Item 2.01.
|
Completion of Acquisition or Disposition of Assets.
|
On November 9, 2018, I-AM
Capital held a Special Meeting at which its stockholders considered and adopted, among other matters, the Subscription Agreement.
On November 20, 2018, the parties consummated the Transactions.
At the Special Meeting,
holders of 4,448,260 shares of I-AM Capital common stock sold in its initial public offering (“
Public Shares
”)
exercised their right to redeem those shares for cash at a price of $10.2187363 per share, for an aggregate of approximately $45,455,596.
Immediately after giving effect to the Transactions (including as a result of the redemptions described above, the issuance of
2,000,000 shares of common stock to the Smaaash Founders, the issuance of 520,000 shares of common stock upon conversion of the
rights at the Closing and the issuance of 208,000 shares of common stock to Chardan as consideration for services), there were
approximately 5,119,396 shares of common stock and warrants to purchase approximately 5,461,500 shares of common stock issued and
outstanding. Upon the Closing, the Company’s rights ceased to exist, and its common stock and warrants began trading on The
Nasdaq Stock Market (“
Nasdaq
”) under the symbols “SMSH” and “SMSHW,” respectively.
Prior to the Closing,
I-AM Capital was a shell company with no operations, formed as a vehicle to effect a business combination with one or more operating
businesses. After the Closing, the Company’s primary assets consist of shares in Smaaash. The following information is provided
about the business of the Company following the consummation of the Transactions, set forth below under the following captions:
|
●
|
Cautionary Note Regarding Forward-Looking Statements;
|
|
●
|
Management’s Discussion and Analysis of Financial Condition and Results of Operations;
|
|
●
|
Security Ownership of Certain Beneficial Owners and Management;
|
|
●
|
Directors and Executive Officers;
|
|
●
|
Executive Compensation;
|
|
●
|
Certain Relationships and Related Party Transactions;
|
|
●
|
Market Price of and Dividends on the Registrant’s Common Equity and Related Stockholder Matters;
|
|
●
|
Recent Sales of Unregistered Securities;
|
|
●
|
Description of the Company’s Securities;
|
|
●
|
Indemnification of Directors and Officers;
|
|
●
|
Financial Statements and Supplementary Data; and
|
|
●
|
Changes in and Disagreements with Accountants and Financial Disclosure.
|
Cautionary Note Regarding Forward-Looking
Statements
The Company makes forward-looking
statements in this Current Report on Form 8-K, including in the statements incorporated herein by reference. These forward-looking
statements relate to expectations for future financial performance, business strategies or expectations for the Company’s
or Smaaash’s businesses. Specifically, forward-looking statements may include statements relating to:
|
●
|
the benefits of the Transactions;
|
|
●
|
the future financial performance of the Company and Smaaash following the Transactions;
|
|
●
|
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 the Company or Smaaash, as applicable, as of the date of this report, 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 the Company as of any subsequent date, and neither Smaaash nor
the Company 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. 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 outcome of any legal proceedings that may be instituted against Smaaash or the Company;
|
|
●
|
the risk that the Transactions disrupt current plans and operations of Smaaash as a result of the consummation of the Transactions;
|
|
●
|
the ability to recognize the anticipated benefits of the Transactions, which may be affected by, among other things, competition
and the ability of Smaaash to grow and manage growth profitably;
|
|
●
|
costs related to the Transactions;
|
|
●
|
changes in applicable laws or regulations;
|
|
●
|
the possibility that Smaaash or the Company may be adversely affected by other economic, business, and/or competitive factors;
and
|
|
●
|
other risks and uncertainties indicated in the Proxy Statement, including those under “Risk Factors.”
|
Business
The business of Smaaash
is described in the Proxy Statement in the section titled “
Smaaash’s Business
” and that information is
incorporated herein by reference. The business of the Company is described in the Proxy Statement in the section entitled “
Information
About I-AM Capital
”, which is incorporated by reference herein.
Risk Factors
The risks associated with
the Company’s and Smaaash’s business are described in the Proxy Statement in the section titled “
Risk Factors
”
and are incorporated herein by reference.
Properties
The facilities of Smaaash
are described in the Proxy Statement in the section titled “
Smaaash’s Business – Properties
” and
is incorporated herein by reference. The properties of the Company are described in the Proxy Statement in the section titled “
Information
about I-AM Capital- Properties
,” which is incorporated by reference herein.
Management’s Discussion and Analysis
of Financial Condition and Results of Operations
Certain annual and quarterly
financial information regarding the Company was included in the Proxy Statement, in the section titled “
Management’s
Discussion and Analysis of Financial Condition and Results of Operations of I-AM Capital
”, which is incorporated herein
by reference.
Certain annual financial information regarding
Smaaash was included in the Proxy Statement, in the section titled “
Smaaash’s Management’s Discussion
and Analysis of Financial Condition and Results of Operations
”, which is incorporated herein by reference. The disclosure contained in Item 2.02 of this report is also incorporated herein by reference.
Security Ownership of Certain Beneficial
Owners and Management
The following table sets forth information with respect
to the beneficial ownership of the Company as of the Closing held by:
|
●
|
each person known by the Company to be the beneficial owner of more than 5% of its common stock upon the closing of the Transactions;
|
|
●
|
each of the Company’s officers and directors; and
|
|
●
|
all executive officers and directors of the Company as a group upon the closing of the Transactions.
|
Beneficial ownership is determined according to
the rules of the SEC, which generally provide that a person has beneficial ownership of a security if he, she or it possesses sole
or shared voting or investment power over that security, including options and warrants that are currently exercisable or exercisable
within 60 days.
Unless otherwise indicated, the Company believes
that all persons named in the table have sole voting and investment power with respect to all shares of its common stock beneficially
owned by them.
Name of Beneficial Owner
(1)
|
|
|
|
|
Number
|
|
Percent
|
Directors and Executive Officers
|
|
|
|
|
|
|
|
|
F. Jacob Cherian (2)
|
|
|
1,633,150
|
|
|
|
30.4
|
%
|
Suhel Kanuga (2)
|
|
|
1,633,150
|
|
|
|
30.4
|
%
|
Shripal Morakhia (6)
|
|
|
2,000,000
|
|
|
|
39.1
|
%
|
Donald R. Caldwell (3)
|
|
|
—
|
|
|
|
—
|
|
Roman Franklin (3)
|
|
|
—
|
|
|
|
—
|
|
Max Hooper (3)
|
|
|
—
|
|
|
|
—
|
|
Frank Leavy (3)
|
|
|
—
|
|
|
|
—
|
|
Edward Leonard Jaroski (3)
|
|
|
—
|
|
|
|
—
|
|
William H. Herrmann, Jr. (3)
|
|
|
—
|
|
|
|
—
|
|
All directors and officers as a group (9 persons)
|
|
|
3,633,150
|
|
|
|
67.5
|
%
|
Principal Shareholders (more than 5%):
|
|
|
|
|
|
|
|
|
I-AM Capital Partners LLC (2)
|
|
|
1,633,150
|
|
|
|
30.4
|
%
|
The K2 Principal Fund, L.P (4)
|
|
|
1,139,375
|
|
|
|
19.2
|
%
|
Polar Asset Management Partners Inc. (5)
|
|
|
1,150,519
|
|
|
|
20.6
|
%
|
AHA Holdings Private Limited (6)
|
|
|
2,000,000
|
|
|
|
39.1
|
%
|
|
(1)
|
Unless otherwise indicated, the business address of each of the stockholders is 1345 Avenue of the Americas, 11th Floor, New
York, NY 10105.
|
|
(2)
|
Represents shares of common stock held directly by I-AM Capital Partners LLC, the Sponsor of the Company. F. Jacob Cherian
and Suhel Kanuga are managers and members of our 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 the sponsor in which he does not have any pecuniary interest. The number of shares includes 261,500 shares of common stock issuable upon exercise of 261,500 warrants.
|
|
(3)
|
Indirectly have an interest in the founder shares of common stock held directly by the Sponsor due to their partial ownership
of the Sponsor.
|
|
(4)
|
K2 GenPar 2017 Inc., an Ontario
corporation (“
GenPar
”), is the general partner of The K2 Principal
Fund, L.P., an Ontario limited partnership (the “
Fund
”). GenPar
is a direct wholly-owned subsidiary of Shawn Kimel Investments, Inc., an Ontario corporation
(“
SKI
”). K2 & Associates Investment Management Inc., an
Ontario corporation(“
K2 & Associates
”), is a direct 66.5%
owned subsidiary of SKI, and is the investment manager of the Fund. Shawn Kimel is the
chairman of each of SKI, GenPar and K2 & Associates. The principal office of the
stockholder is 2 Bloor St West, Suite 801, Toronto, Ontario, M4W 3E2. The number of shares
of common stock owned by the Fund also includes (i) 66,000 shares of common stock transferred
by the Sponsor to the Fund as additional consideration for the Fund agreeing to potentially
sell shares of common stock of the Company to the Company pursuant to a stock purchase
agreement dated November 5, 2018 by and between the Company and the Fund, (ii) 819,554
shares of common stock of the Company issuable upon exercise of 819,554 warrants.
|
|
(5)
|
Polar Asset Management Partners
Inc. serves as investment advisor to Polar Multi-Strategy Master Fund ("
PMSMF
"),
and certain managed accounts (together with PMSMF, the “
Polar Vehicles
”)
and has sole voting and investment discretion with respect to the securities which are
held by the Polar Vehicles. The principal office of the stockholder is 401 Bay Street,
Suite 1900, PO Box 19, Toronto, Ontario M5H 2Y4, Canada. The number of shares of common
stock owned by Polar also includes (i) 150,000 shares of common stock transferred by
the Sponsor to the Polar as additional consideration for Polar agreeing to potentially
sell shares of common stock of the Company to the Company pursuant to a stock purchase
agreement dated November 2, 2018 by and between the Company and Polar, (ii) 456,600 shares
of common stock of the Company issuable upon exercisable of 456,600 warrants.
|
|
(6)
|
Represents shares of common stock held directly by AHA Holdings Private Limited. 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.
|
Directors and Executive Officers
The Company’s directors
and executive officers after the Closing are described in the Proxy Statement in the section titled “
Management After
the Transaction
” and is incorporated herein by reference.
Executive Compensation
The executive compensation
of the Company’s executive officers and directors is described in the Proxy Statement in the section titled “
Management
After the Transaction – Executive Compensation
” and is incorporated herein by reference.
Certain Relationships and Related Transactions
The certain relationships
and related party transactions of the Company and Smaaash are described in the Proxy Statement in the section titled “
Certain
Relationships and Related Person Transactions
” and are incorporated herein by reference.
Legal Proceedings
Reference is made to the
disclosure regarding legal proceedings in the sections of the Proxy Statement titled “
Smaaash’s Business –
Legal Proceedings
” and “
Information about I-AM Capital – Legal Proceedings
” and is incorporated
herein by reference.
Market Price of and Dividends on the
Registrant’s Common Equity and Related Stockholder Matters
Information
about the market price, number of stockholders and dividends for the Company’s securities is set forth in the Proxy Statement
in the section entitled “
Price Range of Securities and Dividends
,” which is incorporated herein by reference.
On November 23, 2018, the closing sale price of the Company’s common stock and warrants was $5.50 per share and $0.37 per
warrant, respectively. During the period from September 1, 2018 through November 23, 2018, the high and low sales prices for the
Company’s common stock were $11.05 and $5.40, respectively, and the high and low sales prices for the Company’s warrants
were $0.45 and $0.21, respectively.
The Company’s common stock and warrants
began trading on the Nasdaq under the symbols “SMSH” and “SMSHW”, respectively, on November 23,
2018, subject to ongoing review of the Company’s satisfaction of all listing criteria post-business combination. The
Company has not paid any cash dividends on its common stock to date.
Recent Sales of Unregistered Securities
Reference is made to the
disclosure set forth under Item 3.02 of this report concerning the issuance of the Company’s common stock, which is incorporated
herein by reference.
Description of the Company’s Securities
A description of the Company’s
securities is included in the final prospectus, dated August 16, 2017 in the section entitled “
Description of Securities
,”
which description is incorporated herein by reference. Certain disclosure of the Company’s securities is also contained in
the Proxy Statement in the sections titled “
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
” and is incorporated herein by reference.
The
Company has authorized 205,000,000 shares of capital stock, consisting of 200,000,000 shares of Common Stock, $0.0001 par value
per share, and 5,000,000 shares of preferred stock, $0.0001 par value per share.
Upon consummation of the Transactions,
there were 5,119,390 shares of common stock and no preferred stock issued and outstanding and 5,461,500 warrants to purchase an
aggregate of 5,461,500 shares of common stock outstanding. The Company believes there were 8 record holders of common stock and
2 record holder of warrants to purchase common stock immediately after the Closing.
Indemnification of Directors and Officers
The description of the
indemnification arrangements with the Company’s directors and officers is contained in the Proxy Statement in the section
titled “
Information about I-AM Capital – Limitation on Liability and Indemnification of Directors and Officers,
”
which is incorporated herein by reference.
Financial Statements and Supplementary
Data
Reference is made to the
disclosure set forth under Item 9.01 of this report concerning the financial statements and supplementary data of the Company and
Smaaash.
Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure
None.
Item 2.02.
|
Results of Operations and Financial Condition.
|
Certain annual and quarterly
financial information regarding the Company was included in the Proxy Statement, in the section titled “
Management’s
Discussion and Analysis of Financial Condition and Results of Operations of I-AM Capital
”, which is incorporated herein
by reference.
Certain annual financial
information regarding Smaaash was included in the Proxy Statement, in the section titled “
Smaaash’s Management’s
Discussion and Analysis of Financial Condition and Results of Operations
”, which is incorporated herein by reference.
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 report. Smaaash’s
financial statements are prepared in accordance with IFRS. Smaaash’s fiscal year ends on March 31 of each year. The six
month financial statements have been prepared for the period from April 2018 to September 2018. Accordingly, all references are
for the six months ended September 30,2018. 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 40 state-of-the-art games and entertainment centers (the “Centers”) including 39 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:
|
●
|
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.
|
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
”, and Active Games such as
Super Keeper, Hoop Shot and Extreme Drone Racing, among others
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 Smaaash’s Results of Operations
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 administrative and selling processes such
as finance, IT and marketing. Employee costs in fiscal year 2018 and the six months ended September 31, 2018 were Rs.385 million
and Rs.190 million, respectively.
Rental:
Smaaash
is required to pay rent for its premises including its centers and corporate office. Lease expenses in fiscal year 2018 and the
six months ended September 30, 2018 were Rs.267 million and Rs.242 million, respectively. The rent is either on a minimum guarantee
basis or revenue sharing or a combination of the two.
Finance
Costs:
Smaaash
uses debt to finance its operations. Smaaash has a total long-term and short-term borrowings outstanding of Rs.2.876 billion and
Rs. 2.888 billion, as of March 31, 2018 and September 30, 2018, respectively. Finance costs in fiscal year 2018 and the six months
ended September 30, 2018 were Rs.433 million and Rs.192 million, respectively. Smaaash expects that it will continue to use debt
to finance it business and operation.
Raw
Material Costs:
Smaaash’s
cost of raw materials consumed was Rs. 224.83 million and Rs. 127 million for fiscal year 2018 and the six months ended September 30,
2018, respectively.
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:
|
●
|
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.
|
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 7.40% for the fiscal year 2018 and the six months ended September
30, 2018. 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.
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:
|
|
|
|
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
|
|
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 indicated:
|
|
|
(Rs.
in thousands)
|
|
Sr
No.
|
Particulars
|
|
For
the six months ended
September 30, 2018
|
|
|
For
the year ended
March 31, 2018
|
|
|
|
|
|
|
|
|
|
I
|
Revenue
from operations
|
|
|
1,198,063
|
|
|
|
1,746,458
|
|
II
|
Product
sales
|
|
|
129,932
|
|
|
|
378,466
|
|
III
|
Other
income
|
|
|
17,054
|
|
|
|
18,959
|
|
III
|
Total
revenue
|
|
|
1,345,048
|
|
|
|
2,143,883
|
|
IV
|
Expenses
|
|
|
|
|
|
|
|
|
|
Cost
of material consumed
|
|
|
127,019
|
|
|
|
224,832
|
|
|
Purchase
of stock-in-trade
|
|
|
139,728
|
|
|
|
304,952
|
|
|
Change
in inventories of stock-in-trade
|
|
|
(35,598
|
)
|
|
|
(46,132
|
)
|
|
Employee
benefit expense
|
|
|
190,995
|
|
|
|
385,306
|
|
|
Finance
costs
|
|
|
192,679
|
|
|
|
433,186
|
|
|
Depreciation
and amortisation expense
|
|
|
342,843
|
|
|
|
553,553
|
|
|
Pre
Launch expenses
|
|
|
13,202
|
|
|
|
|
|
|
Other
expenses
|
|
|
539,009
|
|
|
|
853,976
|
|
|
Total
expenses
|
|
|
1,509877
|
|
|
|
2,709,668
|
|
|
Loss
from operations (III - IV)
|
|
|
(164,829
|
)
|
|
|
(565,785
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Exceptional
Items
|
|
|
—
|
|
|
|
26,813
|
|
V
|
Loss
before tax (III - IV)
|
|
|
(164,829
|
)
|
|
|
(592,598
|
)
|
VI
|
Tax
expense
|
|
|
|
|
|
|
|
|
|
Current
tax
|
|
|
—
|
|
|
|
(2,091
|
)
|
|
Deferred
tax
|
|
|
—
|
|
|
|
(260,723
|
)
|
|
Total
tax expense
|
|
|
—
|
|
|
|
(262,814
|
)
|
VII
|
Loss
for the period from continuing operations (V - VI)
|
|
|
(164,829
|
)
|
|
|
(329,784
|
)
|
|
|
|
|
|
|
|
|
|
|
VIII
|
Loss
from discontinued operations before tax
|
|
|
|
|
|
|
34
|
|
IX
|
Tax
expense of discontinued operations
|
|
|
—
|
|
|
|
—
|
|
X
|
Loss
from discontinued operations after tax (VIII - IX)
|
|
|
—
|
|
|
|
34
|
|
|
|
|
|
|
|
|
|
|
|
XI
|
Loss
for the period (VII + X)
|
|
|
(164,829
|
)
|
|
|
(329,750
|
)
|
XII
|
Other
comprehensive income
|
|
|
74
|
|
|
|
2,920
|
|
XIII
|
Total
comprehensive income for the period (XI + XII)
|
|
|
(164,755
|
)
|
|
|
(326,830
|
)
|
Revenue
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:
|
|
(Rs.
in thousands)
|
|
Particulars
|
|
For
the six months ended
September 30, 2018
|
|
|
For
the year ended
March 31, 2018
|
|
|
|
|
|
|
|
|
a)
Revenue from rendering of services
|
|
|
|
|
|
|
|
|
-
Gaming
|
|
|
644,910
|
|
|
|
801,526
|
|
-
Food and beverages
|
|
|
311,612
|
|
|
|
477,646
|
|
-
Banquet, corporate events and others
|
|
|
154,119
|
|
|
|
355,228
|
|
-
Sponsorship fees
|
|
|
73,452
|
|
|
|
97,035
|
|
b)
Other operating revenue
|
|
|
|
|
|
|
|
|
-
Professional charges
|
|
|
394
|
|
|
|
3,154
|
|
-
Income from exhibits, merchandise and others
|
|
|
13,575
|
|
|
|
11,870
|
|
c)
Product Sales
|
|
|
129,932
|
|
|
|
378,466
|
|
Total
|
|
|
1,327,994
|
|
|
|
2,124,925
|
|
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, etc. and (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 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 six months ended
September 30, 2018, the revenue from operations is Rs 1.327 billion, an increase of 62% over the fiscal year 2018 numbers as the
numbers includes revenues from inorganic acquisitions by Smaaash of PVR Blu O and assets of SVM centers.
The
Product Sales business has grown to Rs 129 million in six months period ended September 30, 2018 which was Rs.378 million in fiscal
year 2018 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:
|
|
(Rs.
in thousands)
|
|
Particulars
|
|
For
the six months ended
September 30, 2018
|
|
|
For
the year ended
March 31, 2018
|
|
|
|
|
|
|
|
|
a)
Interest income:
|
|
|
|
|
|
|
|
|
-
Bank deposits
|
|
|
1,071
|
|
|
|
2,456
|
|
-
Other financial assets carried at amortised cost
|
|
|
—
|
|
|
|
—
|
|
-
Unwinding of security deposits
|
|
|
7,465
|
|
|
|
9,056
|
|
-
Income tax refund
|
|
|
—
|
|
|
|
—
|
|
b)
Sundry credit balances written back
|
|
|
—
|
|
|
|
12,449
|
|
c)
Net foreign exchange gain/ (loss)
|
|
|
2,275
|
|
|
|
5,056
|
|
d)
Other income:
|
|
|
|
|
|
|
|
|
-
Net gain/(loss) arising on financial assets carried at FVTPL
|
|
|
636
|
|
|
|
1,681
|
|
-
Net gain/(loss) arising on financial liabilities carried at amortised cost
|
|
|
—
|
|
|
|
(9,028
|
)
|
-
Net gain/(loss) arising on financial liabilities carried at FVTPL
|
|
|
—
|
|
|
|
(6,869
|
)
|
-
Miscellaneous income
|
|
|
5,607
|
|
|
|
4,158
|
|
Total
|
|
|
17,054
|
|
|
|
18,959
|
|
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 Costs.
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:
|
|
(Rs.
in thousands)
|
|
Particulars
|
|
For
the six months ended
September 30, 2018
|
|
|
For
the year ended
March 31, 2018
|
|
|
|
|
|
|
|
|
a)
Salaries and wages, including bonus
|
|
|
166,452
|
|
|
|
335,089
|
|
b)
Contribution to provident and other funds
|
|
|
15,996
|
|
|
|
27,616
|
|
c)
Gratuity
|
|
|
2,000
|
|
|
|
2,800
|
|
d)
Staff welfare expenses
|
|
|
6,548
|
|
|
|
19,801
|
|
Total
employee benefit expense
|
|
|
190,995
|
|
|
|
385,306
|
|
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 were Rs. 385 million and Rs.190 million for the
fiscal year 2018 and the six months ended September 30, 2018, respectively. 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.
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:
|
|
(Rs.
in thousands)
|
|
Particulars
|
|
For
the six months ended
September 30, 2018
|
|
|
For
the year ended
March 31, 2018
|
|
|
|
|
|
|
|
|
Stores
and spares consumed
|
|
|
14,246
|
|
|
|
33,885
|
|
Utility
charges
|
|
|
83,600
|
|
|
|
117,285
|
|
Lease
expense
|
|
|
242,167
|
|
|
|
267,467
|
|
Repairs
and maintenance charges
|
|
|
23,740
|
|
|
|
34,977
|
|
Insurance
|
|
|
5,139
|
|
|
|
11,826
|
|
Rates,
taxes and license fee
|
|
|
17,618
|
|
|
|
69,935
|
|
Communication
expenses
|
|
|
8,275
|
|
|
|
14,460
|
|
Travelling
and conveyance expenses
|
|
|
17,166
|
|
|
|
35,725
|
|
Printing
and stationery
|
|
|
2,384
|
|
|
|
4,415
|
|
Branding
expenses
|
|
|
—
|
|
|
|
—
|
|
Advertisement
and business promotion
|
|
|
40,474
|
|
|
|
80,021
|
|
Legal
and other professional costs
|
|
|
33,316
|
|
|
|
76,457
|
|
Fund
raising and related costs
|
|
|
—
|
|
|
|
—
|
|
Recruitment
charges
|
|
|
2,814
|
|
|
|
2,326
|
|
House
keeping charges
|
|
|
14,044
|
|
|
|
26,974
|
|
Hire
charges
|
|
|
493
|
|
|
|
1,004
|
|
Labour
and other related expenses
|
|
|
1,129
|
|
|
|
3,905
|
|
Security
charges
|
|
|
4,505
|
|
|
|
13,813
|
|
Payment
to auditors
|
|
|
4,913
|
|
|
|
4,707
|
|
Bank
charges and credit card commission
|
|
|
—
|
|
|
|
—
|
|
Bad
debts
|
|
|
—
|
|
|
|
—
|
|
Advances
written off
|
|
|
284
|
|
|
|
—
|
|
Provision
for doubtful debts
|
|
|
—
|
|
|
|
1,551
|
|
Donation
|
|
|
500
|
|
|
|
44
|
|
Loss
on property, plant and equipment sold/ written off
|
|
|
2,430
|
|
|
|
455
|
|
Miscellaneous
expenses
|
|
|
19,774
|
|
|
|
15,752
|
|
Pre-launch
expenses
|
|
|
|
|
|
|
|
|
Total
|
|
|
539,009
|
|
|
|
816,976
|
|
Smaaash’s
other expenses were Rs. 816 million in fiscal year 2018 and Rs. 539 million in the six months ended September 30, 2018. 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 33 million for the fiscal
year 2018 compared to Rs 76 million for the six months ended September 30, 2018 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:
|
|
(Rs.
in thousands)
|
|
Particulars
|
|
For
the six months ended
30th September, 2018
|
|
|
For
the year ended
31st March, 2018
|
|
|
|
|
|
|
|
|
a)
Interest costs:
|
|
|
|
|
|
|
|
|
-
on loans from banks
|
|
|
11,507
|
|
|
|
15,861
|
|
-
on loans from financial institutions
|
|
|
51,451
|
|
|
|
98,804
|
|
-
on debentures
|
|
|
122,975
|
|
|
|
305,740
|
|
-
other interest expenses
|
|
|
349
|
|
|
|
642
|
|
b)
Processing fees and related costs
|
|
|
6,397
|
|
|
|
12,137
|
|
Total
|
|
|
192,679
|
|
|
|
433,186
|
|
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, 2018
was Rs. 2.876 billion and as at six months ended September 30, 2018 was Rs 2.870 billion . 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
for the fiscal year2018 and the six months ended September 30, 2018 was Rs. 553 million and Rs.343 million, respectively. 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 year 2018 and six months ended September 30,2018 (in Rs. Thousands):
|
|
Six
months ended
September 30, 2018
|
|
|
Fiscal
Year
March 2018
|
|
Net
Cash From/(Used in) Operating Activities
|
|
|
541,506
|
|
|
|
(143,077
|
)
|
Net
Cash From/(Used in) Investing Activities
|
|
|
(807,938
|
)
|
|
|
(2,151,435
|
)
|
Net
Cash Provided By/(Used in) Financing Activities
|
|
|
194,724
|
|
|
|
2,280,823
|
|
Net
Increase in/(Decrease in) Cash And Cash Equivalents
|
|
|
48,131
|
|
|
|
119,840
|
|
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 2017 to fiscal year 2018 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.
Investing
Activities
Net
cash from investing activities consisted primarily of payments for property, plant and equipment
.
Payments
for purchase of fixed assets were Rs 2182 million for the fiscal year 2018 as compared to Rs 826 million in the six months ended
September 30, 2018.
Financing
Activities
Net
cash from financing activities constitutes mainly of proceeds and repayment of borrowings and issue of share capital. The proceeds from borrowing in the fiscal year 2018 was Rs 3.011 billion and 312 million in the six months ended September
30, 2018. Smaaash repaid Rs. 2.136 billion in fiscal year 2018 and Rs. 179.28 million in the six months ended September 30,
2018.
Borrowings
The
total borrowings as at March 31, 2018 was Rs. 2.876 billion compared to Rs. 2.888 billion as at September 30, 2018.
The
following table summarizes Smaaash’s secured and unsecured long-term indebtedness as of September 30, 2018:
Particulars
|
Secured /
Unsecured
|
Outstanding
indebtedness
as of September 30, 2018
(Rs. Million)
|
|
Interest
Rate
%*
|
|
NCD-
ECL Finance
|
Secured
|
2,148.89
|
|
14.75
|
%
|
SIDBI
|
Secured
|
172.99
|
|
13.95
|
%
|
Tata
Capital
|
Secured
|
151.40
|
|
12.25
|
%
|
YES
Bank
|
Secured
|
403.47
|
|
11.00
|
%
|
AHA
Holdings
|
Unsecured
|
11.70
|
|
Interest
Free
|
|
Total
|
|
2,888.46
|
|
|
|
A.
Details of Secured Borrowings of Smaaash
Set
forth below is a summary of Smaaash’s secured borrowings as on six months ended September 30, 2018 (unless otherwise stated)
Lender
|
Amount
Outstanding
as of September
30, 2018 (Rs
million)
|
Repayment
/ Tenor
|
Security
|
NCD-
ECL Finance
|
2,148.89
|
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
|
172.99
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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.
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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 ‘senior secured lenders’ Guarantee
Irrevocable and unconditional guarantee of Shripal Morakhia and Ms Ami Zaveri. The guarantee shall be joint and several.
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Loan
shall be repaid in 72 monthly instalments after a moratorium of 24 month commencing from April 10, 2018.
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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.
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Tata
Capital
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151.40
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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.
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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.
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Yes
Bank
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403.47
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Quarterly
installment of Rs 13.5 million starting from June 29,2018
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Personal
guarantee of Mr.Shripal Morakhia (Director) and Sponsorship receivable. - Personal guarantee of Mr.Shripal Morakhia (Director).
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Exclusive charge on current assets and movable fixed assets(Excluding Vehicle) of the company, both present & future.
-Exclusive
charge on following 3rd party properties located in Kolkata with minimum value of INR 360 MN.
1.Land
& Structure measuring 8 Acres located in District South 24, Parganas, Kolkata.
2.Land
measuring 35 Acres located in Matla,District South 24, Parganas, Kolkata.
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B.
Details of Unsecured Borrowings of Smaaash
Set
forth below is a summary of Smaaash’s secured borrowings as of September 30, 2018 (unless otherwise stated)
Lender
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Amount
outstanding as of
September 30, 2018
(Rs. million)
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Repayment/Tenor
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Security
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AHA
Holdings Private Limited
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11.7
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Payable
on demand
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Nil
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