedderecognized upon disposal or when no future economic benefits are expected to arise from the continued use of the asset. Any gain or loss arising on the disposal or retirement of an item of property, plant and equipment is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognisedrecognized in profit or loss.
Capital work-in-progress: |
Projects under Property plant and equipment are not yet ready for their intended use are carried at cost, comprising direct cost, related incidental expenses and attributable interest.
Intangible assets |
Intangible assets with finite useful lives that are acquired separately are carried at cost less accumulated amortisationamortization and accumulated impairment losses. AmortisationAmortization is recognisedrecognized on a straight-line basis over their estimated useful lives. The estimated useful life and amortisationamortization method are reviewed at the end of each reporting period, with the effect of any changes in estimate being accounted for on a prospective basis. Intangible assets with indefinite useful lives that are acquired separately are carried at cost less accumulated impairment losses.
Estimated Useful life is as below:
Software | 2.5 years – 6 years |
Trademarks | 5 years- 8 years |
Virtual reality games | 8 years |
Player right | Over a period of contract with the player |
An intangible asset is derecognisedderecognized on disposal, or when no future economic benefits are expected from use or disposal. Gains or losses from derecognition of intangible assets, measured at the difference between the net disposal proceeds and the carrying amount of the assets, and are recognisedrecognized in profit or loss when the asset is derecognised.derecognized.
Impairment of tangible and intangible assets other than goodwill |
At the end of each reporting period, the Group reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). When it is not possible to estimate the recoverable amount of an individual asset, the Group estimates the recoverable amount of the cash-generating unit to which the asset belongs. When a reasonable and consistent basis of allocation can be identified, corporate assets are also allocated to individual cash-generating units, or otherwise they are allocated to the smallest group of cash-generating units for which a reasonable and consistent allocation basis can be identified.
Recoverable amount is the higher of fair value less costs of disposal and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted.
If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (or cash-generating unit) is reduced to its recoverable amount. An impairment loss is recognisedrecognized immediately in profit or loss, unless the relevant asset is carried at a revalued amount, in which case the impairment loss is treated as a revaluation decrease.
SMAAASH Entertainment Private Limited
Notes to consolidated financial statements
(Amounts in thousands of Indian Rupee (INR), unless otherwise stated)
When an impairment loss subsequently reverses, the carrying amount of the asset (or a cash-generating unit) is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognisedrecognized for the asset (or cash-generating unit) in prior years. A reversal of an impairment loss is recognisedrecognized immediately in profit or loss.
Smaaash Entertainment Private Limited
Notes to consolidated financial statements for the period ended March 31, 2018 AND 2017
All amounts are in Rs. '000 unless otherwise stated
Inventories |
Inventories are stated at the lower of cost and net realisablerealizable value. Net realisablerealizable value represents the estimated selling price for inventories less all estimated costs of completion and costs necessary to make the sale. Cost is determined on the basis of weighted average method.
Provisions and contingent liabilities |
Provisions are recognisedrecognized when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable that the Group will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation.
The amount recognisedrecognized as a provision is the best estimate of the consideration required to settle the present obligation at the end of the reporting period, taking into account the risks and uncertainties surrounding the obligation. When a provision is measured using the cash flows estimated to settle the present obligation, its carrying amount is the present value of those cash flows (when the effect of the time value of money is material).
A Contingent Liability is disclosed where there is a possible obligation or a present obligation that may, but probably will not, require an outflow of resources. Contingent Assets are not recognised.recognized. Information on contingent liabilities is disclosed in the notes to consolidated financial statements unless the possibility of an outflow of resources embodying economic benefits is remote.
Financial instruments |
Financial assets and financial liabilities are recognisedrecognized when an entity becomes a party to the contractual provisions of the instruments.
Financial assets and financial liabilities are initially measured at fair value. Transaction costs that are directly attributable to the acquisition or issue of financial assets and financial liabilities (other than financial assets and financial liabilities at fair value through profit or loss) are added to or deducted from the fair value of the financial assets or financial liabilities, as appropriate, on initial recognition. Transaction costs directly attributable to the acquisition of financial assets or financial liabilities at fair value through profit or loss are recognisedrecognized immediately in profit or loss.
Financial assets |
All regular way purchases or sales of financial assets are recognisedrecognized and derecognisedderecognized on a trade date basis. Regular way purchases or sales are purchases or sales of financial assets that require delivery of assets within the time frame established by regulation or convention in the marketplace.
All recognisedrecognized financial assets are subsequently measured in their entirety at either amortisedamortized cost or fair value, depending on the classification of the financial assets.
Classification of financial assets |
Debt instruments that meet the following conditions are subsequently measured at amortisedamortized cost (except for debt instruments that are designated as at fair value through profit or loss on initial recognition):
● | the asset is held within a business model whose objective is to hold assets in order to collect contractual cash flows; and |
● | the contractual terms of the instrument give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding. |
SMAAASH Entertainment Private Limited
Notes to consolidated financial statements
(Amounts in thousands of Indian Rupee (INR), unless otherwise stated)
Dividend on financial assets at FVTPL is recognisedrecognized when the Group’s right to receive the dividends is established, it is probable that the economic benefits associated with the dividend will flow to the entity, the dividend does not represent a recovery of part of cost of the investment and the amount of dividend can be measured reliably.
Smaaash Entertainment Private Limited
Notes to consolidated financial statements for the period ended March 31, 2018 AND 2017
All amounts are in Rs. '000 unless otherwise stated
Debt instruments that meet the following conditions are subsequently measured at fair value through other comprehensive income (except for debt instruments that are designated as at fair value through profit or loss on initial recognition):
● | the asset is held within a business model whose objective is achieved both by collecting contractual cash flows and selling financial assets; and |
● | the contractual terms of the instrument give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding |
Interest income is recognisedrecognized in profit or loss for FVTOCI debt instruments. For the purposes of recognising foreign exchange gains and losses, FVTOCI debt instruments are treated as financial assets measured at amortisedamortized cost. Thus, the exchange differences on the amortisedamortized cost are recognisedrecognized in profit or loss and other changes in the fair value of FVTOCI financial assets are recognisedrecognized in other comprehensive income and accumulated under the heading of ‘Reserve for debt instruments through other comprehensive income’. When the investment is disposed of, the cumulative gain or loss previously accumulated in this reserve is reclassified to profit or loss.
All other financial assets are subsequently measured at fair value.
For the impairment policy on financial assets measured at amortisedamortized cost, refer note 3.18.5.
The effective interest method is a method of calculating the amortisedamortized cost of a debt instrument and of allocating interest income over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash receipts (including all fees and points paid or received that form an integral part of the effective interest rate, transaction costs and other premiums or discounts) through the expected life of the debt instrument, or, where appropriate, a shorter period, to the net carrying amount on initial recognition.
Income is recognisedrecognized on an effective interest basis for debt instruments other than those financial assets classified as at FVTPL. Interest income is recognisedrecognized in profit or loss and is included in the “Other income”Other income line item.
Investments in equity instruments at FVTOCI |
On initial recognition, the Group can make an irrevocable election (on an instrument-by-instrument basis) to present the subsequent changes in fair value in other comprehensive income. This election is not permitted if the equity investment is held for trading. These elected investments are initially measured at fair value plus transaction costs. Subsequently, they are measured at fair value with gains and losses arising from changes in fair value recognisedrecognized in other comprehensive income and accumulated in the reserve for ‘equity instruments through other comprehensive income’. The cumulative gain or loss is not reclassified to profit or loss on disposal of the investments.
A financial asset is held for trading if:
● | it has been acquired principally for the purpose of selling it in the near term; or |
● | on initial recognition it is part of a portfolio of identified financial instruments that the Group manages together and has a recent actual pattern of short-term profit-taking; or |
● | it is a derivative that is not designated and effective as a hedging instrument or a financial guarantee. |
Dividends on these investments in equity instruments are recognisedrecognized in profit or loss when the Group’s right to receive the dividends is established, it is probable that the economic benefits associated with the dividend will flow to the entity, the dividend does not represent a recovery of part of cost of the investment and the amount of dividend can be measured reliably. Dividends recognisedrecognized in profit or loss are included in the ‘Other income’ line item.
Smaaash Entertainment Private Limited
Notes to consolidated financial statements for the period ended March 31, 2018 AND 2017
All amounts are in Rs. '000 unless otherwise stated
Financial assets at fair value through profit or loss (FVTPL) |
Investments in equity instruments are classified as at FVTPL, unless the Group irrevocably elects on initial recognition to present subsequent changes in fair value in other comprehensive income for equity instruments which are not held for trading.
SMAAASH Entertainment Private Limited
Notes to consolidated financial statements
(Amounts in thousands of Indian Rupee (INR), unless otherwise stated)
A financial asset that meets the amortisedamortized cost criteria or debt instruments that meet the FVTOCI criteria may be designated as at FVTPL upon initial recognition if such designation eliminates or significantly reduces a measurement or recognition inconsistency that would arise from measuring assets or liabilities or recognising the gains and losses on them on different bases. The Group has not designated any debt instrument as at FVTPL.
Financial assets at FVTPL are measured at fair value at the end of each reporting period, with any gains or losses arising on re-measurement recognisedrecognized in profit or loss. The net gain or loss recognisedrecognized in profit or loss is included in the ‘Other gains and losses’ line item.
Impairment of financial assets |
The Group applies the expected credit loss model for recognising impairment loss on financial assets measured at amortisedamortized cost, lease receivables, trade receivables, other contractual rights to receive cash or other financial asset.
Expected credit losses are the weighted average of credit losses with the respective risks of default occurring as the weights. Credit loss is the difference between all contractual cash flows that are due to the Group in accordance with the contract and all the cash flows that the Group expects to receive (i.e. all cash shortfalls), discounted at the original effective interest rate (or credit-adjusted effective interest rate for purchased or originated credit-impaired financial assets). The Group estimates cash flows by considering all contractual terms of the financial instrument (for example, prepayment, extension, call and similar options) through the expected life of that financial instrument.
The Group measures the loss allowance for a financial instrument at an amount equal to the lifetime expected credit losses if the credit risk on that financial instrument has increased significantly since initial recognition. If the credit risk on a financial instrument has not increased significantly since initial recognition, the Group measures the loss allowance for that financial instrument at an amount equal to 12-month expected credit losses. 12-month expected credit losses are portion of the life-time expected credit losses and represent the lifetime cash shortfalls that will result if default occurs within the 12 months after the reporting date and thus, are not cash shortfalls that are predicted over the next 12 months.
The Group measures the loss allowance for a financial instrument at an amount equal to the lifetime expected credit losses if the credit risk on that financial instrument has increased significantly since initial recognition. If the credit risk on a financial instrument has not increased significantly since initial recognition, the Group measures the loss allowance for that financial instrument at an amount equal to 12-month expected credit losses.
However, for trade receivables, the Group measures the loss allowance at an amount equal to lifetime expected credit losses.
When making the assessment of whether there has been a significant increase in credit risk since initial recognition, the Group uses the change in the risk of a default occurring over the expected life of the financial instrument instead of the change in the amount of expected credit losses. To make that assessment, the Group compares the risk of a default occurring on the financial instrument as at the reporting date with the risk of a default occurring on the financial instrument as at the date of initial recognition and considers reasonable and supportable information, that is available without undue cost or effort, that is indicative of significant increases in credit risk since initial recognition.
Further, for the purpose of measuring lifetime expected credit loss allowance for trade receivables, the Group has used a practical expedient as permitted under IFRS 9. This expected credit loss allowance is computed based on a provision matrix, which takes into account historical credit loss experience and adjusted for forward-looking information.
Smaaash Entertainment Private Limited
Notes to consolidated financial statements for the period ended March 31, 2018 AND 2017
All amounts are in Rs. '000 unless otherwise stated
Derecognition of financial assets |
The Group derecognisesderecognizes a financial asset when the contractual rights to the cash flows from the asset expire, or when it transfers the financial asset and substantially all the risks and rewards of ownership of the asset to another party. If the Group neither transfers nor retains substantially all the risks and rewards of ownership and continues to control the transferred asset, the Group recognisesrecognizes its retained interest in the asset and an associated liability for amounts it may have to pay. If the Group retains substantially all the risks and rewards of ownership of a transferred financial asset, the Group continues to recogniserecognize the financial asset and also recognisesrecognizes a collateralised borrowing for the proceeds received.
On derecognition of a financial asset in its entirety, the difference between the asset’s carrying amount and the sum of the consideration received and receivable and the cumulative gain or loss that had been recognisedrecognized in other comprehensive income and accumulated in equity is recognisedrecognized in profit or loss if such gain or loss would have otherwise been recognisedrecognized in profit or loss on disposal of that financial asset.
SMAAASH Entertainment Private Limited
Notes to consolidated financial statements
(Amounts in thousands of Indian Rupee (INR), unless otherwise stated)
Foreign exchange gains and losses |
The fair value of financial assets denominated in a foreign currency is determined in that foreign currency and translated at the spot rate at the end of each reporting period.
For foreign currency denominated financial assets measured at amortisedamortized cost and FVTPL, the exchange differences are recognisedrecognized in profit or loss except for those, which are designated as hedging instruments in a hedging relationship.
3.18.8 | Cash and cash equivalents |
Cash and cash equivalents comprise cash at bank and on hand, call deposits, and other short-term highly liquid investments with an original maturity of three months or less that are readily convertible to a known amount of cash and are subject to an insignificant risk of changes in value.
Financial liabilities and equity instruments |
Classification as debt or equity |
Debt and equity instruments issued by the entity are classified either as financial liabilities or as equity in accordance with the substance of the contractual arrangements and the definitions of a financial liability and an equity instrument.
Equity instruments |
An equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities. Equity instruments issued by the entity are recognisedrecognized at the proceeds received, net of direct issue costs.
Repurchase of the Group’s own equity instruments is recognisedrecognized and deducted directly in equity. No gain or loss is recognisedrecognized in profit or loss on the purchase, sale, issue or cancellation of the Group’s own equity instruments.
Compound instruments |
The component parts of compound instruments are classified separately as financial liabilities and equity in accordance with the substance of the contractual arrangements and the definitions of a financial liability and an equity instrument. A conversion option that will be settled by the exchange of a fixed amount of cash or another financial asset for a fixed number of the Group’s own equity instruments is an equity instrument.
At the date of issue, the fair value of the liability component is estimated using the prevailing market interest rate for similar non-convertible instruments. This amount is recognisedrecognized as a liability on an amortisedamortized cost basis using the effective interest method until extinguished upon conversion or at the instrument’s maturity date.
Smaaash Entertainment Private Limited
Notes to consolidated financial statements for the period ended March 31, 2018 AND 2017
All amounts are in Rs. '000 unless otherwise stated
Financial liabilities |
All financial liabilities are subsequently measured at amortisedamortized cost using the effective interest method or at FVTPL.
Financial liabilities subsequently measured at amortisedamortized cost
Financial liabilities that are not held-for-trading and are not designated as at FVTPL are measured at amortisedamortized cost at the end of subsequent accounting period. The carrying amounts of financial liabilities that are subsequently measured at amortisedamortized cost are determined based on the effective interest method. Interest expense that is not capitalisedcapitalized as part of costs of an asset is included in the ‘Finance costs’ line item.
The effective interest method is a method of calculating the amortisedamortized cost of a financial liability and of allocating interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments (including all fees and points paid or received that form an integral part of the effective interest rate, transaction costs and other premiums or discounts) through the expected life of the financial liability, or (where appropriate) a shorter period, to the net carrying amount on initial recognition.
Foreign exchange gains and losses |
For financial liabilities that are denominated in a foreign currency and are measured at amortisedamortized cost at the end of each reporting period, the foreign exchange gains and losses are determined based on the amortisedamortized cost of the instruments and are recognisedrecognized in ‘Other income’ as ‘Net foreign exchange gains/(losses)’.
The fair value of financial liabilities denominated in a foreign currency is determined in that foreign currency and translated at the spot rate at the end of the reporting period. For financial liabilities that are measured as at FVTPL, the foreign exchange component forms part of the fair value gains or losses and is recognisedrecognized in profit or loss.
SMAAASH Entertainment Private Limited
Notes to consolidated financial statements
(Amounts in thousands of Indian Rupee (INR), unless otherwise stated)
Derecognition of financial liabilities |
The Group derecognisesderecognizes financial liabilities when, and only when, the Group’s obligations are discharged, cancelled or have expired. An exchange with a lender of debt instruments with substantially different terms is accounted for as an extinguishment of the original financial liability and the recognition of a new financial liability. Similarly, a substantial modification of the terms of an existing financial liability (whether or not attributable to the financial difficulty of the debtor) is accounted for as an extinguishment of the original financial liability and the recognition of a new financial liability. The difference between the carrying amount of the financial liability derecognisedderecognized and the consideration paid and payable is recognisedrecognized in profit or loss.
Offsetting financial instruments |
Financial assets and liabilities are offset and the net amount is reported in the consolidated financial statement where there is a legally enforceable right to offset the recognisedrecognized amounts and there is an intention to settle on a net basis or realiserealize the asset and settle the liability simultaneously. The legally enforceable right must not be contingent on future events and must be enforceable in the normal course of business and in the event of default, insolvency or bankruptcy of the Group or the counterparty.
Segment accounting |
Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision maker.
The Board of directors of the Group has been identified as being the chief operating decision maker. Refer to note 3940 for segment information presented.
The Group has prepared the opening consolidated balance sheet as per IFRS as of 1St April, 2015 (the transition date) by recognising all assets and liabilities whose recognition is required by IFRS, not recognising items of assets or liabilities which are not permitted by IFRS, by reclassifying items from previous GAAP to IFRS as required under IFRS, and applying IFRS in measurement of recognised assets and liabilities. However, this principle is subject to the certain exception and certain optional exemptions availed by the Group as detailed below.
The Group has applied IFRIC 4 Determining whether an arrangement contains a lease to determine whether an arrangement existing at the transition date contains a lease on the basis of facts and circumstances existing at that date.
“An entity’s estimates in accordance with IFRSs at the date of transition to IFRS shall be consistent with estimates made for the same date in accordance with previous GAAP (after adjustments to reflect any difference in accounting policies), unless there is objective evidence that those estimates were in error.
IFRS estimates as at 1st April, 2015 are consistent with the estimates as at the same date made in conformity with previous GAAP. The Group made estimates for following items in accordance with IFRS at the date of transition as these were not required under previous GAAP:
The Group has applied the derecognition requirements of financial assets and financial liabilities prospectively for transactions occurring on or after 1st April, 2015 (the transition date).
SMAAASHSmaaash Entertainment Private Limited
Notes to consolidated financial statements for the period ended March 31, 2018 AND 2017
(AmountsAll amounts are in thousands of Indian Rupee (INR),Rs. '000 unless otherwise stated)
IFRS 1 requires an entity to assess classification and measurement of financial assets based on the facts and circumstances that exist at the date of transition to IFRS.
The Group has determined the classification of debt instruments in terms of whether they meet the amortised cost criteria or the FVTOCI criteria based on the facts and circumstances that existed as of the transition date.
The Group has applied the impairment requirements of IFRS 9 retrospectively; however, as permitted by IFRS 1, it has used reasonable and supportable information that is available without undue cost or effort to determine the credit risk at the date that financial instruments were initially recognised in order to compare it with the credit risk at the transition date. Further, the Group has not undertaken an exhaustive search for information when determining, at the date of transition to IFRS, whether there have been significant increases in credit risk since initial recognition, as permitted by IFRS 1.
4. | Critical accounting |
The preparation of consolidated financial statement requires the use of accounting estimates, which, by definition, will seldom equal the actual results. This note provides an overview of the areas that involved a higher degree of judgement or complexity, and of items, which are more likely to be materially adjusted due to estimates and assumptions turning out to be different than those originally assessed. Detailed information about each of these estimates and judgements is included in relevant notes together with information about the basis of calculation for each affected line item in the consolidated financial statement.
4.1 | Fair value measurements and valuation processes |
Some of the Group’s assets and liabilities are measured at fair value for financial reporting purposes. In estimating the fair value of an asset or a liability, the Group uses market-observable data to the extent it is available.
4.2 | Bonus Point (Revenue recognition) |
Bonus point credits having a predetermined life are granted to customers when they make payments for card balances. The fair value of the consideration on gaming services resulting in such bonus point credits is allocated between the normal points and the bonus point credits granted. The consideration allocated to the bonus point credits is measured by reference to fair value from the standpoint of the holder and revenue is deferred. The Group at the end of each reporting period estimates the number of points redeemed and that it expects will be further redeemed, based on empirical data of redemption/ lapses, and revenue is accordingly recognised.recognized.
4.3 | Contingencies: |
In the normal course of business, contingent liabilities may arise from litigation and other claims against the Group. There are certain obligations which managements have concluded based on all available facts and circumstances are not probable of payment or difficult to quantify reliably and such obligations are treated as contingent liabilities and disclosed in the notes but are not provided for in the consolidated financial statement. Although there can be no assurance of the final outcome of the legal proceedings in which the Group is involved it is not expected that such contingencies will have material effect on its financial position or profitability.
4.4 | Useful lives of property, plant and equipment |
As described at note 3.11 above, the Group reviews the estimated useful lives of property, plant and equipment and residual values at the end of each reporting period. There was no change in the useful life and residual values of property, plant and equipment as compared to previous year.
5. | Application of new and revised International Financial Reporting Standards (IFRSs) |
5.1 | Amendments to IFRSs that are mandatorily effective for the current year |
In the current year, the Group has applied a number of amendments to IFRSs issued by the International Accounting Standards Board (IASB) that are mandatorily effective for an accounting period that begins on or after January 1, 2017.
SMAAASH Entertainment Private Limited
Notes to consolidated financial statements
(Amounts in thousands of Indian Rupee (INR), unless otherwise stated)
5.1.1 | Amendments to IAS 7 Disclosure Initiative |
The Group has applied these amendments for the first time in the current year. The amendments require an entity to provide disclosures that enable users of financial statements to evaluate changes in liabilities arising from financing activities, including both cash and non-cash changes.
The Group’s liabilities arising from financing activities consist of borrowings and certain other financial liabilities. A reconciliation between the opening and closing balances of these items is provided in note 21. Consistent with the transition provisions of the amendments, the Group has not disclosed comparative information for the prior period. Apart from the additional disclosure in note 21, the application of these amendments has had no impact on the Group’s consolidated financial statements.
Smaaash Entertainment Private Limited
Notes to consolidated financial statements for the period ended March 31, 2018 AND 2017
All amounts are in Rs. '000 unless otherwise stated
5.1.2 | Amendments to IAS 12 Recognition of |
The Group has applied these amendments for the first time in the current year. The amendments clarify how an entity should evaluate whether there will be sufficient future taxable profits against which it can utiliseutilize a deductible temporary difference.
The application of these amendments has had no impact on the Group’s consolidated financial statements as the Group already assesses the sufficiency of future taxable profits in a way that is consistent with these amendments.
5.1.3 | Annual Improvements to IFRSs 2014-2016 Cycle |
The Group has applied the amendments to IFRS 12 included in the Annual Improvements to IFRSs 2014-2016 Cycle for the first time in the current year.
IFRS 12 states that an entity need not provide summarisedsummarized financial information for interests in subsidiaries that are classified (or included in a disposal group that is classified) as held for sale.
The amendments clarify that this is the only concession from the disclosure requirements of IFRS 12 for such interests.
The application of these amendments has had no effect on the Group’s consolidated financial statements as none of the Group’s interests in these entities are classified, or included in a disposal group that is classified, as held for sale.
5.2 | New and revised IFRSs in issue but not yet effective |
5.2.1 | The Group has early applied the IFRS 9 Financial Instruments that have been issued but are not yet effective: |
In July 2014, the IASB finalisedfinalized the reform of financial instruments accounting and issued IFRS 9 (as revised in 2014), which contains the requirements for:
a. | the classification and measurement of financial assets and financial liabilities, |
b. | impairment methodology, and |
c. | general hedge accounting. IFRS 9 (as revised in 2014) will supersede IAS 39 Financial Instruments: Recognition and Measurement upon its effective date. |
Transitional provisions
IFRS 9 (as revised in 2014) is effective for annual periods beginning on or after 1st January 1, 2018 with earlier application permitted. IFRS 9 requires retrospective application (subject to some transitional provisions).
The entity elects to early adopt IFRS 9 from the annual period beginning from April 1,st April, 2015 and it has applied all of the requirements in IFRS 9 at the same time.
5.2.2 | The Group has not early applied the following IFRSs that have been issued but are not yet effective: |
IFRS 15 | Revenue from Contracts with Customers (and the related Clarifications)1 |
IFRS 16 | Leases2 |
IFRIC 22 | Foreign Currency Transactions and Advance Consideration1 |
SMAAASH Entertainment Private Limited
Notes to consolidated financial statements
(Amounts in thousands of Indian Rupee (INR), unless otherwise stated)
1Effective for annual periods beginning on or after January 1, January 2018, with earlier application permitted.
2Effective for annual periods beginning on or after January 1, January 2019, with earlier application permitted.
3Effective for annual periods beginning on or after a date to be determined.
IFRS 15 Revenue from Contracts with Customers
IFRS 15 establishes a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers. IFRS 15 will supersede the current revenue recognition guidance including IAS 18 Revenue, IAS 11 Construction Contracts and the related Interpretations when it becomes effective.
Smaaash Entertainment Private Limited
Notes to consolidated financial statements for the period ended March 31, 2018 AND 2017
All amounts are in Rs. '000 unless otherwise stated
The core principle of IFRS 15 is that an entity should recogniserecognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Specifically, the Standard introduces a 5-step approach to revenue recognition:
● Step 1: Identify the contract(s) with a customer
● Step 2: Identify the performance obligations in the contract
● Step 3: Determine the transaction price
● Step 4: Allocate the transaction price to the performance obligations in the contract
● Step 5: RecogniseRecognize revenue when (or as) the entity satisfies a performance obligation
Under IFRS 15, an entity recognisesrecognizes revenue when (or as) a performance obligation is satisfied, i.e. when ‘control’ of the goods or services underlying the particular performance obligation is transferred to the customer.
Far more prescriptive guidance has been added in IFRS 15 to deal with specific scenarios. Furthermore, IFRS 15 requires extensive disclosures.
In April 2016, the IASB issued Clarifications to IFRS 15 in relation to the identification of performance obligations, principal versus agent considerations, as well as licensing application guidance.
Apart from providing more extensive disclosures on the Group’s revenue transactions, the directors do not anticipate that the application of IFRS 15 will have a significant impact on the financial position and/or financial performance of the Group.
IFRS 16 Leases
IFRS 16 introduces a comprehensive model for the identification of lease arrangements and accounting treatments for both lessors and lessees. IFRS 16 will supersede the current lease guidance including IAS 17 Leases and the related interpretations when it becomes effective.
IFRS 16 distinguishes leases and service contracts on the basis of whether an identified asset is controlled by a customer. Distinctions of operating leases (off balance sheet) and finance leases (on balance sheet) are removed for lessee accounting, and is replaced by a model where a right-of-use asset and a corresponding liability have to be recognised for all leases by lessees (i.e. all on balance sheet) except for short-term leases and leases of low value assets.
The right-of-use asset is initially measured at cost and subsequently measured at cost (subject to certain exceptions) less accumulated depreciation and impairment losses, adjusted for any remeasurement of the lease liability. The lease liability is initially measured at the present value of the lease payments that are not paid at that date. Subsequently, the lease liability is adjusted for interest and lease payments, as well as the impact of lease modifications, amongst others. Furthermore, the classification of cash flows will also be affected as operating lease payments under IAS 17 are presented as operating cash flows; whereas under the IFRS 16 model, the lease payments will be split into a principal and an interest portion, which will be presented as financing and operating cash flows respectively.
In contrast to lessee accounting, IFRS 16 substantially carries forward the lessor accounting requirements in IAS 17, and continues to require a lessor to classify a lease as either an operating lease or a finance lease.
Furthermore, IFRS 16 requires extensive disclosures.
As at 31 March 2017, the Group has non-cancellable operating lease commitments of Rs 1,170,512 Thousands. The Group is under the process of evaluating the impact of this IFRS.
SMAAASH Entertainment Private Limited
Notes to consolidated financial statements
(Amounts in thousands of Indian Rupee (INR), unless otherwise stated)
IFRIC 22 Foreign Currency Transactions and Advance Consideration
IFRIC 22 addresses how to determine the ‘date of transaction’ for the purpose of determining the exchange rate to use on initial recognition of an asset, expense or income, when consideration for that item has been paid or received in advance in a foreign currency which resulted in the recognition of a non-monetary asset or non-monetary liability (e.g. a non-refundable deposit or deferred revenue).
The Interpretation specifies that the date of transaction is the date on which the entity initially recognises the non-monetary asset or non-monetary liability arising from the payment or receipt of advance consideration. If there are multiple payments or receipts in advance, the Interpretation requires an entity to determine the date of transaction for each payment or receipt of advance consideration.
The Interpretation is effective for annual periods beginning on or after 1 January 2018 with earlier application permitted. Entities can apply the Interpretation either retrospectively or prospectively. Specific transition provisions apply to prospective application.
The directors of the Group do not anticipate that the application of the amendments in the future will have an impact on the Group’s consolidated financial statements. This is because the Group already accounts for transactions involving the payment or receipt of advance consideration in a foreign currency in a way that is consistent with the amendments.
SMAAASH Entertainment Private Limited
(Amounts in thousands of Indian Rupee (INR), unless otherwise stated)
Smaaash Entertainment Private Limited
Notes to consolidated financial statements for the period ended March 31, 2017, 2016 and April 1, 2015
Note 6 - Property, plant and equipment | (Rs. in Thousands) | |||||||
Description of assets | Plant and machinery | Office equipment | Furniture & fixtures | Vehicles | Computers | Electrical equipments | Leasehold improvements | Total |
Cost | ||||||||
As at 1st April, 2015 | 127,855 | 540 | 18,366 | 1,373 | 14,232 | 52,336 | 134,328 | 349,030 |
Additions | 312,843 | 298 | 11,296 | — | 13,755 | 74,849 | 297,906 | 710,947 |
Adjustments | — | — | — | — | — | — | — | — |
Disposals/ reclassifications | — | — | — | — | — | — | — | — |
As at 31st March, 2016 | 440,698 | 838 | 29,662 | 1,373 | 27,987 | 127,185 | 432,234 | 1,059,977 |
Additions | 384,185 | 4,934 | 47,768 | — | 5,914 | 36,219 | 757,228 | 1,236,248 |
Adjustments | (29) | — | — | — | (47) | (55) | (7) | (138) |
Disposals/ reclassifications | — | — | — | — | — | (237) | (8,549) | (8,786) |
As at 31st March, 2017 | 824,854 | 5,772 | 77,430 | 1,373 | 33,855 | 163,112 | 1,180,906 | 2,287,301 |
Depreciation | — | — | — | — | — | — | — | |
As at 1st April, 2015 | 15,969 | 223 | 3,158 | 105 | 8,603 | 10,526 | 52,340 | 90,924 |
Depreciation expense for the year | 22,078 | 146 | 2,433 | 172 | 6,434 | 10,562 | 76,360 | 118,185 |
Adjustments | — | — | — | — | — | — | — | — |
Eliminated on disposal of assets/ reclassifications | — | — | — | — | — | — | — | — |
As at 31st March, 2016 | 38,047 | 369 | 5,591 | 277 | 15,037 | 21,088 | 128,700 | 209,109 |
Depreciation expense for the year | 43,244 | 504 | 5,796 | 172 | 7,510 | 14,910 | 155,512 | 227,648 |
Adjustments | (1) | — | — | — | (12) | (3) | (1) | (17) |
Eliminated on disposal of assets/ reclassifications | — | — | — | — | — | (237) | (8,549) | (8,786) |
As at 31st March, 2017 | 81,290 | 873 | 11,387 | 449 | 22,535 | 35,758 | 275,662 | 427,954 |
Net book value | ||||||||
As at 31st March, 2017 | 743,564 | 4,899 | 66,043 | 924 | 11,319 | 127,354 | 905,244 | 1,859,347 |
As at 31st March, 2016 | 402,651 | 469 | 24,071 | 1,096 | 12,950 | 106,097 | 303,534 | 850,868 |
As at 1st April,, 2015 | 111,886 | 317 | 15,208 | 1,268 | 5,629 | 41,810 | 81,988 | 258,106 |
F-24
SMAAASH Entertainment Private Limited
(Amounts in thousands of Indian Rupee (INR), unless otherwise stated)
Smaaash Entertainment Private Limited
Notes to consolidated financial statements for the period ended March 31, 2017, 2016 and April 1, 2015
Note 6.1:
The Group has imported certain capital equipment under “Export Promotion of Capital Goods scheme” of the central government at a concessional rate of customs duty. During the F.Y 2015-16, the Group has undertaken export obligation to the extent of Rs. 46,632 thousands to be fulfilled during the period of 6 years commencing from 8th April, 2015, failing which the Group will be liable to pay the differential customs duty, together with interest and penalties if imposed.
Since, the procurement of goods during the period were done by availing the exemption from payment of aforesaid duties, the amount capitalised for the said plant and machinery as on the put to use date, is cost of property, plant and equipment (PPE) net off tax and duty benefit availed. In compliance with ‘IAS 20 Accounting for Government Grants and Disclosure of Government Assistance’, the Group has grossed up the value of its PPE by the amount of duty benefit availed by the Group is after considering the same as government grant.
The amount of grant capitalised shall be depreciated as per useful life of plant and machinery. The amount of deferred liability shall be amortised based of the fulfilment of export obligation with credit to consolidated statement of profit and loss under the head ‘Other operating income’. The Group has recognised Government grant of Rs. 7,772 thousands from the date of capitalisation of plant.
Note 6.2: | (Rs. in Thousands) | ||
Particulars | As at March 31, 2017 | As at March 31, 2016 | As at April 1, 2015 |
Capital work-in-progress | 202,839 | 312,911 | 184,296 |
202,839 | 312,911 | 184,296 | |
Capital work-in-progress comprises of the cost related to fixed assets or projects that are not yet ready for their intended use at the reporting date.
SMAAASH Entertainment Private Limited
(Amounts in thousands of Indian Rupee (INR), unless otherwise stated)
Smaaash Entertainment Private Limited
Notes to consolidated financial statements for the period ended March 31, 2017, 2016 and April 1, 2015
Note 7 - Intangible assets | |||||
(Rs. in Thousands) | |||||
Description of assets | Software | Trademarks | Players rights | Virtual reality games | Total |
Cost | |||||
As at 1st April, 2015 | 7,881 | 1,617 | 45,144 | 222,515 | 277,157 |
Additions | 18,079 | 2,276 | 14,112 | 64,978 | 99,445 |
Adjustments | — | — | — | — | — |
Disposals/ reclassifications | — | — | — | — | — |
As at 31st March, 2016 | 25,960 | 3,893 | 59,256 | 287,493 | 376,602 |
Additions | 10,917 | 828 | 53,223 | 56,279 | 121,247 |
Adjustments | — | — | — | — | — |
Disposals/ reclassifications | — | — | — | — | — |
As at 31st March, 2017 | 36,877 | 4,721 | 112,479 | 343,772 | 497,849 |
Amortisation | |||||
As at 1st April, 2015 | 6,591 | 710 | 27,052 | 71,548 | 105,901 |
Amortisation expense for the year | 6,530 | 489 | 8,506 | 29,927 | 45,452 |
Adjustments | — | — | — | — | — |
Eliminated on disposal of assets/ reclassifications | — | — | — | — | — |
As at 31st March, 2016 | 13,121 | 1,199 | 35,558 | 101,475 | 151,353 |
Amortisation expense for the year | 9,335 | 848 | 27,199 | 39,445 | 76,827 |
Adjustments | — | — | — | — | — |
Eliminated on disposal of assets/ reclassifications | — | — | — | — | — |
As at 31st March, 2017 | 22,456 | 2,047 | 62,757 | 140,920 | 228,180 |
Net book value | |||||
As at 31st March, 2017 | 14,421 | 2,674 | 49,722 | 202,852 | 269,669 |
As at 31st March, 2016 | 12,839 | 2,694 | 23,698 | 186,018 | 225,249 |
As at 1st April, 2015 | 1,290 | 907 | 18,092 | 150,967 | 171,256 |
SMAAASH Entertainment Private Limited
(Amounts in thousands of Indian Rupee (INR), unless otherwise stated)
Smaaash Entertainment Private Limited | ||||||
Notes to consolidated financial statements for the period ended March 31, 2017, 2016 and April 1, 2015 | ||||||
Note 8 - Investments | ||||||
(Rs. in Thousands) | ||||||
Particulars | As at March 31, 2017 | As at March 31, 2016 | As at April 1, 2015 | |||
Quantity | Amount | Quantity | Amount | Quantity | Amount | |
Non-current | ||||||
I. Amortised cost | ||||||
Unquoted | ||||||
- National saving certificates (lien to Sales Tax Dept.) | — | 20 | — | 20 | — | 20 |
Total investments carried at amortised cost [a] | 20 | 20 | 20 | |||
II. Fair value through profit and loss (FVTPL) | ||||||
Quoted investments (fully paid) | ||||||
Investments in mutual funds | ||||||
- Kotak Medium Term Fund - DP-Growth Option | 1,331,572 | 18,566 | — | — | — | — |
Total investments carried at FVTPL [b] | 18,566 | — | — | |||
Total investments carrying value [a+b] | 18,586 | 20 | 20 | |||
Current | ||||||
Fair value through profit and loss (FVTPL) | ||||||
Quoted Investments (fully paid) | ||||||
Investments in mutual funds | ||||||
- Kotak Floater short Term Fund - DP-Growth Option | 3,071 | 8,198 | — | — | — | — |
- Birla Sunlife Corporate Bond Fund | — | — | 2,319,397 | 25,161 | — | — |
- HDFC Liquid- DP-Growth Option | — | — | 13,388 | 40,034 | — | — |
Total investments | 8,198 | 65,195 | — | |||
Other disclosures | ||||||
Aggregate amount of quoted investments and market value thereof | 26,765 | 65,195 | — | |||
Aggregate amount of unquoted investments | 20 | 20 | 20 | |||
Aggregate amount of impairment in value of investments | — | — | — |
SMAAASH Entertainment Private Limited
(Amounts in thousands of Indian Rupee (INR), unless otherwise stated)
Smaaash Entertainment Private Limited | ||||
Notes to consolidated financial statements for the period ended March 31, 2017 and 2016 | ||||
Note 9 - Deferred tax assets | ||||
(a) Movement in deferred tax balances | (Rs. in Thousands) | |||
Particulars | For the Year ended March 31, 2017 | |||
Opening Balance | Recognised in profit and Loss | Recognised in OCI | Closing Balance | |
Deferred tax (liabilities)/assets in relation to: | ||||
Property, plant and equipment | 4,647 | 3,284 | — | 7,931 |
Other intangible assets | 5,794 | (51) | — | 5,743 |
Investments | (369) | 295 | — | (74) |
Other financial assets | 9,293 | (4,485) | — | 4,808 |
Other assets | (9,086) | 6,215 | — | (2,871) |
Borrowings | (7,279) | 5,794 | — | (1,485) |
Provisions | 2,265 | 1,359 | (818) | 2,806 |
Other financial liabilities | (0) | 11,582 | — | 11,582 |
Other liabilities | (1,074) | (13,597) | — | (14,671) |
Unused tax losses | 124,388 | 96,592 | — | 220,980 |
Net Tax Asset/(Liabilities) | 128,579 | 106,989 | (818) | 234,749 |
(Rs. in Thousands) | ||||
Particulars | For the Year ended March 31, 2016 | |||
Opening Balance | Recognised in profit and Loss | Recognised in OCI | Closing Balance | |
Deferred tax (liabilities)/assets in relation to: | ||||
Property, plant and equipment | 8,161 | (3,514) | — | 4,647 |
Other intangible assets | 4,760 | 1,034 | — | 5,794 |
Investments | — | (369) | — | (369) |
Other financial assets | 3,183 | 6,110 | — | 9,293 |
Other assets | (3,018) | (6,068) | — | (9,086) |
Borrowings | (11,468) | 4,189 | — | (7,279) |
Provisions | 352 | 1,849 | 64 | 2,265 |
Other financial liabilities | 11,917 | (11,917) | — | (0) |
Other liabilities | (3,940) | 2,866 | — | (1,074) |
Unused tax losses | 47,802 | 76,586 | — | 124,388 |
Net Tax Asset/(Liabilities) | 57,749 | 70,766 | 64 | 128,579 |
SMAAASH Entertainment Private Limited
(Amounts in thousands of Indian Rupee (INR), unless otherwise stated)
Note 10 - Other financial assets | (Rs. in Thousands) | ||
Particulars | As at March 31, 2017 | As at March 31, 2016 | As at April 1, 2015 |
Non-current | |||
Bank deposit with more than 12 months maturity | 32,399 | 24,164 | 9,875 |
Security deposits | |||
- Secured, considered good | — | — | — |
- Unsecured, considered good | 106,572 | 113,891 | 66,179 |
- Doubtful | — | — | — |
Less: Allowance for credit losses | — | — | — |
Application money paid towards equity investment | — | — | — |
Total | 138,971 | 138,055 | 76,054 |
Current | |||
Security deposits | |||
- Secured, considered good | — | — | — |
- Unsecured, considered good | 3,475 | 1,227 | 1,300 |
- Doubtful | — | — | — |
Less: Allowance for credit losses | — | — | — |
Other receivables | — | — | — |
- Unbilled revenue | — | — | 1,248 |
- Contractually reimbursable expenses | 52,587 | 57,208 | 13,377 |
Total | 56,062 | 58,435 | 15,925 |
SMAAASH Entertainment Private Limited
(Amounts in thousands of Indian Rupee (INR), unless otherwise stated)
Smaaash Entertainment Private Limited | |||
Notes to consolidated financial statements for the period ended March 31, 2017, 2016 and April 1, 2015 | |||
Note 11 - Other assets | (Rs. in Thousands) | ||
Particulars | As at March 31, 2017 | As at March 31, 2016 | As at April 1, 2015 |
Non-current | |||
Capital advances | 27,615 | 46,296 | 153,416 |
�� | |||
Advances other than capital advances | |||
a) Balances with government authorities (other than income taxes) | |||
- Others | 125 | 125 | 50 |
b) Deferred lease rentals | 10,531 | 9,061 | 4,113 |
Total | 38,271 | 55,482 | 157,579 |
Current | |||
Advances other than capital advances | |||
a) Advances to suppliers | 94,984 | 52,589 | 29,864 |
b) Balances with government authorities (other than income taxes) | |||
- Service Tax | 3,354 | 23,874 | 16,804 |
- GST | — | — | — |
- Served from India scheme (SFIS) credit | 114 | 9,958 | 21,975 |
- Others | 1,244 | — | — |
c) Deferred lease rentals | 14,290 | 19,999 | 5,199 |
d) Prepaid expenses | 15,443 | 9,318 | 7,834 |
e) Advances to employees | 36 | 296 | — |
f) Advance to gratuity trust | 1,639 | — | — |
Total | 131,104 | 116,034 | 81,676 |
SMAAASH Entertainment Private Limited
(Amounts in thousands of Indian Rupee (INR), unless otherwise stated)
Note 12 - Inventories | (Rs. in Thousands) | ||
Particulars | As at March 31, 2017 | As at March 31, 2016 | As at April 1, 2015 |
Inventories (lower of cost and net realisable value) | |||
(a) Food and beverages | 18,507 | 7,625 | 1,886 |
(b) Consumables | 9,492 | 11,039 | 5,707 |
(c) Stores and spares | 24,608 | 16,899 | 8,168 |
(d) Trading goods | 22,896 | 4,933 | 6,569 |
Total | 75,503 | 40,496 | 22,330 |
Notes:
The cost of inventories recognised as an expense during the period in respect of continuing operations was Rs. 2,40,882 thousands (for the year ended March 31, 2016: Rs 85,583 thousands).
The mode of valuation of inventories has been stated in note 3.15
Note 13 - Trade receivables | (Rs. in Thousands) | ||
Particulars | As at March 31, 2017 | As at March 31, 2016 | As at April 1, 2015 |
Trade receivables | |||
- Secured, considered good | — | — | — |
- Unsecured, considered good | 27,266 | 15,970 | 15,991 |
27,266 | 15,970 | 15,991 | |
Less: Allowance for credit losses | (716) | — | — |
Total | 26,550 | 15,970 | 15,991 |
Of the above, trade receivables from: | |||
- Related parties | — | — | — |
- Others | 26,550 | 15,970 | 15,991 |
26,550 | 15,970 | 15,991 |
SMAAASH Entertainment Private Limited
(Amounts in thousands of Indian Rupee (INR), unless otherwise stated)
SMAAASH Entertainment Private Limited
(Amounts in thousands of Indian Rupee (INR), unless otherwise stated)
Smaaash Entertainment Private Limited | |||
Notes to consolidated financial statements for the period ended March 31, 2017, 2016 and April 1, 2015 | |||
Note 14 - Cash and bank balances | (Rs. in Thousands) | ||
Particulars | As at March 31, 2017 | As at March 31, 2016 | As at April 1, 2015 |
A. Cash and cash equivalents | |||
a) Balances with banks | 129,245 | 23,474 | 1,247 |
b ) Cash on hand | 4,284 | 1,155 | 713 |
c) Cheque on hand | — | — | — |
d) Bank deposits | — | — | 35,900 |
Total | 133,529 | 24,629 | 37,860 |
Note 15 - Loans | (Rs. in Thousands) | ||
Particulars | As at March 31, 2017 | As at March 31, 2016 | As at April 1, 2015 |
Current | |||
Loans to employees | |||
- Secured, considered good | — | — | — |
- Unsecured, considered good | 1,897 | 228 | 559 |
- Doubtful | — | — | — |
Less: Allowance for credit losses | — | — | — |
Total | 1,897 | 228 | 559 |
Note 16 - Current tax assets | (Rs. in Thousands) | ||
Particulars | As at March 31, 2017 | As at March 31, 2016 | As at April 1, 2015 |
Advance Income Tax/TDS receivable (Net off provision for tax) | 6,198 | 5,453 | 6,982 |
Total | 6,198 | 5,453 | 6,982 |
SMAAASH Entertainment Private Limited
(Amounts in thousands of Indian Rupee (INR), unless otherwise stated)
Smaaash Entertainment Private Limited | ||||||
Notes to consolidated financial statements for the period ended March 31, 2017, 2016 and April 1, 2015 | ||||||
Note 17 - Issued capital and share premium | (Rs. in Thousands) | |||||
Particulars | As at March 31, 2017 | As at March 31, 2016 | As at April 1, 2015 | |||
No. of shares | Amount | No. of shares | Amount | No. of shares | Amount | |
A. Authorised: | ||||||
a) Equity shares of Rs.10 each with voting rights | 140,000,000 | 1,400,000 | 130,000,000 | 1,300,000 | 100,000,000 | 1,000,000 |
b) Redeemable preference shares of Rs.10 each | 35,000,000 | 350,000 | — | — | — | — |
Total | 1,750,000 | 1,300,000 | 1,000,000 | |||
B. Issued, Subscribed and Fully Paid: | ||||||
a) Equity shares of Rs.10 each with voting rights | 138,247,240 | 1,382,472 | 114,849,740 | 1,148,497 | 95,994,401 | 959,944 |
Total | 1,382,472 | 1,148,497 | 959,944 | |||
C. Share premium | ||||||
Balance as at the beginning of the period | 369,800 | 372,668 | — | |||
Add: Additions during the period | — | — | 415,055 | |||
Less: Utilised during the period towards share issue expenses | (4,509) | (2,868) | (42,387) | |||
Balance as at the end of the period | 365,291 | 369,800 | 372,668 | |||
Total (B+C) | 1,747,763 | 1,518,297 | 1,332,612 |
Notes:
(i) Rights, preferences and restrictions attached to equity shares
The Company is having only one class of Equity Shares having a par value of Rs. 10/- each. Each holder of Equity shares is entitled to one vote per share. In the event of liquidation of the Company, the holders of the Equity shares will be entitled to receive remaining assets of the company. The distribution will be in proportion to the number of Equity shares held by shareholders.
SMAAASH Entertainment Private Limited
(Amounts in thousands of Indian Rupee (INR), unless otherwise stated)
(ii) Details of shares held by each shareholder holding more than 5% shares: | ||||||
Class of shares / Name of shareholder | As at March 31, 2017 | As at March 31, 2016 | As at April 1, 2015 | |||
Number of shares held | % holding in that class of shares | Number of shares held | % holding in that class of shares | Number of shares held | % holding in that class of shares | |
A. Equity shares with voting rights | ||||||
a) Aha Holdings Private Limited | 36,129,703 | 26.13% | 45,317,683 | 39.46% | 47,958,963 | 50.0% |
b) FW Metis Limited | 69,088,409 | 49.97% | 45,690,909 | 39.78% | 37,812,683 | 39.4% |
c) Mitesh Gowani | 21,821,451 | 15.78% | 12,633,471 | 11.00% | — | — |
d) Sachin Ramesh Tendulkar | 3,600,000 | 2.60% | 3,600,000 | 3.13% | 3,600,000 | 3.75% |
e) Samir Arun Patil | 1,895,481 | 1.37% | 1,895,481 | 1.65% | 1,895,481 | 1.97% |
(iii). Securities Premium:
Securities premium account is created when shares are issued at premium. The reserve can be utilized in accordance with the provisions of the Indian Companies Act, 2013.
(iv) Reconciliation of the number of shares outstanding at the beginning and at the end of the period.
Equity shares with voting rights | (Rs. in Thousands) | |
Particulars | No. of shares | Amount |
Balance as at April 1, 2015 | 95,994,401 | 9,599.44 |
Issue of shares | 18,855,339 | 1,885.53 |
Balance at March 31, 2016 | 114,849,740 | 11,484.97 |
Issue of shares | 23,397,500 | 2,339.75 |
Balance at March 31, 2017 | 138,247,240 | 13,824.72 |
SMAAASH Entertainment Private Limited
(Amounts in thousands of Indian Rupee (INR), unless otherwise stated)
Smaaash Entertainment Private Limited
Notes to consolidated financial statements for the period ended March 31, 2017, 2016 and April 1, 2015
Note 18 - Other reserves | (Rs. in Thousands) | ||
Particulars | As at March 31, | As at March 31, 2016 | As at April 1, 2015 |
A). Foreign currency translation reserve | (19,127) | — | — |
B). Contribution from promotors/ shareholders | 49,578 | 49,578 | 30,797 |
Total | 30,451 | 49,578 | 30,797 |
Movement in reserves | (Rs. in Thousands) | ||
Particulars | As at March 31, 2017 | As at March 31, 2016 | As at April 1, 2015 |
A). Foreign currency translation reserve | |||
Balance as at the beginning of the period | — | — | — |
Add: Additions during the period | (19,127) | — | — |
Less: Deletion during the period | — | — | — |
Balance as at the end of the period | (19,127) | — | — |
B). Contribution from promotors/ shareholders | |||
Balance as at the beginning of the period | 49,578 | 30,797 | — |
Add: Additions during the period | — | 18,781 | 30,797 |
Less: Deletion during the period | — | — | — |
Balance as at the end of the period | 49,578 | 49,578 | 30,797 |
Nature and purpose of other reserves:
a). Foreign currency translation reserve:
Exchange differences relating to the translation of the results and net assets of the foreign subsidiary from their functional currency to the Group’s presentation currency (i.e. INR) are recognised directly in other comprehensive income and accumulated in the foreign currency translation reserve. Exchange differences previously accumulated in the foreign currency translation reserve will be reclassified to profit or loss on the disposal of the foreign subsidiary.
b). Contribution from promotors/ shareholders:
During the financial year 2014-15 and 2015-16, the Company has received duty credit entitlement certificate issued by Director General of Foreign Trade (DGFT) under Served from India Scheme (SFIS) aggregating Rs. 30,797 thousands and Rs.18,781 thousands respectively from a related party for Rs. Nil and thus the same is accounted as deemed contribution in the financial statements of the Group.
SMAAASH Entertainment Private Limited
(Amounts in thousands of Indian Rupee (INR), unless otherwise stated)
Note 19 - Accumulated Deficit | (Rs. in Thousands) | ||
Particulars | As at March 31, 2017 | As at March 31, 2016 | As at April 1, 2015 |
Accumulated Deficit | (953,911) | (692,722) | (502,755) |
Total | (953,911) | (692,722) | (502,755) |
Movement in Accumulated Deficit | (Rs. in Thousands) | ||
Particulars | As at March 31, 2017 | As at March 31, 2016 | As at April 1, 2015 |
Balance as at the beginning of the period | (694,015) | (502,755) | (362,149) |
Add: Loss for the period | (263,017) | (189,823) | (140,392) |
Add: Other comprehensive income arising from remeasurement of defined benefit obligation net of income tax | 1,828 | (144) | (214) |
Balance as at the end of the period | (953,911) | (692,722) | (502,755) |
SMAAASH Entertainment Private Limited
(Amounts in thousands of Indian Rupee (INR), unless otherwise stated)
Smaaash Entertainment Private Limited
Notes to consolidated financial statements for the period ended March 31, 2017, 2016 and April 1, 2015
Note 20 - Borrowings | (Rs. in Thousands) | ||
Particulars | As at March 31, 2017 | As at March 31, 2016 | As at April 1, 2015 |
Non-current | |||
Secured Borrowings at amortised cost: | |||
a) Non convertible debentures (refer note I) | 1,195,828 | — | — |
b) Term loans- from banks (refer note II) | 65,950 | 101,029 | 139,042 |
c) Term loans- from financial institutions (refer note III) | 401,134 | 706,697 | — |
Total | 1,662,912 | 807,726 | 139,042 |
Current | |||
A. Secured borrowings at amortised cost: | |||
a) Term loans- from financial institutions (refer note III) | 100,000 | 24,000 | — |
b) Term loans- from banks (refer note II) | — | — | — |
c) Optional convertible preference share (refer note IV) | 212,663 | — | — |
B. Unsecured borrowings | |||
Loans and advances from related parties (refer note V) | 12,420 | 56,578 | — |
Total | 325,083 | 80,578 | — |
The details of security, repayment terms and interest are as follows:
I: Non-convertible debentures
(i) Unlisted, secured, redeemable, non-convertible debenture issued to Piramal Enterprises Limited (“Piramal”):
Securitya) Pledge of shares of 26.13% held by Promoters aggregating to 26.13% of the share capital of Smaaash on fully diluted basis.b) Creation of exclusive charge on all fixed, movable and current assets of Smaaash.c) Exclusive charge by way of mortgage on certain immovable properties owned by the promoter / relatives of promoter in favour of debenture trustee.d) Personal guarantee from Promoters.RepaymentIssuer shall repay to debenture holder 20%, 20% and 60% of investment amount at the end of 3rd, 4th and 5th anniversary from the allotment date August 03, 2016.InterestMinimum IRR of 16% per annum calculated on XIRR basis.
SMAAASH Entertainment Private Limited
(Amounts in thousands of Indian Rupee (INR), unless otherwise stated)
II: Term loan from banks
(i) Term loan from Yes bank
Term loan 1
Security
a) Exclusive hypothecation charge on current and movable fixed assets of the Company both present and future including sponsorship money for Gurgaon and Noida center to be routed through the Yes Bank.
b) Also guaranteed by corporate guarantee of Aha Holdings Private Limited. and personal guarantee of Mr.Shripal Morakhia (Director).
Repayment | ||||
Loan repayable in equal quarterly instalment as follows: | (Rs. in Thousands) | |||
Particulars | As at March 31, 2017 | As at March 31, 2016 | As at April 1, 2015 | |
Repayable within 1 year | 23,708 | 20,625 | 29,500 | |
Repayable within 2-3 years | 57,182 | 48,708 | 88,000 | |
Repayable within 4-5 years | 15,005 | 60,329 | 61,250 | |
More than 5 years | — | |||
Total | 95,895 | 129,663 | 178,750 |
Interest
The term loan will bear interest at 13.50% p.a with immediate reset and the same is payable monthly.
III: Term loans from others
(i) Term loan from Tata Capital Financial Services Limited (“TCFSL”):
Primary SecurityMortgage of certain immovable property owned by Mr. Nidhiram Mandal and Mr. Khudiram Mandal (situated at 1230,31,32,33,34,35,36,37,38,39,40,41,42,43,44,45,46,47 and 1248 Police station Bhangar, Sonapore, 24 Parganas (South)). having clear and marketable title standing in the name of Borrower / Mortgagor.Collateral SecuritySecurity in form of fixed deposit of Rs 6 Crores with bank as acceptable and same provided by Aha Holding Private Limited.RepaymentPrincipal will be repaid in 36 months after the moratorium period of 12 months and the same will be repayable in balance 24 equated monthly instalments start from date of first tranche disbursement.InterestThe term loan will bear interest of long term reference rate of TCFSL +/- prevailing spread, present effective rate being 12.25% p.a. and the interest is payable every month.
SMAAASH Entertainment Private Limited
(Amounts in thousands of Indian Rupee (INR), unless otherwise stated)
(ii) Small Industries Development Bank of India (“SIDBI”):
Term loan 1
Primary SecurityFirst pari passu charge with Piramal over the movable and current assets of the borrower pertaining to Bangalore, Ludhiana and Mumbai Go Karting projects.Collateral securityFirst charge by way of mortgage of all immovable properties owned by Shri Nitya Gopal Bank situated at Harihar Para, Gobindapur, Baruipur road, Harinabhi, P.S. Sonarpur District 24, Parganas (South), Kolkata, bearing survey/block/plot no. JL no. 76, Touzi no. 70/71, Khatian no. 30,31,627,325,329,330,327, Plot no. 602,619,607,620,644,597,598,497,623,500,585,625,621,586,622,617,P.S Sonarpur district 24 Pargana (South), admeasuring 4 acres.GuaranteeIrrevocable and unconditional guarantee of Shripal Morakhia, Ami Zaveri, Nitya Gopal Banik, Aha holding Private Limited and Mrs Kalpana Morakhia. The guarantee shall be joint and several.RepaymentLoan shall be repaid in 72 monthly instalments after a moratorium of 24 month commencing from April 10, 2018.InterestThe term loan will bear interest at 12.95% p.a (fixed) with monthly reset and the same is payable monthly.
Term loan 2
SecurityThe loan amount is secured by second charge on all movables assets including current assets of the Company. The charge would be subservient to all the existing and prospective charges created/to be created by the Company on the said assets in favour of those banks/ financial institution which have extended/would extend business loans (viz. term loans for machineries, business premises and working capital) to the Company for the same business for which SIDBI has extended this sub-debt. All such aforesaid lenders would be referred to as ‘senior secured lenders’GuaranteeIrrevocable and unconditional guarantee of Shripal Morakhia and Ms Ami Zaveri. The guarantee shall be joint and several.RepaymentLoan shall be repaid in 84 monthly instalments after a moratorium of 36 month commencing from February 10, 2018. After 36 month the loan amount will be repaid in 47 instalments of Rs 2100 thousands each and balance Rs 1300 thousands in last instalment.InterestThe term loan will bear interest at 15.50% p.a (fixed) with monthly reset and the same is payable monthly.
SMAAASH Entertainment Private Limited
(Amounts in thousands of Indian Rupee (INR), unless otherwise stated)
(iii) Housing Development Financial Corporation Limited (“HDFC”):
Securitya) First mortgage of Flat at Bellissimo apartments CHSL, 21, Mahalakshmi, Mumbai owned by Aha Holdings Private Limited.b) Fixed and current assets of Lower Parel center.c) Hypothecation of receivables of the Lower parel centerd) Personal Guarantee of Mr. Shripal Morakhiae) Assignment of sponsorship fees on new centers funded by this loanf) Corporate guarantee of Aha Holdings Private Limited
Repayment
The same is repaid during the current year.InterestInterest linked to HDFC’s Corporate Prime Lending rate at 13.40% p.a.
(iv) Aditya Birla Finance Limited (“ABFL”):
Primary SecurityExclusive charge by way of hypothecation on entire current asset and movable fixed assets (present and future) including sponsorship income and revenue from sales of equipment of the borrower except assets of Kamala mills compound (Mumbai), DLF Cyber city (Gurgoan), Inorbit – Cyberabad (Hyderabad), DLF Mall of India (Noida).
Collateral Security
i) Exclusive equitable mortgage on the following properties;a) A-2-05 and 06, Prithvi Apartment CHS Ltd, 21, Altamount Road, Mumbai – 400 026 owned by Mrs. Kalpana Morakhia.b) Survey no. 108, Village Kunenama, Taluka Maval, Lonavala, District Pune, Lonavala – 410 400, owned by Sam Family Trust.c) Survey no. 109, Village Kunenama, Taluka Maval, Lonavala, District Pune, Lonavala – 410 400, owned by Aha Holdings Private Limited.ii) Lien on Mutual funds/fixed deposit/ security deposit (non interest bearing).
Guarantee
Also guaranteed by corporate guarantee of Aha Holdings Pvt. Ltd. and personal guarantee of Mr.Shripal Morakhia, Mrs Kalpana Morakhia and Ms. Ami Zaveri.
Repayment
The same is repaid during the current year.InterestInterest of long term reference rate of ABFL +/- prevailing Spread, present effective rate being 13.50% p.a.
SMAAASH Entertainment Private Limited
(Amounts in thousands of Indian Rupee (INR), unless otherwise stated)
(v) Repayment | (Rs. in Thousands) | ||
Particulars | As at March 31, 2017 | As at March 31, 2016 | As at April 1, 2015 |
Repayable within 1 year | 32,050 | 67,465 | |
Repayable within 2-3 years | 283,750 | 314,276 | — |
Repayable within 4-5 years | 74,000 | 323,171 | — |
More than 5 years | 50,200 | 84,800 | |
Total | 440,000 | 789,712 | — |
(vi) Housing Development Financial Corporation Limited (“HDFC”):
Securitya) Mortgage of property situated at Khatian number LR-817 & RS-817, Tambuldaha-I, Bibirabad, Jibantala, 24 Parganas (South)b) Charge on cashflows from Mumbai Lower Parel Smaaash, Convention center, Verbena Brew Pub & Sky Garden, Pravas Restaurant, Mumbai Go-Karting.c) Corporate guarantee of Aha Holdings Private Limitedd) Personal Guarantee of Mr. Shripal MorakhiaRepayable TermPrincipal will be repaid in 12 months and will be repayable in 4 equal monthly instalments starting 9th month.InterestInterest payable is linked to HDFC’s Corporate Prime Lending rate and is currently payable monthly at 12.50% p.a.
SMAAASH Entertainment Private Limited
(Amounts in thousands of Indian Rupee (INR), unless otherwise stated)
IV: Optional convertible preference shares
During the year 2016-17, the Company has entered into a Preference Shares subscription agreement (PSSA) with Aha holding Private Limited. In accordance with the PSSA, the Company has issued 21,266,288 0% Non-cumulative optionally convertible redeemable preference Shares of Rs. 10/- each (including conversion of outstanding loan aggregating to Rs. 12,663 thousands). The preference shares are convertible at any time into equal number of equity shares of face value of Rs. 10/- each until the date falling 18 months from the date of issuance of the preference shares, at the option of the holders, at Rs. 10/- per equity share and carry dividend @ 0% p.a. In the event of failure of the Company to convert in to equity shares and/or in the event to redeem the Preference shares upon exercise of the rights contempt above, the entire preference shares shall become payable forthwith.
V:Loans from related parties includes loans from Aha Holdings Private Limited are unsecured, interest-free and repayable on demand.
VI: Reconciliation of liabilities arising from financing activities
The table below details changes in the Group’s liabilities arising from financing activities, including both cash and non–cash changes. Liabilities arising from financing activities are those for which cash flows were, or future cash flows will be, classified in the Group’s consolidated statement of cash flows as cash flows from financing activities.
(Rs. in Thousands) | |||||
Particulars | Non-convertible debentures | Term loans from bank | Term loans from financial institutions | Optional convertible preference share | Loans and advances from related parties |
As at April 1, 2015 | — | 168,542 | — | — | — |
Financing cash flows | |||||
Proceeds | 85,796 | 813,712 | — | 56,578 | |
Repayment | (134,882) | — | — | ||
Non-cash changes | — | — | — | ||
Converted into equity shares | — | — | — | — | — |
Interest accruals on account of amortisation | — | 2,199 | (15,550) | — | |
As at March 31, 2016 | — | 121,655 | 798,162 | — | 56,578 |
Financing cash flows (i) | |||||
Proceeds | 1,200,000 | — | 550,000 | 200,000 | 145,600 |
Repayment | — | (33,767) | (823,713) | — | (169,450) |
Non-cash changes | |||||
Converted into equity shares | — | — | — | 12,663 | (12,663) |
Transfer of current assets | — | — | — | — | (7,645) |
Amortisation of borrowing | (4,172) | 1,771 | 8,734 | — | — |
As at March 31, 2017 | 1,195,828 | 89,659 | 533,183 | 212,663 | 12,420 |
VII:For the current maturities of long term borrowings, refer note 22 other financial liabilities.
SMAAASH Entertainment Private Limited
(Amounts in thousands of Indian Rupee (INR), unless otherwise stated)
Note 21 - Other financial liabilities | (Rs. in Thousands) | ||
Particulars | As at March 31, 2017 | As at March 31, 2016 | As at April 1, 2015 |
Non-current | |||
A. Interest accrued | |||
- interest accrued but not due on debenture | 44,409 | — | — |
B. Security deposits | 5,348 | — | — |
C. Other liabilities | — | — | — |
- Payable on purchase of property, plant and equipment | 53,659 | 41,267 | 9,246 |
Total | 103,416 | 41,267 | 9,246 |
Current | |||
A. Current maturities of long term debt | |||
- from bank | 23,708 | 20,625 | 29,500 |
- from financial institutions | 32,050 | 67,465 | — |
B. Interest accrued | |||
- on Term loan from bank | — | 1,432 | 1,935 |
- on Term loan from financial institutions | 2,269 | 3,959 | — |
C. Security deposits | — | — | — |
D. Temporary overdrawn bank balance | — | — | 5,487 |
Total | 58,027 | 93,481 | 36,922 |
Note 22 - Provisions | (Rs. in Thousands) | ||
Particulars | As at March 31, 2017 | As at March 31, 2016 | As at April 1, 2015 |
Non-current | |||
Provision for employee benefits | |||
a) Post- employment benefit -gratuity liability | — | 1,215 | 367 |
Total | — | 1,215 | 367 |
Current | |||
Provision for employee benefits | |||
a) Leave encashment | 6,930 | 4,909 | 1,566 |
b) Post- employment benefit -gratuity liability | — | 1 | — |
Total | 6,930 | 4,910 | 1,566 |
Notes:
For other disclosures, refer note 38 on employee benefit plans.
SMAAASH Entertainment Private Limited
(Amounts in thousands of Indian Rupee (INR), unless otherwise stated)
Note 23 - Other liabilities | (Rs. in Thousands) | ||
Particulars | As at March 31, 2017 | As at March 31, 2016 | As at April 1, 2015 |
Non-current | |||
A. Unearned income on discounted deposits | 1,093 | — | — |
B. Deferred government grant (refer note 6.1) | 7,772 | 7,772 | — |
8,865 | 7,772 | — | |
Current | |||
A. Advances received from customers | 38,352 | 24,187 | 14,691 |
B. Unearned income on discounted deposits | 504 | — | — |
C. Statutory dues | 24,440 | 16,740 | 8,366 |
D. Deferred improvement credit | 15,152 | — | — |
E. Others | — | — | — |
Total | 78,448 | 40,927 | 23,057 |
Note 24 - Trade payables | (Rs. in Thousands) | ||
Particulars | As at March 31, 2017 | As at March 31, 2016 | As at April 1, 2015 |
Due to micro and small enterprises | |||
Other than micro and small enterprises | 133,489 | 89,308 | 26,997 |
Total | 133,489 | 89,308 | 26,997 |
Notes:
i) Based on the information available with the Company, no trade payables have been registered as ‘supplier’ within the meaning of ‘Micro Small & Medium Enterprises Development Act, 2006.
ii) The average credit period on purchases of food and beverages is 30 to 45 days and for other goods and services is 60 to 90 days.
SMAAASH Entertainment Private Limited
(Amounts in thousands of Indian Rupee (INR), unless otherwise stated)
Smaaash Entertainment Private Limited
Notes to consolidated financial statements for the period ended March 31, 2017 and 2016
Note 25 - Revenue from operations | (Rs. in Thousands) | |
Particulars | For the year ended March 31, 2017 | For the year ended March 31, 2016 |
a) Revenue from rendering of services | ||
- Gaming | 478,562 | 249,756 |
- Food and beverages | 216,777 | 115,554 |
- Banquet, corporate events and others | 246,073 | 114,637 |
- Sponsorship fees | 50,748 | 43,722 |
b) Other operating revenue | ||
- Professional charges | 20 | — |
- Income from exhibits, merchandise and others | 3,309 | 4,041 |
Total | 995,489 | 527,710 |
Note 26 - Other income | (Rs. in Thousands) | |
Particulars | For the year ended March 31, 2017 | For the year ended March 31, 2016 |
a) Interest income: | ||
- Bank deposits | 2,234 | 2,708 |
- Other financial assets carried at amortised cost | — | — |
- Unwinding of security deposits | 8,855 | 5,290 |
- Income tax refund | 166 | 188 |
b) Sundry credit balances written back | 16,117 | 13,916 |
c) Net foreign exchange gain/ (loss) | — | 4,383 |
d) Other income: | ||
- Net gain/(loss) arising on financial assets carried at FVTPL | 7,078 | 1,480 |
- Net gain/(loss) arising on financial liabilities carried at amortised cost | (12,337) | (225) |
- Advances written off | — | — |
- Miscellaneous income | 480 | 239 |
Total | 22,593 | 27,979 |
SMAAASH Entertainment Private Limited
(Amounts in thousands of Indian Rupee (INR), unless otherwise stated)
Note 27 - Cost of materials consumed | (Rs. in Thousands) | |
Particulars | For the year ended March 31, 2017 | For the year ended March 31, 2016 |
Opening stock | ||
- Food and beverages | 7,625 | 1,886 |
- Less : Food and beverages (discontinuing operation) | (197) | — |
- Consumables | 11,039 | 5,707 |
Add: Purchases | 151,902 | 83,799 |
170,369 | 91,392 | |
Less: Closing stock | ||
- Food and beverages | 18,507 | 7,428 |
- Consumables | 9,492 | 11,039 |
Total cost of materials consumed | 142,370 | 72,925 |
Note 28 - Changes in inventories of stock-in-trade | (Rs. in Thousands) | |
Particulars | For the year ended March 31, 2017 | For the year ended March 31, 2016 |
Gaming products | ||
Inventories at the end of the year: | (22,896) | (4,933) |
Inventories at the beginning of the year: | 4,933 | 6,569 |
Increase/ (decrease) | (17,963) | 1,636 |
SMAAASH Entertainment Private Limited
(Amounts in thousands of Indian Rupee (INR), unless otherwise stated)
Smaaash Entertainment Private Limited
Notes to consolidated financial statements for the period ended March 31, 2017 and 2016
Note 29 - Employee benefits expense | (Rs. in Thousands) | |
Particulars | For the year ended March 31, 2017 | For the year ended March 31, 2016 |
a) Salaries and wages, including bonus | 209,532 | 112,206 |
b) Contribution to provident and other funds | 19,320 | 14,992 |
c) Gratuity | 10,465 | 12,451 |
d) Staff welfare expenses | 3,315 | 1,675 |
Total employee benefit expense | 242,632 | 141,324 |
Note 30 - Finance cost | (Rs. in Thousands) | |
Particulars | For the year ended March 31, 2017 | For the year ended March 31, 2016 |
a) Interest costs: | ||
- on loans from banks | 16,773 | 29,664 |
- on loans from financial institutions | 71,205 | 42,389 |
- on debentures | 128,643 | — |
- other interest expenses | 366 | — |
b) Processing fees and related costs | 18,541 | 1,308 |
Total | 235,528 | 73,361 |
SMAAASH Entertainment Private Limited
(Amounts in thousands of Indian Rupee (INR), unless otherwise stated)
Note 31 - Other expenses | (Rs. in Thousands) | |
Particulars | For the year ended March 31, 2017 | For the year ended March 31, 2016 |
Stores and spares consumed | 13,562 | 6,458 |
Utility charges | 68,390 | 41,563 |
Lease expense | 130,595 | 74,393 |
Repairs and maintenance charges | 24,060 | 14,896 |
Insurance | 7,215 | 1,457 |
Rates, taxes and license fee | 44,473 | 22,311 |
Communication expenses | 7,378 | 5,079 |
Travelling and conveyance expenses | 22,960 | 14,968 |
Printing and stationery | 4,517 | 4,606 |
Branding expenses | 43,034 | 79,592 |
Advertisement and business promotion | 51,477 | 44,297 |
Legal and other professional costs | 26,225 | 20,243 |
Fund raising and related costs | 9,366 | 2,250 |
Recruitment charges | 5,660 | 1,010 |
House keeping charges | 12,885 | 7,622 |
Hire charges | 646 | 911 |
Labour and other related expenses | 3,961 | 3,402 |
Security charges | 7,209 | 6,729 |
Payment to auditors | 3,032 | 1,400 |
Bank charges and credit card commission | 12,223 | 5,148 |
Bad debts | — | 1,248 |
Advances written off | 1,091 | — |
Provision for doubtful debts | 716 | — |
Foreign exchange loss (net) | 1,397 | — |
Donation | 46 | 500 |
Loss on property, plant and equipment sold/ written off | — | — |
Miscellaneous expenses | 4,602 | 2,015 |
Total | 506,720 | 362,098 |
SMAAASH Entertainment Private Limited
(Amounts in thousands of Indian Rupee (INR), unless otherwise stated)
Smaaash Entertainment Private Limited
Notes to consolidated financial statements for the period ended March 31, 2017 and 2016
Note 32 - Current tax and deferred tax
(a) Income Tax recognised in profit & loss | (Rs. in Thousands) | ||
Particulars | For the year ended March 31, 2017 | For the year ended March 31, 2016 | |
A. Current Tax: | |||
In respect of current year | 1,174 | — | |
Total | 1,174 | — | |
B. Deferred Tax: | |||
In respect of current year origination and reversal of temporary differences | (106,522) | (70,291) | |
Total | (106,522) | (70,291) | |
Total (A+B) | �� (105,348) | (70,291) | |
(b) Income tax recognised in other comprehensive income | (Rs. in Thousands) | ||
Particulars | For the year ended March 31, 2017 | For the year ended March 31, 2016 | |
Deferred tax: | |||
Remeasurement of defined benefit obligations | (818) | 64 | |
Total | (818) | 64 | |
Classification of income tax recognised in other comprehensive income | |||
Income taxes related to items that will not be reclassified to profit or loss | (818) | 64 | |
Income taxes related to items that will be reclassified to profit or loss | — | — | |
Total | (818) | 64 | |
(c) Reconciliation of income tax expense and the accounting profit multiplied by Company’s domestic tax rate: | (Rs. in Thousands) | ||
Particulars | For the year ended March 31, 2017 | For the year ended March 31, 2016 | |
Profit before tax | (352,899) | (244,840) | |
Income tax expense calculated at 30% plus surcharge (2016-17: 30% and 2015-16: 30%) | (109,046) | (75,656) | |
Effect on different tax rates of subsidiary operating in other jurisdictions | 48 | — | |
Effects of expenses that are not deductible in determining taxable profits | 372 | 258 | |
Effect of income that is exempt from taxation | — | 5,803 | |
Effect of expenses deductible in determining taxable profits | — | (695) | |
Others | 3,278 | — | |
(105,348) | (70,290) | ||
Adjustments recognised in the current year in relation to the current tax of prior years | — | — | |
Income tax expense recognised In profit or loss (relating to continuing operations) | (105,348) | (70,290) |
The tax rate used for March 31, 2017, and March 31, 2016 in reconciliations above is the corporate tax rate of 30% (plus surcharge and cess as applicable) on taxable profits under Income Tax Act, 1961.
SMAAASH Entertainment Private Limited
(Amounts in thousands of Indian Rupee (INR), unless otherwise stated)
Smaaash Entertainment Private Limited
Notes to consolidated financial statements for the period ended March 31, 2017 and 2016
Note 33 - Discontinued operations
Sale of Quick Service Restaurants (QSR):
During the F.Y 2016-17, pursuant to the decision taken and approved by the Board of directors of Adrenaline Foods Private Limited (Subsidiary), the entity has decided to discontinue its Mall Food Court Quick Service Restaurant (“QSR”) business model with effect from March 17, 2017. The closing down and discontinuation of Mall Food court business model was due to the lack of business in mall.
Analysis of profit for the year from discontinued operations
The combined results of the discontinued operations (i.e. QSR business) included in the profit for the year are set out below. The comparative profit and cash flows from discontinued operations have been presented as if these operations were discontinued in the prior year as well.
(Rs. in Thousands) | ||
Particulars | For the year ended March 31, 2017 | For the year ended March 31, 2016 |
Profit for the year from discontinued operations | ||
Revenue | ||
Food and Beverages | 11,817 | 15,209 |
Other Income | 182 | 1 |
Total Revenue (A) | 11,999 | 15,210 |
Expenses | ||
Cost of materials consumed | 3,657 | 5,061 |
Employee Benefit expense | 7,339 | 10,056 |
Depreciation/amortisation | 6,114 | 2,436 |
Other expense | 10,822 | 13,406 |
Total expenses (B) | 27,932 | 30,959 |
Loss from discontinued operations before tax | (15,933) | (15,749) |
Income tax expense | — | — |
Loss from discontinued operations after tax | (15,933) | (15,749) |
Note 34: Served from India scheme (SFIS) credit
During the previous year, the Group has received duty credit entitlement certificate issued by Director General of Foreign Trade (DGFT) under Served from India Scheme (SFIS) aggregating Rs.18,781 thousands from a related party for Rs. Nil. The Group has utilised part of the said entitlement against the import of capital goods during the year and the balance amount yet to be utilized aggregating Rs.114 thousands (March 31, 2016: Rs. 9,958 thousands), is disclosed under short term loans and advances.
SMAAASH Entertainment Private Limited
(Amounts in thousands of Indian Rupee (INR), unless otherwise stated)
Smaaash Entertainment Private Limited
Notes to consolidated financial statements for the period ended March 31, 2017, 2016 and April 1, 2015
Note 35- Financial Instruments
I. Capital management Policy
For the purpose of the Group’s capital management, capital includes issued equity capital, share premium and all other equity reserves attributable to the equity holders of the Group. The primary objective of the Group’s capital management is to maximise the shareholder value.The Group manages its capital structure and makes adjustments in light of changes in economic conditions and the requirements of the financial covenants. To maintain or adjust the capital structure, the Group may adjust the dividend payment to shareholders, return capital to shareholders or issue new shares. The Group monitors capital using a gearing ratio, which is net debt divided by total capital plus net debt. The Group includes within net debt, interest bearing loans and borrowings, trade payables, less cash and cash equivalents.
Gearing ratio:
The gearing ratio at end of the reporting period was as follows.
(Rs. in Thousands) | |||
Particulars | As at March 31, 2017 | As at March 31, 2016 | As at April 1, 2015 |
Debt (i) | 2,043,754 | 976,394 | 168,542 |
Cash and bank balances | 133,529 | 24,629 | 37,843 |
Net debt | 1,910,225 | 951,765 | 130,700 |
Total equity | 824,301 | 875,153 | 860,654 |
Net debt to equity ratio | 2.32 | 1.09 | 0.15 |
In order to achieve this overall objective, the Group’s capital management, amongst other things, aims to ensure that it meets financial covenants attached to the interest-bearing loans and borrowings that define capital structure requirements.
Breaches in meeting the financial covenants would permit the bank to immediately call loans and borrowings. There have been no breaches in the financial covenants of any interest-bearing loans and borrowing in the current period.
No changes were made in the objectives, policies or processes for managing capital during the years ended March 31, 2017 and March 31, 2016.
SMAAASH Entertainment Private Limited
(Amounts in thousands of Indian Rupee (INR), unless otherwise stated)
II. Categories of financial instruments:
As at March 31, 2017 | (Rs. in Thousands) | |||
Particulars | Amortised Costs | FVTPL | FVOCI | Total |
A. Non-current assets | ||||
a) Investments | 20 | 18,566 | — | 18,586 |
b) Other financial assets | 138,971 | — | — | 138,971 |
Total | 138,991 | 18,566 | — | 157,558 |
B) Current assets | — | |||
a) Investments | — | 8,198 | — | 8,198 |
b) Trade receivables | 26,550 | — | — | 26,550 |
c) Cash and bank balances | 133,529 | — | — | 133,529 |
d) Loans | 1,897 | — | — | 1,897 |
e) Other financial assets | 56,062 | — | — | 56,062 |
Total | 218,038 | 8,198 | — | 226,237 |
C. Non-current liabilities | ||||
a) Borrowings | 1,662,912 | — | — | 1,662,912 |
b) Other financial liabilities | 103,416 | — | — | 103,416 |
Total | 1,766,328 | — | — | 1,766,328 |
D. Current Liabilities | ||||
a) Borrowings | 325,083 | — | — | 325,083 |
b) Trade payables | 133,489 | — | — | 133,489 |
c) Other financial liabilities | 58,027 | — | — | 58,027 |
Total | 516,599 | — | — | 516,599 |
SMAAASH Entertainment Private Limited
(Amounts in thousands of Indian Rupee (INR), unless otherwise stated)
As at March 31, 2016 | (Rs. in Thousands) | |||
Particulars | Amortised Costs | FVTPL | FVOCI | Total |
A. Non-current assets | ||||
a) Investments | 20 | — | — | 20 |
b) Other financial assets | 138,055 | — | — | 138,055 |
Total | 138,075 | — | — | 138,075 |
B) Current assets | ||||
a) Investments | — | 65,195 | — | 65,195 |
b) Trade receivables | 15,970 | — | — | 15,970 |
c) Cash and bank balances | 24,629 | — | — | 24,629 |
d) Loans | 228 | — | — | 228 |
e) Other financial assets | 58,435 | — | — | 58,435 |
Total | 99,262 | 65,195 | — | 164,457 |
C. Non-current liabilities | ||||
a) Borrowings | 807,726 | — | — | 807,726 |
b) Other financial liabilities | 41,267 | — | — | 41,267 |
Total | 848,993 | — | — | 848,993 |
D. Current Liabilities | ||||
a) Borrowings | 80,578 | — | — | 80,578 |
b) Trade payables | 89,308 | — | — | 89,308 |
c) Other financial liabilities | 93,481 | — | — | 93,481 |
Total | 263,367 | — | — | 263,367 |
SMAAASH Entertainment Private Limited
(Amounts in thousands of Indian Rupee (INR), unless otherwise stated)
As at April 1, 2015 | (Rs. in Thousands) | |||
Particulars | Amortised Costs | FVTPL | FVOCI | Total |
A. Non-current assets | ||||
a) Investments | 20 | — | — | 20 |
b) Other financial assets | 76,054 | — | — | 76,054 |
Total | 76,074 | — | — | 76,074 |
B) Current assets | ||||
a) Investments | — | — | — | — |
b) Trade receivables | 15,991 | — | — | 15,991 |
c) Cash and bank balances | 37,860 | — | — | 37,860 |
d) Loans | 559 | — | — | 559 |
e) Other financial assets | 15,925 | — | — | 15,925 |
Total | 70,335 | — | — | 70,335 |
C. Non-current liabilities | ||||
a) Borrowings | 139,042 | — | — | 139,042 |
b) Other financial liabilities | 9,246 | — | — | 9,246 |
Total | 148,288 | — | — | 148,288 |
D. Current Liabilities | ||||
a) Borrowings | — | — | — | — |
b) Trade payables | 26,997 | — | — | 26,997 |
c) Other financial liabilities | 36,922 | — | — | 36,922 |
Total | 63,919 | — | — | 63,919 |
SMAAASH Entertainment Private Limited
(Amounts in thousands of Indian Rupee (INR), unless otherwise stated)
Smaaash Entertainment Private Limited
Notes to consolidated financial statements for the period ended March 31, 2017, 2016 and April 1, 2015
III. Financial risk management objectives
The Group’s principal financial liabilities, comprises of borrowing from banks and financial institutions, debentures and other payables. The main purpose of these financial liabilities is to support its operations and business expansion. The Group’s principal financial assets include trade and other receivables, investments and cash and deposits that derive directly from its operations.
The Group’s senior management oversees the management of these risks. The Group’s senior management is supported by a financial risk committee that advises on financial risks and the appropriate financial risk governance framework for the Group. This financial risk committee provides assurance to the Group’s senior management that the Group’s financial risk activities are governed by appropriate policies and procedure and that financial risks are identified, measured and managed in accordance with the Group’s policies and risk objectives. The Board of Directors reviews and agrees policies for managing each risk, which are summarised as below:
A) Credit risk management
Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the Group. The Group has adopted a policy of only dealing with creditworthy counterparties, as a means of mitigating the risk of financial loss from defaults. The Group uses publicly available financial information and its own trading records to rate its major customers. The Group’s exposure to financial loss from defaults are continuously monitored.
B) Liquidity risk management
(i) The Group’s management is responsible for liquidity, funding as well as settlement management. Ultimate responsibility for liquidity risk management rests with the board of directors, which has established an appropriate liquidity risk management framework for the management of the Group’s short, medium, and long-term funding and liquidity management requirements. The Group manages liquidity risk by maintaining adequate reserves, banking facilities and reserve borrowing facilities, by continuously monitoring forecast and actual cash flows, and by matching the maturity profiles of financial assets and liabilities.
SMAAASH Entertainment Private Limited
(Amounts in thousands of Indian Rupee (INR), unless otherwise stated)
(ii) Maturities of financial liabilities
Table showing maturity profile of non-derivative financial liabilities: | (Rs. in Thousands) | |||||||||||
Particulars | Less than 1 Year | 1-3 Years | 3 Years to 5 Years | 5 years and above | Total | Carrying amount | ||||||
As at March 31, 2017 | ||||||||||||
a) Non-interest bearing | ||||||||||||
Trade payable | 133,489 | 133,489 | 133,489 | |||||||||
Borrowings | 12,420 | 12,420 | 12,420 | |||||||||
Other financial liabilities | 2,269 | 103,416 | 105,685 | 105,685 | ||||||||
b) Interest rate instruments | ||||||||||||
Borrowings | 312,663 | 580,932 | 329,005 | 770,200 | 1,992,800 | 1,975,575 | ||||||
Current maturities of long term debt | 55,758 | 55,758 | 55,758 | |||||||||
Total | 516,599 | 684,348 | 329,005 | 770,200 | 2,300,152 | 2,282,927 | ||||||
As at March 31, 2016 | ||||||||||||
a) Non-interest bearing | ||||||||||||
Trade payable | 89,308 | 89,308 | 89,308 | |||||||||
Borrowings | 56,578 | 56,578 | 56,578 | |||||||||
Other financial liabilities | 5,391 | 41,267 | 46,658 | 46,658 | ||||||||
b) Interest rate instruments | ||||||||||||
Borrowings | 24,000 | 362,984 | 383,500 | 84,800 | 855,284 | 831,726 | ||||||
Current maturities of long term debt | 88,090 | 88,090 | 88,090 | |||||||||
Total | 263,367 | 404,251 | 383,500 | 84,800 | 1,135,919 | 1,112,360 | ||||||
As at March 31, 2015 | ||||||||||||
a) Non-interest bearing | ||||||||||||
Trade payable | 26,997 | 26,997 | 26,997 | |||||||||
Borrowings | — | — | — | |||||||||
Other financial liabilities | 7,422 | 9,246 | 16,668 | 16,668 | ||||||||
b) Interest rate instruments | ||||||||||||
Borrowings | — | 88,000 | 61,250 | — | 149,250 | 139,042 | ||||||
Current maturities of long term debt | 29,500 | 29,500 | 29,500 | |||||||||
Total | 63,919 | 97,246 | 61,250 | — | 222,414 | 212,207 | ||||||
The above table details the Group’s remaining contractual maturity for its non-derivative financial liabilities with agreed repayment periods. The amount disclosed in the tables have been drawn up based on the undiscounted cash flows of financial liabilities based on the earliest date on which the Group can be required to pay. The tables include both interest and principal cash flows. The contractual maturity is based on the earliest date on which the Group may be required to pay.
SMAAASH Entertainment Private Limited
(Amounts in thousands of Indian Rupee (INR), unless otherwise stated)
(iii) Financing facilities
There are no undrawn financing facilities as at each reporting period.
Smaaash Entertainment Private Limited
Notes to consolidated financial statements for the period ended March 31, 2017, 2016 and April 1, 2015
c) Market Risk Management
The Group is exposed to market risks associated with foreign currency rates and interest rate risk. In the normal course of business and in accordance with our policies, we manage these risks through a variety of strategies.
i). Foreign currency risk management
The Group undertakes transactions denominated in foreign currencies; consequently, exposures to exchange rate fluctuations arise. The exchange gains or losses are recognised in profit or loss on the date of settlement and restatement at each reporting date.
The carrying amounts of the Group’s foreign currency denominated monetary assets and monetary liabilities at the end of the reporting period are as follows:
(Rs. in Thousands) | |||||||||||
As at March 31, 2017 | As at March 31, 2016 | As at April 1, 2015 | |||||||||
Rupees (INR) | In foreign currency | Rupees (INR) | In foreign currency | Rupees (INR) | In foreign currency | ||||||
Trade payables | |||||||||||
USD | 109 | 2 | 33 | 1 | — | — | |||||
GBP | — | — | 2,250 | 24 | — | — | |||||
EURO | 38 | 0 | 434 | 6 | — | — | |||||
147 | 2 | 2,718 | 30 | — | — | ||||||
Trade receivable | |||||||||||
USD | 1,793 | 28 | — | — | — | — | |||||
1,793 | 28 | — | — | — | — | ||||||
Advances paid | |||||||||||
AUD | 52 | 1 | — | — | — | — | |||||
CNY | 27 | 3 | — | — | — | — | |||||
EURO | 7,076 | 100 | — | — | 390 | 6 | |||||
GBP | 346 | 4 | — | — | 3,241 | 35 | |||||
SAR | 78 | 4 | — | — | — | — | |||||
USD | 2,151 | 33 | — | — | — | — | |||||
9,731 | 144 | — | — | 3,631 | 41 | ||||||
SMAAASH Entertainment Private Limited
(Amounts in thousands of Indian Rupee (INR), unless otherwise stated)
Smaaash Entertainment Private Limited | |||
Notes to consolidated financial statements for the period ended March 31, 2017, 2016 and April 1, 2015 | |||
Foreign exchange rate sensitivity | |||
A change of 5% in foreign exchange rates would have following impact on profit before tax | (Rs. in Thousands) | ||
Particulars | As at March 31, 2017 | As at March 31, 2016 | As at April 1, 2015 |
AUD | |||
5% increase in exchange rate – impact on profit | 3 | — | — |
5% decrease in exchange rate – impact on profit | (3) | — | — |
CNY | |||
5% increase in exchange rate – impact on profit | 1 | — | — |
5% decrease in exchange rate – impact on profit | (1) | — | — |
EURO | |||
5% increase in exchange rate – impact on profit | 352 | (22) | 20 |
5% decrease in exchange rate – impact on profit | (352) | 22 | (20) |
GBP | |||
5% increase in exchange rate – impact on profit | 17 | (113) | 162 |
5% decrease in exchange rate – impact on profit | (17) | 113 | (162) |
SAR | |||
5% increase in exchange rate – impact on profit | 4 | — | — |
5% decrease in exchange rate – impact on profit | (4) | — | — |
USD | |||
5% increase in exchange rate – impact on profit | 192 | (2) | — |
5% decrease in exchange rate – impact on profit | (192) | 2 | — |
SMAAASH Entertainment Private Limited
(Amounts in thousands of Indian Rupee (INR), unless otherwise stated)
ii). Interest rate risk management:
Interest rate risk is the risk that fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The Group has borrowed funds with both fixed and floating interest rate.
(Rs. in Thousands) | |||
Particulars | As at March 31, 2017 | As at March 31, 2016 | As at April 1, 2015 |
Fixed rate borrowings: | |||
Non-convertible debentures | 1,195,828 | — | — |
Term loan from financial institutions | |||
- SIDBI | 188,096 | 187,812 | — |
1,383,924 | 187,812 | — | |
Floating rate borrowing | |||
Term loan from Yes bank | 89,658 | 121,654 | 168,542 |
Term loan from financial institutions | |||
- Housing Development Finance Corporation Limited | 100,000 | 197,972 | — |
- Aditya Birla Finance Ltd | — | 412,512 | — |
- Tata Capital Finance Limited | 244,836 | — | — |
434,494 | 732,139 | 168,542 | |
Total Borrowings | 1,818,418 | 919,951 | 168,542 |
Interest rate sensitivity
A change of 1% in interest rates would have following impact on profit before tax | (Rs. in Thousands) | ||
Particulars | As at March 31, 2017 | As at March 31, 2016 | As at April 1, 2015 |
1% increase in interest rate – decrease in profit | (1,072) | (2,739) | (993) |
1% decrease in interest rate – increase in profit | 1,072 | 2,739 | 993 |
SMAAASH Entertainment Private Limited
(Amounts in thousands of Indian Rupee (INR), unless otherwise stated)
Smaaash Entertainment Private Limited | ||||||||||
Notes to consolidated financial statements for the period ended March 31, 2017, 2016 and April 1, 2015 | ||||||||||
Note 36 - Fair Value Measurement | ||||||||||
a) Fair value of the Group’s financial assets that are measured at fair value on a recurring basis | (Rs. in Thousands) | |||||||||
Financial assets/ financial liabilities measured at Fair value | Fair value as at | Fair value hierarchy | Valuation technique(s) and key input(s) | Significant unobservable input(s) | Relationship of unobservable inputs to fair value and sensitivity | |||||
March 31, 2017 | March 31, 2016 | April 1, 2015 | ||||||||
A) Financial assets | ||||||||||
a) Investments | ||||||||||
i) Mutual fund investments | 26,765 | 65,195 | — | Level 1 | Quoted bid prices in an active market | NA | NA | |||
Total financial assets | 26,765 | 65,195 | — | |||||||
As at the reporting date, the Group does not have any financial liability measured at fair values. | ||||||||||
b) Fair value of financial assets and financial liabilities that are measured at amortised cost: | ||||||||||
The management believes the carrying amounts of financial assets and financial liabilities measured at amortised cost approximate their fair values. | ||||||||||
SMAAASH Entertainment Private Limited(Amounts in thousands of Indian Rupee (INR), unless otherwise stated)
Smaaash Entertainment Private Limited
Notes to consolidated financial statements for the period ended March 31, 2017, 2016 and April 1, 2015
Note 37 - Employee benefits
i) Defined Contribution Plan
The Groups’ contribution to Provident fund for the year ended March 31, 2017: Rs. 10,805 thousands and for year ended March 31, 2016: Rs 8,637 thousands) has been recognised in consolidated statement of profit or loss under the head employee benefits expense.
ii) Defined Benefit Plans:
Gratuity
The Group operates a gratuity plan covering qualifying employees. The benefit payable is the greater of the amount calculated as per the Payment of Gratuity Act, 1972 or the Group scheme applicable to the employee. The benefit vests upon completion of five years of continuous service and once vested it is payable to employees on retirement or on termination of employment. In case of death while in service, the gratuity is payable irrespective of vesting. The Group makes annual contribution to the Group gratuity scheme administered by the Life Insurance Corporation of India through its Gratuity Trust Fund.
Through its defined benefit plans the Group is exposed to a number of risks, the most significant of which are detailed below:
(1) Salary risk:
The present value of the defined benefit plan liability is calculated by reference to the future salaries of plan participants. As such, an increase in the salary of the plan participants will increase the plan’s liability.
(2) Interest rate risk
The defined benefit obligation calculated uses a discount rate based on government bonds. All other aspects remaining same, if bond yields fall, the defined benefit obligation will tend to increase. In addition, an inadequate returns on underlying plan assets can result in an increase in cost of providing these benefits to employees in future.
(3) Demographic risk:
This is the risk of variability of results due to unsystematic nature of decrements that include mortality, withdrawal, disability and retirement. The effect of these decrements on the defined benefit obligation is not straight forward and depends upon the combination of salary increase, medical cost inflation, discount rate and vesting criteria.
The significant actuarial assumptions used for the purposes of the actuarial valuations were as follows:
Particulars | Valuation as at | ||
March 31, 2017 | March 31, 2016 | April 1, 2015 | |
Discount rate (p.a.) | 7.35% | 7.95% | 7.95% |
Salary escalation rate (p.a.) | 7.00% | 7.00% | 7.00% |
SMAAASH Entertainment Private Limited(Amounts in thousands of Indian Rupee (INR), unless otherwise stated)
Amounts recognised in statement of profit and loss in respect of these defined benefit plans are as follows: | (Rs. in Thousands) | ||
Particulars | March 31, 2017 | March 31, 2016 | April 1, 2015 |
Current Service Cost | 3,250 | 1,854 | 710 |
Past service cost and (gains)/losses from settlements | — | — | — |
Net interest expense | 65 | 13 | (26) |
Components of defined benefit costs recognised in profit or loss | 3,315 | 1,867 | 684 |
Remeasurement on the net defined benefit liability | |||
Actuarial (gains)/loss arising form changes in financial assumptions | 254 | — | 201 |
Actuarial (gains)/loss arising form changes in demographic assumptions | (2,140) | — | — |
Actuarial (gains)/loss arising form experience adjustments | (777) | 223 | 117 |
Return on plan assets (excluding amount included in net interest expense) | 17 | (15) | (9) |
Adjustment to recognise the effect of asset ceiling | — | — | — |
Components of defined benefit costs recognised in other comprehensive income | (2,646) | 208 | 309 |
Total | 670 | 2,075 | 993 |
Notes:
i) The Current service cost and the next interest expense for the period are included in the ‘Employee benefits expense’ line item in the statement of profit and loss.
ii) The remeasurement of the net define benefits liability is included in other comprehensive income
The amount included in the balance sheet arising from the entity’s obligation in respect of its defined benefit plans is as follows:
(Rs. in Thousands) | |||
Particulars | March 31, 2017 | March 31, 2016 | April 1, 2018 |
Present value of defined benefit obligation | 4,291 | 3,431 | 1,434 |
Fair value of plan assets | (5,930) | (2,409) | (1,067) |
Funded status | (1,639) | 1,022 | 367 |
Restriction on asset recognize | — | — | — |
Net liability arising from the defined benefit obligation | (1,639) | 1,022 | 367 |
Present value of unfunded defined benefit obligation | — | 194 | — |
— | — | — | |
Current portion of the above | — | 1 | 0 |
Non current portion of the above | (1,639) | 1,215 | 367 |
SMAAASH Entertainment Private Limited(Amounts in thousands of Indian Rupee (INR), unless otherwise stated)
Movement in the present value of the defined benefit obligation are as follows: | (Rs. in Thousands) | ||
Particulars | March 31, 2017 | March 31, 2016 | April 1, 2015 |
Opening of defined benefit obligation | 3,625 | 1,434 | 372 |
Liability transferred in / Acquisitions | — | — | — |
Current service cost | 3,250 | 1,854 | 710 |
Past service cost | — | — | |
Interest on defined benefit obligation | 273 | 114 | 33 |
Remeasurements due to: | |||
Actuarial loss / (gain) arising from change in financial assumptions | 254 | — | 201 |
Actuarial loss / (gain) arising from change in demographic assumptions | (2,140) | — | — |
Actuarial loss / (gain) arising on account of experience changes | (777) | 223 | 117 |
Benefits paid | — | — | — |
Liabilities assumed / (settled)* | (194) | — | — |
Liabilities extinguished on settlement | — | — | — |
Closing of defined benefit obligation | 4,291 | 3,625 | 1,434 |
* On account of business combination or inter group transfer | |||
Movement in the fair value of the plan assets are as follows: | (Rs. in Thousands) | ||
Particulars | March 31, 2017 | March 31, 2016 | April 1, 2015 |
Opening fair value of plan assets | 2,409 | 1,067 | 657 |
Employer contribution | 3,331 | 1,227 | 342 |
Interest on plan assets | 207 | 100 | 59 |
Administration expenses | — | — | — |
Remeasurement due to: | — | — | — |
Actual return on plan assets less interest on plan assets | (17) | 15 | 9 |
Benefits paid | — | — | — |
Assets acquired / (settled)* | — | — | — |
Assets distributed on settlement | — | — | — |
Closing of defined benefit obligation | 5,930 | 2,409 | 1,067 |
* On account of business combination or inter group transfer | |||
Major category of plan assets (as a percentage of total plan assets) | (Rs. in Thousands) | ||
Particulars | March 31, 2017 | March 31, 2016 | April 1, 2015 |
Equity instruments | — | — | — |
Debt Instruments | — | — | — |
Insurer Managed Funds | 5,930 | 2,409 | 1,067 |
Total | 5,930 | 2,409 | 1,067 |
The plan does not invest directly in any property occupied by the Group nor in any financial securities issued by the Group.
Sensitivity Analysis
Gratuity is a lump sum plan and the cost of providing these benefits is typically less sensitive to small changes in demographic assumptions. The key actuarial assumptions to which the benefit obligation results are particularly sensitive to are discount rate and future salary escalation rate. The following table summarizes the impact in percentage terms on the reported defined benefit obligation at the end of the reporting period arising on account of an increase or decrease in the reported assumption by50 basis points.
SMAAASH Entertainment Private Limited(Amounts in thousands of Indian Rupee (INR), unless otherwise stated)
Principal assumption | Impact on defined benefit obligation | |
Increase in assumption | Decrease in assumption | |
a) Discount rate | ||
As at March 31, 2017 | -4.96% | 4.89% |
As at March 31, 2016 | -6.71% | 7.41% |
As at April 1, 2015 | -6.73% | 7.41% |
b) Salary Escalation Rate | ||
As at March 31, 2017 | 5.36% | -4.91% |
As at March 31, 2016 | 7.15% | -6.55% |
As at April 1, 2015 | 7.44% | -6.82% |
Notes:
i) These sensitivities have been calculated to show the movement in defined benefit obligation in isolation and assuming there are no other changes in market conditions at the accounting date.
ii) There have been no changes from the previous periods in the methods and assumptions used in preparing the sensitivity analyses.
The Group expects to contribute Rs. 400 thousands (as at 31st March, 2016: Rs 400 thousand and as at 1st April, 2015: Rs 400 thousands) to the gratuity trusts during the next financial year.
Maturity profile of defined benefit obligation:
The table below shows the expected cash flow profile of the benefits to be paid to the current membership of the plan based on past service of the employees as at the valuation date:
(Rs. in Thousands) | |||
Particulars | As at March 31, 2017 | As at March 31, 2016 | As at April 1, 2015 |
Expected benefits for year 1 | 316 | 8 | 7 |
Expected benefits for year 2 | 267 | 56 | 3 |
Expected benefits for year 3 | 268 | 143 | 36 |
Expected benefits for year 4 | 331 | 201 | 90 |
Expected benefits for year 5 | 377 | 303 | 134 |
Expected benefits for year 6 | 287 | 317 | 111 |
Expected benefits for year 7 | 244 | 278 | 103 |
Expected benefits for year 8 | 519 | 252 | 106 |
Expected benefits for year 9 | 212 | 416 | 96 |
Expected benefits for year 10 and above | 7,858 | 12,574 | 5,040 |
The weighted average duration of the defined benefit obligation as at March 2017: 10.32 years (March 2016: 14.09 years and March 2015: 14.12 years)
SMAAASH Entertainment Private Limited(Amounts in thousands of Indian Rupee (INR), unless otherwise stated)
SMAAASH Entertainment Private Limited(Amounts in thousands of Indian Rupee (INR), unless otherwise stated)
i). Details of related party transactions | (Rs. in Thousands) | |
For the year ended March 31, 2017 | For the year ended March 31, 2016 | |
Aha Holdings Private Limited | ||
Transactions during the Year | ||
Issue of shares including share premium | — | 99,922 |
Issue of shares against optionally convertible preference shares | — | — |
Right issue of shares | — | — |
Issue of optionally convertible preference shares (Out the total Rs 12,663 thousands was issued towards repayment of loan) | 212,663 | — |
Capital advances given | — | — |
Capital advances given back | — | 30,000 |
Transfer of liquor license | 7,045 | — |
Transfer of security deposit | 600 | — |
Short term borrowings taken | 145,600 | 187,578 |
Short term borrowings repaid | 169,450 | 131,000 |
— | — | |
FW Metis Ltd | — | — |
Transactions during the Year | — | — |
Issue of shares including share premium | 233,975 | 78,782 |
Lifestyle Networks Limited | — | — |
Transactions during the Year | — | — |
Professional service received | — | — |
Fixed assets purchased | — | — |
— | — | |
YoBoHo New Media Private Limited | — | — |
Transactions during the Year | — | — |
Served from India scheme credit (refer note below) | — | — |
— | — |
During the financial year 2014-15 and 2015-16, the Group has received duty credit entitlement certificate issued by Director General of Foreign Trade (DGFT) under Served from India Scheme (SFIS) aggregating Rs. 30,797 thousands and Rs.18,781 thousands respectively from a related party for Rs. Nil. However, the relationship with YoBoHo New Media Private Limited ceased w.e.f April 1, 2016, the Group has received Rs 18,781 thousands in FY 2015-16 in the similar capacity and thus the same accounting is followed.
SMAAASH Entertainment Private Limited(Amounts in thousands of Indian Rupee (INR), unless otherwise stated)
ii). Details of related party closing balances | (Rs. in Thousands) | ||
As at March 31, 2017 | As at March 31, 2016 | As at April 1, 2015 | |
Aha Holdings Private Limited | |||
Short term borrowings payable | 12,420 | 56,578 | — |
Short term loan given | — | — | — |
Capital advance | — | 30,000 | — |
Lifestyle Networks Limited | |||
Trade payables | — | — | 492 |
iii). Compensation of key managerial personnel
The remuneration of directors and other members of key managerial personnel during the year was as follows: | (Rs. in Thousands) | |
Particulars | For the year ended March 31, 2017 | For the year ended March 31, 2016 |
Short-term employee benefits | 8,249 | 10,919 |
Termination benefits | — | — |
Total | 8,249 | 10,919 |
Sitting Fee paid to Independent directors | — | 300 |
The remuneration of directors and key executives is determined by the remuneration committee having regard to the performance of individuals and market trends. As the liabilities for defined benefit plan are provided on actuarial basis for the Group as a whole, the amount pertaining to key managerial persons are not included.
iv). Guarantees and mortgages
The Group has taken various loans from banks, financial institutions and others. Various related parties has provided guarantees and mortgages to the banks, financial institutions and others on behalf of the Group. Refer note 20 for detail description of guarantees and mortgages provided by related parties.
SMAAASH Entertainment Private Limited(Amounts in thousands of Indian Rupee (INR), unless otherwise stated)
Smaaash Entertainment Private Limited
Notes to consolidated financial statements for the period ended March 31, 2017 and 2016
Note 39 - Segment information
39.1 Products and services from which reportable segments derive their revenues
Information reported to the chief operating decision maker (CODM) for the purposes of resource allocation and assessment of segment performance focuses on the types of goods or services delivered or provided, and in respect of the ‘India’ and ‘America’. The directors of the Company have chosen to organise the Group around differences in areas where products and services are delivered or provided. No operating segments have been aggregated in arriving at the reportable segments of the Group.
Specifically, the Group ‘s reportable segments under IFRS 8 are as follows:
- Good and services provided in India
- Good and services provided in America
39.2 Segment revenues and results
The following is an analysis of the Group’s revenue and results from continuing operations by reportable segment.
(Rs. in Thousands) | ||
Particulars | Segment revenue | |
For the year ended March 31, 2017 | For the year ended March 31, 2016 | |
Good and services provided | ||
- India | 1,008,363.34 | 545,690 |
- United States of America | 140,227.04 | — |
Total for continuing operations | 1,148,590.38 | 545,690 |
Segment profit | ||
Good and services provided | ||
- India | (358,705.92) | (244,840.02) |
- United States of America | 5,807.00 | — |
Loss before tax (continuing operations) | (352,898.93) | (244,840.02) |
Segment revenue reported above represents revenue generated from external customers. The intersegment services provided for the year ended March 31, 2017: Rs. 6,484 thousands (for the year ended March 31, 2015: Nil).
The accounting policies of the reportable segments are the same as the Group’s accounting policies described in note 3. Segment profit represents the profit before tax earned by each segment without allocation of other income, central administration unallocated expenses, as well as finance costs and depreciation and amortisation. This is the measure reported to the chief operating decision maker for the purposes of resource allocation and assessment of segment performance.
SMAAASH Entertainment Private Limited(Amounts in thousands of Indian Rupee (INR), unless otherwise stated)
39.3 Segment assets and liabilities | |||
(Rs. in Thousands) | |||
Particulars | As at March 31, 2017 | As at March 31, 2016 | As at April 1, 2015 |
Segment assets | |||
- India | 2,492,169 | 2,042,337 | 1,097,851 |
- USA | 708,920 | — | — |
Consolidated total assets | 3,201,089 | 2,042,337 | 1,097,851 |
Segment liabilities | |||
- India | 2,325,683 | 1,167,184 | 237,197 |
- USA | 51,487 | — | — |
Consolidated total liabilities | 2,377,170 | 1,167,184 | 237,197 |
39.4 Other segment information | ||
(Rs. in Thousands) | ||
Particulars | Depreciation and amortisation | |
For the year ended March 31, 2017 | For the year ended March 31, 2016 | |
India | 271,945 | 161,203 |
USA | 26,416 | — |
Total | 298,361 | 161,203 |
Additions to non-current assets | ||
India | 243,087 | 666,537 |
USA | 677,796 | — |
Total | 920,882 | 666,537 |
* Non-current assets includes assets other than financial instruments, deferred tax assets and post-employment benefit assets.
39.5 Geographical information | |||
The Group’s information about its non-current assets by location of assets are detailed below. | |||
Particulars | Non-current assets* | ||
As at March 31, 2017 | As at March 31, 2016 | As at April 1, 2015 | |
Indian | 1,692,330 | 1,449,244 | 782,707 |
USA | 677,796 | — | — |
Total | 2,370,126 | 1,449,244 | 782,707 |
* Non-current assets includes assets other than financial instruments, deferred tax assets and post-employment benefit assets.
SMAAASH Entertainment Private Limited(Amounts in thousands of Indian Rupee (INR), unless otherwise stated)
39.6 Information about major customers
No other single customers contributed 10% or more to the Group’s revenue for the nine months ended for year ended March 31, 2017 and 2016.
Note 40 - Leases
Operating Lease
i) The Group has entered into operating lease arrangements for commercial premises and godowns at various locations. The leases are non-cancellable and are for period as specified in the agreement and may be renewed based on mutual agreement of the parties.
(Rs. in Thousands) | |||
Particulars | As at March 31, 2017 | As at March 31, 2016 | As at April 1, 2015 |
i). Future Non-Cancellable minimum lease commitments | |||
a) not later than one year | 146,301 | 58,054 | 116,178 |
b) later than one year and not later than five years | 522,263 | 192,773 | 139,367 |
c) later than five years | 501,948 | — | — |
ii) Expenses recognised in the Statement of Profit and Loss | |||
a) Minimum Lease Payments | 43,528 | 24,742 | 90,623 |
41.2 Capital Commitments: | (Rs. in Thousands) | ||
Particulars | As at March 31, 2017 | As at March 31, 2016 | As at April 1, 2015 |
Estimated amount of contracts remaining to be executed on capital account and not provided for | 7,582 | 43,446 | 94,875 |
SMAAASH Entertainment Private Limited(Amounts in thousands of Indian Rupee (INR), unless otherwise stated)
Smaaash Entertainment Private Limited
Notes to consolidated financial statements for the period ended March 31, 2017, 2016 and April 1, 2015
Note No. 42 - Events occurring after the balance sheet date
SMAAASH Entertainment Private Limited(Amounts in thousands of Indian Rupee (INR), unless otherwise stated)
SMAAASH Entertainment Private Limited(Amounts in thousands of Indian Rupee (INR), unless otherwise stated)
Smaaash Entertainment Private Limited | ||||
Notes to consolidated financial statements for the period ended 31st March, 2017 | ||||
Note No. 43 - First-time adoption of IFRS | ||||
First time IFRS adoption reconciliations | ||||
(i) Reconciliation of total equity as at March 31, 2017 and April 1, 2015: | (Rs. in thousands) | |||
Particulars | Notes | As at March 31, 2017 | As at March 31, 2016 | As at April 1, 2015 |
Equity as reported under previous GAAP | 806,401 | 735,939 | 811,123 | |
IFRS Adjustments: | ||||
Fair valuation of mutual funds | (a) | 239 | 1,195 | — |
Unwinding of discount on security deposits given | (b) | (2,399) | (1,320) | (939) |
Effect of measurement of financial liabilities at amortised cost as per effective interest rate method | (c) | 18,225 | 24,558 | 11,313 |
Optional convertible preference shares classified as liability under IFRS | (d) | (212,663) | — | — |
Remeasurement of property, plant and equipments as per IAS 16 | (e) | (15,587) | (17,986) | (21,030) |
Bonus points measured at fair value | (f) | (2,538) | 4,489 | 2,441 |
Unwinding of discount on security deposits received | (g) | 55 | — | — |
Government grant recognised under IAS 20 | (h) | (817) | (304) | |
Deferred tax created using balance sheet approach | (i) | 233,385 | 128,579 | 57,749 |
Total adjustments | 17,899 | 139,211 | 49,533 | |
Total equity as per IFRS | 824,300 | 875,150 | 860,655 |
SMAAASH Entertainment Private Limited(Amounts in thousands of Indian Rupee (INR), unless otherwise stated)
(ii) Reconciliation of consolidated total comprehensive income for the year ended 31 March 2017 and 31 March 2016. | (Rs. in thousands) | ||
Particulars | Notes | For the year ended March 31, 2017 | For the year ended March 31, 2016 |
Loss as per previous INDIAN GAAP | (357,049) | (263,738) | |
IFRS Adjustments: | |||
Fair valuation of mutual funds | (a) | (956) | 1,195 |
Unwinding of discount on security deposits given | (b) | (1,078) | (381) |
Effect of measurement of financial liabilities at amortised cost as per effective interest rate method | (c) | (6,341) | 13,250 |
Remeasurement of property, plant and equipments as per IAS 16 | (e) | 2,399 | 3,044 |
Bonus points measured at fair value | (f) | (7,028) | 2,048 |
Unwinding of discount on security deposits received | (g) | 55 | |
Expenses related to issue of share and increase of authorised capital debited to security premium | (j) | 4,509 | 2,868 |
Benefits received are recorded at fair value | (k) | — | (18,781) |
Actuarial (gain) /loss on defined benefit plan | (l) | (2,646) | 208 |
Government grant recognised under IAS 20 | (h) | (513) | (304) |
Deferred tax created using balance sheet approach | (i) | 105,628 | 70,766 |
Total effect of transition to IFRS | 94,031 | 73,913 | |
Profit or loss under IFRS | (263,018) | (189,825) | |
Other comprehensive income (net of tax) | (17,299) | (144) | |
Total comprehensive income as per IFRS | (280,318) | (189,969) | |
Note: Under previous Indian GAAP, total comprehensive income was not reported. Therefore, the above reconciliation starts with profit under the previous Indian GAAP. |
SMAAASH Entertainment Private Limited(Amounts in thousands of Indian Rupee (INR), unless otherwise stated)
(iii) Effect of IFRS adoption on the consolidated statement of cash flows | (Rs. in thousands) | |||
Particulars | Cash flows as per previous Indian GAAP | IFRS Adjustments | Cash flows as per IFRS | |
Year ended March 31, 2017 | ||||
Net cash flows from operating activities | 186,291 | (15,112) | 171,179 | |
Net cash flows from investing activities | (1,172,725) | 19,833 | (1,152,892) | |
Net cash flows from financing activities | 1,095,334 | (4,721) | 1,090,613 | |
Net increase (decrease) in cash and cash equivalents | 108,900 | (0) | 108,900 | |
Cash and cash equivalents at beginning of period | 24,629 | (1) | 24,628 | |
Cash and cash equivalents at end of period | 133,529 | (1) | 133,528 | |
Year ended March 31, 2016 | ||||
Net cash flows from operating activities | (78,958) | (3,727) | (82,685) | |
Net cash flows from investing activities | (860,655) | 6,701 | (853,954) | |
Net cash flows from financing activities | 926,382 | (2,974) | 923,408 | |
Net increase (decrease) in cash and cash equivalents | (13,231) | (0) | (13,231) | |
Cash and cash equivalents at beginning of period | 37,860 | (0) | 37,860 | |
Cash and cash equivalents at end of period | 24,629 | (1) | 24,628 | |
SMAAASH Entertainment Private LimitedNotes to unaudited consolidated interim financial statements(Amounts in thousands of Indian Rupee (INR), unless otherwise stated)
SMAAASH Entertainment Private LimitedNotes to unaudited consolidated interim financial statements(Amounts in thousands of Indian Rupee (INR), unless otherwise stated)
SMAAASH PRIVATE ENTERTAINMENT LIMITED
INDEX TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
F-79
SMAAASH Entertainment Private Limited(Amounts in thousands of Indian Rupee (INR), unless otherwise stated)
Smaaash Entertainment Private Limited
Unaudited consolidated statement of financial position at December 31, 2017 and 2016
(Rs. in Thousands) | ||||||
Particulars | Notes | As at December 31, 2017 | As at December 31, 2016 | |||
Assets | ||||||
I | Non-current assets | |||||
(a) | Property, plant and equipment | 6 | 3,040,706 | 1,433,591 | ||
(b) | Capital work-in-progress | 6 | 248,986 | 364,797 | ||
(c) | Goodwill | 7 | 13,604 | — | ||
(d) | Other intangible assets | 8 | 483,665 | 207,806 | ||
(e) | Intangible assets under development | 67,416 | 4,586 | |||
(f) | Investments | 9 | 30 | 20 | ||
(g) | Deferred tax assets (net) | 10 | 381,150 | 202,000 | ||
(h) | Other financial assets | 11 | 252,886 | 132,322 | ||
(i) | Other non-current assets | 12 | 252,321 | 112,150 | ||
Total non-current assets | 4,740,764 | 2,457,272 | ||||
II | Current assets | |||||
(a) | Inventories | 13 | 182,859 | 75,564 | ||
(b) | Investments | 9 | 17,676 | 19,232 | ||
(c) | Trade receivables | 14 | 94,101 | 44,218 | ||
(d) | Cash and bank balances | 15 | 170,316 | 239,313 | ||
(e) | Loans | 16 | 581 | 748 | ||
(f) | Other financial assets | 11 | 72,735 | 70,055 | ||
(g) | Current tax assets (net) | 17 | 16,349 | 5,445 | ||
(h) | Other current assets | 12 | 270,185 | 220,818 | ||
Total current assets | 824,802 | 675,393 | ||||
Total assets | 5,565,566 | 3,132,665 | ||||
Equity and liabilities | ||||||
Capital and reserves | ||||||
(a) | Issued capital and share premium | 18 | 3,186,239 | 1,747,997 | ||
(b) | Other reserves | 19 | 28,618 | 40,558 | ||
(c) | Accumulated Deficit | 20 | (1,317,055) | (902,378) | ||
Total equity | 1,897,799 | 886,177 | ||||
Liabilities | ||||||
I | Non-current liabilities | |||||
(a) | Borrowings | 21 | 2,516,223 | 1,642,205 | ||
(b) | Other financial liabilities | 22 | 204,235 | 43,585 | ||
(c) | Provisions | 23 | 2,936 | 1,077 | ||
(d) | Other non-current liabilities | 24 | 8,697 | 8,592 | ||
Total non-current liabilities | 2,732,091 | 1,695,459 | ||||
II | Current liabilities | |||||
(a) | Borrowings | 21 | 302,969 | 262,228 | ||
(b) | Trade payables | 25 | 281,024 | 213,447 | ||
(c) | Other financial liabilities | 22 | 207,467 | 23,188 | ||
(d) | Provisions | 23 | 19,085 | 6,381 | ||
(e) | Other current liabilities | 24 | 125,128 | 45,785 | ||
Total current liabilities | 935,673 | 551,029 | ||||
Total equity and liabilities | 5,565,566 | 3,132,665 | ||||
See accompanying notes to these unaudited consolidated financial statements |
SMAAASH Entertainment Private Limited(Amounts in thousands of Indian Rupee (INR), unless otherwise stated)
Smaaash Entertainment Private Limited
Unaudited consolidated statement of profit or loss and other comprehensive loss for the period ended December 31, 2017 and 2016
(Rs. in Thousands) | |||||
Particulars | Notes | For 9 months ended December 31, 2017 | For 9 months ended December 31, 2016 | ||
I | Revenue from operations | 26 | 1,232,783 | 655,277 | |
II | Product sales | 211,815 | 96,662 | ||
III | Other income | 27 | 16,129 | 5,132 | |
III | Total revenue | 1,460,727 | 757,071 | ||
IV | Expenses | ||||
(a) | Cost of material consumed | 28 | 169,709 | 89,923 | |
(b) | Purchase of stock-in-trade | 233,121 | 77,693 | ||
(c) | Change in inventories of stock-in-trade | 29 | (57,931) | (14,825) | |
(d) | Employee benefit expense | 30 | 281,402 | 160,326 | |
(e) | Finance costs | 31 | 338,467 | 153,006 | |
(f) | Depreciation and amortisation expense | 6&8 | 381,301 | 203,143 | |
(g) | Other expenses | 32 | 617,234 | 364,457 | |
Total expenses | 1,963,303 | 1,033,723 | |||
Loss from Operations | (502,576) | (276,652) | |||
Impairment of Leasehold Improvements | 33 | 15,871 | — | ||
V | Loss before tax (III - IV) | (518,447) | (276,652) | ||
VI | Tax expense | ||||
(1) | Current tax | 34 | (1,083) | — | |
(2) | Deferred tax | 34 | (154,048) | (72,085) | |
Total tax expense | (155,131) | (72,085) | |||
VII | Loss for the period from continuing operations (V - VI) | (363,316) | (204,567) | ||
VIII | Profit (Loss) from discontinued operations before tax | 44 | 131 | (8,412) | |
IX | Tax expense of discontinued operations | — | (1,952) | ||
X | Loss from discontinued operations after tax (VIII - IX) | 131 | (6,460) | ||
XI | Loss for the period (VII + X) | (363,185) | (211,027) | ||
XII | Other comprehensive loss | ||||
A | Items that will not be reclassified subsequently to profit or loss: | ||||
Remeasurements of the defined benefit plans | 60 | 1,984 | |||
Income tax relating to items that will not be reclassified subsequently to profit or loss | (19) | (613) | |||
B | Items that may be reclassified subsequently to profit or loss: | ||||
Exchange differences on translating foreign subsidiary | (1,833) | (9,020) | |||
Total other comprehensive loss | (1,792) | (7,649) | |||
XIII | Total comprehensive loss for the period (XI + XII) | (364,977) | (218,676) | ||
XIV | Total comprehensive loss for the period attributable to: | ||||
Owners of the Company | (364,977) | (218,676) | |||
Non-controlling interests | — | — | |||
See accompanying notes to these unaudited consolidated financial statements |
F-81
SMAAASH Entertainment Private Limited
(Amounts in thousands of Indian Rupee (INR), unless otherwise stated)
Smaaash Entertainment Private Limited
Unaudited consolidated statement of changes in equity for the period ended December 31, 2017 and 2016
(Rs. in Thousands) | ||
Particulars | Number of shares | Equity share capital |
As at April 1, 2016 | 14,849,740 | 1,148,497 |
Issue of shares | 23,397,500 | 233,975 |
As at December 31, 2016 | 138,247,240 | 1,382,472 |
As at April 1, 2017 | 138,247,240 | 1,382,472 |
Issue of shares | 26,221,451 | 262,215 |
Conversion of optional convertible preference shares into equity shares | 21,266,288 | 212,663 |
As at December 31, 2017 | 185,734,979 | 1,857,350 |
(Rs. in Thousands) | ||
Particulars | Number of Shares | Equity share capital |
As at April 1, 2016 | — | — |
Issue of shares | — | — |
As at December 31, 2016 | — | — |
As at April 1, 2017 | — | — |
Issue of shares | 26,133,933 | 261,339 |
As at December 31, 2017 | 26,133,933 | 261,339 |
(Rs. in Thousands)
Securities premium reserve | Foreign Currency Translation Reserve | Contribution from promotors/ shareholders | Accumulated deficit | Total | |
As at April 1, 2016 | 369,800 | — | 49,578 | (692,721) | (273,343) |
Addition during the year | — | — | — | — | — |
Utilised during the year towards share issue expenses | (4,275) | (9,020) | — | — | (13,295) |
Total comprehensive income for the year | — | ||||
- Loss for the year | — | — | — | (211,027) | (211,027) |
- Other comprehensive income arising from remeasurement of defined benefit obligation net of income tax | — | — | — | 1,371 | 1,371 |
As at December 31, 2016 | 365,525 | (9,020) | 49,578 | (902,377) | (496,294) |
Securities premium reserve | Foreign Currency Translation Reserve | Contribution from promotors/ shareholders | Accumulated deficit | Total | |
As at April 1, 2017 | 365,291 | (19,127) | 49,578 | (953,912) | (558,171) |
Addition during the period | 729,659 | (1,833) | — | — | 727,826 |
Utilised during the period towards share issue expenses | (27,400) | — | — | — | (27,400) |
Total comprehensive income for the period | — | ||||
- Loss for the period | — | — | — | (363,185) | (363,185) |
- Other comprehensive income arising from remeasurement of defined benefit obligation net of income tax | — | — | — | 41 | 41 |
As at December 31, 2017 | 1,067,550 | (20,960) | 49,578 | (1,317,056) | (220,888) |
See accompanying notes to these unaudited consolidated financial statements
F-82
SMAAASH Entertainment Private Limited
(Amounts in thousands of Indian Rupee (INR), unless otherwise stated)
Smaaash Entertainment Private Limited
Unaudited consolidated statement of cash flows for the period ended December 31, 2017 and 2016
(Rs. in Thousands)
Particulars | For 9 months ended December 31, 2017 | For 9 months ended December 31, 2016 | |
A. | Cash flows from operating activities | ||
Consolidated loss before tax for the year | (518,316) | (285,063) | |
Adjustments for: | |||
Loss on disposal of property, plant and equipment | 25,014 | 139 | |
Provision for expected credit loss recognised on trade receivables | (504) | (315) | |
Bad debts | — | ||
Provision for doubtful advances | 1,198 | — | |
Depreciation and amortisation of non-current assets | 381,300 | 203,143 | |
Depreciation and amortisation of non-current assets (Discontinued) | — | 2,094 | |
Finance Charges | 337,992 | 152,732 | |
Other interest expenses | 474 | 274 | |
Net gain/(loss) arising on financial assets carried at FVTPL | (1,643) | (6,646) | |
Net gain/(loss) arising on financial liabilities carried at amortised cost | 9,028 | 12,337 | |
Unwinding of security deposits | (6,858) | (8,855) | |
Lease rent adjustment | 6,813 | 9,933 | |
Interest Income | (2,268) | (1,929) | |
Remeasurements of the defined benefit plans- gains/(losses) | 60 | 1,984 | |
Operating profit before working capital changes | 232,290 | 79,828 | |
Movements in working capital: | |||
Increase in trade and other receivables | (284,685) | (114,047) | |
(Increase) / decrease in inventories | (107,356) | (35,266) | |
(Increase) / decrease in trade receivables | (68,748) | (31,802) | |
Increase / (decrease) in provisions | 15,091 | 1,857 | |
Increase / (decrease) in trade payables | 149,916 | 131,330 | |
Increase / (decrease) in other payables | 46,263 | 1,192 | |
Increase / (decrease) in temporary overdrawn bank balance | 14,901 | — | |
Increase / (decrease) Other reserves | (1,833) | (9,019) | |
Cash generated from operations | (4,161) | 24,073 | |
Income taxes (paid) / refund | (9,068) | 8 | |
Net cash generated by/(used in) operating activities | (13,229) | 24,081 | |
B. | Cash flows from investing activities | ||
Net proceeds from investments in mutual funds and others | 10,722 | 52,609 | |
Interest income | 2,268 | 1,929 | |
Payments for property, plant and equipment | (1,977,679) | (900,185) | |
Proceeds from disposal of property, plant and equipment | 2,158 | 106 | |
Net cash used in investing activities | (1,962,531) | (845,541) | |
C. | Cash flows from financing activities | ||
Interest paid | (442,920) | (147,222) | |
Repayment of borrowings | (1,688,759) | (961,933) | |
Proceeds of borrowings | 2,705,750 | 1,915,600 | |
Issue of Share Capital | 736,217 | 233,975 | |
Share premium received (net of share issue expenses) | 702,259 | (4,275) | |
Net cash generated by financing activities | 2,012,547 | 1,036,145 | |
Net increase in cash and cash equivalents (A+B+C) | 36,787 | 214,684 | |
Cash and cash equivalents at the beginning of the year | 133,529 | 24,629 | |
Cash and cash equivalents at the end of the year | 170,316 | 239,313 | |
Components of cash and cash equivalents | |||
Cash / Cheques on hand | 84,001 | 13,550 | |
With Banks - on Current account/Balance in Cash Credit Accounts | 86,315 | 225,763 | |
170,316 | 239,313 | ||
Notes :
See accompanying notes to these unaudited consolidated financial statements
SMAAASH Entertainment Private Limited
Notes to unaudited consolidated interim financial statements
(Amounts in thousands of Indian Rupee (INR), unless otherwise stated)
General information
Smaaash Entertainment Private Limited (‘Smaaash’ or the ‘Company’) was incorporated as a private limited company in India on November 30, 2009. The Company is engaged in the business of operating entertainment centers. Smaaash presents a various range of games that offer a superlative virtual-reality experience and combines the best of sports, music and dining into a highly immersive, interactive, innovative and involved entertainment experience. The Company also involved in the Product sales i.e. sale of in-house developed games with the help of innovative ideas and cutting edge technology.
The address of its registered office is 2nd Floor, Trade wing building, Oasis complex, P B Marg, Lower Parel, Mumbai 400 013 and principal place of business is Mumbai, India.
Basis of preparation and significant accounting policies
The financial statements of the Company, entities controlled by the Company and its subsidiaries (together ‘the Group’) have been prepared in accordance with International Financial Reporting Standards (‘IFRS’).
These consolidated financial statements were approved by the Board of Directors onMay 15, 2018.
The aforesaid consolidated financial statement have been prepared in Indian Rupee (INR) and denominated in Thousands.
These consolidated financial statements have been prepared and presented on the historical cost basis except for certain financial instruments that are measured at fair values at the end of each reporting period, as explained in the accounting policies below.
Historical cost is generally based on the fair value of the consideration given in exchange for goods and services.
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, regardless of whether that price is directly observable or estimated using another valuation technique. In estimating the fair value of an asset or a liability, the Group takes into account the characteristics of the asset or liability if market participants would take those characteristics into account when pricing the asset or liability at the measurement date. Fair value for measurement and/or disclosure purposes in these consolidated financial statement is determined on such a basis, except for leasing transactions that are within the scope of IAS 17, and measurements that have some similarities to fair value but are not fair value, such as net realisable value in IAS 2 or value in use in IAS 36.
In addition, for financial reporting purposes, fair value measurements are categorised into Level 1, 2 or 3 based on the degree to which the inputs to the fair value measurements are observable and the significance of the inputs to the fair value measurement in its entirety, which are described as follows:
The consolidated balance sheet presents current and non-current assets, and current and non-current liabilities, as separate classifications. For this purpose, an asset is classified as current if:
SMAAASH Entertainment Private Limited
Notes to unaudited consolidated interim financial statements
(Amounts in thousands of Indian Rupee (INR), unless otherwise stated)
All other assets are classified as non-current.
Similarly, a liability is classified as current if:
All other liabilities are classified as non-current.
The consolidated financial statements incorporated the financial statement of the Company and entities (including structured entities) controlled by the Company and its subsidiaries. Control is achieved when the Company:
The Company reassesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more of the three elements of control listed above.
When the Company has less than a majority of the voting rights of an investee, it has power over the investee when the voting rights are sufficient to give it the practical ability to direct the relevant activities of the investee unilaterally. The Company considers all relevant facts and circumstances in assessing whether or not the Company’s voting rights in an investee are sufficient to give it power, including:
Consolidation of a subsidiary begins when the Company obtains control over the subsidiary and ceases when the Company loses control of the subsidiary. Specifically, income and expenses of a subsidiary acquired or disposed of during the year are included in the consolidated statement of profit and loss from the date the Company gains control until the date when the Company ceases to control the subsidiary.
Profit or loss and each component of other comprehensive income are attributed to the owners of the Company and to the non-controlling interests. Total comprehensive income of subsidiaries is attributed to the owners of the Company and to the non-controlling interests even if this results in the non-controlling interests having a deficit balance.
When necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies into line with the Group’s accounting policies.
SMAAASH Entertainment Private Limited
Notes to unaudited consolidated interim financial statements
(Amounts in thousands of Indian Rupee (INR), unless otherwise stated)
All intragroup assets and liabilities, equity, income, expenses, and cash flows relating to transactions between members of the Group are eliminated in full on consolidation.
Revenue from rendering of services is measured at fair value of consideration received or receivable.
The outcome of a transaction is estimated reliably when all the following conditions are satisfied:
When the outcome of the transaction involving the rendering of services cannot be estimated reliably, revenue shall be recognised only to the extent of the expenses recognised that are recoverable.
Rendering of services include:
SMAAASH Entertainment Private Limited
Notes to unaudited consolidated interim financial statements
(Amounts in thousands of Indian Rupee (INR), unless otherwise stated)
Revenue from sale of goods is measured at fair value of the consideration received or receivable, net of returns and trade discounts and includes excise duty but excludes sales tax, value added tax and Goods and Service Tax (GST).
Revenue from sale of goods include:
The fair value of the consideration on gaming services that result in bonus point credits for customers, under the Group’s bonus point schemes, is allocated between the normal points supplied and the bonus point credit granted. The consideration allocated to the bonus point credits is measured by reference to fair value from the standpoint of the holder and is recognised as revenue on redemption and / or expected redemption after breakage.
Dividend income from investments is recognised when the shareholder’s right to receive payment has been established (provided that it is probable that the economic benefits will flow to the Group and the amount of income can be measured reliably).
Interest income from a financial asset is recognised when it is probable that the economic benefits will flow to the Group and the amount of income can be measured reliably. Interest income is accrued on a time basis, by reference to the principal outstanding and at the effective interest rate applicable, which is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset to that asset’s net carrying amount on initial recognition.
Acquisitions of businesses are accounted for using the acquisition method. The consideration transferred in a business combination is measured at fair value, which is calculated as the sum of the acquisition-date fair values of the assets transferred by the Group, liabilities incurred by the Group to the former owners of the acquiree and the equity interests (if any) issued in exchange of control of the acquiree. Acquisition-related costs are generally recognised in profit or loss as incurred.
At the acquisition date, the identifiable assets acquired and the liabilities assumed are recognised at their fair value, except that:
SMAAASH Entertainment Private Limited
Notes to unaudited consolidated interim financial statements
(Amounts in thousands of Indian Rupee (INR), unless otherwise stated)
Goodwill is measured as the excess of the sum of the consideration transferred, and the fair value of the acquirer’s previously held equity interest in the acquiree (if any) over the net of the acquisition-date amounts of the identifiable assets acquired and the liabilities assumed.
Goodwill represents the cost of acquired business as established at the date of acquisition of the business in excess of the acquirer’s interest in the net fair value of the identifiable assets, liabilities and contingent liabilities less accumulated impairment losses, if any. Goodwill is tested for impairment annually or when events or circumstances indicate that the implied fair value of goodwill is less than its carrying amount.
For the purposes of impairment testing, goodwill is allocated to each of the Group’s cash-generating units (or groups of cash-generating units) that is expected to benefit from the synergies of the combination.
A cash-generating unit to which goodwill has been allocated is tested for impairment annually, or more frequently when there is an indication that the unit may be impaired. If the recoverable amount of the cash-generating unit is less than its carrying amount, the impairment loss is allocated first to reduce the carrying amount of any goodwill allocated to the unit and then to the other assets of the unit pro rata based on the carrying amount of each asset in the unit. Any impairment loss for goodwill is recognised directly in profit or loss. An impairment loss recognised for goodwill is not reversed in subsequent periods.
On disposal of the relevant cash-generating unit, the attributable amount of goodwill is included in the determination of the profit or loss on disposal.
Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee. All other leases are classified as operating leases.
Finance leases are capitalised at the lease’s inception at the fair value of the leased property or, if lower, the present value of the minimum lease payments. The corresponding rental obligations, net of finance charges, are included in borrowings or other financial liabilities as appropriate. Each lease payment is allocated between the liability and finance cost. The finance cost is charged to the profit or loss over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period.
The Group’s significant operating leasing arrangements are in respect of office premises and godown at various locations. Rental expense from operating leases is generally recognised on a straight-line basis over the term of the relevant lease. Where the rentals are structured solely to increase in line with expected general inflation to compensate for the Group’s expected inflationary cost increases, such increases are recognised in the year in which such benefits accrue. Initial direct costs incurred in negotiating and arranging an operating lease are added to the carrying amount of the leased asset and recognised on a straight-line basis over the lease term.
Rental income from operating leases is generally recognised on a straight-line basis over the term of the relevant lease. Initial direct costs incurred in negotiating and arranging an operating lease are added to the carrying amount of the leased asset and recognised on a straight-line basis over the lease term.
SMAAASH Entertainment Private Limited
Notes to unaudited consolidated interim financial statements
(Amounts in thousands of Indian Rupee (INR), unless otherwise stated)
In preparing the financial statements of each individual group entity, transactions in currencies other than the entity’s functional currency (foreign currencies) are recognised at the rates of exchange prevailing at the dates of the transactions. At the end of each reporting period, monetary items denominated in foreign currencies are retranslated at the rates prevailing at that date. Non-monetary items carried at fair value that are denominated in foreign currencies are retranslated at the rates prevailing at the date when the fair value was determined. Non-monetary items that are measured in terms of historical cost in a foreign currency are not retranslated.
Exchange differences on monetary items are recognised in profit or loss in the period in which they arise.
For the purposes of presenting these consolidated financial statements, the assets and liabilities of the Group’s foreign subsidiary are translated into Indian Rupees (INR) using exchange rates prevailing at the end of each reporting period. Income and expense items are translated at the average exchange rates for the period, unless exchange rates fluctuate significantly during that period, in which case the exchange rates at the dates of the transactions are used. Exchange differences arising, if any, are recognised in other comprehensive income and accumulated in equity.
Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, which are assets that necessarily take a substantial period of time to get ready for their intended use or sale, are added to the cost of those assets, until such time as the assets are substantially ready for their intended use or sale.
All other borrowing costs are recognised in profit or loss in the period in which they are incurred.
Government grants are not recognised until there is reasonable assurance that the Group will comply with the conditions attaching to them and that the grants will be received.
Government grants are recognised in profit or loss on a systematic basis over the periods in which the Group recognises as expenses the related costs for which the grants are intended to compensate. Specifically, government grants whose primary condition is that the Group should purchase, construct or otherwise acquire non-current assets are recognised as deferred revenue in the consolidated statement of financial position and transferred to profit or loss on a systematic and rational basis.
Government grants that are receivable as compensation for expenses or losses already incurred or for the purpose of giving immediate financial support to the Group with no future related costs are recognised in profit or loss in the period in which they become receivable.
Non-current assets and disposal groups are classified as held for sale if their carrying amount will be recovered principally through a sale transaction rather than through continuing use. This condition is regarded as met only when the asset (or disposal group) is available for immediate sale in its present condition subject only to terms that are usual and customary for sales of such asset (or disposal group) and its sale is highly probable. Management must be committed to the sale, which should be expected to qualify for recognition as a completed sale within one year from the date of classification.
Non-current assets (and disposal groups) classified as held for sale are measured at the lower of their carrying amount and fair value less costs to sell.
SMAAASH Entertainment Private Limited
Notes to unaudited consolidated interim financial statements
(Amounts in thousands of Indian Rupee (INR), unless otherwise stated)
Employee benefits include provident fund, employee state insurance scheme, gratuity fund and compensated absences.
Payments to defined contribution retirement benefit plans are recognised as an expense when employees have rendered service entitling them to the contributions.
For defined retirement benefit plans, the cost of providing benefits is determined using the projected unit credit method, with actuarial valuations being carried out at the end of each annual reporting period. Re-measurement, comprising actuarial gains and losses, the effect of the changes to the asset ceiling (if applicable) and the return on plan assets (excluding net interest), is reflected immediately in the Statement of Financial Position with a charge or credit recognised in other comprehensive loss in the period in which they occur. Remeasurement recognised in other comprehensive loss is reflected immediately in Accumulated Deficit and is not reclassified to profit or loss. Past service cost is recognised in profit or loss in the period of a plan amendment. Net interest is calculated by applying the discount rate at the beginning of the period to the net defined benefit liability or asset. Defined benefit costs are categorised as follows:
The Group presents the first two components of defined benefit costs in profit or loss in the line item ‘Employee benefits expense’. Curtailment gains and losses are accounted for as past service costs.
The present value of the defined benefit plan liability is calculated using a discount rate, which is determined by reference to market yields at the end of the reporting period on government bonds.
The retirement benefit obligation recognised in the balance sheet represents the actual deficit or surplus in the Group’s defined benefit plans. Any surplus resulting from this calculation is limited to the present value of any economic benefits available in the form of refunds from the plans or reductions in future contributions to the plans.
A liability for a termination benefit is recognised at the earlier of when the entity can no longer withdraw the offer of the termination benefit and when the entity recognises any related restructuring costs.
“A liability is recognised for benefits accruing to employees in respect of salaries, wages and other short term employee benefits in the period the related service is rendered at the undiscounted amount of the benefits expected to be paid in exchange for that service.
Provision for leave benefits to employees is based on actuarial valuation done by projected accrued benefit method at the reporting date.
Income tax expense represents the sum of the tax currently payable and deferred tax.
The tax currently payable is based on taxable profit for the year. Taxable profit differs from ‘profit before tax’ as reported in the statement of profit and loss because of items of income or expense that are taxable or deductible in other years and items that are never taxable or deductible. The Group’s current tax is calculated using tax rates that have been enacted or substantively enacted by the end of the reporting period.
SMAAASH Entertainment Private Limited
Notes to unaudited consolidated interim financial statements
(Amounts in thousands of Indian Rupee (INR), unless otherwise stated)
Deferred tax is recognised on temporary differences between the carrying amounts of assets and liabilities in the consolidated financial statement and the corresponding tax bases used in the computation of taxable profit. Deferred tax liabilities are generally recognised for all taxable temporary differences. Deferred tax assets are generally recognised for all deductible temporary differences to the extent that it is probable that taxable profits will be available against which those deductible temporary differences can be utilised. Such deferred tax assets and liabilities are not recognised if the temporary difference arises from the initial recognition (other than in a business combination) of assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit. In addition, deferred tax liabilities are not recognised if the temporary difference arises from the initial recognition of goodwill.
Deferred tax liabilities are recognised for taxable temporary differences associated with investments in subsidiaries and associates, and interests in joint ventures, except where the Group is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future. Deferred tax assets arising from deductible temporary differences associated with such investments and interests are only recognised to the extent that it is probable that there will be sufficient taxable profits against which to utilise the benefits of the temporary differences and they are expected to reverse in the foreseeable future.
The carrying amount of deferred tax assets is reviewed at the end of each reporting period and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered.
Deferred tax liabilities and assets are measured at the tax rates that are expected to apply in the period in which the liability is settled or the asset realised, based on tax rates (and tax laws) that have been enacted or substantively enacted by the end of the reporting period.
The measurement of deferred tax liabilities and assets reflects the tax consequences that would follow from the manner in which the Group expects, at the end of the reporting period, to recover or settle the carrying amount of its assets and liabilities.
Minimum alternate tax (MAT) paid in a year is charged to Consolidated statement of profit and loss as current tax. The Group recognizes MAT credit available as an asset only to the extent that there is convincing evidence that the Group will pay normal income tax during the specified period i.e. the period for which MAT credit is allowed to be carried forward. In the year in which the Group recognizes MAT credit as an asset in accordance with the Guidance note on Accounting for Credit available in respect of Minimum Alternate Tax under the Income tax Act, 1961, the said asset is created by way of credit to the consolidated statement of profit and loss and shown as “MAT Credit Entitlement” under the deferred tax assets. The Group reviews the “MAT Credit Entitlement” asset at each reporting date and writes down the asset to the extent the Group does not have convincing evidence that it will pay normal tax during the specified period.
Current and deferred tax are recognised in profit or loss, except when they relate to items that are recognised in other comprehensive loss or directly in equity, in which case, the current and deferred tax are also recognised in other comprehensive loss or directly in equity respectively. Where current tax or deferred tax arises from the initial accounting for a business combination, the tax effect is included in the accounting for the business combination.
SMAAASH Entertainment Private Limited
Notes to unaudited consolidated interim financial statements
(Amounts in thousands of Indian Rupee (INR), unless otherwise stated)
Property, plant and equipment held for use in the production or supply of goods or services, or for administrative purposes, are stated in the balance sheet at their cost less accumulated depreciation and accumulated impairment losses. The cost of property, plant and equipments includes freight, duties, taxes (to the extent not recoverable from tax authorities) and any directly attributable expenditure for making the assets ready for its intended use. It also includes initial estimate of the costs of dismantling and removing the item and restoring the site on which it is located. Replacement cost of an item of property, plant and equipment is capitalised if replacement meets the recognition criteria.
Depreciation is recognised so as to write off the cost or valuation of assets less their residual values over their useful lives, using the straight-line method. The estimated useful lives, residual values and depreciation method are reviewed at the end of each reporting period, with the effect of any changes in estimate accounted for on a prospective basis.
Estimated useful lives of the assets are as follows:
Leasehold Improvements are amortized over the unexpired period of lease on a straight-line basis.
Individual assets costing upto Rs.5,000 are depreciated at the rate of 100% prorata over a period of one year from the date of purchase.
Estimates of residual value of Property, plant and equipment is reviewed at least at each year-end.
An item of property, plant and equipment is derecognised upon disposal or when no future economic benefits are expected to arise from the continued use of the asset. Any gain or loss arising on the disposal or retirement of an item of property, plant and equipment is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognised in profit or loss.
Projects under Property plant and equipment are not yet ready for their intended use are carried at cost, comprising direct cost, related incidental expenses and attributable interest.
Intangible assets with finite useful lives that are acquired separately are carried at cost less accumulated amortisation and accumulated impairment losses. Amortisation is recognised on a straight-line basis over their estimated useful lives. The estimated useful life and amortisation method are reviewed at the end of each reporting period, with the effect of any changes in estimate being accounted for on a prospective basis. Intangible assets with indefinite useful lives that are acquired separately are carried at cost less accumulated impairment losses.
SMAAASH Entertainment Private Limited
Notes to unaudited consolidated interim financial statements
(Amounts in thousands of Indian Rupee (INR), unless otherwise stated)
Estimated Useful life is as below:
An intangible asset is derecognised on disposal, or when no future economic benefits are expected from use or disposal. Gains or losses from derecognition of intangible assets, measured at the difference between the net disposal proceeds and the carrying amount of the assets, and are recognised in profit or loss when the asset is derecognised.
At the end of each reporting period, the Group reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). When it is not possible to estimate the recoverable amount of an individual asset, the Group estimates the recoverable amount of the cash-generating unit to which the asset belongs. When a reasonable and consistent basis of allocation can be identified, corporate assets are also allocated to individual cash-generating units, or otherwise they are allocated to the smallest group of cash-generating units for which a reasonable and consistent allocation basis can be identified.
Recoverable amount is the higher of fair value less costs of disposal and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted.
If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (or cash-generating unit) is reduced to its recoverable amount. An impairment loss is recognised immediately in profit or loss, unless the relevant asset is carried at a revalued amount, in which case the impairment loss is treated as a revaluation decrease.
When an impairment loss subsequently reverses, the carrying amount of the asset (or a cash-generating unit) is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset (or cash-generating unit) in prior years. A reversal of an impairment loss is recognised immediately in profit or loss.
Inventories are stated at the lower of cost and net realisable value. Net realisable value represents the estimated selling price for inventories less all estimated costs of completion and costs necessary to make the sale. Cost is determined on the basis of weighted average method.
Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable that the Group will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation.
The amount recognised as a provision is the best estimate of the consideration required to settle the present obligation at the end of the reporting period, taking into account the risks and uncertainties surrounding the obligation. When a provision is measured using the cash flows estimated to settle the present obligation, its carrying amount is the present value of those cash flows (when the effect of the time value of money is material).
SMAAASH Entertainment Private Limited
Notes to unaudited consolidated interim financial statements
(Amounts in thousands of Indian Rupee (INR), unless otherwise stated)
A Contingent Liability is disclosed where there is a possible obligation or a present obligation that may, but probably will not, require an outflow of resources. Contingent Assets are not recognised. Information on contingent liabilities is disclosed in the notes to consolidated financial statements unless the possibility of an outflow of resources embodying economic benefits is remote.
Financial assets and financial liabilities are recognised when an entity becomes a party to the contractual provisions of the instruments.
Financial assets and financial liabilities are initially measured at fair value. Transaction costs that are directly attributable to the acquisition or issue of financial assets and financial liabilities (other than financial assets and financial liabilities at fair value through profit or loss) are added to or deducted from the fair value of the financial assets or financial liabilities, as appropriate, on initial recognition. Transaction costs directly attributable to the acquisition of financial assets or financial liabilities at fair value through profit or loss are recognised immediately in profit or loss.
All regular way purchases or sales of financial assets are recognised and derecognised on a trade date basis. Regular way purchases or sales are purchases or sales of financial assets that require delivery of assets within the time frame established by regulation or convention in the marketplace.
All recognised financial assets are subsequently measured in their entirety at either amortised cost or fair value, depending on the classification of the financial assets.
Debt instruments that meet the following conditions are subsequently measured at amortised cost (except for debt instruments that are designated as at fair value through profit or loss on initial recognition):
Dividend on financial assets at FVTPL is recognised when the Group’s right to receive the dividends is established, it is probable that the economic benefits associated with the dividend will flow to the entity, the dividend does not represent a recovery of part of cost of the investment and the amount of dividend can be measured reliably.
Debt instruments that meet the following conditions are subsequently measured at fair value through other comprehensive loss (except for debt instruments that are designated as at fair value through profit or loss on initial recognition):
SMAAASH Entertainment Private Limited
Notes to unaudited consolidated interim financial statements
(Amounts in thousands of Indian Rupee (INR), unless otherwise stated)
Interest income is recognised in profit or loss for FVTOCI debt instruments. For the purposes of recognising foreign exchange gains and losses, FVTOCI debt instruments are treated as financial assets measured at amortised cost. Thus, the exchange differences on the amortised cost are recognised in profit or loss and other changes in the fair value of FVTOCI financial assets are recognised in other comprehensive loss and accumulated under the heading of ‘Reserve for debt instruments through other comprehensive income’. When the investment is disposed of, the cumulative gain or loss previously accumulated in this reserve is reclassified to profit or loss.
All other financial assets are subsequently measured at fair value.
For the impairment policy on financial assets measured at amortised cost, refer note 3.18.5.
The effective interest method is a method of calculating the amortised cost of a debt instrument and of allocating interest income over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash receipts (including all fees and points paid or received that form an integral part of the effective interest rate, transaction costs and other premiums or discounts) through the expected life of the debt instrument, or, where appropriate, a shorter period, to the net carrying amount on initial recognition.
Income is recognised on an effective interest basis for debt instruments other than those financial assets classified as at FVTPL. Interest income is recognised in profit or loss and is included in the “Other income” line item.
On initial recognition, the Group can make an irrevocable election (on an instrument-by-instrument basis) to present the subsequent changes in fair value in other comprehensive income. This election is not permitted if the equity investment is held for trading. These elected investments are initially measured at fair value plus transaction costs. Subsequently, they are measured at fair value with gains and losses arising from changes in fair value recognised in other comprehensive income and accumulated in the reserve for ‘equity instruments through other comprehensive income’. The cumulative gain or loss is not reclassified to profit or loss on disposal of the investments.
A financial asset is held for trading if:
Dividends on these investments in equity instruments are recognised in profit or loss when the Group’s right to receive the dividends is established, it is probable that the economic benefits associated with the dividend will flow to the entity, the dividend does not represent a recovery of part of cost of the investment and the amount of dividend can be measured reliably. Dividends recognised in profit or loss are included in the ‘Other income’ line item.
Investments in equity instruments are classified as at FVTPL, unless the Group irrevocably elects on initial recognition to present subsequent changes in fair value in other comprehensive income for equity instruments which are not held for trading.
A financial asset that meets the amortised cost criteria or debt instruments that meet the FVTOCI criteria may be designated as at FVTPL upon initial recognition if such designation eliminates or significantly reduces a measurement or recognition inconsistency that would arise from measuring assets or liabilities or recognising the gains and losses on them on different bases. The Group has not designated any debt instrument as at FVTPL.
SMAAASH Entertainment Private Limited
Notes to unaudited consolidated interim financial statements
(Amounts in thousands of Indian Rupee (INR), unless otherwise stated)
Financial assets at FVTPL are measured at fair value at the end of each reporting period, with any gains or losses arising on re-measurement recognised in profit or loss. The net gain or loss recognised in profit or loss is included in the ‘Other gains and losses’ line item.
The Group applies the expected credit loss model for recognising impairment loss on financial assets measured at amortised cost, lease receivables, trade receivables, other contractual rights to receive cash or other financial asset.
Expected credit losses are the weighted average of credit losses with the respective risks of default occurring as the weights. Credit loss is the difference between all contractual cash flows that are due to the Group in accordance with the contract and all the cash flows that the Group expects to receive (i.e. all cash shortfalls), discounted at the original effective interest rate (or credit-adjusted effective interest rate for purchased or originated credit-impaired financial assets). The Group estimates cash flows by considering all contractual terms of the financial instrument (for example, prepayment, extension, call and similar options) through the expected life of that financial instrument.
The Group measures the loss allowance for a financial instrument at an amount equal to the lifetime expected credit losses if the credit risk on that financial instrument has increased significantly since initial recognition. If the credit risk on a financial instrument has not increased significantly since initial recognition, the Group measures the loss allowance for that financial instrument at an amount equal to 12-month expected credit losses. 12-month expected credit losses are portion of the life-time expected credit losses and represent the lifetime cash shortfalls that will result if default occurs within the 12 months after the reporting date and thus, are not cash shortfalls that are predicted over the next 12 months.
The Group measures the loss allowance for a financial instrument at an amount equal to the lifetime expected credit losses if the credit risk on that financial instrument has increased significantly since initial recognition. If the credit risk on a financial instrument has not increased significantly since initial recognition, the Group measures the loss allowance for that financial instrument at an amount equal to 12-month expected credit losses.
However, for trade receivables, the Group measures the loss allowance at an amount equal to lifetime expected credit losses.
When making the assessment of whether there has been a significant increase in credit risk since initial recognition, the Group uses the change in the risk of a default occurring over the expected life of the financial instrument instead of the change in the amount of expected credit losses. To make that assessment, the Group compares the risk of a default occurring on the financial instrument as at the reporting date with the risk of a default occurring on the financial instrument as at the date of initial recognition and considers reasonable and supportable information, that is available without undue cost or effort, that is indicative of significant increases in credit risk since initial recognition.
Further, for the purpose of measuring lifetime expected credit loss allowance for trade receivables, the Group has used a practical expedient as permitted under IFRS 9. This expected credit loss allowance is computed based on a provision matrix, which takes into account historical credit loss experience and adjusted for forward-looking information.
The Group derecognises a financial asset when the contractual rights to the cash flows from the asset expire, or when it transfers the financial asset and substantially all the risks and rewards of ownership of the asset to another party. If the Group neither transfers nor retains substantially all the risks and rewards of ownership and continues to control the transferred asset, the Group recognises its retained interest in the asset and an associated liability for amounts it may have to pay. If the Group retains substantially all the risks and rewards of ownership of a transferred financial asset, the Group continues to recognise the financial asset and also recognises a collateralised borrowing for the proceeds received.
SMAAASH Entertainment Private Limited
Notes to unaudited consolidated interim financial statements
(Amounts in thousands of Indian Rupee (INR), unless otherwise stated)
On derecognition of a financial asset in its entirety, the difference between the asset’s carrying amount and the sum of the consideration received and receivable and the cumulative gain or loss that had been recognised in other comprehensive income and accumulated in equity is recognised in profit or loss if such gain or loss would have otherwise been recognised in profit or loss on disposal of that financial asset.
The fair value of financial assets denominated in a foreign currency is determined in that foreign currency and translated at the spot rate at the end of each reporting period.
For foreign currency denominated financial assets measured at amortised cost and FVTPL, the exchange differences are recognised in profit or loss except for those, which are designated as hedging instruments in a hedging relationship.
Debt and equity instruments issued by the entity are classified either as financial liabilities or as equity in accordance with the substance of the contractual arrangements and the definitions of a financial liability and an equity instrument.
An equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities. Equity instruments issued by the entity are recognised at the proceeds received, net of direct issue costs.
Repurchase of the Group’s own equity instruments is recognised and deducted directly in equity. No gain or loss is recognised in profit or loss on the purchase, sale, issue or cancellation of the Group’s own equity instruments.
The component parts of compound instruments are classified separately as financial liabilities and equity in accordance with the substance of the contractual arrangements and the definitions of a financial liability and an equity instrument. A conversion option that will be settled by the exchange of a fixed amount of cash or another financial asset for a fixed number of the Group’s own equity instruments is an equity instrument.
At the date of issue, the fair value of the liability component is estimated using the prevailing market interest rate for similar non-convertible instruments. This amount is recognised as a liability on an amortised cost basis using the effective interest method until extinguished upon conversion or at the instrument’s maturity date.
All financial liabilities are subsequently measured at amortised cost using the effective interest method or at FVTPL.
Financial liabilities subsequently measured at amortised cost
SMAAASH Entertainment Private Limited
Notes to unaudited consolidated interim financial statements
(Amounts in thousands of Indian Rupee (INR), unless otherwise stated)
Financial liabilities that are not held-for-trading and are not designated as at FVTPL are measured at amortised cost at the end of subsequent accounting period. The carrying amounts of financial liabilities that are subsequently measured at amortised cost are determined based on the effective interest method. Interest expense that is not capitalised as part of costs of an asset is included in the ‘Finance costs’ line item.
The effective interest method is a method of calculating the amortised cost of a financial liability and of allocating interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments (including all fees and points paid or received that form an integral part of the effective interest rate, transaction costs and other premiums or discounts) through the expected life of the financial liability, or (where appropriate) a shorter period, to the net carrying amount on initial recognition.”
For financial liabilities that are denominated in a foreign currency and are measured at amortised cost at the end of each reporting period, the foreign exchange gains and losses are determined based on the amortised cost of the instruments and are recognised in ‘Other income’ as ‘Net foreign exchange gains/(losses)’.
The fair value of financial liabilities denominated in a foreign currency is determined in that foreign currency and translated at the spot rate at the end of the reporting period. For financial liabilities that are measured as at FVTPL, the foreign exchange component forms part of the fair value gains or losses and is recognised in profit or loss.”
The Group derecognises financial liabilities when, and only when, the Group’s obligations are discharged, cancelled or have expired. An exchange with a lender of debt instruments with substantially different terms is accounted for as an extinguishment of the original financial liability and the recognition of a new financial liability. Similarly, a substantial modification of the terms of an existing financial liability (whether or not attributable to the financial difficulty of the debtor) is accounted for as an extinguishment of the original financial liability and the recognition of a new financial liability. The difference between the carrying amount of the financial liability derecognised and the consideration paid and payable is recognised in profit or loss.
Financial assets and liabilities are offset and the net amount is reported in the consolidated financial statement where there is a legally enforceable right to offset the recognised amounts and there is an intention to settle on a net basis or realise the asset and settle the liability simultaneously. The legally enforceable right must not be contingent on future events and must be enforceable in the normal course of business and in the event of default, insolvency or bankruptcy of the Group or the counterparty.
Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision maker.
The Board of directors of the Group has been identified as being the chief operating decision maker. Refer note 40 for segment information presented.
The preparation of consolidated financial statement requires the use of accounting estimates, which, by definition, will seldom equal the actual results. This note provides an overview of the areas that involved a higher degree of judgement or complexity, and of items, which are more likely to be materially adjusted due to estimates and assumptions turning out to be different than those originally assessed. Detailed information about each of these estimates and judgements is included in relevant notes together with information about the basis of calculation for each affected line item in the consolidated financial statement.
SMAAASH Entertainment Private Limited
Notes to unaudited consolidated interim financial statements
(Amounts in thousands of Indian Rupee (INR), unless otherwise stated)
Some of the Group’s assets and liabilities are measured at fair value for financial reporting purposes. In estimating the fair value of an asset or a liability, the Group uses market-observable data to the extent it is available.
Bonus point credits having a predetermined life are granted to customers when they make payments for card balances. The fair value of the consideration on gaming services resulting in such bonus point credits is allocated between the normal points and the bonus point credits granted. The consideration allocated to the bonus point credits is measured by reference to fair value from the standpoint of the holder and revenue is deferred. The Group at the end of each reporting period estimates the number of points redeemed and that it expects will be further redeemed, based on empirical data of redemption/ lapses, and revenue is accordingly recognised.
In the normal course of business, contingent liabilities may arise from litigation and other claims against the Group. There are certain obligations which management has concluded based on all available facts and circumstances are not probable of payment or difficult to quantify reliably and such obligations are treated as contingent liabilities and disclosed in the notes but are not provided for in the consolidated financial statement. Although there can be no assurance of the final outcome of the legal proceedings in which the Group is involved it is not expected that such contingencies will have material effect on its financial position or profitability.
As described at note 3.11 above, the Group reviews the estimated useful lives of property, plant and equipment and residual values at the end of each reporting period. There was no change in the useful life and residual values of property, plant and equipment as compared to previous year.
In the current year, the Group has applied a number of amendments to IFRSs issued by the International Accounting Standards Board (IASB) that are mandatorily effective for an accounting period that begins on or after January 1, 2017.
The Group has applied these amendments for the first time in the current year. The amendments require an entity to provide disclosures that enable users of financial statements to evaluate changes in liabilities arising from financing activities, including both cash and non-cash changes.
The Group’s liabilities arising from financing activities consist of borrowings and certain other financial liabilities. A reconciliation between the opening and closing balances of these items is provided in note 21. Consistent with the transition provisions of the amendments, the Group has not disclosed comparative information for the prior period. Apart from the additional disclosure in note 21, the application of these amendments has had no impact on the Group’s consolidated financial statements.
SMAAASH Entertainment Private Limited
Notes to unaudited consolidated interim financial statements
(Amounts in thousands of Indian Rupee (INR), unless otherwise stated)
The Group has applied these amendments for the first time in the current year. The amendments clarify how an entity should evaluate whether there will be sufficient future taxable profits against which it can utilise a deductible temporary difference.
The application of these amendments has had no impact on the Group’s consolidated financial statements as the Group already assesses the sufficiency of future taxable profits in a way that is consistent with these amendments.
The Group has applied the amendments to IFRS 12 included in the Annual Improvements to IFRSs 2014-2016 Cycle for the first time in the current year.
IFRS 12 states that an entity need not provide summarised financial information for interests in subsidiaries that are classified (or included in a disposal group that is classified) as held for sale.
The amendments clarify that this is the only concession from the disclosure requirements of IFRS 12 for such interests.
The application of these amendments has had no effect on the Group’s consolidated financial statements as none of the Group’s interests in these entities are classified, or included in a disposal group that is classified, as held for sale.
In July 2014, the IASB finalised the reform of financial instruments accounting and issued IFRS 9 (as revised in 2014), which contains the requirements for:
Transitional provisions
IFRS 9 (as revised in 2014) is effective for annual periods beginning on or after January 1, 2018 with earlier application permitted. IFRS 9 requires retrospective application (subject to some transitional provisions).
The entity elects to early adopt IFRS 9 from the annual period beginning from April 1, 2015 and it has applied all of the requirements in IFRS 9 at the same time.
SMAAASH Entertainment Private Limited
Notes to unaudited consolidated interim financial statements
(Amounts in thousands of Indian Rupee (INR), unless otherwise stated)
1Effective for annual periods beginning on or after 1 January 2018, with earlier application permitted.
2Effective for annual periods beginning on or after 1 January 2019, with earlier application permitted.
3Effective for annual periods beginning on or after a date to be determined.
IFRS 15 Revenue from Contracts with Customers
IFRS 15 establishes a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers. IFRS 15 will supersede the current revenue recognition guidance including IAS 18 Revenue, IAS 11 Construction Contracts and the related Interpretations when it becomes effective.
The core principle of IFRS 15 is that an entity should recognise revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Specifically, the Standard introduces a 5-step approach to revenue recognition:
● Step 1: Identify the contract(s) with a customer
● Step 2: Identify the performance obligations in the contract
● Step 3: Determine the transaction price
● Step 4: Allocate the transaction price to the performance obligations in the contract
● Step 5: Recognise revenue when (or as) the entity satisfies a performance obligation
Under IFRS 15, an entity recognises revenue when (or as) a performance obligation is satisfied, i.e. when ‘control’ of the goods or services underlying the particular performance obligation is transferred to the customer.
Far more prescriptive guidance has been added in IFRS 15 to deal with specific scenarios. Furthermore, IFRS 15 requires extensive disclosures.
In April 2016, the IASB issued Clarifications to IFRS 15 in relation to the identification of performance obligations, principal versus agent considerations, as well as licensing application guidance.
Apart from providing more extensive disclosures on the Group’s revenue transactions, the directors do not anticipate that the application of IFRS 15 will have a significant impact on the financial position and/or financial performance of the Group.
IFRS 16 Leases
IFRS 16 introduces a comprehensive model for the identification of lease arrangements and accounting treatments for both lessors and lessees. IFRS 16 will supersede the current lease guidance including IAS 17 Leases and the related interpretations when it becomes effective.
IFRS 16 distinguishes leases and service contracts on the basis of whether an identified asset is controlled by a customer. Distinctions of operating leases (off balance sheet) and finance leases (on balance sheet) are removed for lessee accounting, and is replaced by a model where a right-of-use asset and a corresponding liability have to be recognisedrecognized for all leases by lessees (i.e. all on balance sheet) except for short-term leases and leases of low value assets.
The right-of-use asset is initially measured at cost and subsequently measured at cost (subject to certain exceptions) less accumulated depreciation and impairment losses, adjusted for any remeasurement of the lease liability. The lease liability is initially measured at the present value of the lease payments that are not paid at that date. Subsequently, the lease liability is adjusted for interest and lease payments, as well as the impact of lease modifications, amongst others. Furthermore, the classification of cash flows will also be affected as operating lease payments under IAS 17 are presented as operating cash flows; whereas under the IFRS 16 model, the lease payments will be split into a principal and an interest portion, which will be presented as financing and operating cash flows respectively.
SMAAASH Entertainment Private Limited
Notes to unaudited consolidated interim financial statements
(Amounts in thousands of Indian Rupee (INR), unless otherwise stated)
In contrast to lessee accounting, IFRS 16 substantially carries forward the lessor accounting requirements in IAS 17, and continues to require a lessor to classify a lease as either an operating lease or a finance lease.
Furthermore, IFRS 16 requires extensive disclosures.
As at March 31, December 2017,2018, the Group has non-cancellable operating lease commitments of Rs 2,231,778Rs. 2,648,665 Thousands. The Group is under the process of evaluating the impact of this IFRS.
Smaaash Entertainment Private Limited
Notes to consolidated financial statements for the period ended March 31, 2018 AND 2017
All amounts are in Rs. '000 unless otherwise stated
IFRIC 22 Foreign Currency Transactions and Advance Consideration
IFRIC 22 addresses how to determine the ‘date of transaction’ for the purpose of determining the exchange rate to use on initial recognition of an asset, expense or income, when consideration for that item has been paid or received in advance in a foreign currency which resulted in the recognition of a non-monetary asset or non-monetary liability (e.g. a non-refundable deposit or deferred revenue).
The Interpretation specifies that the date of transaction is the date on which the entity initially recognisesrecognizes the non-monetary asset or non-monetary liability arising from the payment or receipt of advance consideration. If there are multiple payments or receipts in advance, the Interpretation requires an entity to determine the date of transaction for each payment or receipt of advance consideration.
The Interpretation is effective for annual periods beginning on or after January 1, January 2018 with earlier application permitted. Entities can apply the Interpretation either retrospectively or prospectively. Specific transition provisions apply to prospective application.
The directors of the Group do not anticipate that the application of the amendments in the future will have an impact on the Group’s consolidated financial statements. This is because the Group already accounts for transactions involving the payment or receipt of advance consideration in a foreign currency in a way that is consistent with the amendments.
SMAAASHSmaaash Entertainment Private Limited
Notes to unaudited consolidated interim financial statements for the period ended March 31, 2018 AND 2017
(AmountsAll amounts are in thousands of Indian Rupee (INR),Rs. '000 unless otherwise stated)stated
6 | Property, plant and equipment |
Description of assets | Plant and machinery | Office equipment | Furniture & fixtures | Vehicles | Computers | Electrical equipments | Leasehold improvements | Total |
Cost | ||||||||
As at April 1, 2016 | 440,698 | 838 | 29,662 | 1,373 | 27,987 | 127,185 | 432,234 | 1,059,977 |
Additions | 384,185 | 4,934 | 47,768 | — | 5,914 | 36,219 | 757,228 | 1,236,248 |
Adjustments (Refer note 6.2) | (29) | — | — | — | (47) | (55) | (7) | (138) |
Disposals/ reclassifications | — | — | — | — | — | (237) | (8,549) | (8,786) |
As at March 31, 2017 | 824,854 | 5,772 | 77,430 | 1,373 | 33,854 | 163,112 | 1,180,906 | 2,287,301 |
Additions | 626,839 | 6,564 | 21,593 | — | 4,222 | 28,879 | 395,174 | 1,083,271 |
Acquired on business combination | 600,015 | 21,384 | 40,667 | 1,456 | 1,665 | 8,685 | 274,008 | 947,880 |
Adjustments | — | — | — | — | — | — | — | — |
Disposals/ reclassifications | (20,052) | — | (7,178) | (773) | — | (20) | (26,046) | (54,069) |
As at March 31, 2018 | 2,031,656 | 33,720 | 132,512 | 2,055 | 39,741 | 200,656 | 1,824,042 | 4,264,383 |
Depreciation | ||||||||
As at April 1, 2016 | 38,047 | 369 | 5,591 | 277 | 15,037 | 21,088 | 128,700 | 209,109 |
Depreciation expense for the year | 43,244 | 504 | 5,796 | 172 | 7,510 | 14,910 | 155,512 | 227,648 |
Adjustments | (1) | — | — | — | (12) | (3) | (1) | (17) |
Eliminated on disposal of assets/ reclassifications | — | — | — | — | — | (237) | (8,549) | (8,786) |
As at March 31, 2017 | 81,290 | 873 | 11,387 | 449 | 22,535 | 35,758 | 275,662 | 427,954 |
Depreciation expense for the year | 111,921 | 4,248 | 13,078 | 233 | 8,250 | 20,401 | 275,027 | 433,158 |
Acquired on business combination | 104,615 | 14,552 | 9,414 | — | — | — | 55,344 | 183,925 |
Adjustments | — | — | — | — | — | — | — | — |
Eliminated on disposal of assets/ reclassifications | (8,150) | — | (6,484) | (19) | — | (20) | (8,245) | (22,918) |
As at March 31, 2018 | 289,676 | 19,673 | 27,395 | 663 | 30,785 | 56,139 | 597,788 | 1,022,119 |
Net book value | ||||||||
As at March 31, 2018 | 1,741,980 | 14,047 | 105,117 | 1,393 | 8,956 | 144,517 | 1,226,254 | 3,242,264 |
As at March 31, 2017 | 743,564 | 4,899 | 66,043 | 924 | 11,319 | 127,354 | 905,244 | 1,859,347 |
Smaaash Entertainment Private Limited
Notes to consolidated financial statements for the period ended March 31, 2018
All amounts are in Rs. ’000 unless otherwise stated
Note 6 - Property, plant and equipment | (Rs. in Thousands) | ||||||||||||||||
Description of assets | Plant and machinery | Office equipment | Furniture & fixtures | Vehicles | Computers | Electrical equipments | Leasehold improvements | Total | |||||||||
Cost | |||||||||||||||||
As at April 1, 2016 | 440,698 | 838 | 29,662 | 1,373 | 27,987 | 127,185 | 432,234 | 1,059,977 | |||||||||
Additions | 283,504 | 5,000 | 41,596 | — | 4,204 | 19,043 | 383,363 | 736,710 | |||||||||
Adjustments | — | — | — | — | — | — | — | — | |||||||||
Disposals/ reclassifications | (47 | ) | — | — | — | — | — | — | (47 | ) | |||||||
As at December 31, 2016 | 724,155 | 5,838 | 71,258 | 1,373 | 32,191 | 146,228 | 815,597 | 1,796,640 | |||||||||
As at April 1, 2017 | 824,854 | 5,772 | 77,430 | 1,373 | 33,855 | 163,112 | 1,180,906 | 2,287,302 | |||||||||
Additions | 566,395 | 396 | 14,344 | 1,456 | 4,742 | 22,835 | 293,212 | 903,380 | |||||||||
Acquired on business combination | 483,277 | 21,173 | 35,441 | — | — | — | 247,260 | 787,151 | |||||||||
Adjustments | — | — | — | — | — | — | — | — | |||||||||
Disposals/ reclassifications | (9,034 | ) | — | (7,178 | ) | (773 | ) | — | (20 | ) | (21,740 | ) | (38,745 | ) | |||
As at December 31, 2017 | 1,865,492 | 27,341 | 120,037 | 2,056 | 38,597 | 185,927 | 1,699,638 | 3,939,088 | |||||||||
— | — | — | — | — | — | — | |||||||||||
Depreciation | — | — | — | — | — | — | — | ||||||||||
As at April 1, 2016 | 38,047 | 369 | 5,591 | 277 | 15,037 | 21,088 | 128,700 | 209,109 | |||||||||
Depreciation expense for the year | 25,252 | 146 | 2,734 | 129 | 5,517 | 10,477 | 109,698 | 153,953 | |||||||||
Adjustments | — | — | — | — | — | — | — | — | |||||||||
Eliminated on disposal of assets/reclassifications | (13 | ) | — | — | — | — | — | — | (13 | ) | |||||||
As at December 31, 2016 | 63,286 | 515 | 8,325 | 406 | 20,554 | 31,565 | 238,398 | 363,049 | |||||||||
As at April 1, 2017 | 81,290 | 873 | 11,387 | 449 | 22,535 | 35,758 | 275,662 | 427,954 | |||||||||
Depreciation expense for the period | 70,969 | (307 | ) | 15,292 | 170 | 6,125 | 14,640 | 1,95,503 | 302,392 | ||||||||
Acquired on business combination | 104,615 | 14,552 | 9,414 | — | — | — | 55,344 | 183,925 | |||||||||
Adjustments | — | — | — | — | — | — | — | — | |||||||||
Eliminated on disposal of assets/reclassifications | (3,497 | ) | — | (6,484 | ) | (19 | ) | — | (20 | ) | (5,869 | ) | (15,889 | ) | |||
As at December 31, 2017 | 253,377 | 15,118 | 29,609 | 600 | 28,660 | 50,378 | 520,640 | 898,382 | |||||||||
Net book value | |||||||||||||||||
As at December 31, 2017 | 1,612,115 | 12,223 | 90,428 | 1,456 | 9,937 | 135,549 | 1,178,998 | 3,040,706 | |||||||||
As at December 31, 2016 | 660,869 | 5,323 | 62,933 | 967 | 11,637 | 114,663 | 577,199 | 1,433,591 |
SMAAASH Entertainment Private Limited
Notes to unaudited consolidated interim financial statements
(Amounts in thousands of Indian Rupee (INR), unless otherwise stated)
Note 6.1:
6.1The Group has imported certain capital equipment under “ExportExport Promotion of Capital Goods scheme”scheme of the central government at a concessional rate of customs duty. During the F.Y 2015-16, the Group has undertaken export obligation to the extent of Rs. 46,632 thousands to be fulfilled during the period of 6 years commencing from 8th April 8, 2015, failing which the Group will be liable to pay the differential customs duty, together with interest and penalties if imposed.
Since, the procurement of goods during the period were done by availing the exemption from payment of aforesaid duties, the amount capitalisedcapitalized for the said plant and machinery as on the put to use date, is cost of property, plant and equipment (PPE) net ofnet-off tax and duty benefit availed. In compliance with ’IASIAS 20 Accounting for Government Grants and Disclosure of Government Assistance’, the Group has grossed up the value of its PPE by the amount of duty benefit availed by the Group is after considering the same as government grant.
The amount of grant capitalised shallcapitalized will be depreciated as per useful life of plant and machinery. The amount of deferred liability shall be amortisedamortized based of the fulfilment of export obligation with credit to consolidated statement of profit and loss under the head ’Other‘Other operating income’. The Group has recognisedrecognized Government grant of Rs. 7,772 thousands from the date of capitalisationcapitalization of plant.
Note 6.2: | (Rs. in Thousands) | |||||
Particulars | As at December 31, 2017 | As at December 31, 2016 | ||||
Capital work-in-progress | 248,986 | 364,797 | ||||
248,986 | 364,797 | |||||
Capital work-in-progress6.2Adjustments represent VAT credit claimed on assets capitalized in earlier year.
6.3 | Capital work-in-progress | ||
Particulars | As at March 31, 2018 | As at March 31, 2017 | |
Capital work-in-progress | 182,669 | 202,840 | |
182,669 | 202,840 | ||
7 | Goodwill |
Particulars | As at March 31, 2018 | As at March 31, 2017 |
Cost | 13,604 | — |
Less: Accumulated impairment losses | — | — |
Total | 13,604 | — |
Particulars | For the year ended March 31, 2018 | For the year ended March 31, 2017 |
Cost | ||
Opening balance | — | — |
Additional amounts recognized from business combinations occurring during the year (note 44) | 13,604 | — |
Balance at end of year | 13,604 | — |
Accumulated impairment losses | ||
Opening balance | — | — |
Impairment losses recognized in the year | — | — |
Closing balance at the end of year | — | — |
F-28
Smaaash Entertainment Private Limited
Notes to consolidated financial statements for the period ended March 31, 2018
All amounts are in Rs. ’000 unless otherwise stated
8 | Intangible assets |
Description of assets | Software | Trademarks | Players rights | Virtual reality games | Non-compete arrangement | Brands | Total |
Cost | |||||||
As at April 1, 2016 | 25,960 | 3,893 | 59,256 | 287,493 | — | — | 376,602 |
Additions | 10,917 | 828 | 53,223 | 56,279 | — | — | 121,247 |
Adjustments | — | — | — | — | — | — | — |
Disposals/ reclassifications | — | — | — | — | — | — | — |
As at March 31, 2017 | 36,877 | 4,721 | 112,479 | 343,772 | — | — | 497,849 |
Additions | 7,574 | 1,434 | 64,008 | 102,180 | — | — | 175,196 |
Acquired on business combination | 4,924 | 14,271 | — | — | 74,797 | 94,605 | 188,597 |
Adjustments | — | — | — | — | — | — | — |
Disposals/ reclassifications | — | — | — | — | — | — | — |
As at March 31, 2018 | 49,375 | 20,426 | 176,487 | 445,952 | 74,797 | 94,605 | 861,642 |
Amortization | |||||||
As at April 1, 2016 | 13,121 | 1,199 | 35,558 | 101,475 | — | — | 151,353 |
amortization expense for the year | 9,335 | 848 | 27,199 | 39,445 | — | — | 76,827 |
Adjustments | — | — | — | — | — | — | — |
Eliminated on disposal of assets/ reclassifications | — | — | — | — | — | — | — |
As at March 31, 2017 | 22,456 | 2,047 | 62,757 | 140,920 | — | — | 228,180 |
amortization expense for the year | 11,873 | 2,292 | 40,423 | 48,745 | 11,522 | 5,539 | 120,394 |
Acquired on business combination | 2,902 | 4,541 | — | — | — | — | 7,443 |
Adjustments | — | — | — | — | — | — | — |
Eliminated on disposal of assets/ reclassifications | — | — | — | — | — | — | — |
As at March 31, 2018 | 37,231 | 8,880 | 103,180 | 189,665 | 11,522 | 5,539 | 356,017 |
Net book value | |||||||
As at March 31, 2018 | 12,144 | 11,546 | 73,307 | 256,287 | 63,275 | 89,066 | 505,625 |
As at March 31, 2017 | 14,421 | 2,674 | 49,722 | 202,852 | — | — | 269,669 |
Smaaash Entertainment Private Limited
Notes to consolidated financial statements for the period ended March 31, 2018
All amounts are in Rs. ’000 unless otherwise stated
8.1 | Intangible assets under development |
Particulars | As at March 31, 2018 | As at March 31, 2017 |
Intangible assets under development | 48,992 | — |
48,992 | — | |
Intangible assets under development comprises of the cost related to fixed assets or projects that are not yet ready for their intended use at the reporting date.
9 | Investments |
Note 7 - Goodwill
Particulars | As at March 31, 2018 | As at March 31, 2017 | ||
Quantity | Amount | Quantity | Amount | |
Non-current | ||||
I. Amortized cost | ||||
Unquoted | ||||
- National saving certificates (lien to Sales Tax Dept.) | — | 30 | — | 20 |
Total investments carried at amortized cost [a] | 30 | 20 | ||
II. Investment at fair value | ||||
i) Fair value through other comprehensive income (FVTOCI) | ||||
Unquoted investments (fully paid) | ||||
Investments in equity instruments | ||||
- AFK Gaming Private Limited | 2,783 | 6,466 | — | — |
ii) Fair value through profit and loss (FVTPL) | ||||
Quoted investments (fully paid) | ||||
Investments in mutual funds | ||||
- Kotak Medium Term Fund - DP-Growth Option (Refer note 9.1) | — | — | 1,331,572 | 18,566 |
Total investments carried at fair value [b] | 6,466 | 18,566 | ||
Total investments carrying value [a+b] | 6,496 | 18,586 | ||
Current | ||||
Fair value through profit and loss (FVTPL) | ||||
Quoted Investments (fully paid) | ||||
Investments in mutual funds | ||||
- Kotak Floater short Term Fund - DP-Growth Option | — | — | 3,071 | 8,198 |
- Mahindra Liquid Fund-Dir-Gr | 9,794 | 11,012 | — | — |
Total investments | 11,012 | 8,198 | ||
Other disclosures | ||||
Aggregate amount of quoted investments and market value thereof | 11,012 | 26,765 | ||
Aggregate amount of unquoted investments | 6,496 | 20 | ||
Aggregate amount of impairment in value of investments | — | — |
Investment in | ||||||
debenture issued to Piramal Enterprises Limited. |
SMAAASHSmaaash Entertainment Private Limited
Notes to unaudited consolidated interim financial statements for the period ended March 31, 2018
(AmountsAll amounts are in thousands of Indian Rupee (INR),Rs. ’000 unless otherwise stated)stated
9.2 | Category-wise other investments - as per IFRS 9 classification |
Note 8 - Intangible assets | (Rs. in Thousands) | ||||||||||||||
Description of assets | Software | Trademarks | Players rights | Virtual reality games | Non-compete arrangement | Brands | Total | ||||||||
Cost | |||||||||||||||
As at April 1, 2016 | 25,960 | 3,893 | 59,256 | 287,493 | — | — | 376,602 | ||||||||
Additions | 7,338 | 328 | 22,769 | 3,406 | — | — | 33,841 | ||||||||
Adjustments | — | — | — | — | — | — | — | ||||||||
Disposals/ reclassifications | — | — | — | — | — | — | — | ||||||||
As at December 31, 2016 | 33,298 | 4,221 | 82,025 | 290,899 | — | — | 410,443 | ||||||||
As at April 1, 2017 | 36,877 | 4,721 | 112,479 | 343,772 | — | — | 497,849 | ||||||||
Additions | 6,520 | 330 | 59,008 | 46,191 | 44,797 | 124,605 | 281,451 | ||||||||
Acquired on business combination | 4,625 | 14,271 | — | — | — | — | 18,896 | ||||||||
Adjustments | — | — | — | — | — | — | — | ||||||||
Disposals/ reclassifications | — | — | — | — | — | — | — | ||||||||
As at December 31, 2017 | 48,022 | 19,322 | 171,487 | 389,963 | 44,797 | 124,605 | 798,196 | ||||||||
Amortisation | |||||||||||||||
As at April 1, 2016 | 13,121 | 1,199 | 35,558 | 101,475 | — | — | 151,353 | ||||||||
Amortisation expense for the year | 6,214 | 621 | 13,967 | 30,482 | — | — | 51,284 | ||||||||
Adjustments | — | — | — | — | — | — | — | ||||||||
Eliminated on disposal of assets/reclassifications | — | — | — | — | — | — | — | ||||||||
As at December 31, 2016 | 19,335 | 1,820 | 49,525 | 131,957 | — | — | 202,637 | ||||||||
As at April 1, 2017 | 22,456 | 2,047 | 62,757 | 140,920 | — | — | 228,180 | ||||||||
Amortisation expense for the period | 9,626 | 1,461 | 24,958 | 33,930 | 4,977 | 3,956 | 78,908 | ||||||||
Acquired on business combination | 2,902 | 4,541 | — | — | — | — | 7,443 | ||||||||
Adjustments | — | — | — | — | — | — | — | ||||||||
Eliminated on disposal of assets/reclassifications | — | — | — | — | — | — | — | ||||||||
As at December 31, 2017 | 34,984 | 8,049 | 87,715 | 174,850 | 4,977 | 3,956 | 314,531 | ||||||||
Net book value | |||||||||||||||
As at December 31, 2017 | 13,038 | 11,273 | 83,772 | 215,113 | 39,820 | 120,649 | 483,665 | ||||||||
As at December 31, 2016 | 13,963 | 2,402 | 32,500 | 158,942 | — | — | 207,806 |
As at March 31, 2018 | As at March 31, 2017 | |
Financial assets carried at fair value through other comprehensive income (FVTOCI) | ||
Investment in unquoted equity shares | 6,466 | — |
6,466 | — | |
Financial assets carried at fair value through profit or loss (FVTPL) | ||
Investment in mutual funds | 11,012 | 26,765 |
11,012 | 26,765 | |
Financial assets carried at amortized cost | ||
Investment in national saving certificates (lien to Sales Tax Dept.) | 30 | 20 |
30 | 20 | |
Total | 17,508 | 26,785 |
10 | Other financial assets |
Particulars | As at March 31, 2018 | As at March 31, 2017 |
Non-current | ||
Bank deposit with more than 12 months maturity | 25,033 | 32,399 |
Security deposits | ||
- Unsecured, considered good | 181,159 | 105,844 |
Total | 206,192 | 138,243 |
Current | ||
Security deposits | ||
- Unsecured, considered good | 3,100 | 3,475 |
Other receivables | ||
- Unbilled revenue | 19,105 | — |
- Contractually reimbursable expenses | 65,083 | 52,587 |
Total | 87,288 | 56,062 |
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SMAAASHSmaaash Entertainment Private Limited
Notes to unaudited consolidated interim financial statements for the period ended March 31, 2018
(AmountsAll amounts are in thousands of Indian Rupee (INR),Rs. ’000 unless otherwise stated)
stated
Note 9 - Investments
(Rs. in Thousands)
Particulars | As at December 31, 2017 | As at December 31, 2016 | ||
Quantity | Amount | Quantity | Amount | |
Non-current | ||||
Amortised cost | ||||
Unquoted | ||||
- National saving certificates (lien to Sales Tax Dept.) | — | 30 | — | 20 |
Total investments carrying value | 30 | 20 | ||
Current | ||||
Fair value through profit and loss (FVTPL) | ||||
Quoted Investments (fully paid) | ||||
Investments in mutual funds | ||||
- Kotak Floater short Term Fund - DP-Growth Option | 6,307 | 17,676 | — | — |
- Birla Sunlife Corporate Bond Fund | — | — | — | — |
- HDFC Liquid- DP-Growth Option | — | — | 5,842 | 19,232 |
Total investments | 17,676 | 19,232 | ||
Other disclosures | ||||
Aggregate amount of quoted investments and market value thereof | 17,676 | 19,232 | ||
Aggregate amount of unquoted investments | 30 | 20 | ||
Aggregate amount of impairment in value of investments | — | — |
Note 10 -
11 | Deferred tax assets |
11.1 | Movement in deferred tax balances |
Particulars | Opening balance as at April 1, 2017 | On acquisition | Recognised in profit and Loss | Recognised in OCI | Closing balance as at December 31, 2017 |
Deferred tax (liabilities)/assets in relation to: | |||||
Property, plant and equipment | 7,931 | (19,956) | (1,611) | — | (13,636) |
Goodwill | — | — | 25,088 | — | 25,088 |
Other intangible assets | 5,743 | — | (12,930) | — | (7,187) |
Investments | (74) | — | 60 | — | (14) |
Other financial assets | 4,808 | — | 1,409 | — | 6,217 |
Other assets | (2,871) | — | (442) | — | (3,313) |
Borrowings | (1,485) | — | (20,138) | — | (21,623) |
Provisions | 2,806 | — | 4,541 | (19) | 7,328 |
Other financial liabilities | 11,582 | — | (11,945) | — | (363) |
Other liabilities | (14,671) | 3,811 | 12,722 | — | 1,862 |
Unused tax losses | 220,980 | — | 157,294 | — | 378,274 |
MAT credit | — | 8,517 | — | — | 8,517 |
— | — | — | — | ||
Net Tax Asset/(Liabilities) (A-B) | 234,749 | (7,628) | 154,048 | (19) | 381,150 |
SMAAASH Entertainment Private Limited
Particulars | For the year ended March 31, 2018 | ||||
Opening Balance | On acquisition | Recognized in profit and Loss | Recognized in OCI | Closing Balance | |
Deferred tax (liabilities)/assets in relation to: | |||||
Property, plant and equipment | 7,931 | (19,956) | 4,638 | — | (7,387) |
Other intangible assets | 5,743 | — | (852) | — | 4,891 |
Investments | (74) | — | 70 | — | (4) |
Other financial assets | 4,808 | — | 4,297 | — | 9,104 |
Other assets | (2,871) | — | (4,093) | — | (6,964) |
Borrowings | (1,485) | — | (16,397) | — | (17,882) |
Provisions | 2,806 | — | (5,961) | (74) | (3,229) |
Other financial liabilities | 11,582 | — | (11,894) | — | (312) |
Other liabilities | (14,671) | 3,811 | 13,998 | — | 3,138 |
Unused tax losses | 220,980 | — | 276,924 | — | 497,904 |
MAT credit | — | 9,513 | (6) | — | 9,507 |
Net tax asset/(liabilities) | 234,749 | (6,632) | 260,723 | (74) | 488,766 |
Notes to unaudited consolidated interim financial statements
(Amounts in thousands of Indian Rupee (INR), unless otherwise stated)
11.2 | Movement in deferred tax balances |
Particulars | Opening balance as at April 1, 2016 | Recognised in profit and Loss | Recognised in OCI | Closing balance as at December 31, 2016 |
Deferred tax (liabilities)/assets in relation to: | ||||
Property, plant and equipment | 4,647 | 1,392 | — | 6,039 |
Goodwill | — | — | — | — |
Other intangible assets | 5,794 | — | — | 5,794 |
Investments | (369) | 95 | — | (274) |
Other financial assets | 9,293 | (2,749) | — | 6,544 |
Other assets | (9,086) | 3,069 | — | (6,017) |
Borrowings | (7,279) | (754) | — | (8,033) |
Provisions | 2,265 | 1,444 | (613) | 3,096 |
Other financial liabilities | (0) | — | — | (0) |
Other liabilities | (1,074) | — | — | (1,074) |
Unused tax losses | 124,388 | 71,537 | — | 195,925 |
Net Tax Asset/(Liabilities) | 128,579 | 74,034 | (613) | 202,000 |
Particulars | For the year ended March 31, 2017 | |||
Opening Balance | Recognized in profit and Loss | Recognized in OCI | Closing Balance | |
Deferred tax (liabilities)/assets in relation to: | ||||
Property, plant and equipment | 4,647 | 3,284 | — | 7,931 |
Other intangible assets | 5,794 | (51) | — | 5,743 |
Investments | (369) | 295 | — | (74) |
Other financial assets | 9,293 | (4,485) | — | 4,808 |
Other assets | (9,086) | 6,215 | — | (2,871) |
Borrowings | (7,279) | 5,794 | — | (1,485) |
Provisions | 2,265 | 1,359 | (818) | 2,806 |
Other financial liabilities | (0) | 11,582 | — | 11,582 |
Other liabilities | (1,074) | (13,597) | — | (14,671) |
Unused tax losses | 124,388 | 96,592 | — | 220,980 |
Net tax asset/(liabilities) | 128,580 | 106,990 | (818) | 234,749 |
12 | Non-current tax assets |
Particulars | As at December 31, 2017 | As at December 31, 2016 |
Non-current | ||
Bank deposit with more than 12 months maturity | 34,253 | 25,680 |
Security deposits | ||
- Secured, considered good | — | — |
- Unsecured, considered good | 212,883 | 106,585 |
- Doubtful | — | — |
Less: Allowance for credit losses | — | — |
— | ||
Application money paid towards equity investment | 5,750 | — |
Total | 252,886 | 132,265 |
Current | ||
Security deposits | ||
- Secured, considered good | — | — |
- Unsecured, considered good | 3,100 | 29 |
- Doubtful | — | — |
Less: Allowance for credit losses | — | — |
Other receivables | — | |
- Unbilled revenue | 8,333 | — |
- Contractually reimbursable expenses | 61,302 | 70,026 |
Total | 72,735 | 70,055 |
Particulars | As at March 31, 2018 | As at March 31, 2017 |
Advance Income Tax/TDS receivable (Net-off provision for tax) | 18,949 | 6,198 |
Total | 18,949 | 6,198 |
F-32
SMAAASH
Smaaash Entertainment Private Limited
Notes to unaudited consolidated interim financial statements for the period ended March 31, 2018
(AmountsAll amounts are in thousands of Indian Rupee (INR),Rs. ’000 unless otherwise stated)stated
13 | Other assets |
Particulars | As at December 31, 2017 | As at December 31, 2016 |
Non-current | ||
Capital advances | 226,532 | 101,619 |
Advances other than capital advances | ||
a) Balances with government authorities (other than income taxes) | ||
- Others | 125 | — |
b) Deferred lease rentals | 25,664 | 10,531 |
Total | 252,321 | 112,150 |
Current | ||
Advances other than capital advances | ||
a) Advances to suppliers | 51,481 | 115,840 |
b) Balances with government authorities (other than income taxes) | ||
- Service Tax | 40,089 | 7,890 |
- GST | 133,413 | — |
- Served from India scheme (SFIS) credit | 114 | 329 |
- Others | 698 | 1,295 |
c) Deferred lease rentals | 9,897 | 14,290 |
d) Prepaid expenses | 31,106 | 81,174 |
e) Advances to employees | — | — |
f) Advance to gratuity trust | 3,387 | — |
Total | 270,185 | 220,818 |
Particulars | As at March 31, 2018 | As at March 31, 2017 |
Non-current | ||
Capital advances | 90,980 | 27,615 |
Advances other than capital advances | ||
a) Balances with government authorities (other than income taxes) | ||
- Deposits | 3,352 | 852 |
b) Deferred lease rentals | 51,851 | 10,531 |
c) Advance to gratuity trust | 3,407 | 1,639 |
Total | 149,590 | 40,637 |
Current | ||
Advances other than capital advances | ||
a) Advances to suppliers | 151,299 | 94,984 |
b) Balances with government authorities (other than income taxes) | ||
- Service Tax | 29,663 | 3,354 |
- Goods and Service Tax (GST) | 136,239 | — |
- Served from India scheme (SFIS) credit | 114 | 114 |
- Value Added Tax (VAT) | 668 | 1,244 |
- Others | — | 1,753 |
c) Deferred lease rentals | 14,570 | 14,290 |
d) Prepaid expenses | 75,777 | 13,691 |
e) Advances to employees | 5 | 36 |
Total | 408,335 | 129,466 |
Inventories |
Particulars | As at December 31, 2017 | As at December 31, 2016 |
Inventories (lower of cost and net realisable value) | ||
(a) Food and beverages | 39,988 | 12,018 |
(b) Consumables | 12,940 | 16,349 |
(c) Stores and spares | 49,104 | 27,439 |
(d) Trading goods | 80,827 | 19,758 |
Total | 182,859 | 75,564 |
Notes:
Particulars | As at March 31, 2018 | As at March 31, 2017 |
Inventories (lower of cost and net realizable value) | ||
(a) Food and beverages | 34,290 | 18,507 |
(b) Consumables | 11,879 | 9,492 |
(c) Stores and spares | 45,398 | 24,608 |
(d) Trading goods | 69,027 | 22,896 |
Total | 160,594 | 75,503 |
The cost of inventories recognisedrecognized as an expense during the period in respect of continuing operations was Rs 344,898Rs. 483,652 thousands (for the 9 monthsyear ended December 31, 2016: Rs. 152,79131st March, 2017: Rs 240,842 thousands).
The mode of valuation of inventories has been stated in note 3.15
SMAAASH Entertainment Private Limited
Notes to unaudited consolidated interim financial statements
(Amounts in thousands of Indian Rupee (INR), unless otherwise stated)
15 | Trade receivables |
Particulars | As at December 31, 2017 | As at December 31, 2016 |
Trade receivables | ||
- Secured, considered good | — | — |
- Unsecured, considered good | 96,457 | 44,218 |
96,457 | 44,218 | |
Less: Allowance for credit losses | (2,356) | — |
Total | 94,101 | 44,218 |
Of the above, trade receivables from: | ||
- Related parties | — | — |
- Others | 94,101 | 44,218 |
94,101 | 44,218 |
Notes:
i)
Particulars | As at March 31, 2018 | As at March 31, 2017 |
Trade receivables | ||
Unsecured, considered good | 177,947 | 26,551 |
Doubtful | 2,739 | 716 |
180,686 | 27,267 | |
Less: Allowance for credit losses | (2,739) | (716) |
Total | 177,947 | 26,551 |
15.1 Refer Noteto note 37 for disclosures related to financial instrumentsinstruments.
ii)
Smaaash Entertainment Private Limited
Notes to consolidated financial statements for the period ended March 31, 2018
All amounts are in Rs. ’000 unless otherwise stated
15.2 The average credit period provided to trade receivables is 30 days.
15.3 | Movement in the allowance for doubtful debts |
| ||
Particulars | As at March 31, 2018 | As at March 31, 2017 |
Balance at beginning of the year | 716 | — |
Acquired on business combination | 472 | — |
Impairment losses recognized on receivables | 1,551 | 716 |
Balance at end of the year | 2,739 | 716 |
16 | Cash and bank balances |
Particulars | As at 31st December, 2017 | As at 31st December, 2016 |
A. Cash and cash equivalents | ||
a) Balances with banks | 84,188 | 225,763 |
b ) Cash on hand | 14,001 | 13,550 |
c) Cheque on hand | 70,000 | — |
d) Bank deposits | 2,127 | — |
Total | 170,316 | 239,313 |
Particulars | As at March 31, 2018 | As at March 31, 2017 |
a) Balances with banks | 108,648 | 129,246 |
b) Cash on hand | 9,065 | 4,283 |
C) Bank deposits | 2,127 | — |
Total | 119,840 | 133,529 |
Loans |
Particulars | As at 31st December, 2017 | As at 31st December, 2016 |
Current | ||
Loans to employees | ||
- Secured, considered good | — | — |
- Unsecured, considered good | 581 | 748 |
- Doubtful | — | — |
Less: Allowance for credit losses | — | — |
Total | 581 | 748 |
Particulars | As at March 31, 2018 | As at March 31, 2017 |
Current | ||
Loans to employees | ||
- Unsecured, considered good | 412 | 1,897 |
Total | 412 | 1,897 |
18 | Issued capital and share premium |
Particulars | As at March 31, 2018 | As at March 31, 2017 | ||
No. of shares | Amount | No. of shares | Amount | |
A. Authorised: | ||||
a) Equity shares of Rs.10 each with voting rights | 225,000,000 | 2,250,000 | 140,000,000 | 1,400,000 |
b) Redeemable preference shares of Rs.10 each | 50,000,000 | 500,000 | 35,000,000 | 350,000 |
Total | 2,750,000 | 1,750,000 | ||
B. Issued, Subscribed and Fully Paid: | ||||
a) Equity shares of Rs.10 each with voting rights | 185,734,979 | 1,857,350 | 138,247,240 | 1,382,472 |
b) Compulsorily convertible preference shares of Rs. 10 each | 39,443,000 | 394,430 | — | — |
Total | 2,251,780 | 1,382,472 | ||
C. Share premium | ||||
Balance as at the beginning of the period | 365,291 | 369,800 | ||
Add: Additions during the period | 1,101,249 | — | ||
Less: Utilized during the period towards share issue expenses | (64,439) | (4,509) | ||
Balance as at the end of the period | 1,402,101 | 365,291 | ||
Total (B+C) | 3,653,881 | 1,747,763 |
SMAAASHSmaaash Entertainment Private Limited
Notes to unaudited consolidated interim financial statements for the period ended March 31, 2018
(AmountsAll amounts are in thousands of Indian Rupee (INR),Rs. ’000 unless otherwise stated)stated
Particulars | As at December 31, 2017 | As at December 31, 2016 |
Advance Income Tax/TDS receivable (Net off provision for tax) | 16,349 | 5,445 |
Total | 16,349 | 5,445 |
SMAAASH Entertainment Private Limited
Notes to unaudited consolidated interim financial statements
(Amounts in thousands of Indian Rupee (INR), unless otherwise stated)
Note 18 - Issued capital and share premium | (Rs. in Thousands) | |||
Particulars | As at December 31, 2017 | As at December 31, 2016 | ||
No. of shares | Amount | No. of shares | Amount | |
A. Authorised: | ||||
a) Equity shares of Rs.10 each with voting rights | 185,734,979 | 1,857,350 | 140,000,000 | 1,400,000 |
b) Redeemable preference shares of Rs.10 each | 26,133,933 | 261,339 | 35,000,000 | 350,000 |
Total | 2,118,689 | 1,750,000 | ||
B. Issued, Subscribed and Fully Paid: | ||||
a) Equity shares of Rs.10 each with voting rights | 185,734,979 | 1,857,350 | 138,247,240 | 1,382,472 |
b) Compulsorily convertible preference shares of Rs. 10 each | 26,133,933 | 261,339 | — | — |
Total | 2,118,689 | 1,382,472 | ||
C. Share premium | ||||
Opening balance as at 1st April | 365,291 | 3,69,800 | ||
Add: Additions during the period | 729,659 | — | ||
Less: Utilized during the period towards share issue expenses | (27,400) | (4,275) | ||
Closing balance at the end of the period | 1,067,550 | 365,525 | ||
Total (B+C) | 3,186,239 | 1,747,997 |
Notes:
18.1 | Rights, preferences and restrictions attached to equity shares |
The Company is having only one class of Equity Shares having a par value of Rs. 10/- each. Each holder of Equity shares is entitled to one vote per share. In the event of liquidation of the Company, the holders of the Equity shares will be entitled to receive remaining assets of the company. The distribution will be in proportion to the number of Equity shares held by shareholders.
Rights, preferences and restrictions attached to preference shares |
Compulsory
Compulsorily convertible preference shares, which have a par value of Rs. 10 each, are entitled to receive a discretionary non-cumulative 0.01% preference dividend before any dividends are declared to the equity shareholders. The convertible preference shares can be converted into equity shares on a one-for-one basis at any time during 20 years from the date of issuance and allotment at the option of the holder or if the Company goes for IPO. Convertible preference shares have no right to share in any surplus assets or profits. The preference shareholder shallwill have a right to vote only on resolutions placed before the company which directly affect the rights attached to the preference shares and, any resolution for the winding up of the company or for the repayment or reduction of its equity or preference share capital and his voting right on a poll shallwill be in proportion to his share in the paid-up preference share capital of the Company.
SMAAASH Entertainment Private Limited
Notes to unaudited consolidated interim financial statements
(Amounts in thousands of Indian Rupee (INR), unless otherwise stated)
(iii) Details of shares held by each shareholder holding more than 5% shares: | ||||
Class of shares / Name of shareholder | As at December 31, 2017 | As at December 31, 2016 | ||
Number of shares held | % holding in that class of shares | Number of shares held | % holding in that class of shares | |
A. Equity shares with voting rights | ||||
a) Aha Holdings Private Limited | 79,217,442 | 43.69% | 36,129,703 | 26.13% |
b) FW Metis Limited | 69,088,409 | 38.10% | 69,088,409 | 49.97% |
c) Mitesh Gowani | 21,821,451 | 12.03% | 21,821,451 | 15.78% |
B. Compulsory Convertible Preference Shares of Rs. 10/- each fully paid | ||||
a) Ritesh K Agarwal | 1,318,565 | 5.05% | — | 0.00% |
b) Pankaj K Agarwal | 1,318,565 | 5.05% | — | 0.00% |
c) Kiran Vyapar Limited | 1,318,565 | 5.05% | — | 0.00% |
d) Sixth Sense India Opportunities-I | 6,065,400 | 23.21% | — | 0.00% |
e) Hero Enterprise Partner Ventures | 5,274,261 | 20.18% | — | 0.00% |
Details of shares held by each shareholder holding more than 5% shares: | ||
Class of shares / Name of shareholder | As at March 31, 2018 | As at March 31, 2017 | ||
Number of shares held | % holding in that class of shares | Number of shares held | % holding in that class of shares | |
A. Equity shares with voting rights | ||||
a) Aha Holdings Private Limited | 79,217,442 | 42.65% | 36,129,703 | 26.13% |
b) FW Metis Limited | 69,088,409 | 37.20% | 69,088,409 | 49.97% |
c) Mitesh Gowani | 21,821,451 | 11.75% | 21,821,451 | 15.78% |
B. Compulsorily Convertible Redeemable Preference Shares | ||||
a) Sixth Sense India Opportunities-I | 6,065,400 | 15.38% | — | 0.00% |
b) Hero Enterprise Partner Ventures | 5,274,261 | 13.37% | — | 0.00% |
c) Jignesh N Pandya | 3,401,371 | 8.62% | — | 0.00% |
d) Adventz Finance Pvt Ltd | 2,637,130 | 6.69% | — | 0.00% |
Securities Premium: |
Securities premium account is created when shares are issued at premium. The reserve can be utilized in accordance with the provisions of the Indian Companies Act, 2013.
18.5 | Reconciliation of the number of shares outstanding at the beginning and at the end of the period. |
A. Equity shares with voting rights | (Rs. in Thousands) | |
Particulars | No. of shares | Amount |
Balance at April 1, 2016 | 114,849,740 | 1,148,497 |
Issue of shares | 23,397,500 | 233,975 |
Balance at December 31, 2016 | 138,247,240 | 1,382,472 |
Balance at April 1, 2017 | 138,247,240 | 1,382,472 |
Issue of shares | 26,221,451 | 262,215 |
Conversion of optional convertible preference shares into equity shares | 21,266,288 | 212,663 |
Balance at December 31, 2017 | 185,734,979 | 1,857,350 |
Equity shares with voting rights | For the year ended March 31, 2018 | For the year ended March 31, 2017 | ||
Particulars | No. of shares | Amount | No. of shares | Amount |
Balance as at beginning of the year | 138,247,240 | 1,382,472 | 114,849,740 | 1,148,497 |
Issue of shares on right basis | 26,221,451 | 262,215 | 23,397,500 | 233,975 |
Conversion of optional convertible preference shares into equity shares | 21,266,288 | 212,663 | — | — |
Balance as at the end of the year | 185,734,979 | 1,857,350 | 138,247,240 | 1,382,472 |
Compulsorily convertible preference shares | For the year ended March 31, 2018 | For the year ended March 31, 2017 | ||
Particulars | No. of shares | Amount | No. of shares | Amount |
Balance as at beginning of the year | — | — | — | — |
Issue of shares | 39,443,000 | 394,430 | — | — |
Balance as at the end of the year | 39,443,000 | 394,430 | — | — |
F-35
SMAAASH
Smaaash Entertainment Private Limited
Notes to unaudited consolidated interim financial statements for the period ended March 31, 2018
(AmountsAll amounts are in thousands of Indian Rupee (INR),Rs. ’000 unless otherwise stated)stated
18.6 Authorized Share Capital of the Company has been increased from Rs. 1,750,000 thousands divided into 140,000,000 Equity Shares of Rs. 10 each and 35,000,000 Redeemable Preference Shares Rs. 10 each to Rs. 2,750,000 thousands divided into 225,000,000 Equity Shares of Rs. 10 each and 50,000,000 Redeemable Preference Shares Rs. 10 each on July 27, 2017.
B. Compulsory convertible preference shares of Rs.10 each | (Rs. in Thousands) | |
Particulars | No. of shares | Amount |
Balance at April 1, 2016 | — | — |
Issue of shares | — | — |
Balance at December 31, 2016 | — | — |
Balance at April 1, 2017 | — | — |
Issue of shares | 26,133,933 | 261,339 |
Balance at December 31, 2017 | 26,133,933 | 261,339 |
Note 19 - Other reserves | (Rs. in Thousands) | |
Particulars | As at December 31, 2017 | As at December 31, 2016 |
A). Foreign currency translation reserve | (20,960) | (9,020) |
B). Contribution from promotors/ shareholders | 49,578 | 49,578 |
Total | 28,618 | 40,558 |
Movement in reserves | (Rs. in Thousands) | |
Particulars | As at December 31, 2017 | As at December 31, 2016 |
A). Foreign currency translation reserve | ||
Opening balance as at 1st April | (19,127) | — |
Add: Additions during the period | (1,833) | (9,020) |
Less: Deletion during the period | — | — |
Closing balance at the end of period | (20,960) | (9,020) |
B). Contribution from promotors/ shareholders | ||
Opening balance as at 1st April | 49,578 | 49,578 |
Add: Additions during the period | — | — |
Less: Deletion during the period | — | — |
Closing balance at the end of period | 49,578 | 49,578 |
Nature and purpose18.7 During the current year, Company has issued 39,443,000 Compulsorily Convertible Redeemable Preference Shares of other reserves:Rs. 10 each fully paid at a premium of Rs 27.92 each shares aggregating to Rs 1,495,679 thousands.
18.8 During the current year, Company has converted 21,266,288 Optionally Convertible Preference Shares issued to AHA Holdings Private Limited into 21,266,288 Equity shares of Rs. 10 each on September 15, 2017.
19 | Other reserves |
Particulars | As at March 31, 2018 | As at March 31, 2017 |
Foreign currency translation reserve | (17,089) | (19,127) |
Contribution from promoters/ shareholders | 49,578 | 49,578 |
Share application money pending allotment | 32,000 | — |
Reserve for equity instruments through other comprehensive income | 717 | — |
Total | 65,206 | 30,451 |
19.1 | Movement in reserves |
Particulars | For the year ended March 31, 2018 | For the year ended March 31, 2017 |
A). Foreign currency translation reserve | ||
Balance as at the beginning of the period | (19,127) | — |
Add: Additions during the period | 2,038 | (19,127) |
Less: Deletion during the period | — | — |
Balance as at the end of the period | (17,089) | (19,127) |
B). Contribution from promotors/ shareholders | ||
Balance as at the beginning of the period | 49,578 | 49,578 |
Add: Additions during the period | — | — |
Less: Deletion during the period | — | — |
Balance as at the end of the period | 49,578 | 49,578 |
C). Share application money pending allotment | ||
Balance as at the beginning of the period | — | — |
Add: Additions during the period | 32,000 | — |
Less: Deletion during the period | — | — |
Balance as at the end of the period | 32,000 | — |
D). Reserve for equity instruments through other comprehensive income | ||
Balance as at the beginning of the year | — | — |
Net fair value gain on investments in equity instruments at FVTOCI | 717 | — |
Income tax on net fair value gain on investments in equity instruments at FVTOCI | — | — |
Balance as at the end of the period | 717 | — |
Smaaash Entertainment Private Limited
Notes to consolidated financial statements for the period ended March 31, 2018
All amounts are in Rs. ’000 unless otherwise stated
19.2 | Nature and purpose of other reserves: |
a). Foreign currency translation reserve:
Exchange differences relating to the translation of the results and net assets of the foreign subsidiary from their functional currency to the Group’s presentation currency (i.e. INR) are recognisedrecognized directly in other comprehensive income and accumulated in the foreign currency translation reserve. Exchange differences previously accumulated in the foreign currency translation reserve will be reclassified to profit or loss on the disposal of the foreign subsidiary.
b). Contribution from promotors/promoters/ shareholders:
During the financial year 2014-15 and 2015-16, the GroupCompany has received duty credit entitlement certificate issued by Director General of Foreign Trade (DGFT) under Served from India Scheme (SFIS) aggregating Rs. 30,797 thousands and Rs.18,781 thousands respectively from a related party for Rs. Nil and thus the same is accounted as deemed contribution in the financial statements of the Group.
SMAAASH Entertainment Private Limited
Notes to unaudited consolidated interim financial statements
(Amounts in thousands of Indian Rupee (INR), unless otherwise stated)
Note 20 - Accumulated Deficit | (Rs. in Thousands) | |
Particulars | As at December 31, 2017 | As at December 31, 2016 |
Accumulated Deficit | (1,317,055) | (902,378) |
Total | (1,317,055) | (902,378) |
Movement in Accumulated Deficit | (Rs. in Thousands) | |
Particulars | As at December 31, 2017 | As at December 31, 2016 |
Opening balance as at April 1, 2017 | (953,911) | (692,722) |
Add: Loss for the period | (363,185) | (211,027) |
Add: Other comprehensive loss arising from remeasurement of defined benefit obligation net of income tax | 41 | 1,371 |
Closing balance at the end of period | (1,317,055) | (902,378) |
c). Share application money pending allotment:
Notes: Retained earningsShare application money pending allotment represents the surplus duringshare application money received to the year to be retained in businessextent not refundable and not for appropriation.against which allotment of the preference shares is pending.
Note 21 - Borrowings
| ||
(Rs. in Thousands) | ||
Particulars | As at December 31, 2017 | As at December 31, 2016 |
Non-current | ||
Secured Borrowings at amortised cost: | ||
a) Non-convertible debentures (refer note I) | 2,137,289 | 1,191,117 |
b) Term loans- from banks (refer note II) | 92,313 | 77,250 |
c) Term loans- from financial institutions (refer note III) | 286,621 | 373,838 |
Total | 2,516,223 | 142,205 |
Current | ||
A. Secured borrowings at amortised cost: | ||
a) Term loans- from financial institutions (refer note III) | 300,000 | — |
b) Term loans- from banks (refer note II) | — | — |
c) Optional convertible preference share (refer note IV) | — | 212,663 |
B. Unsecured borrowings | ||
Loans and advances from related parties (refer note V) | 2,969 | 49,565 |
Total | 302,969 | 262,228 |
The detailsCompany has received Rs. 32,000 thousands as share application money from investors. Subsequent to the year-end, the Company has issued 843,883 fully paid-up Compulsorily Convertible Preference Shares (CCPS) of security, repayment termsRs. 10/- each at a premium of Rs. 27.92 per CCPS aggregating to Rs. 32,000 thousands.
d). Reserve for equity instruments through other comprehensive income:
This reserve represents the cumulative gains and interest are as follows:losses arising on the revaluation of equity instruments measured at fair value through other comprehensive income, net of amounts reclassified to accumulated deficit when those assets have been disposed of.
I: Non-convertible debentures
Security
Particulars | As at March 31, 2018 | As at March 31, 2017 |
Accumulated deficit | (1,283,494) | (953,910) |
Total | (1,283,494) | (953,910) |
20.1 | Movement in accumulated deficit |
Particulars | For the year ended March 31, 2018 | For the year ended March 31, 2017 |
Balance as at the beginning of the period | (953,910) | (692,722) |
Add: Loss for the period | (329,749) | (263,016) |
Add: Other comprehensive income arising from remeasurement of defined benefit obligation net of income tax | 165 | 1,828 |
Balance as at the end of the period | (1,283,494) | (953,910) |
20.2 Accumulated deficit represents the surplus. The amount that can be distributed by the Company as dividends to its equity shareholders is determined based on the separate financial statements of the Company. Thus, the amounts reported above are not distributable in entirety.
Smaaash Entertainment Private Limited
Notes to consolidated financial statements for the period ended March 31, 2018
All amounts are in Rs. ’000 unless otherwise stated
21 | Borrowings |
Particulars | As at March 31, 2018 | As at March 31, 2017 |
Non-current | ||
Secured Borrowings at amortized cost: | ||
a) Non-convertible debentures (refer note I) | 1,046,657 | 1,195,828 |
b) Term loans- from banks (refer note II) | 79,160 | 65,950 |
c) Term loans- from financial institutions (refer note III) | 235,163 | 401,134 |
Total | 1,360,980 | 1,662,912 |
Current | ||
A. Secured borrowings at amortized cost: | ||
a) Term loans- from banks (refer note II) | — | — |
b) Term loans- from financial institutions (refer note III) | 200,000 | 100,000 |
c) Optional convertible preference share (refer note IV) | — | 212,663 |
B. Unsecured borrowings | ||
Loans from related parties (refer note V) | 5,535 | 12,420 |
Total | 205,535 | 325,083 |
21.1 | The details of security, repayment terms and interest are as follows: |
I: Non-convertible debentures
(i) Unlisted, secured, redeemable, non-convertible debenture issued to Piramal Enterprises Limited (Piramal):
Security:
a) Pledge of shares of 26.13% held by Promoters in the Company on fully diluted basis.
b) Creation of exclusive charge on all fixed, movable and current assets of the Company.
c) Exclusive charge by way of mortgage on certain immovable properties owned by the promoter / relatives of promoter in favour of debenture trustee.
d) Personal guarantee from Promoters.
Repayment:
Issuer is required to repay to debenture holder 20%, 20% and 60% of investment amount at the end of 3rd, 4th and 5th anniversary from the allotment date August 03, 2016.
Interest:
Minimum IRR of 16% per annum calculated on XIRR basis.
Prepayment:
The Company prepays the entire NCD on August 30, 2017.
(ii) Unlisted, secured, redeemable, non-convertible debenture issued to ECL Finance Limited (ECL):
Security:
1. A-2/5, A-2/6 in building no. A known as “Prithvi Apartments”Prithvi Apartments of Prithvi Apartments Co-op. Hsg. Soc. Ltd.” situated at Altamount Road, Mumbai- 400 026 property owned by Mrs. Kalpana Morakhia
2. Plot No. 10, Lonawala BungalowSurvey No 108 & 109, Village – Kunenama, Taluka – Maval, Dist – Pune 410401, property owned by AHA Holdings Private LimitedLimited.
3. SAM Family Trust to create mortgage over its immovable properties situated at Plot No. 1, Survey No 1088108 & 109, Village – Kunenama, Taluka – Maval, District Pune 410401
4. B-4501, B4601 -at Lodha PremisesBellissimo, Lodha Pavillion, Apollo Mill Compound, Mahalaxmi, Mumbai – 400011 owned by AHA Holding Private Limited
SMAAASH Entertainment Private Limited
Notes to unaudited consolidated interim financial statements
(Amounts in thousands of Indian Rupee (INR), unless otherwise stated)
5. Mr. Sushil Karalkar and Elements Learning Centre Private Limited to create mortgage over its immovable properties situated at Gut No. 219A & 219B at Village Atone, Tal. Sudhagad, Dist. Raigad 6. Harihar para. Gobindapur, baruipur road. Harinabhi. P.s: sonarpur. Dt: 24 pargana (south). Kolkata -700145.Raigad.
6. Pledge 100% shareholding of AHA Holdings Private Limited.
7. Pledge 100%78.40% shareholding of Elements Learning Centre Private Limited.
8. Pledge 100% shareholding of Gir Holiday Resorts Private Limited.
9. Pledge 100% shareholding of Smaaash Leisure Limited (Formerly known as PVR BluO Entertainment Limited).
10. Pledge over equity shares of Smaaash Entertainment Private Limited held by AHA Holdings Private Limited.
Smaaash Entertainment Private Limited
Notes to consolidated financial statements for the period ended March 31, 2018
All amounts are in Rs. ’000 unless otherwise stated
11. Charge on investments held in Kotak India Venture Fund – I, Kotak India Growth Fund – II and Kotak Alternate Opportunities (India) Fund held by AHA Holdings Private Limited
12. Exclusive charge over all fixed, movable & current assets of Smaaash Entertainment Private Limited
13. Charge over warrants of Yoboho New Media Private Limited held by AHA Holdings Private Limited.
14. Mr. Paresh Patel to create mortgage over its immovable properties situated at Survey No – 361, Village Gadhiya, Taluka Dhari, District Amreli, Gujarat.
13.
15. Corporate Guarantee by AHA Holdings Private Limited
14.
16. Personal Guarantee by Mr. Shripal Morakhia & Mrs. Kalpana Morakhia
15.
17. Corporate Guarantee by SMAAASH Entertainment USA Limited
Repayment
18. Corporate Guarantee by Elements Learning Centre Private Limited.
Repayment:
Issuer shallis required to repay to debenture holder 50%, 4%, 13% 15% and 18% of investment amount in F.Y 2019, F.Y. 2020, F.Y. 2021, and F.Y. 2022 and in F.Y. 2023 respectively.
Interest
Interest:
11% p.a. from the date of disbursement to end of 12 months,
12% p.a beginning of 13th month to end of 24 months,
14.75% p.a beginning of 25th month to end of tenure of the facility.
Security
a) Pledge of shares of 26.13% held by Promoters aggregating to 26.13% of the share capital of Smaaash on fully diluted basis.
b) Creation of exclusive charge on all fixed, movable and current assets of Smaaash.
c) Exclusive charge by way of mortgage on certain immovable properties owned by the promoter / relatives of promoter in favour of debenture trustee.
d) Personal guarantee from Promoters.
Repayment
Issuer shall repay to debenture holder 20%, 20% and 60% of investment amount at the end of 3rd, 4th and 5th anniversary from the allotment date August 03, 2016.
Interest
Minimum IRR of 16% per annum calculated on XIRR basis.
II: Term loan from banks